THE SUPREME COURT OF APPEAL
OF SOUTH AFRICA
CASE NUMBER: 60/98
In the matter between:
TELECALL (PTY) LTD
APPELLANT
and
JOHN LOGAN
RESPONDENT
CORAM:
F H GROSSKOPF, SCOTT, PLEWMAN
JJA, MELUNSKY and MTHIYANE AJJA
DATE OF HEARING:
25 FEBRUARY 2000
DATE OF JUDGMENT:
23 MARCH 2000
JUDGMENT
Pension fund - Arbitration - Necessity for formulated dispute -
Interpretation of fund rules.

PLEWMAN JA
[1] The sole issue in this appeal is whether the respondent, a former
employee of appellant and a member of its pension fund,  is entitled to
have a complaint relating to a decision by appellant as employer made
in terms of the fund rules referred to arbitration.  The court a quo held
that he was so entitled and in consequence granted an application for
the appointment of an arbitrator in terms of s 12(2) of the Arbitration
Act 42 of 1965 (the Act).  Appellant, with leave of the court a quo,
appeals against the order appointing the arbitrator.  I am of the view
that respondent was not entitled to such an order.
[2] A brief account of the facts is called for.  Respondent was a
founder member of appellant company and in combination with
another person effectively controlled it until  4 January 1994 when all
the shares in appellant were acquired by a company Autopage

Holdings Limited.  Control, of course, changed.  Respondent was at
the time both a director and an employee of appellant.  He was also a
member of appellant’s pension fund.  He was the seller of a significant
proportion of the shares acquired by Autopage.  On 31 January 1994
the respondent retired as an employee and on 28 February 1994
resigned as a director.  He duly claimed a pension in terms of the
pension fund rules.  The rules provide two bases for the computation
of an employee’s pension.  One basis is referred to as a standard or
“formula” pension and the other an additional or “equi-pension” - the
latter being the more generous.  Respondent was in consequence of a
decision by appellant, as the employer (as now controlled), granted the
(lower) formula pension.  That is his real complaint.
[3] What should also be recounted is that the present proceedings
were only launched after an unsuccessful action in which respondent

sought to establish that appellant had indeed decided to award him the
higher pension.  Respondent has apparently accepted this defeat but
now seeks to pursue his complaint on a different ground.
[4] The retirement benefits to which a retiring employee is entitled
are governed by Rule 10.  Rule 10.3 provides that if “the balance in a
retiring member’s individual account is greater than the amount
required to purchase his pension” (as was the case) the employee
became entitled to either the formula pension or the equi-pension.  The
decision as to which was to be paid is, in terms of the rule, a matter for
the employer.  The rule reads:
“10.3 Balance in Individual Account more than cost of
pension.
Should the balance in the Member’s Individual
Account be greater than the amount required to
purchase his pension, either Rule 10.3.1 or 10.3.2
will apply, as shall be decided by the Employer:
10.3.1
The remainder in the Member’s

Individual
Account
shall
be
apportioned on an equitable basis, as
determined by the Valuator, amongst
the remaining Individual Accounts;
or
10.3.2
The Member shall receive an
additional pension that can be
purchased by the remainder in his
Individual Account.”
[5] It is common cause in these proceedings that appellant decided
that rule 10.3.1 was to be applied.  In the founding papers respondent
asserted that he was aggrieved by this decision “for reasons ... which
need not detain the court”.  He also stated that he was “desirous that
the matter be referred to arbitration in terms of rule 3.6" and that he
would “in such arbitration furnish detailed reasons for (his) being
aggrieved at the decision ...”.  No factual averments as to why the
appellant’s decision is assailable in an arbitration are made in the
founding papers.

[6] Rule 3 lays down how, and by whom the fund is to be
administered.  Rule 3.6 is merely one of the sub-rules of this rule.  Rule
3.6 reads:
“3.6
Interpretation of Rules
In all matters relating to the interpretation of these
Rules and/or the administration of the Fund the
decision of the Employer shall be final and binding
on the Principal Officer and the members,
provided that such ruling is not contrary to these
Rules.
If any party concerned is aggrieved at the decision
of the Employer the aggrieved party may refer the
matter for arbitration in terms of and in the manner
set out in the Arbitration Act No 42 of 1965.”
It will be convenient to distinguish between the first sentence or part of
the rule and the second.  I will identify these two parts simply as the
first and second part respectively.  Counsel for the respondent based
his argument on the second part of the rule.

[7] Appellant’s argument (at least its main argument) was simply
that no dispute is formulated in the founding papers and that in those
circumstances no arbitration proceedings could be entered upon.
Respondent’s counsel contended that the “width” of rule 3.6 allowed
a reference to arbitration provided that a party is “aggrieved” without
any further formulation of the dispute which existed (so it was argued)
and that the rule, in its terms, applies to a decision such as that made
by appellant.
[8] It may well be that in given circumstances appellant’s main
ground could dispose of a reference.  In this case, however, a more
extensive review of the facts is called for.  Crucial to the appeal is the
need to interpret rule 3.6.  As a starting point one must have regard to
the relief which respondent sought (the appointment of an arbitrator)
and then attempt to ascertain whether such a remedy is provided for

or can be entertained in terms of the rule.
[9] Respondent (in express terms) seeks to invoke the provisions
of s 12 of the Act.  Section 12(1)(a) (so far as is relevant) provides:
“Where -
(a) in terms of an arbitration agreement ... the reference
shall be to a single arbitrator and all the parties to the
reference do not, after a dispute has arisen, agree in the
appointment of an arbitrator;
(b) ......”
[10] For a matter to be referred to arbitration the dispute must be one
falling within the meaning of that word when used in the Act.  In terms
of the Act “arbitration proceedings” means “proceedings ... for the
settlement by arbitration of a dispute which has been referred to
arbitration in terms of an arbitration agreement”.  “Arbitration
agreement” means “a written agreement providing for the reference to
arbitration of any existing dispute or any future dispute relating to a

matter specified in the agreement ...”.
[11] In Words and Phrases Legally Defined 2  Ed arbitration is
nd
defined as “... a reference of a dispute or difference between not less
than two parties for determination, after hearing both sides in a judicial
manner, by a person ... other than a court of competent jurisdiction”.
In a note relating to the usage of the word arbitration in New Zealand
it is said “It is essential, in order to constitute a ‘reference’ or
‘submission’ to arbitration that there appear in the instrument either
expressly or by necessary implication, the intention of the parties that
there shall be an inquiry in the nature of a judicial enquiry, and that their
respective cases shall be heard and a decision arrived at upon the
evidence adduced by the parties”.  This would seem also to be the
accepted South African usage.  In Parekh v Shah Jehan Cinemas
(Pty) Ltd and Others 1980 (1) SA 302 at p 304 E-G Didcott J said:

“Arbitration is a method for resolving disputes.  That
alone is its object, and its justification.  A disputed claim
is sent to arbitration so that the dispute which it involves
may be determined.  No purpose can be served, on the
other hand, by arbitration on an undisputed claim.  There
is then nothing for the arbitrator to decide.  He is not
needed, for instance, for a judgment by consent or
default.  All this is so obvious that it does not surprise
one to find authority for the proposition that a dispute
must exist before any question of arbitration can arise.  It
includes Re Carus-Wilson and Greene (1887) 18 QBD
7 (CA); London and Lancashire Fire Assurance Co v
Imperial Cold Storage and Supply Co Ltd (1905) 15
CTR 673; King v Harris 1909 TS 292.”
See also Mustill and Boyd Commercial Arbitration 2  Ed (1989) p
nd
46.  In short a dispute for the purposes of the Act is one in relation to
which opposing contentions are or can be advanced.
[12] I conclude that before there can be a reference to arbitration a
dispute, which is capable of proper formulation at the time when an
arbitrator is to be appointed, must exist and there can not be an

arbitration and therefore no appointment of an arbitrator can be made
in the absence of such a dispute.  It also follows that some care must
be exercised in one’s use of the word “dispute”.  If, for example, the
word is used in a context which shows or indicates that what is
intended is merely an expression of dissatisfaction not founded upon
competing contentions no arbitration can be entered upon.
[13] If one attempts to allocate to the second part of rule 3.6 a
separate and independent purpose (as respondent’s argument would
require) one is still faced with the difficulty posed by rule 10.3.  The
question would be what meaning is to be given to the words “as shall
be decided by the employer”.
[14] The real problem is that the rules as a whole and particularly
rule 3 have been poorly drafted.  Rule 3.6 is certainly difficult to
understand.  Its construction should, in my view, be approached as

follows.  It should be borne in mind, that the rules (as a whole) are
rules of a fund which is registered under the Pensions Act of 1956 and
which is a body corporate and a legal persona distinct from its
members (and necessarily also distinct from appellant).  Its operation
is controlled by the Pensions Act and regulations made thereunder.
Other than as may be provided in its rules, it is not subject to
appellant’s control in any respect.  The most significant feature of the
rules (for present purposes) is the fact that provision is made therein
for the appointment of a principal officer who is obliged to perform
specific duties set out in rule 3.  One such duty is to ensure that the
fund is properly registered and that its structure is approved of by the
Commissioner of Inland Revenue.  It is also clear that it is through the
principal officer that the fund acts and he is charged (in terms of rule
3.3.8) with the general administration of the fund and the management

of its business.  The fund’s  business is, obviously, the  payment of
pensions to its members - though the actual payment is made by an
insurance company contracted to the fund.    The employer is obliged
in terms of rule 3 to employ a person as principal officer.  It must also,
of course, make monthly contributions to the fund in respect of each
employee but no administrative duties are allotted to the employer.
[15] With that background I return to the question as to what
meaning is to be given to the words in rule 10.3.  It is a phrase which,
so far as I have been able to determine, is used only in one other sub-
rule.  That is rule 5.2 which covers the employer’s right to dissolve the
fund and empowers the employer to decide whether the winding-up
procedures provided for in rules 5.1.1 or those found in 5.1.1.3 are to
be followed.  (It is unnecessary to examine these in greater detail.)  It
is clear that the employer is required, in this context, to make an

election.  There are in fact a number of other rules which involve the
employer’s consent or determination such as rules 5.1.14, 5.1.3, 9.21
and 10.5.3 but they do not, of themselves, resolve the question which
arises in relation to rule 3.6 in this case.
[16] Counsel were ad idem that rule 10.3 confers a discretion on
appellant, in relation to pension payments payable to any particular
member, to direct that either rule 10.3.1 or 10.3.2 be followed.  That
being common ground the only question which remains is whether or
not that is an unfettered discretion or one subject to restraints or
limitations.  Here counsel were at odds.
[17] The court a quo held that the rule conferred a discretion on
appellant but stated that that discretion was not “entirely free”.  With
respect to the learned judge it is extremely difficult to appreciate just
what that phrase means or on what it is based.  The rules specify no

restraints on the employer’s choice.  There are also no circumstances
to imply any limitations to appellant’s discretion and there is certainly
no material before the Court which would, in any event, enable it to
formulate a set of restraints.  Nor, if one has regard to the structure of
the fund, have any circumstances been suggested for supposing that
the choice of either one or the other payment would enure to the
benefit of the appellant itself.   I am of the view, on a consideration of
all the circumstances to which I have referred, that the discretion is, as
the words themselves suggest, an unfettered discretion in the nature of
an election.
[18] What the wording of 10.3 shows is that the second part of rule
3.6 cannot be read as respondent’s counsel would have it.  It would,
in any event, seem more logical to read the sub-rule as a whole.  When
so reading the rule the first part can be construed as referring to

disputes between the principal officer and members in relation to which
the employer (as arbiter) makes a ruling while the second part would
then refer back to a decision made under the first part.  This
construction would also be consistent with the use of the definite
article “the” before the word “decision”.  If the second part was
intended to be of general application one would have expected a word
such as “any” to be used.  In effect the rule so read provides for an
independent arbitration as between the principal officer and the
member in which the employer’s decision is reconsidered.  Any other
reading of the second part would imply that what is the exercise of an
unfettered discretion is to be over-ridden.  This would be analogous
to the situation discussed in Kruger v The Master and Another NO,
Ex Parte Kruger 1982 (1) SA 754 (W) (at p 759C) and in this Court
in Shenker v The Master and Another 1936 AD 136 (at p 146/7).  A

further consequence of a suggestion that a decision made under rule
10.3 was arbitrable between the employer and a member would be that
an arbitration relating to the administration of the fund would proceed
not with the party vested by the rules with the administration of the
fund but with a person who has an unfettered power to deal with a
particular issue.  If one accepts that the employer’s discretion is
unfettered what would there be for the arbitrator to decide?
[19] I am satisfied that underlying the respondent’s application is a
misunderstanding of rule 3.6.  What is clear is that a decision in terms
of rule 10.3 is not an arbitrable decision in an arbitration as envisaged
by the Arbitration Act.  This conclusion renders it unnecessary to
consider whether or not there is a “formulated dispute” in the strict
sense.  That question is secondary and follows naturally from a
determination of what the nature of the decision in terms of rule 10.3

is.
[20] In my view the court a quo erred in holding that the appellant’s
discretion was not “entirely free”.  (It should be observed that fraud or
male fides has not been alleged or even suggested.)  It follows that no
arbitrator should have been appointed.
[21] The appeal then succeeds with costs.  The order of the court a
quo is set aside and there is substituted therefor an order that the
application is dismissed with costs.
C PLEWMAN JA
CONCUR:
GROSSKOPF JA)
SCOTT JA)
MELUNSKY AJA)
MTHIYANE AJA)