Cool Ideas 1186 CC v Hubbard

When would enforcing arbitration clauses in agreements concluded by contracting partes be regarded as unfair or even unlawful?

“[167] It is thus reasonable to interpret the provisions of the Housing Protection Act in a manner that is fair, does not deprive Cool Ideas of its property and does not necessitate the enhancement of the power of courts to interfere in private arbitration awards.

Will this construction be detrimental to Ms Hubbard?

That question has already been answered. It will not, because she has enjoyed all the substantive protections under the Act.”

Essence

Significant minority would have allowed appeal enforcing arbitration clauses because no real prejudice to consumer.

Decision

(CCT 99/13) [2014] ZACC 16; 2014 (4) SA 474 (CC); 2014 (8) BCLR 869 (CC) (5 June 2014)

Order:

Minority judgment would have allowed appeal with costs.

Judges

Coram: Moseneke ACJ, Skweyiya ADCJ, Cameron J, Dambuza AJ, Froneman J, Jafta J, Khampepe J, Madlanga J, Majiedt AJ, Van der Westhuizen J and Zondo J

Heard      : 5 February 2014
Delivered:         5 June 2014

Related books

Darcy du Toit et al:  

Van Niekerk and Smit (Managing editors) et al: Law@Work 5ed (LexisNexis 2019) at

Myburgh and Bosch:  Reviews in the Labour Courts 1ed (LexisNexis 2016) at

Rochelle le Roux: Retrenchment Law in South Africa: 1ed (LexisNexis 2016) at

Cheadle et al:  Strikes and the Law 1ed (LexisNexis 2017) at

Garbers:  The New Essential Labour Law Handbook 7ed (MACE 2019) at

Collier et al: Labour Law in South Africa: Context and Principles 1ed 5th imp 631 pages (OUP 2021) at

CG van der Merwe : Sectional Titles, Share Blocks and Time-sharing (LexisNexis regular service issues 2023) at

Reasons

“[144] Material and relevant factors in this regard include that: the parties chose private arbitration instead of civil proceedings; Ms Hubbard initiated arbitration proceedings; the building was done by Velvori, which was registered from the start as a builder; the arbitration process was fair and not challenged as making wrong or unfair findings; the amount ordered by the arbitration award, payable to Cool Ideas, mainly related to compensation for additional personal choice items ordered by Ms Hubbard which were not included in the original contract price; Cool Ideas acted in good faith at all times by enquiring whether it should register; it did register before judgment when told it was necessary; and last, but not least, Ms Hubbard, not Cool Ideas, is the recalcitrant debtor.”

Quotations from judgment

Note: Footnotes omitted, emphasis added and certain personal details redacted to comply with law.

FRONEMAN J (Cameron J, Dambuza AJ and Van der Westhuizen J concurring):

Introduction

[121] I have had the privilege of reading the judgments of my Colleagues Majiedt AJ (main judgment) and Jafta J (concurring judgment). I cannot agree with their conclusion that the appeal must be dismissed. I would allow the appeal.

[122] My central difference with the main judgment lies in the constitutional issue that needs to be determined. The main judgment reaches the constitutional aspect relating to the enforcement of private arbitration awards by courts only towards the end, and then only in the narrow form of whether a refusal to make the arbitral award an order of court violates section 34 of the Constitution. It also finds equity considerations not to be applicable.

[123] In Lufuno Mphaphuli, this Court held that section 34 does not apply directly to private arbitrations. I thus agree with the main judgment that the applicant’s right of access to courts has not been infringed.

[124] But that is not all that Lufuno Mphaphuli decided. It also dealt with the relevance of the Constitution to the terms and enforcement of arbitration agreements. It held that in determining whether a provision of an arbitration agreement is contrary to public policy the spirit, purport and objects of the Bill of Rights will be of importance, and it emphasised the importance of fairness in the arbitration process.

Importantly too, Lufuno Mphaphuli dealt with the relevance of the Constitution to the judicial scrutiny of arbitration awards.

It held that

“the values of our Constitution will not necessarily best be served by interpreting section 33 [of the Arbitration Act] in a manner that enhances the power of courts to set aside private arbitration awards”.

[125] When parties enter into private arbitration agreements they make value choices about how they want to exercise their rights under the Constitution and the extent of interference or control they wish courts to have over the private process. These choices are material and relevant in determining what public policy in the enforcement of a particular private arbitration award should be. The Arbitration Act also recognises these choices and accepts their legitimacy in seeking to give effect to arbitration awards.

[126] Public policy in the interpretation, application and enforcement of contracts embraces issues of fairness.

Fairness “is one of the core values of our constitutional order”. When the enforcement of arbitration awards on the basis of public policy is at stake, fairness lies at the heart of the enquiry, not at its periphery.

[127] The primary issue at stake is whether a private arbitration award may be enforced contrary to a statutory provision. The main judgment says, No, not in this case, and fairness plays little or no role in determining whether it may. I disagree.

Lufuno Mphaphuli tells us that public policy in accordance with the spirit, purport and objects of the Bill of Rights, fairness in the arbitration process, and the personal choices of the parties play a material and relevant part in determining the issue.

When due weight is given to these considerations, nothing stands in the way of enforcement of the award here, even on an acceptance of the correctness of the main judgment’s interpretation of the Housing Consumers Protection Measures Act (Housing Protection Act or the Act).

[128] I am in any event not convinced that this interpretation is correct.

The inevitable result of the reasoning of the main judgment is that Cool Ideas will be deprived of its right to payment for work fairly and properly done. That will amount to deprivation of property under section 25 of the Constitution. The provisions of the Housing Protection Act should be interpreted in a manner that avoids that result. It can properly and reasonably be interpreted in that way.

[129] The concurring judgment of Jafta J avoids engagement with the central issue of enforcement of a private arbitration award in the face of a statutory provision by finding that the building contract, which includes the arbitration clause, is invalid and can, for that reason, not be enforced at all. This nevertheless has the effect that a court can never enforce an arbitral award if that would be contrary to a statutory provision.

For the reasons already summarised, I do not agree. In addition, this was not the basis upon which the parties approached the Court. Had this approach been raised, the question of severability of the arbitration clause from the rest of the building contract would have been at the forefront of the enquiry.

To the extent, however, that the concurring judgment finds that to hold the building contact valid but enforceable only at the instance of the consumer would result in an injustice and unequal treatment of the parties, I agree. Our disagreement is in what must be done to avoid that injustice and unequal treatment. I consider the injustice and unequal treatment to be a compelling reason for enforcing the arbitration award.

[130] In the first part of the reasoning that follows I accept, as a starting point, the correctness of the interpretation of the Housing Protection Act in the main judgment.

The next step in determining whether enforcement will be against public policy, is to weigh that interpretation against the parties’ choice of private arbitration and the fairness to them individually in its effect.

Viewed from this perspective public policy is not undermined by the enforcement of the arbitration award. For convenience I refer to this part as the arbitration approach.

[131] In the second part I assess whether section 10(1)(b) of the Housing Protection Act should not, in any event, be interpreted in a manner that is less restrictive of Cool Ideas’ right to property.

That can, I hope to demonstrate, properly and reasonably be done. I will refer to this part as the interpretation approach.

[132] Would the outcome, on either perspective, deprive Ms Hubbard of any of the protections that she should enjoy under the Housing Protection Act? The answer is No.

[133] It is time to substantiate these assertions. I will do so in the following order. First some brief reference to the facts needs to be made in order to give proper context to the question of fairness between the parties and the potential prejudice to Ms Hubbard if the arbitration award is enforced. I will then move to the discussion of the arbitration approach and the interpretation approach before concluding.

Fairness or prejudice to Ms Hubbard?

[134] When building started on Ms Hubbard’s home it was being done by a registered builder, Velvori. The only reason why Cool Ideas did not itself register earlier was because it understood from a letter by the National Home Builders Registration Council (Council) that it was not necessary to do so.

Ms Hubbard herself invoked the arbitration clause in the building contract and thereby triggered the arbitration proceedings. She did so in order to claim money back from Cool Ideas. Instead, the arbitrator found that she actually owed Cool Ideas more money. The award of the arbitrator amounted to an award for Cool Ideas to be reimbursed for the balance of the contract price, for items it had bought for Ms Hubbard.

She does not allege that the arbitration process was unfair, nor does she allege that the actual findings of the arbitrator in relation to the building disputes were unfair or wrong. When she learnt that Cool Ideas had not registered as a home builder, she sought to avoid payment of what she owed. Registration occurred before judgment was granted in the High Court.

What Ms Hubbard sought in those proceedings was not the Act’s protection to attain proper building or correction of building works by Cool Ideas, but to escape payment of what she had been fairly found to owe to Cool Ideas.

The arbitration approach

[135] Lufuno Mphaphuli was the first and, until now, the only case where this Court has dealt with the Constitution’s applicability to private arbitrations.

The judgment expressly endorsed “the value of arbitration as a speedy and cost-effective process”.

It saw its task as follows:

“The Court has had to consider the relationship between private arbitration and the Constitution, the proper scope of section 34 of the Constitution and the approach to the interpretation of section 33(1) of the Arbitration Act in the light of the Constitution. All these are constitutional matters of substance falling within the jurisdiction of this Court and which, given the need to provide guidance in this regard, it is in the interests of justice for this Court to entertain.

The application of these principles to the facts of this case, even if arguably not concerning a constitutional issue itself, concerns a matter connected to a decision on a constitutional issue which it is in the interests of justice to decide.”

[136] The Court further enumerated the virtues of private arbitration in its flexibility, cost-effectiveness, privacy and speed.

In determining the proper constitutional approach to the arbitration process, the Court bore in mind that litigation before ordinary courts “can be a rigid, costly and time-consuming process”.

This led it to conclude that “it is not inconsistent with our constitutional values to permit parties to seek a quicker and cheaper mechanism for the resolution of disputes.” It also found, generally, that “courts should be careful not to undermine the achievement of the goals of private arbitration by enlarging their powers of scrutiny imprudently.”

[137] In this judgment, I accept the logical and necessary corollary of the approach in Lufuno Mphaphuli.

I hold that where parties choose private arbitration as the means of resolving disputes between them, courts should respect and encourage that choice.

In practical terms, here, that means that the Court should, for powerful reasons of fairness, license and enforce the outcome of Ms Hubbard’s private arbitration with Cool Ideas.

[138] In Lufuno Mphaphuli the Court viewed its discussion and application of the principles regulating the interaction between the Constitution and private arbitration awards as properly within its jurisdictional remit.

Due regard must be given to the precedential force of the decision. It is for this reason that I disagree with the finding in the main judgment that the issues in Lufuno Mphaphuli have little bearing on the central issue in this case and that it is distinguishable on the facts and the law.

[139] Lufuno Mphaphuli laid down the following principles about the applicability of the Constitution to private arbitration awards:

(a) Section 34 of the Constitution does not apply directly to private arbitrations, primarily because they do not require public hearings.
(b) Indirect application of section 34 was not finally considered but it was stated that “mindful of the role courts have in giving effect to arbitration agreements . . . section 34 may have some relevance to the interpretation of legislation or the development of the common law.”
(c) Arbitration agreements that contain provisions that are contrary to public policy in the light of the values of the Constitution will be null and void to that extent. In determining whether a provision is contra bonos mores, the spirit, purport and objects of the Bill of Rights will be of importance.
(d) In interpreting an arbitration agreement it should ordinarily be accepted that when parties submit to arbitration, they submit to a process they intend to be fair. The arbitration agreement “should thus be interpreted, unless its terms expressly suggest otherwise, on the basis that the parties intended the arbitration proceedings to be conducted fairly. Indeed, it may well be that an arbitration agreement that provides expressly for a procedure that is unfair will be contra bonos mores.”
(e) Insofar as the interpretation of section 33(1) of the Arbitration Act, which permits an arbitration award to be set aside, is concerned—

“the values of our Constitution will not necessarily best be served by interpreting section 33(1) in a manner that enhances the power of courts to set aside private arbitration awards. Indeed, the contrary seems to be the case. The international and comparative law considered in this judgment suggests that courts should be careful not to undermine the achievement of the goals of private arbitration by enlarging their powers of scrutiny imprudently. Section 33(1) provides three grounds for setting aside an arbitration award: misconduct by an arbitrator; gross irregularity in the conduct of the proceedings; and the fact that an award has been improperly obtained. In my view . . . the Constitution would require a court to construe these grounds reasonably strictly in relation to private arbitration.”

[140] The majority judgment of the Supreme Court of Appeal and the main judgment proceed from the basis that the building contract and the arbitration agreement between the parties are valid, but that Cool Ideas may nevertheless not claim or enforce payment for any work done, be it in any ordinary court or by way of arbitration. That result is, on any standard, prejudicial and unfair to Cool Ideas.

[141] From Lufuno Mphaphuli we know that the determination of public policy in deciding whether an arbitration award should be enforced should be done in accordance with the spirit, purport and objects of the Bill of Rights. We also know that it requires courts to ensure fairness in the arbitration process, and that the personal choices of the parties in opting for arbitration must be given proper regard.

[142] The loss of the right to claim performance under the contract amounts, in terms of this Court’s decision in Opperman, to the deprivation of property under section 25 of the Constitution.

If the building contract was held to be invalid, Cool Ideas may, in terms of the common law, have an enrichment claim: the condictio ob turpem vel iniustam causam (enrichment arising from a transfer made for an illegal or immoral purpose).

By clothing the contract with validity, this result is avoided, but at some cost.

Even if one accepts, as the main judgment does, that the deprivation is not arbitrary in terms of statutory and constitutional interpretation, it does not mean that this consideration automatically determines the issue as far as the enforcement of the arbitration award is concerned.

The choice of arbitration as a dispute-resolution mechanism indicates the contrary, namely that the parties elected to protect their respective rights to property under the Constitution through that process.

If one determines public policy in accordance with the spirit, purport and objects of the Bill of Rights then the potential deprivation of Cool Ideas’ property must count as a reason for not finding the enforcement of the award to be contrary to public policy, rather than the opposite.

[143] On the premise that fairness plays no role in determining public policy when deciding whether private arbitration awards should be enforced by courts, both the majority judgment in the Supreme Court of Appeal and the main judgment fail to give further consideration to other factors that may be material and relevant when stricter control of private arbitration awards is envisaged.

To reiterate: public policy in the interpretation, application and enforcement of contracts generally invokes the notion of fairness. The fairness of the terms of an arbitration agreement is an important factor in considering their enforcement.

[144] Material and relevant factors in this regard include that:

    • the parties chose private arbitration instead of civil proceedings;
    • Ms Hubbard initiated arbitration proceedings;
    • the building was done by Velvori, which was registered from the start as a builder;
    • the arbitration process was fair and not challenged as making wrong or unfair findings;
    • the amount ordered by the arbitration award, payable to Cool Ideas, mainly related to compensation for additional personal choice items ordered by Ms Hubbard which were not included in the original contract price;
    • Cool Ideas acted in good faith at all times by enquiring whether it should register;
    • it did register before judgment when told it was necessary; and
    • last, but not least, Ms Hubbard, not Cool Ideas, is the recalcitrant debtor.

[145] It must also be remembered that one of the arguments for the interpretation that the Housing Protection Act did not render the building contract and the arbitration agreement invalid was to ensure that the warranties in section 13(2) of the Act would not be lost to a building consumer.

On the facts here, enforcement of the arbitration award would not have deprived Ms Hubbard of that protection.

In addition, the threat of criminal prosecution for late registration still hangs over Cool Ideas. Enforcement of the arbitration award will not, on an acceptance of the main judgment’s interpretation of the Housing Protection Act, undermine the protection afforded by the Act to building consumers and the criminal sanction for non-compliance will remain.

The only effect non-enforcement will have is to allow Ms Hubbard to escape payment of what has been fairly found to be owed to Cool Ideas. That is an impermissible use of the provisions of the Act.

[146] The conclusion I reach is that there was no unfairness in the arbitration process, nor in its outcome. There is nothing substantive, in the sense of prejudice to Ms Hubbard, that would justify a court in finding that public policy should override the personal choice made by the parties to enforce their agreement by way of private arbitration.

[147] This is sufficient reason for the appeal to succeed. But even if this approach is not accepted, there is another basis for the same outcome.

Interpretation approach

[148] As noted, the loss of the right to claim performance under the contract may amount, in terms of this Court’s decision in Opperman, to the deprivation of property under section 25 of the Constitution.

But that deprivation, says the main judgment, is not arbitrary. Section 10(1)(b) of the Housing Protection Act is aimed at achieving a legitimate and important statutory purpose and there is a rational, proportional connection between the statutory prohibition and its purpose. I disagree.

[149] An interpretation that the building contract is valid, but that its enforcement by one of the parties, Cool Ideas, is not, deprives that party of any redress at all for the work it has done. Under the common law it may have a claim for enrichment if the building contract was declared invalid for illegality.

Counsel for Ms Hubbard sought to ameliorate this unjust and unequal result by suggesting that the common law could be developed to allow an enrichment claim, but fairly and properly conceded that as the law now stands there is none available to Cool Ideas.

[150] There are good reasons why it is necessary to favour an approach that may be less intrusive on Cool Ideas’ rights.

    • The first is that we are concerned with the fairness of depriving Cool Ideas of the power to enforce an arbitration award that has not been attacked as being a result of an unfair process or any substantively unfair findings.
    • Second, and perhaps more important, is the accepted principle that the interpretation that best protects or enhances a fundamental right should, where reasonably possible, be preferred.

Is that kind of interpretation of the provisions of the Housing Protection Act reasonably possible? The answer is Yes.

[151] There can be no doubt that the Housing Protection Act is intended to protect housing consumers. As pointed out in the main judgment, it employs various measures to do so. But what, in the end, is the performance it seeks to enable housing consumers to obtain? The best answer to that is to be found in the warranties that the Act seeks to be enforceable by the housing consumer against the home builder in terms of section 13(2):

“The agreement between a home builder and a housing consumer for the construction or sale of a home shall be deemed to include warranties enforceable by the housing consumer against the home builder in any court, that—

(a) the home, depending on whether it has been constructed or is to be
constructed—
(i) is or shall be constructed in a workmanlike manner;
(ii) is or shall be fit for habitation; and
(iii) is or shall be constructed in accordance with—
(aa) the NHBRC Technical Requirements to the extent applicable to the home at the date of enrolment of the home with the Council; and
(bb) the terms, plans and specifications of the agreement concluded with the housing consumer as contemplated in subsection (1);
(b) the home builder shall—
(i) subject to the limitations and exclusions that may be prescribed by the Minister, at the cost of the home builder and upon demand by the housing consumer, rectify major structural defects in the home caused by the non-compliance with the NHBRC Technical Requirements and occurring within a period which shall be set out in the agreement and which shall not be less than five years as from the occupation date, and notified to the home builder by the housing consumer within that period;
(ii) rectify non-compliance with or deviation from the terms, plans and specifications of the agreement or any deficiency related to design, workmanship or material notified to the home builder by the housing consumer within a period which shall be set out in the agreement and which shall not be less than three months as from the occupation date; and
(iii) repair roof leaks attributable to workmanship, design or materials occurring and notified to the home builder by the housing consumer within a period which shall be set out in the agreement and which shall not be less than 12 months as from the occupation date.”

[152] The registration of home builders – either those having the capacity to build or those who need to enter into agreements with other home builders to do so – and the various other requirements laid down in the Act are all geared to ensure the enforcement of proper performance in the building of their houses by housing consumers against home builders.

That is the substantive, overall purpose of the Act.

[153] There are many ways of achieving this purpose, and of striking the correct balance between the interests of housing consumers and those who have performed construction work for them. The Housing Protection Act can be read to protect consumers without barring Cool Ideas’ claim for its performance.

[154] The starting point is that section 10(1)(a) and 10(2), read with section 21, indubitably make it a criminal offence for a home builder to have constructed a home while unregistered. This provides home builders with a very strong incentive, backed by the criminal law, to register before undertaking any building work.

[155] The central conundrum in this case arises from the finding that the contract (including the arbitration agreement) is valid.

How can it be that Cool Ideas’ contract with Ms Hubbard is valid, but its claim is unenforceable?

Could it be that section 10(1)(b) has a specific and narrow purpose only? That it was the Legislature’s targeted intervention to render unenforceable certain of the contract’s terms?

[156] Here, the presence of the other two very broadly defined prohibitions in section 10(1)(a) and 10(2) is significant. They do not make the contract invalid. Hence this third prohibition in section 10(1)(b) was necessary.

The provisions read:

“(1) No person shall—
(a) carry on the business of a home builder; or
(b) receive any consideration in terms of any agreement with a housing consumer in respect of the sale or construction of a home,
unless that person is a registered home builder.
(2) No home builder shall construct a home unless that home builder is a registered home builder.”

[157] So seen, the prohibition in section 10(1)(b) should be understood in its own, narrowly expressed terms, rather than broadened by analogy with the two prohibitions flanking it.

We should not, in other words, conclude that section 10(1)(b) embodies a similar, sweeping prohibition to section 10(1)(a) and 10(2). It is doing something separate, and narrower.

[158] Arising from this, an approach to the provision becomes possible in which it is clear that, while the first and the third prohibitions are absolute in relation to the activities proscribed (carrying on the business of a home builder and construction of homes), the prohibition on receiving consideration applies only at the time of receipt. In other words, you have to be registered to receive consideration, but you can register late.

[159] Weighing in favour of permitting late registration is,

    • first, the simple fact that section 10(1)(b) uses the word “receive”. And it does not interpose any qualification to the registration requirement. For example, it does not say “unless the person is a registered home builder at the time of undertaking the construction”.
    • Here it differs from the provisions of the Attorneys Act and the Estate Agency Affairs Act, which require possession of a fidelity fund certificate at the time of practising, for attorneys, and at the time of performance, for estate agents, to claim payment.

[160] Also in favour of this approach is the entire registration system the Housing Protection Act constructs. The Act gives the Minister the usual general power to make regulations.

But, in addition, section 7(2)(b) specifically obliges the Minister to prescribe by regulation “the terms and conditions for the registration and renewal of registration of home builders”. Indeed, section 10(4) states that registration of a home builder “shall be subject to the terms and conditions prescribed by the Minister under section 7(2)”.

[161] These provisions give particular point to the detail of the General Regulations. Together with other provisions of the Act, they create a powerful supervisory body that is not only nominally present, but actively supervises the activities of home builders, and actively protects housing consumers through implied warranties and enrolment of housing projects.

[162] The Act itself says that the Council must register only home builders with the “appropriate financial, technical, construction and management capacity . . . to prevent housing consumers . . . from being exposed to unacceptable risks.”

Closely allied to this, the Council can also impose conditions on registration and require a suretyship, guarantee, indemnity or other security in order to satisfy itself that consumers are adequately protected. And the General Regulations set out more detailed conditions that the Council may impose before registering a home builder.

[163] This expressly authorised system is fully consonant with the idea that late registration for the purposes of affording statutory sanction to receipt of consideration from a home-construction contract is feasible.

[164] On this approach, the Council, powerfully vested with authority under the legislation, will vet fly-by-night builders, denying them registration – but will permit good-faith builders like Cool Ideas, which omitted to register itself, but acted largely, if not exclusively, through a subcontractor that was registered.

[165] The upshot is that only carefully vetted builders with the necessary expertise and capacity to meet their financial obligations will ever be able to receive payment. Housing consumers are thus adequately protected.

[166] Can it be that a home builder, despite its skill and good faith, is deprived of any claim for payment, no matter how enormous its outlay, in perpetuity – without any way to remedy the mistake, even if it is carefully vetted and registered, subject to a range of conditions and suretyships imposed by the Council to ensure that its customers are adequately protected? Surely not.

[167] It is thus reasonable to interpret the provisions of the Housing Protection Act in a manner that is fair, does not deprive Cool Ideas of its property and does not necessitate the enhancement of the power of courts to interfere in private arbitration awards. Will this construction be detrimental to Ms Hubbard? That question has already been answered. It will not, because she has enjoyed all the substantive protections under the Act.

[168] This interpretation is in accordance with existing authority.

The broad formulation in Schierhout that a thing done contrary to a statutory prohibition is always a nullity, has been qualified and flexibly applied in many later cases.

An illustration of the flexibility is to be found in Pottie.

There, as here, the conclusion of a contract in contravention of statutory requirements was criminalised without an express provision that the contract itself was invalid.

In holding that this did not render the contract invalid Fagan JA stated:

“The usual reason for holding a prohibited act to be invalid is not the inference of an intention on the part of the Legislature to impose a deterrent penalty for which it has not expressly provided, but the fact that recognition of the act by the Court will bring about, or give legal sanction to, the very situation which the Legislature wishes to prevent.”

And in relation to rendering contracts invalid as a further penalty:

“A further compulsory penalty of invalidity would . . . have capricious effects the severity of which might be out of all proportion to that of the prescribed penalties, it would bring about inequitable results as between the parties concerned and it would upset transactions which, if . . . enforced . . . the Legislature could have had no reason to view with disfavour. To say that we are compelled to imply such consequences . . . seems to me to make us the slaves of maxims of interpretation which should serve as guides and not be allowed to tyrannise over us as masters.”

If this is good law in relation to the possibility of holding agreements valid in the face of statutory prohibition and criminal sanction, so much more it is for holding valid the enforcement of a valid arbitration agreement.

Conclusion

[169] For these reasons I would have granted leave and allowed the appeal, with costs.

 

 

Court summary

Flynote:

Housing Consumers Protection Measures Act 95 of 1998 – section 10(1) – requires registration of home builder to receive consideration for work done – no infringement of unregistered home builder’s rights to property and to access to courts

Application to have arbitration award made an order of court – statutory prohibition precluding court from making arbitral award an order of court – would amount to a court sanctioning an illegality

Summary:

The following explanatory note is provided to assist the media in reporting this case and is not binding on the Constitutional Court or any member of the Court.

Today the Constitutional Court dismissed an appeal against a judgment and order of the Supreme Court of Appeal.
In February 2006 the applicant (Cool Ideas) entered into a building contract with the first respondent, Ms Hubbard. Cool Ideas enlisted the services of a building construction company, Velvori Construction CC, to undertake the construction of Ms Hubbard’s home. Velvori was registered as a home builder in terms of the Housing Consumers Protection Measures Act (the Act). Cool Ideas, a property developer, was not so registered at the time of entering into the agreement and at the time that construction of the building commenced.

The building works were completed in October 2008, but Ms Hubbard took issue with the quality of the work and refused to make final payment. She instituted arbitration proceedings in terms of an arbitration clause in the building contract, claiming the costs of remedial works. Cool Ideas counter-claimed for the balance of the contract price. The arbitrator found in favour of Cool Ideas. However, Ms Hubbard failed to comply with the arbitral award.

Cool Ideas approached the South Gauteng High Court, Johannesburg (High Court) for an order enforcing the arbitral award. Ms Hubbard opposed the application, contending that Cool Ideas was not a registered home builder in terms of the Act.

However, Cool Ideas subsequently registered during the litigation proceedings. It also argued that the construction was done by Velvori, which was a registered home builder. The High Court granted the order and made the arbitral award an order of court.

Ms Hubbard appealed to the Supreme Court of Appeal. The majority upheld her appeal, stating that the purpose of the Act is to protect consumers and therefore both Cool Ideas and Velvori were required to be registered before commencing with construction.

Further, they held that enforcing the arbitral award would disregard a clear prohibition in law. The dissenting judgment found that Cool Ideas did not intentionally fail to register and that refusing to enforce the award would be unjust.

The Constitutional Court granted leave to appeal but dismissed the appeal. The majority judgment, written by Majiedt AJ (Moseneke ACJ, Skweyiya ADCJ, Khampepe J and Madlanga J concurring), held that a purposive reading of the Act makes it clear that Cool Ideas was prohibited from commencing building works and that by enforcing the arbitral award; this Court would be condoning an illegality.
The majority held further that neither Cool Ideas’ right to property nor its right of access to courts were infringed.

A concurring judgment, written by Jafta J (Zondo J concurring) held that the order made by the majority was correct, but it disagreed that the underlying building contract remained valid.

The dissenting judgment, written by Froneman J (Cameron J, Dambuza AJ and Van der Westhuizen J concurring), held that in determining whether the enforcement of an arbitral award will be against public policy, it is necessary to take into account that the parties choose to engage in private arbitration.

Public policy must also embrace issues of fairness in the interpretation, application and enforcement of contracts.

Froneman J further held that the Act should be interpreted in a manner that is less damaging to the right to property, including an applicant’s right to payment for work fairly done.