Cool Ideas 1186 CC v Hubbard (CCT 99/13) 2014 (4) SA 474 (CC); 2014 (8) BCLR 869 (CC) (5 June 2014)

The Court split seven to four and disallowed an appeal against the judgment of the Supreme Court of Appeal in Hubbard v Cool Ideas 1186 CC [2013] 3 All SA 387 (SCA) (28 May 2013).

The effect of the majority decision of the Constitutional Court means that a home builder, despite its skill and good faith, can be 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 law to ensure that its customers are adequately protected.

The view of the minority can be expressed as follows:

 “The majority opinion has attempted to resolve the problem as though it might involve an unlawful contract or a contract contrary to public morals and therefore void.  It may be assumed that a law declaring such contracts illegal may not be circumvented by submitting controversies thereunder to arbitration and obtaining court confirmation.

But the contract here is not of that nature.  There is nothing basically unlawful or contrary to public morals in a contract to construct or repair a building. . . .  The statute does not declare such a contract to be unlawful.

The declaration of unlawfulness is confined to engaging in the business or acting in the capacity of a building contractor without having secured a license.

A person pursuing the activities of a building contractor without the required license is ‘guilty’ of a misdemeanour.  And such person may not maintain an action in any court of the state for the collection of compensation for building contractor services.

These are the [only] consequences attached to violation.”  (References omitted.)

Selected extracts from the judgments [footnotes omitted]

Majority judgments

Majiedt AJ (Moseneke ACJ, Skweyiya ADCJ, Khampepe J and Madlanga J concurring):

Equity considerations

[52]      Cool Ideas contended that it would be inequitable for Ms Hubbard to be absolved from complying with the arbitrator’s award and from paying the outstanding approximately R550 000 due to Cool Ideas.

I am of the view that equity considerations do not apply.   But even if they do, as my Colleague Froneman J suggests, the law cannot countenance a situation where, on a case by case basis, equity and fairness considerations are invoked to circumvent and subvert the plain meaning of a statutory provision which is rationally connected to the legitimate purpose it seeks to achieve, as is the case here.

To do so would be to undermine one of the essential fundamentals of the rule of law, namely the principle of legality.

The following dictum by Kentridge AJ in S v Zuma is apposite:

“[I]f the language used by the lawgiver is ignored in favour of a general resort to ‘values’ the result is not interpretation but divination.”

It is for this reason that I am in respectful disagreement with Froneman J in his interpretation of section 10(1)(b) and the reasoning behind it.   The plain import of section 10(1)(b) is that regardless of how much work has been done by the unregistered home builder, no consideration is payable by the housing consumer.. . . .

Does the refusal to make the arbitral award an order of court infringe Cool Ideas’ right of access to courts?

[55]      What we are seized with here is therefore not the correctness or otherwise of the arbitral award, but with the question whether the award ought to be made an order of court if the court order would be contrary to a plain statutory prohibition.

What is more, as stated at the outset, there is no challenge to the section’s constitutional validity.   It cannot be expected of a court of law in such circumstances to disregard a clear statutory prohibition – that would be inimical to the principle of legality and the rule of law.   To do so would amount to undermining the purpose of the legislation.. . . . .

[58]      Against this backdrop I turn to consider whether this particular arbitral award is contrary to public policy.   In my view it is.   Courts are themselves subject to the fundamental principle of legality as they are bound to uphold the Constitution  and, as stated, to make the arbitral award an order of court in the present instance would undermine that very principle.

Cool Ideas has placed extensive reliance on Lufuno Mphaphuli  and the principle of party autonomy in voluntary arbitrations.   While these are important considerations, I fail to see how they assist Cool Ideas here.   Generally speaking, party autonomy in voluntary arbitrations will not trump the principle of legality where the enforcement of the arbitral award would constitute a criminal offence, as is the case here.

I turn next to a brief discussion of Lufuno Mphaphuli to demonstrate why – although its reasoning is not irrelevant here – it is distinguishable from the present case.. . . .

[62]      In the premises, Cool Ideas’ reliance on the infringement of its section-34 right is misconceived.   Its access to courts was not denied by the Supreme Court of Appeal majority but, in truth and in fact, the principle of legality, so fundamental to our constitutional project, was correctly upheld.

Cool Ideas has been afforded a full and proper opportunity to have all the issues ventilated in the High Court and in the Supreme Court of Appeal.   The section-34 challenge must consequently fail.. . . .

Jafta J  (Zondo J concurring):

Illegality

[81]      The illegality which is the bedrock of Ms Hubbard’s defence depends mainly on the interpretation of section 10(1) of the Housing Protection Act.   I agree with the main judgment that the purpose of the Housing Protection Act, including section 10, is to protect housing consumers like Ms Hubbard.

It achieves this purpose through a scheme that requires every home builder, such as Cool Ideas, to be registered in terms of the Act before it can carry on the business of a home builder.

In addition, prior registration is necessary for a home builder before receipt of any consideration in terms of a building contract.   And a home builder who subcontracts another home builder to carry out the construction of a home must be registered before the subcontract is concluded.

Minority judgment

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

[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.. . . .

[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.. . . .

[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.