Arbitration: A brief overview of the effects of an arbitration agreement

Introduction

Arbitrations in South Africa are governed by the Arbitrations Act 42 of 1965 (“the Arbitration Act”). The Arbitration Act provides for the settlement of disputes by arbitration tribunals in terms of written arbitration agreements and for the enforcement of awards of such arbitration tribunals.

This article is not intended to be an exhaustive and all-inclusive guide to the subject matter hereof, but rather to provide some guidance on certain frequently asked questions on the subject matter.

What is an arbitration agreement?

The use of the words “arbitration agreement” in the Arbitration Act is deliberate and intended to avoid historical confusion.  The reasons are the following:

1. It stresses the contractual nature of an agreement to go into arbitration.
2. It avoids the confusion that sometimes arose with the use of the word “submission” which was also used to signify, what should more properly have been termed, “a statement of matters in dispute”. (Du Toit & Others v Van Der Merwe, Van Wyk and Albrecht 4 Kotze 66)

In terms of the statutory definition an “arbitration agreement" is required to be in writing. Therefore, apart from compulsory arbitration that may be required in terms of certain enactments, all other arbitration proceedings can only be resorted to where there is an agreement to go to arbitration. The standard form of construction contracts commonly includes arbitration clauses, and these clauses constitute the arbitration agreement in terms of the Arbitration Act.

In terms of the common law, arbitration agreements can be entered into orally and such agreements will be regulated by common law and not the Arbitration Act.

Which disputes can be referred to arbitration?

Arbitration clauses are wide and provide for a wide variety of disputes arising out of the contract to be referred to arbitration. While it may appear that all disputes may be referred to arbitration, this is not the case. The following disputes may not be referred to arbitration:

• Disputes relating to payment certificates where the payment certificates comply with the requirements of a liquid document.
• Interdicts or interlocutory relief against either party to a construction contract.

What are some of the effects of an arbitration agreement?

In terms of section 3(1) of the Arbitration Act, unless the agreement states otherwise, an arbitration agreement shall not be capable of being terminated except by consent of all the parties thereto. A court may on application by any of the parties to an arbitration agreement and on good cause shown:

• Set aside the arbitration agreement; or
• Order that any agreement referred to in the arbitration agreement not be referred to arbitration; or
• Order that an arbitration agreement shall cease to have effect with reference to any dispute referred.

Furthermore, in terms of section 3(4) of the Arbitration Act, the death of either party to the arbitration agreement shall not have any effect on the arbitration agreement or the appointment of an arbitrator in terms of the agreement.

What should a party to an arbitration agreement do if the other party proceeds with litigation in a court of law?

In terms of section 6(1) of the Arbitration Act, if a party to an arbitration agreement commences any legal proceedings in any court against the other party to the agreement in respect of any matter agreed to be referred to arbitration, any party to such proceedings may at any time after entering an appearance to defend but before delivering any pleadings or taking any other steps in the proceedings, apply to that court for a stay in the proceedings.

The effect of this means that where an arbitration agreement is applicable to a dispute, a party may apply to the court where litigation has been instituted and apply for the litigation to be stayed and the arbitration agreement to prevail. In practice, this aspect is raised as a special plea.

A failure to make this application before the plea or raising this aspect in the special plea and proceeding to file a plea on the merits, will mean that the party defending the litigation has waived their right to arbitration.

What happens if you are disputing the validity of a contract containing an arbitration agreement?

A distinction has to be drawn between repudiation of a contract and dispute on the validity of a contract itself. In the first instance, the matter will be referred to arbitration if the arbitration clause is wide enough to include the breach of contract or repudiation. In the latter instance, the effect is that the entire contract, including the arbitration clause constituting the arbitration agreement, is being disputed and this cannot be referred to arbitration.

Conclusion

Arbitration in the South African construction industry represents a critical facet of dispute resolution mechanisms employed to address conflicts and disagreements that frequently arise within this sector. The process can be daunting to those unfamiliar with the process. The Association’s Legal and Dispute Resolution Unit can assist with representation and advice on your dispute resolution needs. For more information, call 031 831 3210 or email legal@masterbuilders.co.za

Bilaal Dawood

Head: Membership Services