Introduction

Many standard form contracts in the construction industry contain provisions to the effect that, if a party fails to take a given step in the dispute resolution process, the party is barred from taking the dispute forward for determination by arbitration.

All is not lost, however, because section 8 of the Arbitration Act, 42 of 1965 (“the Act”), can provide a lifeline to such a party. Section 8 reads as follows:

                            “8.    Power of court to extend time fixed in arbitration agreement for commencing arbitration proceedings. Where an arbitration agreement to refer future disputes to arbitration provides that any claim to which the agreement applies shall be barred unless some step to commence arbitration proceedings is taken within a time fixed by the agreement, and a dispute arises to which the agreement applies, the court, if it is of the opinion that in the circumstances of the case undue hardship would otherwise be caused, may extend the time for such period as it considers proper, whether the time so fixed has expired or not, on such terms and conditions as it may consider just but subject to the provisions of any law limiting the time for commencing arbitration proceedings.”

Ironically, in a recent case, the Supreme Court of Appeal had to decide whether a party can be barred from resorting to section 8 of the Act after it had become barred from proceeding to arbitration.[1]

Background

Kidrogen RF (Pty) Ltd (“Kidrogen”) assisted taxi associations in the City of Cape Town to negotiate an operating agreement with the City relating to the My City Bus Service. Kidrogen also concluded an agreement with the City in terms of which participating taxi operators could subscribe for shares in Kidrogen.

Two taxi operators, Andre Erasmus (“Erasmus”) and Big Boy Ncube (“Ncube”), subscribed for shares in Kidrogen, Erasmus acquiring 20 shares and Ncube 12 shares.

Disputes arose with regard to the Erasmus and Ncube shares, which were settled on the basis that Kidrogen agreed to buy their shares for an agreed price and also to repay their respective loan accounts in the company.

These agreements recorded that there were disputes between the parties in relation to some of the shares concerned and that those disputes would be determined by arbitration in terms of the Act.

It was agreed that the price attributable to the disputed shares would be held in trust by an attorney.

Each dispute resolution clause recorded that the parties had to agree on an arbitrator within 15 days of signature of the agreement and within 30 days thereafter they had to meet with the arbitrator to get directions regarding the procedure to be followed in the arbitration.

The agreements went on to stipulate that, should Kidrogen “fail to pursue the arbitration within 30 (thirty) days of signature [of the agreement] the failure shall be deemed to be a determination in favour of the Seller and the portion of the purchase price together with the interest thereon held by the attorneys shall be paid to the Seller”.

The parties subsequently agreed to consolidate the proceedings in one arbitration.

The Arbitration

Kidrogen delivered its statement of claim on 18 November 2020 despite the 30-day time bar having expired on 15 March 2020.

In January 2021, Erasmus and Ncube delivered their statement of defence in which they raised a special plea to the effect that Kidrogen was time-barred from pursuing its claim in the arbitration.

Kidrogen responded to the special plea by way of a replication in terms of which it requested a stay of the arbitration pending an application by it as contemplated in section 8 of the Act for an extension of the deadline.

Oddly, Kidrogen did not follow through with such an application and allowed the arbitration to proceed.

The arbitration hearing took place in October 2022, following which, on 26 October 2022, the arbitrator issued his award in terms of which he, among other things, upheld

Erasmus and Ncube’s time bar special plea. This meant that the disputes were deemed to be determined in favour of Erasmus and Ncube and, as such, the arbitrator ordered that the funds held in trust by the attorneys be paid over to them.

High Court Application

This galvanised Kidrogen into finally making an application in terms of section 8 to the High Court in Cape Town for an extension of time.

The Cape Town High Court held that section 8 could only be invoked in relation to future disputes and that it was not available in this case because a final arbitral award had already been issued on the subject.

Relevant in this regard is section 28 of the Act, which reads as follows:

            “28.      Award to be binding. Unless the arbitration agreement provides otherwise, an award shall, subject to the provisions of this Act, be final and not subject to appeal and each party to the reference shall abide by and comply with the award in accordance with its terms.”

Appeal

Kidrogen took the Cape Town High Court’s judgment on appeal to the Supreme Court of Appeal in Bloemfontein.

The SCA considered two conflicting court judgments on the subject.

In the one, Genet v Van der Merwe NO,[2] the court held that section 8 does not empower the court to extend the time under a time bar after an arbitrator has made an award upholding the time bar defence. In the other, King Civil v Enviroserve Waste Management,[3] the court took the opposite view and granted an extension of the time bar after a final arbitral award had been made.

The SCA ruled that it was theoretically possible to make an application under section 8 after a final arbitral award had been issued but only if the applicant first successfully applied to court to have the award reviewed and set aside in terms of section 33 of the Act.

That Kidrogen had failed to do, and therefore its application had to fail.

It is very difficult to set an award aside on review in terms of section 33. A litigant would be extremely unwise to defer making an application in terms of section 8 of the Act until after an award is made in the hope that it will have the award set aside later and then get an extension of time under section 8 to pursue the arbitration.

Conclusion

An application in terms of section 8 of the Act to extend the time to pursue arbitration proceedings which have become time-barred must be made at the earliest possible juncture and certainly before an arbitration award is made upholding a defendant’s time bar defence.