Trying to work-around time bars

Peter Barnard, partner at Cox Yeats.

The case involved a shareholding dispute between Kidrogen RF (Pty) Ltd (Kidrogen) and two shareholders, Mr Erasmus and Mr Ncube.

Kidrogen concluded Share Sale Agreements (the agreements) with Mr Erasmus and Mr Ncube to resolve the disputes. The agreements recorded that the disputes would be referred to arbitration by Kidrogen within thirty (30) days of the signature dates (the referral period), and that the arbitration proceedings would be governed by the Arbitration Act.

The agreements further recorded that if the disputes were not referred to arbitration by Kidogren within the referral period, the disputes would be deemed to have been determined in favour of Mr Erasmus and Mr Ncube, entitling them to payments for their shareholdings.

Kidrogen failed to refer the disputes to arbitration within the referral period and only initiated the proceedings months later.

In the arbitration proceedings, Mr Erasmus and Mr Ncube raised special pleas, arguing that Kidrogen had forfeited its rights to refer the disputes to arbitration because it did not refer the disputes within the referral period.

The arbitrator upheld the special pleas, effectively ruling that Kidrogren was time-barred from referring the disputes to arbitration, and that Mr Erasmus and Mr Ncube were entitled to payment for their shareholdings.

Kidrogen thereafter applied to the High Court for an extension of the referral period under section 8 of the Arbitration Act, which records that if the court believed that the time bar would cause undue hardship, it may extend the period.

After much debate and reference to other cases, the court ultimately confirmed that section 8 of the Arbitration Act only applied to “future disputes” and could not be relied upon to overturn a final award issued by an arbitrator.

Kidrogen appealed the High Court’s decision.

The SCA dismissed Kidrogen's appeal, confirming that section 8 of the Arbitration Act only empowers the court to extend the time- bar provision in respect of future disputes. The SCA reiterated that if a party to an arbitration agreement intends on relying on section 8 of the Arbitration Act, it ought to do so before a final award is issued. The SCA also noted that granting an extension after the issuing of a final award would be a futile exercise unless the award had been set aside.

In the circumstances, section 8 of the Arbitration Act can only be relied on where a party to an arbitration agreement seeks to extend the referral period before any dispute arises.

Conclusion:

We often come across contracts with arbitration clauses that are not properly prepared, contain unreasonable time-bar provisions, or are incomplete.

In many instances, parties agree that if they are unable to reach agreement on an arbitrator, a specific arbitration body named in the contract data will make the appointment. Often, the arbitration body is not named. Where there is a time-bar provision, the clock continues ticking despite the parties being unable or unwilling to agree to an arbitrator or an arbitration body to make the appointment.

If the parties seek to revise or amend the arbitration agreement at a point in time when a dispute already exists, and the clock is already ticking, the referring party runs the risk of being time-barred from referring the dispute.

To avoid finding oneself in the above position, it is important to ensure that arbitration clauses are properly drafted and considered. If the time-bar provisions are unreasonable, the parties may agree to amend those provisions, alternately, a party may rely on section 8 of the Arbitration Act to have a court extend the referral period.

This decision makes it clear that parties will be held to much more stringent level of adherence to the timelines and processes agreed to.

This is a reminder that it is crucial to stick to and follow the timelines and processes in a contract with regards to alternate dispute resolution, as seeking relief from the court to relax those timelines and processes may be challenging and time consuming. This case makes it clear that where one applies to court to extend a referral period after a dispute already exists or after an award is made, it will be all but impossible.