INTRODUCTION

The Supreme Court of Appeal (SCA) has recently reaffirmed the binding nature of arbitration clauses in commercial contracts.^[1]

BACKGROUND

In September 2017, Kalagadi Manganese (Pty) Ltd (Kalagadi) entered into a series of agreements with the Industrial Development Corporation (IDC) and the African Development Bank (AfDB), which included a loan agreement in terms of which the IDC and AfDB granted loan funding to Kalagadi for its operations as a manganese miner in the Northern Cape.

The various agreements between the parties were governed by a so-called Common Terms Agreement, which provided that any disputes arising out of or in connection with their agreements had to be resolved through arbitration in London in terms of the International Chamber of Commerce Rules.

Kalagadi failed to adhere to its obligations, with the result that, in April 2020, the IDC called up the full outstanding debt, which then stood in at some R3 bn.

In response, Kalagadi and its two major shareholders made an application to the Gauteng High Court for an order compelling the IDC and AfDB to accept a restructuring arrangement of the debt.

The IDC, in opposing the application, raised preliminary objections, including one to the effect that court proceedings were not competent in view of the arbitration clause in the Common Terms Agreement. 

The relevant clause in the Common Terms Agreement read:

            “Subject to clause 40.2.10, any dispute arising out of or in connection with [the Common Terms Agreement], including any question regarding its existence, validity or termination, shall be referred to and finally resolved by arbitration under the Rules of Arbitration of the International Chamber of Commerce (‘the ICC’) in force at that time (‘the ICC Rules’) which ICC Rules are deemed incorporated by reference into this clause 40.2. ….”

HIGH COURT DECISION

The Gauteng High Court dismissed the IDC’s objection and refused it leave to appeal.

The court found that Kalagadi had a right of access to court under the Constitution, which could only be limited where it is reasonable to do so, and that, because issues in the court proceedings overlapped issues which might be dealt with in arbitration, court proceedings were competent.

SCA DECISION

The IDC applied to the SCA for leave to appeal vis-à-vis the Gauteng High Court’s refusal to grant it leave to appeal.

The SCA adopted the efficient expedient of dealing with the IDC’s application for leave to appeal as well as the merits of the IDC’s objection at the same time.

The SCA found that the use of the word “shall” in the arbitration clause forming part of the Common Terms Agreement signified that the arbitration requirement was peremptory. Consequently, any disputes arising out of or in connection with the Common Terms Agreement had to be referred to arbitration for resolution.

As the application by Kalagadi entailed a determination of its alleged breaches of the Common Terms Agreement, the matter manifestly involved disputes arising out of or in connection with the Common Terms Agreement. As such, a court had no jurisdiction to determine the disputes which fell to be decided by arbitration.

As an interesting aside, the SCA pointed out that the High Court had overlooked the fact that the arbitration clause in the Common Terms Agreement constituted an “international arbitration agreement” governed by the International Arbitration Act, 15 of 2017 (“the Act”). In terms of the Act, an arbitration is international if:

• the parties to the agreement have their places of business in different States; or

• the place of arbitration is different to the State where the parties have their places of business.

As the AfDB has its offices in Abidjan and Kalagadi and the IDC in South Africa, as well as the fact that the place of arbitration was agreed as London, clearly an international arbitration agreement was involved.

The SCA observed that the Act heightens the stringent standard, already applicable to domestic arbitrations, that a party must meet before a court will permit an arbitration agreement to be bypassed. It observed that this was in step with the modern approach to arbitration clauses, which is to respect party autonomy and minimise the extent of judicial interference in the process.

On the constitutional issue, the SCA pointed to the landmark Constitutional Court decision, which upheld the constitutionality of arbitration agreements.^[2]

The SCA also dismissed Kalagadi’s somewhat hopeful argument that, because the IDC was a State entity, it was precluded from entering into arbitration agreements. The court confirmed that there are no legal barriers precluding State entities from agreeing to arbitrating disputes and that public bodies routinely do so. Apart from anything else, in the case of international arbitrations, the Act specifically binds public bodies such as the IDC.

DECISION

In the result, the SCA granted the IDC leave to appeal, reversed the Gauteng High Court’s decision and ordered that Kalagadi’s application be stayed pending the final determination of the disputes concerned in arbitration proceedings.