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Enforceability of arbitration clauses

by Shona Nicoll on 2 July 2019


In Seabeach Property Investment No 28 v Candice Lauren Nunn (18310/18) [2019] ZAWCHC 9 the Western Cape High Court was tasked with determining whether the parties were bound to the arbitration clause in spite of an allegation that the sale agreement including the arbitration clause was null and void. 

Facts

The respondent in this matter purchased a flat which consisted of two parking bays and a downstairs area.  The respondent claimed that as a result of a misrepresentation by the applicant, she was led to believe that she would additionally acquire exclusive ownership of the roof terrace however, after the execution of the sale agreement she became aware of the fact that the roof terrace was part of the common property.  

As a result, the respondent alleged that the purported agreement is void ab initio (i.e. from the start) rendering the whole agreement, including the arbitration clause, null and void.  On this basis, the respondent argued that only a court could resolve disputes arising from the purported sale agreement as the parties were not bound by the arbitration clause due the contract's alleged voidness.  

The High Court in this instance held that it had not been called upon to determine whether the agreement is in fact void or voidable therefore the ultimate question to be considered was "whether the parties intended that if a dispute arose that dispute would be determined by an arbitrator, and if so, then he or she should determine whether the contract is valid and enforceable, or voidable or void".  In order to do so the ambit of arbitration clause was examined to determine what the parties intended by having regard to the purpose of their contract and interpret it contextually so as to give it a commercially sensible meaning.

Application of law

The High Court took note of the principle, stated in North West Provincial Government and Another v Tswaing Consulting CC and Others 2007 (4) SA 452 (SCA) that an arbitration clause embedded in a fraud-tainted agreement could not stand.  The respondent did not allege fraud therefore this principle was not applicable. 

The court examined the arbitration clause contained in the sale agreement and found that it was evident that the parties agreed that "any dispute between the parties in connection with or arising out of … the formation, implementation, validity, enforceability and rectification of the agreement, shall be referred to and determined by arbitration".  The agreement evidently envisaged and intended that all disputes regarding the agreement whether void or voidable would be determined by arbitration.  The arbitration clause additionally held that "despite the termination of or invalidity for any reason of this agreement of any part thereof the arbitration clause will remain in effect".  

The High Court held that the arbitration clause constituted a separate self-standing agreement from which the parties could not withdraw, therefore if the remaining agreement was found to be void or voidable this would not affect the validity and enforceability of the arbitration clause.  On this basis the High Court held that the dispute is arbitrable and the appropriate forum was arbitration. 

Conclusion

A court will give effect to the intention of the parties as to their selected dispute resolution mechanism – even when a void or voidable contract is alleged – provided the agreement clearly exhibits that intent.

The aforegoing would however not apply if a party was able to show fraud on the part of the other.



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