11 March 2020 by and Dispute Resolution Alert

Arbitrations: Time-bar provisions in contracts not set in stone

“A claim in respect of any undertakings or warranties contained in this agreement shall be wholly barred and unenforceable unless proceedings in respect thereof has been issued and served prior to the sixth anniversary of the effective date”.

Arbitration, insurance and construction agreements often have clauses like this which say that any claim is barred unless some step to commence litigation proceedings is taken within a time fixed by the agreement. This sees the parties regulating prescription of claims outside the three years prescribed by the Prescription Act of 1969. In Barkhuizen v Napier 2007 (7) BCLR 691 (CC), the Constitutional Court held that time-bar clauses are enforceable where the notice period is clear and reasonable. Here’s the curve ball though. Section 8 of the Arbitration Act, No 42 of 1965 gives the court the power to extend the time fixed for commencing proceedings under an arbitration agreement.

In Samancor Chrome Holdings (Pty) Ltd and another v Samancor Holdings (Pty) Ltd and others 2019 4 All SA 906 (GJ) the High Court recently considered section 8 which is modelled on section 27 of the 1950 English Arbitration Act and states that “…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.

The English Supreme Court prescribed guidelines in Liberian Shipping Corporation (the Pegasus) v A King and Sons Ltd 1967 1 All ER 934 (CA) (the Pegasus case) on how “undue hardship” in section 27 should be interpreted, which include that:

  • the words ‘undue hardship’ should not be construed too narrowly.
  • undue hardship means excessive hardship and, where the hardship is due to the fault of the claimant, it means hardship the consequences of which are out of proportion to the fault.
  • in deciding whether to extend time periods or not, the court should look at all the relevant circumstances of the case in particular:
    • the length of the delay;
    • the amount at stake;
    • if the delay was the fault of the claimant or was outside his control;
    • if applicable the degree of the claimant’s fault;
    • whether the claimant was misled by the other party;
    • whether the other party has been prejudiced by the delay, and, if so, the degree of prejudice.

The Pegasus case is considered the key authority on such applications under Section 27 of the English Arbitration Act which has since been replaced by the more restrictive section 12 in the 1996 English Arbitration Act. South Africa’s Legislature has not adopted the more restrictive wording but a new Domestic Arbitration Act is on the cards.

In the matter of Samancor Chrome Holdings (Pty) Ltd and another v Samancor Holdings (Pty) Ltd and others a sale of shares agreement provided indemnities to the applicants in respect of income tax to be paid to SARS. The parties anticipated delays obtaining tax assessments and rendering outstanding tax returns and included a time-bar clause of six years. There was a delay in the submission of tax returns and the tax calculation was also incorrect which led to an incorrect payment to SARS and a statement of claim against the respondents to recover the shortfall. But the statement of claim was issued outside of the six year period.

The court, in applying the Pegasus-guidelines, found that undue hardship would be caused to the applicants if the time bar was not extended as contemplated in section 8 of the Arbitration Act. The court emphasised that, but for the time-bar, the claim by the applicants was good; the applicants were not at fault; and the respondents were not prejudiced by the delay.

Notwithstanding contractual autonomy and its importance in South African law, the court found that holding the parties to the contractual terms would not accord with the approach applied under section 27 of the 1950 Arbitration Act or under our section 8. The court extended the time-bar period.

The Samancor case reiterates that a time-bar defence is not necessarily a slam-dunk given the right of the affected party to approach the court for an extension of the period. Contrast the Prescription Act which kills a prescribed matter stone dead.

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