In the recent case of the Minister of International Relations and Corporations NO and Another v Neo Thando / Elliot Mobility (Pty) Ltd and Another, the Supreme Court of Appeal (SCA) dealt with a matter whereby it had to determine whether a dispute existed between the parties at the time of the arbitration referral and whether the dispute referred to arbitration was consistent with the claim presented in arbitration.

On 4 October 2024, Judge Mocumie with Judges Zondi, Weiner, Hendricks and Dippenaar, ruled in the matter between The Minister of International Relations and Co-operation NO (the first appellant), the Department of International Relations and Co-operation NO ("DIRCO") (the second appellant), Neo Thando / Elliot Mobility (Pty) Ltd (the first respondent) and Advocate MC Erasmus SC NO (the second respondent). The matter before the court was an appeal from the Gauteng Division of High Court, Pretoria which was initially heard before Judge Mokose, who was sitting as a court of first instance. 

On 11 August 2015, DIRCO had invited tenders for the removal, packing, storage (in South Africa only) and insurance of household goods and vehicles of transferred officials, to and from missions abroad’ under Tender No DIRCO 05-2015/2016.

Subsequently, on 3 November 2015 when the process was complete the first respondent was awarded the tender and to which the tender contract was in line with the pricing schedule which amounted to R130 112 398-00. Furthermore, this was followed up by a Service Level Agreement (SLA) which was signed by the parties on 20 and 26 January 2016 respectively which entailed all the responsibilities of the parties pursuant to the agreement.

The contractual responsibilities entailed packing for storage or unpacking from storage of a transferred official’s household goods and personal effects or departmental furniture and equipment (the goods) which had to be conducted in the presence of such official. In the case of first respondent, her duties specifically included packing the goods in accordance with the detailed instructions outlined in the technical specifications pertaining to the transferred official’s furniture and equipment.

However, AGS Frasers, DIRCO's prior service provider, refused to hand over the goods, leading to a deadlock. Despite DIRCO's demands, AGS Frasers maintained that their original SLA remained binding. On 12 September 2017, the first respondent initiated legal proceedings, demanding R53 258 416.90 from DIRCO and suggesting arbitration, which DIRCO declined and disputed inter alia, the existence of any arbitrable dispute.

Issues in dispute and findings of law

The appeal is against the judgment of the Gauteng Division of the High Court, Pretoria. The main issues of this matter are tripartite in nature, which are set out below:

The first issue was whether the arbitration clause permitted a unilateral referral; secondly, whether a dispute at the time of the referral existed; and lastly, whether the dispute that existed at the time of the referral was the same dispute that was ultimately referred to arbitration. This article focuses on the central issue before the Supreme Court of Appeal, namely, whether the arbitrator had jurisdiction to adjudicate the dispute referred to him by the first respondent and whether the dispute in question constituted an "arbitrable dispute" as envisaged under the Arbitration Act.

The SCA carefully considered clause 13 of the agreement against the backdrop of the Arbitration Act. An extract of the contractual clause reads as follows:

DISPUTE RESOLUTION

Should any difference or dispute at any time arise which the parties are unable to resolve amicably, whether in regard to the meaning or effect of any terms of the Contract or this SLA, or the implementation of any party's obligations hereunder, or any other matter arising from or incidental to it, then in that event, if the parties wish to arbitrate such difference or dispute, such difference or dispute shall be submitted to arbitration in accordance with the following provisions: "

The SCA found that the words ‘difference or dispute’ were not defined in clause 13, or anywhere in the SLA. They were also neither defined in the Arbitration Act nor were they reflected within the preamble to the clause. The court also went onto to further reiterate the stance in the constitutional court judgment, Amabhungane Centre for Investigative Journalism NPC v President of the Republic of South Africa, which  held that courts must approach interpretation of statutory provisions with an ordinary meaning of the words, construed purposively and in context, consistently with the values of the constitution, and should favour a sensible interpretation over one that leads to absurd or impractical outcomes. In Cool Ideas 1186 CC v Hubbard and Another the court held the following:

“A fundamental tenet of statutory interpretation is that the words in a statute must be given their ordinary grammatical meaning, unless to do so would result in an absurdity. There are three important interrelated riders to this general principle, namely:

(a) that statutory provisions should always be interpreted purposively;

(b) the relevant statutory provision must be properly contextualised; and

(c) all statutes must be construed consistently with the Constitution, that is, where reasonably possible, legislative provisions ought to be interpreted to preserve their constitutional validity. This proviso to the general principle is closely related to the purposive approach referred to in (a).”

Clause 13 of the SLA stipulates that for a matter to be referred to arbitration, a "difference" or "dispute" must exist between the parties. A "difference" refers to a variance between parties, while a "dispute" involves a formal disagreement. The clause allows either party to initiate arbitration by providing written notice, but this requires mutual agreement. It further provides an alternative, permitting parties to pursue litigation instead. DIRCO argued that no arbitrable dispute existed when the first respondent sought arbitration, as the letter of demand merely requested damages without specifying any dispute or difference. It is imperative to understand that parties having had a mutual agreement helps to mitigate the uncertainties in arbitration without such an agreement it leaves room for ambiguity and the absence of clarity which also defeats the objectives of arbitration as a dispute resolution process.

Section 1 of the Arbitration Act requires an existing controversy between parties, with conflicting claims or contentions, for a matter to be deemed arbitrable. A dispute being presented was also further emphasised in Parekh v Shah Jehan Cinemas (Pty) Ltd and Others[5] that is more than a mere disagreement; it is one in relation to which opposing contentions are or can be advanced.  Since the first respondent failed to establish such a dispute before referring the matter to arbitration, DIRCO contended that the referral was premature. Moreover, the arbitration clause under clause 13 of the SLA is voluntary, requiring both parties' consent to arbitration. The SCA held that the first respondent's unilateral referral contradicted the agreement’s terms, and forcing arbitration without consent would be contrary to business collegiality.

In conclusion, the SCA upheld the appeal as the SLA required both parties to consent to arbitration and the letter of demand was for damages, meaning that no existing dispute was identified in terms of the way the transitional arrangement would be implemented and who would oversee it. Insofar as that the second respondent, the SCA found that he did not have jurisdiction to arbitrate the alleged dispute between the applicant and first respondent. Furthermore, the SCA ordered that the first respondent pay the second appellant's legal costs including the monies paid by the State Attorney to the second respondent in relation to the fees for acting as an arbitrator and for the legal costs incurred by the first and/or the second appellant. 

This judgment serves as a cautionary reminder to contracting parties to strictly adhere to the outlined procedural and substantive requirements of their respective contractual provisions when electing arbitration to resolve disputes. Crucially, before any of those steps are taken, parties must be able to identify a dispute, which must be premised and contained within a mutual agreement to arbitrate and that parties must mutually consent to arbitration pursuant to the agreement, rather than compelling one party into arbitration without an agreement.

Written by Ziyanda Sibeko Partner & Johnson Mthembu, Candidate Attorney from Webber Wentzel