INTRODUCTION

Arbitration clauses are a common feature in construction and engineering contracts in South Africa. In the context of prescription, the existence of an arbitration clause and the timing of a dispute being “subjected to arbitration” can have critical implications for whether a claim remains enforceable.

Section 13(1)(f) of the Prescription Act 68 of 1969 (the Act) provides that where “the debt is the object of a dispute subjected to arbitration”, the running of prescription is suspended. While the formulation appears straightforward, South African courts have had to consider the meaning of the phrase “subjected to arbitration,” and whether the mere existence of an arbitration agreement, or the taking of certain procedural steps, is sufficient to constitute such a subjection.

Two judgments provide important guidance in this regard: the Supreme Court of Appeal’s decision in Murray and Roberts Construction (Cape) (Pty) Ltd v Upington Municipality and the KwaZulu-Natal High Court decision in Aecom SA (Pty) Ltd v Dube Tradeport Corporation. These decisions clarify not only the legal effect of arbitration agreements on the running of prescription but also the evidentiary threshold for invoking section 13(1)(f).

THE PRESCRIPTION ACT AND SECTION 13(1)(f) 

Section 13(1)(f) provides:

“If the debt is the object of a dispute subjected to arbitration, the completion of prescription shall be delayed until the relevant impediment has ceased to exist.”

The rationale is to prevent creditors from being prejudiced where they are pursuing an alternative dispute resolution mechanism in accordance with contractually agreed terms. In such cases, the creditor is not free to approach the courts and cannot be expected to institute legal proceedings to interrupt prescription. The section protects a creditor who must resort to arbitration to enforce a claim from the harsh consequence of prescription.

THE MURRAY AND ROBERTS DECISION: ARBITRATION AS AN IMPEDIMENT

In Murray and Roberts Construction (Cape) (Pty) Ltd v Upington Municipality 1984 (1) SA 571(A), the Appellate Division dealt with the precise question of how an arbitration agreement can suspend the running of prescription in terms of section 13(1)(f) of the Act.

The Court held that an arbitration clause constitutes an impediment to litigation because it requires the creditor to pursue a disputed claim through a legally recognised contractually binding process of private dispute resolution. This impediment arises not only when arbitration proceedings are underway, but from the moment the parties are bound to resolve their dispute through arbitration.

The Court explained:
“An arbitration agreement is, therefore, in a sense an impediment to the recovery of a debt by means of legal proceedings, but it is one because it provides an alternative means of resolving disputes which carries the approval of the law. This applies a fortiori where a dispute has actually been subjected to arbitration.”

(A fortiori, in this context, means the principle applies with even greater force once arbitration has formally commenced.)

The arbitration clause in the contract provided in the first instance for disputed claims to be submitted to the Engineer for determination. If a party was dissatisfied with the Engineer’s decision, it was entitled to refer the dispute to a mediator on the basis that, if either party was unhappy with the mediator’s decision, it was entitled to have the dispute finally determined by arbitration.

The Court went on to explain that the procedure laid down in the arbitration clause, taken as a whole, must be construed as one of arbitration. Therefore, upon the first step being taken in the journey, namely submitting the claim to the Engineer, the dispute became subjected to arbitration and the running of prescription was thereupon suspended.

THE AECOM JUDGMENT: SUBSTANTIVE REFERRAL VERSUS FORMALITIES

In Aecom SA (Pty) Ltd v Dube Tradeport Corporation (D3638/2023) [2024] ZAKZDHC, the KwaZulu-Natal High Court was asked to determine whether prescription had been suspended by virtue of the parties having agreed to arbitrate, despite a formal referral of the dispute to the Arbitration Foundation of Southern Africa (AFSA) only occurring at a later date.

The key facts were that clause 28 of the contract between the parties required disputes to be resolved by arbitration. When a dispute arose, the claimant issued a written notice invoking the arbitration clause. The respondent subsequently raised a special plea of prescription, arguing that more than three years had passed before the matter was formally referred to AFSA.

The Court rejected this argument and held that the written dispute notice — issued in terms of the contract — amounted to a valid referral initiating arbitration and constituted an “impediment” as contemplated by section 13(1)(f). This was so even though a formal document articulating the claim had yet to be delivered.

The Court observed:
“The issuing of the dispute notice activated an impediment… which suspends the running of prescription where the debt is the subject of arbitration proceedings. The impediment remains in effect until the arbitration is concluded or otherwise resolved.”

This approach aligns with the reasoning in the Murray and Roberts case and confirms that prescription is suspended once the journey to arbitration commences and not only when all procedural formalities are completed and a substantive claim is filed.

WHAT CONSTITUTES ‘SUBJECTED TO ARBITRATION’?

The two judgments clarify that the phrase “subjected to arbitration” does not require the appointment of an arbitrator, the filing of a statement of claim, or the setting down of a hearing. What matters is the invocation of the arbitral process and the creditor’s engagement with it in terms of the arbitration clause in the agreement.
An email exchange or written notice between the parties confirming their mutual agreement to arbitrate a particular dispute may, in appropriate circumstances, suffice. The law does not require procedural perfection; it requires evidence that the arbitration process has been triggered and that the creditor is not at liberty to pursue court action.

This is consistent with the view expressed by the Supreme Court of Appeal in Silhouette Investments Ltd v Virgin Hotels Group Ltd 2010 (1) SA 186 (SCA), which endorsed the idea that impediments under section 13(1) refer to “legal or practical problems which make it difficult or undesirable for a creditor to institute proceedings for the enforcement of his claim.”

CONCLUSION

Current jurisprudence confirms that arbitration agreements are not only enforceable in their own right but also, when invoked, operate as legal impediments that suspend the running of prescription. Legal practitioners should carefully consider when arbitration has been substantially engaged and assess whether there is sufficient documentary evidence to demonstrate that a dispute has been “subjected to arbitration.”

Importantly, the cases of Murray and Roberts and Aecom illustrate that South African courts are willing to adopt a practical, commercial interpretation of section 13(1)(f) to ensure that parties who have elected to arbitrate are not penalised for honouring their contractual commitments.

As the use of arbitration continues to grow, particularly in the construction and infrastructure sectors, a proper understanding and application of the above principles remain essential to preserving clients’ rights and avoiding the unintended prescription of otherwise valid claims.