Turning back time on time bars?

Christine Mugenyu

Cliffe Dekker Hofmeyr, Nairobi

christine.mugenyu@cdhlegal.com

Danika Balusik*

Pinsent Masons, Johannesburg

Danika.Balusik@pinsentmasons.com

Miles Davis once said ‘Time isn’t the main thing, it’s the only thing’.

This article looks into the recent case law in South Africa and Kenya regarding adherence to time barring provisions in arbitration agreements. As arbitration practitioners, we need to be mindful of what the law of the seat of an arbitration provides for insofar as time-barring provisions are concerned. In many instances, time waits for no one.

In South Africa, Section 8 of the Arbitration Act 42 of 1965 (SA Act), which regulates domestic arbitrations, gives a court authority to extend a time bar provision contained in an arbitration agreement, notwithstanding the fact that the provision requires the referring party to commence the arbitration procedure within a fixed period.

A recent development was identified in Samancor Holdings (Pty) Ltd and Others v Samancor Chrome Holdings (Pty) Ltd and Another (357/2020) [2021] ZASCA, where the South African Supreme Court of Appeal (SCA) was tasked with ascertaining whether the court a quo had legally and factually overstepped by granting the respondents an extension of time to commence arbitration proceedings against the appellants, despite a six-year time-barring provision.

In February 2005, the first respondent, Samancor Chrome Holdings (Pty) Ltd (SCH) bought the shares in the second respondent, Samancor Chrome Ltd, from the first appellant, Samancor Holdings (Pty) Ltd. Samancor Holdings gave SCH and Samancor Chrome certain indemnities in the sale agreement, including an indemnity in respect of Samancor Chrome’s income tax up to the closing date (3 April 2006). The sale agreement contained an arbitration clause under clause 43. Further, there was also a time-bar clause under clause 23.6 which required proceedings in respect of the income tax indemnity to be issued and served before the sixth anniversary of the effective date (1 June 2005).

The sale agreement provided that Samancor Holdings would indemnify SCH and Samancor Chrome from, amongst other things, any loss attributable to the conduct of the business sold and any proved liability for any taxation arising from the reopening of any assessment, including any consequential penalties or interest (indemnity clause).

According to clause 24.1.5, read together with clauses 24.1.1, 25.3 and 23.6 , the operation of the indemnity clause would have been barred and unenforceable if arbitration proceedings had not been initiated before 1 June 2011.

However, a dispute arose as an additional tax assessment relating to Samancor Holdings’ tax year ending June 2005 and was carried out. A consequent tax penalty and interest were levied. Following an unsuccessful attempt to demand that Samancor Holdings and the other two appellants admit liability for or pay the costs of the additional assessment, SCH and Samancor Chrome initiated arbitration proceedings in August 2013 for recovery of the amount of ZAR27,420,297.00, relying on clauses 24.1.1, 24.1.5 and 25.3 (the indemnity clauses). Notwithstanding that arbitration proceedings had commenced, the tax penalty and interest was settled in October 2013.

Time bars and public policy

Samancor Holdings and the other two appellants raised an array of defences in their statement of defence during the arbitration proceedings. For the purposes of this discussion, we will analyse the allegation that SCH and Samancor Chrome’s claim had become time barred.

In SCH and Samancor Chrome’s replication, it was alleged that the enforcement of the time bar would be contrary to public policy. They argued in the alternative, that if the arbitrator were to find the time bar enforceable, they asked that the arbitration be stayed to allow them to seek an extension of time from the High Court in terms of Section 8 of the SA Act. In the rejoinder, Samancor Holdings and the two other appellants denied that enforcing the time bar was contrary to public policy. They also denied that clause 23.6 (the time bar clause) was a clause falling within the ambit of Section 8 of the SA Act or that SCH and Samancor Chrome would suffer undue hardship if the time bar were enforced (paragraph 24 of the judgment).

In February 2018, the arbitrator had found in favour of SCH and Samancor Chrome, ruling that the time bar defence was contrary to public policy. The arbitrator further remarked in his award that he would have stayed proceedings to allow SCH and Samancor Chrome to approach a court to seek an extension of the time bar in terms of Section 8 of the SA Act if he had found that the time bar was enforceable. As the time bar was held to have been contrary to public policy, a stay in the proceedings for purposes of enforcing Section 8 of the SA Act was not necessitated.

The arbitration agreement uniquely contained an appeal provision, which Samancor Holdings and the other two appellants pursued. This was heard by an appeal panel in July 2018. It was held that the enforcement of the time bar was not contrary to public policy, due to the recourse available in Section 8 of the SA Act. The arbitration appeal panel stayed proceedings to allow SCH and Samancor Chrome to approach a court to seek an extension to the time-barring provision.

The court a quo granted SCH and Samancor Chrome an extension of the time bar until August 2013, that being the time at which they had served their statement of claim. The court further held, among other things, that Samancor Holdings and the other two appellants were at fault for causing the expiration of the time bar as a result of their late submission of their returns and omitting material information from the returns. It was further held that Samancor Holdings and the other two appellants had not proved that they would have suffered any prejudice from the extension of the time bar.

The SCA remarked that Section 8 of the SA Act is applicable in circumstances where unwarranted or inappropriate hardship would be caused to an aggrieved party if a time bar provision was to be enforced. The nature of the hardship envisaged would be excessive or disproportionate. The SCA remarked that the considerations that a court may have in ascertaining whether undue hardship has been caused would be:

• the terms of the time bar clause and the contractual setting of an agreement;
• the extent of a claimant's delay;
• the reasoning for the claimant's failure to timeously bring the claim;
• the claimant's fault in respect of the delay to timeously bring the claim;
• the extent of a defendant's contribution to the delay, if any;
• the nature and importance of the claim; and
• the harm suffered by a defendant, if any, as a result of the delay.

The SCA interpreted the wording of Section 8 of the SA Act more broadly, allowing it to be applied to more than just rare or exceptional circumstances.

The SCA held that the delay by SCH and Samancor Chrome in initiating proceedings in the court a quo was a factor that the court a quo should take into consideration in ascertaining whether to grant an extension. The delay, in itself, would not amount to a threshold consideration that would prevent an extension from being granted. Section 8 of the SA Act was held to be generous in its form, allowing a court to traverse the contractual principles of finality and party autonomy.

The SCA further found that the court a quo had not erred by finding that the Samancor Holdings was excessively late in submitting its tax returns and submitting a return that omitted material information, supporting the reason for SCH and Samancor Chrome’s late commencement of arbitration proceedings. The SCA concluded that the court a quo's decision was correct and dismissed the appeal.

In a South African context, the judgment advances important principles in the application of Section 8 of the SA Act. The principles advanced by the SCA illustrate that time-barring provisions in arbitration agreements governed by South Africa law are, in certain instances, not strictly enforced, provided that sufficient motivation as to why non-compliance with the time barring provision was not possible.

Provisions for courts in Kenya

Unlike South Africa, Kenya does not have an express provision allowing courts to extend contractual time bar provisions contained in arbitration agreements. Indeed, the Arbitration Act 4 of 1995 (Kenyan Act) greatly limits the intervention by Kenyan courts in arbitration proceedings. Section 10 of the Kenyan Act strictly provides that the Kenyan courts can only intervene in arbitration matters in the manner set out in the Kenyan Act. The absence of express provisions permitting Kenyan courts to extend time bar clauses has seen the courts very reluctant to interfere in contractual time bar provisions in arbitration agreements.

The Kenyan courts have, on numerous occasions, pronounced the importance of strict adherence to contractual time bar provisions as they are crucial in commercial transactions and relationships. In particular, in the case of Kenya Airfreight Handling Ltd (KAHL) v Model Builders & Civil Engineers (K) Ltd [2017] eKLR, the High Court held that contractual time bar clauses are to be enforced and strictly applied. Contractual time bar provisions provide certainty to parties on where they stand with respect to outstanding claims. They also prevent parties from dealing with disputes long after the event. This ultimately encourages parties to resort to arbitration as the preferred mode of dispute resolution.

Kenyan courts have also clarified that the time bar clause does not necessarily make the claim statute time barred. They have held the position that it only bars the arbitral process as the mode of determining the claim. A reading of the time bar provisions in arbitration agreements may reveal that a party is in fact at liberty to commence an action in court or in any other forum as may be agreed. This therefore means that in the event that a party is locked out of commencing arbitration proceedings by a time bar clause, it may have a recourse to the courts for the determination of the claim.

This position is in stark contrast to the Samancor Holdings (Pty) Ltd and Others v Samancor Chrome Holdings (Pty) Ltd and Another case where the SCA held that the courts can indeed extend the time for filing a claim outside the prescribed time period. As mentioned, parties would only need to prove that they are likely to suffer unwarranted or inappropriate hardship if a time bar provision was to be enforced.

In addition, Kenyan law provides that claims in contract must be filed within six years. No extension of this time period can be granted by a Kenyan court. This was the position held by the Court of Appeal in Divecon Ltd v Samani [1995–1998] 1 EA 48, which stated that no court in Kenya has the jurisdiction to extend the limitation period in cases founded on contract. As has been demonstrated, intervention by Kenyan courts in the extension of contractual time bars and statute time-barred contractual claims is very limited.

From a Kenyan perspective, possible future amendments to the Kenyan Act may capture the new developments occurring in other jurisdictions insofar as time-barring provisions are concerned.

The growing jurisprudence on the intervention by courts in the extension of time bar clauses in arbitration agreements appears to be constantly developing. It is imperative that arbitration practitioners continue to keep abreast of developments in their jurisdictions before advising clients that their claims are time barred.

While time may wait for no one, in some jurisdictions, intervention by the courts and their liberal interpretation of time barring provisions can often buy the time your client is seeking.