An arbitration award does not create a new debt for purposes of prescription. Parties who wait more than one year to have an arbitration award made an order of court with a 30 year prescription period may find that, when they attempt to enforce the award, the underlying debt has prescribed. Parties should deal expressly with prescription in their arbitration agreements to avoid this consequence.
The Supreme Court of Appeal has held that a debt subject to arbitration prescribes according to the provisions of the Prescription Act 1969, measured from the date that the debt arose, even after an arbitration award is made. The handing down of the award does not restart the prescription clock.
Under section 13(1) of the Prescription Act the debt does not prescribe until one year after the date of the arbitration award if the debt would otherwise have prescribed during that period. Explanatory examples of how Section 13(1) operates in these circumstances can be found here.
Once an award is made an order of court, it enjoys a 30 year prescription period in terms of the Act. It is therefore advisable to have an arbitration award made an order of court soon after it is handed down, unless the losing party immediately complies with the arbitration award. Alternatively, parties can contract themselves out of a right to rely on the defence of prescription in the arbitration agreement.
The SCA overturned previous decisions and academic writing which said that arbitration awards are ‘new’ debts, with their own 3 year prescription period. Arbitration awards merely confirm or liquidate the debt in issue.
The case is Brompton Court Body Corporate v Khumalo.