Section 8 of the Arbitration Act 1965 allows a court to extend the period allowed for arbitration in terms of an arbitration agreement if ‘undue hardship would otherwise be caused’. The Johannesburg High Court held that it would cause ‘undue hardship’ to refuse to extend a time-bar in circumstances where the events that caused the dispute only arose after the expiration of the agreed six year time-bar period.
In a major transaction between sophisticated commercial entities advised by specialist lawyers, the parties stipulated a six year time-bar period for arbitration. A dispute arose relating to a tax liability of R52.3 million that was only raised by SARS after the six years was up. One party claimed undue hardship and asked for the six year period to be extended. The other parties said that the time-bar had been entered into by major and equal commercial entities and their agreement should be respected.
The court analysed a number of cases, including persuasive cases from England, where ‘undue hardship’ has come to mean not excessive hardship but significant hardship. Although South Africa respects the autonomy of parties to enforce agreed contractual provisions, the parties to this contract would have entered into the time-bar with the knowledge of section 8 of the Arbitration Act which allowed the court to extend the time and the contractual time-bar could not override the statutory right.
This does not mean that every arbitration clause is open-ended. For instance, extensions will usually be refused where there is fault on the part of the person seeking the extension.