The August 2023 High Court case of Horn & Another v Nel & Others discusses when, in terms of Section 3(2) of the Arbitration Act, a court can set aside a valid arbitration agreement.

The applicants asked the court to set aside an arbitration agreement concluded in terms of a dispute resolution clause of a shareholders agreement. The shareholders agreement detailed the way a shareholder’s equity would be valued upon their exit, with it referring to a specific valuator who was not party to the agreement itself. The dispute was around the valuation of the departing shareholders’ equity. The applicants alleged that, as the dispute was about the way the valuator had conducted the valuation, and the valuator was not a party to the shareholders agreement, and in turn the arbitration agreement, the arbitration agreement must be set aside in terms of Section 3(2) of the Arbitration Act, which states:

“The court may at any time on the application of any party to an arbitration agreement, on good cause shown –

  1.  set aside the arbitration agreement; or
  2. order that a particular dispute referred to in the arbitration agreement shall not be referred to arbitration; or
  3. order that the arbitration agreement shall cease to have effect with reference to any dispute referred.”

In assessing the term “good cause” and the court’s discretion in the context of arbitration agreements, the court referenced several precedents:

  • De Lange v Presiding Bishop for the time being of the Methodist Church of Southern Africa and another wherein the Supreme Court of Appeal clarified that, from Section 3(2) of the Act, it is evident that a court has discretion on whether to enforce an arbitration agreement. The primary question revolves around whether the applicant has provided sufficient cause to set aside the arbitration agreement. The term “good cause”, the SCA held, “is a phrase of wide import that requires a court to consider each case on its merits in order to achieve a just and equitable result in the particular circumstances.”
  • Rhodesian Railways v Mackintosh noted the court’s discretion to refuse arbitration under a submission should be exercised judiciously, and only when a “very strong case” for its implementation has been presented.
  • Halifax Overseas Freighters, Ltd. v Rasno Export; Technoprominport and Polskie Linie Oceaniczne P.P.W. (“The Pine Hill”) maintained that there should be ‘compelling reasons’ for a court to decline upholding a party’s agreement to resolve a dispute through arbitration.
  • Russel v Russel stated that situations in which discretion against arbitration should be exercised are ‘few and exceptional.’
  • Rawstone and Another v Hodgen and Another posited that the discretion to dictate that “any particular dispute referred to in the arbitration agreement shall not be referred to arbitration” is limited in scope. Those looking to sidestep an agreement to solve a dispute through arbitration should present compelling reasons why the matter should be settled in court.

The court found that fact the valuator was not a party to the arbitration agreement or the proceedings did not make the arbitration “abortive and incompetent” as alleged, and that good cause – as canvased in the precedents – had not been shown as to why the arbitration agreement should be set aside. The application was dismissed.