Mar 29, 2019
Arbitration Clause in Sale Agreements
Case summary topic: Arbitration clause in sale agreements
Seabeach Property Investment No 28 v Candice Lauren Nunn Case no.: 18310/18 In the High Court of South Africa, Western Cape Division
The Applicant sought an order that the dispute that arose between the parties had validly and properly been referred to arbitration. In the alternative, the Applicant sought an order that the dispute was arbitrable and should accordingly be referred to arbitration by the Court.
The Respondent insisted that only a Court could resolve the dispute. The Respondent argued that the written agreement entered into between the parties was void ab initio due to a fundamental mistake that was brought about by the Applicant’s estate agents, which rendered the whole agreement (including the arbitration clause), null and void.
On 28 February 2018, the parties concluded a written agreement of sale in respect of a flat situated in Sea Point, which included two parking bays and a roof terrace as exclusive use areas. The property (aside from the parking bays) consisted of two levels and a roof terrace totalling 616 square meters.
The Respondent said that, at the time of signing, she was led by the Applicant’s estate agent to believe that the property was 616 square meters and that she would acquire full ownership of both the lower and upper level. The Respondent claimed that she only became aware of the fact that the roof terrace was owned by the body corporate after signing the agreement, which meant that she wouldn’t acquire ownership thereof.
The Respondent signed the cover page of the agreement which contained a table that set out the exclusive use area and she initaled next to it. However, she stated that even if she had read it, she would not have understood the meaning of it. The Respondent verily believed, as a result of the estate agent’s misrepresentation, that she would become the owner of the rooftop terrace.
The Applicant’s estate agents denied that the sale agreement was void, in light of the correspondence that was exchanged between the parties.
In Heyman v Darwin’s Ltd, the Court held that: “The question whether a dispute comes within the provisions of an arbitration clause or not primarily depends upon the terms of the clause itself.”
In the present instance, the clause provided that: “(A)ny dispute between the parties in connection with or arising out of … the formation, implementation, validity, enforceability and rectification of the Agreement, shall be referred to and determined by Arbitration.”
The Applicant argued that it was clearly intended that all disputes regarding the question whether the agreement was void or merely voidable should be determined by an arbitrator. The Respondent argued that, due to her fundamental mistake, the entire contract between the parties should be regarded as void ab initio, which would result in all of its clauses, including the arbitration clause, falling with it.
The Court found that the argument that if a contract is void from the outset, all clauses including the arbitration clause will be void from inception, was misguided. It was further held that “a Court must ascertain what the parties intended by having regard to the purpose of their agreement, and interpret it contextually so as to give it a commercially sensible meaning.”
The ultimate question for consideration was whether the parties intended disputes to be determined by an arbitrator. If so, he or she should then determine whether the contract was valid and enforceable or voidable or void.
The Court found that, having regard to the agreement as a whole, together with the arbitration clause, it was evident that the parties envisaged and intended, when signing the agreement, that all of their disputes regarding the agreement, whether void or voidable, would be determined by an arbitrator.
Further, a clause in the agreement specifically stated that “despite the termination of or invalidity for any reason of this Agreement of any part thereof” the arbitration clause would remain in effect. The Court found that the arbitration clause, in effect, constituted a separate self-standing agreement and that the parties intended to isolate and ring-fence their agreement to go to arbitration.
Therefore, even if the remaining part of the agreement was to be found void or voidable, the parties agreed that it would not affect the validity and enforceability of the arbitration clause.
The Court concluded that the Applicant correctly referred the clause to arbitration and that the dispute is, in fact, arbitrable in terms of the agreement.
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