In Dis-Chem Pharmacies Limited v Dainfern Square (Pty) Ltd & Others, the Supreme Court of Appeal ("SCA") was called upon to decide whether an arbitrator had jurisdiction over Dis-Chem Pharmacies Limited's unjustified enrichment claim against Dainfern Square (Pty) Ltd.

Facts

In October 2016, Dis-Chem signed a written lease agreement with the owner of Dainfern Square Shopping Centre. In terms of the lease agreement, Dis-Chem took occupation of shop 27 at the Shopping Centre and was liable to pay monthly rental and turnover rental to Dainfern. Annexure F to the lease agreement provided a formula for the calculation of Dis-Chem's financial year-end turnover rental.

Around May 2020, Dis-Chem lodged a claim with the arbitrator and alleged that in May 2016, 2017 and 2018, Dainfern claimed payment of turnover rental through invoices in the amounts of ZAR646 258.26, ZAR1 543 300.34 and ZAR2 010 065.97, respectively. Dis-Chem alleged that it paid the invoices on 1 June of three consecutive years, and at the time of paying the invoices, it made a bona fide (but reasonable and mistaken) acceptance of the correctness of the invoices.

However, Dis-Chem alleged that no turnover rental was payable in circumstances where 1.75% of Dis-Chem's turnover in any one of the relevant periods did not exceed the basic rental. Therefore, the total amount invoiced by Dainfern in the three years (ZAR4 199 624.57) constituted an overpayment. In these circumstances, Dis-Chem alleged that Dainfern had been enriched and Dis-Chem impoverished in respect of the total amount invoiced and that despite demand, Dainfern had refused to repay the overpayment. Dis-Chem's claim was therefore one of unjustified enrichment.

In response, Dainfern raised two special pleas to the claim: a special plea of jurisdiction and a special plea of prescription. In relation to the first special plea of jurisdiction, Dainfern contended that since Dis-Chem had sought an award for payment on the basis of an enrichment action, this fell outside the jurisdiction of the arbitrator.

The arbitrator dismissed Dainfern's special plea. He ruled that the dispute principally related to the interpretation of annexure F to the lease agreement and therefore he had the requisite jurisdiction to determine the dispute. However, the Pretoria High Court disagreed and declared that the dispute did not fall within the ambit of the arbitration clause of the lease agreement and that Dis-Chem incorrectly referred the dispute to arbitration.

The SCA's findings

The Supreme Court of Appeal ("SCA") had to decide whether, based on a correct interpretation of the arbitration clause, the arbitrator had the requisite jurisdiction to adjudicate Dis-Chem's claim of unjustified enrichment.

The SCA held that the interpretation of the arbitration clause 33.1 of the lease agreement was central to determining the issue of the arbitrator's jurisdiction. In particular, the SCA held that on a proper construction of the wording of clause 33.1 of the lease agreement, the phrase "any disputes or differences, doubts or question arising between the parties", may be categorised as either:

  • an interpretation of any provision of the agreement of lease; or
  • the implementation of the lease agreement.

The SCA held that the wording of the clause can also be construed as including both interpretation and implementation.

The SCA remarked that the High Court followed Dainfern's approach that the claim essentially consisted of two parts. The first part of the claim related to Dainfern's application of the formula to calculate the turnover rental and the issuing of the inflated invoices. Dainfern had conceded that this part of the claim related to the interpretation of annexure F to the lease agreement, and fell within the arbitrator's jurisdiction. The SCA further remarked that the second part of the claim which was disputed related to the relief sought by Dis-Chem if it were to prove that on its interpretation the invoices were inflated and incorrectly issued. In relation to this part of the claim, Dainfern contended that Dis-Chem's claim for unjustified enrichment was a separate course of action which raised "other requirements", and therefore did not fall within the terms of the arbitration clause 33.1 of the lease agreement.

The SCA concluded that the High Court erred by overlooking the nature of the dispute. In particular, the SCA stated that as formulated by the arbitrator, the central dispute related to a determination of the correct interpretation of the lease agreement, in the course of the implementation of the formula relating to the calculation of turnover rental. The SCA held that until that determination was made, the issue as to whether any party was unjustifiably enriched or impoverished, did not arise.

The SCA noted that Dainfern had not pleaded that the claim for unjustified enrichment included "other requirements" and did not plead how these other requirements excluded the jurisdiction of the arbitrator. In these circumstances, the SCA concluded that the High Court's conclusion based on unnamed "other requirements" amounted to speculation as to what may or may not arise in the course of the arbitration of the dispute.

In relation to the principles applicable to the determination of the scope of jurisdiction of an arbitrator, the SCA held that the courts in South Africa have, over the years, relied on English cases. The SCA quoted with approval the paragraph below from a previous SCA decision:

"[20] In North East Finance v Standard Bank (North East Finance), this Court held:

'In addition, a contract must be interpreted so as to give it a commercially sensible meaning: Ekurhuleni Metropolitan Municipality v Germiston Municipal Retirement Fund. This is the approach taken to consider the ambit of an arbitration clause adopted in Fiona Trust. We must thus examine what the parties intended by having regard to the purpose of their contract.'

In adopting the approach of the courts in England, the court in North East Finance referred to an address by Lord Hoffman in Fiona Trust, and held:

'It was necessary, therefore, Lord Hoffman said, to have regard to the purpose of the agreement as a whole and of the arbitration clause in particular. In doing so, the court would assume that generally parties intended to have all their disputes under an agreement determined by the same tribunal – not some disputes by an arbitrator and others by a court. If the parties intended otherwise, it was easy enough for them to say so.'"

The SCA also referred to the English case of Fili Shipping Co Ltd v Premium Nafta Products and Others, where Lord Hoffmann said:

"In my opinion, the construction of an arbitration clause should start from the assumption that the parties, as rational businessmen, are inclined to have intended any dispute arising out of the relationship into which they have entered or purported to enter to be decided by the same tribunal. The clause should be construed in accordance with this presumption unless the language makes it clear that certain questions were intended to be excluded from the arbitrator's jurisdiction."

The SCA agreed with Dis-Chem's submission that the arbitration clause did not refer to any course of action or any claim, but referred to "any dispute or difference or doubt or question". The SCA concluded that any entitlement that Dis-Chem may have to recover from Dainfern depends squarely on the determination of a dispute as to the correct interpretation and the implementation of the calculation clause in annexure F of the lease agreement and that this dispute fell within the arbitrator's jurisdiction.

Finally, the SCA held that the High Court erred in granting a declaratory order in circumstances where the arbitration had not reached finality and certainty on the merits of the claim. The SCA accordingly upheld Dis-Chem's appeal with costs including costs of two counsel, and set aside and substituted the order of the high court.

Key takeaway

In order to determine the scope of jurisdiction of an arbitrator, the starting point is to have regard to the purpose of the agreement as a whole and, in particular, to the arbitration clause of the agreement.

In addition, unless the parties specifically exclude certain questions from the arbitrator's jurisdiction in the arbitration clause, the courts will assume that the parties intend to have all their disputes under the agreement determined by arbitration.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.