Canton Trading 17 (Pty) Ltd t/a Cube Architects v Fanti Bekker Hattingh NO

Disputed arbitration agreement considered by SCA and decided to refer the matter back to the high court based on the following:

“However, where the high court fell into error was to undertake an assessment of the probabilities on the evidence before it and then determine that there was an agreement on the terms of the PSP. What was required was a consideration of whether the application was to be dismissed or whether the challenge to the existence of the arbitration agreement would be better determined by way of a referral to evidence and the consideration of the issues of separability and the applicability of the concept of competence-competence. The full court, endorsing as it did the approach of the high court, was also in error when it dismissed the appeal.”

Essence

SCA considered disputed arbitration agreement and by a majority decision decided to refer the matter back to the high court.

Decision

 (SCA 479/2020) [2021] ZASCA 163 (1 December 2021)

Order:

On appeal from: Free State Division of the High Court, Bloemfontein (Naidoo ADJP and Daffue and Reinders JJ sitting as court of appeal.)

1 The appeal is upheld with costs.
2 The order of the full court is set aside and substituted with the following order:
‘(a) The appeal is upheld with costs.
(b) The order of the high court is set aside and substituted with the following order:
“The application is remitted to the high court to determine whether the application should be referred to evidence, and if so on what terms, or whether the application should be dismissed”.’

Judges

Mocumie JA and Unterhalter AJA (Saldulker and Mathopo JJA concurring) with Phatshoane AJA dissenting in part

Heard:       20 August 2021
Delivered:   1 December 2021

Related books

Darcy du Toit et al Labour Relations Law: A Comprehensive Guide 6ed 925 pages (LexisNexis 2015) at

Darcy du Toit et al Labour Law Through The Cases – loose-leaf service updated 6 monthly (LexisNexis 2021)

Van Niekerk and Smit (Managing editors) et al [email protected] 5ed (LexisNexis 2019) at

Myburgh and Bosch Reviews in the Labour Courts 1ed (LexisNexis 2016) at 

Reasons

“[38] What North East and Zhongji make plain is that the parties have wide-ranging autonomy to agree that matters concerning the validity, enforceability and existence of an agreement shall be referred to arbitration. If they have consented to such a referral, then the courts will respect their agreement and will not decide these matters. It will be for the arbitrators to do so. And this holds good, even though the arbitrators will thereby be deciding upon their own jurisdiction.

An arbitration clause may be found to subsist separately from the main agreement of which it forms part, and may thus be enforced, even if there is a challenge to the validity, enforceability or existence of the main agreement.

However, where there is a challenge to the arbitration agreement itself, so as to put into question the consent of the parties to have any dispute submitted to arbitration, the court will have to consider how best to deal with that challenge. The court may decide the challenge.

But, as discussed above, the court may also decide that it would be preferable to decline the invitation to do so, and under the guidance of the principle of competence-competence, allow the arbitrators the opportunity to first render an award on the question of their jurisdiction.”

Quotations from judgment

Note: Footnotes omitted and emphasis added

Mocumie JA and Unterhalter AJA (Saldulker and Mathopo JJA concurring.)

[1] The central question in this appeal is whether the Free State Division of the High Court (the high court) was correct to order the appellant (Canton Trading) to submit certain disputes to arbitration.

[2] Canton Trading appealed the high court’s order to the full court of the Free State Division of the High Court (the full court). The full court dismissed its appeal. Canton Trading appeals that order, with the special leave of this Court.

[3] The background facts are as follows. Canton Trading is a firm of architects. During 2011, the respondent, the Qwaha Trust (the Trust), commenced its use of the professional services of Canton Trading. Canton Trading rendered professional architectural services to the Trust in respect of various projects. Some seven projects were undertaken.

[4] During 2013, the respondent wished to expand the Itau Mill on plot 47 Qwaggafontein, Bloemfontein (the project) and approached Canton Trading to engage its services for the project. Canton Trading orally accepted the offer to do so.

As the principal agent of the Trust, on 5 February 2014, Canton Trading negotiated and concluded a building agreement referred to as the Joint Building Contracts Committee Series 2000 Standard Building Agreement (the JBCC agreement) with a building contractor, Royal Anthem Investments 12 CC (the contractor). Canton Trading was appointed as the Trust’s principal agent under clause 42.4 of the JBCC agreement. When the JBCC agreement was concluded, Mr Johan Louw (identified as the project manager) signed the JBCC agreement, representing Canton Trading as the principal agent and duly appointed representative of the Trust. A document, styled the ‘Appointment of Professional Service Provider’ (PSP), was prepared by Canton Trading’s attorneys and presented to the Trust during March 2014. The PSP was not signed by either of the parties. Nonetheless, throughout the project, Canton Trading rendered services and was paid by the Trust upon presentation of its invoices.

[5] Canton Trading acted as the Trust’s principal agent until 2 August 2014. The JBCC agreement was terminated on the instructions of the Trust on the basis of defective work performed by the contractor. The Trust took up the position that Canton Trading had failed to perform its duties as its principal agent and issued a letter of demand in which it invited Canton Trading to agree to the appointment of a mediator, failing which, in terms of clause 23 of the PSP, the dispute was to be submitted for mediation and arbitration.

[6] Correspondence was exchanged between the attorneys of the parties. In a letter dated 15 September 2017, the attorneys acting for Canton Trading acknowledged receipt of the demand of the Trust, and responded that they were considering their client’s position and would revert. On 2 November 2017, the attorneys for the Trust reminded Canton Trading’s attorneys that a dispute had been raised in terms of clause 23.6 of the PSP and that Canton Trading had failed to confirm that the matter was to be referred to a mediator.

They afforded Canton Trading a period of 21 (twenty-one) days, as envisaged in clause 23.6 of the PSP, to confirm the appointment of either Judge Hancke and or Judge Cilliers (both retired judges), to act as the arbitrator and for the matter to be referred to arbitration.

[7] On 7 November 2017, Canton Trading’s attorneys informed the Trust that their client was not prepared to mediate and that Canton Trading was in principle prepared to proceed with the arbitration process. On 20 November 2017, and in response to the letter of 2 November 2017, Canton Trading’s attorneys informed the Trust that they were satisfied with the appointment of Judge Hancke as the arbitrator and requested that the Trust’s attorneys prepare a draft arbitration agreement. The Trust’s attorneys responded on 29 November 2017. They indicated that Judge Hancke had agreed to serve as arbitrator and enclosed a draft arbitration agreement to be signed by Canton Trading, in the event that the draft was satisfactory.

[8] On 5 December 2017, Canton Trading’s attorneys responded. They indicated that the attorney who had been working on the matter had resigned and another attorney had been assigned to deal with the matter; they were happy with the appointment of Judge Hancke as the arbitrator and requested a pre-arbitration meeting on 24 January 2018. On 7 December 2017, the parties confirmed and agreed that the pre-arbitration meeting was to be held without the arbitrator.

[9] On 24 January 2018, the pre-arbitration meeting was held. At this meeting, the arbitration agreement was discussed and the parties agreed to the appointment of Judge Hancke, his remuneration and their liability for payment. During the meeting, Canton Trading specifically requested that the following paragraph be inserted into the pre-arbitration agreement:

‘The pre-arbitration agreement is further subject to the condition that the Defendant (Canton Trading) must obtain the approval/consent of the Defendant’s insurer (in the event of it being the Defendant’s version that there is no signed agreement to submit to arbitration) of the arbitration agreement.’

[10] Canton Trading’s attorneys inserted this clause on the instructions of their client’s insurer. On 30 January 2018, Canton Trading’s attorneys informed the Trust’s attorneys that they had consulted with their client. Their instructions were that the parties had not signed the PSP and that the arbitration provision in the PSP was therefore unenforceable. They invited the Trust’s attorneys to issue summons should their client wish to proceed with the matter. The Trust then afforded Canton Trading seven days to sign the amended pre-arbitration agreement. Canton Trading’s attorneys responded on 26 February 2018. They indicated that Canton Trading does not recognise the existence of the arbitration agreement.

[11] The Trust approached the high court on motion for an order in the following terms:

‘(a) That the respondent be ordered to submit to arbitration to have the disputes set out in the Arbitration Agreement which is attached to the applicant’s founding affidavit as annexure ‘’B’’s adjudicated;
(b) That the Respondent be ordered to pay the costs of this application.
(c) Further and/or alternative relief.’

[12] The high court recognised that Canton Trading had set out in its answering affidavit its version as to why no agreement had been concluded to submit any dispute to arbitration. The high court, nevertheless, decided that it would adopt what it considered to be the robust approach [of the SCA per Cameron JA] referenced in Fakie NO .

The high court considered the issue before it to be as follows:

‘The question therefore revolves around the veracity of the respondent’s denial, viewed in the light of the evidence as a whole.’ The high court concluded that ‘the mere fact that the document was never signed, as has been the case in the past with several contracts since before 2011 when this one in dispute came into existence, did not in the circumstances of this matter, necessarily, lead to the conclusion that it did not form the basis of the agreement regulating the relationship between the parties’.

It held furthermore that,

‘the perceived disputes raised by the respondent as to the existence and binding effect of the written document [are] clearly untenable, palpably implausible and uncreditworthy’.

The high court consequently found that there was an arbitration agreement concluded between the parties which had come into existence.

[13] The high court ordered Canton Trading to submit to arbitration the disputes set out in the arbitration agreement, as amended, and that Canton Trading was to pay the costs of the application.

It granted the following order:

‘1. The arbitration agreement, annexure B to the applicant’s founding affidavit, is amended by the deletion of the second paragraph on page 1 thereof as well as part A and the first sentence of Part B on page 3 thereof.
2. The date of 10 March 2018 in paragraph 7.2 thereof is replaced by the date of 19 October 2018.
3. Prayer A of the notice of motion is granted subject to the amendments in paragraphs 1 and 2 above.
4. [The] respondent [is ordered to] pay the costs of the [application], including the costs occasioned by the employment of senior counsel.’

[14] Canton Trading appealed to the full court and contended that,

  1. first, the high court entered the arena between the parties and granted relief not sought. As such, it did not exercise its discretion judicially and within the parameters prescribed by the law.
  2. Second, the applicable legal principles in the adjudication of motion proceedings, namely that motion proceedings are decided on the version of the respondent, was not adhered to and the strict requirements for the application of a robust approach were not met, especially in circumstances where neither party sought the application of such an approach.
  3. Third, the Trust had failed to prove that there was animus contrahendi.

[15] The full court did not agree with these contentions and found against Canton Trading. It held that,

‘where a party relies on the provisions of Rule 6(5)(g), as the appellant seems to have done, it is common sense, that the court is called upon to examine the very dispute in order to determine whether it creates a genuine dispute of fact or not.’

The full court held further that the high court, acting in terms of Rule 6(5)(g), had reasoned correctly, and exercised one of the permissible options available to it in terms of the applicable law.

The full court went on to record that

‘the appellant conceded that a signed agreement was not a prerequisite for a written document to have a binding effect. This concession was properly made, as it is evident from the provisions of the Arbitration Act 42 [of] 1965, that it does call for a written agreement to be signed in order for it to be valid and binding. The high court undertook an extensive examination of the respective versions of the parties as they appear in the papers and found that the appellant’s denial of the existence of an agreement was palpably untrue and not worthy of credence, warranting the rejection of its version. I am unable to fault the reasoning or the conclusion of the court in this respect’.

The full court went on to dismiss the appeal with costs. Thus, the appeal to this Court.

[16] Counsel for Canton Trading submitted that the case for the Trust was delineated in paragraph 4 of its founding affidavit and later made clearer in para 2.5 of its replying affidavit: the high court was to adjudicate upon one issue only, namely, whether the appellant should be compelled to submit to arbitration – nothing more.

Paragraph 4 of the founding affidavit reads:

‘Lest there be any confusion, the relief referred to supra does not constitute relief in terms of which the [a]pplicant seeks to have any dispute between the parties which has arisen out of or by virtue of any agreement between the parties adjudicated. The [a]pplicant seeks only to compel the Respondent to submit to arbitration to have such dispute(s) adjudicated upon by the forum agreed upon between the parties.’

Para 2.5 of the replying affidavit reads:

‘It is therefore respectfully submitted that the question whether or not a valid arbitration agreement had been concluded between the applicant and the respondent falls squarely within the purview and jurisdiction of the proposed arbitrator and the applicant therefore does not move for an order in terms of which the Court is asked to make a determination in respect of such question. What the applicant moves for is solely that the respondent be compelled to submit to arbitration to have the question which is referred to above adjudicated by [an] arbitrator.’

[17] In its answering affidavit before the high court at para 3 the appellant stated:

‘. . . the respondent’s case and defence [is] that there is no operative and/or binding and/or enforceable arbitration agreement in existence between the applicant and the respondent in terms of which the respondent can be ordered to submit to arbitration.’

Furthermore, at para 3.6 it states

‘. . . I emphasise that it is the respondent’s case and defence that it did not enter into any written agreement with the applicant with the necessary animus contrahendi to submit any dispute between the applicant and itself to arbitration.’ (Emphasis added.)

[18] Counsel for Canton Trading contended that initially neither of the parties requested the high court to find whether there was a bona fide factual dispute as to the existence of the arbitration agreement. What the Trust sought was an order compelling Canton Trading to submit to arbitration. Instead, the high court disregarded Canton Trading’s evidence.

It decided, without being requested to do so, that there was no real bona fide dispute of fact which could not be resolved on the papers. The contention was made that it was common cause that there was a dispute of fact as to whether there was an agreement to arbitrate and the only question for the high court to decide was whether that issue should be referred to arbitration. Instead, the high court found that an arbitration agreement existed as between the parties.

[19] To persuade this Court that the high court exceeded its powers, counsel for Canton Trading argued that this Court in Fisher and Another v Ramahlele and Others set limits within which a court may exercise its discretion in motion proceedings. The essence of this submission was to the effect that, ordinarily, a court may not mero motu raise a new issue for adjudication not identified on the papers by the parties, save where it was a question of law that emerged fully from the evidence, it was necessary to decide the matter, and no party was caused prejudice.

[20] Counsel for Canton Trading further relied on Fiona Trust & Holding Corp and others v Privalov and others which he contended supported the case for the appellant, the court there stated at para 38:

‘The judge relied on Ahmed Al-Naimi v Islamic Press Agency [2000] 1 Lloyds Rep 522 to decide as a matter of his discretion that it was more convenient for the court to decide the question whether the charterparties and the arbitration clause were invalidated by the alleged bribery of the owners’ agents because it was best that the matter should be decided only once. If the matter were truly a matter of his discretion that exercise of it might well be difficult to criticise, but the discretion of the court only arises if there is truly a “question whether there is a valid arbitration agreement”.

As we have sought to explain, once the separability of the arbitration agreement is accepted, there cannot be any question but that there is a valid arbitration agreement. Al Naimi (in which Judge Lloyd’s four options are all set out and approved) was different because in that case there was a real question as to whether any arbitration agreement had come into existence or (perhaps more accurately) whether the agreement that did exist under a preceding contract covered disputes that arose pursuant to a subsequent ad hoc contract.

If there is a contest about whether an arbitration agreement had come into existence at all, the court would have a discretion as to whether to determine that issue itself but that will not be the case where there is an overall contract which is said for some reason to be invalid e.g. for illegality, misrepresentation or bribery and the arbitration agreement is merely part of that overall contract. In these circumstances it is not necessary to explore further the various options canvassed by Judge Humphrey Lloyd since we do not consider that the judge had the discretion which he thought he had.’ (Emphasis added.)

[21] In response, counsel for the Trust relied on several authorities of this Court and the Constitutional Court to make the following submission: the parties had wrongly delineated the legal issue to be determined by the high court in their papers, namely, to compel the appellant to submit to arbitration. For this reason, the high court was empowered to adopt a robust approach.

The presiding judge indicated his prima facie view that the parties had it wrong on the legal issue to be determined, which view counsel for Canton Trading had also accepted. He contended that, to indicate that the parties accepted the course adopted by the high court, it was placed on record on behalf of the Trust that it would abide the decision of the court. The Trust further contended that Canton Trading had also accepted the approach which the high court had proposed to the parties.

[22] The key issue before this Court was crystalized during argument as follows.

In the face of a dispute of fact that an agreement existed to refer disputes between the parties to arbitration, was there any basis to find that the parties had agreed to refer to arbitration the very dispute as to the existence of an agreement to arbitrate? If that is not what the parties agreed to, then, was it competent for the high court to decide the dispute as to whether there was an agreement to refer the disputes to arbitration?

[23] We proceed to consider whether the parties agreed to refer to arbitration their dispute as to whether there existed an arbitration agreement. We shall reference this dispute as the ‘existence dispute’.

If there was a referral of the ‘existence dispute’ to arbitration, then it follows that the high court could not decide the existence dispute, and was in error in doing so.

[24] We have read the judgment of Phatshoane AJA (the second judgment). The second judgment concludes that the parties indeed agreed to refer the ‘existence dispute’ to arbitration. The second judgment places emphasis upon particular provisions of the PSP. The Trust contended that that the PSP set out the terms of its agreement with Canton Trading, whereas Canton Trading denied that this was so.

[25] Clause 23 of the PSP provides that certain disputes shall be referred to mediation, failing which, the disputes shall be submitted to arbitration. Clause 23.1, in familiar language, reads as follows:

‘Any dispute arising between any of the Parties in regard to: the interpretation of; or the effect of; or the carrying out of; or any other matter arising directly or indirectly out of, this Agreement (“the Dispute”) shall be referred to a mediator agreed upon between the Parties’.

Clause 23.2 goes on to state that if the parties cannot agree on a mediator or resolve the dispute by way of mediation, then the dispute shall be submitted and decided by arbitration. The following words are then written,

‘Save as set out herein, the arbitration shall be conducted in accordance with the rules and regulations of the Arbitration Foundation of South Africa Limited (AFSA), in force from time to time’.

[26] The second judgment sets out the AFSA rules, in relevant part. Sub-article 11.2.2 of the commercial rules of AFSA confer upon the arbitrator the power ‘to rule on his own jurisdiction, including rulings on any dispute in regard to the existence or validity of the arbitration agreement or the scope thereof.’

Since clause 23.2 of the PSP requires that an arbitration must be conducted in accordance with the AFSA rules, those rules grant a wide power to the arbitrator to rule on questions of jurisdiction, including whether an arbitration agreement exists.

This competence, the second judgment finds, requires a duly appointed arbitrator and not the courts to decide whether the PSP constitutes an agreement by the parties to arbitrate, and hence whether an arbitration agreement exists. Therefore, the high court could not determine the existence issue, and fell into error in doing so.

[27] This line of reasoning raises important issues as to the competence of the high court to decide whether an arbitration agreement has come into existence, in the face of a dispute between litigants as to whether this is so.

[28] In North East, this Court [per Lewis JA], following a line of English cases, recognised that parties may agree that a dispute pertaining to the validity of an agreement is to be determined by way of arbitration, even though the arbitration clause referring the dispute to arbitration forms part of the agreement that is subject to the validity challenge. There is nothing contradictory in this position.

The parties enjoy autonomy to agree that categories of dispute arising between them will be submitted to arbitration for resolution, rather than be determined by the courts. Precisely which disputes are to be submitted to arbitration is a question of what has been agreed, and the interpretation of the parties’ written agreement.

Generally, the parties intend that all their disputes will be decided under a unitary jurisdiction, either by the courts or by way of arbitration, and not under a bifurcated jurisdiction, where some disputes are determined by the courts and others by submission to arbitration.

[29] It follows that the parties may agree that disputes arising as to the validity or enforceability of an agreement must be determined by way of arbitration and not before the courts. The arbitration clause that gives expression to this agreement may form part of the written agreement of which the validity or enforceability is disputed.

If the arbitrators uphold the challenge to the validity or enforceability of the agreement, their decision vacates their jurisdiction to decide any further dispute arising from the agreement. There is nothing paradoxical about this outcome. The parties agreed that this competence was to be conferred upon the arbitrators. Their exercise of this competence is precisely what the parties intended.

[30] This reasoning of the second judgment is predicated upon the premise that there was an agreement between the parties as to the disputes that are to be submitted to arbitration. Those disputes may include the enforceability and validity of the agreement. But what if the very agreement to submit these disputes to arbitration is itself subject to challenge?

North East affirmed the following dictum in Heyman v Darwins Ltd ,

‘[i]f the dispute is as to whether the contract which contains the clause has ever been entered into at all, that issue cannot go to arbitration under the clause, for the party that denies he has ever entered into the contract is thereby denying that he has ever joined in the submission.’

[31] Since the submission of a dispute to arbitration requires the consent of the parties, if the very agreement that requires the submission is challenged on the basis that such agreement never came into existence, a dispute exists as to whether there was submission of the dispute to arbitration at all. The problem that then arises is this: who decides the ‘existence dispute’, the courts or the arbitrators?

[32] The question as to who decides whether a dispute goes to arbitration or remains in the courts is one of ever greater significance, given the enhanced role that arbitration enjoys in the resolution of disputes, both domestically and in transnational law. This question may arise at different stages.

As the present matter illustrates, there may be litigation at the commencement of a dispute as to whether the courts should decide the dispute or whether it should be sent to arbitration.

Sometimes, however, the issue crystalizes for the first time before the arbitrators. They are asked to decide whether they enjoy jurisdiction to hear the dispute. The arbitrators may determine the issue.

Finally, a court may be called upon to decide whether the arbitrators correctly assumed jurisdiction over the dispute, if the arbitrators’ award is taken on review or enforcement proceedings are brought.

[33] There are a large variety of issues that may be raised by a litigant opposing arbitration at the commencement of a dispute. It may be said that the agreement containing the arbitration agreement is invalid or unenforceable, that no arbitration agreement came into existence, that the arbitration agreement is not in writing, that the dispute does not fall within the scope of the arbitration agreement or that the right to arbitration has been waived.

This list, although not exhaustive, is simply illustrative. A court faced with issues of this kind will want to steer a course between the discouragement of time-wasting obstructionism and protecting a party from being forced to arbitrate a dispute without their consent.

[34] Two approaches have been adopted by the courts so as to assist in deciding challenges to arbitration that are brought by a litigant at the commencement of a dispute. The first approach is based on separability. Ordinarily, the parties enter into a contract that contains an arbitration clause.

If the challenge is that the contract is invalid, unenforceable, or, as here, the contract never came into existence, then it may appear logical that the arbitration clause must fail, if the contract falls to be impugned. But, that is not inevitably so.

The arbitration clause may give expression to the intention of the parties that the question of validity, enforceability or, indeed, the very existence of the main contract, is to be submitted to arbitration. If that is how the arbitration clause is properly interpreted, then the court may be inclined to conclude that the parties concluded an arbitration agreement that is separate from the main agreement.

What the parties consented to was that the arbitrators should determine the question of the validity or the existence of the contract, and the court should then give effect to their consent. Absent a direct challenge to the validity or existence of the arbitration clause, the court will in these circumstances require the parties to submit the existence or validity dispute to arbitration.

[35] The other approach is based on the principle of competence-competence also known as ‘Kompetenz-Kompetenz’ (referring to its German origins), or the principle of ‘compétence de la compétence’.

This principle has a positive and a negative aspect. The positive aspect is largely uncontroversial. Arbitrators enjoy the competence to rule on their own jurisdiction and are not required to stay their proceedings to seek judicial guidance. The negative aspect of the principle may be formulated as follows. Where the dispute has already been referred to an arbitrator, the court will not rule upon the validity, existence or scope of the arbitration agreement, but will leave these questions of jurisdiction for the arbitrator to decide, at least initially.

But, even if the dispute has not yet been referred to arbitration, the court may be disinclined to decide the question of jurisdiction, unless the arbitration agreement is manifestly void. Once the arbitrator has ruled and rendered an award, the courts may finally decide any issue of jurisdiction, if the award is brought on review or its enforcement is sought. In this formulation, the principle of competence-competence gives effect to the principle of judicial restraint. The jurisdiction that has most plainly adopted negative competence-competence is the French Code of Civil Procedure.

[36] While the principle of competence-competence is formulated in different ways in different jurisdictions; but it has not been applied by South African courts , the principle recognises that courts will be inclined to allow the arbitrator to decide questions of jurisdiction, unless the challenge before the court shows that there is a manifest basis to resist the submission to arbitration.

Ultimately, the application of the principle is a matter of timing. It does not vacate the court’s ultimate power to determine the question of an arbitrator’s jurisdiction, but defers its exercise in favour of allowing the arbitrator to render an award, including an award on the issue of jurisdiction. The principle thus favours the facilitation of arbitration and restricts pre-emptive court challenges to the jurisdiction of an arbitrator, save in the clearest of cases.

Given the respect that South African law accords to the autonomy of parties to agree to submit their disputes to arbitration, and in line with s 39(1)(b) and (c) of the Constitution of South Africa, there is warrant for South African courts, in appropriate cases, to consider the application of the principle of competence-competence .

[37] In Zhongji , this Court found that the arbitration clause was an agreement distinct from the terms of the agreement of which it formed part. As in the present matter, the arbitration clause referenced the AFSA rules which permitted the arbitrator to decide any dispute regarding the existence, validity or interpretation of the arbitration agreement. The court held that the arbitration agreement must be given effect to and it was for the arbitrator to determine the issues of jurisdiction that had been raised before the high court. Zhongli thus recognised and applied the doctrine of separability so as to enforce the arbitration agreement.

[38] What North East and Zhongji make plain is that the parties have wide-ranging autonomy to agree that matters concerning the validity, enforceability and existence of an agreement shall be referred to arbitration. If they have consented to such a referral, then the courts will respect their agreement and will not decide these matters. It will be for the arbitrators to do so. And this holds good, even though the arbitrators will thereby be deciding upon their own jurisdiction.

An arbitration clause may be found to subsist separately from the main agreement of which it forms part, and may thus be enforced, even if there is a challenge to the validity, enforceability or existence of the main agreement.

However, where there is a challenge to the arbitration agreement itself, so as to put into question the consent of the parties to have any dispute submitted to arbitration, the court will have to consider how best to deal with that challenge.

The court may decide the challenge. But, as discussed above, the court may also decide that it would be preferable to decline the invitation to do so, and under the guidance of the principle of competence-competence, allow the arbitrators the opportunity to first render an award on the question of their jurisdiction.

[39] Turning then to the matter before us, we are in agreement with the second judgment that, on the papers before the high court, there was a thorough-going dispute of fact as to whether the parties had concluded an agreement on the terms of the PSP. Canton’s evidence was not perfunctory, and in the face of that evidence, the high court could not, on motion, proceed to decide the matter on the basis of its assessment of the probabilities.

[40] This difficulty is compounded by the failure of the high court to recognise the principles that we have endeavoured to set out above. The PSP referred to the AFSA rules, which recognise the wide jurisdiction of the arbitrator to determine the existence dispute. Canton Trading contended that no agreement was concluded embodying the terms of the PSP, including terms that reference the commercial rules of AFSA.

The position set out in the answering affidavit of Canton Trading is that no agreement was reached with the Trust on the terms of the PSP. Hence, there was no submission to arbitrate the ‘existence dispute’ on the basis of the commercial rules of AFSA that give arbitrators the power to rule on their own jurisdiction, including any dispute as to the existence or validity of the arbitration agreement.

The reference to the commercial rules of AFSA forms part of the PSP which Canton Trading contended was never agreed to with the Trust. Once there is a dispute of fact between the parties on this issue, which we find to be so for the reasons fully traversed in the second judgment, the high court was not in a position to simply enforce the commercial rules of AFSA and have the existence dispute determined by an arbitrator under those rules.

Whether the arbitration clause in the PSP was intended to constitute a separate agreement that referred the existence dispute to arbitration cannot be determined on the papers. That very matter is disputed on the basis of the contradictory evidence marshalled by the parties. Whether the reference to the commercial rules of AFSA in the PSP indeed constituted a separate agreement that the parties concluded to determine the existence dispute would thus need to be referred to evidence by a court so as to decide the issue.

[41] This is where we part company from the second judgment. The second judgment identifies the dispute of fact between the parties as to whether agreement was reached on the terms of the PSP, but goes on to find that this dispute falls within the remit of the powers given to an arbitrator under the commercial rules of AFSA. We find that where submission to those very rules is disputed, then we cannot refer the ‘existence dispute’ to an arbitrator under the commercial rules of AFSA because it is disputed, on the basis of evidence adduced by Canton Trading that it consented to any such submission.

Put differently, the powers of an arbitrator under AFSA’s commercial rules would permit the determination of the existence dispute, if a separate agreement had been concluded between the parties to submit the existing dispute to such arbitration. But, where there is a dispute on the evidence as to whether such submission occurred, a court may not assume the consent of the parties to a referral which is disputed.

[42] If, as we find, the high court was not in a position to find, in the face of the dispute of fact, that the parties had concluded a separate agreement to refer the ‘existence dispute’ to arbitration, what should the high court have done then?

[43] Canton Trading contended that the high court fell into error because it determined the dispute as to the existence of the arbitration agreement when the parties had not moved it to do so. This, contended Canton Trading, was an impermissible and unfair exercise of the high court’s powers. We do not agree.

Once the high court had discerned the dispute of fact as to the existence of the arbitration agreement, provided the parties were given proper notice of the high court’s position, there is no abuse of discretion if the court then sought to raise with the parties how best the court should deal with the dispute.

However, where the high court fell into error was to undertake an assessment of the probabilities on the evidence before it and then determine that there was an agreement on the terms of the PSP. What was required was a consideration of whether the application was to be dismissed or whether the challenge to the existence of the arbitration agreement would be better determined by way of a referral to evidence and the consideration of the issues of separability and the applicability of the concept of competence-competence.

The full court, endorsing as it did the approach of the high court, was also in error when it dismissed the appeal.

[44] For these reasons, the following order issues.

1 The appeal is upheld with costs.
2 The order of the full court is set aside and substituted with the following order:
‘(a) The appeal is upheld with costs.
(b) The order of the high court is set aside and substituted with the following order:
“The application is remitted to the high court to determine whether the application should be referred to evidence, and if so on what terms, or whether the application should be dismissed”.’

Court summary

Summary

‘Arbitration – who decides whether the parties consented to refer a dispute to arbitration when there is a dispute of fact as to their consent – separability and competence-competence – the discretion of the high court to adjudicate the question of the existence of an arbitration agreement – the requirements for the application of a robust approach to adjudicate disputes of facts not met.”