The parties were insurers who provided cover to certain timber plantations damaged by fire. The appellant's cover was operative only if the fire was caused by labour disturbances, while the respondent's cover excluded such circumstances. When claims arose, the parties disputed liability and agreed to make equal interim payments totaling approximately R2.35 million to the insured. They agreed that the result of arbitration proceedings between the insured and the appellant would determine which party was liable and therefore which would refund half of the interim payments to the other. They subsequently agreed that the arbitration proceedings would include an appeal procedure. The arbitrator's award on 20 August 1997 found the fire was not caused by labour disturbances, absolving the appellant. This was affirmed on appeal on 22 September 1998. Between November 1998 and January 1999, the respondent made five payments towards the refund but did not pay interest.
The appeal was allowed with costs. The order of the Full Court was set aside and replaced with an order dismissing the appeal with costs, thereby restoring the order of Marais J in the High Court.
When parties agree to resolve a monetary dispute through arbitration with an appeal procedure, and they have not expressly addressed when the capital debt becomes due and payable, a tacit term will be implied that: (1) the due date for payment is the date of the arbitrator's award; and (2) if an appeal is lodged, the arbitrator's award is suspended pending appeal and the appellate award operates retrospectively to the date of the arbitrator's award. This tacit term arises from commercial efficacy, particularly where substantial sums are involved and the parties would suffer material interest losses if the due date were postponed to the appellate award date. Mora interest accrues from the date when the capital debt is due and enforceable, which in such circumstances is the date of the arbitrator's award, not the date of the appellate award.
Howie JA observed that the impression lingered that the respondent was, in substance, a party to the arbitration and subsequent appeal, particularly given that the insured and respondent were represented by the same attorney throughout. Had this been definitively established, it might have provided a separate basis for the same finding adverse to the respondent, though the Court found it unnecessary to pursue this question given its conclusions on the tacit term issue.
This case establishes important principles regarding tacit terms in commercial agreements, particularly in insurance and arbitration contexts. It clarifies that when parties agree to resolve disputes through arbitration with an appeal mechanism, and significant monetary sums are involved, commercial efficacy requires that the principles applicable to appeals against money judgments apply unless expressly varied. The case demonstrates the application of the tacit term test in determining when contractual obligations become due and enforceable, which is critical for determining when mora interest begins to accrue. It emphasizes that courts will consider the financial realities and commercial context when determining what parties must have intended, particularly where substantial sums and interest are at stake. The judgment reinforces that mora interest follows inevitably when a debtor fails to pay a contractually agreed monetary obligation when performance is due and enforceable.