The Minister of International Relations and Co-operation NO and Another v Neo Thando / Elliot Mobility (Pty) Ltd and Another

On 3 November 2015, DIRCO awarded a tender to Neo Thando for removal, packing, storage and insurance of household goods and vehicles of transferred officials to and from missions abroad. A Service Level Agreement (SLA) was signed on 20 and 26 January 2016. Neo Thando leased storage premises from Improvon on 11 November 2015. When Neo Thando attempted to collect goods already stored by the previous service provider, AGS Frasers, the latter refused to hand them over, claiming its SLA with DIRCO obliged it to continue storage until officials returned from abroad (typically four years). Despite DIRCO's intervention and demands to AGS Frasers to release the goods, AGS Frasers refused. On 12 September 2017, Neo Thando's attorneys issued a letter of demand to DIRCO claiming R53,258,416.90 in damages and stating a preference for arbitration over litigation. On 2 November 2017, without receiving any response from DIRCO, Neo Thando approached the Pretoria Bar Council to appoint an arbitrator. On 8 November 2017, DIRCO acknowledged receipt of the demand letter, and on 9 November 2017 responded that it did not believe there was any dispute to arbitrate and did not consent to arbitration, reserving the right to challenge the arbitrator's jurisdiction. The arbitrator, Advocate MC Erasmus SC, was appointed. After a pre-arbitration meeting on 22 November 2017, DIRCO challenged the arbitrator's jurisdiction on the basis that both parties had not consented to arbitration, no dispute had been identified, and the requirements of the Arbitration Act 42 of 1965 had not been met. The arbitrator decided he had jurisdiction (Interim Award of 23 October 2018) and proceeded to determine the merits (Final Award of 28 July 2020), finding DIRCO had a contractual obligation to procure transfer of the goods from AGS Frasers to Neo Thando.

• Whether the arbitrator had jurisdiction to arbitrate the dispute in the absence of mutual consent by both parties to refer the matter to arbitration
• Whether there was an arbitrable dispute in existence at the time of the referral to arbitration as required by the Arbitration Act 42 of 1965
• Whether the dispute submitted for arbitration was consistent with the claim presented
• Proper interpretation of clause 13 of the SLA regarding the dispute resolution mechanism and requirements for arbitration

1. The appeal is upheld with costs. 2. The order of the high court is set aside and substituted with the following: (a) It is declared that the second respondent did not have jurisdiction to arbitrate the alleged dispute between the applicant and the first respondent. (b) The first respondent is ordered to pay to the second applicant: (i) All the amounts paid by the State Attorney on behalf of the second applicant to the second respondent in respect of his fees for acting as arbitrator; (ii) All the legal costs incurred by the first and/or second applicant in defending the reference to the arbitrator, where the arbitrator lacked jurisdiction. (c) The second respondent's interim award dated 23 October 2018 is declared invalid and is set aside. (d) The second respondent's award dated 28 July 2020 is declared invalid and is set aside. 3. The first respondent is ordered to pay the costs of the application for leave to appeal before the high court.

1. An arbitration clause requiring both parties to "wish" to arbitrate creates a requirement for mutual consent before a matter can be validly referred to arbitration. A unilateral referral without the other party's consent does not satisfy such a clause. 2. For a matter to be arbitrable under the Arbitration Act 42 of 1965, there must be an existing dispute at the time of referral to arbitration. A dispute requires the expression by parties, opposing each other in controversy, of conflicting views, claims or contentions. A mere demand for payment, without rejection or unreasonable delay suggesting intended rejection, does not constitute a dispute. 3. Where an arbitration clause requires written notice identifying the difference or dispute to be arbitrated, and no such notice properly identifying a dispute is given, the arbitrator lacks jurisdiction to proceed. 4. Arbitration is voluntary by nature. To interpret an arbitration clause as allowing one party to force the other to submit to arbitration, contrary to the clear language requiring mutual consent, would be unbusinesslike and incorrect. 5. While the principle of competence-competence (Kompetenz-kompetenz) allows arbitrators to rule on their own jurisdiction in the first instance, such rulings remain subject to court review on application to set aside or in enforcement proceedings.

The Court made several observations of broader significance: (1) It reaffirmed the unitary approach to contractual interpretation established in Natal Joint Municipal Pension Fund v Endumeni Municipality, requiring interpretation according to ordinary meaning, purposively, contextually, and consistently with the Constitution. (2) It noted that arbitration agreements must be strictly construed in accordance with their terms and the Arbitration Act's requirements. (3) The Court observed that clause 8.8 of the SLA placed the obligation on Neo Thando to enter into a transitional arrangement with AGS Frasers, not on DIRCO to procure such arrangement, though this distinction was not central to the jurisdictional issues. (4) Regarding costs, the Court stated that the issues were straightforward and not complex, and did not justify the engagement of two counsel, particularly senior counsel, though this did not affect the costs order. (5) The Court briefly discussed the meaning and origin of the competence-competence principle and its German origins (Kompetenz-kompetenz), explaining that while arbitrators may rule on their own jurisdiction initially, this does not preclude subsequent court review - the principle does not mean arbitrators make final unreviewable determinations of jurisdiction.

This case provides important guidance on the requirements for a valid arbitration referral in South African law. It clarifies that: (1) arbitration clauses requiring mutual consent must be strictly construed - unilateral referrals are invalid where the agreement contemplates voluntary submission by both parties; (2) a dispute must actually exist before referral to arbitration, as required by the Arbitration Act 42 of 1965 - mere demands for payment do not constitute disputes; (3) the party seeking to refer a matter to arbitration must identify the dispute clearly and allow reasonable time for the other party to respond; (4) the principle of competence-competence allows arbitrators to rule on their own jurisdiction, but such rulings remain subject to court review; (5) contract interpretation principles require consideration of language, context, and businesslike outcomes - forcing a party to arbitrate contrary to clear contractual language would be unbusinesslike. The case reinforces the voluntary nature of arbitration and the importance of procedural compliance with both contractual arbitration clauses and statutory requirements. It is particularly relevant to government contracts and service level agreements.