North East Finance (Pty) Ltd v Standard Bank of South Africa Ltd

North East Finance conducted a financing business and ceded its rights under rental agreements to Standard Bank in terms of a cession agreement. Disputes arose regarding the collection of rentals and debiting of accounts. In September 2008 the parties concluded a settlement agreement, drafted by North East’s attorney, to phase out North East’s collection function. The settlement agreement contained an arbitration clause referring disputes, including questions of enforceability, to arbitration. After implementation, Standard Bank discovered alleged serious irregularities, including fraudulent misrepresentations and non-disclosures by North East, which it claimed induced the settlement agreement. The bank elected to treat the agreement as void ab initio and refused to arbitrate. North East applied to compel arbitration; the High Court refused, and North East appealed to the Supreme Court of Appeal.

The appeal was dismissed with costs, including the costs of two counsel.

The case affirms South African law on the effect of fraud on arbitration clauses, confirming that arbitration clauses generally do not survive contracts alleged to be void ab initio unless clear language indicates otherwise. It emphasises contextual and purposive interpretation of arbitration clauses and clarifies when courts will refuse to compel arbitration in the face of substantiated allegations of fraud.