Prescription of Arbitration Awards

Section 11 of the Prescription Act 68 of 1969 deals with the periods of prescription in relation to legal matters. They range from 3 years to 30 years. Section 12 of the Prescription Act explains when prescription begins to run in a matter. Section 12 (1) specifically states that:

“Subject to the provisions of subsections (2), (3), and (4), prescription shall commence to run as soon as the debt is due”.

In the case of Van Zyl v Hoogenhout 2005 (2) SA 93 (SCA) it was also established that prescription begins to run when the facts that give rise to the debt are known, alternatively, if the said facts ought to be known through the exercise of reasonable care.

Section 143 (1) of the Labour Relations Act (The LRA) , as amended, 66 of 1995 provides that:

“an arbitration award issued by a commissioner is final and binding and it may be enforced as if it were an order of the Labour Court in respect of which a writ has been issued, unless it is an advisory arbitration award”.

In Fawu obo Gaoshubelwe and Others v Pieman’s Pantry (Pty) Ltd (2017) 38 ILJ 132 (LAC) it was found that the Prescription Act does apply to all litigation under the LRA, however this should be read with recent case law, as discussed below, whereby it was ruled upon that the Prescription Act does not apply to arbitration awards.

There has been a longstanding debate about whether an arbitration award prescribes after 3 years, from the date of the award. In 2016 the Constitutional Court ended this debate in the case of Myathaza v Johannesburg Metropolitan Bus Services Limited t/a Metrobus and others [2017] JOL 37678 (CC). In this case the court had to consider the following:

• whether an arbitration award issued in terms of the LRA had prescribed in terms of the Prescription Act
• the Prescription Act applies to matters governed by the LRA
• and if so, whether an arbitration award constitutes a debt as envisaged in the Prescription Act.

In this case, the Employee was dismissed and after referring an unfair dismissal dispute to the bargaining council he was awarded reinstatement and retrospective back pay. The Employer then decided to take the arbitration award on review to the Labour Court. Almost four years later, and while the review application was still to be heard by the Labour Court, the Employee applied to have the arbitration award made an order of court. The Employer opposed the Employee's application on the basis that the review was still pending and that the arbitration award had prescribed as it had been more than three years from the date it was decided upon.

The judges of the Constitutional Court were divided in their reasons as set out in three separate judgments, but ultimately came to the same conclusion that the Prescription Act does not apply to arbitration awards. ​ The first judgment held that prescription cannot run from the date the award is published because section 145 of the LRA affords a party the right to challenge the award on review within six weeks. The application of the Prescription Act to arbitration awards would also mean that a party who has failed to challenge the award may invoke the Prescription Act to avoid its obligations in terms of the award. The second judgment held that instituting proceedings in the CCMA (or a bargaining council) amounts to the commencement of proceedings which interrupts the running of prescription under the Prescription Act. Until the review is finalised the applicant's claim cannot prescribe. The third judgment agreed, however for different reasons, stating that arbitration awards do not prescribe for purposes of the Prescription Act and that an arbitration award does not constitute a “debt” in terms of the LRA.

In the case of Mogaila v Coca Cola Fortune (Pty) Ltd [2017] 5 BLLR 439 (CC), the Constitutional Court also found that an arbitration award does not prescribe in terms of the Prescription Act. On 26 November 2007, after a disciplinary enquiry had found her guilty of assault, the Employee was dismissed. She referred an unfair dismissal dispute to the CCMA who found her dismissal to be substantively unfair. Coca Cola was ordered to reinstate her with effect from 2 June 2008, and she was awarded back pay equivalent to six months’ salary. Mogaila reported for duty only to be told that Coca Cola was taking the arbitration award on review. The review was subsequently dismissed by both the Labour Court and the Labour Appeal Court on 2 October 2013 some 5 years later. After leave to appeal was refused by the Labour Court, the Employee again attempted to report for duty on 4 November 2013. On this occasion she was told that the arbitration award constituted a “debt” for the purposes of the Prescription Act and since she had failed to enforce it within the three year period, the award had prescribed.

As a result of there being no majority judgment in the Myathaza case, there is no binding ratio for the decision, however in the Mogaila case the Constitutional Court found that on any of the approaches used in Myathaza the Employee ought to be successful.  The Court found that she was entitled to an order that the arbitration award had not prescribed and she was entitled to secure its certification and enforcement in terms of the LRA.

The next question that arises is whether an arbitration award creates a new debt. In the case of Brompton Court Body Corporate v Khumalo (398/2017) [2018] ZASCA 27 the Supreme Court of Appeal (SCA) provided some guidance. In this case, disputes arose between the parties and they agreed to refer it to arbitration. The arbitrator published the arbitration award on 21 December 2012. On 26 March 2014, the appellant applied for the arbitration award to be made an order of court in terms of s31 of the Arbitration Act. The respondent opposed the application on the basis that the debt in question had prescribed in terms of the Prescription Act. The SCA found that a decision of a court of law generally does not create a new debt but merely serves to affirm and/or make an existing debt, which was disputed, liquid.

What a judgment does in relation to prescription of a debt, according to the court, is to give rise to a new period of prescription of 30 years in terms of section 11(a)(ii) of the Prescription Act. In paragraph 6 of the aforementioned judgment, the SCA held that the same principle must apply generally to an arbitration award, however it would not give rise to a new prescription period of 30 years in terms of section 11 of the Prescription Act. The court found that an arbitration award does not create a new debt.

In paragraph 7 of the same judgment it was confirmed that:

“If the arbitration award constituted a new debt, it would make no sense to provide for the delay of the completion of prescription of the original underlying debt after the award and s 13(1)(f) would in most cases be rendered superfluous”.

Employers and Employees should therefore take note of Section 13 of the Prescription Act as it deals with situations when the completion of prescription will be delayed. Section 13 (f) states that it will be delayed if “the debt is the object of a dispute subjected to arbitration”.  Section 13(1)(i) the states: “the relevant period of prescription would, but for the provisions of this subsection, be completed before or on, or within one year after, the day on which the relevant impediment referred to in paragraph (a), (b), (c), (d), (e), ( f ), (g) or (h) has ceased to exist, the period of prescription shall not be completed before a year has elapsed after the day referred to in paragraph (i)”. In other words the debt does not prescribe until one year after the date of the arbitration award has been reached, if the debt would have ordinarily prescribed during that period.

In paragraph 15 of the above judgment it is explained that s 13(1)(f) of the Prescription Act does not provide for a one year period of prescription in respect of an arbitration award. It then goes further on to state:

“It deals with the delay in the completion of the running of prescription. The requisite periods of extinctive prescription in terms of the Act are to be found in s 11 thereof. Applied to the facts of this case, s 13(1)(f) provides that if the relevant period of prescription in respect of a debt would, but for the provisions of the subsection, have been completed before or on within one year of the date of publication of the award on 21 December 2012, the completion of the period of prescription in respect of such debt would be delayed for one year after 21 December 2012”.

Section 143 of the LRA deals with the effects of an arbitration award. Subsection (3) states:

“An arbitration award may only be enforced in terms of subsection (1) if the director has certified that the arbitration award is an award contemplated in subsection (1)”.

Therefore the award should be made an order of court by applying at the relevant bargaining council or CCMA to have the award certified.

Further Rule 40 of the Rules for the Conduct of Proceedings before the CCMA deals with the certification of arbitration awards and which forms should be used to certify an award.

Section 143 (4) of the LRA deals with enforcing an award that is based on performance:

“ If a party fails to comply with an arbitration award certified in terms of subsection (3) that orders the performance of an act, other than the payment of an amount of money, any other party to the award may, without further order, enforce it by way of contempt proceedings instituted in the Labour Court”.

These subsections of the LRA are supported by Rule 40 (2) (b) of the Rules for the Conduct of Proceedings before the CCMA .

Section 143 (5) of the LRA deals with enforcing an award that is based on payment:

“Despite subsection (1), an arbitration award in terms of which a party is required to pay an amount of money must be treated for the purpose of enforcing or executing that award as if it were an order of the Magistrate’s Court”.

These subsections of the LRA are supported by Rule 40 (2) (a) of the Rules for the Conduct of Proceedings before the CCMA. Only after an arbitration award has been certified, may it be delivered to a Sheriff to proceed to execute the arbitration award. There is no need to approach the Labour Court for a writ to be issued first.

The abovementioned decisions therefore provide long awaited certainty to the effect that an arbitration award does not create a new debt and that a claim to make the arbitration award an order of court does not constitute a debt and therefore it is not subject to the three-year prescription period. It is important to note that in the abovementioned cases the main dispute of the matter was confined to the question of the prescription of awards. Employers who have arbitration awards against them cannot avoid complying with the awards by relying on the Prescription Act. The effect of these judgments is that, Employers who have adverse awards against them cannot avoid complying with the awards by relying on prescription. We however always advise clients to make an arbitration award an order of court by certifying and enforcing it as soon as possible.