Does an arbitration award create a new debt?

In this case, disputes arose between the parties, which, by agreement, were referred to arbitration. The arbitrator published the arbitration award on 21 December 2012. On 26 March 2014, the appellant applied that the arbitration award be made an order of court in terms of s31 of the Arbitration Act. The respondent opposed the application in effect only on the basis that the debt in question had prescribed in terms of the Prescription Act which defence was upheld by the court a quo.

As to the first issue, namely that an arbitration award creates a new debt, the SCA held that the converse will generally be true. The court opined that even a judgment of a court of law generally does not create a new debt but merely serves to affirm and/or liquidate an existing debt which was disputed. What the 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 s11(a)(ii) of the Prescription Act.

The SCA therefore held that the same principle must generally apply to an arbitration award, save that it would not attract a new prescriptive period of 30 years in terms of s11 of the Prescription Act. The decision of the SCA is silent on whether the arbitration award is subject to any other prescriptive period. As things stand, it can be interpreted to the effect that an arbitration award does not superannuate. In our view, there is no justifiable reason an arbitration award should not similarly be subjected to a 30-year prescriptive period. In conclusion, the court found that an arbitration award does not create a new debt.

As to the second issue, namely that the claim to make an arbitration award an order of court is a debt that prescribes after three years, the court held that it was unable to agree. In the main, the court found that a claim that an arbitration award be made an order of court is not a ‘debt’ in terms of the Prescription Act. The court endorsed the well accepted view that a debt in terms of the Prescription Act is an obligation to pay money, deliver goods or render services.

In concluding, the court found that a claim to make the arbitration award an order of court did not require the other party to perform any obligation at all, let alone one to pay money, deliver goods or render services. The applicant would merely be utilising a statutory remedy available to it. The court was of the view that this is similar to a claim for rectification of a contract, which has been held not to constitute a debt in terms of the Prescription Act.

It is important to note that the above principles are only applicable to arbitration awards under the auspices of the Arbitration Act, the so-called domestic arbitrations and not international arbitrations governed by the International Arbitration Act, 2017.

The decision of the SCA adds to a growing body of case law where courts are generally hesitant to interfere in the enforcement of arbitration awards in the absence of a review application in accordance with s33 of the Arbitration Act. The decision further provides 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 not subject to the three-year prescriptive period.