Be careful retailers, you may run out of fuel: Section 12B of the Petroleum Products Act may not be your saving grace

In The Business Zone CC t/a Emmarentia Convenience Centre v Engen Petroleum Limited and Others [2017] ZACC it was held that “the low discretionary threshold” contained in s12B(1) is that “the only jurisdictional requirement for the Controller to make a referral under section 12B(1) is an allegation by a licensed retailer that a licenced wholesaler, or vice versa, has committed an unfair or an unreasonable contractual practice. It does not require the ‘proving’, ‘demonstrating’, or ‘showing’ of an unfair or unreasonable contractual practice and the Controller need only satisfy himself of the existence of such an allegation and must accordingly limit his interrogation of the merits of the dispute to the extent required to establish the allegation’s existence. The Controller should then refer the matter to arbitration”.

Having regard to the limited discretion of the Controller, the Controller is obliged to accept most, if not all, referrals in terms of s12B. Upon acceptance of the referral by the Controller, the parties are required to agree on the appointment of an arbitrator and the applicable rules. If the parties fail to reach an agreement regarding the arbitrator, or the applicable rules, within 14 days of receipt of the notice, the Controller must upon notification of such failure, appoint a suitable person to act as arbitrator.

Section 12B fails to set out the time periods within which the arbitration should be finalised and the rules applicable to the arbitration proceedings are within the parties’ absolute discretion provided that the parties agree thereto. Consequently, the referrals in terms of s12B are often abused by licensed retailers in an effort to delay and/or frustrate litigation proceedings or to extend their contractual relationships until the finalisation of the s12B arbitration.

The court in Bright Ideas Projects 66 (Pty) Ltd T/A All Fuels V Former Way Trade and Invest (Pty) Lts T/A Premier Service Station [2018] JOL 40129 (KZP) was tasked with determining whether the referral of a dispute to arbitration under s12B justified the stay of the litigation proceedings in the High Court. In Bright Ideas the applicant sought an order evicting the respondent from its site in Pietermaritzburg. Having proven the grounds for an eviction order, the applicant’s claim could only be undermined by the court finding that (i) the parties concluded an agreement renewing the respondent’s right to occupy the premises; or (ii) arbitration under the Act or arbitration clause 20 of the franchise agreement suspended the litigation. The respondent failed to prove that a valid renewal agreement, containing an arbitration clause, was concluded and therefore it was left to the court to determine whether s12B required a stay of the litigation proceedings.

The court recognised the importance of the principles outlined by the Constitutional Court in The Business Zone case for interpreting s12B. These principles include:

• that the legislature had no intention of encouraging forum-shopping when designing the dispute resolution process for the petroleum industry;
• the self-regulatory aspect of s12B allowed the parties to include or exclude certain matters in the terms of reference for the arbitrator’s determination and if the parties could not agree, the arbitrator’s powers would be restricted to the provisions set out in s12B(4); and
• the concepts of unfairness and unreasonableness could be informed by the jurisprudence interpreting the Labour Relations Act 66 of 1995 which led to the Constitutional Court concluding that “the fairness required in our labour law jurisprudence is the same as the fairness in Section 12B”.

The Court, however, stated that the facts in Bright Ideas were distinguishable from those in The Business Zone, as that case did not deal with ejectment nor the consideration of a declarator creating a renewal agreement.

The Court held that a mere referral to arbitration in terms of s12B does not automatically suspend litigation whereas an agreement to arbitrate entitles a party to apply to the court for a stay of litigation proceedings. The arbitration referrals in terms of s12B are not arbitrations arising from an arbitration agreement governed by the Arbitration Act 42 of 1965 which prescribes the procedure for a stay of litigation. The Court may, however, stay litigation proceedings pending the outcome of a s12B arbitration, subject to such terms and conditions as may be considered just in the general exercise of its powers.

The crux of the decision to grant the order for eviction and not stay the litigation in the Bright Ideas case turned on the content of the respondent’s referral to arbitration, which meant that the court was not called upon to decide issues placed before the arbitrator.

License retailers should thus be cautioned against referring disputes to the Controller in terms of s12B in an effort to delay litigation proceedings or extend their contractual relationships. The arbitration proceedings envisaged in terms of s12B is not an opportunity for a party to have two bites at the cherry and the arbitrator’s power to impose punitive cost awards against parties making frivolous or capricious referrals should discourage such abuse of the s12B referrals.