South African case confirms unjustified enrichment can be claimed under an arbitration clause

In a case that revolved around claims for a refund of excess rent payments, the Supreme Court of Appeal (SCA) ruled that an arbitrator had jurisdiction to rule on an unjustified enrichment claim after reviewing the arbitration clause in the contract between the parties.

Its conclusion was premised on the notion that parties are free to decide which types of disputes will be submitted to arbitration. The ruling further confirmed that it will generally be presumed that parties with arbitration agreements in place intend for all disputes arising between them to be referred to arbitration, including claims for equitable relief, unless there is the express contrary intention included in the arbitration clause.

What is unjustified enrichment?

A claim for unjustified enrichment arises when an individual receives something – whether in the form of cash or otherwise – to which they are not entitled. Importantly, the enrichment is not grounded in a contract.

In the case of Dis-Chem Pharmacies Limited v Dainfern Square (Pty) Ltd and Others, the SCA had to consider whether an arbitrator has the power to award relief for a claim of unjustified enrichment in a scenario where parties have an arbitration clause in their contract but one of the parties is enriched outside of the contractual arrangement and a dispute arises.

The case

A lease agreement was concluded between Dainfern Square Shopping Centre (Dainfern) and Dis-Chem. In terms of this lease, Dis-Chem was responsible for paying a monthly rental and turnover rental fee to Dainfern. An annexure to the lease agreement set out the formula for calculating the turnover rental payable.

Dis-Chem approached the arbitrator to dispute payments made to Dainfern. It claimed it had overpaid rent and that Dainfern should repay it more than R4 million ($210,000). Dis-Chem said it had made a reasonable mistake, in good faith, in accepting that Dainfern’s invoices were correct and that Dainfern had been enriched and it was impoverished as a result. Dainfern responded by submitting two special pleas, one of prescription – essentially arguing that part of the payments in dispute should not be repaid because the claim to them by Dis-Chem was raised out of time – and second, that the entirety of the claim fell outside the scope of the arbitration agreement and that therefore an arbitrator did not have jurisdiction to hear, or make an award on, the claim.

With respect to the special plea of prescription, it was found that Dis-Chem’s claim had lapsed.

The special plea of jurisdiction was premised on the argument that because the claim was one of unjustified enrichment and not grounded in contract, it fell outside of the ambit of the arbitrator’s jurisdiction. The arbitrator dismissed the special plea, but Dainfern applied to the High Court seeking a ruling that the dispute fell out of the ambit of the arbitration clause. The High Court ruled that the dispute was incorrectly referred to arbitration, but Dis-Chem then appealed to the SCA.

Structure of the arbitration clause

The arbitration clause relevant to the case read: “In the event of any dispute or difference or doubt or question arising between the parties as to the interpretation of any provision of this Agreement of Lease or the implementation thereof, and the parties being unable to resolve the issue, then in the discretion of either party, the issue shall be submitted to arbitration in accordance with the provisions of this clause and the decision of the arbitrator/s or the umpire as the case may be, shall be final and binding upon the parties.”

In addition to the arbitration clause, another clause dealing with jurisdiction provided that if there was a breach of the contract, the dispute should either be brought to the Magistrates Court or arbitration in terms of the arbitration clause.

The arbitrator ruled that while the arbitration clause remained silent on overpayment and enrichment, the fact that the calculation of the turnover rental was calculated in terms of an annexure to the lease agreement meant that it fell within their jurisdiction. The High Court, on the other hand, found that the claim was one of enrichment and that the interpretation of the annexure was distinct from the enrichment claim itself and could be dealt with separately.

The law surrounding the interpretation of contracts and unjustified enrichment

The SCA held that the High Court was mistaken in “overlooking the nature of the dispute” and examined case law regarding the interpretation of arbitration clauses. The SCA referred to the decision of North East Finance v Standard Bank where it was held that a contract should be interpreted to have a commercially sensible meaning and this approach must also be used when considering arbitration clauses.

The SCA noted that South African courts have followed case law in England and Wales in developing the principles for determining an arbitrator’s jurisdiction. Accordingly, the SCA referred to two decisions by the courts in England and Wales when considering the issue in question in this case.

In the case of Fiona Trust & Holding Corporation and Others v Privalov and Others, it was held that one must consider the arbitration clause as a part of the entire contract. When this is done, a “court would assume that generally parties intended to have all their disputes under an agreement determined by the same tribunal”.

In the case of Fili Shipping Co Ltd v Premium Nafta Products and Others, it was noted that one can assume that rational businessmen “are inclined to have intended any dispute arising out of the relationship into which they have entered or purported to enter to be decided by the same tribunal”.

The SCA applied the principles established in those cases from England and Wales and considered whether it would have been the intention of Dis-Chem and Dainfern to have their disputes resolved by means of arbitration, even though the claim was one of unjustified enrichment. The SCA determined that it was the parties’ intention for such claims to be resolved in arbitration.

Co-written by Chantel Carreira and Christoff Ferreira of Pinsent Masons.