A cautionary tale for both retailers and wholesalers in the petroleum and liquid fuels industry.

We look closer at a matter which depicts how courts are not sympathetic to parties that do not enforce their remedies timeously. In addition, this matter serves as a reminder to litigants that statutory arbitration does not oust the jurisdiction of the High Court, unless the legislator stipulates that such referral to arbitration is a mandatory precursor to any approach to the courts.

Background

On 3 September 2021, the Constitutional Court handed down a unanimous judgement which concerned the question of whether the High Court correctly refused to grant a stay of proceedings pending a referral of a dispute to arbitration in terms of section 12B of the Petroleum Products Act (the Act). This Act sets out measures for conserving petroleum products in South Africa by providing for their economic distribution.

This Act was later amended to promote transformation of the South African petroleum and liquid fuels industry by mitigating the unequal bargaining power and imbalances of contractual relationships which remain prevalent in the industry. To that end, section 12B of the Act was promulgated, which enables the Controller of Petroleum Products (that is, the Minister of the Department of Energy), on request by a licensed retailer alleging an unfair or unreasonable contractual practice by a licensed wholesaler (or vice versa) to require the parties to submit the matter to arbitration.

A practical example

In this case, Crompton Street Motors (the Applicant) entered into a franchise agreement affording it the right to operate a certain filling station. The franchisor ceded its rights under the franchise agreement to Bright Idea Projects (the Respondent), the latter of whom informed the Applicant that the franchise agreement was going to be terminated and that the Applicant would have to vacate the premises. However, the applicant refused.

In response, the Respondent launched a High Court application for the ejectment of the Applicant from the premises. The application was opposed and, at the same time, the Applicant lodged a request to the Controller to refer the Respondent’s refusal to extend the franchise agreement to arbitration in terms of section 12B of the Act, contending that the refusal was an unfair and unreasonable contractual practice.

In the circumstances, the Applicant applied for a stay of the High Court proceedings pending the outcome of the arbitration process. Needless to say, the High Court refused to grant the Applicant’s application to stay the proceedings and ordered its eviction from the premises. Having had its petition to the Supreme Court of Appeal dismissed, the Applicant applied for leave to appeal to the Constitutional Court. One of the issues before the Constitutional Court was whether section 12B of the Act served to oust the jurisdiction of the High Court.

The Constitutional Court held that the High Court’s jurisdiction is delineated by section 169 of the Constitution, which provides that the High Court “may decide any matter not assigned to another court by an Act of Parliament.” Therefore, the High Court’s jurisdiction was extensive in its scope and included all matters, unless expressly excluded. Furthermore, an extra-judicial remedy was in no way conclusive as to whether a court’s jurisdiction could be limited.

Accordingly, the Court concluded that an arbitration clause does not necessarily oust the jurisdiction of the High Court. Turning to the question of whether a stay of proceedings ought to have been granted to the Applicant, the Court held that the Arbitration Act was applicable to arbitration proceedings under any legislation – including the Petroleum Products Act. Of particular importance was section 6(2) of the Arbitration Act, which enabled a court to stay proceedings subject to terms and conditions it considered just.

The Court held that there was sufficient reason to refuse the stay of proceedings, including that it would be a waste of judicial resources, as the merits of the eviction application and the stay application were properly before the High Court. In addition, the franchise agreement had lapsed on the basis that it had a fixed termination date and the Applicant should have timeously approached the Controller to arbitrate on the terms of the renewal, not least of all because the Applicant had been aware for some five months of the Respondent’s refusal to grant a renewal of the agreement.  

Accordingly, the Court dismissed the appeal with costs.

Key points to consider

The Crompton decision is a cautionary tale for both retailers and wholesalers in the petroleum and liquid fuels industry, who would be well advised to approach the Controller without undue delay once they are faced with unfair or unreasonable contractual practices. If nothing else, the matter illustrates that courts are not sympathetic to parties that do not enforce their remedies timeously. 

The legal principles of the Crompton case have been applied recently in another case at the Constitutional Court which shared similar facts and where the court came to the same decision.

Feel free to reach out to us, if you wish to discuss any similar matters.