When does a claim for costs arising from an arbitration award become prescribed? This question involves a number of issues under the Prescription Act 68 of 1969 (Prescription Act).
In Brompton Body Corporate v Khumalo 2018 (3) SA 347 SA (SCA) (Brompton) it was held that an arbitration award does not create a new debt and that a new prescription period does not commence to run from the date of the award. The court held that it would make no sense for section 13(f) of the Prescription Act to delay the completion of prescription of the original underlying debt if the prescription period only began to run on publication of the award. The entire purpose of section 13(f) of the Prescription Act is to enable the creditor to apply to make the arbitration award an order of the court in terms of section 31 of the Arbitration Act 42 of 1965 (Arbitration Act), in order to enforce the arbitration award, before the debt on which it is based becomes prescribed.
Section 13 (1) (f) of the Prescription Act provides that if a debt is the object of a dispute which is subject to arbitration proceedings then the period of prescription for that debt would be delayed for one year after the day that the arbitration proceedings have been concluded. In other words, if the three-year prescription period applicable to a debt expires during the time of the arbitration proceedings, the successful party will have an extra year after conclusion of the arbitration proceedings to make the arbitration award an order of court to enforce the arbitration award. Once the arbitration award has been made a court order, the successful party will have thirty years to enforce the debt.
It is clear that this is the legal position for a “debt” that existed prior to the commencement of arbitration proceedings. However, what is the situation with a costs award that only comes into existence on the date of the arbitration award? Does the successful party only have one year to enforce the costs award as envisaged in section 13(1)(f) of the Prescription Act or what prescription period applies to the enforcement of the costs award?
The question whether costs awarded in arbitration proceedings are also subject to these principles had to be answered in Hugh Hutchings v Anna Catherina Hutchings (15633/2019)  ZAWCHC 3 (18 January 2021) (Hutchings).
The arbitration award was given on 22 January 2014 and on 19 October 2019, five years after the arbitration award was published, the applicant (Hugh Hutchings) sought to make the arbitration award an order of court. The arbitration award ordered:
“b) the respondent to pay the applicant’s legal costs on party and party scale including costs of counsel
c) the respondent to pay the costs of the arbitration including the legal costs of the arbitrator.”
The respondent (Anna Hutchings) argued that a three-year prescription period applied to the arbitration award, that the costs award became prescribed three years after publication of the arbitration award and that Hugh Hutchings was not entitled to blow life into a corpse by making the prescribed costs award an order of court. Put differently, Hugh Hutchings had to apply to make the arbitration award an order of court before the debt upon which it is based became prescribed, as held in Brompton. The court in Hutchings had to decide when the costs award becomes due under section 12(1) of the Prescription Act, which provides that prescription commences to run as soon as a debt is due.
To determine when an arbitration costs award becomes due, the court turned to Santam v Ethwar 1992 (2) SA 244 (SCA) (Santam). In the Santam case the court had to determine whether a claim for costs in favor of the respondent (Ethwar), arising out of a settlement agreement, had become prescribed. The settlement agreement in respect of costs read as follows:
“Kindly take notice that the defendant (Santam) in this matter offers to settle the plaintiff’s (Ethwar’s) claim in the following manner … (c) by payment of the plaintiff’s costs to date hereof as taxed or agreed between the parties, such costs to include those qualifying expenses which the Taxing Master may allow and to include the reasonable costs incurred in considering this offer.”
The central issue in Santam was whether the claim for costs only became due upon taxation of the costs or upon agreement. Did the costs become due on the day that the settlement agreement came into existence? If so, the prescription period then begins to run. If the costs did not become due on the day that the settlement agreement came into existence, but only upon taxation or agreement, the prescription period does not begin to run on the date of the award, but on the date of taxation or agreement. The court held that the parties could not have intended that Ethwar could recover her costs without a prior agreement as to costs between the parties or taxation. The court also pointed out that a simple procedural step cannot delay the commencement of prescription. However, agreement as to costs and taxation both require extraneous aid of third parties over whom Ethwar had no control. It follows that payment only became due once the parties agree on costs or taxation of the costs occurs.
The court in Hutchings applied the Santam reasoning and held that Anna Hutchings became liable for costs on publication of the arbitration award, but the costs only become due when agreed upon or once a bill of costs has been taxed.
The Hutchings judgment means that a costs award in arbitration proceedings can hang over the unsuccessful party’s head for an indefinite period (in this case for five years) without prescription ever running against the successful party. Prescription will only start to run in respect of the costs award upon taxation or agreement on costs.
It should be noted, however, that the court in Santam interpreted a particular settlement agreement to determine when the costs became due and payable. The intention of the parties was therefore a central issue. In Hutchings, the intention of the parties was not relevant. The arbitration award made in January 2014 simply ordered the unsuccessful party to pay the costs and the costs award was not conditional upon taxation or agreement between the parties.
The prescription issue that arose in Hutchings cannot be regarded as settled. In future a court may come to a different conclusion and follow the decision in Botha and Others v Scholtz and Another (3424/2016) ZAFSHC 51 (9 March) 2017 (unreported judgment), where it was held that the purpose behind the Prescription Act is to protect a debtor from old claims against which the debtor cannot effectively defend himself and that a creditor ‘does not enjoy an unlimited right to enforce his claim for judgement costs insofar as he can only quantify his costs and present a bill for taxation as long as the judgment from which his right derives has not prescribed.’ (my underlining).
The decision in the Botha case accords with the principle that creditors should not be able to postpone the running of prescription by their own conduct, in this case by failing to have a bill of costs taxed. The Benson v Walters 1984 (1) SA 73 (A) (Benson) judgment supports the decision in the Botha case. In Benson it was held (although in the context of an attorney claiming fees) that prescription begins to run when the attorney is able to have the bill taxed as otherwise “it would mean that an attorney could sit back for say 20 years before having his bill taxed and that he would then be able to maintain that the debt had not become prescribed” – which is exactly what the Prescription Act aims to prevent.