In August 2025, the High Court granted an insurer’s application, in terms of section 3(2) of the Arbitration Act, for an order that ancillary disputes with a party insured by it not be referred to arbitration in terms of an arbitration clause in an insurance policy and that the disputes be heard in the High Court.
The disputes arose from the payment of defence costs of approximately R4.4 million by the insurer in terms of an insurance policy taken out by Eskom as policyholder, which extended cover, as insured parties, to its directors, officers, and employees, including the then CEO of the entity.
The insured CEO requested indemnity for defence costs under the policy in respect of litigation against him. The insurer provided the cover subject to the condition, that was also in the policy, that if the insured was found to have acted unlawfully or gained an improper advantage, the defence costs would be repayable by the insured to the insurer. In the litigation against the CEO, the court found that the insured’s conduct was unlawful. In the circumstances, the insurer sought to recover the paid defence costs from the insured.
The insured sought to enforce the arbitration clause in respect of all three claims, despite arguing that he was not bound by the terms of the policy and that Eskom was the insured that paid the benefit (which the insured had in fact sought and received).
The insurer submitted that two of the three causes of action against the insured were not rooted in the policy. The first claim was based on the policy and therefore subject to the arbitration clause. The second was a claim based in contract independent of the policy for a conditional payment of the costs. The third claim was for an unjustified enrichment. The second and third claims did not arise in terms of the policy, were not subject to the policy, and could not be determined in terms of the arbitration clause of the policy. As a result, the insurer argued that all three claims should be determined simultaneously by the High Court and not by an arbitration tribunal.
The court held that each insured person was insured separately under the policy and could be sued alone. In granting the insurer’s application, the court decided that all three claims should be dealt with simultaneously in a single court proceeding. The alternative is untenable – multiple proceedings with the attendant unnecessary and unjustifiable wasteful increase in costs and witnesses potentially testifying on more than one occasion on the same facts. The insured’s stance that he is not bound by the policy results in the insurer being unable to prosecute its claim arising from the policy in terms of the arbitration clause. Therefore, all three claims cannot be dealt with under the arbitration clause. In the circumstances, it will facilitate the administration of justice if the claims are heard together before the court. That is sufficient to constitute good cause as envisaged in section 3(2) of the Arbitration Act to allow the court not to refer the dispute to arbitration.
The court highlighted that whilst our courts generally defer to litigants’ agreements that disputes be determined in terms of arbitration clauses given the autonomy of litigants to make that choice, courts retain jurisdiction over such disputes. An arbitration clause does not oust the jurisdiction of a court.
AIG South Africa Limited v Molefe (2022/006281) [2025] ZAGPPHC 791 (1 August 2025)