The dispute resolution clause is often the last thing negotiated in a commercial contract, and the first thing anyone reads when the relationship goes wrong. By then it is too late to change it. The clause decides where the dispute will be heard, how long it will take, how much it will cost and whether the outcome will be private.
A well-drafted clause can resolve a disagreement in weeks. A poorly drafted one can lead to a separate fight about the process before the real dispute is even considered. South African courts regularly deal with applications that turn entirely on what a dispute resolution clause means.
This article explains the main options, the law that applies to each, and the points businesses should consider when choosing how their contract disputes will be decided.
The main options
Litigation in the courts
If a contract says nothing, disputes go to court. Litigation offers a public, binding judgment, a right of appeal and the court’s power to compel witnesses and grant urgent relief. The downsides are time, cost and publicity. Parties can agree which court will have jurisdiction, and the Magistrates’ Courts Act 32 of 1944 allows parties to consent in writing to a magistrate’s court hearing matters above its normal monetary limits.
Even in litigation, mediation now plays a formal role. Under Uniform Rule 41A, parties to most High Court actions and applications must state whether they agree to mediation. See our article on Rule 41A mediation.
Arbitration
Arbitration is a private process in which the parties appoint one or more arbitrators to decide the dispute. Domestic arbitration is governed by the Arbitration Act 42 of 1965. International commercial arbitration is governed by the International Arbitration Act 15 of 2017, which incorporates the UNCITRAL Model Law.
The advantages include confidentiality, the ability to choose an arbitrator with industry expertise, and flexible procedures. An arbitration award is generally final, and the grounds for setting it aside are narrow. That finality is a benefit if speed matters, but a risk if the arbitrator gets the law wrong, because there is usually no appeal unless the parties have agreed to one.
Many South African contracts refer disputes to arbitration under the rules of an institution such as the Arbitration Foundation of Southern Africa (AFSA). Institutional rules deal with appointment, timelines and procedure, which reduces the scope for arguments about process.
Expert determination
For technical or valuation disputes, such as a price adjustment, a share valuation or a quantity surveyor’s measurement, parties often refer the question to an independent expert. The expert decides on their own expertise and the process is usually quick. The clause must define the expert’s mandate carefully, because a decision outside that mandate may not be binding.
Negotiation and mediation steps
Many clauses require the parties to escalate a dispute to senior management or attempt mediation before starting arbitration or litigation. These “multi-tier” clauses can resolve disputes cheaply. They can also create delays and arguments about whether each step was properly followed, so they need clear time limits.
What the courts have said recently
South African courts generally hold parties to their agreement to arbitrate. In Industrial Development Corporation of South Africa Ltd v Kalagadi Manganese (Pty) Ltd [2025] ZASCA 70, the Supreme Court of Appeal confirmed that courts must refer disputes covered by an international arbitration agreement to arbitration, and that public entities are bound in the same way as private parties.
In 2026, in Kingdom of Lesotho v Frazer Solar GmbH [2026] ZASCA 75, the SCA held that the three-month period to apply to set aside an international arbitration award under the Model Law is strict and cannot be extended under a general discretion. The lesson for businesses is that arbitration timelines must be diarised and followed closely.
For domestic arbitration, section 6 of the Arbitration Act allows a party to apply to stay court proceedings brought in breach of an arbitration agreement. A court may set aside an arbitration agreement on good cause under section 3, but courts do not do so lightly.
Drafting points that cause problems
- Inconsistent clauses. A contract that refers disputes to arbitration in one clause and gives the High Court “exclusive jurisdiction” in another invites a jurisdiction fight. Check the whole contract, including annexures and standard terms.
- Unclear scope. Wording such as “any dispute arising out of or in connection with this agreement” is broad. Narrower wording may leave claims such as rectification, fraud or validity of the contract outside the clause.
- No appointment mechanism. If the parties cannot agree on an arbitrator or expert, the clause should name an appointing body.
- No carve-out for urgent relief. Parties should be able to approach a court for an urgent interdict, for example to protect confidential information or stop a restraint breach, without waiting for an arbitrator to be appointed.
- Unworkable time periods. Escalation and mediation steps should have fixed periods so that a party cannot use them to delay matters indefinitely.
- Seat, language and law. In cross-border contracts, state the seat of arbitration, the governing law and the language. The seat determines which court supervises the process.
- Prescription. Negotiation and mediation do not stop prescription from running. Under section 15(6) of the Prescription Act 68 of 1969, a document commencing arbitration counts as process that interrupts prescription. See our article on prescription.
Choosing the right clause: a checklist
- Think about the likely disputes. Payment claims suit litigation or summary procedures. Technical or valuation disputes suit expert determination. Complex, confidential disputes often suit arbitration.
- Consider confidentiality. If reputation, pricing or trade secrets are at stake, a private process may be worth the cost.
- Consider the counterparty. Enforcement against a foreign party may be easier with an arbitral award than a South African judgment.
- Decide on appeal rights. If you want an appeal from an arbitration award, the clause must say so expressly.
- Use institutional rules. Referencing recognised rules saves negotiation and reduces procedural disputes.
- Keep urgent court relief available. Include an express carve-out.
- Check consistency. Make sure related contracts in the same deal use the same or compatible clauses, so that one dispute is not split across different forums.
How O’Reilly Law can help
We draft and negotiate dispute resolution clauses for commercial contracts, shareholders’ agreements, supply and service agreements, and cross-border transactions. When disputes arise, we advise on the correct forum, represent clients in arbitration, mediation and litigation, and bring or oppose applications to stay proceedings or to review and set aside awards.
Contact us to review the dispute resolution clauses in your key contracts.
Related reading: Limitation of liability and indemnity clauses: what they really protect · Mediation in civil litigation: Rule 41A explained
This article is general information and not legal advice. Correct as at November 2026.