Introduction

Arbitration is often praised for being faster and more confidential than court proceedings, but what happens when a dispute involves both arbitrable and non-arbitrable claims? A recent judgment by the High Court in AIG South Africa Limited v Brian Molefe (Gauteng Division, Pretoria, 1 August 2025) sheds light on this question and illustrates when a court may allow a party to bypass an arbitration clause.

The decision revisits the discretion granted under section 3(2) of the Arbitration Act 42 of 1965, which permits a court, on good cause shown, to either set aside an arbitration agreement or direct that a dispute not be referred to arbitration.

Background to the Dispute

Eskom SOC Limited held a management liability insurance policy issued by AIG South Africa Limited. The policy provided cover for directors, officers and employees against legal costs incurred in defending proceedings arising from their official roles.

In 2017, legal actions were brought against Brian Molefe, then Group Chief Executive of Eskom. AIG agreed to advance Molefe’s defence costs of about R4.4 million on a without prejudice basis, provided that if it was ultimately established that he was not entitled to cover, he would repay the funds in full.

The policy also included an express condition requiring reimbursement where a court found that the insured had obtained an unlawful advantage or profit.

Following findings by the Supreme Court of Appeal and the Constitutional Court that Molefe’s conduct was unlawful, AIG sought repayment of the R4.4 million. Molefe refused, prompting AIG to issue summons in the High Court.

The Dispute Over Forum

Molefe argued that the matter had to be referred to arbitration in terms of the policy’s arbitration clause, which required all disputes about cover to be decided by an arbitrator under the Arbitration Act.

AIG, however, filed an application asking the High Court to allow the dispute to be heard in court rather than by arbitration. It contended that its claim rested on three independent grounds:

1. The reimbursement clause in the policy
2. The October 2017 letter in which Molefe undertook to refund the money if cover was refused
3. The principle of unjust enrichment

Only the first of these grounds was subject to the arbitration clause. The other two were based on independent undertakings and equitable remedies outside the policy.

AIG argued that it would be inefficient and potentially inconsistent to have some claims decided by an arbitrator and others by a court, especially since they arose from the same facts and would require the same witnesses.

The Court’s Findings

The High Court agreed with AIG. It observed that running parallel proceedings before two different tribunals on the same evidence would lead to duplication of costs, conflicting findings and unnecessary delay.

In exercising its discretion under the Arbitration Act, the court held that there was sufficient cause to permit AIG to proceed in the High Court. It therefore ruled that the disputes should not be referred to arbitration and ordered Molefe to pay the costs of the application, including those of senior and junior counsel.

Why This Case Matters

This decision highlights a key principle in South African arbitration law: while courts generally uphold arbitration clauses, they retain the discretion to intervene where strict enforcement would cause fragmentation, inefficiency or injustice.

For corporate clients and insurers, the judgment is a timely reminder that arbitration clauses must be drafted with care. When contracts cover complex relationships or multiple legal bases for claims, parties should ensure that the arbitration clause clearly defines which disputes are subject to arbitration and which are not.

Poorly worded or overly broad clauses can create uncertainty, invite procedural challenges and increase costs. Conversely, a well-structured dispute resolution clause can provide efficiency, confidentiality and finality.

Key Takeaways

1. Courts may permit litigation instead of arbitration if parallel proceedings would be impractical or duplicative.
2. When multiple causes of action arise, only those expressly covered by an arbitration clause will be referred to arbitration.
3. Businesses should review insurance and commercial contracts to ensure dispute resolution clauses are unambiguous and commercially workable.
4. Strategic drafting can prevent jurisdictional disputes and protect against wasted time and expense.

Conclusion

The AIG v Molefe case reinforces that arbitration clauses are not absolute. Where good cause exists, such as overlapping claims or inefficiency, the courts may allow a party to proceed in open court.

For legal practitioners, the lesson is clear: effective dispute resolution clauses are as critical to risk management as the substantive terms of any commercial agreement.

How Mayet & Associates Can Assist

At Mayet & Associates Attorneys, we help businesses and financial institutions structure arbitration and dispute resolution clauses that balance flexibility with legal certainty. Our firm advises on drafting, enforcing and challenging arbitration agreements across South Africa and Lesotho, ensuring our clients are protected from procedural pitfalls and unnecessary litigation.