Shareholder disputes are inevitable in long-term business relationships. Differing visions, financial pressures, and personal friction will, in many businesses, eventually produce a dispute between shareholders. A well-drafted dispute resolution clause in a shareholders agreement can mean the difference between a resolved dispute and years of costly, public litigation.
Without a dispute resolution clause, an unresolved dispute usually ends up in the High Court, unless the shareholders agree at that stage to mediate or arbitrate — which is hard to do once the relationship has soured. Litigation is usually expensive, slow, and public. A carefully structured clause gives the parties a more private, efficient, and commercially focused alternative.
This guide explains the types of disputes that arise between shareholders, how a multi-step dispute resolution ladder works, the difference between mediation and arbitration, AFSA's role in South African arbitration, what an arbitration clause must include, and the constitutional limits on ousting court jurisdiction.
Why You Need a Dispute Resolution Clause
Where a shareholders agreement is silent on dispute resolution, the parties will usually have to pursue their claims through the ordinary courts, unless they can agree on another process after the dispute has arisen. The shareholders still have their rights under the Companies Act and the MOI, but High Court litigation between shareholders has four significant disadvantages.
Without a Clause
- Expensive — in our experience, a contested High Court matter can cost from several hundred thousand rand into the millions in legal fees
- Slow — in our experience, contested High Court disputes often take years to reach trial
- Public — court proceedings are generally open to the public and media
- Adversarial — litigation often damages whatever remains of the commercial relationship
With a Good Clause
- Speed — structured timelines drive parties toward resolution
- Privacy — mediation and arbitration are held in private, and the clause can add confidentiality obligations with sensible exceptions
- Commercial focus — arbitrators with industry expertise decide on the merits
- Relationship preservation — negotiation and mediation can preserve goodwill where possible
Types of Disputes in Shareholders Agreements
Not all shareholder disputes are the same, and a well-drafted clause must account for the distinct nature of each category. There are three primary types.
Deadlock Disputes
Deadlocks arise when shareholders are unable to pass a resolution — typically because the voting thresholds cannot be met. Deadlock is distinct from a breach dispute; it is a governance failure rather than a wrongful act. Deadlock mechanisms are typically addressed separately in the SHA. See our guide on deadlock provisions for a detailed analysis.
Breach of SHA Disputes
The most common category. One shareholder alleges that another has breached a provision of the SHA — for example, by transferring shares without following the agreement's pre-emption procedure (a right of first offer or a right of first refusal, depending on the clause), competing in breach of a restraint, failing to comply with a call or drag-along obligation, or misappropriating company funds. These disputes are contractual in nature and are the primary target of an arbitration clause.
Valuation Disputes
Many buy-out events need a price for the shares. Under a drag-along or tag-along, the price is usually the genuine third-party offer price. Where shares change hands between the shareholders themselves — under a pre-emption procedure, a leaver clause or a deadlock mechanism — the agreement often calls for a valuation. Valuation disputes arise when shareholders disagree on what the shares are worth. These are usually resolved by independent expert determination rather than arbitration. The SHA must specify the method and finality of that determination.
The Multi-Step Dispute Resolution Ladder
A well-structured SHA does not go directly to arbitration. It establishes a tiered, escalating process — a "dispute resolution ladder" — that gives parties the opportunity to resolve their dispute at each step before proceeding to the next. This structure saves costs and preserves relationships where resolution is possible.
Step 1: Direct Negotiation
Timeframe: 20 business days
The dispute resolution process is triggered when the aggrieved party delivers a written notice of dispute to the other shareholder(s), setting out the nature of the dispute and the relief sought. Upon receipt of the notice, the parties are obliged to meet within 10 business days to discuss the dispute in good faith. Negotiating does not pause prescription or statutory time limits — for example, the strict deadlines for appraisal rights under section 164 of the Companies Act 71 of 2008 — so the clause should not stop a party from taking the steps needed to protect its position.
- Aggrieved party delivers written notice of dispute, identifying the issue and relief sought
- Parties must meet within 10 business days of receiving the notice
- Good faith negotiation for up to 20 business days from the date of the notice
- Many disputes can be resolved at this stage — little cost, no third parties
Step 2: Mediation
Timeframe: 30 days — Indicative cost: R15,000–R50,000
If direct negotiation fails to resolve the dispute within the prescribed period, either party may refer the dispute to mediation. The parties jointly appoint a mediator — or, if they cannot agree, either party may apply to AFSA (the Arbitration Foundation of Southern Africa), the Association of Arbitrators (Southern Africa), or another recognised institution for appointment of a mediator.
- Non-binding — mediator facilitates discussion and proposes solutions but does not decide the dispute
- Confidentiality: mediation communications are normally without prejudice and generally cannot be used in later proceedings, subject to recognised exceptions (for example, proving that a settlement was reached)
- Appointing bodies: AFSA, the Association of Arbitrators (Southern Africa), or agreed institution
- Cost shared equally unless otherwise agreed — in our experience often R15,000 to R50,000 in total, depending on the mediator and how long the mediation runs (our 2026 estimate, not survey data)
Step 3: Binding Arbitration
Indicative timeframe: 6–18 months — Indicative cost: R100,000–R500,000+
If mediation fails, the dispute is referred to binding arbitration. The arbitrator's award is binding on the parties. It is not automatically a court judgment: if the losing party does not comply, the winner applies to the High Court under the Arbitration Act to have the award made an order of court, after which it can be enforced like a judgment. Unlike litigation, arbitration hearings are held in private, and the parties can select an arbitrator with relevant commercial expertise. The time and cost figures shown here are our own estimates as at 2026, not survey data; complex disputes can take longer and cost more. Several key decisions must be made in the SHA.
Arbitral Institution
AFSA (widely used in SA), LCIA, ICC, or ad hoc
Number of Arbitrators
1 arbitrator (cost-effective) or 3 (suitable for complex, high-value disputes)
Seat of Arbitration
The legal seat (usually South Africa) determines the procedural law; hearings can physically be held in Johannesburg, Cape Town or elsewhere
Language
English (standard for South African commercial arbitration)
Arbitration vs Litigation
The central choice in a dispute resolution clause is whether to refer unresolved disputes to arbitration or to allow parties to litigate in the High Court. The main differences are summarised below.
| Factor | Arbitration | High Court Litigation |
|---|---|---|
| Confidentiality | Hearings are private; how confidential the documents and award are depends on the clause and the rules, and related court applications can become public | Generally no — open court and public record |
| Speed | Often 6–18 months (our estimate) | Often several years to trial (our experience) |
| Cost | Significant, but the parties have more control over procedure and timetable | Significant and often hard to predict |
| Expertise | Parties choose an arbitrator with commercial / industry expertise | Judge assigned — the parties do not choose the judge |
| Finality | Award is binding — no appeal on the merits unless the parties agreed to an arbitral appeal; a court can set an award aside only on narrow statutory grounds | Appeals are possible, but they are not automatic and usually need leave |
| Enforceability | In SA, made an order of court on application. Abroad, enforcement depends on the destination country's rules — many apply the New York Convention | Enforceable in SA. Abroad, enforcement depends on that country's rules on foreign judgments |
The New York Convention
South Africa acceded to the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the "New York Convention") in 1976. Most major trading nations are parties to the Convention, which gives a recognised route for enforcing a South African arbitral award abroad. It is not automatic: the winner must still apply in the destination country, and that country's courts can refuse enforcement on the Convention's limited grounds. For businesses with international counterparties or assets this can be an advantage, but take advice on the specific country before relying on it.
AFSA Arbitration in South Africa
The Arbitration Foundation of Southern Africa (AFSA) is a leading arbitral institution in South Africa. It administers both commercial arbitration and mediation under its own rules, and provides an appointing authority function when parties cannot agree on an arbitrator.
Key Facts About AFSA
- Governing rules: AFSA Arbitration Rules (regularly updated) — provide a comprehensive procedural framework
- Appointment: If parties cannot agree on an arbitrator, AFSA appoints one from its panel of accredited arbitrators
- Fees: Administration fee plus arbitrator's hourly rate — scale depends on claim value and complexity
- Mediation: AFSA also administers commercial mediation under its Mediation Rules
- Website: www.arbitration.co.za
For many South African shareholders agreements, we recommend designating AFSA as the appointing authority and incorporating the AFSA Arbitration Rules by reference. This removes ambiguity about procedure and provides a reliable appointment mechanism when parties cannot agree.
The Arbitration Clause — What to Include
A poorly drafted arbitration clause can itself become a source of dispute. The clause must be sufficiently detailed to eliminate procedural ambiguity while remaining flexible enough to accommodate the nature of the dispute. The following elements are essential.
Mandatory Pre-Arbitration Steps
The clause should require parties to attempt direct negotiation before commencing arbitration, with a mediation step added where the shareholders' circumstances call for it. Without this, a party may skip straight to arbitration, incurring unnecessary costs. The clause should specify the timeframes for each step, and make clear that these steps do not block urgent relief or pause statutory time limits.
Number of Arbitrators
For disputes below a defined threshold (e.g., R1,000,000), one arbitrator is appropriate. Above that threshold, or for disputes of particular complexity, three arbitrators are preferable. Specify who appoints the presiding arbitrator if there are two co-arbitrators who cannot agree.
Appointing Authority
Designate AFSA (or another institution) as the appointing authority if the parties cannot agree on an arbitrator within a specified period. Without an appointing authority, an uncooperative party can delay the appointment. The Arbitration Act does allow a court to appoint an arbitrator where the parties cannot agree, but that means a court application, with its cost and delay.
Seat and Venue
The seat of arbitration determines the governing procedural law (lex arbitri). In South Africa, domestic arbitration is governed by the Arbitration Act 42 of 1965, while international commercial arbitrations are governed by the International Arbitration Act 15 of 2017 (in force since December 2017). The seat is a legal concept and need not be the place where hearings are physically held. For a South African company a South African seat is usually the sensible choice. State the seat and, separately, where hearings will normally take place (for example, Johannesburg or Cape Town).
Language
Specify English as the language of the arbitration. All pleadings, evidence, and the award must be in the designated language.
Governing Law
For a South African company, South African governing law is the usual and sensible choice. While this may seem obvious for a domestic agreement, state it expressly to avoid future argument.
Urgent Relief Carve-Out
The clause must expressly preserve the right of any party to approach the High Court for urgent relief pending the outcome of the arbitration. Without this, the clause may inadvertently prevent a party from obtaining an urgent interdict.
Costs
Specify the default cost allocation: the loser pays, or each party pays its own costs. The arbitrator should retain discretion to award costs differently based on the conduct of the parties.
Confidentiality
Arbitration hearings are private, but privacy is not the same as confidentiality. Say expressly what must be kept confidential (the documents, the hearing, the award) and what may be disclosed — for example, to professional advisers, where the law requires it, or to a court when enforcing or challenging the award. Court proceedings linked to an arbitration can become public.
Urgent Relief and Interdicts
A shareholders agreement arbitration clause cannot and does not prevent a party from seeking urgent relief from the High Court. The right of access to courts is constitutionally guaranteed under section 34 of the Constitution of the Republic of South Africa, 1996. Any contractual clause that purports to oust that right entirely is unenforceable to that extent.
Recommended Express Carve-Out
"Nothing in this dispute resolution clause shall prevent any party from applying to a court of competent jurisdiction for urgent interdict, urgent injunctive relief, or other urgent interim relief pending the determination of the dispute in accordance with this clause."
Common situations in which a shareholder will require urgent court relief include: a shareholder attempting to transfer shares in breach of a pre-emptive right clause, a director siphoning company assets, a shareholder soliciting the company's employees or clients in breach of a restraint, and the improper calling of a shareholder meeting to dilute a minority interest.
The High Court has held on numerous occasions that an arbitration clause does not deprive the court of jurisdiction to grant urgent interim relief. However, the express carve-out removes all ambiguity and ensures that a respondent cannot raise the arbitration clause as a preliminary point to delay the grant of urgent relief.
Valuation Disputes
Many buy-out events need a price for the shares. A drag-along or tag-along usually uses the genuine third-party offer price, but where shares change hands between the shareholders themselves — under a pre-emption procedure, a deadlock mechanism, a leaver clause or a default provision — the agreement often calls for a fair-value determination. Valuation disputes are among the hardest to resolve in a shareholders agreement context, because they involve financial judgement rather than the application of legal principles. No pricing mechanism — expert valuation, sealed bids or a buy-sell offer — guarantees a fair price; each depends on its detailed terms and on the parties' relative information and funding.
The SHA should establish a specific valuation dispute mechanism that addresses each of the following five elements.
01
Who Appoints the Valuer
Jointly by the parties, failing which by the South African Institute of Chartered Accountants (SAICA) or the President of AFSA — removes the veto power of a recalcitrant party
02
Valuation Method
The SHA must specify the methodology: discounted cash flow (DCF), net asset value (NAV), earnings multiple (EBITDA multiple), or a blended approach. Leaving this open invites dispute.
03
Expert or Arbitrator
The valuer may act as an expert (determining value from their own knowledge) or as an arbitrator (applying a formal adversarial process). Expert determination is faster and less costly for valuation disputes.
04
Finality
The valuation should be final and binding in the absence of manifest error. If the valuer acts as an expert, the determination is not subject to appeal on the merits — only manifest error.
05
Cost Allocation
Costs of the valuer are typically shared equally, but the SHA may provide that the party whose valuation deviates most from the expert's determination bears the full cost — incentivising reasonable initial positions.
06
Interim Access to Books
The buying party should be granted access to the company's financial records during the valuation process. Without this, a controlling shareholder can frustrate a buy-out by limiting information flow.
Shareholder Disputes and the Section 163 Remedy
Notwithstanding an arbitration clause in the SHA, a shareholder may seek to apply to the High Court under section 163 of the Companies Act 71 of 2008 — the oppression remedy. How far this statutory remedy can be pursued in arbitration rather than court remains contested, but the courts retain an important role because s163 confers powers an arbitrator cannot fully exercise.
What Section 163 Provides
Section 163 allows a shareholder to apply to the High Court for relief where any act or omission of the company, or the conduct of the company's affairs, is oppressive or unfairly prejudicial to, or unfairly disregards the interests of, the applicant as a shareholder. The court has wide discretion to grant relief, including ordering a buy-out of the applicant's shares at fair value, setting aside a resolution, or appointing a liquidator.
Case Authority
In Peel v Hamon J&C Engineering (Pty) Ltd 2013 (2) SA 331 (GSJ), the court held that an arbitrator cannot grant the full range of relief available under section 163. The interaction between section 163 and an arbitration agreement remains contested, and since the International Arbitration Act 15 of 2017 the balance may be shifting — so advice should be taken on the specific clause before assuming a dispute must go to court or to arbitration.
This means that even a carefully drafted arbitration clause may not fully shield the majority from a section 163 challenge — the point is contested rather than settled, so the outcome will turn on the specific clause and the relief sought. The practical implication: treat minority shareholders fairly. A section 163 application is a public, expensive, and reputationally damaging process for all parties involved.
Common Drafting Mistakes
The dispute resolution clause is one of the most frequently poorly drafted provisions in a South African shareholders agreement. These are the mistakes we encounter most often in practice.
No step-by-step escalation
Parties go straight to arbitration (or court) without attempting negotiation or mediation, wasting time and money on disputes that could have been resolved informally.
No appointment mechanism for the arbitrator
If parties cannot agree on an arbitrator and the clause does not designate an appointing authority, the appointment stalls until a court is asked to appoint an arbitrator under the Arbitration Act — an avoidable cost and delay.
No urgent relief carve-out
A respondent can raise the arbitration clause as a preliminary objection when the other party seeks an urgent interdict, causing delay at a critical moment.
No valuation methodology
When a buy-out event is triggered, parties spend months (and significant legal fees) fighting about how the shares should be valued — before the buy-out price has even been determined.
Clause applies to 'all disputes' without exception
Applying the arbitration clause to urgent matters (e.g., where a shareholder is actively diverting company assets) prevents timely court intervention. The clause should exclude urgent matters from the mandatory pre-arbitration steps.
Clause drafted in isolation from other SHA provisions
The dispute resolution clause must be cross-referenced with deadlock provisions, buy-out mechanisms, and breach remedies. An inconsistency between these provisions creates gaps and conflicting obligations.