MALABA
DCJ:
This
is an appeal against the whole judgment of the High Court dismissing
an application to set aside an arbitral award in terms of section 34
of the Arbitration Act [Chapter
7:15].
The
facts in this matter are that the first respondent owned a plastic
processing plant which was insured by the appellant under an assets
all risk policy.
On
11 August 2013 a fire occurred on the premises of the first
respondent which destroyed its building. The first respondent issued
a claim with the appellant for the replacement of the building, stock
and other movables which were covered under the insurance policy.
In
order to assess the damage, the appellant, on behalf of its auditors
KPMG, requested a list of information from the first respondent.
After
the audit, KPMG came up with an assessment of the amount to be paid
as compensation.
The
audit report was not made available to the first respondent and a
payment was made.
The
first respondent considered that the payment was far below the sum
insured and proceeded to engage its own auditors, BDO, which came up
with a different computation of the value of stock to be insured.
A
dispute arose between the appellant and the first respondent
concerning the value of the stock, whether the crane was to be
considered a fixture in the building and whether the electrical
connections were covered by the insurance policy.
In
terms of the insurance policy, any dispute arising in respect of a
claim under it should be referred to arbitration. In other words, the
parties when they signed the insurance contract voluntarily submitted
to the jurisdiction of an arbitrator in the event that a dispute
arose between them.
The
first respondent instituted a claim before an arbitrator, who is the
second respondent. It claimed the following:
1.
That the insurer replaces the insured's crane and/or pay a sum
equivalent to the value of the crane, which could be sourced from
suitable suppliers.
2.
That the forensic report by BDO Audit Firm be adopted and the insurer
pays replacement value of stock as per the BDO report.
3.
That the Bill of Quantities for electricals be prepared by a
reputable contractor appointed by the arbitrator at the insurer's
expense to replace the damaged electricals and the value thereof be
paid to the insured.
4.
Reimbursement of all costs incidental to the arbitration, including
costs on an attorney/client scale.
The
appellant opposed the claim on the grounds that the crane was not
indemnified under the policy, that there was no basis for relying on
the BDO report in respect of the stock and that the electricals were
already paid for.
The
first respondent adduced evidence through witnesses who testified
that though the crane was detachable it constituted an integral part
of the building and therefore was insured. The appellant's
witnesses testified that the crane was a detachable fixture and was
not covered by the insurance policy.
The
arbitrator held that the crane was part of the building and even if
that was not the case it was covered by the policy because it was a
tangible asset that was owned by the first respondent. He ordered the
appellant to replace the crane or pay the sum equivalent to the value
of the crane.
In
respect of the stock, the appellant insisted that the valuation given
by KPMG should be accepted and that the BDO valuation should be
ignored because it was done after the settlement of the claim. The
appellant, however, did not challenge the admissibility of the BDO
report as evidence. It merely challenged the figures that BDO came up
with and that the audit was conducted at the instance of the first
respondent.
From
the evidence adduced by the parties, the arbitrator observed that the
KPMG report was defective as it omitted some elements in its
valuation. He also considered the fact that the appellant did not
lead evidence from a member of the KPMG team which had conducted the
audit. He held that the BDO assessment was more accurate and ordered
the appellant to pay the sum of $188,815.90 as the balance of the
amount paid for stock that was destroyed. Evidence was also led in
respect of the electricals and the claim was dismissed. The
arbitrator ordered the appellant to pay costs on a legal
practitioner/client scale.
Aggrieved
by the arbitral award, the appellant approached the High Court for an
order setting it aside in terms of Article 34 of the Arbitration
Act.
Article 34(2)
of the Arbitration Act provides grounds upon which an arbitral award
may be set aside by the High Court. It states:
“(2)
An arbitral award may be set aside by the High
Court
only
if —
(a)
the party making the application furnishes proof that —
(i)
a party to the arbitration agreement referred to in article 7 was
under some incapacity, or the said agreement is not valid under the
law to which the parties have subjected it or, failing an indication
on that question, under the law of Zimbabwe;
or
(ii)
the party making the application was not given proper notice of the
appointment of an arbitrator or of the arbitral proceedings or was
otherwise unable to present his case; or
(iii)
the award deals with a dispute not contemplated by or not falling
within the terms of the submission to arbitration, or contains
decisions on matters beyond the scope of the submission to
arbitration, provided that, if the decisions on matters submitted to
arbitration can be separated from those not so submitted, only that
part of the award which contains decisions on matters not submitted
to arbitration may be set aside; or
(iv)
the composition of the arbitral tribunal or the arbitral procedure
was not in accordance with the agreement of the parties, unless such
agreement was in conflict with a provision of this Model Law from
which the parties cannot derogate, or, failing such agreement, was
not in accordance with this Model Law; or
(b)
the High
Court
finds
that —
(i)
the subject-matter of the dispute is not capable of settlement by
arbitration under the law of Zimbabwe;
or
(ii)
the award is in conflict with the public policy of Zimbabwe.”
The
salient feature of the provision is that it prohibits any recourse
against an arbitral award other than in terms of its requirements and
limits the grounds on which the award can be assailed.
The
rationale behind the provision is that voluntary arbitration is a
consensual adjudication process which implies that the parties have
agreed to accept the award given by the arbitrator even if it is
wrong, as long as the proper procedures are followed.
The
courts therefore cannot interfere with the arbitral award except on
the grounds outlined in Article 34(2).
An
application brought before the Court under this provision is, in
essence, a restricted appeal and the applicant should prove the
grounds set out in order to succeed in its application.
In
this case, the appellant's grounds for setting aside the arbitral
award were that it contained decisions on matters that went outside
the scope of submissions for arbitration and also that it violates
the public policy of Zimbabwe.
The
court a
quo
considered whether or not the appellant proved sufficient grounds
upon which it could set aside the arbitral award as the matter before
it was not an appeal or a review but that the award could only be set
aside in accordance with Article 34 of the Arbitration Act.
In
respect of the first ground advanced by the appellant, the court a
quo
found that, after carefully considering the papers before it, it was
unable to find where the arbitrator exceeded the terms of reference.
The learned Judge said at p6 of the cyclostyled judgment:
“Clearly
the second respondent was guided by the BDO report in dealing with
the value of the stock.
Given
the above, I do not see how a person who accepts the formula
suggested in the BDO report, can then fail to order payment of a
specific sum as replacement value for the stock.”
The
second ground advanced by the appellant was also dismissed after the
learned Judge made a finding that the award was not “so
unreasonable” as to offend the public policy of Zimbabwe.
The
appellant then appealed to the Court on the following grounds:
“1.
Article 34 of the Arbitration Act [Chapter 7:15]
is unconstitutional as it fails to uphold the right to equal
protection and benefit of the law guaranteed in accordance with
section 56(1) of the Constitution of Zimbabwe Amendment (No.20)
Act 2013.
2.
The court a
quo
erred by concluding that the arbitral award does not contain
decisions on matters beyond the scope of the submissions to
arbitration.
3.
The court a
quo
erred by ignoring the fact that no contract of insurance existed in
respect of the crane and, by upholding the arbitral award in this
regard, is allowing the first respondent to be unjustly enriched,
which in itself is contrary to the public policy of Zimbabwe.
4.
The court a
quo
erred by disregarding the principles of sanctity of contract and
freedom of contract and relied on the BDO report in upholding the
award on the stocks, notwithstanding that the said report was not
presented to the appellant in breach of the insurance policy
conditions and consequently in violation of the public policy of
Zimbabwe.”
The
question for determination is whether or not the court a quo
erred when it dismissed the application to set aside the arbitral
award.
Before
addressing this question, it is prudent to highlight why the Court
was of the view that the first ground of appeal was improperly before
it.
The
ground of appeal, as outlined above, states that Article 34 of
the Arbitration Act is unconstitutional, as it fails to uphold the
right to equal protection and benefit of the law guaranteed in
accordance with section 56(1) of the Constitution of Zimbabwe
Amendment (No. 20) Act, 2013.
The
ground of appeal raises a constitutional question which was never
before the court a quo.
Mr
Jambo
persisted with this ground of appeal and urged the Court to find that
Article 34 of the Arbitration Act is a violation of the
appellant's rights.
This
submission is erroneous.
A
constitutional question cannot be raised as a ground of appeal as it
should arise in the context of proceedings. The Supreme Court is a
court of record and deals with issues that were before the court of
first instance. A constitutional question does not just arise on
appeal because it is merely contemplated in the mind of a litigant.
It should be properly raised in the court a quo
for
the Court to determine it.
The
Court will also state that this is a classic display of mala
fides
by the appellant as it is clear that, having seen that its
application in terms of the provision failed, it now seeks an order
declaring the same provision unconstitutional.
It
is trite that where there are two courses of action open to a
litigant, as the appellant had, to either challenge the
constitutionality of Article 34 or apply for the setting aside of the
arbitral award in terms of that provision, and it unequivocally
elected to take one of them, it cannot turn round afterwards and take
the other course of action.
The
point was made in S
v Marutsi
1990
(2) ZLR 370 at p374B that:
“It
is trite that a litigant cannot be allowed to approbate and reprobate
a step taken in the proceedings. He can only do one or the other, not
both.”
The
appellant cannot succeed in adopting a position contrary to the one
it elected on appeal simply because its application failed in the
court a
quo.
The ground of appeal was therefore improperly raised as it was not an
issue before the court a
quo.
In
order to determine the issue before the Court, the grounds upon which
the appellant sought to have the arbitral award set aside should be
examined.
WHETHER
OR NOT THE ARBITRAL AWARD CONTAINED DECISIONS ON MATTERS THAT WENT
BEYOND THE SCOPE OF SUBMISSIONS FOR ARBITRATION
Article
34(2)(a)(iii) of the Arbitration Act states that an arbitral award
can be set aside if it contains submissions on matters beyond
submissions for arbitration.
In
Inter-Agric
(Pvt) Ltd v Mudavanhu & Ors
SC 9/15 at p3 of the cyclostyled judgment GOWORA JA said:
“In
addition, at law, the arbitrator was only competent to determine the
dispute between such parties as had been referred to him by the
labour
officer. Thus, he was confined to his terms of reference. He had no
mandate beyond that which had been referred to him.”
In
casu,
the terms of reference were agreed on and submitted by the parties.
For
this ground to succeed, the appellant should have shown that the
arbitrator did not address the matters before him or that, in
addressing the matters before him, he proceeded to exceed his mandate
and dealt with other extraneous issues.
It
was the appellant's argument in the court a
quo
that the first respondent in its claim prayed for an order that the
audit report by BDO be adopted but the arbitrator went on to award a
specific amount of US$188,815.90. It argued that by making such an
award he went beyond the scope of the submissions for arbitration.
The
first respondent, on the other hand, submitted that the arbitrator
specifically awarded the sum that had to be paid arising out of the
evidence and therefore did not go outside the scope of the
submissions for arbitration.
This
question can only be answered by analysing the relief sought by the
first respondent in its statement of claim in respect of the stock.
It was to the effect that:
“The
forensic audit report by BDO Audit firm be adopted and the insurer
pays replacement value of the stock as per the BDO report.”
Essentially
the relief sought under this paragraph was that the second respondent
finds that the value of stock as assessed by BDO is payable to the
first respondent by the appellant. The amount payable to the first
respondent in light of the BDO report is US$184,815.90.
This
specific amount was claimed by the first respondent in its written
submissions before the arbitrator. The arbitrator merely ordered the
payment of that specific amount upon making a finding that the BDO
assessment should be accepted as the value of the stock.
This
is not tantamount to making an award beyond the submissions for
arbitration.
The
arbitrator, however, made an error, which error is conceded by the
first respondent, in awarding US$188,815.90 instead of US$184,815.90.
The error should, however, not have the effect of setting aside the
arbitral award.
Article
33(1)(a) of the Arbitration Act provides for recourse where an error
is made in the arbitral award. It states:
(1)
Within thirty days of receipt of the award, unless another period of
time has been agreed upon by the parties —
(a)
a
party, with notice to the other party, may request the arbitral
tribunal to correct in the award any errors in computation, any
clerical or typographical errors or any errors of similar nature.”
This
provision provides a method by which an error in the arbitral award
can be rectified. It is not for the courts to set aside the award
based on an error that can be corrected in terms of the Act.
The
appellant failed to show that the arbitrator acted outside his
mandate and therefore the decision of the court a
quo
dismissing this ground for setting aside the arbitral award is
upheld.
WHETHER
OR NOT THE AWARD OFFENDS THE PUBLIC POLICY OF ZIMBABWE
The
appellant's third and fourth grounds of appeal succinctly state
that the award offends the public policy of Zimbabwe.
Article 34(2)(b)(ii)
of the Arbitration Act provides that the High Court can set aside an
arbitral award if it finds that the award is in conflict with the
public policy of Zimbabwe.
Guidance
on how a court should proceed when faced with this ground for setting
aside an arbitral award was given by GUBBAY CJ in the case of
Zesa
v Maposa
1999
(2) ZLR 452 (S).
At 466E the learned CHIEF JUSTICE said:
“An
arbitral award will not be contrary to public policy merely because
the reasoning or conclusions of the arbitrator are wrong in fact or
in law. In such a situation the court would not be justified in
setting the award aside. Under article 34 or 36, the court does not
exercise an appeal power and either uphold or set aside or decline to
recognise and enforce an award by having regard to what it considers
should have been the correct decision.”
The
import of these remarks is that the Court should not be inclined to
set aside the arbitral award merely on the basis that it considers
the decision of the arbitrator wrong in fact or in law. If the courts
are given the power to review the decision of the arbitrator on the
ground of error of law or of fact, then it would defeat the
objectives of the Act. It would make arbitration the first step in a
process which would lead to a series of appeals.
The
learned CHIEF JUSTICE went on further to say, at p466F–G:
“Where,
however, the reasoning or conclusion in an award goes beyond mere
faultiness or correctness and constitutes a palpable inequity that is
so far reaching and outrageous in its defiance of logic or acceptable
moral standards that a sensible and fair minded person would consider
that the conception of justice in Zimbabwe would be intolerably hurt
by the award, then it would be contrary to public policy to uphold
it.
The
same applies where the arbitrator has not applied his mind to the
question or has totally misunderstood the issue, and the resultant
injustice reaches the point mentioned above.”
These
remarks ought to guide the Court in determining whether the award by
the first respondent is contrary to public policy.
The
question that should be in the mind of a Judge who is faced with this
ground for setting aside an arbitral award is that, in light of all
the submissions and evidence adduced before the arbitrator, is it
fathomable that he would have come up with such a conclusion. If the
answer is in the affirmative, there is no basis upon which to set
aside the award.
The
appellant's submissions should be considered in the light of these
remarks.
It
was submitted for the appellant that the court a
quo
and the second respondent tampered with the sanctity and freedom of
contract. This submission is hinged on two allegations.
First,
that there is a clause in the insurance policy placing an obligation
on the first respondent to furnish all information regarding a claim
and it failed to comply by withholding information that it submitted
to BDO.
The
second allegation is that the payment of a premium is a condition
precedent to any indemnity and by ordering the appellant to replace
the crane, the second respondent violated the sanctity of the
contract.
In
Book
v Davidson
1988
(1) ZLR 365 (S)
the sanctity of contracts was discussed as follows at 378G-379C:
“'There
is, however, another tenet of public policy, more venerable than any
thus engrafted onto it under recent pressures, which is likewise in
conflict with the ideal of freedom of trade. It is the sanctity of
contracts.' (Roffey
v Catterall, Edwards & Goudre (Pty) Ltd 1977
(4) SA 494 (N) at 504-505E)…
'If
there is one thing which more than another public policy requires, it
is that men of full age and competent understanding shall have the
utmost liberty of contracting, and that their contracts when entered
into freely and voluntarily shall be held sacred and shall be
enforced by courts of justice. Therefore you have this paramount
public policy to consider - that you are not lightly to interfere
with this freedom of contract.' (Printing
and Numeric Registering Co v Sampson
(1875) LR 19 Eq 462 at 465).
'[T]o
allow a person of mature age, and not imposed upon, to enter into a
contract, to obtain the benefit of it, and then to repudiate it and
the obligations which he has undertaken is, prima
facie
at all events, contrary to the interests of any and every country.'
(E
Underwood and Son Ltd v Barker
(1899) 1 CH 300 (CA) at 305).”
The
above dictum shows that the principle of sanctity of contracts
confines the court only to interpreting a contract and not creating a
new contract for the parties. It entails that the court should
respect the contract made by the parties and give effect to it.
In
both instances which the appellant alleges that the second respondent
violated the principle of sanctity of a contract, it is the Court's
view that the appellant misconstrued the principle.
There
is a distinction between creating a new contract between the parties
and interpreting a contract in a manner which is unfavourable to a
party.
In
casu,
the second respondent did the latter and that has given rise to the
appeal.
The
determination of whether or not in terms of the policy the crane was
a fixture in the building and covered by the policy is a factual
finding which was made by the second respondent.
Both
parties adduced evidence before the arbitrator through their
witnesses and he made a finding that the crane is part of the
building and was therefore insured. This also applies to the
determination whether the first respondent supplied information to
the appellant as part of its claim.
In
light of this, the Court cannot make a finding that the second
respondent and the court a quo
violated the doctrine of sanctity of contract.
The
appellant also claimed that the award violates the public policy of
Zimbabwe because the first respondent was unjustly enriched by being
compensated for the crane which was not insured and allowing it to be
indemnified for stock when it had failed to timeously furnish the
insurer with information relating to the claim.
It
is the Court's view that, as highlighted above, the award in
respect of these two items was made after the arbitrator had made
factual findings and therefore the Court cannot interfere with these
findings.
The
award by the arbitrator was made after a consideration of the
evidence that was before him.
It
cannot be said that the conclusions reached by him constitute a
palpable inequity that is so far reaching and outrageous in its
defiance of logic or acceptable moral standards that a sensible and
fair minded person would consider that the conception of justice in
Zimbabwe would be intolerably hurt by the award. The appellant has
not shown that the arbitrator took leave of his senses in making the
award. As categorically stated above, an award cannot be set aside
merely on the basis of a difference of opinion.
The
appellant's third ground of appeal is therefore without merit and
should be dismissed.
Accordingly,
the following order is made -
The
appeal is dismissed with costs.
MAVANGIRA JA:
I agree
UCHENA JA:
I agree
Jambo
Legal Practice,
appellant's legal practitioners
Joel
Pincus, Konson & Wolhuter,
first respondent's legal practitioners
