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 the 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) of the
Arbitration Act.
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 page 6 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….,.
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
[Chapter 7:15] 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 SC09-15…, 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
[Chapter 7:15] 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
[Chapter 7:15] 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 p 466F–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.
(i) 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.
(ii) 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.
