ZHOU
J:
This
is an application in terms of Art 34 of the Schedule to the
Arbitration Act (Chapter
7:15)
for the setting aside of an arbitral award dated 20 December 2011.
The award was rendered by the first respondent in a dispute between
the applicant, the second and third respondents. The application is
opposed by the first and second respondents.
The
background facts are largely common cause and are ably set out in the
arbitral award. They are as follows:
In
2003 a trust was constituted by the applicant under the name “The
Matthews Family Trust” (hereinafter referred to as “the Trust”).
One Peter Lewis Bailey was the trustee. The beneficiaries were the
applicant and his children. The Trust was the sole shareholder in
four companies referred to in the papers as “the Craster Group of
Companies”. In September 2008 the Deed of Trust constituting the
Trust was amended by making the applicant and the second and third
respondents the beneficiaries. A Memorandum of Agreement was signed
between the Trust represented by the applicant and the second and
third respondents. The agreement was signed on 25 September 2008 but
its commencement date was 1 September 2008. In terms of that
agreement the applicant was to surrender his control of the company
to the two respondents over a period of three years as detailed in
Clause 3 of the memorandum which provided the following:
“3.
NEW
BENEFICIARIES FROM EFFECTIVE DATE
Mr
Kotecha and Mr Desai shall be declared and noted as additional
beneficiaries, from the effective date onwards, to all assets and
future net income of the Trust and companies, shall be recorded as
follows:
(i)
Mr Richard Alwyn Matthews and/or his family as detailed in the new
“Letter of Wishes”
49%
- from 01 September 2008 to 31 August 2009.
32%
- from 01 September 2009 to 31 August 2010.
16%
- from 01 September 2010 to 31 August 2011.
0%
- from 01 September 2011 onwards.
(ii)
Mr Kotecha and/or his nominee
38.25%
- from 01 September 2008 to 31 August 2009.
51%
- from 01 September 2009 to 31 August 2010.
63%
- from 01 September 2010 to 31 August 2011.
75%
- from 01 September 2011.
(iii)
Mr Dessai and/or his nominee
12.75%
- from 01 September 2008 to 31 August 2009.
17%
- from 01 September 2009 to 31 August 2010.
21%
- from 01 September 2010 to 31 August 2011.
25%
- from 01 September 2011.”
Clause
7 of the memorandum of agreement provided as follows:
“7.
RISK
AND PROFIT
7.1
Notwithstanding any other clauses in this agreement, the control and
management of the companies, by way of the “Letter of Wishes” of
the Settlor of the Trust and permission of the Trustee by signing
this agreement, shall vest in the additional beneficiaries as
follows:
(a)
51% from the effective date.
(b)
68% not later than 31 August 2009.
(c)
84% not later than 31 August 2010.
(d)
100% not later than 31 August 2011.
From
these dates the risk in the companies and the property shall pass
onto the additional beneficiaries. The profits in the companies shall
be shared as follows:
(e)
50% each to Mr Richard Alwyn Matthews and the additional
beneficiaries for the first twelve months from the effective date.
(f)
75% to the additional beneficiaries and 25% to Mr Richard Alwyn
Matthews during month 13 to month 36 from the effective date.
(g)
100% to the additional beneficiaries after 36 months from the
effective date.
7.2
On the effective date, all debtors, liquid assets, creditors,
inventory, guarantees for fulfilment of obligations, foreign
creditors and any other liabilities shall be disclosed by the
existing shareholder and appended to this agreement and shall be
received and liquidated, as the case may be, by Mr Matthews and the
additional beneficiaries on a 50/50 basis. Any other liabilities
that emerge after the effective date shall be for the account of Mr
Richard Alwyn Matthews if the liabilities arose before the effective
date.”
The
liabilities of the Craster Group of Companies were not disclosed at
the time that the agreement became effective. They were only availed
on 26 August 2009. The figures availed at a meeting of 4 September
2009 revealed that a loss of US935,626-40 had been incurred for the
period 26 August 2008 to 31 July 2009. A dispute arose as to how, if
at all, the loss referred to above should be shared, as well as the
quantum of the loss. That is the dispute which was referred to
arbitration before the first respondent. The applicant's case
before the arbitrator, which he persists with in
casu,
was that the agreement had no provision for the sharing of losses. On
that basis his contention is that he should be absolved from
liability for the said losses. On the other hand the second and third
respondents contended that the losses should be shared in the
proportions set out in Clause 7.1 of the agreement. The first
respondent came to the conclusion that the trading losses be shared
in the same proportions as the risk. Thus the losses were, according
to the arbitral award, to be shared as follows:
“51%
- 49% from September 2008 to 31 August 2009.
68%
- 32% from 1 September 2009 to 31 August 2010.
84%
- 16% from 1 September 2010 to 31 August 2011.”
The
arbitrator also ordered that the parties should agree on the quantum
of losses within thirty days of the award being rendered. In the
event that they failed to reach agreement as directed the issue of
the quantum was to be referred for determination by a Chartered
Accountant to be appointed by the President of the Institute of
Chartered Accountants. The Chartered Accountant would be acting as an
expert and not an arbitrator in rendering the determination on the
quantum.
The
applicant takes issue with that relief as well.
The
applicant's case is that the award is in conflict with the public
policy of Zimbabwe.
Article
34(2)(b)(ii) of the UNCITRAL Model Law contained in the Schedule to
the Arbitration Act (Chapter
7:15)
provides as follows:
“An
arbitration award may be set aside by the High Court only if –
(a)…
(b)
The High Court finds that –
(i)…;
or
(ii)
The award is in conflict with the public policy of Zimbabwe.”
Article
34(5) provides the following:
“For
the avoidance of doubt, and without limiting the generality of
paragraph (2)(b)(ii) of this article, it is declared that an award is
in conflict with the public policy of Zimbabwe if –
(a)
The making of the award was induced or affected by fraud or
corruption; or
(b)
A breach of the rules of natural justice occurred in connection with
the making of the award.”
The
approach of the courts has been to interpret the above provisions
restrictively in order to give efficacy to the need for finality in
arbitrations. In the case of Zimbabwe
Electricity Supply Authority v
Maposa
1999
(2) ZLR 452 (S) at 465 C-D, that approach is underscored in the
following terms:
“In
my opinion, the approach to be adopted is to construe the public
policy defence, as being applicable to either a foreign or domestic
award, restrictively in order to preserve and recognise the basic
objective of finality in all arbitrations; and to hold such defence
applicable only if some fundamental principle of law or morality or
justice is violated. This is illustrated by dicta
in
many cases . . .”
See
also Beezley
NO v
Kabell & Anor 2003
(2) ZLR 198 (S); City
of Harare v
Harare
Municipal Workers Union 2006
(1) ZLR 491 (H) at 493 A-C.
Consistent
with the interpretive approach articulated above, the court
recognises that in exercising the powers given in terms of Articles
34 and 36 it is not sitting as an appellate court. It is not,
therefore, required to embrace what it would consider to have been
the correct decision. It is only when “the reasoning or conclusion
in an award goes beyond mere faultiness or incorrectness and
constitutes a palpable inequity that is so far reaching and
outrageous in its defiance of logic or accepted 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” that
the court would interfere with the award on the ground of it being
contrary to the public policy of the country. ZESA
v
Maposa (supra)
at 466 E-G; Delta
Operations (Pvt) Ltd v
Origen Corp (Pvt) Ltd 2007
(2) ZLR 81 (S) at 85 C-D; Beezley
NO
v
Kabell & Anor (supra)
at 201 D-E; Muchaka
v
Zhanje
& Anor 2009
(2) ZLR 9 (H) at 11 E-G.
What
emerges from the authorities referred to above is that not every
mistake, be it of fact or law, warrants the setting aside of an
arbitral award in terms of article 34 on the grounds of it being
contrary to the public policy of Zimbabwe. For it to merit the
intervention of the court the incorrectness must be so serious as to
constitute a subversion and negation of justice and fairness.
The
agreement between the applicant and the second and third respondents
did not expressly deal with the question of the sharing of losses.
What is clear, however, is that the applicant did not immediately
relinquish his control of the business of the Craster Group of
Companies when the agreement was concluded. Instead, he opted to
relinquish his control in stages as detailed in the agreement itself
and observed in the arbitral award. Put in other words, for a period
of three years after the agreement was concluded he benefited from
the companies in the proportions set out in the agreement. This is
not a case in which the arbitrator failed to realise that risk in a
contract of sale passes once the contract is perfecta. This was not
an ordinary agreement of sale. The consideration paid was for the
purposes of making the second and third respondents beneficiaries of
the Trust rather than for a sale of a merx
in
the ordinary sense of the word. Further, the agreement itself
provided for the passing of risk. It did not leave that aspect to be
regulated by the common law principles. What the agreement did not do
was to expressly state how the losses of the companies in which the
Trust was the sole shareholder were to be shared. The arbitrator
determined that the risk should pass in the same proportions and on
the same dates as the control of the companies of the Trust. He then
held that the losses be shared in the same proportion as the risk.
That conclusion, in my view, does not constitute a palpable inequity
warranting the setting aside of the award.
The
second complaint by the applicant relates to the portion of the award
in terms of which the arbitrator deferred the quantification of the
losses to an expert in the event of the parties failing to reach
agreement thereon. The dispute, as outlined by the parties in the
pre-arbitration meeting of 4 October 2011, related to how, if at all,
the losses incurred by the companies owned by the Trust were to be
apportioned, as well as the extent of the losses. The arbitrator
answered the first part by specifying the proportions in terms of
which the losses were to be shared. He then deferred the second part
to an expert. Article 26 of the Schedule to the Arbitration Act
provides as follows in relation to the appointment of an expert by an
arbitrator:
“(1)
Unless otherwise agreed by the parties, the arbitral tribunal –
(a)
may appoint one or more experts to report to it on specific issues to
be determined by the arbitral tribunal;
(b)
may require a party to give the expert any relevant information or to
produce, or to provide access to any relevant document, goods or
other property for his inspection.
(2)
Unless otherwise agreed by the parties, if a party so requests or if
the arbitral tribunal considers it necessary, the expert shall, after
delivery of his written or oral report, participate in a hearing
where the parties have the opportunity to put questions to him and to
present expert witnesses in order to testify on the points in issue.”
In
terms of the above provision it is the arbitrator who has the
authority to appoint an expert. The expert appointed is to report to
the arbitrator on the specific issues to which the appointment
relates. Those issues would then have to be determined by the
arbitrator. Further, if a party so requests or the arbitrator
considers it necessary, after delivery of his report to the
arbitrator the expert is then required to take part in the hearing
and may be asked questions by the parties. The parties are entitled
to lead expert evidence in respect of the matters for which the
expert was appointed. It is only when the parties agree otherwise
that the arbitrator is excused from complying with the requirements
of sub-articles (1) and (2). The reason for requiring an expert to
be appointed by the arbitrator to report to the latter is to ensure
that the arbitral tribunal remains seized with the matter until it is
finalised. Permitting the parties to put questions to the expert
and/or to lead their own expert evidence is meant to ensure that the
proceedings comply with the rules of natural justice, particularly
the audi
alteram partem rule,
by giving the parties an opportunity to cross-examine the expert
witness and to lead their own evidence either to support or to
contradict the evidence of the expert appointed by the arbitral
tribunal.
When
the arbitral tribunal leaves it to a third party to appoint an
expert, as was done in
casu,
then he loses control of the matter.
If
there is disagreement on the determination rendered by the expert the
parties would not know what to do to resolve that disagreement. More
fundamentally, the appointment of the Chartered Accountant would
clearly be contrary to the provisions of the law. Also, if the expert
is appointed for the purpose of making a determination on the quantum
then clearly his determination is not meant for consideration by the
arbitrator but is intended to be binding on the parties. That
approach elevates the expert to the position of an arbitrator then,
contrary to the statement in the arbitral award that the Accountant
would not be acting as an arbitrator. For the foregoing reasons, I
am convinced that the award is contrary to the public policy of
Zimbabwe. It was made contrary to the express provisions of the law
to the extent that it delegates the power to appoint an expert to the
President of the Institute of Chartered Accountants and makes no
provision for that accountant to report to the arbitrator. Also, the
award makes no provision for the parties to put questions to the
expert so appointed or to lead their own evidence from other experts.
See Delta
Operations (Pvt) Ltd v
Origen Corp (Pvt) Ltd (supra)
at p 87A.
Accordingly,
the award must be set aside.
In
terms of the law the court will leave it to the parties to determine
the future course of the matter. ZESA
v
Maposa (supra)
at p 467 B; Origen
Corporation (Pvt) Ltd v
Delta Operations (Pvt) Ltd 2005
(2) ZLR 349 (H) at 356 E-357A.
In
the result, IT IS ORDERED THAT:
1.
The arbitral award rendered by the first respondent on 20 December
2011 be and is hereby set aside.
2.
The second and third respondents shall pay the costs of this
application jointly and severally the one paying the other to be
absolved.
Atherstone
& Cook,
applicant's legal practitioners
Dube
Manikai & Hwacha,
second and third respondents' legal practitioners
