This
is an appeal against the whole judgment of the High Court dismissing
the appellant`s application for the setting aside of an arbitral
award in terms of Article 34(2) of the UNCITRAL Model Law as set out
in the Arbitration Act [Chapter
7:15].
FACTUAL
BACKGROUND
The
appellant is a company incorporated in terms of the laws of Mauritius
and it carries on the business of property finance and development in
Zimbabwe. The first respondent is a duly registered company in terms
of the laws of Zimbabwe and is in the business of performing civil
contracting services. The second respondent is an arbitrator.
In
June 2008, the appellant was contracted by the City of Harare to
manage the upgrading and extension of the Airport Road. By agreement
dated 25 and 26 March 2013, the appellant subcontracted the
first respondent to carry out civil engineering works on the Airport
Road. At the time of entering into the agreement, the appellant
acknowledged indebtedness to the first respondent in the sum of
US$3,340,500= for previous work done and equipment hire charges.
In
terms of clauses 1.3 and 3.1 of the agreement, payment to the first
respondent, for its services, was to be by way of land and should the
land option fall away, payment was to be made in cash within a
limited time period. It was also a term of the agreement that the
consideration due to the first respondent was to be payable when the
land pledged as security was sold or the appellant was in the
position to make a cash payment. It was recorded that the appellant
had commenced the rezoning of the land and would use its best
endeavours to re-zone, subdivide and develop it. It is common cause
that the land pledged as security was not registered in the name of
the appellant, nor was it sold to realise the amount owed to the
first respondent, as envisaged by the parties. Pursuant to the
agreement, the first respondent carried out works on the Airport Road
at the cost of US$4,800,000=. Despite demand, the appellant refused,
failed or neglected to pay the debt due to the first respondent for a
period of almost two years then - it is now close to five (5) years.
Aggrieved,
the first respondent purported to cancel the agreement between the
parties by way of a letter dated 14 April 2014, and, thereafter, a
dispute arose. In terms of the contract, the matter was referred to
arbitration before the second respondent. Before the arbitrator, the
first respondent sought an award for payment of the US$4,800,000=
debt, or, alternatively, an order of quantum
meruit
for work carried out on behalf of the appellant. The first respondent
demanded that it be paid in cash, and, in its Statement
of Claim,
gave the reason that the land option had fallen away as evidenced by
the appellant's failure to pay its dues by way of cash, transfer of
land or a combination of the two. Further, that the appellant did not
in any event, own the land it had tendered as security for the
payment of the debt in question.
In
response, the appellant did not contest the debt but challenged the
method of repayment as well as the timing of it.
It
would appear that in view of the above, the main issue placed before
the arbitrator for determination was whether or not the land option
had fallen away, and, if so, whether payment was to be made by way of
cash. The arbitrator found for the first respondent and issued the
following award:
1.
That the respondent shall pay the Claimant US$3,340,500= (three
million three hundred and forty thousand and five hundred United
States dollars) not later than Friday 4 April 2015.
2.
That the respondent shall pay the Claimant US$1,459,500= (one million
four hundred and fifty-nine thousand and five hundred United States
dollars) not later than Thursday 4 June 2015. This payment may be
made in land of equivalent value, but, whether in cash or land, the
payment must be made not later than Thursday 4 June 2015.
3.
That the costs of the Arbitration, being the Arbitrator`s fee and the
costs of the hearing, be paid in equal shares by the parties.
4.
That the parties shall bear their own legal costs.
5.
That the application for an order of quantum
meruit
fails.
Dissatisfied
with the award, the appellant approached the court a
quo
with an application to set it aside in terms of Article 34(2)(b)(ii)
of the Arbitration Act, on the basis that the award was contrary to
public policy as the arbitrator had decided on matters which were not
placed before him. This related to the issue of the effect of the
cancellation of a contract relating to the land pledged by the
appellant in
casu,
entered into between the appellant and the City of Harare.
The
court a
quo
dismissed the application and reasoned that the arbitrator did not
deal with issues outside those referred to him, and, consequently,
that the award did not offend against public policy. In support of
this finding, the court a
quo
held that it was, in fact, the appellant who had introduced the issue
of the contract with the City of Harare. The court a
quo
further found that the second respondent's decision to award
payment in cash was not outrageous since the land used as security
did not belong to the appellant.
Aggrieved
by this order, the appellant noted an appeal to this Court on grounds
that, in my view, raise two questions for determination, and these
are:
1.
Whether or not the arbitrator decided on issues that were not placed
before him; and
2.
Whether or not the arbitral award was contrary to public policy.
THE
APPELLANT`S ARGUMENTS ON APPEAL
It
was argued, for the appellant, that it was common cause that payment
due to the first respondent was to be made in land rather than in
cash. It was also argued that the Statement
of Claim
by the first respondent set out the case that the agreement had been
terminated and since the land used as security was not registered in
the appellant`s name, the land option had fallen away. The appellant
claims that this is the case it was supposed to meet and answer at
the arbitration proceedings, but, however, the second respondent
found for the first respondent by making out a case that had neither
been pleaded nor argued. In particular, the appellant took issue with
the fact that the second respondent found that as the main contract
between the appellant and the City of Harare had been terminated, the
agreement between the parties effectively came to an end. That was
never the case that was pleaded or argued by the first respondent. It
was therefore alleged that the second respondent made out a case for
the first respondent and substituted the first respondent`s cause of
action with his own, resulting in fundamental injustice which was
also an affront to the public policy of Zimbabwe.
THE
RESPONDENTS` ARGUMENTS ON APPEAL
The
first respondent argued that the appellant is not disputing the debt
owed to it which has been outstanding for a number of years. It was
also argued that the appellant exhibited dishonourable conduct by
offering land which did not belong to it as “security” for the
repayment of the debt. This was because the land could not be sold
and was thus never, at any point, security for the debt. The first
respondent also denies that the award is contrary to public policy
and stresses that the appellant undertook to pay the debt by June or
July 2014 through a transfer of land but this has not been done. As a
result, the US$4,800,000= remains owing. As regards the argument that
the arbitrator dealt with issues not before him, the first respondent
argued that the arbitrator correctly identified the issues for
determination and one of these was whether or not the land option had
fallen away.
WHETHER
OR NOT THE ARBITRATOR DECIDED ON ISSUES THAT WERE NOT BEFORE HIM
It
is the appellant`s argument that the second respondent went outside
his terms of reference and raised, mero
motu,
the issue of the cancellation of the contract between the appellant
and the City of Harare. The argument is that this issue was neither
raised nor argued by the parties thus the second respondent ought not
to have made a pronouncement on it or premised his arbitral award
thereon.
The
arbitrator did indeed find that the agreement between the parties was
terminated by virtue of the termination of the main contract between
the appellant and the City of Harare. However, in his award, the
arbitrator pointed out that there was, on the record before him,
minutes of a meeting between the appellant and a third party, which
recorded the fact of such termination. Further, that the document had
been prepared by the appellant, and was introduced at the hearing
before the arbitrator with no objections being raised. The court a
quo
also noted that a copy of the agreement in question, between the
appellant and the City of Harare, was part of the record before that
court.
Thus,
far from finding that the arbitrator had dealt with issues falling
outside his terms of reference, the court a
quo
stated as follows in its judgment:
“I
have perused the Statement
of Claim
and response. It is the applicant (appellant in
casu),
in its response, which introduced the issue of its contract with the
City of Harare…,. On page 299 of the record is an agreement between
City of Harare and the applicant. I therefore fail to understand the
complaint by the applicant. It is my view that the arbitrator did not
deal with issues outside referral.”
Against
this background, it is in my view correctly argued for the first
respondent that the arbitrator pronounced on, and premised his
finding as to the termination of the agreement between the parties,
based on evidence and submissions that were clearly placed before
him.
The
first respondent argues that in any case whether or not the agreement
was alive was irrelevant to the question of whether payment in cash
was due. In terms of clause 3.1 of the agreement, so the argument
goes, the 'cash settlement' was to come into effect only upon the
land option falling away - a conclusion that the arbitrator duly
pronounced.
I
am persuaded by this argument, not least because the appellant itself
indicated that it understood the 'land falling away' option as an
alternative basis for the claim filed against it. This much is made
clear on a reading of paragraph 9 of the appellant's founding
affidavit a
quo:
“First
respondent claimed payment in the sum of US$4.8 million based on a
written agreement. As appears from the Statement
of Claim,
it was alleged that the agreement had been cancelled, or,
alternatively, the
land option envisaged by the parties had fallen away…,.”…,.
A
perusal of the first respondent's Statement
of Claim
confirms the appellant's assessment of the first respondent's
claim. The point was clearly made in its Statement
of Claim
that the land which had been used as security for the debt did not
belong to the appellant and thus did not constitute valid security.
Further, that as a result, the land option had fallen away. The
relevant part of the statement of claim reads as follows:
“25.
In an email dated 11 September 2014 (enclosed as Annexure 14) T&C
offered to settle the outstanding debt with Augur by way of (a) cash
payment, or (b) by way of transfer of ownership of land to T&C or
(c) a combination of the two. Augur failed to respondent to this
proposal.
26.
In
the circumstances, the “land option” has fallen away as Augur
does not own the land it secured and, further, Augur has not
consented to the transfer of land to T&C. In fact, T&C is
unaware whether Augur owns any land.
27.
Pursuant to clauses 3.1, 6.1B and 6.3 the admitted debt of US$4.8
million is due and owing.”…,.
That
the issue of the land option was uppermost in the arbitrator's mind
is confirmed in the following concise statement contained in his
award:
“The
particular issues are whether or not the 'land option' has fallen
away and what is the duration of the 'limited time period' both
as identified in clause 3.1. In my view, these are inextricably
linked.”
Thus,
while the second respondent opined that the termination of the main
contract between the City of Harare and the appellant had the effect
of terminating the agreement between the appellant and the first
respondent, he also considered the land issue, including the timing
of the cash payment. He found that the land option in respect of 'the
old debt,' unlike the 'new debt,' had indeed fallen away. His
conclusions are clearly premised on this finding as stated in
paragraphs 5.5 and 5.5 (sic)
of the arbitral award:
“5.5
As set out in 4.21 above, I consider the respondent has had more than
adequate time to demonstrate progress towards settling this debt.
Accordingly, I conclude that the land option has fallen away in
respect of the old debt and that the time has come for a cash
payment.
5.5
So far as the new debt is concerned, I consider that sufficient time
has not yet elapsed to enable me to consider that the land option has
fallen away and I shall make allowance for this in the award.”
It
would appear from his award though, that the arbitrator used the
estimated date of the termination of the contract between the parties
as an aid in assessing whether or not adequate time to demonstrate
progress towards settling the debt, in terms of paragraph 3.1 of the
agreement, had elapsed. I do not find anything amiss in this
approach, given that the evidence was there before him and that he
could, in any case have made the same assessment of time without
reference to the supposed date of the termination of the parties'
agreement. The arbitrator was not called upon to determine the date
from which the land option could be considered as having fallen away.
All
he had to do was determine whether 'a limited time period' had
elapsed from the time events on the ground suggested to the first
respondent that the land option had fallen away. The first
respondent's Statement
of Claim,
in my view, was instructive in that respect.
It
is accepted that an arbitrator, unlike a court of law, is not allowed
to venture outside their terms of reference when making a
determination, as highlighted as follows by FOURIE J, in Bidoli
v Bidoli
[2010]
ZAWCHC 39...,:
“An
arbitrator, unlike a court, has no inherent power to decide issues or
make orders that go beyond the issues which have been referred to
arbitration and the pleadings filed pursuant thereto. In Hos+Med
Medical Aid Scheme v Thebe Ya Bophelo Healthcare Marketing &
Consulting (Pvt) Ltd and Others
[2007] ZASCA 163; 2008 (2) SA 608 (SCA), LEWIS JA put it as follows
at para 30:
'In
my view, it is clear that the only source of an arbitrator's power is
the arbitration agreement between the parties and an arbitrator
cannot stray beyond their submission where the parties have expressly
defined and limited the issues, as the parties have done in this
case, to the matters pleaded. Thus, the arbitrator…, had no
jurisdiction to decide a matter not pleaded.'"
See
also Inter
Agric (Pvt) Ltd v Mudavanhu & Ors
SC09-15.
The
appellant itself acknowledges that the issue of mode of payment to
the first respondent was key to a resolution of the dispute and
stated the following in its Answering Affidavit to the application in
the court a
quo:
“A
genuine dispute existed between the parties. The central issue was
whether or not the First Respondent was entitled to payment in a form
other than land, and, if so, when such payment was to be made.”
In
view of the foregoing, I find that the appellant's submission that
the second respondent made a case for the parties and premised his
findings on issues that were not before him, to be without any basis.
The point must be made that even if the arbitrator had indeed
premised his award also
on the finding that the contract between the City Council and the
appellant automatically terminated the parties' contract, the
validity of the conclusion would still stand. It is, at law, not
uncommon for a single determination to be premised on more than one
finding in the same dispute.
This
issue is accordingly determined against the appellant.
WHETHER
OR NOT THE AWARD IS AGAINST PUBLIC POLICY
In
terms of the law, an arbitral award can be set aside in terms Article
34(2) of the UNCITRAL Model Law as set out in the First Schedule to
the Arbitration Act [Chapter
7:15].
It reads as follows in relevant part:
“(2)
An arbitral award may be set aside by the High Court only if;
(a)
The party making the application furnishes proof that -
…,.
(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
…,.
(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
test to be applied in
determining whether an award is in conflict with public policy was
set out by this Court in Zimbabwe
Electricity Supply Authority v Maposa
1999 (2) ZLR 452 (S)…, where GUBBAY CJ said:
“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. Where, however, 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, then, it would be
contrary to public policy to uphold it.
The
same consequence 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.”
The
gravamen of the appellant`s attack on the arbitral award is that the
second respondent made a case for the first respondent by considering
an alternative and completely unfounded basis upon which the
appellant`s liability was premised, that is the termination of its
contract with City of Harare.
I
have already determined, as did the court a
quo,
that there is no basis to the above allegation. On the evidence
before the court, the arbitrator's determination clearly did not
turn on the issue concerning the effect that the cancellation of the
agreement between the appellant and Harare City Council might have
had on the parties' agreement. This was notwithstanding the fact
that the matter had been placed before the arbitrator by the
appellant itself. Rather,
and
as demonstrated above, the determination properly turned on the issue
of whether or not the land option had fallen away. That being the
case, I find that the applicant failed to furnish proof, as required
in terms of Article 34(2) of the Model Law, that the award dealt with
a dispute not contemplated by or not falling within the terms of the
submission to arbitration, nor that it contained decisions on matters
beyond the scope of the submission to arbitration.
To
the extent that the appellant may be questioning the correctness of
the conclusions that were reached by the second respondent, it is
settled that in setting aside an award, the court is not concerned
with its correctness. Rather, the concern of the court is whether or
not the award goes beyond mere faultiness to constitute a palpable
inequity. In Peruke
Investments (Pvt) Ltd v Willoughby`s Investments (Pvt) Ltd & Anor
2015 (2) ZLR 491 (S)…, PATEL JA held as follows:
“As
a rule, the courts are generally loathe to invoke this ground except
in the most glaring instances of illogicality, injustice or moral
turpitude. In the words of GUBBAY CJ in the locus
classicus
on the subject, ZESA
v Maposa
1999 (2) ZLR 452 (S) at 465D-E:
'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 the law or morality
or justice is violated.'”
In
that case, the learned judge went on to state that he could not find
anything outrageously illogical or immoral in the reasoning or
conclusions reached by the arbitrator to warrant a different
conclusion.
I
respectfully associate myself with the sentiments of the learned
judge in this case and find that they may properly be applied to the
circumstances of this case. There is no indication in
casu,
and based on the circumstances, that the second respondent`s award is
irrational or outrageously immoral or illogical. See also Zesa
v Maposa
1992
(2) ZLR 452 (S).
It
is pertinent to reiterate that from the time that the dispute arose
right up to the appeal before this Court, the appellant has not
disputed that it owes the first respondent money for work done, in
the amount of US$4,800,000=. Nor can the appellant deny that payment
of this amount to the first respondent, in cash, was within the
contemplation of the parties. This is put beyond doubt if regard is
had to paragraph 3.1 of their agreement which reads as follows:
“Should
the land option fall away, then a limited time period will apply for
the cash settlement to come into effect.
T
& C Construction will have the option to opt out of the land
security if so required.”…,.
In
the premises, and given that, in terms of the arbitrator's award,
the appellant was ordered to pay a sum of money that it admitted to
owing, the argument that such an award is contrary to public policy
is clearly not sustainable. The award is not one to be characterised
as having far reaching public consequences that would hurt the
conception of justice in Zimbabwe. Nor can it be said to have
violated a fundamental principle of the law, morality or justice. The
contrary could be said to be true, given that the first respondent
performed its part of the contract, and, in the process, incurred
expenses running into millions of dollars. These expenses have still
not been paid close to five (5) years after the contract was entered
into.
DISPOSITION
The
court a
quo
cannot be faulted in its finding that no case had been proved for the
setting aside of the arbitral award of the second respondent. As
demonstrated above, the award is not in conflict with the public
policy of Zimbabwe. The appeal has no merit and ought to fail.
Accordingly,
it is ordered as follows:
“The
appeal be and is hereby dismissed with costs.”
