Civil
Trial – Arbitration Clause
MAFUSIRE
J:
The
trial in this matter was held up by a preliminary argument on a
special plea. The central question was whether or not the trial
should be stayed and the matter referred to arbitration in terms of
an arbitration clause in the contract between the parties upon which
the plaintiff sued the defendant.
I
reserved judgment. This now is my judgment.
The
plaintiff's claim was for payment of a sum of money in respect of
labour and materials supplied to, for and on behalf of the defendant,
at the defendant's special instance and request. The allegations
were that following a written contract between the parties, the
plaintiff had been contracted by the defendant to install a water
pump station, to procure and install water pumps thereat, and to
connect them to an existing water reticulation system. The plaintiff
claimed it had done the job in accordance with the contract but that
the defendant had neglected to pay.
The
cost of labour and material amounted to US$32,960. The plaintiff also
said it was due a commission in the sum of US$3,296. It issued
summons for payment of these two amounts.
The
defendant filed a joint special plea and plea on the merits.
In
the special plea, it said there was an arbitration clause in the
agreement that obliged the parties to settle any dispute between them
by arbitration.
On
the merits, it said there was a dispute. In essence and in summary,
the defendant averred that contrary to its obligations in terms of
the contract, the plaintiff had circumvented the local authority in
the procurement of the water pumps; that despite holding itself out
as the expert in the field, the plaintiff had procured the wrong
pumps; that the pumps had been rejected by the local authority and
that owing to such breach by the plaintiff, the defendant had
cancelled the contract.
The
plaintiff's responses to the defendant's special plea on
arbitration were fourfold. The first two appeared in the replication,
and the last two in the written submissions or heads of argument.
(i)
The first ground relied upon by the plaintiff to resist a referral to
arbitration was that the defendant could not be heard to want to rely
on, and benefit from, the arbitration clause in the contract when it
had itself ignored it prior to its purported cancellation of the
contract.
(ii)
The plaintiff's second ground was that the arbitration clause in
the contract could not be read as ousting the inherent jurisdiction
of this court and that the defendant's objection was purely
academic.
(iii)
The plaintiff's third ground was predicated on the decision of this
court in Shell
Zimbabwe [Pvt] Ltd v Zimsa [Pvt] Ltd.
It
was argued that the arbitration clause in the agreement had not been
intended by the parties to be the procedure of first instance in, or
the primary forum for, resolving disputes, because in that contract,
arbitration had to be preceded by adjudication and that arbitration
was an appellate process. As such, it was argued, the arbitration
clause could not have the effect of forcing, or persuading the court,
to exercise its discretion in favour of referring the matter to
arbitration.
(iv)
The plaintiff's fourth and last ground in resisting a referral to
arbitration was that even if it had wanted to, the arbitration clause
was incapable of being complied with because the adjudicator that had
been appointed in the contract, a firm of engineers, was conflicted
in that it also happened to be the defendant's own consulting
engineers and, therefore, the defendant's agent. Such an
adjudicator could not be expected to be impartial or unbiased.
To
the plaintiff's first ground that the defendant had itself breached
the arbitration clause by purporting to cancel the agreement without
reference to arbitration, the defendant's response was that what
would be referred to arbitration was a “dispute”.
Cancellation was not a dispute. The defendant had had no cause to
refer to arbitration.
To
the plaintiff's second ground that the arbitration clause could not
have the effect of ousting the court's inherent jurisdiction, the
defendant's reply was that it was not about ousting the
jurisdiction of the court, but about enforcing the contract between
the parties.
To
the plaintiff's third ground that, in line with the decision in
Shell
Zimbabwe [Pvt] Ltd v Zimsa [Pvt] Ltd, supra,
that in the contract, arbitration was not the procedure of first
instance in the dispute resolution, the defendant argued that that
case had been wrongly decided because the decision had run counter to
the settled legal position and that it had to be confined to its own
set of facts.
The
defendant cited cases of its own to support its position.
Those
cases held that where there is an arbitration clause in a contract,
the court has to refer the dispute to arbitration if one or other of
the parties makes such a request. The cases cited by the defendant
included Independence
Mining [Pvt] Ltd v Fawcett Security Operations [Pvt] Ltd;
Zimbabwe
Broadcasting Corporation v Flame Lily Broadcasting [Pvt] Ltd;
PTA
Bank v Elanne [Pvt] Ltd & Ors
and Capital
Alliance [Pvt] Ltd v Renaissance Merchant Bank Ltd & Ors.
To
the plaintiff's fourth ground that it could not comply with the
arbitration clause because the adjudicator was conflicted, the
Defendant said that the plaintiff could have easily moved for the
appointment of a neutral adjudicator and that, indeed, that is what
the plaintiff itself had proposed in its own correspondence.
I
now deal with all the issues as follows:
[a]
Arbitration
clause in a contract
Article
8[1] of the Model Law, the First Schedule to the Arbitration Act,
[Chapter
7:15],
states:
“A
court of law before which proceedings are brought in a matter which
is the subject of an arbitration agreement shall, if a party so
requests not later than when submitting his first statement on the
substance of the dispute, stay those proceedings and refer the
parties to arbitration unless it finds that the agreement is null and
void, inoperative or incapable of being performed.”
In
my view, and in my own words, it is now settled that a clause in a
contract to refer a dispute to arbitration is binding on the parties.
A party is not at liberty to resile from that clause any time he may
wish to do so.
In
terms of Art 8 of the Arbitration Act, where a party makes a timeous
request for referral to arbitration, the court has to stay the matter
and refer the dispute to arbitration unless the agreement is null and
void, or is inoperative or is incapable of being performed: see
Zimbabwe
Broadcasting Corporation v Flame Lily Broadcasting Services [Pvt]
Ltd, supra;
Waste
Management Services v City of Harare
and Capital
Alliance [Pvt] Ltd v Renaissance Merchant Bank Ltd & Ors, supra.
Thus,
the one condition in Art 8 for referral is that there must exist a
dispute between the parties.
In
PTA
Bank,
where the defendant had merely asked for further particulars - which
had been furnished - but had not said anything else about the
existence or otherwise of a dispute, except in counsel's heads of
argument, the court declined the request for referral. It said that,
among other things, since no dispute had been established, there was
nothing to refer to arbitration.
In
Zimbabwe
Broadcasting Corporation
the court initially declined to refer the matter to arbitration where
the defendant had merely made the request before pleading to the
merits. It was only upon the defendant's pleading to the merits
that a dispute became apparent, thereby leading the court to exercise
its discretion in favour of staying the proceedings and referring the
dispute to arbitration.
In
casu,
the defendant met the one condition referred to above. It has pleaded
on the merits. There has emerged a clear dispute. It is this: is the
plaintiff entitled to payment? Did it breach the contract by
circumventing the local authorities? Did it supply the wrong pumps?
Another
condition in Art 8 of the Arbitration Act for referral to arbitration
is that the request for such referral must be made timeously. The
article says it must be made “…not
later than when submitting … [the]… first statement on the
substance of the dispute.”
The
defendant filed a special plea, in which the request of referral was
made, and, in the same document, pleaded over to the merits, setting
out the dispute.
Therefore,
this other condition was also met.
Yet
another condition in Art 8 of the Arbitration Act for referral to
arbitration is that the arbitration agreement must not be null and
void, or inoperative or incapable of being performed.
It
was common cause that this was not the case in this matter.
It
did not form part of the plaintiff's grounds for resisting
referral.
At
any rate, the question whether the dispute between the parties to a
contract falls within the ambit of an arbitration clause is primarily
a question of interpretation of the agreement, in particular, the
arbitration clause itself: see Independence
Mining; PTA Bank and Zimbabwe Broadcasting Corporation, supra.
Furthermore,
once it is established that the dispute falls within the ambit of the
arbitration clause, the onus to show why the court proceedings should
not be stayed rests on the party challenging the reference to
arbitration, i.e., the plaintiff in this case: see Capital
Alliance [Pvt] Ltd.
I
now deal with the plaintiff's four grounds for refusal to go to
arbitration.
[b]
The
defendant itself breached the arbitration clause when it purported to
cancel the agreement
I
understood counsel's argument on the point to be that if the
defendant felt that the plaintiff had been in breach of the contract,
it ought to have referred the matter to arbitration instead of just
taking it upon itself to cancel. The plaintiff, having decided to
issue summons out of this court without first having gone for
arbitration, it hardly lay in the mouth of the defendant to cry foul.
Even
though it did not exactly put it that way, the plaintiff was probably
saying what is good for the goose should be good for the gander also,
or, an eye for an eye.
But
this hardly constitutes sound legal argument. Two wrongs do not make
a right.
At
any rate, having accepted the existence of the arbitration clause,
the onus lay on the plaintiff, as the party resisting arbitration, to
show why the matter should not be stayed and referred to arbitration.
The plaintiff could hardly shift that onus by merely pointing to an
alleged earlier breach by the defendant.
Since
the plaintiff did not say exactly that, was it then implying or
insinuating that the parties had, or should be deemed, by their
conduct, to have tacitly abandoned arbitration in favour of a direct
approach to a court of law?
In
Bitumat
Ltd v Multicom Ltd,
this court [per SMITH J] said this:
“It
may well be that at some stage after the dispute has arisen, because
of changed circumstances, the parties concerned agree that the matter
should be determined by a court of law, rather than by arbitration in
terms of the agreement in question. In these circumstances, the
decision of the parties to abandon the arbitration clause in their
agreement must be specific and clearly evidenced. It cannot be
implied by the conduct of, or correspondence between the parties –
it must be explicit. After all, if the arbitration clause is
contained in a written agreement, then the decision to change the
agreement must either be in writing or else so clearly evidenced by
the conduct of the parties that there is no room for doubt.”
It
would have been far-fetched for the plaintiff to have even remotely
suggested or implied that the parties had tacitly agreed to abandon
arbitration in favour of a direct approach to this court.
There
was nothing of the sort.
The
defendant simply decided that the plaintiff had breached the
contract. It did not perceive a dispute. The contract provided for
cancellation by the employer, i.e. the defendant, on the happening of
certain events. The defendant had cancelled.
That
is not to say it was right.
But
if the plaintiff felt that it was not right, and it wanted the matter
adjudicated upon, then it had to follow the dispute resolution
mechanism provided for in the contract. This entailed the dispute
being referred for adjudication in the first place, and then followed
by arbitration if adjudication did not resolve it.
So
on this basis, the plaintiff's first ground for resisting
arbitration cannot succeed.
There
is also another reason, from the peculiar facts of this case, why the
plaintiff's first ground for resisting arbitration could not
succeed.
It
was common cause between the parties that in correspondence, well
before issuing out a summons, the plaintiff, firstly by itself, and
subsequently through its erstwhile legal practitioners, had given the
defendant ultimatums within which to pay the disputed amount failing
which it would refer the matter to arbitration.
In
its own letter to the defendant, the plaintiff had written, in part,
as follows:
“We
therefore give you seven [7] days' notice from today's date to
effect payment as per attached invoices or allow us to install the
said pumps and pump accessories after which we will be forced to
refer this case to an arbitrator agreed to by both parties to resolve
the stalemate. From this end we can think [of] none other than the
current President of Zimbabwe Institute of Engineers considering that
the despite [sic] is centred on engineering interpretations.”
In
the letter from the plaintiff's erstwhile legal practitioners to
the defendant, exactly one year later, was the following:
“In
that regard, in the event that this amount is not paid within the
period aforesaid, this letter serves as notice that this matter will
be referred to an adjudicator for settlement. We note, in this
respect, that your consulting team [CGM] has also been appointed as
adjudicators as well as administrators of the contract. The parties
will have to agree on an independent adjudicator.”
At
the hearing, Mr Diza,
for the plaintiff, gave no coherent explanation why the plaintiff,
having displayed such conscious attention to detail, would
subsequently veer from the course of action that it had threatened
and come straight to this court.
In
the premises, the plaintiff's first ground to resist arbitration is
hereby dismissed.
[c]
Arbitration
was not intended to oust the inherent jurisdiction of this court
This
ground is plainly misconceived.
The
issue is not about the ousting of the inherent jurisdiction of this
court. It is about enforcing a contractual provision. By agreeing to
arbitration, the parties select a dispute resolution mechanism
alternative to litigation through the conventional courts.
As
said above, a party is not at liberty to resile at any time he may
wish to do so from a clause in a contract obliging them to refer
disputes to arbitration.
Thus,
this second ground for resisting referral to arbitration is without
merit. It is hereby dismissed.
[d]
Arbitration
was not the dispute resolution procedure of first instance: The
decision in Shell
Zimbabwe [Pvt] Ltd v Zimsa [Pvt] Ltd & Anor
On
this ground, the plaintiff simply relied on the decision of this
court in Shell
Zimbabwe [Pvt] Ltd, supra.
Such
a stance was understandable because the circumstances of this case
are somewhat on all fours with those in that case.
The
arbitration clause in the Shell
Zimbabwe case,
in part, read as follows:
“14.1 Any
dispute, question or difference arising at any time between the
parties to this agreement out of or in regard to any matter arising
out of the rights and duties of the parties hereto, or the
interpretation of or the rectification of this agreement shall in the
first instance be submitted to and decided by mediation on notice
given by either party to the other in terms of this clause.
14.2…………………………………..
14.3 In
the event that mediation does not resolve the dispute within seven
days time period referred to in sub-clause [2] above, and the parties
fail to agree on extended time for mediation, then either party shall
be entitled to refer the matter to arbitration, which shall be
conducted in terms of the rules and procedures set out in the
Arbitration Act of Zimbabwe.”
In
the present case, the arbitration agreement was cast as follows:
“42.1 Any
dispute arising out of this agreement shall be resolved in accordance
with this clause.
42.2………………
42.3
When any dispute referred to in clause 42.1 arises, which cannot be
resolved between the parties, it shall be referred in writing to and
settled by the adjudicator.
42.4………………..
42.5………………..
42.6 The
adjudicator settles the dispute as an independent adjudicator and not
as an arbitrator. The adjudicator's decision is enforceable as a
matter of contractual obligation between the parties.
42.7…………………
42.8…………………
42.
9…………………
42.10 If,
after the adjudicator notifies the decision, a party is dissatisfied,
that party may give notice to the other party of an intention to
refer the matter to arbitration.
42.11…………………
42.12…………………
42.13 No
matter may be referred to arbitration that has not previously been
the subject of a decision by the adjudicator.
42.14………………
42.15………………
42.16………………”
Thus,
whilst in the Shell
Zimbabwe
case the parties preferred the term “mediation”
as the process to precede arbitration, in
casu
they preferred “adjudication.”
In
Shell
Zimbabwe
MAKARAU JP, as she then was, stressed the inherent jurisdiction of
this court, and the readiness with which it must hold itself out to
dispense justice to all those who seek it. The learned Judge
President refused to stay the proceedings for reference to
arbitration.
The
ratio
decidendi
of her Ladyship's decision seemed two-pronged.
(i)
The one was that for an arbitration clause in an agreement to have
the effect of staying court proceedings in terms of the Arbitration
Act, the clause must be clear and unequivocal, and the parties must
intend arbitration to be the procedure of first instance in resolving
their dispute.
(ii)
The other was that the jurisprudential grounds underlying arbitration
as an alternative dispute resolution mechanism are, firstly, the
apparent speed with which arbitration can yield results, and,
secondly, the contractual autonomy of the parties, inter
alia,
to resolve differences that may occur between them as they perform
their obligations under the contract.
In
the final analysis, the court held that the parties did not intend
arbitration to be the first choice dispute resolution mechanism since
they had chosen mediation in the first instance. The court went
further to suggest that the agreement between the parties was one
subject to a mediation clause, as opposed, I presume, to an
arbitration clause.
With
the greatest of respect, I find myself unable to agree with the
approach in Shell
Zimbabwe.
In
my view, to sever mediation, as in the Shell
Zimbabwe
case, or adjudication, as in the present case, from arbitration, and
treat the processes as two distinct and stand-alone dispute
resolution mechanisms in their own right, cannot be correct.
It
is true that in the present case the arbitration agreement said that
the adjudicator's decision would be enforceable. However, this
statement must not be read in isolation. The sub-clause went further
to say, enforceable “…as
a matter of contractual obligation between the parties.”
In
other words, and in my view, there was a consciousness by the
parties, in selecting that kind of wording, that adjudication was not
by itself the end process the outcome of which could be enforced
through the judicial process as one would with an arbitral award.
Rather,
mediation, or adjudication, was merely a means to an end.
Mediation,
or adjudication, was the footpath to arbitration. No party entered
arbitration except through mediation or adjudication.
The
above point seems fortified by the sentence that preceded the
statement about the adjudicator's decision being enforceable. It
said the adjudicator settled the dispute “… as
an independent adjudicator and not as an arbitrator.”
In
other words, the parties were alive to the fact that adjudication, on
its own, was not a dispute resolution mechanism. If it failed, the
matter would have to be referred to arbitration. Adjudication could
be cheaper, quicker, simpler, less formal and more expedient in the
resolution of less contentious disputes. The parties obviously wished
to give themselves that opportunity.
I
consider that an adjudication, or mediation process, would be like a
pre-trial conference in a trial procedure. Parties meet before a
third party – i.e. adjudicator, mediator, or Judge in Chambers. The
third party acts as an umpire. The proceedings are less formal.
The
major aim is to enable the parties themselves to settle the dispute,
after affording them an equal chance to ventilate their respective
sides of the case. Failing settlement, the adjudication, or
mediation, or pre-trial process, identifies and streamlines the real
issues for final determination by arbitration or trial. It is only
the outcome of the arbitration process, or of the trial, that is
eventually enforceable through the judicial process.
As
far as the pre-arbitration process was concerned, i.e. mediation in
the Shell
Zimbabwe
case, and adjudication in the present case, I perceived no material
difference. The adjudication clause in the present case was just cast
in more elaborate terms than the mediation clause in the Shell
Zimbabwe
case.
In
the Shell
Zimbabwe
case, it was noted that whilst arbitration resolved disputes faster
than the litigation route, it seemed not to have been the case in
that particular matter.
I
agree, with respect, with the jurisprudential bases underlying the
place and role of arbitration as identified by the learned Judge
President. However, I would also think and add that arbitration
agreements are generally industry specific.
In
the Shell
Zimbabwe
case, the agreement was in respect of the lease of an oil station.
In
Capital
Alliance [Pvt] Ltd
it was in relation to multiple commercial transactions concerning the
transfer and pledge of multiple classes of shares in multiple
transactions that included debt equity swap arrangements.
In
Zimbabwe
Broadcasting Corporation
the agreement was in respect of the rates for air time on a
broadcasting channel and the installation of a transmitter for the
enhancement of broadcasting signals.
In
the present case, the agreement was in respect of the installation of
a pump station and suitable water pumps to be connected to the main
water reticulation system.
In
my view, being industry specific, arbitration may be a more expedient
dispute resolution mechanism in that, among other things, experts in
the fields concerned would generally be chosen for their technical
know-how, expertise and experience to constitute the arbitration
tribunal.
Of
course, ultimately, the courts always deal with legal issues stemming
from such disputes. However, I imagine that experts in their fields
can readily appreciate and blend factual issues much faster, thereby
expediting the whole process.
Apparently,
that an arbitration agreement can make some other process, such as
mediation or adjudication, a condition precedent to arbitration, is
not uncommon.
In
Waste
Management Services, supra,
the arbitration agreement said any dispute between the parties had to
be referred to an employee of the client first, i.e. the Director of
Works, for “… his
or her decision in writing...”,
the client being the City of Harare.
The
City of Harare had contracted the plaintiff to undertake its waste
management services for a fee. The agreement provided that such
decision by the Director of Works would be binding upon the
Contractor who was obliged to give effect to it forthwith. Only if
the Contractor was dissatisfied with the decision could it request
that the issue be referred to arbitration.
The
Contractor sued the City of Harare for payment of the unpaid fees.
The City of Harare invoked the arbitration clause and sought a stay
of the proceedings. The Contractor resisted a referral on the basis
that, inter
alia,
to the extent that the arbitration clause required the dispute to be
referred first to the Director of Works for his decision, it was
contrary to the common law rule of natural justice nemo
judex in sua causa
[no man shall be judge over his own cause] since the Director of
Works was unlikely to be impartial and unbiased.
SMITH
J dismissed that argument in the following terms:
“Can
it be said that clause 25 of the agreement is contrary to public
policy? Had the clause provided that any dispute between the parties
was to be referred to the Director of Works and his or her decision
would be final, then clearly the clause would be contrary to public
policy.”
And
at p 177B–C the learned judge continued as follows:
“The
function of the Director of Works under clause 25[a] of the agreement
is to try to settle the dispute which has been referred to him.
Although it is provided in para [a] of clause 25 that his or her
decision shall be binding on WMS and shall forthwith be given effect
to by WMS, para [b] goes on to gainsay that provision. It provides
that if WMS is dissatisfied with the decision of the Director of
Works, it may require that the issue be referred to an arbitrator.
Paragraph [a] of clause 25 of the agreement, read by itself, would
undoubtedly be contrary to public policy. Since, however, para [b] of
that clause remedies the objectionable part of the paragraph, I do
not consider that the clause can be regarded as being contrary to
public policy.”
In
that case the request for referral to arbitration was granted, the
court holding that in terms of the Arbitration Act, it had no
discretion to decide not to where one party requests the referral and
where it is provided for in the contract.
I
agree with the approach in Waste
Management Services.
On
this particular point, I see no difference between that case and the
one before me.
In
the circumstances, I find that the plaintiff's third ground for
resisting a referral to arbitration on the basis that, in the
agreement between the parties, arbitration was not the intended
procedure of first instance in the dispute resolution mechanism, was
unsound. I hereby dismiss it.
[e]
Plaintiff
could not comply with the arbitration agreement because the
adjudicator was conflicted
By
raising this ground, the plaintiff was undoubtedly trying to hide
behind a finger.
My
reasons for saying this are two-fold.
(i)
Firstly, the parties must have anticipated the adjudicator being
conflicted in that it was at the same time the administrator of the
contract. So they had made provision for such a conflict of interest.
Clause 42.8 of the agreement read as follows:
“If
the adjudicator resigns, dies, is
otherwise unable to act,
[my emphasis] or fails to issue a decision as provided for under the
NJPC adjudication rules either party shall apply to the NJPC for the
nomination of a new adjudicator or the NJPC shall appoint a new
adjudicator. The new adjudicator has power to settle disputes that
were currently submitted to the predecessor, but had not been
settled. Disputes previously settled may not be re-opened before the
new adjudicator.”
There
was nothing stopping the plaintiff from causing the appointment of a
replacement adjudicator.
(ii)
In fact – and this is my second reason for saying the plaintiff was
trying to hide behind a finger – in its two letters referred to
above, the plaintiff had actually proposed an alternative
adjudicator.
Why
this was not followed through has not been explained.
Thus,
the plaintiff's fourth and last ground for resisting arbitration,
like the rest of them, also lacks merit. It is hereby dismissed.
None
of the parties addressed me on the question of costs. None of them
sought them. Therefore, none shall be awarded.
DISPOSITION
1.
The proceedings in HC1033/15 are hereby stayed.
2.
The dispute between the parties in the above case is hereby referred
for resolution by arbitration in accordance with the provisions of
the agreement between the parties under the NJPC 2000 Building Direct
Contract dated 30 August 2011.
3.
Costs shall be in the cause.
16
December 2015
Wilmot
& Bennett,
plaintiff's legal practitioners
Gill,
Godlonton & Gerrans,
defendant's
legal practitioners
