MAKONI
JA:
This
is an appeal against the whole judgment of the High Court setting
aside an arbitral award granted in favour of the appellants, on the
basis that it was contrary to public policy as it was made in
defiance of an extant court order.
THE
BACKGROUND
On
10 January 2010, the first appellant entered into a partnership
agreement with the respondent for purposes of developing its
immovable property, Stand No 1514 of 151 Mbuya Nehanda Street.
Subsequently, the parties concluded a lease agreement in terms of
which the appellant leased the property to the respondent on 26
August 2010.
A
dispute between the parties ensued regarding the interpretation of
the terms of the two agreements and the parties' rights and
obligations flowing therefrom.
The
parties failed to resolve the dispute amicably and ended up before
the High Court.
On
10 September 2013, by the parties' consent, the court ordered the
parties' dispute to be referred to arbitration for resolution. The
third appellant (arbitrator) was engaged by the parties to deal with
the matter.
Proceeding
in terms of Article 13(2) as read with Article 12(2) of the UNCITRAL
Model Law, the respondent sought, before the arbitrator, his recusal
from dealing with the matter.
It
alleged that the personal relationship between the arbitrator and the
directors of the first appellant influenced his impartiality.
Further,
that the arbitrator's handling of interlocutory applications
evinced bias.
At
the arbitrator's proposal, the parties appointed an independent two
men tribunal, to determine the application for the arbitrator's
recusal from determining the matter.
On
13 May 2016, the tribunal dismissed the application for recusal on
the basis that the facts alleged lacked substance as to be frivolous,
thus the respondents were not bona fide in making the application.
On
11 October 2016, the arbitrator issued a preliminary award
associating himself with the tribunal's finding that there was no
valid basis for his recusal. However, there is on record a
preliminary award dated 20 April 2015, indicating that the arbitrator
had already made a ruling and dismissed the application for his
recusal before referring the matter to the two men tribunal.
It
appears it was not handed down.
On
23 November 2016, the respondent approached the High Court and in the
appellants' default, obtained the following order per CHIGUMBA J:
“1.
It is hereby declared that the 3rd respondent abdicated his duties by
directing that a panel of independent arbitrators must hear the
application for his recusal.
2.
The order or directive given by the 3rd respondent, that applicant
and 1st respondent should appoint an independent tribunal of two
arbitrators to determine an application for his recusal filed on 20th
March 2015, be and hereby declared contrary to public policy and is
hereby set aside.
3.
There shall be no order as to costs.”
Notwithstanding
this order, the arbitrator proceeded to issue the final arbitral
award on 6 December 2016 in favour of the appellants.
He
reasoned that there was nothing in the order prohibiting him from
determining the application for his recusal or continuing to handle
the arbitration after deciding on his recusal. He stated that he
considered the application for his recusal and dismissed it, thus he
could properly continue with the arbitration.
On
8 February 2017, the appellants applied for the registration of the
arbitral award in terms of articles 35 and 36 of the Arbitration Act
[Chapter 7:15] for purposes of enforcement.
The
respondent opposed the application alleging impropriety in the way
the application for recusal was dealt with by the arbitrator.
The
respondent also alerted the court to its application under HC1347/17
for the arbitral award to be set aside in terms of Article 34(2) of
the Act on the basis that it was contrary to public policy.
In
its application to have the award set aside, the respondent argued
that the arbitral award was contrary to public policy in that it was
made in violation of CHIGUMBA J's order which the arbitrator was
aware of as it was served on him on 3 May 2016.
It
was further submitted that the arbitrator breached the principles of
natural justice by failing to allow the parties to make
representations on the application for recusal before rendering his
final award and on the merits of the arbitration itself.
In
its opposing papers, the appellants averred that it was the parties
who appointed the two men tribunal, thus the application was founded
on a falsehood that the arbitrator set up the tribunal to which he
then referred the application for his recusal.
It
insisted that the arbitrator exercised his duties and functions
professionally and consistently in accordance with the law. His
findings and determination were faultless in fact and law.
It
was further stated that the default order by CHIGUMBA J was
clandestinely obtained and an application to have it rescinded was
pending.
In
response, the respondent averred that the arbitrator's referral of
the application for recusal to the two men tribunal was unlawful and
unprocedural as he ought to have asked the parties to file their
submissions and argue the matter before him.
The
respondent denied giving any instructions to the arbitrator or
agreeing to the appointment of the tribunal.
It
further contended that it was irregular for the arbitrator to make an
award without first making a ruling on the application for his
recusal.
The
arbitrator was also said to have failed to exercise his duties in
that when he rendered the final award, he agreed with the findings of
the tribunal yet the extant court order by CHIGUMBA J set aside the
appointment of the tribunal.
The
respondent further alluded that the arbitrator failed to disclose the
existence of the preliminary award in which he decided on his recusal
in 2015 only to reveal it in 2016.
By
way of a letter dated 16 February 2018, the appellants sought a
simultaneous hearing of the two applications. The court a quo granted
the request.
DETERMINATION
OF THE COURT A QUO
The
court dismissed the appellants' application for registration of the
arbitral award and granted the application for the setting aside of
the arbitral award.
The
court held that the award was made in violation of the rules of
natural justice and also in defiance of logic.
It
reasoned that there was a discrepancy as to whether or not the
application for recusal was dealt with by the two men tribunal on 13
May 2016 or by the arbitrator as far back as 20 April 2015.
The
court also found that the third appellant ignored and disregarded the
order made by CHIGUMBA J and such violation of an order of the court
was contrary to public policy and Article 24(2)(c)(ii) of the
schedule to the Arbitration Act.
It
is on that basis that the court dismissed the appellants'
application for the registration of the arbitral award.
The
court also highlighted that, in light of the findings it made, an
order for costs on a legal practitioner and client scale was
appropriate in the circumstances.
Aggrieved
by this ruling, the appellants noted an appeal on the following
grounds:
“1.
The court a quo grossly misdirected itself in finding that Hon
Arbitrator Retired Justice Smith violated the order of Justice
Chigumba dated 23 November 2016 under Case November 201 6 No.
HC444/16 in circumstances where this order was rescinded by Justice
Munangati–Manongwa on the 23rd of October 2017.
2.
Based on the gross misdirection on the facts set out in ground 1, the
court a quo erred in finding that there was any violation by the
third appellant that was contrary to public policy.
3.
The court a quo erred in finding that there was a violation of an
order of court and accordingly public policy in terms of a
non-existent clause of the Model Law, namely 'Article 24(2)(c)(ii)
of the Schedule to the Arbitration Act.'
4.
The court a quo erred in finding that the final award was made in
violation of the rules of natural justice when in fact all parties
had been accorded an adequate opportunity to be heard and impartially
so.
5.
The court a quo erred in dismissing the application for the
registration of the arbitral award in case no HC1054/17 without
affording the Appellants (or any other party) an opportunity to be
heard.
6.
The court a quo erred in handing down a judgement that purports to be
a composite judgment (absent an order consolidating the two matters)
but in respect of which there is only one order.
7.
The court a quo erred in ordering that costs on a legal practitioner
and client scale be paid by the Respondent, including the Appellants,
when there was no justification for the penalty and no reasons given
for the order against the Appellants.”
SUBMISSIONS
IN THIS COURT
At
the commencement of the appeal hearing, Mr Hashiti, for the
respondents, indicated that he was abandoning the preliminary
objections raised in the respondent's heads of argument which
attacked the validity of the appeal. He indicated that he would
advance argument on the merits of the case as motivated in the
respondent's heads of argument.
Thus,
the parties' argument was restricted to the merits of the matter.
Ms
Mahere, for the appellants, relying on the case of Zesa v Maposa 1999
(2) ZLR 452 (S) at 466E, submitted that there are very limited
grounds upon which a court can refuse to give effect to an arbitral
award. She averred that an arbitral award will not be contrary to
public policy simply because the reasoning or conclusions of the
arbitrator are wrong in fact or law.
Ms
Mahere argued that the court a quo erred in holding that the award
was made in violation of the extant order of CHIGUMBA J yet that
order did not prohibit the arbitrator from dealing with the question
of his recusal from the proceedings.
Upon
being asked by the court, counsel failed to explain why the
arbitrator referred the application for his recusal to the two men
tribunal when he had already made a ruling on it in 2015.
However,
she stated that the arbitrator's preliminary award, handed down
before CHIGUMBA J's order was the arbitrator's determination on
his recusal and that, that award had not been set aside.
Whilst
accepting that the arbitrator was aware of CHIGUMBA J's order when
he made the final award, Ms Mahere submitted that he had already
decided on and dismissed the application for his recusal.
In
response, Mr Hashiti submitted that the fact that the arbitrator
determined the application for his recusal before CHIGUMBA J's
order was inconsequential. He argued that the arbitrator ought to
have reconsidered the question of recusal in his final award since,
at that time, CHIGUMBA J's order was extant.
He
also submitted that the court a quo correctly found that the
arbitrator's award was made in violation of the rules of natural
justice because after CHIGUMBA J's order was issued, the arbitrator
handed down his award without hearing the parties on the issue of
recusal and on the merits.
Counsel
further submitted that the appellants' application for registration
of the award was considered simultaneously with the respondent's
application to set aside the award as per the parties' request.
This, he stated, was evident from the orders granted by the court a
quo.
Whilst
accepting that the court a quo did not give reasons for the punitive
order of costs Mr Hashiti submitted that the order was justified in
view of the appellants' conduct of insisting on registering an
award irregularly made.
In
rebuttal, Ms Mahere insisted that the court a quo did not consider
its application for registration as it did not hear arguments or give
reasons for its dismissal.
She
submitted that an order setting aside the order of the court a quo
and remitting the application for the registration of the award would
be most appropriate. Ms Mahere also submitted that the court a quo
erred in awarding costs on a higher scale without justification.
ISSUES
FOR DETERMINATION
The
appellant's grounds of appeal and the parties' submissions raise
the following issues:
1.
Whether or not the court a quo erred in holding that the arbitral
award was contrary to public policy having been made in defiance of
an extant order of the court.
2.
Whether or not the order of costs made by the court a quo is valid.
I
proceed to determine each issue in turn.
1.
Whether or not the court a quo erred in holding that the arbitral
award was contrary to public policy having been made in defiance of
an extant order of the court
The
grounds for interference with an arbitral award for being contrary to
public policy are provided for in Article 34(2) of UNCITRAL Model Law
as set out in the schedule to the Arbitration Act [Chapter 7:15] as
follows:
“(2)
An arbitral award may be set aside by the High Court only if —
(b)
the High Court finds that —
(i)…
(ii)
the award is in conflict with the public policy of Zimbabwe.”
Subsection
5 also provides that:
“(5)
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 effected by fraud or
corruption; or
(b)
a breach of the rules of natural justice occurred in connection with
the making of the award.”
What
constitutes a violation of public policy was considered in Zesa v
Maposa, supra, where this Court remarked:
“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
court further stated, at p466F–G that:
“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.” (Emphasis added)
These
remarks were considered by this Court in Alliance Insurance v
Imperial Plastics (Private) Limited & Anor SC30/17 at p10, where
it held that:
“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.” (Emphasis added)
This
reasoning ought to be weighed against the court a quo's finding
that it was contrary to public policy for the arbitrator to render
his ruling in defiance of a binding court order.
CHIGUMBA
J's order had the effect of nullifying the two men tribunal's
decision on the arbitrator's recusal from the proceedings. The
order also rendered the application for recusal unresolved. That
application had to be determined by the arbitrator as it called on
him to disqualify himself from involvement in the case on the ground
that he was biased.
While
the appellants argue that the arbitrator decided on the application
for recusal on 11 October 2016 when he rendered the final award, that
award made after CHIGUMBA J's order does not re-examine the
application for recusal.
Instead,
in the final award, the arbitrator insisted that CHIGUMBA J's order
did not prohibit him from determining the application for his recusal
or continuing to handle the arbitration after deciding on his recusal
which, according to him, he had already done.
Considering
that CHIGUMBA J's order came after the determination of the
recusal, the arbitrator could not ignore or overlook a valid court
order.
He
ought to have considered the application for recusal afresh and
determined it, before proceeding to issue the final award, as he was
seized with that application.
That
a court order must be strictly complied with and remains valid until
set aside by a competent court of law is trite. This was stated in
Hadkinson v Hadkinson [1952] 2 All ER 567 at 569, where the court
held:
“It
is the plain and unqualified obligation of every person against, or
in respect of, whom an order is made by a court of competent
jurisdiction to obey it unless and until that order is discharged.
The uncompromising nature of this obligation is shown by the fact
that it extends even to cases where the person affected by an order
believes it to be irregular or even void. Lord Cottenham L.C., said
in Chuck v Gremer (1) (Coop. temp. (1 Cott. 342).”
The
same position was reiterated by the court in Bezuidenhout v Patensie
Sitrus Beherend Bpk 2001 (2) SA 224 (E), as follows:
"A
court order stands and must be strictly obeyed until set aside by a
higher court, and the same court which granted the original order
does not have the right to nullify its effect or interfere with that
order except in very limited circumstances in the context of
variation…”
Therefore,
the arbitrator could not competently hand down the final award which
did not make a determination on the application for his recusal where
the import of CHIGUMBA J's order was that the arbitrator had to
determine the issue.
The
fact that CHIGUMBA J's order was later rescinded is insignificant
as the fact of the matter is that as at the time the final award was
made the arbitrator was in defiance of an extant and binding order of
the court.
It
cannot be overemphasised that defiance of a binding court order is
contrary to public policy.
In
any event, it was irregular for the arbitrator who claimed to be
personally involved in the matter to continue adjudication and render
a final award pronouncing the parties' rights. In his preliminary
award, the arbitrator states:
“When
I received an application to recuse myself I called for a meeting
with the parties. I told them I was prepared to hear submissions and
make a decision. However, as I was personally involved, if I refused
the Application I might well be accused of bias. The parties agreed
with my submissions and agreed that the matter should be referred to
an independent party. They selected retired Judge Moses Chinhengo.
Subsequently, Prof. Lovemore Madhuku was included as part of the
tribunal. The tribunal heard the submissions and ruled that the
Application for Recusal should be dismissed. I agree with their
findings. I consider there is no valid basis for me to recuse myself.
I accordingly declare that I will not recuse myself.” (Emphasis
added)
From
the arbitrator's remarks, a likelihood of bias cannot be ruled out.
I
find that any reasonable person faced with the preliminary award
would suspect that the arbitrator was impartial. One need not prove
actual bias but its likelihood. See Associated Newspapers of Zimbabwe
(Private) Limited v The Minister of State for Information and
Publicity & Ors SC111/04.
More
so, by appealing the court a quo's judgment, the arbitrator appears
to have pitched his tent together with the appellants thereby
confirming his alleged impartiality.
2.
Whether or not the order of costs made by the court a quo is valid
The
appellants criticise the court a quo's order of costs on the basis
that it did not justify that order.
I
find merit in this submission.
Whilst
costs are entirely within the discretion of the court, an order for
costs must be substantiated by reasons.
In
Mahembe v Matambo 2003 (1) ZLR 148 (H) at 150C-D, the court laid out
the circumstances which justify the granting of an award of costs on
an attorney and client scale in the following words:
“…
the
courts only award such costs in situations where it is clear that the
losing litigant was not genuine in the pursuance of a stand in the
litigation process. Rubin L Law of Costs in South Africa Juta &
Co (1949) 190, classified the grounds upon which would the court be
justified in awarding the costs as between attorney and client:
1.
Dishonest conduct either in the transaction giving rise to the
proceedings or in the proceedings.
2.
Malicious conduct.
3.
Vexatious proceedings.
4.
Reckless proceedings.
5.
Frivolous proceedings.”
Therefore,
an award of punitive costs is granted in exceptional circumstances
against a party whose conduct is not bona fide and warrants censure.
The
order made by the court a quo must have been substantiated by the
appellant's conduct which warranted the award of punitive costs.
The court did not make such findings. As such, it is difficult for
this Court to ascertain the correctness of the court a quo's
decision on costs as its reasons remain locked in the mind of the
judicial officer. See S v Makawa 1991 (1) ZLR 142 (S), at 146D-E.
The
award of costs on a punitive scale against the appellant is improper
and may be interfered with. It is accordingly ordered as follows:
1.
The appeal is allowed in part in respect of the order as it relates
to costs on a legal practitioner client scale.
2.
Paragraph 2 of the order of the court a quo under HC1054/17 is
amended by the deletion of the words “on a legal practitioner
client scale' such that it reads as follows:
3.
“The 1st and 2nd respondents jointly and severally, the one paying
the other to be absolved, pay costs of this application.”
4.
The rest of the appeal be and is hereby dismissed.
5.
The appellant to pay the respondent's costs of the appeal.
GWAUNZA
DCJ: I agree
BHUNU
JA: I agree
Garabga,
Ncube & Partners, appellant's legal practitioners
Zinyengere
& Rupapa, respondent's legal practitioners
