CHATUKUTA
JA:
This is an appeal against the whole judgment of the High Court of
Zimbabwe handed down on 9 September 2020 in which it ruled that the
arbitral award granted against the first respondent be set aside and
the matter be referred to a different arbitrator.
BACKGROUND
The
appellant and the first respondent entered into a consultancy
contract which commenced on 1 January 2013 and was expected to
terminate on 31 July 2013.
Although
the contract was not signed by the first respondent, the parties were
agreed that the contract regulated their relationship.
The
purpose of the contract was to transform the appellant from being a
building society into a commercial bank.
On
28 February 2013, the managing director of the appellant wrote a
letter to first respondent advising that it was not renewing the
contract. It thus terminated the contract and tendered to pay the
first respondent cash
in
lieu
of notice.
Aggrieved
by the contents of the letter, the first respondent referred the
matter to arbitration.
ARBITRAL
PROCEEDINGS
The
first respondent's contention before the second respondent (the
arbitrator) was that the appellant had no right, in terms of clause
7.1 of the contract, to unilaterally and without reason terminate the
contract. It argued that the appellant should have given it notice to
cure the breach and/or an opportunity to defend itself. It claimed
that the contract should be reinstated failing which it be paid
damages in the sum of US$1,744,451.50.
The
appellant argued that it exercised its rights to terminate the
contract on notice in terms of clause 7.1 of the contract. It argued
that termination of the contract in terms of clause 7.1 did not
require the existence of a breach or fault as a pre-condition to
invoke the clause. It further argued that it was therefore not
obliged to justify or give the first respondent reasons for the
termination.
The
appellant further argued that the first respondent had breached the
contract as it had failed to implement the project successfully
within the agreed time frame and budget. It contended that in order
to mitigate its losses, it engaged another consultant to complete the
project. It argued that it suffered contractual damages in the sum of
US$1,648,169.91 as a result of the breach and filed a counterclaim
for damages in the stated sum.
The
appellant conceded that a monthly payment of US$23,517.00 for the
month of March 2013 was due to the first respondent in terms of
clause 4 of the contract.
The
first respondent denied that it had breached any terms of the
contract. It argued that the damages claimed by the appellant were
wrongly calculated and incompetent.
The
arbitrator made a finding that the termination of the contract was in
compliance with clause 7.1 of the contract which clause permitted
termination of the contract without giving reasons for the
termination.
The
arbitrator dismissed the first respondent's claim that the
cancellation of the contract be declared a nullity and that the
contract be reinstated.
He
also dismissed the first respondent's claim for damages.
The
arbitrator awarded the first respondent the sum of US$23,517 being
the monthly payment for the month of March 2013 due to the first
respondent from the appellant.
The
arbitrator further held that the appellant had not established its
entitlement to the damages in the sum of US1,648,169.91. He therefore
dismissed the appellant's counterclaim.
Aggrieved,
the first respondent applied to the High Court to have the arbitral
award set aside in terms of Article 34(2)(b)(ii) of the Uncitral
Model, Schedule to the Arbitration Act [Chapter
7:15]
(the Model Law).
PROCEEDINGS
BEFORE THE COURT A
QUO
The
first respondent argued that the arbitrator misdirected himself in
his interpretation of the contract.
It
was argued that the arbitral award offends the principles embodied in
our public policy as the arbitrator was biased in his decision. It
was submitted that the possibility of bias arose from the fact that
the arbitrator and Kevin Terry, the Managing Director of the
appellant, were known to each other. It was contended that the two
engaged in a conversation at the hearing during which the arbitrator
expressed more than a casual interest in the life of Kevin Terry. It
further contended that the two had a prior relationship and as a
result the conversation was likely to give rise to a reasonable
apprehension of bias on the part of the arbitrator and he ought to
have recused himself.
The
first respondent further argued that the arbitrator, in an opposing
affidavit which he filed in response to the application before the
court
a
quo,
used intemperate and unacceptable language towards the first
respondent. It was submitted that the language used was evidence that
the arbitrator was supporting the appellant in proceedings in which
he ought to have been neutral.
In
response, the appellant submitted that the conversation between Kevin
Terry and the arbitrator was done in the presence of all the parties.
It was further submitted that the conversation did not relate to the
subject matter of the arbitral proceedings. It was argued that the
conversation was innocuous and therefore there was no basis for the
apprehension of bias.
The
appellant further argued that the allegations relating to the
intemperate language in the arbitrator's opposing affidavit were
not the basis for the first respondent's apprehension for bias as
they were contained in the answering affidavit and not the founding
affidavit. The court a
quo
was urged to disregard the arbitrator's opposing affidavit.
DETERMINATION
OF THE COURT A
QUO
The
court a
quo
found that the arbitrator's interpretation of the contract though
it was faulty, did not render the award contrary to public policy.
The
court a
quo
held that the conversation between the arbitrator and Mr Kelly was
innocuous and did not raise a reasonable apprehension of bias. It
found that the first respondent did not raise the allegations of bias
with the arbitrator during the arbitration process. The allegations
were only raised after the decision of the arbitrator. It therefore
concluded that the first respondent had not established reasonable
apprehension of bias in the making of the award.
The
court a
quo
however found that the arbitrator's post award averments in the
opposing affidavit created an impression that he was “pitching
camp” with the appellant.
It
found that the averments were intemperate, disparaging and
unacceptable in judicial proceedings. The court a
quo
held
that disparaging averments taken in conjunction with the conversation
between the arbitrator and Mr Terry, and the faulty interpretation of
the contract gave a reasonable apprehension of bias.
Consequently,
it ruled that the arbitral award be set aside and the matter be
remitted to a different arbitrator.
Aggrieved
by the court a
quo's
decision, the appellant noted the present appeal.
PROCEEDINGS
BEFORE THIS COURT
The
appellant noted the appeal on the following grounds:
“(1)
The court a
quo
erred and grossly misdirected itself on the facts and evidence in
holding that the degree of fault in the arbitrator's reasoning in
the award and his alleged acquaintance with Kelvin Terry gave rise to
a reasonable impression and apprehension of bias on part of the
arbitrator and that consequently the award was contrary to the public
policy of Zimbabwe.
(2)
The court a
quo
erred and misdirected itself and in any event in considering the
factual basis of the alleged bias which allegedly took place three
months after the granting of the award and therefore could not
invalidate the prior award on the basis of the alleged bias.
(3)
The court a
quo
erred in placing reliance on the opposing papers in finding that
there was an impression of bias as opposed to the founding papers
upon which the application ought to have succeeded or failed.
(4)
The court a
quo
erred and acted without jurisdiction in referring the dispute between
the parties to be determined by a different arbitrator”.
ISSUE
FOR DETERMINATION
The
grounds of appeal raise two issues for determination.
1.
The first three grounds of appeal raise one issue, whether the court
a
quo
misdirected itself in holding that there was a reasonable
apprehension of bias warranting the setting aside of the arbitral
award.
2.
The second issue is raised in the fourth ground of appeal. In that
ground, the appellant seeks to challenge the order of the court
a
quo
to remit the dispute between the parties for determination by a
different arbitrator on the basis that the High Court is not reposed,
by the Arbitration Act, with the power to make an order for remittal.
APPELLANT'S
SUBMISSIONS
Mr
Mpofu
for the appellant submitted that the judgment of the court a
quo
was irregular in that it set aside the award on a basis other than
the one alleged by the first respondent in its founding affidavit.
He
submitted that the first respondent in the proceedings a
quo
alleged in its founding affidavit bias of the arbitrator during the
arbitral proceedings. He argued that an application stands or falls
on its founding affidavit.
He
further argued that the court a
quo
was therefore called to answer whether there was bias on the part of
the arbitrator during the making of the award.
He
submitted that the court a
quo
correctly concluded that the first respondent did not establish bias
and hence the application ought to have failed on that basis.
Mr
Mpofu
argued that the court a
quo
however placed a lot of emphasis on the arbitrator's opposing
affidavit to the application instead of the first respondent's
founding affidavit.
Mr
Mpofu
further submitted that the court a
quo
made a finding that both the substance of the award and the manner of
the making of the award were not contrary to public policy. Mr Mpofu
argued that the court a
quo
therefore misdirected itself in relying on the arbitrator's
affidavit which was filed three months after the issuance of the
award.
He
also argued that the court a
quo
erred in making contradictory findings and thus reviewed itself.
He
submitted that, the court a
quo
found that the conversation between Kevin Terry and the arbitrator
did not constitute a reasonable apprehension of bias. He argued that
the court a
quo
later in the same judgment found that the same conversation
constituted bias if it is read together with the arbitrator's
opposing affidavit.
He
submitted that the court a
quo
misdirected itself by taking into account factors it had rejected
earlier in its judgment.
FIRST
RESPONDENT'S SUBMISSIONS
Mr
Magwaliba
for the first respondent, submitted that the court
a
quo
could not be faulted for accepting the evidence adduced by the first
respondent in support of its claim that the arbitrator was biased.
He
argued that the issue of bias was raised in the first respondent's
founding affidavit.
He
submitted that the adverse averments in the arbitrator's opposing
affidavit were alluded to in the answering affidavit to illuminate
the allegations of bias in the founding affidavit.
He
submitted that the court a
quo
did
not misdirect itself in considering the arbitrator's conduct post
the award. He submitted that the court a
quo
did not review itself but considered the arbitrator's pre-award
conduct together with the post award conduct.
APPLICATION
OF THE LAW
It
is trite that an application stands or falls on its founding
affidavit.
The
founding affidavit sets out the case that a respondent is called upon
to answer.
The
principle was aptly set out in Austerlands
(Pvt) Ltd v Trade & Investment Bank Limited & Ors
SC92-05. CHIDYAUSIKU CJ remarked at p8 as follows:
“The
general rule that has been laid down in this regard is that an
application stands or falls on the founding affidavit and the facts
alleged in it. This is how it should be, because the founding
affidavit informs the respondent of the case against the respondent
that the respondent must meet. The founding affidavit sets out the
facts which the respondent is called upon to affirm or deny.”
The
first respondent alleged in its founding affidavit in the court a
quo
that the conversation between the arbitrator and Mr Terry was the
basis for its apprehension of the bias of the arbitrator and the
reason why the arbitrator arrived at a wrong decision.
It
stated in para 9.10 of the founding affidavit that:
“Finally,
the inexplicable findings of the Honourable Arbitrator as illustrated
above could only be understood in the contest (sic)
of some other influence. I am constrained to give that influence as
the unusual familiarity between the Honourable Arbitrator and Kelvin
Terry the managing director of the 1st
respondent.”
The
appellant disputed that the conversation was a cause for an
apprehension of bias.
The
court a
quo
held that there was no basis for any reasonable person to have an
apprehension of bias.
It
remarked at p10 that:
“I
agree with the observations made by the respondent in its heads of
argument.
These are that the discussion forming the basis of the applicant's
case was held in the presence of both parties and within hearing
distance. There was nothing to hide. A biased arbitrator would have
been more circumspect. The discussion centred not on the arbitral
proceedings themselves but on Mr. Terry's pending relocation to
Kenya on transfer. The timing of his relocation was relevant from a
case management point of view in the event that oral evidence was
required.”
Further
down at p11, the court stated that:
“I
am satisfied that the discussion between him and the arbitrator arose
as a result of that communication by the respondent's legal
practitioners and that the Arbitrator's sole interest in Mr Terry's
imminent departure was legitimate. No
reasonable person could perceive bias under these circumstances.
Further no allegation has been made that the prior dealings referred
to by the applicant were in any way connected to the matter under
arbitration.” (own emphasis)
The
court a
quo
agreed with the appellant's submissions and in essence concluded
that the first respondent had not established bias.
The
court a
quo
therefore
ought to have dismissed the application following its finding.
The
court a
quo
however proceeded to consider the first respondent's contention
that the remarks by the arbitrator in his opposing affidavit gave
credence to the first respondent's assertions of the arbitrator's
bias.
It
remarked that:
“In
my view the applicant's case hinges on the following factors: the
degree of faultiness in the arbitrator's reasoning, the fact that
the arbitrator and Kevin Terry are acquaintances and the fact that in
response to the present application the arbitrator has attacked the
applicant's intelligence and its legal practitioners professional
standing. Do these three factors taken together give rise, in the
mind of a reasonable litigant in the applicant's position, to a
reasonable apprehension of bias on the part of the arbitrator? In my
view that question should be answered in the affirmative. The
arbitrator's post award comments in particular give the impression
that he is 'pitching camp with, or rendering assistance to, one of
the contestants to the dispute before him.'”
(Own emphasis.)
The
court a
quo
misdirected itself in three respects when it took into account the
arbitrator's averments in the opposing affidavit.
(i)
Firstly, the first respondent's allegations of the arbitrator's
bias, as contained in the founding affidavit, were based on the
conversation between the arbitrator and Mr Terry during the arbitral
proceedings.
The
arbitrator's averments in the opposing affidavit were not pleaded
in the founding affidavit. They found their way into the answering
affidavit.
The
first respondent therefore raised fresh allegations of bias in the
answering affidavit instead of confining itself to its allegations in
the founding affidavit.
The
first respondent could not make out a case against the appellant on
the basis of the answering affidavit.
The
court a
quo
therefore misdirected itself when it made a decision relying on the
fresh allegations in the answering affidavit.
The
order of the court a
quo
was
therefore not on the basis upon which the application had been
brought in the founding affidavit.
(ii)
Secondly, the court a
quo
had earlier on in its judgment concluded that the allegations of bias
based on the conversation between the arbitrator and Mr Terry were
without merit.
It
thus misdirected itself when it relied on the same conversation to
arrive, in the same judgment, at a contrary conclusion that the
arbitrator was biased.
In
so doing, it contradicted its earlier findings and
essentially
reviewed its own earlier determination.
It
could only have relied on the averments in the answering affidavit to
bolster its findings on the first respondent's case, as pleaded in
the founding affidavit. It could not use the averments in the
answering affidavit to take away findings made on the basis of the
founding affidavit.
Regard
is given to the fact that when the court a
quo
made its pronouncement on the issues raised in the founding
affidavit, the first respondent's answering affidavit and heads of
argument addressing the arbitrator's opposing affidavit were both
before it.
(iii)
Thirdly, the court took into account factors which occurred after the
award in order to find bias during proceedings leading to the award.
The
arbitrator's opposing affidavit was filed long after the
arbitration proceedings had been terminated. It could not therefore
be a basis for a finding of bias during the making of the award.
The
judgment of the court a
quo
is irregular on the basis that it set aside the arbitral award on a
basis other than that sought by the first respondent.
It
is also untenable on the basis that the court a
quo
relied on an opposing affidavit that had no bearing to the making of
the award.
(iv)
Lastly, before it contradicted itself, the court a
quo
had
found in favour of the appellant on the two issues that had been
placed before it in the founding affidavit.
The
resultant order ought to therefore have been the dismissal of the
application by the first respondent.
In
view of the above findings, it is therefore not necessary to consider
the second issue raised in the fourth ground of appeal.
The
appeal has merit. The judgment of the court a
quo
cannot
therefore stand. It must be set aside.
COSTS
The
appellant prayed in the notice of appeal for costs on the legal
practitioner and client scale.
It
however did not motivate for such costs in its heads of argument or
oral submissions.
There
is no basis advanced for granting the punitive costs. An order for
ordinary costs is therefore appropriate.
Accordingly,
it is ordered as follows:
1.
The appeal be and is hereby allowed with costs.
2.
The judgment of the court a
quo
be and is hereby set aside and substituted with the following:
“The
application be and is hereby dismissed with costs.”
GUVAVA
JA: I
agree
MUSAKWA
JA: I
agree
Wintertons,
appellant's
legal practitioners
Magwaliba
and Kwirira,
1st
respondent's legal practitioners
