MALABA
CJ:
This is an appeal against the judgment of the High Court (“the
court a
quo”)
handed down on 5 June 2019 wherein the appellant's application to
set aside an arbitral award was dismissed for lack of merit.
After
hearing argument from both parties and considering the submissions
made, the court dismissed the appeal.
The
court indicated that reasons for the decision would follow in due
course. These are the reasons.
The
background of the dispute is that the first respondent was the
registered owner of a sporting complex known as Harare Sports Club,
which it leased to the appellant, then known as Zimbabwe Cricket
Union, through a Notarial Agreement of Lease (“the lease”) signed
on 16 July 1999.
At
the time, the Zimbabwe dollar was the official currency in the
country.
The
rental payable was fixed in that currency at $40,000 per month.
In
terms of clause 3(c) of the lease, the rent was to be escalated on an
annual basis, at a rate to be agreed between the parties. In terms of
clause 20 of the lease, in the event that the parties failed to agree
on the rent, the rental was to be determined and set by an
independent arbitrator appointed by mutual agreement between the
parties.
The
decision of the arbitrator was to be final and binding on the
parties.
When
the multi-currency system was introduced at the beginning of 2009,
the parties failed to agree on the rent chargeable in foreign
currency.
The
matter was referred to arbitration in terms of clause 3(c) of the
lease.
The
parties could not agree on the appointment of the arbitrator. The
first respondent made an application to the court a
quo
seeking an order authorising the Commercial Arbitration Centre to
appoint the second respondent as the arbitrator.
The
application was made in terms of Article 11(4) of the United Nations
Commission on International Trade Law (“the UNCITRAL Model Law”),
as set out in the First Schedule to the Arbitration Act [Chapter
7.15]
(“the Arbitration Act”).
Article
11(4) recognises the right of the parties to agree on a procedure of
appointing an arbitrator but provides that, should they fail to agree
on the procedure to be followed, the arbitrator may be appointed by
the High Court upon request of either party.
The
appellant opposed the application, arguing that Article 11(4) of the
UNCITRAL Model Law empowers the High Court to appoint an arbitrator
of its own accord.
The
contention was that the High Court had no power to delegate the
authority to appoint an arbitrator to another body, such as the
Commercial Arbitration Centre.
The
appellant also argued that the dispute over the appropriate rental
for the property was governed by the
Commercial
Premises (Rent) Regulations, Statutory Instrument No.176 of 1983
(“the Rent Regulations”) and as such should be determined by the
Commercial Rent Board.
The
appellant further argued that clause 3(c) of the lease was invalid by
virtue of section 29 of the Rent Regulations.
Section
29 of the Rent Regulations provides that any agreement by which any
party purports to limit his or her or its right to proceed under the
Rent Regulations for the determination of a fair rent or the
variation thereof is void.
The
court a
quo
was not persuaded by the argument. It was also not persuaded by the
argument that it had no authority to delegate the power to appoint an
arbitrator to the Commercial Arbitration Centre.
It
held that the parties were bound by the procedure for the resolution
of the dispute arising from the contract they had agreed upon.
The
court a
quo
made
the order directing the Commercial Arbitration Centre to appoint the
second respondent as the arbitrator in the dispute between the
parties.
As
a result of the order of the court a
quo,
the second respondent was appointed the arbitrator in the dispute
regarding the rentals.
Having
heard the matter, he
issued
the arbitral award which is the subject of the appeal.
Two
applications were made to the court a
quo.
They were consolidated for purposes of hearing and the determination
of the issues raised.
In
the first application the appellant sought the setting aside of the
arbitral award in terms of Article 34 of the UNCITRAL Model Law. In
the second application the first respondent sought the registration
of the award in terms of Article 35 of the UNCITRAL Model Law.
The
court a
quo
was of the view that a party to arbitration cannot approach it for
review of the arbitral award on the ground that the arbitrator made
an incorrect decision. It held that the courts only interfere with an
arbitral award where
the
reasoning or conclusion goes beyond mere faultiness or incorrectness.
The courts only interfere with an arbitral award which can be
regarded as constituting a palpable inequity, so far-reaching and so
outrageous in its defiance of logic or acceptable moral standards as
to cause a fair-minded person to regard it as unbearably hurting all
sense of justice and fairness.
The
court a
quo
further expressed the view that the decision that had been reached by
the second respondent was supported by facts. It held that the second
respondent applied his mind to the matter and came to a conclusion
which was not contrary to public policy of Zimbabwe.
The
application for setting aside the arbitral award was found to be
meritless and dismissed. Consequently, the application for the
registration of the arbitral award was granted.
Dissatisfied
with the decision of the court a
quo,
the appellant noted the appeal.
The
main argument on appeal was that the court a
quo
misdirected itself in finding that the second respondent's award on
the rentals payable was not susceptible to being set aside. It was
also argued that the court a
quo
misdirected itself when it endorsed a formula by the second
respondent for rent variation other than the one contemplated by the
parties in terms of the lease.
The
contention was that the second respondent had no authority to
determine the issue of rent variation in terms of a formula other
than the one contemplated by the parties.
The
first respondent argued that the decision of the court a
quo
was unimpeachable because the appellant had not challenged the second
respondent's ruling on whether he had jurisdiction to hear the
matter. It was also argued that the appellant had failed to meet the
required standard for proving that the arbitral award was in conflict
with public policy of Zimbabwe.
The
issue for determination was whether the appellant met the
requirements of Article 34 of the UNCITRAL Model Law. Article 34
provides as follows:
“Application
for setting aside as exclusive recourse against arbitral award
(1)
Recourse to a court against an arbitral award may be made only by an
application for setting aside in accordance with paragraphs (2) and
(3) of this article.
(2)
An arbitral award may be set aside by the High Court only if —
(a)
the party making the application furnishes proof that —
(i)
a party to the arbitration agreement referred to in article 7 was
under some incapacity, or the said agreement is not valid under the
law to which the parties have subjected it, or, failing any
indication on that question, under the law of Zimbabwe; or
(ii)
the party making the application was not given proper notice of the
appointment of an arbitrator of the arbitral proceedings or was
otherwise unable to present his case; or
(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
(iv)
the composition of the arbitral tribunal or the arbitral procedure
was not in accordance with the agreement of the parties, unless such
agreement was in conflict with a provision of this Model Law from
which the parties cannot derogate, or, failing such agreement, was
not in accordance with this Model Law; 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.
(3)
An application for setting aside may not be made after three months
have elapsed from the date on which the party making that application
had received the award or, if a request had been made under article
33, from the date on which that request had been disposed of by the
arbitral tribunal.
(4)
The High Court, when asked to set aside an award, may, where
appropriate and so requested by a party, suspend the setting aside
proceedings for a period of time determined by it in order to give
the arbitral tribunal an opportunity to resume the arbitral
proceedings or to take such other action as in the arbitral
tribunal's opinion will eliminate the grounds for setting aside.
(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.”
The
court a
quo
held that the arbitral award could not be found to be in conflict
with public policy of Zimbabwe because the second respondent did not
escalate the rent in terms of the parties agreement.
In
ZESA
v Maphosa
1999 (2) ZLR 452 (S) at 465D-E it was stated that:
“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
position is settled that a party to arbitration cannot come to court
because the arbitrator was wrong.
The
allegation in the court a
quo
was that the second respondent's decision to enforce a clause in
the agreement requiring the parties dispute over the escalation of
rent to be submitted to the arbitration procedure was a breach of
section 29 of the Rent Regulations.
Section
29 of the Rent Regulations provides:
“Any
agreement by which any person purports to limit his right to proceed
under these regulations for the determination of a fair rent or the
variation of such a determination, or to limit or affect any other
rights to which he would be entitled under these regulations, shall
be void.”
The
court a
quo
held that the Rent Regulations were not applicable because cricket
activities did not relate to commercial enterprises.
The
order of the court a
quo
was not appealed against.
The
second respondent was therefore bound to perform his duties. The
second respondent had the power to act in the manner he did.
The
award by the second respondent could not have been a violation of
public interest or policy of Zimbabwe.
Article
16 of the UNCITRAL Model Law allows a party to challenge the
jurisdiction of the arbitrator. The arbitrator can make a
determination on the challenge. Article 16 reads as follows:
“Competence
of arbitral tribunal to rule on its jurisdiction
(1)
The arbitral tribunal may rule on its own jurisdiction, including any
objections with respect to the existence or validity of the
arbitration agreement. For that purpose, an arbitration clause which
forms part of a contract shall be treated as an agreement independent
of the other terms of the contract. A decision by the arbitral
tribunal that the contract is null and void shall not entail ipso
jure
the invalidity of the arbitration clause.
(2)
A plea that the arbitral tribunal does not have jurisdiction shall be
raised not later than the submission of the statement of defence. A
party is not precluded from raising such a plea by the fact that he
has appointed, or participated in the appointment of, a second
respondent. A plea that the arbitral tribunal is exceeding the scope
of its authority shall be raised as soon as the matter alleged to be
beyond the scope of its authority is raised during the arbitral
proceedings. The arbitral tribunal may, in either case, admit a later
plea if it considers the delay justified.
(3)
The arbitral tribunal may rule on a plea referred to in paragraph (2)
of this article either as a preliminary question or in an award on
the merits. If the arbitral tribunal rules on such a plea as a
preliminary question, any party may request, within thirty days after
having received notice of that ruling, the High Court to decide the
matter, which decision shall be subject to no appeal; while such a
request is pending, the arbitral tribunal may continue the arbitral
proceedings and make an award.”
The
appellant raised the issue of the arbitrator's jurisdiction.
The
second respondent gave a ruling on the matter, holding that he had
jurisdiction to hear and determine the dispute between the parties.
The
appellant did not seek to have the decision reviewed by the High
Court.
The
exercise of jurisdiction by the second respondent could not therefore
have been in breach of public policy of Zimbabwe.
The
question whether the second respondent decided the matter of a fair
monthly rental when in fact it should have been an escalation of fair
rental was the issue agreed upon by the parties.
This
was
the issue determined by the court
a
quo.
The
lease between the parties was entered into in July 1999 and the rent
agreed upon at that time was in Zimbabwe dollars. The lease was in
writing and any alteration to the rent ought to have been in writing.
In
2009 the Zimbabwe dollar lost its value as legal tender and was
substituted by a multi-currency regime.
There
is no record of a written agreement on the payment of US$170 per
month as rent.
There
was an arrangement based on an oral agreement for the rent to be paid
at the rate of US$170 per month as a temporary measure, pending
negotiations on the agreed fair rent.
This
arrangement was not consistent with the lease. The first respondent
was losing out on value for its property.
The
parties subsequently entered into yet another oral agreement, whereby
the appellant would pay US$3000 per month as rent.
The
appellant denied the existence of the second oral agreement, despite
the evidence placed before the court a
quo
that it paid the amount pending the ascertainment of a fair rental.
The
first respondent argued that in terms of clause 3c of the lease there
was nothing to escalate, given that a fair rental could only be
escalated if there was a fixed fair rental payable.
Due
to the demise of the Zimbabwe dollar, there was no fixed fair rental
in place.
He
accepted that the issue for determination was: “What was a fair
rental payable?”
The
court a
quo
decided that the determination by the second respondent could not be
said to be in conflict with public policy of Zimbabwe. What was
before the second respondent was a question of fact and he applied
his mind to it.
The
complaint that the second respondent sided with the first respondent
in admitting expert evidence to determine the fair rental payable had
no legal basis.
The
evidence was necessary because the second respondent needed expert
evidence to assist him to determine a fair rental. He gave both
parties an opportunity to present expert evidence on the matter. He
explained to the parties
that
expert evidence would enable him to decide the dispute fairly.
The
UNCITRAL Model Law gave the second respondent the discretion to adopt
a procedure for the determination of the issues that would produce
just and equitable results.
For
the above reasons the Court dismissed the appeal.
GUVAVA
JA: I concur
MAVANGIRA
JA: I concur
Mhishi
Nkomo Legal Practice,
appellant's legal practitioners
Kantor
& Immerman,
first respondent's legal practitioners
