This
is an appeal against the judgment of the High Court dismissing an application
for review of an arbitral award granted by the second respondent (“the
arbitrator”) in favour of the first respondent.
There
are two grounds of appeal.
(i)
The first is that the court a quo misdirected
itself in failing to uphold the contention that the arbitrator ought to have
determined the merits of the question of the illegality of the two agreements
entered into by the parties as advanced by the appellant in the heads of
argument after the hearing of evidence had ended.
The
contention is that as the question of the illegality of the contracts was a
question of law which went to the root of the dispute between the parties, the
arbitrator was obliged to depart from the requirements of Article 23(2) of the
Model Law.
(ii)
The second ground of appeal is that the court a quo
misdirected itself in failing to uphold the contention that the arbitrator
exceeded the terms of submission to arbitration when he granted the award.
The
facts of the case are as follows.
The
appellant is a private company registered in accordance with the laws of
Zimbabwe. It carries on the business of tobacco contract farming, merchandising,
and export. The first respondent is a company incorporated in accordance with
the laws of Zimbabwe. It carries on the business of providing telecommunication
services in the country. In 2004, the first respondent entered into an agreement
with Huawei Technology Investments (Pvt) Ltd (“Huawei”), a company registered
in the Republic of China, for the manufacture and supply of telecommunication
equipment. The terms of the contract were that Huawei would manufacture and
provide the first respondent with communication equipment.
The
first respondent had local currency but needed foreign currency for the
purposes of discharging its obligation to Huawei. It entered into two
agreements with the appellant, the purposes of which were to raise foreign
currency from the sale of tobacco to pay Huawei Technology Investments (Pvt)
Ltd. In terms of the first agreement, which related to the 2005/6 tobacco
growing season, the first respondent was to provide local currency to enable
the appellant to buy tobacco from local growers on its behalf. The appellant's
obligation was to sell the tobacco in foreign currency on behalf of the first
respondent. The money was to be transmitted to Huawei Technology
Investments (Pvt) Ltd to discharge the first respondent's debt.
The
second agreement, relating to the 2006/7 tobacco growing season, had similar
terms.
In
respect to 2005/6, the first respondent discharged its obligation in terms of
the contract. The appellant bought and sold the tobacco in foreign currency. It
then paid the first respondent the sum of US$4,617,167=82. That amount was not
enough to discharge the first respondent's indebtedness to Huawei Technology
Investments (Pvt) Ltd.
No
money was paid to the first respondent from the sales of tobacco bought and
sold during the 2006/7 growing season.
In
2010, the first respondent made a claim against the appellant for payment of
foreign currency owed in terms of the two agreements. The appellant
partially admitted the claim but denied that it owed all that the first
respondent was claiming. The parties agreed to have the dispute settled by
way of arbitration under the auspices of the Arbitration Centre.
The
terms of reference which incorporated the terms as finally amended were as
follows:
1.
Whether GDI bears the onus to account for all funds availed to it by TelOne for
the establishment and funding of the outgrower scheme under the 2006/07
agreement? (It had been formally admitted by GDI that such a position obtained
under the 2005/06 agreement).
2.
Whether TelOne is entitled to be paid a minimum of USD3,459,720=09 and a
maximum of USD5,045,170=79 over which GDI allegedly admitted liability in
respect of the 2005//06 tobacco agreement?
3.
Whether TelOne is entitled to be paid a minimum of USD5,865,672=33 (readjusted)
and a maximum of USD10,350,000= over which GDI allegedly admitted
liability in respect of the 2006/07 tobacco agreement?
4.
Whether TelOne is entitled to claim any amount for which projections were made
by GDI at the commencement of the project but over which admissions of
liability were not made at subsequent meeting between the parties; and if so,
in what amount? (general damages).
5.
Whether TelOne is entitled to recover special damages in an amount of USD168,490,446=
(reduced from USD250,531,200=), being the loss of business profit it sustained?
The
parties adduced evidence before the arbitrator who stood the matter down for
judgment.
In
the heads of argument filed on 5 July 2010, the appellant, for the first time,
raised the issue of illegality of the contracts. The first respondent's
legal representative strongly objected to the issue being raised at that stage
on the ground that it was not part of the defence and its introduction would be
prejudicial to its case. The first respondent's legal practitioner drew
the arbitrator's attention to the provisions of Article 23(2) of the Model law.
It provides:
“ARTICLE 23
Statement of claim and defence
(1)
…,.
(2)
Unless otherwise agreed by the parties, either party may amend or supplement
his claim or defence during the course of the arbitral proceedings, unless the
arbitral tribunal considers it inappropriate to allow such amendment having
regard to the delay in making it.”
The
first respondent's argument was that absent compliance with the procedure for amendment
of the statement of defence, in terms of Article 23(2) of the Model Law, the
question of the illegality of the contracts could not be determined by the
arbitrator.
The
appellant's legal practitioner contended that the principle of the law regarding
raising of questions of law authorised the arbitrator to act outside the
provisions of Article 23(2) of the Model Law.
The
arbitrator dismissed the claim by the appellant. He said:
“An
agreed list of issues was filed by the parties on 13 May 2010. The hearing of
evidence commenced on 20 May 2010 and ended on 3 June 2010, with an adjournment
to 2 August 2010 for argument.
The
realistic inference to draw from this background is that GDI changed its mind
when it proceeded to prepare its heads of argument and decided to introduce the
defence that the two agreements were illegal and unenforceable.
An
objection in limine should be taken by a defendant
before plea. Its object is to avoid further pleadings and the holding of a
trial and to afford finality to litigation, thereby avoiding the consequential
costs.”
He
goes on to say;
“Having
regard to both the absence of an application by GDI to amend or supplement its
Amended Statement of Defence, and, more importantly, to the excessive delay in
raising the illegality defence, the arbitral tribunal considers it now
inappropriate to permit GDI to rely on it.”
The
arbitrator went on to determine the matter on the merits.
He
found that the first respondent's witness, Mr Liu, was an unreliable
witness because he was argumentative and evasive when answering
questions. He also found that Mr Liu had refrained from disclosing
documents containing information on the foreign currency his company had raised
from the sale of tobacco during the two periods covered by the
agreements. Mr Liu was constrained, under cross-examination, to admit that
there was information relating to the transactions concerned which he had not
disclosed. As a result, he produced schedules which revealed the actual
proceeds of the tobacco sold over the two seasons.
The
arbitrator found the two witnesses for the first respondent to be good and
credible witnesses.
Relying
on the evidence contained in the schedules, the arbitrator addressed his
attention to the question whether the matters raised by the first issue had
been proved. He found, on the evidence of the schedules, that the
appellant owed the first respondent a sum of $5,097,842= in respect of the
2005/6 agreement. He also found that the appellant owed the first
respondent US$11,392,352= in respect of the 2006/7 agreement.
The
arbitrator dismissed the first respondent's claims in respect of the other
matters. As a result, he made an order in the following terms:
“1. GDI is to pay TelOne
the sum of US$5,097,842= in respect of the 2005/06 agreement, with interest
thereon at the prescribed rate of 5% per annum from the date of demand (11
September 2009) to the date of payment.
2.
GDI is to pay TelOne the sum of US$11,392,052= in respect of the 2006/07
with interest at six months LIBOR calculated on the outstanding daily balance
compounded monthly from the date of demand to the date of payment.
3.
GDI is to pay one fifth of the costs incurred by TelOne.
4.
TelOne to bear the remainder of its costs.
5.
GDI to bear all of its own costs.
6.
Four fifths of the fee rendered by the arbitrator are to be shared equally by
the parties; the remaining one fifth to be paid by GDI alone.”
In
September 2010, the appellant made an application to the High Court for an
order setting aside the award on the ground that the decision of the arbitrator
refusing to have the question of the illegality of the contracts determined at
the stage the appellant sought to raise it was contrary to the public policy of
Zimbabwe. It also argued that in making the determination of the amount
owed to the first respondent on the basis of the information contained in the
schedules, the arbitrator exceeded the terms of submission to arbitration and
therefore acted against the public policy of Zimbabwe.
The
application for review was made in terms of Article 34 of the Model Law. Article
34 of the Model Law provides:
“ARTICLE 34
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 or 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…,.”
In
a brief judgment, the court a quo dismissed the
application.
Whilst
the issue of the correctness of the decision by the arbitrator not to entertain
the question of the illegality of the contracts without compliance by the
appellant with Article 23(2) of the Model Law was raised and argued before the
court a quo, the learned Judge President did
not say anything on the issue in the judgment. On the second issue, he
said:
“The
respondent's understanding of the award is that with regards both the 2005 and
2006 agreements, the applicant had a duty to account to the respondents all
monies advanced to it. It rendered its account which the first respondent
accepted from which account arose the relief sought. The relief sought was
not based only on the admissions made by the applicant nor was it confined only
to such admissions. It was, instead, based on the full accounts given by the
applicant with regards to funds disbursed to it in terms of both agreements.”
The
learned Judge President went on to say:
“A
perusal of the record of arbitration vindicates the first respondent's
assertions as to how the proceedings were conducted and the basis upon which
the award was granted. I find nothing untoward in the manner in which the
hearing was conducted both in terms of procedural propriety, evidential
analysis and interpretation of the laws governing contractual relationship.
By
any stretch of the imagination, it cannot be said that the present award
constitutes a palpable inequity in the proportions envisaged in the Delta
Corporation case supra. On the contrary, as already indicated, I do not find
any fault or incorrectness in the arbitration proceedings let alone of the
magnitude described by the applicant. The award, in my view, is in
accordance with the substantive and procedural laws of Zimbabwe. Both
parties were afforded a fair hearing in accordance with rules of natural
justice. In particular, it has not been shown in what way the award is in
conflict with the public policy of Zimbabwe.”
On
appeal, the appellant raised the issue of the decision of the arbitrator as
being against the public policy of Zimbabwe….,.
On
the second issue, the court is of the view that counsel for the appellant
pressed the argument of the arbitrator having exceeded his jurisdiction because
of an erroneous view of the facts.
He
candidly admitted, when it was pointed out by the court, that he had believed
that the arbitrator had mero motu called for
the evidence contained in the schedules which he then used to determine the
outcome. It is, however, clear from the reasons for the award that the
arbitrator used the schedules which had been disclosed as a result of the cross
examination of the appellant's witness. Cross examination has always been
known, in the adversarial system, to be the best ever invented means of seeking
truth in legal proceedings.
A
reading of the award and the reasons thereof against the issues presented to
the arbitrator shows that he dealt with the matter within the ambit of issue
number one. The appellant, for some reason, ignores this fact and seeks to
measure the legality of the award in terms of the matters covered by issue
number two. The arbitrator was however not bound to consider the evidence
in respect of issue number two. All issues were before him and he determined
the issue as borne out by the evidence.
That
cannot be said to be an award against the public policy of Zimbabwe.
