PATEL JA:
This is an
appeal against the decision of the High Court setting aside an arbitral award
rendered by the second respondent on 25 February 2011. The
grounds of appeal relate to the period allowed for contesting an arbitral award
and the substantive correctness of the decision of the court a quo.
FACTUAL BACKGROUND
The
appellant and the first respondent purchased two adjoining stands (nos. 894 and
895) respectively, with a building (Lonrho House) straddling both stands. The
two properties are held under separate deeds of transfer. The greater
portion of the building rests on stand no. 894. It is common cause
that the appellant paid 70 per cent of the total purchase price while the first
respondent paid 30 per cent of that price.
Lonrho House
was let to a third party as a single unit. The expenses for the building
were shared equally by the parties. The appellant received the rentals
and apportioned the net rentals in the ratio of 70 per cent and 30 per cent.
There was no agreement between the parties that the net rentals would be
shared in that proportion.
The first
respondent's claim that the rentals be shared equally was referred for
arbitration to the second respondent (the arbitrator). The latter held
that the income derived from the two stands as one indivisible unit should be
in proportion to the specific contributions made by the parties towards the
total purchase price. The first respondent's claim for 50 per cent share
of the rentals was dismissed. Aggrieved by the arbitral award, the first
respondent challenged the award as being contrary to public policy.
The High
Court held that the first respondent's challenge was not filed out of time but
was filed within the prescribed three months of receiving the award, even
though the first respondent had been advised three weeks earlier that the award
was ready for collection.
On the
merits, the court found that both stands and the building thereon were leased
out as a single unit. There was no evidence that 70 per cent of the
usable rentable area of the building was on the stand belonging to the
appellant and 30 per cent on the first respondent's stand. The parties
had contributed equal pieces of land to their partnership and it was immaterial
that a larger portion of the building was located on the appellant's stand.
The parties' contribution to the partnership was equal as both had
contributed a stand and both paid for the expenses equally. The
arbitrator's award of only 30 per cent of the net rental income to the first
respondent was palpably inequitable and therefore contrary to public policy.
In the result, the court held that the arbitrator had erred in rejecting
the first respondent's claim and ordered that his award be set aside with costs
to be borne by the appellant.
GROUNDS OF APPEAL
The
procedural point raised in the grounds of appeal pertains to the period within
which an arbitral award may be challenged. The appellant contends that
the court a quo misdirected itself in holding that the stipulated period
of three months commenced when the first respondent took receipt of the
arbitral award as opposed to the day after it was advised that the award was
available.
As for the
merits, the appellant's position is that the court a quo misdirected
itself in making the following findings:
1.
that it was common cause that the
outgoings/expenses on the leased premises were shared equally between the
parties;
2.
that the building was indivisible
and that each party's share of the rentals therefrom should not be based on the
usable area on their respective stands;
3.
that the payment of 70 per cent of
the joint purchase price by one party and the payment of 30 per cent of that
price by the other party was not based upon the rentable value of the
improvements upon their respective stands;
4.
that it was immaterial that the
larger portion of the building was located on the appellant's stand, even
though that was the only reasonable explanation for the disparity in purchase
prices paid by the parties;
5.
that the arbitrator's ruling should
be overturned without any finding that he had misconducted himself;
6.
that the arbitrator made a ruling
that was in conflict with the public policy of Zimbabwe.
RELEVANT PROVISIONS OF
THE MODEL LAW
Article 34
of the Model Law (Schedule to the Arbitration Act [Chapter 7:15])
prescribes the procedure for setting aside an arbitral award and the
substantive grounds upon which it may be set aside. It provides, in its
relevant portions, as follows:
“(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 ……….; 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)
……………............................................................................................
(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.”
As appears
from paragraph (3) of Article 34, an application to set aside an arbitral award
must be made within three months from the date when the applicant has received
the award. I am unable to find anything specific in the Model Law that
elaborates the manner and circumstances in which the applicant is deemed to
have received the award. The only other provisions that are relevant to
this question are Articles 3 and
31.
Article 3, which deals with the
receipt of written communications, provides as follows:
“(1) Unless
otherwise agreed by the parties—
(a)
any written communication is deemed to
have been received if it is delivered to the addressee personally or if it is
delivered at his place of business, habitual residence or mailing address; if
none of these can be found after making a reasonable inquiry, a written
communication is deemed to have been received if it is sent to the addressee's
last know place of business, habitual residence or mailing address by
registered letter or any other means which provides a record of the attempt to
deliver it;
(b)
the communication is deemed to have been
received on the day it is so delivered.
(2)
The provisions of this article do not
apply to communications in court proceedings.”
Article 31 governs the form and
contents of arbitral awards. Paragraph (4) of this article stipulates
that:
“After the award is made, a copy
signed by the arbitrators in accordance with paragraph (1) of this article
shall be delivered to each party.”
PRESCRIPTION PERIOD FOR CHALLENGING
ARBITRAL AWARDS
In the
instant case, both parties were advised by the Harare Arbitration Centre on 25
February 2011 that the arbitrator's award was ready for collection. The
first respondent uplifted the award on 14 March 2011 and filed its application
to the High Court challenging the award on 14 June 2011. On these facts,
the court a quo held that the actual date of receipt was when the
prescriptive period began to run and that, therefore, the first respondent had
timeously filed its application.
Mr Morris
for the appellant submits that the period for filing an application under
Article 34 of the Model Law cannot be allowed to run in perpetuity. He
further submits that the receipt of an award does not necessarily involve
physical prehension but can be effected traditio longa manu (by long
hand delivery). He relies for this proposition on the headnote to Groenewald
v Van der Merwe 1917 AD 233 where the following passage appears:
“To constitute delivery physical
prehension is not essential if the subject-matter is placed in the presence of
the would-be possessor in such circumstances that he and he alone can deal with
it at pleasure.”
Mr Uriri
for the first respondent argues that Article 34(3) must be read in its literal
and grammatical sense, i.e. the award in question must be delivered to
the parties in order to be received. He further argues that the first
respondent's delay in uplifting the award, as is explained in its answering
affidavit, was occasioned by the arbitrator's insistence on the payment of his
fees before the award could be released and the subsequent confusion as to
whether or not the first respondent's payment was duly reflected in the
arbitrator's bank account.
I have no
doubt that the purpose of arbitration proceedings is to enable the expeditious
resolution of disputes. Moreover, there are two maxims of the law that
are apposite to the circumstances of this matter, viz. leges
vigilantibus non dormientibus subveniunt (laws serve the vigilant and not
the sluggish) and interest reipublicae ut sit finis litium (there must
be finality to litigation). However, in the absence of any absurdity and
on the particular facts of this case, I am disinclined to depart from the
literal and grammatical meaning of Article 34(3).
I take this
view for two compelling reasons. Firstly, a literal reading of Article
34(3), as requiring actual as opposed to putative receipt of the arbitral
award, is amply supported by Article 3(1) which enjoins physical delivery of
written communications in arbitral proceedings, either in person to the
intended recipient or to his place of business or habitual residence or by
registered mail. This interpretation is further fortified by Article 31(4)
which explicitly mandates the delivery of a signed copy of the award to each
party. The burden to do so is implicitly placed on the arbitrator himself
or on the administrator of the place of arbitration. There is no obligation
imposed upon either party to take steps to actively obtain a copy of the award.
Secondly, as
I have already noted, although the award in casu was said to have been
ready for collection on 25 February 2011, it was only released and availed to
the first respondent on 14 March 2011, after the question of payment of the
arbitrator's fees had been satisfactorily resolved. Thus, the intervening
delay of two and a half weeks was not solely attributable to the first
respondent; nor can this delay be regarded as having been unduly lengthy.
On these particular facts, it seems to me churlish to penalise the first
respondent for having disregarded that short period in computing the prescribed
three month period for challenging the award. I would however add that it
might be necessary and appropriate to adopt a different approach on a different
set of facts, where the delay in securing a copy of the award is significantly
inordinate and is entirely due to the supine or calculated dilatoriness of the
party concerned.
APPORTIONMENT OF INCOME AND
EXPENDITURE
The main
thrust of the decision a quo is that the parties had contributed equal
pieces of land in the form of their respective stands to their partnership and,
therefore, it was immaterial that a larger portion of the building was located
on the appellant's stand. The court also found that both had paid equally
for the expenses incurred on the leased property. Consequently, the
arbitrator's award, dismissing the first respondent's claim for an equal share
of the rental income derived from the property, constituted a palpable inequity
contrary to public policy.
The core
element of the arbitrator's findings was that, although each stand purchased
and contributed by the parties was equal in size, the appellant's stand
contained a greater proportion of the permanent structures and more of the
usable floor space. This disparity in value accounted for the significant
disparity in the parties' respective contributions to the purchase price of the
property.
In making his award, the arbitrator
relied on the principle enunciated by Voet (Book XIX - Title 2 - Section
21) to the effect that each co-lessor is entitled to found his claim in
proportion to his share of the leased property:
“The action on letting is a personal
bona fidei action. It is granted to a lessor, and also to a lessee
who has in turn sublet to another the thing which he had hired. If a
number of persons have let, it is granted to each in proportion to his share.
It lies against a lessee and, if there are more than one, against each in
proportion.”
(This passage is quoted with
approval in De Pass v Colonial Government & Others 1886 (4)
SC 383 at 391 and Colonial Government v Wassermann (1887) 5 SC
185 at 187, and applied in Glenn v Bickel 1928 TPD 186 at
191-192).
The arbitrator accordingly found
that the relationship between the parties in acquiring the stands as a single
entity was one of co-ownership in proportion to the purchase price that each
had paid. Thus, in leasing the stands as a single unit, the parties
became co-lessors with each party being due its pro rata share of the
income derived from the payment of rentals. In the arbitrator's
assessment, law and good reason dictated that the share of the income derived
from the leasing of the stands as one indivisible unit should be in proportion
to the specific contribution made by each party to the purchase price of the
single entity.
In my view,
the arbitrator was perfectly correct in ascribing legal significance to the
fact that the appellant and the first respondent had respectively paid
70 per cent and 30 per cent of the purchase price for the property.
The reason for this arrangement was quite obvious. The appellant's
stand contained a greater proportion of the permanent structures than those on
the first respondent's stand and was therefore considerably more valuable in
terms of usable and rentable space. In these circumstances, I am unable
to find anything iniquitous in the apportionment of rental income in the same
proportion as the parties' respective contributions to the purchase price of
the property. There can be nothing outrageous in a co-lessor who owns a
larger portion of a building receiving a greater return on the rentals received
from that building. On the contrary, an equal 50 per cent apportionment of
income between the parties would itself render a palpable inequity by unjustly
enriching one of the parties to the grave detriment of the other.
As for the sharing of expenses, the
arbitrator correctly dealt with this aspect with the concurrence of counsel for
both parties. He made the specific point that the remaining financial
issues relating to the deductions made by the appellant and the rates of
interest to be paid by it on any monies found to be owing to the first
respondent were to be referred to a mutually acceptable firm of accountants to
make the necessary calculations. Thereafter, any dispute that might arise
as to what figures should be factored in for the calculation exercise should be
remitted to the arbitrator for determination. This aspect of the
arbitrator's award appears to have been totally disregarded by the judge a
quo. He clearly misdirected himself in this respect.
WHETHER AWARD CONFLICTS WITH PUBLIC
POLICY
In terms of
Article 34(2)(b)(ii) of the Model Law, an arbitral award is challengeable and
may be set aside on the ground that it is in conflict with the public policy of
Zimbabwe. As a rule, the courts are generally loath to invoke this ground
except in the most glaring instances of illogicality, injustice or moral
turpitude. In the words of GUBBAY CJ (as he then was) in the locus
classicus on the subject, Zimbabwe Electricity Supply Authority v Maposa
1999 (2) ZLR 452 (S), at 465D-E:
“In my opinion, the approach to be
adopted is to construe the public policy defence, as being applicable to either
a foreign or domestic award, restrictively in order to preserve and recognise
the basic objective of finality in all arbitrations; and to hold such defence
applicable only if some fundamental principle of the law or morality or justice
is violated.”
This
cautionary approach is further underscored by the learned Chief Justice in
elucidating the proper test to be applied, at 466E-H:
“An 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. 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.”
In the
instant case, there is no suggestion that the arbitrator failed to understand
or apply his mind to the question before him. Moreover, as already
intimated above, I am unable to find anything outrageously illogical or immoral
in his reasoning or conclusions, whether as regards the apportionment of rental
income between the parties or in relation to the sharing of leasehold costs and
expenses between them. Indeed, I do not even think that his decision can
be said to be faulty or incorrect in any material respect so as to warrant a
different conclusion. Consequently, I take the view that the learned
judge a quo misdirected himself in holding that the impugned award
constituted a palpable inequity contrary to the public policy of Zimbabwe.
In the
result, the appeal must succeed on the substantive merits of the matter.
It is accordingly ordered that:
1.
The appeal be and is hereby allowed with
costs.
2.
The judgment of the court a quo
is set aside and substituted as follows:
“The application is dismissed with
costs.”
GOWORA
JA:
I agree.
HLATSHWAYO
JA: I agree.
Atherstone & Cook, appellant's legal practitioners
Mutumbwa, Mugabe & Partners, respondent's legal practitioners
