Judgment No. SC 12/25 Civil Appeal No. SC 286/24 10
REPORTABLE (12)
NATIONAL OIL INFRASTRUCTURE COMPANY OF ZIMBABWE
v
AC CONTROLS (PRIVATE) LIMITED (2) HONOURABLE JUSTICE MTSHIYA (RTD) N.O
SUPREME COURT OF ZIMBABWE
MATHONSI JA, CHIWESHE JA & MWAYERA JA
HARARE: 22 NOVEMBER 2024 & 17 FEBRUARY 2025
L. Madhuku with N. Mutseyame, for the appellant.
T. S. Mujungwa, for the first respondent.
No appearance for the second respondent
MWAYERA JA:
INTRODUCTION
This is an appeal against a judgment of the High Court (‘the court a quo”), wherein it dismissed an application filed by the appellant to set aside an arbitral award in terms of Article 34 of the Arbitration Act [Chapter 7:15] (“the Act”). The court a quo consequently granted the court application for the registration of the arbitral award in favour of the first respondent.
FACTUAL BACKGROUND
The appellant and the first respondent are companies duly registered in terms of the laws of Zimbabwe. The second respondent is cited in his official capacity as he arbitrated the dispute between the parties. The background of this matter can be summarized as follows:
3. On 28 February 2018, the appellant, as the employer and the first respondent as the contractor/employee entered into a written agreement for the supply, delivery and installation of instrumentation, control, and electrical equipment for the Mabvuku Ethanol Storage Tanks Project.
4. Facts of the matter according to the parties’ statement of agreed facts are as follows:
It was agreed that the contract price was in the sum of USD $2 268 199.90. The agreement encompassed a material term that the appellant would defray the first respondent`s costs for materials purchased for the project on production of an invoice, valuation report, and interim certificate. Within fourteen days from the completion by the first respondent of each agreed milestone in the project schedule, the appellant was obliged to issue a stage completion certificate through the engineering consultants. The appellant, through its representative was obliged to issue a payment certificate within seven (7) working days from the date of assessment of the invoiced works. The appellant was further obliged to pay the first respondent within 21 days from the same date of issue of the invoice and stage completion certificate. The first respondent was to supply a performance bond of USD 2 268 199.20.
5. On two subsequent occasions, the parties amended the agreement in a bid to address the changes in the country`s monetary policy. It is apparent that the main effect of the amendments was to restructure the cost of the contract and make separate provision for payment of local and foreign costs. On 27 November 2019, the appellant and the first respondent signed an addendum to their contract, (“addendum number 1”). On 4 March 2020, the parties further signed another addendum (“addendum number 2”). The material terms of addendum number 2 were as follows:
a. The contract price would be varied to USD $ 1 833 908.95, being the foreign currency amount payable in local currency at the Reserve Bank of Zimbabwe (“RBZ”) prevailing interbank rate on the date of payment and ZWL $ 7 385 060.38 being the local currency component of the contract.
b. In acknowledgment of material delivered to the site but not paid for the employer would make an exceptional payment subject to provision of an interim payment certificate. The amount to be paid was subject to the valuation done by consulting engineers ASCO Africa (Pvt) Ltd.
6. On 5 March 2020, the first respondent issued an invoice for the amount of ZWL 2 061 649. 59 in accordance with the amount that had been approved by the consultant. The appellant paid this amount in full.
7. Prior to the coming into effect of the Presidential Powers (Temporary Measures) (Amendment of Reserve Bank of Zimbabwe Act and Issue of Real Time Gross Settlement Electronic Dollars (RTGS Dollars) (“SI 33 of 2019”) and its subsequent amendments, the first respondent had purchased materials worth USD 164 631.34. The first respondent demanded the settlement of this amount. The appellant declined to do so. It contended that in the absence of an interim certificate made out in respect of the said materials as required by the amendment to their contract, the amount could not be related to outside the terms of the amendment to the contract. The appellant further stated that the debt could only be settled in local currency at the rate of one to one (“1:1”). The parties failed to resolve the dispute pertaining to the outstanding invoice prompting the first respondent to refer the matter for arbitration.
PROCEEDINGS BEFORE THE ARBITRATOR.
8. In terms of the agreement the parties agreed that any disputes were to be referred for arbitration. The first respondent made a claim for the payment of the outstanding and unpaid invoice amounting to USD 164 631.34 or its equivalent in local currency in accordance with the official RBZ interbank rate or official auction rate, at the date of payment. The respondent also sought costs on a higher scale.
9. The appellant submitted that in the absence of an interim payment certificate and on the strength of SI 33 of 2019, the first respondent `s invoice could only be settled in local currency at the rate of 1:1. It was the appellant`s positions that the provisions of SI 33 of 2019 which are part of the Finance Act were clear on the applicable rate of payment.
10. The appellant conceded that the amount of USD 164 631.31 was outstanding and payable to the first respondent but contended that it was only payable out to the first respondent in the Zimbabwean local currency. This gave rise to the sole issue which the arbitrator was to determine, namely the currency in which the outstanding invoice was to be settled.
11. The arbitrator made a finding that the appellant`s debt arose as a result of an obligation denominated in United States dollars. He further, made a finding that in terms of the agreement that they entered into, the parties agreed that foreign debts would be paid in United States dollars and that the amount claimed was payable in United States dollars or in local currency at the prevailing interbank rate on the date of payment despite the existence of SI 33/2019 whose effective date was 22 February 2019. He held that payment of the debt at the rate of 1:1 would be unfair and thus made the following awards:
“In the circumstance; I therefore make the following award
1. The respondent shall pay the amount in the sum of USD 164 631.31 or its equivalent in ZWL (Zimbabwe Dollars) in accordance with the official Reserve Bank of Zimbabwe interbank rate or official auction rate at the date of payment.
2. The respondent shall pay the claimant`s legal costs on an attorney and client scale”
PROCEEDINGS BEFORE THE COURT A QUO
12. Dissatisfied by the decision of the arbitrator, the appellant filed an application in the court a quo seeking an order setting aside the arbitral award. The appellant`s grounds for seeking the setting aside of the arbitral award were that the arbitral award was in conflict with the public policy of Zimbabwe, as it was premised on an incorrect interpretation of the law. It further averred that the arbitrator`s findings were made arbitrarily.
13. It was further argued by the appellant that the respondent`s claim arose from materials it had procured in 2018, and prior to the amendment of the agreement. The appellant argued that until 22 February 2019, the amount was due and owing in United State dollars. However, with the promulgation and coming into effect of SI 33 of 2019, the debt was converted to local currency at the rate of 1:1, hence the payable amount became ZWL $164, 631 31. The appellant thus sought the setting aside of the award.
14. The first respondent opposed the application for the setting aside of the award and it filed a counter application for registration of the arbitral award in terms of Article 35(1) of the Act, which the appellant also opposed.
15. The court a quo dismissed the application for the setting aside of the arbitral award and consequently granted the counter application for registration of the award in favor of the first respondent. Aggrieved by the decision of the court quo the appellant noted the present appeal before this Court on the following grounds.
GROUNDS OF APPEAL
The court a quo erred at law in dismissing the application for setting aside the arbitral award on the basis that it was contrary to public policy.
The court a quo erred and misdirected itself at law in failing to hold that the arbitral award offended acceptable moral standards and what fair minded persons would consider just when it upheld the arbitrator`s gross misconstruction of the principle of sanctity of contract in light of the addendum l and 2. (sic)
The court a quo erred and misdirected itself at law and facts in failing to hold that the reasoning by the learned Arbitrator constituted a palpable iniquity that was so far reaching and outrageous in its defiance of logic or accepted moral standards that a fair minded person would consider just when it upheld that the appellant`s concession of liability discharged the applicability of SI 33/19 as read with the Finance (No 2) Act 2019 to the debt.(sic)
The court a quo erred and misdirected itself at law when it failed to hold that the second respondent`s arbitral award went far beyond mere faultiness or incorrectness as it conflicted with SI 33/2019 and the Finance Act (No 2) Act 2019. Consequently the court a quo ought to have found offence in the Arbitrator`s conclusion that settlement of the debt in United State Dollars 1:1 basis with the RTGS dollar would not be fair to the respondent.(sic)
The court a quo also erred and misdirected itself at law in failing to hold that the arbitral award offended acceptable moral standards and what fair minded persons would consider just when it did not take issue with the concession by the Arbitrator that the debt was affected by SI 33/2019 but subsequently altered by addendum 1 and 2 when this addendum was drafted prospectively not retrospectively .(sic)
The court further erred and misdirected itself in registering and ordering the enforcement of a judgment whose enforcement is proscribed and contra statutory authority as per SI 33/2019 as read with the Finance (No 2) Act 2019. (sic)
RELIEF SOUGHT
16. 1. That the instant appeal succeeds with costs
2. That the order of the court a quo be set aside and substituted with the following:
“1. Application be and is hereby granted.
2. The court application by the first respondent be and is hereby dismissed.
3. Costs shall follow suit.”
SUBMISSIONS BEFORE THIS COURT
17. At the hearing of this appeal Mr Madhuku, counsel for the appellant, submitted that the debt owed to the first respondent was due before the effective date of SI 33 of 2019, being 22 February 2019. He submitted that the debt was valued in United States dollars and it accrued before the effective date meaning that such debt was payable at the rate of one as to one with the RTGS dollars. He submitted that by giving an award which directed a debt accrued before the effective date to be paid in United States dollars, the arbitrator issued an order contrary to SI 33 of 2019. To that extent therefore, he argued that the award was against public policy. He further submitted that the delay by the first respondent to issue an interim payment certificate and valuation certificate had no effect on the date on which the debt became due.
18. Per contra, Mr Mujungwa, counsel for the first respondent, submitted that the debt became due after the issuance of the interim payment certificate and valuation report which occurred after the effective date of SI 33/2019. He further submitted that the first respondent purchased materials from abroad thereby creating a foreign obligation, which required the debt to be liquidated in United States dollars.
ISSUE FOR DETERMINATION
19. The only issue that arises for determination in this case is whether or not the court a quo erred in dismissing the application for setting aside the arbitral award.
APPLICATION OF THE LAW TO THE FACTS
20. Instances in which a court may set aside an arbitral award are well settled and established in this jurisdiction. The circumstances are embedded in case law and in the Act. Article 34 of the Act (“the model law”) is apposite.
“ARTICLE 34
Application for setting aside as exclusive recourse against arbitral award.
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.
An arbitral award may be set aside by the High Court only if -
the party making the application furnishes proof that -
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
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
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 decision 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
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
the High Court finds, that -
the subject-matter of the dispute is not capable of settlement by arbitration under the law of Zimbabwe; or
the award is in conflict with the public policy of Zimbabwe.”
21. This Court has weighed in, in elucidating what amounts to an award being contrary to public policy. In the case of Zesa v Maposa 1999 (2) ZLR 452(S) at 466 E-G it stated as follows:
“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, 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.” (Underlining is for emphasis)
22. The approach of the courts in deciding whether or not to set aside an arbitrary award was also ably spelt out in the case of OK Zimbabwe Pvt Ltd v Ard-Mbare Properties Pvt Ltd SC 55/17 at pp 12-13. Patel JA, (as he then was) stated the following:
“The reviewing court does not exercise an appeal power by having regard to what it considers should have been the correct decision. It will only intervene to set aside an award on the ground of public policy where the reasoning or conclusion in the award constitutes a palpable inequity, gross irrational, its moral turpitude or resultant grave injustice, either in the procedure adopted by the arbitrator or in his substantive findings on the merits of the matter, so as to warrant setting aside of the impugned award. In the absence of any perverse conduct or outlandish aberration on the part of the arbitrator or in the affirmation of his award by the High Court, the appellant is not entitled to the relief it craves”
See also Ropa v Rosemart Investment (Pvt) Ltd & Anor 2006 (2) ZLR 283 (S) 286 B-D Delta Operations (Pvt) Ltd v Origein Corporation (Pvt) Ltd 2007 (2) ZLR 81 (S) at 85 B-E, Peruka Investments (Pvt) Ltd v Willoughby’s Investments (Pvt) Ltd & Anor 2015 (1) ZLR 491 (S) and Alliance Insurance v Imperial Plastics (Pvt) Ltd & Anor SC 30/17.
23. In light of the cases cited above and the wording of Article 34, it is apparent that an arbitral award will not be set aside on the basis that a party is of the view that the arbitrator’s decision is wrong. The courts will not lightly interfere with an arbitral award for the mere asking by the party who is of the view that the arbitrator’s decision is wrong. Interference with an arbitral award is only contemplated where the reasoning of the arbitrator results in substantial injustice that is so outrageous and far reaching in its defiance of logic or acceptable moral standards as to cause a fair minded person to regard it as hurting all sense of justice and fairness.
24. In the present case the arbitrator in disposing of the dispute between the parties on the applicability or otherwise of SI 33 of 2019 had this to say:
“What must guide the interpretation and subsequent application of this instrument to cases in reality is the intention of the law-maker. It is no secret that the reason why SI 33 of 2029 was promulgated was due to challenges in accessing foreign currency for use in the country. Accordingly, it was determined that it would be appropriate to pay obligations incurred prior to the effective date in local currency which was readily available and at the prevailing “willing seller and willing-buyer rate” as at the effective date. Proceeding from the above premise, it is beyond doubt that the intention of the law maker was for Zimbabweans to be paid their dues at US$ 1 as to RTGS $1 because this was the most accessible currency and this exchange rate was the prevailing exchange rate supported by the market forces of that period. That rate gave fair value and compensation as at 22 February 2019”
The arbitrator further said:
“If all arrears due to the employees had been paid on the effective date, there would have been no issues arising today. The applicable presumption would be that this was equal settlement of value in terms of the market forces on that date. It therefore follows that for any other date thereafter. The value of RTGS dollar against the US dollar would be determined by the market forces as reflected by the “willing seller and willing buyer” basis. In simpler terms, after 22 February 2019, any variance from the opening parity rate would be determined from time to time by the rate or rates at which authorised dealers could exchange the RTGS dollar for the United States dollar on a willing seller willing buyer basis.
Lastly, he stated that:
Further, it must be appreciated that in interpreting the law, presiding officers are entitled to take into account the prevailing situation in reality. Payment today for services at the exchange rate that obtained almost two years ago would be totally unfair. The current exchange rate has risen with each US dollar amounting to around RTGS $82. It would therefore be unfair to pay for services outside that rate.” (My emphasis)
25. It is pertinent to relate to the relevant provisions of the SI 33 of 2019. The applicable provisions of the instrument provide as follows:
“Issuance and legal tender of RTGS Dollars in savings.
4.(1) For the purposes of s 44C of the principal Act as inserted by these regulations the Minister shall be deemed to have prescribed the following with effect from the date of promulgation of these regulations (“the effective date”)
that the Reserve Bank has, with effect from the effective date, issued an electronic currency called the RTGS Dollar;
that Real Time Gross Settlement System balances expressed in the United States dollar (other than those referred to in s 44C (2) of the principal Act, immediately before the effective date, shall from the effective date be deemed to be opening balances in RTGS Dollars at par with the United States dollar; and
that such currency shall be legal tender within Zimbabwe from the effective date; and
that, for accounting and other purposes, all assets and liabilities that were immediately before the effective date, valued and expressed in United States dollars (other than assets and liabilities referred in s 44 C (2) of the principal Act) shall on and after the effective date be deemed to be valued in RTGS dollars at a rate of one-to-one to the United States dollar; and
that after the effective date any variance from the opening parity rate shall be determined from time to time by the rate at which authorised dealers under the Exchange Control Act exchange the RTGS dollar for United States dollar on a willing-seller willing-buyer basis; and
that every enactment in which an amount is expressed in United States dollars shall, on the and after effective date, be construed as reference to the RTGS dollar, at parity with the United States dollar, that is to say at a one to one rate.” (underlining my emphasis)
26. The import of SI 33 of 2019 was lucidly explained in the locus classicus case of Zambezi Gas Zimbabwe (Pvt) Ltd v N.R Barber (Pvt) Limited & Anor 2020 ZLR (1) 138 (S) at p 143F where this Court made the following pertinent remarks:
“It is the duty of the court to interpret statutes. Where the language used in a statute is clear and unambiguous, the words ought to be given the ordinary grammatical meaning. However, where the language used is ambiguous and lacks clarity, the court will need to interpret it and give it meaning. There is enough authority for this rule of interpretation”-----.
And at 144 that reading of s 4 (1)(d) of SI 33 of 19 does not reveal any ambiguity in the language used by the Legislature in the expression of its intention in enacting SI 33 of 19. The purpose and object of the statute can easily be ascertained from the ordinary and grammatical meaning of the language used.”
Further the court stated at 144 E that:
“In interpreting s 4 (1)(d) regard should be had to assets and liabilities which existed immediately before the effective date of the promulgation of SI 33/19. The value of the assets and liabilities should have been expressed in United States dollar immediately before 22 February 2019 for the provisions of s 4 (1) (d) of SI 33/19 to apply to them----. And lastly at 145 F that:
The phrase immediately before means that the liability should have existed before the effective date and that such liability should have been valued and expressed in United States dollars.”
27. In view of the discourse in the Zambezi Gas case supra, the issue of exchange rate was clearly dispensed with and demarcation made for debts which occurred immediately before and on the effective date on the one hand and those after the effective date, on the other hand. It can be gleaned from the arbitrator`s interpretation that his main focus was on whether the application of SI 33 of 2019 was good or bad. The arbitrator clearly strayed from the meaning of the Statutory Instrument. His reasoning in granting the award was a clear departure from the law as he emphasized on the unfairness of the law if the rate of one as to one as between the United States dollar and RTGS was to be applied. He appreciated the law but sought to modify it on the basis of fairness.
28. It is an established principle that law is law, whether just or unjust. This positivist approach to the definition of law was illuminated by Professor Lovemore Madhuku in his book An Introduction to Zimbabwean Law, on p 4 wherein he stated that:
“By contrast, the positivist theory says law is law regardless of its moral content and regardless of whether it is just or unjust. The positivist theory distinguishes law as it is from law as it ought to be. There is, therefore, no such a thing as an unjust law, a bad law, an immoral law and so on. What law is, is one thing, but its good or badness is another. The positivist theory of law is the prevailing doctrine on the definition of law. It is applied by almost every legal system in ascertaining what the law is in any given situation. In other words, when answering the question what does the law say in this situation-one does not attempt to establish what is just or morally acceptable in the given situation. Instead, one must simply ascertain the applicable rule of law, regardless of whether it is seemingly just or unjust, fair or unfair, moral or immoral. What matters is whether or not it is a rule recognized and enforceable by the state and if it is enforceable by the state it is law”
29. It follows therefore that the arbitrator ought to have interpreted SI 33 of 2019 as it is and should have based his decision on the law and not delve into the fairness or otherwise of the law. The basis of his decision was anchored on his view that the law was unfair. This was contrary to public policy.
30. It is this Court`s view that the failure to apply provisions of SI 33 of 2019, and the departure from the fundamental principles of law, the decision by arbitrator went beyond being wrong to offending public policy. The disregard of the relevant SI would not only render the prevailing economic monetary policy ineffectual but disrupt the uniformity of the law. Further, granting of an award outside the law based on what one viewed as fair and just would lead to total economic chaos, with the rate of one as to one being selectively applied on individual preferences. These factors when cumulatively considered, point to the second respondent’s decision as going beyond mere incorrectness or faultiness. On that note, the court a quo ought to have made a finding that the arbitrator misinterpreted the law and as such the award could not stand.
31. It is an established principle that a debt becomes due when the creditor becomes aware of the facts from which the debt arose. In this case, the debt became due on 18 December 2018 when the first respondent indicated to the appellant that it had made purchases and payment of some materials required in terms of the contract. Therefore, the debt arose when the first respondent acquired the right to enforce payment of the amount payable. However, the first respondent did not do so. It cannot therefore cry foul when it did not claim what was owed and due on time.
32. It follows therefore, that the debt, which was denominated in United States Dollars became due on 18 December 2018, and that is before the effective date thereby triggering the application of the parity rate. As such the amount was payable in local currency at the rate of one to one. The fact that the contract catered for how the money was to be paid does not detract from the need to comply with the law for payment to be effected. It is a settled principle of law that a contract contrary to statute law is illegal. In this case the contract was lawful and payment of the debt had to be within the confines of the law. See the case of Barmlo Construction (Pvt) Ltd v Chivaya SC 73/23 at p 12-13 wherein it was stated that:
“If therefore, parties decided to contravene the law it is something this Court cannot endorse. It is trite that the courts will not enforce contracts that are tainted by illegality and performed contrary to the law. See Silonda v Nkomo SC 6/22. To this extent the finding by the arbitrator which was confirmed by the court a quo that the debt had to be paid in United States Dollars since it was fair and the parties had signed a contract to that effect is incorrect at law. The court a quo ought to have set aside the award.”
33. In the present case the parties were privy to the changes in law. Addendum Number 1 and 2 to the contract are instructive.
Addendum Number 1
“9.7 The parties acknowledge that the contract was denominated in United States Dollars. The parties agree that as from the effective date of this addendum, the contract shall be denominated in Zimbabwean dollars without any price variation in compliance with the law”
Further, Addendum 2 was couched as follows:
“The parties agree that payment for foreign labour undertaking local installation will only be rated provided that they are part of skills set schedule attached to the addendum, and that the security clearance documents, and on site time sheets are verified
‘Whereas on 22 February 2019, the Zimbabwean government adopted a local currency known as the Zimbabwean Dollar which become the legal tender of the country.
AND WHEREAS the parties signed Addendum 1 of the agreement on 30 November 2019 to comply with the laws of the country’”
34. The effect of these addenda was to cater for the change in the economic policy of the country. The clauses cited above clearly show that the parties appreciated that since their contract was denominated in United States Dollars, they had to conform with the law of the country. In so doing the parties ought to have been guided by SI 33 of 2019 in relation to the payment of the debt. A finding contrary to the import of SI 33 of 2019 as made by the arbitrator and confirmed by the court a quo amounted to a departure from the law. It would only lead to uncertainty and selective adoption of the Statutory Instrument. The finding that the debt had to be settled in United States Dollars in clear defiance of SI 33 of 2019, was contrary to public policy and it had the effect of hurting the concept of justice in Zimbabwe. In that regard the court a quo erred by upholding and confirming the arbitral award.
35. In the circumstances, the court a quo erred in dismissing the appellant’s application for the setting aside of the arbitral award and granting the court application for the registration of the award. It follows therefore, that the appeal has merit and it ought to succeed.
Regarding costs, the general rule is that they follow the result. This Court finds no reason to depart from it.
DISPOSITION
42. Accordingly, it is ordered as follows:
1. The appeal be and is hereby allowed with costs.
2. The judgment of the court a quo is set aside and substituted with the following:
“(i) The court application for the setting aside of the arbitral award by Hon Mtshiya be and is hereby granted.
The court application for the registration of the arbitral award be and is hereby dismissed.
(iii) The arbitral award by Hon Mtshiya is set aside. ”
MATHONSI JA : I agree
CHIWESHE JA : I agree
Gwaunza & Mapota, appellant’s legal practitioners
Tavenhave & Machingauta, 1st respondent’s legal practitioners