Alternative Dispute Resolution - Arbitration
INTRODUCTION
This writing focuses on the three (3)
Zambian cases, Metalco Industries Limited v Nubian Resources Limited [2014]
ZMSC 72, Konkola Copper Mines Plc v Copperfield Minning Services Limited
2010/HP/Arb/ No. 002 and John Kunda v Kareen Motors (Z)
Limited [2011] ZMSC 9. The cases in focus
provide significant principles in Arbitration Law, the writing provides a
summary of the cases and their application and significance.
METALCO INDUSTRIES LIMITED v NUBIAN RESOURCES LIMITED [2014] ZMSC 72
BRIEF
FACTS
The
appellant appealed against a ruling of the learned trial Judge in which it was
ordered that an arbitrator be appointed by an independent lawyer within 14
days. The trial judge further ordered that in the event of default, the court
would appoint the arbitrator to arbitrate on the dispute under the contract
between the parties. The parties failed to agree on appointment of an
arbitrator thus the respondent filed an application for the court to appoint an
arbitrator, the court accepted the application.
The
appellant logged an appeal challenging that decision. In their affidavit, they
also sought to challenge the arbitration clause in the contract on the basis of
inoperativeness or otherwise. The respondent then filed an application before a
single judge seeking to have the appeal dismissed for irregularity or
incompetence on the ground that no appeal lies against a decision on the
appointment of an arbitrator. The single judge ruled that the application
should be made before a full bench in open court.
ARGUMENTS RAISED
The
appellant simply opposed the idea of the court appointing an arbitrator for
reasons that, they argued, the arbitrator may be impartial. Secondly the
appellant then argued that the arbitration clause that was inserted in the
contract with the respondent was inoperative or otherwise meaning that would
give liberty for either party to refute the decision to arbitrate.
LEGAL ISSUES
1.
Whether a court decision to appoint an
arbitrator is subject to appeal?
2.
Whether the said arbitration clause was
inoperative or otherwise?
HOLDING
The court
observed that the case premised on Section 12 (4) read together with Section 12 (5) of the Arbitration Act (No 19 of 2000), it held
that under Section
12 (5) of the Arbitration Act, the decision of the Court on the
appointment of an arbitrator is not subject to appeal. It is vital to restate
the law. Section
12 (4) provides;
“(4)
where, under an appointment procedure agreed upon by the parties—
(a) a party fails to act as required under
such a procedure; or
(b) the parties, or two arbitrators are unable
to reach an agreement expected of them under such procedure; or
(c)
a third
party, including an arbitral institution fails, to perform any function
entrusted to it under such procedure
Any party
may request the court to take the necessary measures unless the agreement on
the appointment provides other means of securing the appointment.”
Section 12 (5) reads;
“(5) a
decision on a matter entrusted under subsection (3) or (4) to the court or an
arbitral institution shall not be subject to appeal.”
These
provisions make it abundantly clear that where the court decides to appoint an
arbitrator such a decision is not subject to appeal therefore the appellant’s
claim was accordingly dismissed
Making
reference to the second issue, the court quickly dismissed the argument on the
basis that the main issue in dispute was on the court’s decision to appoint an
arbitrator and not anything else. The court also noted that the argument was
not raised in the court below therefore the Supreme Court which seats as an
appellant court does not hear fresh matters
SIGNIFICANCE AND APPLICATION
1.
COURT’S APPOINTMENT OF AN ARBITRATOR NOT
SUBJECT TO APPEAL
Parties
who commit themselves to arbitration have the liberty to appoint an arbitrator,
the appointment must be done by both parties. However, the law dictates that
where parties fail to reach a decision to appoint an arbitrator, the court will
be the last resort thus the court upon either’ party’ application can appoint
an arbitrator, this decision is therefore not subject to appeal.
The
rationale behind this is to ensure that the dispute is referred to arbitration
in the quickest manner possible while avoiding unnecessary delays. Another
reason for this is simply that the court gave the parties an opportunity to
appoint their own arbitrator, the fact that the parties failed to reach a
consensus gives the court the right to appoint an arbitrator.
It is
also important to note that where an arbitral institution is entrusted to
appoint an arbitrator such an appointment is not subject to appeal as well.
This is made clear by Section 12 (5) which reads: “(5)
a decision on a matter entrusted under subsection (3) or (4) to the court or an
arbitral institution shall not be subject to appeal.”
2.
PROCEDURE OF APPOINTING AN ARBITRATOR OR
ARBITRAL TRIBUNAL
It of importance to understand the
procedure of appointing an arbitrator. the procedure is provided by Section 12 (4) which
reads:
“(4)
where, under an appointment procedure agreed upon by the parties—
(a) a party fails to act as required under
such a procedure; or
(b) the parties, or two arbitrators are unable
to reach an agreement expected of them under such procedure; or
(c)
a third
party, including an arbitral institution fails, to perform any function
entrusted to it under such procedure
Any party
may request the court to take the necessary measures unless the agreement on
the appointment provides other means of securing the appointment.”
For easy
understanding, this point will be divided into two ways in which the procedure
may take; (i) appointment of one arbitrator (ii) appointment of three or more
arbitrators (tribunal)
(i)
Appointment of one arbitrator
Parties
are at liberty to choose whatever manner to appoint an arbitrator, therefore,
where the parties intend to appoint one arbitrator but the manner of
appointment fails, then they should refer to a third party which may be an
arbitral institution in order to appoint an impartial arbitrator on their behalf.
Then where such a third party fails to discharge their function or the third
party is not referred to, any party may request the court to provide for
appointment of the arbitrator (which would be final and binding).
(ii)
Appointment of three or more arbitrators
Where the
parties intend to appointment a tribunal consisting of three or more
arbitrators then each party will appoint an arbitrator and the arbitrators
appointed by both parties will together appoint another arbitrator to make the
tribunal comprising of an odd number.
However,
where the arbitrators fail to appoint another arbitrator, the responsibility
may be referred to an arbitral institution whose appointment is final and
binding. If that should fail too, either party may request the court to make an
appointment of the final arbitrator.
3. ARBITRATION CLAUSE IN A CONTRACT BOUNDS PARTIES TO COMMIT
TO ARBITRATION
It is a
basic principle of the law of Contract that parties are bound by whatever terms
and condition the agree to contract on. On that basis where parties insert an
arbitration clause in their contract they are absolutely mandated to commit to
arbitration. This remains the case even when either or both parties do not want
to refer to arbitration, the court’s role is to enforce contracts (Rating Valuation Consortium case, 2004 SCZ
No. 13) therefore, the court’s shall refer parties to arbitration where it
finds an arbitration clause in the contract.
This rule
is solidified by the Arbitration Act which provides the scope or form in which an
arbitration agreement may take. Section 9 reads:
“9 (1) an
agreement may be in a form of an arbitration clause in a contract or in form of
a separate agreement.
(2) An agreement is in writing if it is
contained in a document signed by the parties or in an exchange of letters,
telex, telegrams or other means of telecommunication which provide a record of
the agreement, or in an exchange statement of claim and defence in which the
existence of an agreement is alleged by one party and not denied by another; and
the reference in a contract to a document containing an arbitration clause
constitutes an arbitration agreement provided that the contract is in writing
and reference is such as to make that clause part of the contract.
(3) where parties agree otherwise than in
writing by reference to terms which are in
writing,
their agreement shall be treated as an agreement in writing.”
The
foregoing strongly demonstrates the emphasises of establishing an arbitration
clause in a contract thereby binding both parties to arbitration
In
summation, the case brings out the following important principles of
arbitration: (i) court’s appointment of an arbitrator not subject to appeal, (ii)
procedure of appointing an arbitrator or arbitral tribunal, and (iii) arbitration
clause in a contract bounds parties to commit to arbitration.
KONKOLA COPPER MINES PLC v COPPERFIELD
MINNING SERVICES LIMITED 2010/HP/ARB/
NO. 002.
BRIEF
FACTS
The facts of this case are clear and
concise, relevance to that effect is that the parties committed to arbitration
when a dispute arose as per their agreement. The arbitration tribunal gave an
award in favour of the respondent. The applicant then sought relief to the high
court pursuant to Order XVL, Rule 13 of the High Court Act, in order to set aside the award
due to the following reasons.
i.
that the Tribunal erred in law when it
purported to shift the evidential proof from the Defendant to the Plaintiff
ii.
that the award is grossly excessive and
misrepresentative of the facts and effected by fraud.
iii.
that the award was improperly procured and
is perverse in that it ignored the facts of the case;
iv.
That the award is not a reasoned award as
agreed by the parties; and
v.
That there were ex parte communications on
the part of some members of the Arbitral Tribunal, and the respondent during
the arbitral proceedings which prejudiced the Plaintiff’s case and tainted the
award.
ARGUMENTS RAISED
It is important to note that the applicant
brought their action relying on Order XVL, Rule 13 of the High Court Act which
provides for ‘perverseness and misconduct of an arbitrator’ has the only ground
of setting aside an arbitral award. To that background, the applicant asserted
that the award is perverse as the amount given to the respondent is grossly
excessive which is a result of misrepresentation of facts.
It was also claimed that some members of
the arbitral tribunal misconducted themselves by having ex parte communications
with the respondent which prejudiced the plaintiff’ case and tainted the
award.
While the respondent argued that the
respondent cannot rely on Order XVL, Rule 13, for the only grounds on which to
set aside an award are those provided under Section 17 of the Arbitration Act.
LEGAL ISSUE
1.
The court had to make a determination on
the applicability of Order XVL, Rule 13 vis-à-vis Section 17 of the Arbitration Act on the
basis that the two pieces of legislation both provide distinct grounds for
setting aside an arbitral award.
2.
Whether the court has the power to review
an arbitral award on the merits in determining whether to set aside an arbitral
award?
HOLDING
Referring to the first issue, the Court
began by stating that Section 17 of the Arbitration Act makes it abundantly clear that the
grounds to be proved before an award can be set aside are those set out under
the Section. It went on to say, the provisions of Order XLV, Rule 13 of the
High Court Act are in conflict with the provisions of Section 17 of the
Arbitration Act because the order prescribes the sole ground for setting
aside an award as being perverseness, or misconduct of the arbitrator or
umpire, while Section
17 provides for an exhaustive long list of grounds of challenging an
award which are not directly the same as that provided by the Order XVL, Rule 13.
Therefore, the Plaintiff should have not waited for the award to be rendered
because in any event, the provisions of the Arbitration Act that relate to setting aside an
arbitral award override that which is provided by Order XVL, Rule 13.
There was also another conflict in terms
of the time limited prescribed for setting aside an award. The High Court Order
prescribes fifteen days, whilst the Arbitration Act under Section 7 (3)
prescribes a period of not more than three months from receipt of the award. In
view of the conflict in the two pieces of legislation, the prior statute (which
is the Order) would be repealed by implication because its provisions were
wholly incompatible with a subsequent one (the Arbitration Act).
Referring to the second issue, the Court
held, rightly so, that an application to set aside an award is not intended for
the Court to review the award of a Tribunal, or conduct a hearing akin to an
appeal. The court does not review a decision on its merits but only the
decision itself or the decision making process.
SIGNIFICANCE & APPLICATION
1. SECTION 17 OF THE ARBITRATION ACT IS THE ONLY
PROVISION FOR SETTING ASIDE AN AWARD
It has been noted that the applicant in
the case relied on Order XVL, Rule 13 of the High Court Act. The said Order provides:
“No award
shall be liable to be set aside except on the ground of perverseness or
misconduct of the arbitrator or umpire. Any application to set aside an award
shall be made within fifteen days after the publication thereof.”
While Section 17 of the Arbitration Act
also grounds an exhaustive list and circumstances in which an award may be liable to be set aside. Section 17 (1) reads “Recourse to a court against an arbitral
award may be made only by an application for setting aside in accordance with
subsection (2) and (3).” Clearly this shows a conflict between the two
provisions, and the Case is important as it provided clarity on which between the
two applies. Section
17 of the Arbitration Act is the only applicable law which provides
for grounds to set aside an award thus rendering Order XVL, Rule 13 null and void.
Section 17 of the Arbitration Act provides
a closed door of grounds to set aside an award, therefore, a party seeking to
set aside an award must be able to prove any of the grounds provided by the
section anything provided outside that paradigm is an invalid ground.
2. THE COURT
DOES NOT SIT AS AN APPELLANT COURT IN A MATTER TO SET ASIDE AN AWARD BUT ONLY
REVIEWS THE DECISION ITSELF
Another
principle to draw is that the Court in hearing an application to set aside an
award does not review the decision of the arbitrator on the merits but looks at
the decision itself or the decision making process.
To contrast a review from an appeal, the
former is restricted to a determination on the lawfulness or the award itself.
It focuses on establishing whether the arbitral award was issued without any
irregularities or discrepancies with the law as provided by the act pertaining
the manner in which an arbitral award is to be issued. The question the court
should be concerned with is whether an award was issued accordingly and to the
avoidance of any of the vitiating factors stipulated under Section 17 of the Act. These
vitiating factors inter alia include
whether the award was made without fraud, corruption or misrepresentation,
whether the arbitrator or arbitral tribunal had the jurisdiction in the matter.
While the latter involves the court
delving into the facts and merits of the case. This would therefore mean the
court establishing whether the award was issued fairly without misapplication
of the law to the facts. If this was the
case, the court would then look at the issues like; the cause of the dispute,
each party’ claim and demands, did the arbitrator or arbitral tribunal understand
the facts of the dispute? did they correctly apply the law and reach the right
conclusion? However, this would then go against the whole rational of
arbitration which is a process of dispute resolution separate from the court
system, so as to relieve the courts of law off their overload.
Therefore, the court does not sit as an
appellant court in a proceeding to set aside an arbitral award but only reviews
the decision made by the tribunal.
3. AN EARLIER STATUTE IS REPEALED BY IMPLICATION WHERE IT
CONFLICTS WITH A SUBSEQUENT ONE
It is important to understand this
principle as it is a basic tenet of law. In light of the clear conflict of the
provisions between the Order and the Act the court importantly stated:
“In view
of the conflict in the two pieces of legislation, the prior statute would be
repealed by implication because its provisions were wholly incompatible with a
subsequent one.”
What this
means is that where an Act does not expressly amend or repeal an older Act or
any provisions of an older Act, then the older act or any provisions of the
older act that conflict with those in the latest Act will be repealed by
implication. Such was demonstrated in the case in casu. The Order being an older provision conflicted with a latest
provision of the Arbitration Act subsequently rendering it repealed by
implication.
In Summation, this case is among
the many cases that emphasize on the requirements provided to set aside an
arbitral award, being that Section 17 of the Act is the only law in Zambia that
provides for such grounds anything outside what is provided by the Act is not
admissible.
It also
re-emphasizes the role of the court in hearing a matter to set aside an
arbitral award. It only reviews the decision making process and it does not
delve into the facts and merits of the case. It further draws out an important
basic principle of law where a law is repealed impliedly when it conflicts with
a latest law. This principle is provided under the General Interpretations Act.
JOHN
KUNDA v KAREEN MOTORS (Z) LIMITED [2011] ZMHC 9
BRIEF FACTS
The
Plaintiff issued an originating summons seeking an order to set aside the
arbitral award of the sole arbitrator in the arbitral proceedings on 6th August
2008 on the ground that the said award was effected by fraud and/ or
misrepresentation within the terms contemplated by Section 17 (2) (b) (iii) of
the Arbitration Act No. 19 of 2000.
The
Plaintiff’s affidavit in support disclosed that the award is tainted with fraud
and/or misrepresentation because the Defendant based its original fees or
charges against the Plaintiff upon the carriage contract by falsifying the
tonnage of the potato vines or the goods transported on the Plaintiff’s behalf
on the various routes as a result of which it fraudulently charged the
Plaintiff a sum of K2 625 085 059.20 (unrebased).
When the Plaintiff objected against
the said price and accused the Defendant with fraud or misrepresentation, the
bill was waived and reduced by over K1 300 000 000.00, in circumstances where
the Plaintiff had already paid K834 649 714.40. The fraud having been detected,
the Plaintiff refused to pay any more of the bill as a result of which the
Defendant slashed the balance to the sum of K360 471 260.80. The Plaintiff
initially began to off-set the balance by paying K50 000 000.00 at once, but having
confirmed the said fraud the Plaintiff refused to be bound by the contract any
longer, prompting arbitration proceedings.
At the arbitration proceedings the
Plaintiff’s evidence as to the said fraud was rejected and the plaintiff was
found to be bound by estoppel to pay the balance of K310 471 260.80,
notwithstanding the fraud. The Plaintiff appealed to have the award entirely
set side.
ARGUMENTS RAISED
The appellants contended that the
arbitral tribunal reached a decision based on the misapprehension of the facts
of the case, which was due to fraud/ or misrepresentation effected by the
respondent
While the respondent claimed there
was no fraud/ or misrepresentation effected by them as the arbitral tribunal
reached a decision that was anchored and supported by independent findings
regarding the truthfulness of the respondent’s dealings with the appellant
LEGAL ISSUES
1. The Nature of arbitration and the effect
of an arbitral award.
2. Whether the court has the power
to review an arbitral award on the merits in determining whether to set aside
an arbitral award?
HOLDING
The court was emphatic in making
mention that the purpose of an action to set aside an award is to preserve the
integrity of the arbitral process. The
point should be noted that setting aside proceedings do not serve as a means to
achieve a review of the tribunal’s decision on the merits. Arbitral rules, such
as those of UNCITRAL provide unequivocally that an arbitration award is final
and binding. These are not intended to be mere empty words. One of the
advantages of arbitration is that it is meant to result in the final
determination of the dispute between the parties.
J. Kajimanga as he was then, firmly
proceeded to state that if parties want a compromised solution to be proposed,
they should opt for mediation. If they are prepared to fight the cause to the
highest Court in the land, they should opt for litigation. By choosing
arbitration, the parties choose a system of dispute resolution that results in
a decision that is, in principle, final and binding.
Arbitration is not intended to be a
proposal as to how the dispute might be resolved; nor is it intended to be the
first step on a ladder of appeals through national Courts. J. Kajimanga further
restated the law under Section 17 (2) (b) (iii),
emphasizing that for an application to succeed, the applicant must satisfy the
Court that the arbitral award was obtained by fraudulent means, corruption or
misrepresentation. When such an application is made pursuant to Section 17 (2) (b) (iii) the court
shall not be entitled to consider the application on its merits, also the party
making an application on any of the grounds provided must substantiate their
claim. The court was not persuaded by the appellant’s arguments.
SIGNIFICANCE & APPLICATION
Below are the significant
principles emanating from the above case as interpretation of the laws
governing arbitration as an alternative dispute resolution.
1. AN ARBITRAL AWARD IS FINAL AND
BINDING
This principal can be drawn from
the definition of arbitration itself, the court in the case of Savanda Management Services
Limited v Stambic Bank of Zambia (2017
ZMSC 39) was resilient in defining arbitration as one mechanism of
alternative dispute resolution that allows disputing parties to submit their
dispute to an arbitrator or an arbitration tribunal who/that later reaches a
decision that is final and binding upon the parties. An arbitral award then is the decision made
by the arbitrator or arbitration tribunal.
It is
important to understand that the rationale behind arbitration is (i) to allow
disputing parties to resolve their dispute amicably without subjecting
themselves to rigid rules of court proceedings (ii) to decongest the courts of
law. Therefore, in order to realize this, the integrity of the arbitration
process, as put by the court in casu, must
be preserved by ensuring it carries a binding effect and leads to a finality,
otherwise a non-binding arbitral award would render the whole process useless
and insignificant.
Moreover,
Section 20 (1)
of the Arbitration Act unequivocally states
“subject to subsections (2) and (3) an
award made by an arbitral tribunal pursuant to an agreement is final and
binding both on the parties and on any persons claiming through or under
them.” (Emphasis is mine)
Therefore,
in contrast to mediation, arbitration concludes with a decision that binds both
parties, it is immaterial whether either party dislikes the decision made. The
law clearly says an arbitral award is binding.
2. AN
ARBITRAL AWARD CAN ONLY BE CHALLENGED ON GROUNDS PROVIDED UNDER SECTION 17 OF
THE ARBITRATION ACT
Having
considered that an arbitral award is binding, the case also held as a reminder
that an arbitral award can only be challenged based on the grounds provided
under Section
17 of the Act. Section 17 (1) reads “Recourse
to a court against an arbitral award may be made only by an application for
setting aside in accordance with subsection (2) and (3)” relevant to this
writing is Subsection
(2) which provided an exhaustive list of the grounds for setting aside an
arbitral award. These include; (i) where there was no agreement by the parties
to refer their matter to arbitration (ii) where the court finds that the award
is in conflict to public policy (iii) where the court finds that the award was
induced or effected by fraud, corruption or misrepresentation, Inter alia.
Further,
this principle dictates that the law requires that a party wising to set aside
an arbitral award must rely on any among of the grounds provided under Section 17 (2). The
court is obliged to render a deaf ear to a party who raises a ground not
covered by Section
17 (2). Emphasis must also be made that a party does not succeed
merely by raising any among the grounds provided under the said section, but
they must prove the presence of existence of the facts of the ground (s) they
raise on a balance of probability.
3. THE
COURT DOES NOT SIT AS AN APPELLANT COURT IN A MATTER TO SET ASIDE AN AWARD BUT
ONLY REVIEWS THE DECISION ITSELF
The role
of the court is not to sit as an appellant court in an application to set aside
an arbitral award. The court is only confined to review the lawfulness of the
decision itself based on the grounds set out under Section 17.
To
contrast and a review from an appeal, the former is restricted to a
determination on the lawfulness or the award itself. It focuses on establishing
whether the arbitral award was issued without any irregularities or
discrepancies with the law as provided by the act pertaining the manner in
which an arbitral award is to be issued. The question the court should be
concerned with is whether an award was issued accordingly and to the avoidance
of any of the vitiating factors stipulated under section 17 of the Act. These
vitiating factors inter alia include
whether the award was made without fraud, corruption or misrepresentation,
whether the arbitrator or arbitral tribunal had the jurisdiction in the
matter. While the latter involves the
court delving into the facts and merits of the case. This would therefore mean
the court establishing whether the award was issued fairly without
misapplication of the law to the facts.
If this was the case, the court would then look at the issues like; the
cause of the dispute, each party’ claim and demands, did the arbitrator or
arbitral tribunal understand the facts of the dispute, did they correctly apply
the law and reach the right conclusion.
However,
this would then go against the whole rational of arbitration which is a process
of dispute resolution separate from the court system, so as to relieve the courts
of law off their overload. Therefore, the court does not sit as an appellant
court in a proceeding to set aside an arbitral award but only reviews the
decision made by the tribunal.
In
Summation, the above discussed principles are important in understanding
Arbitration which therefore highlights the importance of JOHN KUNDA v KAREEN
MOTORS (Z) LIMITED. This case may be used as authority for the above
principles, furthermore, some or all of these principles can also be found in
the cases: Tiger Limited v Engen Petroleum (Z) Limited (2019) ZMSC 22, Zambia
Telecommunication Co Ltd v Celtel Zambia Ltd (2008) ZMSC 157, and Savanda
Management Services Limited v Stambic Bank of Zambia (2017) ZMSC 79.
CONCLUSION
The three
(3) cases discussed are among the plethora of cases that aid the understanding
of arbitration in Zambia. Arbitration serves as an alternative mechanism for
the quick dispensation of justice as the process is less technical to that of
the court system, however, arbitration is the most formal mechanism of
alternative dispute resolution owing to the fact that the mechanism is governed
by an act of parliament. On that wavelength, the Arbitration Act is the primary
piece of legislation that governs all arbitration proceeding in Zambia
therefore, it renders inapplicable any other legislations or provision that
come in conflict with the Act.
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