Court name
Supreme Court of Zimbabwe
Case number
SC 86 of 2006
Civil Appeal 397 of 2005

Delta Operations (Pvt) Ltd. v Origen Corporation (Pvt) Ltd. (Civil Appeal No. 397/05) (SC 86 of 2006, Civil Appeal 397 of 2005) [2007] ZWSC 86 (06 September 2007);

Law report citations
Media neutral citation
[2007] ZWSC 86













REPORTABLE (72)


Judgment
No. SC 86/06


Civil
Appeal No. 397/05








DELTA
OPERATIONS (PRIVATE) LIMITED v





ORIGEN
CORPORATION (PRIVATE) LIMITED








SUPREME COURT OF
ZIMBABWE


SANDURA JA, CHEDA JA
& MALABA JA


HARARE, NOVEMBER 20,
2006 & SEPTEMBER 7, 2007








R Y Phillips,
for the appellant





A P de Bourbon, SC,
for the respondent






SANDURA JA: This is an appeal against a judgment of the High
Court which set aside an arbitral award made in favour of the
appellant.







The background facts are as follows. In 2002 the appellant
(“Natbrew”) and the respondent (“Origen”) signed a contract
which, in relevant part, reads as follows:






“Reciprocal Deliveries of Barley







1.1 During the months of June and July 2002 Natbrew shall supply to
Origen at the Northern Products grain silos in Chinhoyi a quantity
of
not less than 2,400 metric tonnes and not more than 2,450 tonnes of
barley.







1.2 The Natbrew Delivery shall comprise of barley unsuitable for
brewing purposes but suitable for use as stock feed.







1.3 During the month of October 2002 Origen shall deliver to Natbrew
at Northern Products or GMB Banket a tonnage of barley grown
in the
2002 winter season and of an exactly equivalent tonnage to the
Natbrew Delivery.








    1. In
      the event that, and to the extent that, Origen may fail to deliver
      the tonnage of barley required to be delivered by it in
      terms of
      clause 1.3 then, recognizing that Natbrew shall suffer loss as
      a consequence of such breach, Origen shall pay to
      Natbrew the sum
      of $75 000 per tonne in respect of each tonne which Origen has
      failed to deliver in terms of clause 1.3.”









In terms of clause 6, any dispute between the parties arising
out of the agreement was to be referred to arbitration.







Following the conclusion of the agreement, Natbrew delivered to
Origen 2 019.28 tonnes of barley suitable for stock feed,
but
Origen delivered to Natbrew 1 127.848 tonnes of barley grown in
the 2002 winter season, leaving a shortfall of 891.432 tonnes.
That
shortfall gave rise to a dispute which the parties agreed to refer to
arbitration, and an arbitrator was appointed.







In its statement of claim, Natbrew averred as follows:






“6. In the circumstances (the) claimant seeks an award that (the)
respondent forthwith deliver to it 892 tonnes of barley of a
specification in compliance with the Agreement.







Alternatively to paragraph 6 above, and if it be found that
(the) respondent was entitled to elect not to deliver barley but
instead to pay (the) claimant $75 000.00 per tonne of
undelivered barley, which is denied, then -







7. (The) claimant seeks an award that (the) respondent pay to it the
sum of $66 900 000.00, together with interest thereon
calculated from 1 November 2002 at a rate to be determined at
the hearing as being calculated to put (the) claimant in the same
position it would have been had payment been made not later than
31 October 2002.”







The sum of $66 900 000.00 stated in para 7 of the
statement of claim was arrived at as a result of an error in the
calculation, and should be $66 857 400.00, i.e. the
shortfall of 891.432 metric tones multiplied by $75 000.00.







Subsequently, on 21 January 2004, the parties held a
preliminary meeting with the arbitrator at which it was agreed that
the
issues to be determined by the arbitrator were:






“(a) Whether the claimant (i.e. Natbrew) is entitled to an order
for specific performance, viz. that Origen deliver 2 019.28
metric tones of barley to the claimant; and if not







(b) Whether the claimant is entitled to interest on the amount
awarded and, if so, from what date and at what rate.”











Thereafter, on 23 April 2004, the arbitrator conducted a
hearing and four days later, on 27 April 2004, made the
following
award in favour of Natbrew:







“It is ordered that:







A. On or before 30 May 2004, Origen Corporation (Private)
Limited shall deliver to Delta Operations (Private) Limited 891.432
tonnes of barley of the quality specified in the contract signed by
the parties on 21 August 2002.







B. Failing compliance with Order A, Origen Corporation (Private)
Limited shall pay to Delta Operations (Private) Limited, promptly
on
demand, the full amount expended by Delta Operations (Private)
Limited in purchasing the tonnage of barley not delivered by Origen
Corporation (Private) Limited in accordance with Order A.”











Dissatisfied with that result, Origen filed a court application in
the High Court on 7 June 2004, in terms of article 34(2)
of
the Model Law on International Commercial Arbitration adopted
by the United Nations Commission on International Trade Law on
21 June 1985, which is set out, with modifications, in
the First
Schedule to the Arbitration Act [Cap. 7:15] (“the Model
Law
”), seeking an order setting aside the award made by the
arbitrator on 27 April 2004.







Four days later, on 11 June 2004, Natbrew filed a court
application in the High Court, in terms of article 35(1) of the
Model Law, seeking an order enforcing the arbitral award made
in its favour.







The two court applications were subsequently heard together on 1
February 2005, and on 23 November 2005 the learned Judge
in the
court a quo granted the following order:






“IT IS ORDERED THAT:







1. The arbitrator’s arbitral award of 27 April 2004 be and is
hereby set aside in its entirety.







2. Delta’s application for the enforcement of the arbitral award be
and is hereby dismissed.







3. The parties are left to proceed as they deem fit.







4. Delta shall bear the costs of these proceedings.”







Aggrieved by that decision, Natbrew appealed to this Court.







The learned Judge in the court a quo set aside the
arbitral award in terms of article 34(2)(b)(ii) of the Model
Law
which, in relevant part, reads as follows:






“An arbitral award may be set aside by the High Court only if –







(a) …;







(b) the High Court finds that -







(i) …; or







(ii) the award is in conflict with the public policy of Zimbabwe.”







The main issue in this appeal is whether the learned Judge
correctly found that the award was in conflict with the public policy
of Zimbabwe.







The test to be applied in determining whether an award is in
conflict with the public policy of Zimbabwe was set out by this Court
in Zimbabwe Electricity Supply Authority v Maposa 1999 (2) ZLR
452 (S). At 466 E-G GUBBAY CJ, with whom EBRAHIM JA
and I concurred, said:






“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.”







Applying that test to the facts of the present case, I am satisfied
that the learned Judge in the court a quo correctly found
that the award was in conflict with the public policy of Zimbabwe.
I say so for four main reasons.







The first reason is that the arbitrator granted remedies which were
not available to Natbrew in terms of the contract.







The first such remedy is that of specific performance. This
remedy was not available to Natbrew because clause 1.4 of the
contract provided that if Origen failed to deliver the barley which
it was required to deliver to Natbrew in terms of clause 1.3,
Origen would pay to Natbrew the sum of $75 000.00 in respect of
each tonne of barley not delivered.







Quite clearly, clause 1.4 means that the parties agreed that
if Origen failed to deliver the barley to Natbrew, for whatever
reason
, Origen would pay to Natbrew the sum of $75 000.00
for each tonne of barley not delivered. In effect it means that
Natbrew
agreed that in return for the barley which it delivered to
Origen in June and July 2002 it would take either the same quantity
of
the barley grown in the 2002 winter season, or the sum of
$75 000.00 in respect of each tonne of barley not delivered by
Origen.







The remedy of specific performance was not, therefore, contemplated
or agreed upon by the parties, and was not available to Natbrew
in
terms of the contract.







The second remedy granted to Natbrew, but which was not available
to Natbrew in terms of the contract, was the alternative relief
granted in the second part of the award. This provided that if
Origen failed to comply with the order of specific performance,
Origen was to pay to Natbrew the full amount paid by Natbrew in
purchasing the quantity of barley which Origen had not delivered.







This remedy was not available to Natbrew in terms of the contract,
because the contract did not provide that if Origen failed to
deliver
the barley which it was required to deliver to Natbrew in terms of
clause 1.3 of the contract Natbrew would itself purchase
the
barley elsewhere and recover the cost thereof from Origen.







As already stated, clause 1.4 of the contract provided that if
Origen failed to deliver the barley to Natbrew, Natbrew’s
remedy
was payment by Origen of the sum of $75 000.00 for each tonne of
barley not delivered, and not payment of whatever sum
Natbrew would
have spent in purchasing the quantity of barley not delivered by
Origen.







Indeed, Natbrew recognised this and sought payment of the sum of
$66 900 000 if the order of specific performance was
not
granted, although there was an error in the calculation of the sum
payable. Nevertheless, Natbrew’s alternative claim was
disregarded by the arbitrator.







Accordingly, by granting the alternative relief the arbitrator
disregarded the remedy agreed upon by the parties, as well as
Natbrew’s
alternative claim, and granted a remedy which had not
been contemplated or agreed upon by the parties. The measure of
damages awarded
to Natbrew, in lieu of specific performance by
Origen, therefore, fell totally outside the ambit of the contract.







In the circumstances, by granting the remedy of specific
performance, and, alternatively, a measure of damages falling totally
outside the ambit of the contract, the arbitrator completely
disregarded the contractual terms agreed upon by the parties, thereby
in effect creating a new contract for them. By doing so, he
violated one of the most important tenets of public policy, i.e. the
sanctity of contracts.







As JESSEL MR said in Printing and Numerical Registering Co
v Sampson
(1875) LR 19 Eq 462 at 465:






“If there is one thing which more than any other public policy
requires, it is that men of full age and competent understanding
shall have the utmost liberty of contracting, and that their
contracts when entered into freely and voluntarily shall be held
sacred
and shall be enforced by courts of justice. Therefore you
have this paramount public policy to consider – that you are not
lightly
to interfere with this freedom of contract.”







The second reason why the award is in conflict with the public
policy of Zimbabwe is that by granting the alternative relief the
arbitrator deliberately ignored or disregarded a provision of the
Contractual Penalties Act [Cap 8:04] (“the Act”).







The provision that if Origen failed to deliver the barley which it
was required to deliver to Natbrew in terms of clause 1.3
of the
contract, Origen would pay to Natbrew the sum of $75 000 for
each tonne of barley it failed to deliver was not an ordinary
term of
the contract, but a penalty stipulation in terms of s 2 of the
Act.







In terms of s 4(1) of the Act, such a stipulation is
enforceable in any competent court, unless the court finds, in terms
of s 4(2) of the Act, a basis for declining to enforce the
penalty stipulation or for reducing it. No such basis exists in
the
present case, and none was found by the arbitrator.







There is no other provision in the Act in terms of which a court or
an arbitrator may ignore or disregard a penalty stipulation
in a
contract, and grant some other relief which had not been within the
contemplation of the parties at the time they concluded
their
contract.







By granting the alternative remedy, the arbitrator deliberately
ignored or disregarded a provision of the Act. The public policy
of
Zimbabwe does not permit him to do that.







The third reason why the award is in conflict with the public
policy of Zimbabwe is that the arbitrator created an issue between
the parties which did not arise from their submissions.







As already stated, on 21 January 2004 the parties held a
preliminary meeting with the arbitrator at which it was agreed that
the issues to be determined by the arbitrator were whether Natbrew
was entitled to an order of specific performance, and if not,
whether
it was entitled to interest on the amount awarded, and if so, from
what date and at what rate.







There was no dispute between the parties as to the amount to be
paid by Origen in the event that Origen failed to deliver the barley
to Natbrew. What was in issue was whether interest was payable on
that amount, and if so from what date and at what rate. The
reason
is not difficult to see.







Quite clearly, the parties knew that in the event that Origen
failed to deliver the barley to Natbrew the amount to be paid by
Origen to Natbrew was to be determined in terms of clause 1.4 of
the contract, i.e. $75 000 for each tonne of barley not
delivered. But as clause 1.4 did not deal with the question of
interest on the sum payable, that was an issue to be determined
by
the arbitrator.







It is clear from what the arbitrator said in para 5 of the
award that he, too, was of the same view. The paragraph reads
as
follows:



“The first issue to be determined is whether Natbrew is entitled to
an order that Origen deliver 891,432 metric tones of barley
to
Natbrew. The parties are agreed that if I conclude that Natbrew is
not entitled to this order for specific performance, then
Natbrew is
entitled to be awarded the sum of $66 857 250. In that
event, the further issue to be determined is whether
the claimant
(i.e. Natbrew) is entitled to interest on the amount awarded and if
so, from what date and at what rate.”







However, notwithstanding that clear statement of the alternative
remedy available to Natbrew, and for no apparent reason, the
arbitrator
went on a frolic of his own, created an issue which did
not arise from the submissions made by the parties, and awarded a
measure
of damages which went so far outside the contract as to
create a new contract for the parties. The public policy of
Zimbabwe does
not permit an arbitrator to do that.







Finally, in terms of article 31(2) of the Model Law,
the arbitrator is obliged to state the reasons upon which the award
is based. In casu, no reasons were given by the arbitrator
for granting the alternative relief. In my view, this is in
conflict with the public policy
of Zimbabwe and invalidates the
alternative award.







In the circumstances, by granting the remedy of specific
performance, which was not available to Natbrew in terms of the
contract,
or alternatively, a measure of damages falling totally
outside the ambit of the contract, and by creating an issue which did
not
arise from the submissions made by the parties, the arbitrator’s
reasoning or conclusion in making the award went:



“… 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, therefore, be contrary to public policy to uphold the
award.







The appeal is, therefore, devoid of merit and is dismissed with
costs.



















CHEDA  JA: I agree



















MALABA  JA: I agree



















Gill, Godlonton & Gerrans, appellant's legal practitioners



Costa & Madzonga, respondent's legal practitioners