CHANAKIRA V MAPFUMO & ANOR 2010 (2) ZLR 178 (H)

Flynote

Arbitration - award - setting aside of- award contrary to public policy - meaning - fundamental principle of law being violated - award violating fundamental principle of law of contract - award defiant of logic - arbitrator refusing to accept lawful acknowledgement of debt D

Headnote

The applicant and the first respondent entered into an agreement in terms of which the applicant advanced to the first respondent a sum of money in foreign currency. As a return on this investment, it was agreed that the applicant would be entitled to 30 per cent of the capital sum invested "each and every month", regardless of the performance of the investment. Either party could terminate the agreement by giving one month's notice, in which event the first respondent would be required to pay to the applicant the entire compounded capital, plus any outstanding returns before the expiry of the thirty day notice period. At the time the capital sum was advanced neither party had sought exchange control approval for that transaction as then required in terms of the Exchange Control Regulations, 1996. The first respondent's repayment in terms of the agreement would also have required exchange approval. Following changes to the law in February 2009, the need to seek exchange control approval fell away. The first respondent failed to meet the terms of the agreement both before and after February 2009. The applicant terminated the agreement on 1 October 2009. However, on 13 October 2009, the parties entered into an acknowledgement of debt, in terms of which the first respondent acknowledged his indebtedness arising from his outstanding obligations under the terminated agreement. As assurance and security of his indebtedness, the first respondent surrendered to the applicant the title deeds of a property registered in his name. The parties failed to agree on the exact amount of money owed by the first respondent and referred the matter to arbitration. The arbitrator (the second respondent) found that as the agreement contravened the Exchange Control Regulations, it was subject to a suspensive condition, the non-fulfilment of which rendered the agreement void, and that any loss must lie where it fell. The applicant sought an order setting aside the award. He contended that the award was contrary to the public policy of Zimbabwe, inter alia, because it was contrary to the substantive law of Zimbabwe.

Held, that in deciding whether an agreement is contrary to public policy, the interests of the community or the public are of utmost importance. Agreements which are contrary to law or morality are contrary to public policy and may not be enforced. The court's power to declare transactions or contracts contrary to public policy should be exercised with caution and with a view to do justice as between individuals. Public policy upholds the freedom of contract and requires that commercial transactions should not be unduly trammelled by restrictions on that freedom. The power to declare contracts contrary to public policy should thus be exercised sparingly lest the whole field of contract is thrown into uncertainty as to the validity of contracts.

Held, further, that as to the legality of the agreement, there was no doubt that the agreement was a legal and binding document. The performance of the agreement, however, would require the prior approval of the Exchange Control authorities. The agreement was therefore subject to that suspensive condition. The arbitrator thus erred in holding that the agreement was void on account of the parties not having obtained Reserve Bank approval in terms of the Exchange Control Regulations.

Held, further, that an arbitral decision can only be held to be contrary to public policy if some fundamental principle of the law or morality or justice is violated or if it is so defiant of logic or accepted moral standards that the concept of justice in Zimbabwe would be intolerably hurt. It is a fundamental principle of the law of contract that the non-fulfilment of a suspensive condition does not render the contract illegal or void; it merely suspends the operation of all or some of the obligations of the contract until the occurrence of a future event. The arbitrator's award violated this fundamental principle of the law of contract.

Held, further, that the arbitrator further erred in that he did not give effect to the terms of the acknowledgement of debt signed by both parties in October 2009, at a time when it was no longer a requirement to seek exchange control authority to transact in foreign currency. His refusal to recognize the acknowledgment of debt was so defiant of logic or accepted legal and moral standards that, if upheld, the concept of justice in Zimbabwe would be intolerably hurt.