RECOY INVESTMENTS (PVT) LTD v TARCON (PVT) LTD 2011 (2) ZLR 65 (H)

Flynote

Arbitration — arbitration clause — clause requiring referral to arbitration in event of dispute — need for dispute to exist — need for party relying on clause to apply for stay of court proceedings

D Contract — option — what is — lease agreement giving option to renew at rent to be agreed on — effect — no rights given to tenant — no obligation imposed on landlord to negotiate or agree to new rental

Landlord and tenant — lease — renewal of — option — lease giving option to renew at rent to be agreed on — no right given to tenant to renew lease and no obligation on landlord to negotiate with tenant

E Practice and procedure — declaratory order — when may be granted — need for applicant to show tangible interest in relation to an existing, future or contingent right or obligation

Headnote

The applicant sought a declaratory order, to the effect that a lease agreement between itself and the respondent did not give the respondent an option to renew. The relevant clause provided that "the tenant shall have an option to renew this lease agreement for a further period of five years by giving written notification to the landlord not less than three months and not more than six months prior to the expiry of this lease. The terms and conditions of such renewal shall be in terms of this agreement except that the rental and deposit shall be mutually agreed upon at the time that renewal is exercised"

At the time of the application, the lease still had over 18 months to run. The respondent opposed the application on the grounds that there was an arbitration clause which ousted the jurisdiction of the court and that, in any event, the application was premature as the parties' rights had not

2011 (2) ZLR p66

matured. The arbitration clause provided that "Any dispute between the parties in regard to any matter arising out of this lease agreement or its interpretation or their respective rights and obligations under this agreement or its cancellation or any matter arising out of its cancellation shall be submitted to and decided by arbitration". The applicant argued that the application was not a "dispute" as envisaged by the lease agreement.

Held, that in terms of art 8 of the Schedule to the Arbitration Act, which is clear and admits of no ambiguity, the court has the jurisdiction to hear the matter where none of the parties has applied for a stay of the proceedings and a consequential referral to arbitration. A party wishing to have the matter decided by arbitration is obliged to set the terms of the dispute. An arbitration process cannot be set in motion in the absence of a dispute. Before reference to arbitration there must, therefore, exist a dispute which is capable of formulation prior to the appointment of an arbitrator. In the absence of a dispute, an arbitrator cannot be appointed and therefore there can be no reference to arbitration. Here, the respondent did not allege that there was a dispute and had not applied for a stay of proceedings. The court accordingly had jurisdiction.

Held, further, that an existing dispute is not a pre-requisite for the making of declaratory order and the court is not precluded from granting a declaratory order on the basis that there is no dispute. However, the court will not exercise its discretion where the applicant has, in seeking a declaratory order, raised abstract, hypothetical or academic questions. The applicant must have some tangible and justifiable interest in relation to an existing, future or contingent right or obligation which will flow from the grant of the declaratory order. A person seeking a declaration of rights must set forth his contention as to what that alleged right is. He must also show that he has an interest in the right. Inherent in the concept of a right is the idea that the right resides in a determinate person and the persons interested in the right are those in whom it inheres or against whom it avails. The fact that the rights or obligations under the renewal clause had not yet matured was not a bar to a declaratory order being granted, as a declarator can be granted in respect of an existing, future or contingent right.

Held, further, that an agreement which purports to give a tenant an option "at a rental to be mutually agreed upon" does not give the tenant a valid and subsisting option which he can exercise, nor is the landlord under an obligation to negotiate with a lessee in order to determine a rental for any further period. The fact that the lease agreement provides for possible renewal of the lease agreement for a further period is of no moment. If an offer is vague or capable of more than one meaning or not certain or specific, it is not capable of being accepted and thereby converted into a binding contract. In the absence of a specific provision for rental in the renewal clause, pending agreement on such rental, there was no valid and subsisting option which the respondent could exercise.