Edgars Stores Limited v Fortrid Resources Africa (Pvt) Ltd and David Coltart N.O

The applicant (Edgars Stores Limited) and 1st respondent (Fortrid Resources Africa) concluded a Merchandise Supply Agreement (MSA) in September 2017. In June 2022, the 1st respondent was asked to supply merchandise worth ZAR 602,000, which the applicant paid for. However, clothing items worth US$34,146.24 were not delivered, allegedly due to a third party entity called Lutfeyah Fashionary. The applicant claimed that due to cash flow challenges from the introduction of RTGS, it requested the 1st respondent to pay Lutfeyah Fashionary on its behalf for goods. When Lutfeyah failed to deliver the full consignment, the applicant withheld US$34,146.24 from a subsequent November 2022 payment of US$245,187.70 due to the 1st respondent. The 1st respondent declared a dispute under clause 18 of the MSA, arguing it had only assisted the applicant by paying Lutfeyah and should not be held responsible for Lutfeyah's non-delivery. The matter was referred to arbitration. The arbitrator found in favor of the 1st respondent, ordering payment in US dollars only (cash or NOSTRO account), and held that a separate third-party payment agreement existed outside the MSA. The applicant then sought to set aside the arbitral award.

• Whether the arbitral award should be set aside on public policy grounds
• Whether the arbitrator exceeded his mandate by adjudicating on matters outside the Merchandise Supply Agreement (MSA)
• Whether the arbitrator could simultaneously rely on the MSA for jurisdiction but then find the dispute fell outside the MSA
• Whether the award violated the sanctity of contract principle by not applying the MSA provisions
• Whether the arbitrator created a new contract or cause of action for the parties
• Whether ordering payment exclusively in US dollars (cash or NOSTRO account) was within the arbitrator's mandate

1. The application is granted. 2. The arbitration award dated 26 September (2024) is set aside. 3. The 1st respondent shall pay the costs of suit.

An arbitral award will be set aside on public policy grounds where an arbitrator assumes jurisdiction based on a contract but then adjudicates the dispute by going outside that contract in violation of its terms. An arbitrator cannot derive jurisdiction from an agreement while simultaneously holding that the dispute falls outside that same agreement and then proceeding to adjudicate based on matters external to it. This constitutes a palpable inequity that defies logic and violates public policy. Where a contract contains an entire agreement clause requiring variations to be in writing and signed by both parties, an arbitrator cannot rely on alleged verbal agreements or informal communications to create obligations outside the written contract. An arbitrator who does so exceeds their mandate and violates the sanctity of contract principle, thereby creating grounds for setting aside the award.

The court noted that its decision to set aside the award did not mean the 1st respondent was without remedy. The respondent could potentially bring the matter to the courts based on the alleged third-party payment agreement concluded outside the MSA, rather than relying on the MSA itself. The court also observed that the MSA specifically provided that no representation, warranty, undertaking or promise not embodied in the written agreement had been made, and that the parties acknowledged this. The court emphasized that while courts must intervene sparingly in setting aside arbitral awards to ensure finality and prevent endless litigation, intervention is justified where the award goes beyond mere faultiness and reaches the level of palpable inequity that is outrageous in its defiance of logic or accepted moral standards.

This case clarifies important principles regarding the setting aside of arbitral awards in Zimbabwe and the limits of an arbitrator's jurisdiction. It reinforces that an arbitrator cannot simultaneously derive jurisdiction from a contract while adjudicating disputes on grounds external to that contract. The judgment emphasizes the importance of the entire agreement clause and the principle that arbitrators must remain within their mandate as defined by the agreement conferring jurisdiction. It demonstrates that while the threshold for setting aside arbitral awards on public policy grounds is very high, it will be met where an arbitrator acts inconsistently by accepting jurisdiction under a contract but then deciding the matter based on alleged agreements outside that contract, particularly where such external agreements violate the entire agreement clause. The case also addresses the limits on an arbitrator's power to impose payment terms not contemplated in the parties' agreement or submissions.