GD Electronix (Pvt) Ltd v Ref Hurt Investments (Pvt) Ltd and Thembinkosi Magwaliba

The applicant (GD Electronix) and first respondent (Ref Hurt Investments) entered into a lease agreement on 12 March 2012 for shop A21 at Stand 1442 Salisbury Township, effective from 1 April 2012. In terms of the lease, the applicant paid monthly rent plus operating costs, which included security charges. The operating costs, including security, were paid directly to the respondent landlord. On the night of 3 April 2013, a break-in occurred at the leased premises resulting in theft of the applicant's electronic goods valued at US$28,930.00. The applicant attributed liability to the respondent for failure to provide adequate security services despite receiving payment for security costs. The respondent denied liability, arguing the applicant was required to insure its own assets and denying negligence. The dispute was referred to arbitration in terms of Clause 29 of the lease. On 10 September 2013, Advocate Magwaliba sitting as arbitrator dismissed the claim and awarded costs against the applicant. The applicant then applied to the High Court to set aside the arbitral award on grounds that it was contrary to public policy.

• Whether the arbitral award was contrary to public policy of Zimbabwe and should be set aside under Article 34 of the First Schedule to the Arbitration Act [Cap 7:15]
• Whether the correct interpretation of Clauses 4 and 10 of the lease agreement imposed an implied obligation on the respondent landlord to provide security services upon receipt of security cost payments from the applicant tenant
• Whether absolving the respondent from liability after receiving security payments constituted unjust enrichment
• What constitutes 'public policy' for purposes of setting aside an arbitral award
• Whether the High Court has power to substitute its own decision when setting aside an arbitral award

1. The arbitral award granted by Arbitrator Thembinkosi Magwaliba on 10 September 2013 is set aside. 2. There is no order as to costs.

When a lease agreement requires a tenant to pay operating costs including security charges directly to the landlord, and the landlord arranges security services with a third-party provider with whom the tenant has no direct contractual relationship, the landlord impliedly undertakes an obligation to provide security services upon receipt of the tenant's proportionate security cost payments. An arbitral award that absolves a landlord from liability for security failures despite receiving security payments constitutes a palpable inequity that offends public policy by failing to uphold the sanctity of contracts and potentially allowing unjust enrichment. Under Article 34 of the Arbitration Act, an arbitral award may be set aside as contrary to public policy where the reasoning or conclusion goes beyond mere 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 would be intolerably hurt by upholding the award.

The court noted that Article 34 of the Arbitration Act only empowers the court to set aside arbitral awards on specified grounds, but does not grant power to substitute the court's own decision for that of the arbitrator. The court observed that the applicant had erroneously cited Article 36 (which deals with grounds for refusing recognition or enforcement) in its heads of argument when the application was properly based on Article 34. The court also observed that security costs should not be distinguished from other operating costs like electricity, water, and gas - all were billed to the landlord who recovered costs from tenants, with no direct contracts between tenants and service providers. The court noted that it would be unreasonable to expect the applicant to proceed against an unnamed independent security contractor with whom it had no contractual relationship whatsoever.

This case is significant in Zimbabwean arbitration law as it clarifies the grounds for setting aside arbitral awards on public policy grounds under Article 34 of the Arbitration Act. It establishes that where an arbitrator correctly identifies an implied contractual term but then fails to apply it, resulting in a palpable inequity, the award may be set aside as contrary to public policy. The judgment reinforces the principle of sanctity of contracts and provides guidance on when unjust enrichment concerns may render an arbitral award contrary to public policy. It also confirms the limited role of courts in reviewing arbitral awards - courts may set aside awards but cannot substitute their own decisions. The case provides important guidance on interpreting commercial lease agreements, particularly regarding implied obligations arising from payment arrangements for services like security.