The applicant was a company formed by former employees of the respondents as an empowerment initiative after retrenchment. The parties entered into a Licence Agreement for the conduct of fuel business, which required the applicant to furnish a bank guarantee of US$100,000. Due to difficulties securing the guarantee, an "Interim Arrangement" was entered into for the supply of fuel under consignment. The applicant allegedly conducted business unethically, including failing to account for or remit proceeds from petroleum product sales, failing to obtain the required bank guarantee, and failing to account for physical stock. The respondents cancelled both the licence agreement and interim arrangement. After mediation failed, the matter proceeded to arbitration. The respondents claimed various amounts totaling approximately US$76,859.74 for unremitted funds, unaccounted stock, security costs, and loss of revenue. The applicant counter-claimed US$174,557.79 alleging breach of contract by the respondents. The arbitrator ruled that the termination was proper, dismissed the applicant's counter-claim (save for dealer margins), and found the applicant liable. The applicant sought to set aside the arbitral award under s 34 of the UNCITRAL Model Law on public policy grounds.
1. The Applicant's application to set aside the arbitral award is dismissed. 2. The Directors of the Applicant are declared jointly and severally liable with each party absolving the other for the settlement of the debt due and owing to the Respondents as granted in the arbitral award. 3. Costs are awarded on a higher scale.
An arbitral award will only be set aside on public policy grounds where the reasoning or conclusion 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. Mere errors of fact or law do not warrant setting aside an award. Where an interim or supplementary commercial arrangement is created to facilitate the implementation of a primary agreement, it falls under the umbrella of that primary agreement and does not constitute a separate independent agreement. An arbitration clause in the primary agreement therefore provides jurisdiction to arbitrate disputes arising from both agreements. A party cannot challenge an arbitrator's jurisdiction after participating in arbitration proceedings without raising the objection timeously (Articles 4 and 16(2) of the Arbitration Act). Courts may lift the corporate veil and impose personal liability on directors under s 318(1) of the Companies Act where business has been conducted recklessly or with gross negligence and the company lacks assets to satisfy its obligations.
The court observed that this was a case where the applicant brought the matter simply to avoid adhering to the arbitrator's findings rather than on legitimate grounds. The court emphasized that it must show its displeasure at the filing of unnecessary matters to buy time when there is clearly no merit. The judgment noted that the respondents had acted in good faith in putting the interim arrangement in place to assist the applicant and give it an olive branch while the bank guarantee was being secured. The court commented that in a business arrangement, the respondents had every right to terminate both the agreement and its offshoot (the interim arrangement) against a backdrop of improper conduct of business by the applicant from the very onset.
This case reinforces the Zimbabwean courts' restrictive approach to setting aside arbitral awards on public policy grounds, confirming that finality in arbitration is paramount and that courts will not interfere merely because of errors of fact or law. The judgment clarifies that interim or supplementary commercial arrangements are to be interpreted in the context of the primary agreement under which they were created. It also demonstrates the court's willingness to lift the corporate veil and impose personal liability on directors under s 318(1) of the Companies Act where a company lacks assets to satisfy legitimate debts arising from reckless or negligent business conduct, particularly where frivolous litigation is pursued to evade obligations. The case provides important guidance on arbitrator discretion in conducting proceedings and the limited grounds for jurisdictional challenges after parties have participated in arbitration.