Micropal Finance (Pvt) Ltd v Ziada Microfinance (Pvt) Ltd and L G Smith

The applicant (Micropal Finance) and first respondent (Ziada Microfinance) were money lending companies that entered into a Revenue Sharing and Joint Venture Agreement on 23 November 2011 for collaborative micro-financing. Under this arrangement, the applicant would source clients while the first respondent provided funding. A dispute arose and went to arbitration before the second respondent (L G Smith). The applicant's Managing Director, Mr. Taruvinga, executed three Cession Agreements (5 March 2012, 4 March 2013, and in 2014) ceding rights to receivables from Telone and PSMAS employees to secure debts owed to the first respondent. On 19 October 2013, a Loan Agreement was signed recording a debt of around US$2 million to be repaid in 12 monthly instalments of US$170,000. The applicant failed to meet payment obligations. When the first respondent sought to enforce the Cession Agreements, the applicant challenged their validity, arguing Mr. Taruvinga lacked board authority and that the Loan Agreement was invalid ab initio due to unfulfilled conditions precedent (specifically, a pledge of shares as security). During arbitration proceedings on 9 October 2014, the applicant filed a Consent to Award conceding the validity of all three Cession Agreements. The arbitrator delivered his award on 8 December 2014, declaring the Loan Agreement valid.

• Whether the arbitral award was contrary to public policy of Zimbabwe under Article 34(2)(b)(ii) of the First Schedule to the Arbitration Act [Chapter 7:15] (the Model Law)
• Whether a Loan Agreement with unfulfilled conditions precedent could be valid and enforceable
• Whether the applicant's concession to the validity of a Cession Agreement founded on a Loan Agreement constituted an admission of the validity of that Loan Agreement
• The standard for setting aside arbitral awards on public policy grounds

The application to set aside the arbitral award was dismissed with costs. The arbitral award declaring the Loan Agreement valid was upheld.

1. An arbitral award will only be set aside as contrary to public policy under Article 34(2)(b)(ii) of the Arbitration Act [Chapter 7:15] where the reasoning or conclusion goes beyond mere faultiness or 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 in Zimbabwe would be intolerably hurt by the award. 2. Courts do not exercise appellate jurisdiction over arbitral awards under Article 34 of the Model Law and will not set aside awards merely because the arbitrator's reasoning or conclusions may be wrong in fact or law. 3. A concession made during arbitration proceedings as to the validity of a derivative or accessory agreement (such as a cession agreement securing a loan) logically entails acceptance of the validity of the principal agreement (the loan agreement) upon which it is founded. It is logically untenable to maintain that a cession agreement securing a loan is valid while the underlying loan agreement is invalid. 4. Issues not raised before an arbitrator cannot be raised for the first time in an application to set aside the arbitral award.

The court made observations affirming the restrictive approach to the public policy defence in arbitration, emphasizing that this approach is necessary to preserve and recognize the basic objective of finality in all arbitrations. The judge noted that the applicant's conduct in conceding to the third Cession Agreement while still disputing the Loan Agreement was "surprising" and "illogical", suggesting criticism of the applicant's litigation strategy and change of position during the arbitration proceedings.

This case reinforces the narrow grounds for setting aside arbitral awards on public policy grounds in Zimbabwe. It confirms the principles from ZESA v Maphosa that courts will not intervene merely because an arbitrator's reasoning or conclusions may be wrong in fact or law - the court does not exercise appellate jurisdiction over arbitral awards. The public policy exception is reserved for cases involving fundamental violations of law, morality or justice, or palpable inequities that defy logic and accepted moral standards. The case also illustrates the binding nature of concessions made during arbitration proceedings and the logical consequences that flow from such concessions. It demonstrates that parties cannot adopt inconsistent positions by conceding the validity of a derivative agreement (cession) while challenging the underlying principal agreement (loan) upon which it is founded. The judgment upholds the principle of finality in arbitration and the limited scope of judicial intervention under the Model Law, which is important for maintaining Zimbabwe as an arbitration-friendly jurisdiction and promoting commercial certainty.