OK Zimbabwe Limited v Ardmbare Properties (Private) Limited and Daniel Tivadar N.O.

The parties concluded a lease agreement on 30 December 2013 with commencement date of 1 November 2010. The monthly rental was fixed at US$2,000 or 1.5% of turnover (net sales after deduction of VAT), whichever was greater. The leased premises were to be used for retail business and all businesses reasonably or necessarily incidental thereto. After occupation, the appellant (OK Zimbabwe) started manufacturing pies at the premises for sale both from those premises and for distribution to its other branches. This activity was not specifically approved by the first respondent (Ardmbare Properties). A dispute arose as to whether proceeds from pies distributed to the appellant's other branches should be included in calculating turnover rent. The dispute was referred to arbitration before the second respondent. The arbitrator found that pie manufacturing was business incidental to retail business and that pies distributed to branches were part of turnover for computing monthly rental. The arbitrator awarded the first respondent US$76,481.00 on 2 March 2015. The appellant applied to set aside the award while the first respondent applied to register it. The High Court consolidated both matters and found in favour of the first respondent, dismissing the application to set aside and granting registration of the award.

• Whether the arbitrator erred procedurally by adopting a two-stage procedure (determining liability first, then quantum) instead of determining both together
• Whether the arbitrator created a new contract by finding that pie manufacturing was covered under the lease agreement
• Whether sales of pies distributed to the appellant's other branches formed part of turnover for rental calculation purposes
• Whether the arbitral award violated public policy of Zimbabwe and should be set aside under Article 34(2)(b)(ii) of the Model Law

The appeal was dismissed with costs.

1. Under Articles 19 and 24 of the Model Law scheduled to the Arbitration Act, in the absence of agreement by parties on arbitration procedure, the arbitrator has discretion to conduct proceedings in such manner as he considers appropriate, including holding separate hearings at appropriate stages. 2. An arbitral award will only be set aside on public policy grounds under Article 34(2)(b)(ii) 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 would be intolerably hurt by the award. 3. In interpreting lease agreements, business activities that are reasonably or necessarily incidental to permitted retail business fall within the scope of permitted use. 4. For turnover rent calculation purposes, where goods are manufactured at leased premises and sold through the lessee's various branches, all such sales constitute part of the lessee's turnover as the income and profit ultimately accrue to the lessee's benefit.

The Court noted that the arbitrator might arguably have erred marginally in computing the exact turnover attributable to the pies distributed beyond the leased premises, acknowledging the possibility of wastage inherent in retail trade of edibles. The Court also provided an analogous scenario to illustrate its reasoning: if the appellant manufactured pies within the leased premises and sold them just outside those premises through its own tuck-shop or through a mobile vendor under its direct employ and control, it would be inconceivable that such sales should not be treated as constituting part of the appellant's turnover. The Court expressed the view that the reasoning in Pilime & Others v Midriver Enterprises (Pvt) Ltd HH 367-14, relied upon by the appellant's counsel, was "starkly inconsistent with the clear and unambiguous language of the Model Law" regarding arbitration procedure.

This case is significant in Zimbabwean arbitration law as it clarifies important procedural and substantive principles. It confirms the broad discretion of arbitrators to determine procedure when parties have not agreed otherwise, including conducting hearings in stages. It reinforces the narrow approach to public policy as a ground for setting aside arbitral awards, applying the rigorous test from ZESA v Maposa that requires palpable inequity, gross irrationality or grave injustice, not mere error of fact or law. The case also provides guidance on contractual interpretation in commercial lease agreements, particularly regarding what constitutes "incidental business" and how to calculate turnover rent when goods are manufactured at leased premises but sold elsewhere within the same business entity.