29th, February, 2024
Alternative Dispute Resolution – Arbitration
BRIEF FACTS
Vedanta Resources Holding Limited owned the majority of shares in Konkola Copper Mines (KCM) while ZCCM Investment Holding Plc was the minority shareholder. A shareholder agreement was executed of the acquisition of majority stake in KCM by Vedanta, the agreement proposed among other things that Vedanta will have the responsibility to appoint the Majority of Directors.
In petition, ZCCM became disillusioned with the manner in which KCM was being managed and administered, as ZCCM felt it was detrimental to its interests. In its petition, it proposed that KCM be wind up on a just and equitable ground. In response to the petition, KCM applied Ex-Parte for leave to file its answers and affidavit in reply out of time, accordingly, Vedanta applied for a stay of execution of the liquidation proceedings because the shareholders’ agreement contained an arbitration clause. The premise of the proposed referral was that the issues raised by ZCCM amounted to a dispute between the parties (shareholders), Vedanta contended that by filling the winding up petition, KCCM contravened the dispute resolution mechanism agreed in the shareholders’ agreement.
ISSUES BEFORE THE HIGH COURT
1. Whether or not the petitioner could rely on the affidavit to stay proceedings challenging the ex-parte order that had allowed the filling of the affidavit in opposition to the petition which was being challenged?
2. Whether or not the matter was suitable to be referred to arbitration?
HOLDING BY THE HIGH COURT
The High Court's considered view was that the matter was not a proper case to refer to arbitration. It was stated that Section 10 of the Arbitration Act was applicable, however, the learned judge opined that the very Section enjoined to refuse to stay proceedings on finding that the Arbitration agreement is null and void, inoperative or incapable of being performed. The judge stated that she was alive to the fact that liquidation proceedings are governed by statute and the Court has exclusive Jurisdiction to oversee the process, the ultimate of which is intended on public policy to protect interest of third parties.
Drawing guidance from the Supreme Court case of Ody’s Oil Company Limited v The Attorney General and Constatinos James Papoutsis [2012, SCZ 4], The High Court Stated that an arbitration clause is wholly inoperative against creditors and other third parties where claims are subject of winding up proceedings. The judge also considered the case of Etri Farms Limited v N.M.B (UK) Limited (1987, 3 ALL ER 765) which interrogated section 1(1) of the Arbitration Act 1975.
Vedanta’ application fell on all grounds, Vedanta appealed.
HOLDING ON APPEAL
The Court of Appeal held that Vedanta had substantially succeeded in its appeal on the refusal to stay proceedings by High Court and refer the matter to arbitration. This was because there was indeed a dispute as defined by clause 26 (1) of the shareholders’ agreement, Vedanta had a valid ground (Locus Standi) to apply for a stay to wind up petition and refer the dispute to Arbitration, in that respect, the dispute could be Arbitrated upon.
Ratio Decidendi: The Court’s reasoning was that the current case was distinguishable from the Ody’s Case cited above, because the Ody’s case was tainted with illegality and involved a party who was a stranger to the agreement, the Supreme Court in the Ody’s case was of the view that referring a party of the dispute to arbitration would lead to multiplicity of actions and conflicting decisions. The present case, the grievance arises from The Shareholders’ Agreement and none of them fell outside the Shareholding Agreement.
SIGNIFICANCE AND APPLICATION
1. SANCTITY OF A CONTRACT IS LIMITED BY STATUTORY PROVISIONS
The Court of Appeal agreed that the dispute was within the Shareholders’ Agreement clause. The Court’ in upholding Vedanta’s appeal put into consideration the doctrine of freedom of a contract: parties to a contract have the freedom to contract on terms of their liking and the Courts are duty bound to uphold what is agreed upon by the parties.
However, the doctrine is not absolute, where a statute provides certain requirements or conditions that apply to particular contracts, parties are barred from contracting outside the said statutory requirements. In the present case, the dispute in question is governed by a statute: The Mines and Minerals Act of 2011 which provides for Arbitration as a means of dispute resolution when a mining company is in breach of its provisions pursuant to Section 3 (1) (6) of the Mines and Minerals Development Act of 2011.
2. ARBITRATION IS NOT ALWAYS A SPEEDY AND CHEAP MODE OF DISPUTE RESOLUTION.
It is trite that among other advantages, Arbitration is cost friendliness and a speedy process. However, in evaluating the case at hand, it can be said otherwise as the issue was of public interest and liquidation. Liquidation is a process that in most cases attracts high costs and time consuming thereby defeating the purpose of Arbitration. Learned author Muna B. Ndulo revealed that the Global Arbitration Review Study reveals that since 2012, the average amount claimed in investment in Arbitration has risen to $2.38 Billion which means that the Zambian Government is engaged in a dangerous gamble with serious financial implication for the country, by subjecting Companies to Arbitration.
3. REQUIRMENTS OF STAYING PROCEEDINGS AND REFER TO ARBITRATION
The case in casu brings forth an important aspect pertaining to Arbitration. It provided the requirements needed to stay proceedings and refer the matter to Arbitration. These requirements are as follows:
a. There must be a dispute
b. The party making the petition must have locus standi in the case
c. The Arbitration Agreement must be operative
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