A CASE REVIEW ON SAVENDA MANAGEMENT LIMITED v STANBIC BANK ZAMBIA LIMITED [2017] ZMSC 39

The case in review discuses the effect of an arbitral award. it is a landmark case in Arbitration Law
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 By Teddy Musonda

3rd, March, 2024

Alternative Dispute Resolution – Arbitration

BRIEF FACTS
In this case the Respondent gave the Appellant banking facilities which were secured by, among other things, legal mortgages. the parties agreed in their contract to refer to arbitration any dispute that may arise between them in connection with the banking facilities.

A dispute arose between the parties and in June 2010, they appointed an arbitrator. The Arbitrator delivered his Final Award on May 23rd, 2012. On May 24th 2013, the Arbitrator went on to deliver an Additional Award on Assessment. In sum, the Arbitrator ordered the Appellant to pay the Respondent a total amount of US $ 1, 363, 850.49 with interest at the rate of 12% per annum from the date the dispute was declared by the parties to the date of reconciliation. The Arbitrator directed that the Appellant should pay the total amount due to the Respondent within 60 days from the date of assessment and that, in default, the Respondent should be at liberty to foreclose on the mortgage properties and exercise their powers of sale. On 15th August 2013, the Arbitral Award was registered in the High Court and leave for its enforcement was granted.

Following the registration of the Arbitral award in the High Court, the Appellant made an application before the Deputy Registrar pursuant to Order 36 (9) of the High Court Rules for an order to pay the judgement debt in instalments, instead of paying within 60 days as ordered by the arbitrator, the Deputy Registrar ordered that the debt be paid in 12 equal monthly instalments. The Respondent appealed against the ruling of the Deputy Registrar to a Judge in chambers. While the appeal was pending before the lower Court, the Respondent raised preliminary issues to the effect that the reliefs sought and or being sought by the Appellant were improperly before the High Court for lack or want of jurisdiction under Sections 20 (1), 20 (2) and 17 (2) of the Arbitration Act (herein the Act).

After considering the Ruling of the Deputy Registrar and the submissions of Counsel, the lower Court held that the proceedings before the Deputy Registrar were irregular as the High Court lacked jurisdiction to grant reliefs sought by the Appellant. The Court consequently dismissed the appeal that was pending before it. The Appellant appealed against this decision.

ARGUMENTS RAISED
The Appellant’ main argument was that they did not dispute the amount they were ordered to pay under the Arbitral award but instead only requested the court below to allow them to pay the amount in instalments. They claimed the deputy register had jurisdiction pursuant to Order 30 (9) of the High Court Rules to allow a party to pay an amount due in instalments. However, the respondent claimed that as provided by Section 20 of the Act, an award rendered by an arbitrator is final and binding and this extends to the manner of carrying it out therefore, Order 30 (9) of the High Court Rules does not apply to amounts ordered to be paid from arbitration proceedings.

LEGAL ISSUES

1. Whether the court has jurisdiction to alter the manner or form of carrying out an arbitral award despite it being final and binding?

*(the foregoing issue gave an opportunity to the Supreme Court to determine whether by Order 30 (9) of the High Court Rules, the Supreme Court may in some instances alter the manner of how a party is to perform an order under an arbitral award?)


HOLDING
The Supreme Court unequivocally held that the court has no jurisdiction to alter the manner or form of carrying out an arbitral award. It Practically made this clear when it held that Rule 38 of the Arbitration (Court Proceedings) Rules and Order 36 (9) of the High Court rules do not give the High Court Jurisdiction to allow a party to arbitration to pay the sum ordered under the arbitral award in instalments.

This is so because Section 20 of the Act clearly provides that an award made by an arbitral tribunal is ‘final and binding’ on the parties. The issue of the period within which the amount awarded to the Respondent was to be paid (being 60 days), was rightly decided upon by the arbitrator. Therefore, in view of the provisions of Section 20 (1) of the Act, the Award of the arbitrator, on the period within which the appellant was required to settle the full amount, is final and binding on the Appellant. Rule 38 of the Arbitration (Court Proceedings) Rules does not give the High Court jurisdiction to order the payment of an arbitral award in instalments.

Rule 38 (1) of the Arbitration (Court Proceedings) Rules deals with application of rules of the High Court and the Subordinate Court where Arbitration Rules do not provide for a particular issue. Rule 38 (2) of the Arbitration (Court Proceedings) Rules relates only to ancillary and incidental applications and does not cloth the High Court with jurisdiction to entertain an application that would effectively review and alter the decision of the arbitrator.

It is very clear by Section 20 (1) of the Act that the finality and binding effect of an arbitration award is only subject to Section 20 (2) and (3) of the Act. Section 20 (2) of the Act preserves the right of a person to challenge an arbitral award under the avenues provided by the act. As for Section 20 (3) of the Act, although it provides that an arbitral award shall be enforced in the same manner as an order of the Court, it does not give the Court Jurisdiction to alter the arbitral award as it would a Court Order. Section 20 (3) of the Act does not say that the arbitration award will become a court order; but that it will be deemed to be an order of the Court for the purposes of enforcement only, Therefore, Section 20 (3) of the Act purely relates to procedural aspects of enforcement of an arbitration award. Allowing the application to pay in instalments does not fall under the umbrella of enforcement of the arbitration award.

Furthermore, The Court does not have jurisdiction to sit as appellate Courts to review and alter arbitral decisions. The jurisdiction to decide on how the amount should be paid lies with the arbitral tribunal. If the amount to be paid and the time at which payment is to be made are not specified, the award runs the risk of being challenged on the basis of uncertainty. It follows from this rule that there is a presumption that arbitrators have the power to direct when and how payment is to be made.


SIGNIFICANCE AND APPLICATION

1. AN ARBITRAL AWARD IS FINAL AND BINDING

The Supreme Court began by definition arbitration as follows;

arbitration is one mechanism of alternative dispute resolution that allows disputing parties to submit their dispute to an arbitrator or an arbitration tribunal who/that later reaches a decision that is final and binding upon the parties. An arbitral award then is the decision made by the arbitrator or arbitration tribunal.”

From this definition the court was emphatic in stating that the decision reached by an arbitrator or arbitral tribunal is final and binding. In what sense though? Well, from the Supreme Court’s decision, it is made abundantly clear that this means any order, whether on procedure or substance, under the arbitral award must be taken literally and observed exactly as directed by the arbitrator or arbitration tribunal.

To contextualize this, in the case in casu, the appellant never objected to paying the amount due to the respondent however, they prayed that instead of paying the amount due to the respondent in 60 days (as ordered by the arbitrator), they would be allowed to pay in instalments in 12 months. The Supreme Court in addressing the appellant’s prayer firmly held that the ‘finality and binding’ nature of an arbitral award relates to both the amount to be paid to the respondent and also the time period to pay the respondent thus, allowing the appellant’s application would have amounted to changing the decision of the arbitrator with regard to the period within which the payment should have been made. therefore, the court must respect the finality and binding effect of an arbitral award by not interfering in its enforcement.

It is important to restate what Section 20 of the Act provides

“20 (1) Subject to subsection (2) and (3), an award made by an arbitral tribunal pursuant to an arbitration agreement is final and binding both on the parties and on any persons claiming through or under them.

(2) subsection (1) shall not affect the right of a person to challenge the award by any available process provided for in this Act.

(3) where the time for making an application to set aside an arbitration award has expired or where the application has been refused by aa court, the award shall be deemed to be, and shall be enforceable in the same manner as, an order of the court.”


2. AN ARBITRAL AWARD CAN ONLY BE CHALLENGED BY AVENUES PROVIDED UNDER THE ARBITRATION ACT

This principle is one of the most basic tenets of arbitration law. It is trite that the Arbitration Act is the only and exclusive legislation under Zambian law under which an arbitration award could be challenged, and a party challenging an arbitral award must raise any of the grounds provided under Section 17 of the Act.

3. AN ARBITRAL AWARD IS DEEMED TO BE A COURT ORDER ONLY FOR PURPOSES OF ENFORCEMENT, BUT IT DOES NOT BECOME A COURT ORDER

In propounding this principle, the Supreme Court stated in relation to Section (20) (3) of the Act:

“As for subsection (3), although it provides for enforcement of an arbitration award in the same manner as an order of the Court, it does not give the Court Jurisdiction to alter the arbitral award in any way. Subsection (3) does not say that the arbitration award will become a court order; but that it will be deemed to be an order of the Court for the purposes of enforcement, so that it can be enforced using the court enforcement mechanisms available for the enforcement of court orders.”

To understand this point, Section 20 (3) of the Act provides:

“(3) where the time for making an application to set aside an arbitration award has expired or where the application has been refused by aa court, the award shall be deemed to be, and shall be enforceable in the same manner as, an order of the court.”

Therefore, by providing that an arbitral award shall be deemed as a court order denotes that an arbitral award shall command the same authority as though it was given by the court, for the purposes of enforcing a party’s obligations. This is to say, a party, whom bound by an arbitral award, shall obey to whatever instructed and provided under an arbitral award as though the said award was issued by the courts of law (this therefore, means that a where a party refuses or fails to comply with an arbitral award they may be charged with contempt of court)

Additionally, the Supreme Court’s mention of ‘an arbitral award not being a court order itself’ denotes only that rules of the court relating to court orders shall not apply to arbitral awards even though they shall be deemed as court orders. To elucidate this point, Order 36 (9) of the High Court Rules provides;

“9. Where any judgment or order directs the payment of money, the Court or a Judge may, for any sufficient reason, order that the amount shall be paid by instalments, with or without interest. The order may be made at the time of giving judgment, or at any time afterwards, and may be rescinded or varied upon sufficient cause, at any time. The order shall state that, upon the failure of any instalment, the whole amount remaining unpaid shall forthwith become due:

Provided that where there is a default in paying any one instalment, there shall be no order for stay of execution on the balance.”

This Order vests the court with jurisdiction to alter the manner or setup of payment of any court order, specifically, it allows for the possibility of the court to allow a party to pay the ordered amount in instalments. Therefore, as earlier implied, the appellant contended that the arbitral award may be construed as a court order thus giving the court jurisdiction to allow them to pay the amount ordered in instalments as provided by Order 36 (9) of the High Court Rules.

However, the Supreme Court held that the Orders and Rules of the High Court Act only apply to arbitration where the Arbitration Act is silent on a specific matter (Author’ emphasis). To the contrary in this case, the Arbitration Act under Section 20 provided that an arbitral award is final and binding meaning that rules of the High Court do not apply to an arbitral award despite it being deemed as a court order.

4. THE COURT DOES NOT SIT AS AN APPELLANT COURT IN A MATTER TO SET ASIDE AN AWARD BUT ONLY REVIEWS THE DECISION REACHED

In addressing this point the Supreme Court had this to state;

“The Courts do not have jurisdiction to sit as appellate Courts to review and alter arbitral decisions. The jurisdiction to decide on how the amount should be paid lies with the Arbitral Tribunal...”

Therefore, the underpinning point is that the Court in hearing an application to set aside an award does not look at the decision of the arbitrator on the merits but looks at the decision reached or the decision making process. To contrast a review from an appeal, a review is restricted to a determination on the lawfulness or the arbitral award itself. It focuses on establishing whether the arbitral award was issued without any irregularities or discrepancies with the law as provided by the Arbitration Act. The question the court should be concerned with is whether an award was issued accordingly and whether the arbitral award could not be vitiated by any of the factors stipulated under Section 17 of the Act. These vitiating factors inter alia include whether the award was made without fraud, corruption or misrepresentation, whether the arbitrator or arbitral tribunal had the jurisdiction in the matter.

An appeal involves the court delving into the facts and merits of the case. This would therefore mean the court establishing whether the award was issued fairly without misapplications of the law to the facts. If this was the case, the court would then be invited to look at issues like; the cause of the dispute, each party’ claim and demands, did the arbitrator or arbitral tribunal understand the facts of the dispute? did they correctly apply the law and reach the right conclusion? Clearly the courts taking such an approach would then go against the whole rational of arbitration which is a process of dispute resolution separate from the court system, so as to relieve the courts of law off their overload.

Therefore, the court does not sit as an appellant court in a proceeding to set aside an arbitral award but only reviews the decision made by the tribunal.

ADDITONAL COMMENTS

The case brings out the following principles (i) an arbitral award is final and binding (ii) an arbitral award can only be challenged by avenues provided under the Arbitration Act (iii) an arbitral award is deemed to be a court order only for purposes of enforcement, but it does not become a court order (iv) the court does not sit as an appellant court in a matter to set aside an award but only reviews the decision reached.

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About the Author:


Teddy Musonda is a third year student at the University of Zambia and serving as the current Chief Executive Officer of Legal Aid Initiative. He is also an Editor at Amulufeblog.com 






 

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