Arbitration clauses in contracts

IT is not uncommon for parties to include arbitration clauses in their contracts. The arbitration clause is specifically meant to deal with disputes arising from that particular agreement.

Arbitration is an extra curial way of resolving disputes. It involves a third party who is given the power to make a binding decision. Arbitration proceedings are governed in terms of the Arbitration Act. There are many reasons why companies provide for arbitration in their agreements. I will not deal with this. This is a topic on its own, but this week I am just going to focus on “arbitration clauses”.

Despite parties including arbitration as a dispute resolution mechanism, a number of times they “ignore” it and proceed to approach Courts for dispute resolution. The issue of arbitration clauses can be raised as a preliminary point in many instances if the other party has proceeded to disregard it.

The usual argument raised by parties avoiding Arbitration is that the jurisdiction of the High Court is not ousted. The Jurisdiction of the High Court cannot be ousted, because it is a common law court.

In fact, there is a presumption against alteration against ouster of the jurisdiction of the Court. The essence of an arbitration clause is that parties must proceed as per their agreement to arbitration. In other words, it will not make sense to allege a breach of contract, and breach the very provision that deals with dispute resolution which is “arbitration”.

Justice Mushore dealt with a similar reasoning in the case of TATENDA GEORGE MANDUNA v ALLIANCE INSURANCE (PVT) LTD HH147/16 where she held that;

“The plaintiff argues that even in the face of there being an arbitration clause in an agreement such as the one in casu, because this court enjoys inherent jurisdiction then this court ought to entertain the matter without it being referred to arbitration because this court is not bound by the ‘submission’ (sic) clause. I take it that what the plaintiff meant to put across in using the terminology “submission” clause is that he meant that this court need not be bound by a clause calling upon the parties to submit to the jurisdiction of an arbitrator.

“The plaintiff ’s reasoning is skewed for the following reasons: - “Firstly, this court is not bound by the ‘submission’ clause. It is the parties who bound themselves to the arbitration agreement when they entered into the contract of insurance.

“Secondly this court entered the fray with respect to the likelihood of having to make a determination on the arbitration clause when the defendant filed its Special plea.

“Thirdly because of sanctity of contract, the plaintiff cannot as of a right insist that this court must impose its inherent jurisdiction on this dispute and simply override its obligation to peer into the efficacies of the reference to arbitration simply because the plaintiff chose to file a suit in this court. The whole point of filing a special plea is that the defendant is voicing its objection to the plaintiff ’s choice of forum for which the defendant requires a determination.

“Fourthly this court is seized with a deliberation on the points raised in the special plea first because it is only if the court finds that a reference to arbitration may run contrary to the justice of the matter, that this court will invoke its inherent jurisdiction.

“Fifthly, an arbitration agreement does not oust the inherent jurisdiction of this court and therefore it cannot be concluded that a litigant who files a special plea is intent on trying to exclude this court from exercising its inherent jurisdiction.”

The Court in the Manduna case brought out serious issues which disposed the challenge to the Arbitration Clause. The five (5) grounds stated in the judgment emphasise the importance of arbitration clause. Why put the clause if you didn’t intend to be bound by it? This clearly becomes an attack on the law of contract itself.

Justice Mushore further observed that; “I am emboldened in my reasoning because ample judicial precedent exists on this point which is aligned with my view.”

Mafusire J’s dicta in Conplant Technology [Private] Limited v Wentspring Investments [Private] Limited HH 965/15 is instructive. In that case, (which was a court action) the defendant filed a special plea in which it relied on an arbitration clause which ousted the jurisdiction of the High Court where “any dispute” had arisen and required determination. The defendant, who pleaded that the matter should first be referred to arbitration, filed a special plea to that effect. The learned judge had a far more complicated task than the task at hand here, but be that as it may the principles expounded by him in that case are aligned to those occurring in the current case. In that case the learned Judge referred to the Arbitration Act [Chapter 7:15] in his deliberations and in particular Art 8 [1] of the Model Law, First Schedule to the Arbitration Act [Chapter 7:15]. Article 8 [1] which states: “A court of law before which proceedings are brought in a matter which is subject of an arbitration agreement shall, if a party so requests not later than when submitting his first statement on the substance of the dispute, stay those proceedings and refer the parties to arbitration unless it finds that the agreement is null and void, inoperative or incapable of being performed.”

The learned judge agreed with the defendant and determined that the parties’ first port of call was to defer the matter to arbitration. He premised his decision from an understanding of the binding nature of such clauses to the parties to a contract when he said: “In my view and in my own words, it is now settled that a clause in a contract to refer a dispute to arbitration is binding on the parties. A party is not at liberty to resile from that clause at any time he may wish to do so. In terms of Article 8 of the Arbitration Act, where a party makes a timeous request for referral to arbitration, the court has to stay the matter and refer the dispute to arbitration unless the agreement is null and void, or is inoperable or is incapable of being performed.”

In Bitumat Ltd v Multicom HH 142/2000 the learned Smith J’s opinion and decision with respect to the application of arbitration clauses is that they ought to be observed if the parties have entered into an agreement with an arbitral clause. Makarau JP [as she was then] made the same observation in Shell Zimbabwe (Pvt) Ltd v Zimsa (Pvt) Ltd 2007 (2) ZLR 366 when she simply said at p 370:

“Thus, in my view, while the court is bound to give effect to arbitration clauses in agreements, it is not bound to do so in circumstances where arbitration is not the expressed or implied first choice dispute resolution mechanism of the parties”.

In the current case the plaintiff and the defendant clearly bound themselves to the terms of the policy document and in so doing elected the arbitration route in circumstance where a dispute has arisen with respect to “the payment of any amount”.

Justice Mushore in the earlier cited case held that; “The language used and its meaning is simple, and is not confusing nor is it shrouded in mystery. Therefore, it seems to me to that the arbitration clause is relevant to the current set of facts.”

In the future when you enter into an agreement, ensure that you are clear on the agreed dispute resolution mechanisms. If you put arbitration as a dispute resolution mechanism you need to be prepared to go through it for the resolution of any dispute in the agreement.

The exception to the arbitration clause is if a party challenging it successfully demonstrates that the reference to arbitration may run contrary to the justice of the matter, that will invoke the High Court to invoke its inherent jurisdiction.