City of Harare v Augur Investments OU & 2 Ors

### Preamble
1
HH 727-18
HC 7445/17
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CITY OF HARARE

versus

AUGUR INVESTMENTS OU

and

THE MINISTER OF LOCAL GOVERNMENT,

PUBLIC WORKS AND NATIONAL HOUSING

and

HONOURABLE JUSTICE NOVEMBER TAFUMA MTSHIYA (RETIRED)

HIGH COURT OF ZIMBABWE

MUREMBA J

HARARE, 3 April 2018 & 7 November 2018

Opposed matter

R Chingwena, for the applicant

T Zhuwarara, for the first respondent

MUREMBA J: This is an application which is being made in terms of Article 34 (2) (b) (ii) of the Arbitration Act [Chapter 7:15] to set aside the arbitral award which was awarded in favour of the first respondent on 28 July 2017. The applicant is the City of Harare a body corporate incorporated in terms of the Urban Councils Act [Chapter 29:15]. The first respondent Augur Investments OU is a peregrinus incorporated in Mauritius. The second respondent is the Minister of Local Government, Public Works and National Housing (the Minister) whilst the third respondent is Honourable Retired Justice Mtshiya cited in his official capacity as the Arbitrator who granted the award which is the subject matter of this application.

The brief facts of the matter are that on 5 June 2008 the applicant and the first respondent entered into a Construction Agreement (the agreement) in terms of which the first respondent was to construct the Airport Highway. 90% of the construction cost was to be paid in the form of land whilst 10% was to be paid in cash. As the applicant did not have sufficient land with which to pay the first respondent, on 4 October 2008 and 21 July 2010, the Minister signed addendums to the agreement in terms of which he provided State land for payment for the work to be done by the first respondent.

On 29 April 2014 the applicant terminated the agreements citing a Ministerial Directive to do so. Following the termination which the first respondent initially opposed, but later acceded to, a dispute arose between the parties with regards to payment of compensation to the first respondent for termination of the agreement. The agreement between the parties did not contain a penalty clause in the event of termination. The penalty clause was later drawn by the first respondent in terms of clause 4.2.4 of the agreement. It was drawn in clause 10 of a letter dated 11 November 2009 which was sent to the applicant. The letter included general conditions of the contract and the cost of works. The letter was acknowledged and assented to by the applicant’s Town Clerk through a letter dated 9 February 2012, over two years later. This was well after authority to commence work had already been granted to the first respondent. When the agreement was terminated the first respondent made its claim for 35% of the remaining land in accordance with the penalty clause contained in clause 10 of the letter of 11 November 2009. The parties held a number of meetings discussing the issue of compensation but the negotiations eventually broke down. During the negotiations the applicant never disputed the penalty clause. The applicant then referred the dispute to arbitration in terms of Clause 6.9 of the agreement. At the centre of the dispute before the arbitrator was the issue of the validity of the agreement. The applicant was now arguing that the agreement was invalid and that therefore the penalty clause was unenforceable. The third respondent determined that the agreement was valid and that as such the first respondent was entitled to compensation in terms of the penalty clause. However, he made a determination that since the land that had been provided for payment did not belong to the applicant but to the President of Zimbabwe who was not a party to the agreement, compensation should be monetary. He awarded the following arbitral award.

The 1st respondent be and is hereby directed to pay claimant the sum of US$15 063 693.94 together with interest thereon a tempore morae with effect from the date hereof to the date of final payment.

The 2nd respondent was not a party to the agreement

The first respondent shall pay the costs of the arbitration.”

The applicant then filed the present application for the setting aside of the award on the basis that same is contrary to public policy in that the reasoning and conclusion in the award 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 will be intolerably hurt by the award.

Points in limine.

In response to the application, the first respondent raised a point in limine to the effect that since it is a peregrine, the applicant was enjoined to first seek leave of this court before instituting proceedings against it. However, the first respondent abandoned this point in limine in its heads of argument and at the hearing.

The first respondent had its opposing affidavit deposed to by Michael John van Blerk who attached as Annexure ‘A’ the written resolution of the first respondent which was signed on 6 April 2017 in Mauritius authorising him to represent the company.

In its answering affidavit the applicant took issue with the first respondent’s Annexure ‘A’ the written resolution authorising its deponent to represent it. The resolution was not authenticated. It raised a point in limine to the effect that the resolution was defective thereby rendering the opposing affidavit not authenticated in terms of r 3 the High Court (Authentication of Documents) Rules, 1971. The rule states that,

“3. Any document executed outside Zimbabwe shall be deemed to be sufficiently authenticated 	for the purpose of production or use in any court or tribunal in Zimbabwe or for the purpose of 	production or lodging in any public office in Zimbabwe if it is authenticated—

(a) by a notary public, mayor or person holding judicial office; or

(b) in the case of countries or territories in which Zimbabwe, has its own diplomatic or 		consular representative, by the head of a Zimbabwean diplomatic mission, the deputy or 		acting head of such mission, a counsellor, first, second or third secretary, a consul-			general, consul or vice-consul.”

Mr Chingwena submitted that if a document is not authenticated its authority becomes questionable. He referred to a number of cases. In Prosper Yolanda v Tholakakele Ndebele HB-27-06 a Power of Attorney which was attested to in the United Kingdom by a Solicitor and not by a Notary Public, Mayor or a person holding judicial office was rendered defective and the application was dismissed for that reason. In Mystical Trading (Pvt) Ltd & 3 Ors v Downtown Petroleum (Pvt) Ltd HH 132/11 resolutions which had not been properly authenticated in Mauritius and South Africa were held to be unacceptable. Consequently, the court held that there was no founding affidavit to the application.

Mr Zhuwarara in response to this point in limine argued that the point was of no moment and must be dismissed. Citing the case of African Banking Corporation of Zimbabwe Limited t/a BancABC v PWC Motors (Pvt) Ltd & 3 others 2013 (1) ZLR 376 (H), Mr Zhuwarara argued that when it comes to issues relating to a deponent’s authority to represent an incorporated entity all the court is required to do is to satisfy itself that enough evidence has been placed before it to show that it is indeed the party which is litigating and not an unauthorised person.

I find Mr Zhuwarara’s argument persuasive. Other than the resolution not having been properly authenticated, the applicant did not make a suggestion that the deponent to the first respondent’s founding affidavit did not have the requisite authority to attest to the affidavit. No suggestion was made to the effect that it is not the first respondent which is litigating, but someone else. As was submitted by Mr Zhuwarara, the record shows that Michael John van Blerk is well known to the applicant. The applicant had prior dealings with the deponent as he represented the first respondent. Correspondence in the record shows that the applicant’s functionaries would write correspondence to the first respondent specifically addressed to the deponent as the Chief Executive Officer for his attention. As an example, Engineer P.M. Pfukwa, the Director of the applicant’s Engineering Services wrote a letter dated 22 July 2009 addressed to Mr M. Van Blerk giving authority to the first respondent to commence work on Airport Road. On 11 November 2009 Michael van Blerk wrote a letter to the applicant’s town clerk advising of the general conditions of the contract including the penalty clause and the contract price for the dualisation and extension of the Harare Airport Road. The applicant’s Town Clerk assented to these conditions. Where parties have had prior dealings failure to attach proof of authority to represent the company in the form of a company resolution is not fatal. See African Banking Corporation of Zimbabwe Limited t/a BancABC v PWC Motors (Pvt) Ltd & 3 others supra. It follows therefore that the attachment of an unauthenticated resolution in a case where parties have had prior dealings cannot possibly invalidate the affidavit. In such a case unless evidence to the contrary is placed before the court, it is enough for the deponent to state that he has authority to represent the party that he or she is representing.	In the result I dismiss the point in limine.

The merits

The applicant wants the arbitral award set aside on the basis that the reasoning or conclusion of the arbitrator is so far reaching and outrageous in its defiance of logic or accepted moral standards. It was the applicant’s averment that one of the issues for determination by the arbitrator was whether or not the suspensive conditions in clause 5 of the Memorandum of Agreement entered into by and between the applicant and the first respondent were fulfilled. The applicant averred that instead of making a determination on the issue by simply saying yes or no, the arbitrator went on to say:

“This matter would indeed legally turn on whether or not the suspensive conditions as captured by clause 5 were fulfilled. However, there are clear extenuating circumstances in the present case.”

The applicant averred that the arbitrator thus did not determine the issue which he was

required to determine and this is contrary to public policy. The applicant averred that what the arbitrator said implies that although he held that the suspensive conditions were not fulfilled, there were extenuating circumstances. By referring to extenuating circumstances, the arbitrator wrongly imported into commercial law, a criminal law concept and this defies logic. The applicant contended that the arbitrator also read into the agreement something which was not there contrary to clause 6.11.1 of the Agreement which provides that,

“This agreement constitutes the entire agreement between the parties pertaining to the 	subject matters contained in it.”

The applicant averred that the arbitrator went on to hold that although the suspensive

conditions were not fulfilled, the applicant had waived its right by consent contrary to the provisions of clause 6.7 of the Agreement which state that:

“No indulgence which any party may grant to any other shall constitute a waiver of any rights of the grantor, which shall not thereby be precluded from exercising any rights against the grantee which may have arisen in the past or which might arise in future.”

The applicant contended that when the arbitrator said that he was alive to the fact that the parties had in their contract a non-waiver clause but their mutual behaviour however suggested that they were in agreement with what they were doing in good faith defies logic because it is contrary to this clause. The applicant averred that contrary to public policy, the arbitrator did not give reasons why clause 6.7 of the Agreement was inapplicable.

The applicant averred that the other issue that the arbitrator was required to determine which he did not was whether the addendum which the applicant and the first respondent signed on 4 October 2008 was enforceable, and in addition, whether the second respondent was authorised by the President of Zimbabwe to deal with State land in the manner that he did. The applicant contended that the failure to determine the issue is contrary to public policy. The applicant averred that an arbitrator must determine all issues placed before him for determination yet in casu he simply said that this addendum was signed outside the stipulated time frame in the agreement and ended there. He did not discuss the implications thereof in light of clause 1 of the Agreement which states that the Addendum was to be signed on or before 15 June 2008. The applicant averred that if the addendum was signed outside the stipulated time frame, at law it follows that there was no addendum. The applicant averred that the same applied to the addendum of 21 July 2010 which the arbitrator also said was signed outside the stipulated time frame. There was also no addendum.

The applicant further contended that the arbitrator determined an issue he was not asked to determine. He was not required to determine whether the second respondent, the Minister of Local Government was a party to the agreement or not but he made a determination on the issue. By making that determination the arbitrator acted outside his jurisdiction and this defies logic.

The applicant averred that contrary to public policy the arbitrator admitted into evidence unsigned Board Minutes especially in a case where the first respondent (the then claimant) had not addressed him on the issue of their admissibility with the applicant having challenged their admissibility.

The applicant averred that the arbitrator wrongly applied the doctrine of ostensible authority in terms of s 12 of the Companies Act [Chapter 24:03] in arriving at the decision that the first respondent was entitled to enforce the penalty clause on the basis that the applicant’s Town Clerk had assented to it in his letter of 9 February 2012. The arbitrator said:

“Though the agreement between the Town Clerk and Augur could be questioned reliance on the principle of ostensible authority by the claimant cannot be faulted.”

The applicant contended that when regard is had to clauses 5.2 and 5.3 of the agreement which contain some conditions precedent or suspensive conditions, the above defies logic. These 2 clauses provided that the agreement was subject to the following conditions being fulfilled. The applicant was required to provide resolutions from council approving the terms of the 5 June 2008 agreement and any other agreements signed pursuant to this agreement. The first respondent was also required to provide resolutions from its Board of Directors approving the 8th June 2008 Agreement and any other agreements signed pursuant to this agreement. These conditions were not fulfilled before the parties carried out their obligations in terms of the contract. The applicant contended that there was no room for ostensible authority in the agreement which authorised the parties to disregard the fulfilment of the conditions precedent. Such authority was ousted by clauses 5.2 and 5.3 of the Agreement yet the Arbitrator said in his award:

“I derive comfort from s 12 of the Companies Act [Chapter 24:03].”

The applicant contended that this defies logic because the applicant is incorporated not in terms of the Companies Act, but the Urban Councils Act. The applicant averred that the arbitrator having held that the addendum signed on 4  October 2008 was immaterial in view of the fact that the land referred to in that addendum does not belong to the applicant, it defies logic that he went on to use the same addendum to calculate the damages. The applicant contended that in terms of the penalty clause it was required to transfer 35% of the remaining land (being land not previously earned in respect of payment under the Agreement). Given that the land referred to in the addendum of 4 October 2008 does not belong to the applicant and given that the addendum was signed outside the stipulated time and that the second respondent was not a party to the agreement as the arbitrator correctly observed, it defies logic that the arbitrator calculated the damages using 35% of Stand 654 Pomona Township when there is no reference to Stand 654 Pomona Township in the addendum. The applicant averred that the 35% referred to in the penalty clause amounts to 35% of nothing.

The applicant averred that it defies logic that the arbitrator based his calculations on the final certificate when the same certificate is the subject matter of litigation in this court in case no. HC 598/17 where the issue of whether or not the suspensive conditions in the agreement were fulfilled is one of the issues for determination.

The applicant averred that it defies logic that the arbitrator cited article 8 (1) of the Arbitration Act [Chapter 7:15) in holding that he could notwithstanding the High Court case no. HC 598/17 proceed with arbitration. It further averred that it defies logic because the arbitrator cited a section which did not apply in this matter because he (the arbitrator) was not seized with arbitral proceedings in respect of the subject matter in HC 598/17.

The applicant averred that it was against public policy for the arbitrator to hold that the penalty clause was enforceable.

In opposing the merits of the application, the first respondent averred that whilst an

arbitral award is challengeable and may be set aside on the ground that it is in conflict with the public policy of Zimbabwe, as a rule the courts are generally loath to invoke this ground except in the most glaring instances of illogicality, injustice or moral turpitude. In casu there is no glaring illogicality, the award is neither unjust nor offensive to Zimbabwe’s moral turpitude. The applicant’s complaints show or reveal that the applicant is seeking an appeal of the arbitral award. An award is not contrary to public policy merely because the applicant believes the reasoning or conclusions of the arbitrator are wrong in fact or in law.

The first respondent averred that the parties introduced a penalty clause into their agreement and reduced it to writing. In terms of the penalty clause the applicant specifically agreed to compensate the first respondent in the event that applicant chose to terminate the agreement before its completion. The arbitrator properly determined that the applicant agreed to the penalty clause, did not object to its operation and even tried to negotiate the compensation due after the agreement was prematurely terminated. The applicant cannot seek to find fault with the arbitral award which was clearly actuated by written documents and corroborated by the conduct of the parties.

The first respondent averred that from para 17.1 to 17.34 of the founding affidavit the applicant was seeking to reargue the matter or at the very least was inviting this court to exercise something akin to appellate jurisdiction and this is not permissible at law. The first respondent averred that it was contesting everything in these paragraphs. The first respondent averred the following. The parties’ conduct corroborated the fact that there was an agreement between them and neither of them placed any premium on the suspensive conditions or delays in enforcing the agreed agreement. The arbitrator clearly identified the fact that the applicants conduct is evidence of a negation of the suspensive conditions or the technical non-compliances with the strict letter of the agreement. In that regard the applicant would not have cancelled an agreement that was never in existence. The manner the arbitrator dealt with the above shows a rational and judicious evaluation of both fact and law. The applicant cannot seek or ask for a disguised appeal or re-hearing. The first respondent’s cause was predicated on the agreement between the parties which incorporated a penalty cause which was activated when the applicant proceed to prematurely terminate the contract. The findings on the addendum(s) and minutes do not necessarily dispose of the dispute between the parties. In a series of meetings the applicant had sought to compensate the first respondent in terms of the penalty clause. The arbitrator was correct in holding that the applicant’s conduct took away any cause to complain that there was non-compliance with certain sections of the agreement. Further, in any case our law does not permit the applicant to rely on its non-compliance as a basis to avoid the contract. The arbitrator’s findings cannot be characterized as illegal or resultant of a misdirection. What turned the matter in favour of the first respondent was the manner in which the parties related with each other. The arbitrator could not ignore the conduct of the parties and this enabled him to deduce the subjective mind of the parties. The ensuing determination cannot be found to have been illogical or illegal to the point of it being offensive to the public policy of the land.

The first respondent averred that the applicant was enjoined to identify the actual public policy considerations that were violated by the arbitrator, but it raised no public policy issues. All it did was to identify errors which do not exist. The first respondent contented that nothing in the founding affidavit points to a manifest abrogation of public policy of Zimbabwe. In fact the public policy of Zimbabwe demands the enforcement of agreements. In terms of clause 6.9.2 of the Memorandum of Agreement of the parties, arbitration was supposed to be final yet the applicant is now asking this court to sit in an appellate capacity, rehearing argument and re-evaluating evidence. The applicant contented that the application was without merit and should be dismissed with costs on a higher scale.

In its answering affidavit the applicant disputed that it was seeking an appeal of the arbitral award. It insisted that it was seeking the setting aside of the arbitral award on the ground that it is contrary to public policy. The applicant contended that the reference to the penalty clause is misleading for the reasons that the contract never came into being because of the non-fulfilment of the suspensive conditions in clause 5 of the agreement. The resolutions referred to in clauses 5.2 and 5.3 of the agreement were not provided by neither the applicant nor by the first respondent.

The applicant maintained that the arbitrator failed to make a determination on whether or not the addendum signed on 4 October 2018 is enforceable. That failure on its own is enough to have the arbitral award set aside. The arbitrator also made a determination that the second respondent, the Minister of Local Government was not a party to the agreement, a finding and determination he was not required to make as it was never an issue for determination. The arbitrator relied on an addendum which he had said had been signed outside the stipulated time. The validity of the agreement is a legal issue. By implication the arbitrator found that the suspensive conditions were not fulfilled. That settled the matter. One cannot talk of waiver of suspensive conditions when clause 6.7 of the agreement specifically precludes waiver. Thus the parties’ conduct and the applicant’s purported cancellation of the agreement were inconsequential. One cannot talk of extenuating circumstances in commercial law.

The applicant contended that the first respondent’s case before the arbitrator was premised on an agreement which at law never came into force because the suspensive conditions in clause 5 were never fulfilled. Furthermore, it was premised on addendums which the arbitrator said were signed outside the stipulated time. If they were signed outside time no reliance should have been placed on them by the arbitrator. The founding affidavit from para 17.1 to 17.34 clearly spells out the public policy considerations which were violated by the arbitrator. One cannot at law enforce an agreement which does not exist and neither can one rely on addendums which were signed outside the agreed time frames.

In terms of Article 34 (2) (b) (ii) of the Model Law Schedule to the Arbitration Act, an arbitral award can only be challenged and may be set aside on the ground that it is in conflict with the public policy of Zimbabwe. The provision reads,

“An arbitral award may be set aside by the High Court only if the High Court finds that the 	matter is in conflict with the public policy of Zimbabwe.”

Article 34 (5) states that,

“For the avoidance of doubt, and without limiting the generality of paragraph (2) (b) (ii) of 	this article, it is declared that an award is in conflict with the public policy of Zimbabwe if-

the making of the award was induced or effected by fraud or corruption; or

a breach of the rules of natural justice occurred in connection with the making of the award.”

In Peruke Inv Pvt Ltd v Willoughby’s Inv Ltd & Anor 2015 (1) ZLR 491 (SC) at p 499H-500A-D PATEL JA succinctly explained the law. He said,

“In terms of Article 34(2)(b)(ii) of the Model Law, an arbitral award is challengeable and 	may be set aside on the ground that it is in conflict with the public policy of Zimbabwe. 	As a rule, the courts are generally loath to invoke this ground except in the most glaring 	instances of illogicality, injustice or moral turpitude. In the words of GUBBAY CJ (as he 	then was) in the locus classicus on the subject, Zimbabwe Electricity Supply Authority v 	Maposa 1999 (2) ZLR 452 (S), at 465D-E:

“In my opinion, the approach to be adopted is to construe the public policy 			defence, as being applicable to either a foreign or domestic award, restrictively in 		order to preserve and recognise the basic objective of finality in all arbitrations; 		and to hold such defence applicable only if some fundamental principle of 			the law or morality or justice is violated.”

This cautionary approach is further underscored by the learned Chief Justice in elucidating the proper test to be applied, at 466E-H:

“An award will not be contrary to public policy merely because the reasoning or 	conclusions of the arbitrator are wrong in fact or in law. In such a situation the court 	would not be justified in setting the award aside.

Under article 34 or 36, the court does not exercise an appeal power and either uphold or 	set aside or decline to recognise and enforce an award by having regard to what it 	considers should have been the correct decision. Where, however, the reasoning or 	conclusion in an award 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, then it would 	be contrary to public policy to uphold it.

The same consequence applies where the arbitrator has not applied his mind to the 	question or has totally misunderstood the issue, and the resultant injustice reaches the 	point mentioned above.” (My underlining for emphasis)

See also Delta Operations Origen Corp (Pvt) Ltd 2007 (2) ZLR 81 (S) 85 C-D;

Provincial Superior Jesuit Province of Zimbabwe v Kamoto & Ors 2007 (2) ZLR 8 (S) 13 C-D; City of Harare Municipal Workers Union 2006 (1) ZLR 491 (H) @ 493 A-C; Beezley N.O. v Kabell and Anor 2003 (2) ZLR 198 (S) at 201 D-E; Pioneer Transport (Pvt) Ltd & Anor v Delta Corp Ltd & Anor 2012 (1) ZLR 58 (H); Muchaka v Zhanje & Anor 2009 (2) ZLR 9 (H) and Makonye v Ramodimoosi and others 2014 (1) ZLR 111 (H).

The concept of public policy covers fundamental principles of law and justice in substantive as well as procedural law. See Pioneer Transport (Pvt) Ltd & Anor v Delta Corp Ltd & Anor 2012 (1) ZLR 58 (H). An award that promotes an illegality is contrary to public policy. See Provincial Superior, Jesuit Province of Zimbabwe v Kamoto & Ors 2007 (2) ZLR 8 (S). One of the most important tenets of public policy is to uphold the sanctity of contracts. The arbitrator should enforce the provisions of the contract e.g. the penalty clause, if there is no basis for declining it or reducing it. The arbitrator should not create issues between the parties which did not arise from their submissions. He should not create a new contract for the parties. He should not award reliefs which go outside the contract. The arbitrator should in terms of Article 31 (2) of the Model Law state the reasons upon which the award is based. Failure to do so is a violation of the public policy of Zimbabwe. See Delta Operations (Pvt) Ltd v Origen Corp (Pvt) Ltd 2007 (2) ZLR 81 (S).

What is apparent is that arbitral awards cannot be set aside at the whim of an aggrieved party. A final award brings the dispute between the parties to an irrevocable end. The arbitrator’s decision is final and there is no appeal to the courts. See Ropa v Reosmart Investments Pvt Ltd & Anor 2006 (2) ZLR (SC) 283 at 286 B-C. Parties who submit to arbitration agreeing that the decision of the arbitrator shall be final and binding upon them should desist from litigation if the outcome is not favourable to them. See Gold Driven Investment v Willemse Farming Ent & Anor HH 138-15.

In casu as is apparent above, the applicant raised a whole lot of issues in challenging the award, but the issue of whether or not the contract between the parties ever came into force is very critical. It is at the centre of the dispute and it cannot be disputed that the issue of whether or not a contract is valid is centred on fundamental principles of law. If the answer is that there was never a valid contract between the parties then the rest of the issues will automatically and naturally fall away. If the answer is that there was a valid contract between the parties I will proceed to determine the other issues that the applicant raised in contending that the award is in conflict with public policy.

It is not in dispute that in terms of clause 5.2 and 5.3 there were suspensive conditions or conditions precedent that were supposed to be fulfilled by the parties as the agreement clearly stated that, “The agreement is subject to the following conditions precedent being fulfilled” It is common cause that these suspensive conditions or conditions precedent were not fulfilled. The applicant’s averment that the arbitrator did not make a determination on this issue is not correct. The arbitrator in his arbitral award actually made a finding that these suspensive conditions had not been met when the parties went ahead to implement the terms of the agreement. However, after making that determination the arbitrator went on to say that the suspensive conditions not having been fulfilled there were extenuating circumstances in the case in the sense that the parties went on to execute their contract regardless of the non-fulfilment of the suspensive conditions. He said that the parties waived their rights by their conduct through performance of the terms of the contract. He said that even the act of termination of the agreement by the applicant was evidence that there had been an agreement in existence.

If the arbitrator was wrong in his determination of whether or not the agreement was valid, the arbitral award should be set aside because such determination is contrary to public policy. It is pertinent to examine what the law says about the non-fulfilment of conditions precedent or suspensive conditions in contracts. A condition precedent or suspensive condition is an agreement to suspend the operation of a contract or some part of it until the fulfilment of the condition. The effect of fulfilment of the condition is that the contract becomes immediately enforceable whilst non-fulfilment of the conditions renders the contract void. See R H Christie Business Law in Zimbabwe [Juta & Co Ltd: 2 ed 1998] p 54.  According to I Maja The Law of Contract in Zimbabwe [The Maja Foundation: 2015] p 88 the suspensive condition/condition precedent suspends or postpones the operation of a contract or obligation until the condition is fulfilled. What it means is that if there are suspensive conditions in a contract, the obligations created in the contract are binding between the parties, but they are not enforceable until the conditions have been fulfilled. However, a condition which is for the exclusive benefit of one of the parties may be waived by that party. See Malaba v Takangovada 1991 (1) ZLR 1 and Ncube v Wiley 1985 (2) ZLR 69.

In casu the applicant is a local authority established in terms of the Urban Councils Act [Chapter 29:15] the legislation which provides for the establishment of municipalities and towns and the administration of municipalities and towns by local boards, municipal and town councils. The Act also confers functions and powers and imposes duties upon municipal and town councils. This means that whatever is done by the applicant is governed by the Urban Councils Act. When it comes to entering into contracts s 209 (1) is pertinent. It states,

“A council may enter into contracts for any purpose authorised by law and take security from any person for the due performance of his obligations under any such contract.” (My emphasis)

The provision makes it clear that it is the council which enters into contracts for the applicant. A council is defined in s 2 as a municipal council or town council. According to the same section a council is made up of councillors. In casu the Memorandum of Agreement which the applicant and the first respondent entered into clearly states that the applicant was represented by Michael Mahachi and Tendai Mahachi its Town Clerk and caretaker chairperson. These are the people who signed the agreement on its behalf. In terms of clause 5.2 which was inserted as a condition precedent, the applicant as the contracting party was supposed to provide resolutions from council approving the terms of the agreement. This was never done which means that the condition precedent was not fulfilled. The functions of the town clerk are provided for in s 136 and nowhere is it provided that he can enter into contracts on behalf of the applicant. The caretaker chairperson is also not empowered to enter into contracts on behalf of the applicant. By proceeding to execute their obligations in terms of the contract, the terms of which had not been approved by council, the parties were not only in breach of the condition precedent of the agreement but were also in clear violation or contravention of a statutory rule of law i.e. s 209 of the Urban Councils Act. The arbitrator in his award said that the applicant which was seeking to invoke clause 5 of the agreement was equally in breach of that clause itself in that it had proceeded to condone the violation of the agreement by executing its obligations in terms of the agreement. He said that in that regard the applicant had waived its right to hold the agreement unenforceable. He said that failure to enforce a right constitutes waiver. Whilst the legal authorities say that a suspensive condition which is for the exclusive benefit of one of the parties may be waived by that party, I do not believe that the town clerk and the caretaker chairperson or anyone else other than council is empowered to waive the applicant’s rights as the contracting party. The Act does not have such a provision. No one is empowered to act on behalf of the applicant in contravention of s 209. It is a fundamental principle of law that a contract which contravenes a statutory provision is void ab initio. See Patel v Sigauke 1994 (2) ZLR 123 (S) 128 D-F. An invalid contract is unenforceable. The law cannot aid a contract which the law itself prohibits. See City of Gweru v Kombayi 1991 (1) ZLR 333 (S). An illegal contract cannot be confirmed or ratified. See Heyns v Heyns 1978 RLR 324 (A), 1978 (4) SA 530. As long as there was breach of s 209 of the Act, the parties’ contract was an illegality. The contravention resulted in an illegality which resultantly affects the enforceability of the contract. It being an invalid contract it is unenforceable. It does not matter that the parties proceeded to execute their obligations flowing from the agreement. It is clear that when the parties drafted and inserted clause 5.2 into the agreement they were alive to the provisions of s 209 of the Urban Councils Act which says that it is the council which enters into contracts. It is important to note that even for the Town Clerk to sign the agreement on 5 June 2008 he had been authorised to do so by a resolution of council of 30 May 2008. The resolution only authorised him to sign and not to make or create the agreement. This buttresses the point that it is council which enters into contracts and not the town clerk or anyone else. This makes it clear that the suspensive condition which required a council resolution approving the terms of the contract was a condition which was supposed to be fulfilled for the contract to be valid and to come into force. It is not something that could be waived by the conduct of the parties.

In addition, clause 5.3 of the agreement required the first respondent to provide resolutions from its Board of Directors approving the agreement and any other agreements signed pursuant to this agreement. Again no such resolutions were provided by the first respondent. It being a company it had been represented by an individual, one Oleksander Sheremet in signing the contract. The failure by the company to provide a resolution approving the agreement means that the agreement never came into effect.  There was breach of another suspensive condition of this contract.

In essence the entities that are empowered to authorise contracts for the contracting parties, i.e. the council and the board of directors, did not give their approval to the terms of the agreement. They only authorised their representatives to sign the agreement. As such, the obligations which were created under the contract are not enforceable since the contract never came into effect. The coming into effect of the whole agreement was conditional. It was going to come into effect upon the resolutions stated in clauses 5.2 and 5.3 being furnished by council and the board of directors. That both parties went on to perform their obligations in terms of the agreement did not cure the non-fulfilment of the suspensive conditions, moreso when this resulted in a breach of a statutory provision i.e. s 209 of the Urban Councils Act. A local authority cannot enter into a valid contract in the absence of council resolution authorising such. Even if there had been no ministerial directive to terminate the contract and the parties had gone on to discharge all their duties in terms of the agreement that would not have made the contract valid and enforceable. Failure to follow a peremptory provision of statute renders a contract illegal. See City of Gweru v Kombayi 1991 (1) ZLR 333 (S). In that case the respondent was the Mayor of Gweru. Some months after a contract for the supply of concrete blocks to the appellant was awarded to a third party, the respondent secured the contract for himself. The respondent sued for monies due in terms of the contract. The appellant relied on its own failure to follow the tender procedure set out in s 164 of the Urban Councils Act [Chapter 164]. This court awarded $5 380, 90, with interest and costs, to the respondent. On appeal the Supreme Court held that the provisions of s 164(1) of the Urban Councils Act [Chapter 214] are peremptory, and the failure to follow the tender procedure rendered the contract void and unenforceable. It is my considered view that a party’s recourse in such circumstances would be to mount a general unjust enrichment action if there has been unjust enrichment to the other party.

Having concluded that the contract was invalid, it follows therefore that the penalty clause was unenforceable between the parties. In any case there was also need for a council resolution and a resolution by the board of directors to approve the penalty clause since it was drafted separately from the agreement. Clauses 5.2 and 5.3 required resolutions for every agreement that the parties signed pursuant to the Memorandum of Agreement the parties signed on 5 June 2008. Failure to provide resolutions rendered all subsequent agreements unenforceable because clause 5 is clear and unambiguous. It says, ‘This agreement is subject to the following conditions being fulfilled’. The meaning of it is that without the conditions precedent being fulfilled, the agreement was not going to come into force. Since there was no fulfilment, the agreement never came into force. Consequently, the parties could not even waive their rights in terms of the agreement. There was nothing to waive because there was no contract in existence yet. The finding by the arbitrator that the parties had waived their rights by their mutual conduct was therefore incorrect.

It was also incorrect for the arbitrator to apply the doctrine of ostensible authority in arriving at the decision that the penalty clause was enforceable on the basis that the Town Clerk had assented to it. As was correctly argued by the applicant’s counsel, this is a doctrine which is applicable to company law. The applicant not being a company, the company law doctrine cannot be applicable to it. It being a creature of the Urban Councils Act, it is governed by the provisions of that Act. It was a breach of a fundamental principle of law for the arbitrator to hold that the doctrine of ostensible authority is applicable in the present matter. As already discussed above, the Urban Councils Act does not empower the Town Clerk to act on behalf of council. As such, whatever he did pursuant to the agreement in the absence of council resolutions is invalid and unenforceable. His assenting to the penalty clause in a letter that he wrote to the first respondent was of no consequence.

It also follows therefore that every other issue that was determined by the arbitrator pursuant to making a determination that the contract was enforceable was incorrect. Nothing stands on nothing. Consequently, it is not necessary for me to make a determination on the rest of the issues the applicant raised in challenging the arbitral award.

The foregoing shows that it was not just the reasoning or conclusions of the arbitrator which were wrong in law. The arbitral award contravenes fundamental principles of law as it enforced an illegality in that it upheld a contract which is invalid. As already stated above, an award which contravenes fundamental principles of law is contrary to the public policy of Zimbabwe.

In the result, the application succeeds. It be and is hereby ordered that:

The third respondent’s arbitral award of 28 July 2017, in the arbitral proceedings between the applicant and the first and second respondents is set aside.

The first respondent shall pay the costs of this application.

Kanokanga & Partners, applicant’s legal practitioners

Chinawa Law Chambers, 1st respondent’s legal practitioners