Seedco Limited v Christian Falkenberg

### Preamble
1
HH 462-24
HCHC 219/24
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SEEDCO LIMITED

Versus

CHRISTIAN FALKENBERG HCHC 219/24

HIGH COURT OF ZIMBABWE

COMMERCIAL DIVISION

CHILIMBE J

HARARE 19 September & 14 October 2024

Special plea

T. Mushoriwa with M.A. Musona for plaintiff

R.T. Mutero for defendant

CHILIMBE J

BACKGROUND

[1] Defendant raised a special plea against plaintiff`s claim for an amount of US$274,768 as damages for alleged breach of contract. Both parties are economic players in the agricultural sector. Sometime in November 2022, plaintiff (“Seedco”) and defendant (“Mr Falkenberg”) concluded a soya bean crop financing and production contract.

[2] The principal terms thereof were that Seedco supplied Mr. Falkenberg with foundation soya been seed of a type known as SC Spike Variety. In turn, Mr Falkenberg was obliged to plant and manage 100 hectares of the seed. On maturity, he was mandated to deliver 250 metric tonnes (MT) of certified seed to Seedco.

[3] According to Seedco, Mr. Falkenberg, in breach of contract, diverted 132 MT of certified seed through a practice known as “side marketing”. He only managed to deliver 118 MT of certified soya been seed to Seedco leading to present litigation.

THE PLEA ON THE MERITS AND SPECIAL PLEA

[4] Mr. Falkenberg defended the suit, pleaded over to the merits, and raised the special plea of arbitration. It was submitted on his behalf that the plea on the merits reflected the existence of a dispute between the parties. As such, the matter had to be referred to arbitration. An order to that effect is sought.

[ 5] Seedco took the view that there was no dispute between the parties. The question of liability was clear. Mr, Falkenberg had not delivered in terms of the contract. On that basis, there was nothing warranting a referral for arbitration. Mr. Mushoriwa for Seedco, argued that the contract had two dispute resolution clauses.

[ 6] Firstly, there was clause 6, which provided for institution of legal proceedings in the High Court in the event of breach. Secondly, there was clause 11, the arbitration agreement which operated exclusive of clause 6.I will examine the arguments in greater depth below. Suffice to say, the parties were aligned that although this matter was a special plea, there was no need to lead and examine evidence as the issues to be decided on were largely common cause.

THE DISPUTE RESOLUTION PROVISIONS IN THE CONTRACT

[7] Seedco insists that it is clear Mr. Falkenberg breached clauses 6 and 8 of the agreement. These clauses prohibit, in the main, the diversion of product under the concept of side-marketing. On that basis, Seedco takes the position that it was within its right, per clause 6, to institute proceedings in any court of its choice.

[8] Mr. Falkenberg takes a contrary view. He denies breach of clauses 6 and 8 of the agreement and on that basis, disputes Seedco’ s right to institute proceedings in terms of clause 6. He argues, instead, that any dispute, include the alleged issue of side marketing, ought to be resolved via arbitration. This being the unequivocal provision of the arbitration clause 11. I set out both clauses 6 and 11 hereunder in seriatim; -

Clause 6

“Ownership of all germplasm material remains the sole property of Seed Co (sic). The Producer shall return any Foundation seed not planted to Seed Co in good order on or before 15 January 2023.No side marketing or sale to third party (sic) of the harvested seed either as seed or commodity shall be allowed. In the event that any such abuse by the grower has taken place, Seed Co reserves the right to demand the full retail seed value from the grower. Or Seed Co may seek recourse from a court of law in Zimbabwe. Any rejected crop or seed shall remain the sole property of Seed Co and its disposal shall be at the discretion of Seed Co.”

Clause 11 Dispute Resolution

“The parties agree that any dispute or conflict arising from the terms of this agreement shall be determined by a single Arbitrator sitting at Harare who is chosen for this purpose either through the mutual agreement of the parties or failing which, the Arbitrator is nominated by the Commercial Arbitration Centre at (sic) any other similar publicly recognised Alternative Dispute Resolution facility or organisation. [ Underlined and emboldened for emphasis]

THE ARGUMENTS

[9] Mr. Mutero submitted that the matter could be resolved with simplicity. To begin with, there was an arbitration clause and parties were obliged to implement it. Secondly, the argument tendered on behalf of Seedco that clause 6 extended some latitude to plaintiff was untenable. Clause 6 was presumptive of the absence of a factual dispute. Herein, a factual dispute had been established. Seedco accused Mr. Falkenberg of side marketing, an accusation which Mr. Falkenberg strongly disputed.

[10] A plea had been filed to that effect and was met by a replication which crystallized the dispute. As a third argument, Mr. Mutero contended that in any event, if clauses 6 and 11 were to be considered incongruent, then clause 11 had to take precedence. Clause 11 made reference to the resolution of “any” dispute including that envisaged in clause 6. On that aspect, counsel urged the court to invoke the contra proferentem rule. On that basis, any conflict in interpretation between the two clauses had to be resolved adversely against Seedco.

[11] Mr. Mutero invited the court to follow the approach taken in leading decisions on the matter (see Zimbabwe Broadcasting Corporation v Flame Lily Broadcasting (Private) Limited t/a Joy TV 1999(2) ZLR 448(H); Capital Alliance (Private) Limited v Renaissance Merchant Bank Ltd & Others 2006 (2) ZLR 232 (H) and Shell Zimbabwe (Pvt) Ltd v ZIMSA (Pvt) Ltd 2007 (2) ZLR 366, among others.)

[12] The courts had reinforced the effectiveness of arbitration agreement. Where parties to a dispute had executed such agreements, then their dispute of necessity, had to be referred to that facility for resolution. In doing so, the courts had merely reaffirmed their traditional role to hold parties to their contractual obligations. Arbitration agreements constituted contractual terms which parties were obliged to uphold.

[13] Further, counsel stated that the parties` contract was clear. Dispute resolution was provided for under two separate provisions-clause 6 and clause 11. Both parties were alive to the distinction. Seedco appropriated to itself, the right and option to institute proceedings in a court of law in the event of a side-marketing breach. The co-existence of these two clauses in the same agreement generated a number of conclusions.

[14] Firstly, it meant that parties were agreed that arbitration would neither be the first nor only dispute resolution facility. In making this submission, counsel relied on the court`s finding to that effect in Shell Zimbabwe (Pvt) Ltd v ZIMSA. Secondly, counsel argued that the parties only agreed to refer the dispute for resolution by arbitration only in the event of a dispute.

[15] Presently, there is no dispute. Thirdly, the apparent conflict between clause 6 and 11 could be reconciled with ease. Clause 11 being a provision of general application had to yield to clause 6 whose import was specific.

THE LAW

[16] The starting point is Article 8 (1) of the Arbitration Act [ Chapter 7:16]. This provision determines the procedural approach on dilatory pleas for a stay pending arbitration. It further lays out the very basis upon which a court shall decline or exercise jurisdiction in the face of such plea. It is useful to read the wording of this provision closely which goes thus; -

Arbitration agreement and substantive claim before court

(1)A court before which proceedings are brought in a matter which is the 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.

[17] It is critical to recognise that the above provision starts and ends with the parties` contract. The opening phrase presupposes the existence of an arbitral agreement. This phraseology does not, in the opening line, prescribe the qualitative character of such agreement. For practical purposes, one presumes that the conclusion as to whether or not an arbitral agreement exists becomes a basic evidentiary check based on a balance of probabilities.

[18] If such an agreement exists, the next stage is to establish if the defendant wishing to invoke the arbitral agreement has concomitantly made such request with the filing of its plea on the merits. That becomes the procedural link. If such has been done, then the court is obliged to stay the proceedings. That requirement is mandatory. Unless the court finds the arbitral agreement blemished by some aspect of invalidity and impracticality. The arbitral agreement must not be “null and void”, neither should it be proven inoperable or unimplementable.

[19] The court is therefore required to start and end its inquiry with the parties` contract. But in examining the contract, its purview is prescribed by the need to ascertain validity and practicality. This examination should, in my view, be driven by the pragmatism deriving from the purpose and envisaged benefits of arbitration as an alternative dispute resolution facility.

[20] If the parties have a valid arbitral agreement capable of being implemented, then a court must, according to Article 8, stay the proceedings and refer the matter to arbitration. That inquiry is a journey into contractual interpretation. In Capital Alliance (Private) Limited v Renaissance Merchant Bank Ltd & Others 2006 (2) ZLR 232 (H) PATEL J (as he then was) adverted to this interpretational quest in the following terms at page 236C-D; -

“In Zimbabwe Broadcasting Corporation v Flame Lily Broadcasting (Private) Limited t/a Joy TV 1999(2) ZLR 448(H), it was held that a clause in a contract to refer a dispute to arbitration is binding on the parties and a party is not at liberty to revoke this clause at any time if he wishes to do so. In PTA Bank v Elanne (Private) Limited & Others 2000(1) ZLR 156(H), it was observed that the question whether a dispute fell within the arbitration clause in an agreement was primarily a question of interpretation of the agreement and the arbitration clause. Once it is established that the dispute falls within the ambit of the arbitration clause, the onus to show why court proceedings should not be stayed falls on the party challenging the reference to arbitration. See Independence Mining (Private) Limited v Fawcett Security Operations (Private) Limited 1991(1) ZLR 268(H) at 272.

[21] The tools and tactics deployed in contractual interpretation in the various authorities may differ. Such being the dictate of facts peculiar to a particular matter. But the classic objective remains; -the court must give effect rather than suffocate the wishes of the parties as set out in their contract. And in doing so, courts shall not make a contract for the parties. This quest is a discernible consideration consistent in the various authorities on the matter. In Shell Zimbabwe (Pvt) Ltd v ZIMSA (Pvt) Ltd 2007 (2) ZLR 366 at 370 D, MAKARAU JP (as she then was) expressed this point as follows; -

“It is the second jurisprudential basis of arbitration that concerns me most in this matter. This relates to the contractual autonomy of the parties to choose the method of resolving their differences under the agreement. This autonomy has been described as paramount in the arbitration regime in this jurisdiction and explains the respect with which arbitration awards are treated by the courts.”

[22] To illustrate the point further, in Jasper Chimedza v City of Harare & 2 Ors HH 130-the court stated that by implementing the provisions of Article 8, it does nothing more than its traditional task of upholding the parties` wishes as espoused in the terms of their contract. It held, per DUBE J (as she then was) as follows as page 3; -

“Where a court is seized with a matter where its jurisdiction is being challenged on the ground that an arbitration clause contend in an agreement, ousts its jurisdiction, the focus of the court at this stage is not on the remedies available to the parties at law in the matter before it, but rather, to give effect to the intention of the parties when they entered into the agreement. The fact that a party seeks a remedy that only the High Court can grant is of no consequence. What is paramount at this stage is what the parties agreed to regarding the forum for the resolution of their dispute and not what remedy one individual party elects to pursue.”

THE CONFLICTING DISPUTE RESOLUTION CLAUSES

[23] Clause 6 of the agreement is in apparent conflict with clause 11. Mr Mushoriwa favoured the former whilst Mr. Mutero urged the court to uphold the latter. Before attending to this conflict, one issue requires resolution. It cannot be argued with any degree of seriousness that the plea and the merits and replication confirm the existence of a dispute.

[24] Prohibition of side marketing constituted a material terms of the contract. It essentially obliged Mr. Falkenberg the grower to deliver all seed to Seedco. Herein, Seedco has alleged breach and Mr Falkenberg disputes such allegation. This conclusion detracts from Mr. Mushoriwa’s argument that there is no dispute.

[25] This brings me to the appropriate interpretational rules to apply. Mr. Mushoriwa urged the court to invoke the statutory interpretation concept placing a provision of specific application ahead of one of general import. One finds an alternative interpretational rule. This court observed (without further discussion) in Dzvairo v Mandiya HB 56-04 [ at page 2] that; -

“It is an established rule of interpretation that in the event of a conflict, the latter provisions of an agreement must prevail over earlier ones”.

[26] In my view, resolution of the conflict between clause 6 and 11 need not invite a broil into these various rules on interpretation. A simple assessment of the objects and intention of the parties under the contract should deliver an answer.  Article 8 (1) poses as its first question whether or not there is an arbitration agreement. MAKARAU JP answered this question in the negative in Shell Zimbabwe [Pvt] Ltd v Zimsa [Pvt] Ltd (supra).

[ 27] The learned Judge President so concluded because the arbitration clause, as I understand that decision, was so serrated by ambivalence as to render it, for purposes of Article 8, invalid and impracticable. The facts before the court in Shell Zimbabwe v Zimsa are clearly distinguishable from the present. That decision cannot avail Seedco as authority on how to construe and resolve the inconsistency between clause 6 and 11.

[28] MAFUSIRE J departed from this decision in Conplant Technology (Pvt) Ltd v Wentspring Investments (Pvt) Ltd HH 965-15. But the learned judge only did so to the extent that the circumstances of the two matters distinguished the former from the latter. In both decisions, the key issue to note is that the court addressed itself to one fundamental question; -was there a valid, practicable and implementable arbitral agreement meeting the test in Article 8 (1)?

[29] Herein, the same question arises but possibly from a different perspective. Does the presence of clause 6 impugn the validity of clause 11? Expressed differently, must the parties` clearly articulated agreement to refer “any” dispute arising from their contract for resolution by arbitration be invalidated by the existence, in the same contract, of an oblique reference to  dispute resolution?

[30] To begin with, the intention of the parties is evinced from the structure of the contract. It comprises of various sections from citation of the parties, their particulars and domicilium citandi et executandi. It then sets out the objects of the contract, the commercial and technical details before addressing breach, governing law and dispute resolution.

[31] Clause 6 is found in the commercial or operational part of the contract. It is not a dispute resolution provision. Its focus and stipulation are trained on performance and breach aspects of the contract. It then grants Seedco the right, in passing, to approach any court of law for recourse. That recourse being specifically on breach of clause 6 and 8 or failure by the grower to account properly for the seed.

[32] Clause 6 is not insulated by a certificate, warrantee or other irrevocable undertaking circumscribing Seedco` s unquestioned right to approach the courts. It is not, so to speak, framed as a “conclusive proof” provision where a party abrogates to itself, the right to proceed upon production of a conclusive certification of certain events. As matters stand, the question of side marketing does not stand as an admitted infraction that can invoke the right to sue under clause 6.

[33] Further, the allegation does not stand distinct from the other aspects of the parties` dispute. It is not severable. I note that clause 6 firstly does not address itself to the arbitration clause. There is neither a reference nor distinction. It means that the dispute resolution mechanism in clause 6 cannot stand equal or superior to that prescribed in clause 11. This being a conclusion drawn from the wording of the clauses as the expression of the parties` will.

DISPOSITION

[34] Clause 11 is undoubtedly an arbitration agreement. The next issue to raise is whether this clause is neutralised by the existence of clause 6 as to render it null and void, or completely impracticable. The answer should emerge as negative.

[35] In that respect, I am not convinced that the presence of clause 6 in the agreement contaminates the arbitration clause so drastically as to render it supine in terms of Article 8 (1). For purposes of giving effect to the parties` wishes as set out in the contractual clauses, I see no difficulty in granting recognition and priority to clause 11 as the arbitral agreement.

[36] As such, the special plea must succeed other than its unsustainable accompanying prayer for punitive costs. The following order is granted; -

The special plea for stay of proceedings in terms of Article 8 (1) of the Arbitration Act [ Chapter 7:16] be and is hereby granted.

The herein proceedings are stayed and dispute referred for resolution in terms of the parties` arbitration agreement.

The plaintiff shall bear the costs of this application.

Mushoriwa Pasi Corporate Attorneys-plaintiff`s legal practitioners

Maposa and Ndomene-plaintiff`s legal practitioners

[CHILIMBE J___14/10/24]