Truworths Limited V Charter Properties (Pvt) LTD AND Mhlanguli Mpofu

### Preamble
1
HH 160/2013
HC 4192/2012
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TRUWORTHS LIMITED

versus

CHARTER PROPERTIES (PVT) LTD

and

MHLANGULI MPOFU

HIGH COURT OF ZIMBABWE

MATHONSI J

HARARE, 15 MAY 2013 AND 22 MAY 2013

Ms. F. Mahere, for the applicant

T. Mpofu, for the 1st respondent

2nd defendant in default

Opposed Application

MATHONSI J:	This is an application made in terms of Article 34 of the Model Law in the Arbitration Act [Cap 7:15] for the setting aside setting of an arbitral award made by the second respondent on February 2012 sitting as an arbitrator to resolve a rent dispute involving the applicant and the 1st respondent.

The applicant occupies premises known as shops 1 to 4 at stand 956A Salisbury Township, also known as Chiedza House located at No. 68-70 Kwame Nkurumah Avenue, Harare, by virtue of a lease agreement entered into with the first respondent in September 2010. A rent dispute having arisen between the parties, the matter was referred to arbitration in terms of an arbitration clause contained in the lease agreement and the President of the Real Estate Institute of Zimbabwe appointed the second respondent as arbitrator.

Clauses 3.12 and 3.13 of the lease agreement provide;-

“3.12. The basic rent shall be reviewed on the rent review date and shall be based on the open market rent being paid on the rent review date for comparable shop premises in Harare and shall provide for annual or periodic increases in accordance with market  conditions and practice at the time.

3.13. Should the Lessor and Lessee fail to reach agreement within one month after the rent review date, the rent shall be determined by a valuer / real estate economist or surveyor with not less than 5 years experience and appointed by either the Chairman of the Royal Institute of Chartered Surveyors (Zimbabwe) or the President of the Real Estate Institute of Zimbabwe, acting as an arbitrator. The cost of the valuer’s services to be borne by the parties in equal amounts”.

The terms of reference to arbitration were contained in a joint letter of the parties dated 19 October 2011 addressed to the President of the Real Estate Institute of Zimbabwe. It reads in pertinent part thus;-

“Rent Dispute: Charter Properties (Private) Limited vs Truworths Limited

A dispute has arisen between the above parties with regards to fair rent for the period July to December 2011 in respect of shops 1-4 of Chiyedza House, 68-70 Kwame Nkurumah Avenue in Harare. Truworths Limited is the Lessee and Charter Properties is the Lessor.

We hereby jointly request that you appoint an arbitrator to determine a fair rent for the same period in terms of the passing agreement of lease. Both parties are prepared to present written submissions on the matter to a mutually acceptable arbitrator. The parties will also contribute towards the costs of the arbitration in equal proportions.”

Although S. Takaendesa, the applicant’s representative did not sign the letter seeking the appointment of an arbitrator, it appears common cause that the above terms were agreed by the parties, were in accordance with the provisions of the lease agreement and indeed the parties proceeded to make written submissions to the arbitrator who was appointed by virtue of his expertise and experience as a valuer.

In arriving at the figure of $19,40 per square metre which added up to $7520,00 as fair rent for the period of 1 July 2011 to 31 December 2011, the arbitrator was informed by the provisions of clause 3.12 of the lease agreement, which he cited in his award, and the comparable evidence submitted by the parties. He navigated the following route:

“16.	The Open Market Rent is the rent that is achievable at the date of sale or review of a leasehold interest assuming a willing Lessor, and that the sale would have been completed unconditionally for cash considerations on the date of lease. It is assumed that, that prior to the date of sale of the leasehold interest, there will be a reasonable period for the proper marketing of the interest, for the agreement of price and terms and for the completion of the sale. The lease agreement states that ‘basic rent……shall be based on the open market rent being paid on the rent review date for comparable shop premises in Harare……………………….’

17.	In evaluating comparable evidence submitted by both parties and having considered other rent comparables my findings were as follows:-

a.	In assessing the comparability of shop premises the extent of comparability must be considered in the context of the permitted use as prescribed in the town planning regulations governing the commercial zone.

b.	To allow for reasonable marketing of the property and to achieve market related rentals, the negotiated rent must be agreed at least a month before the rent review date. The fact that the open market rent relies on the forces of supply and demand means that there is no form of indexation that can be used to determine the rent on review.

c.	An analysis of comparable shop premises shows that:

i)	Prime retail shop space in the central business district with lettable area in the region of 100 square metres achieved rentals in the region of $19,76 per square metre as at July 2011.

ii)	Comparable evidence above 102 m2 was scarce. No lettings of shop space were identified for lettable shop space in the region of the range of 103 m2 – 450 m2  ( lettable shop space) in the second quarter of 2011. It is noted that 484.00 square metres of retail shop space occupied by POSB at Chiyedza House achieved a rental of $19.00 per square metre with effect from 01 April 2011. The rent achieved on the premises occupied by POSB gives a direct comparison for rent agreed on similar premises in the same building” (The underlining is mine).

The applicant has sought to have the award set aside on the grounds that setting the rent at $7 520-00 per month is in conflict with the public policy of Zimbabwe in that the arbitrator did not give reasons for his finding that $19,40 per square metre was the fair open market rent for the premises and that the setting of the rent by the arbitrator was arbitrary and so grossly unreasonable in its defiance of logic that a sensible person would consider the concept of justice in Zimbabwe as intolerably hurt by the award.

The applicant insists that the rent achieved on premises occupied by POSB alone cannot be the decisive factor and that the arbitrator should have considered and accepted the comparable rentals provided by the applicant which pointed to a rental far less than that achieved at POSB.

In opposing the application the first respondent has pointed out that the application is ill conceived and an abuse of court process designed to defeat the contractual rights of the first respondent. By electing to provide for arbitration in the lease agreement it was the contemplation of the parties that any rent dispute between the parties would be expeditiously resolved without undue delay and for that reason the parties elected to have a qualified valuer determine the rent speedily in the interest of the parties.

The first respondent maintains that by bringing this application to this court the applicant has deviated from the spirit of the lease agreement to the prejudice of the first respondent especially as the grounds for contesting the arbitral award are devoid of merit.

Ms Mahere for the applicant submitted that the arbitrator did not give any reasons for the award that he made and for that reason the award offends Article 31(2) of the Model Law which provides that an award must state the reasons upon which it is based. Surprises never cease to abound in legal practice. I have quoted extensively above from the arbitral award which is being challenged and in my view the arbitrator did give reasons for the award that he made. I am at a loss as what else the applicant desired the arbitrator to do.

In the award the arbitrator traced his reasoning from clause 3.12 of the lease agreement which provides that basic rent should be based on “the open market rent” being paid at comparable shops. He went on to define the concept of “open market rent” as the rent achievable at the date of review before proceeding, in very clear terms, to evaluate comparable evidence supplied by the parties. He then dovetailed onto the 484 square metre space occupied by POSB at the same building occupied by the applicant, namely Chiyedza House, which space had achieved $19,00 rental per square metre by 01 April 2011, exactly 3 months before 01 July 2011, the time he was assessing rent for the parties. Taking into account those factors including the fact that the area occupied by the applicant is 387,6 square metres, he drew the conclusion that the POSB rent was comparable stating that it gave “a direct comparison” with the matter under consideration. I agree with Mr Mpofu for the first respondent that the fact that the arbitrator has given reasons which a party does not agree with, even if the reasoning is wrong, does not equate to not giving reasons and certainly there can be no violation of Article 31 (2) of the Model Law.

This application has been brought in terms of Article 34 of the Model Law. That Article states in relevant part that:-

“1) 	Recourse to a court against an arbitral award may be made only by an application for setting aside in accordance with paragraphs (2) and (3) of this article.

2)	An arbitral award may be set aside by the High Court only if-

(a)…………………………………..

(b) the High Court finds, that:-

(i) the subject – matter of the dispute is not capable of settlement by arbitration

under the laws of Zimbabwe, or

ii) the award is in conflict with the public policy of Zimbabwe.

3)	……………………..

4)	……………………...

5)	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-

a)	the making of the award was induced or effected by fraud or corruption, or

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

Ms Mahere submitted that the arbitrator breached the public policy of Zimbabwe in that the award is tainted by a breach of the rules of natural because the parties were not treated equally. She located this unequal treatment in the fact that the arbitrator ignored the comparable evidence presented by the applicant in favour of that of the first respondent. This argument boggles the mind. It is indeed a strain to the mind to suggest the existence of a breach of the audi alteram partem rule merely on the basis that a party’s argument was rejected in favour of that of its opponent.

I have to repeat what I stated in Decimal Investments (Pvt) Ltd v Arundel Village (Pvt) Ltd & Anor HH 262/2012 (as yet unreported) at p4 that:-

“ A tribunal does not infringe upon the audi alteram partem rule by rejecting the story of one party in favour of that of its opponent. The rule connotes that both parties must be heard before a decision is taken. Where in considering the submissions of the parties the tribunal favours those of one of the parties for reasons that it gives, in my view, there is full compliance with the rule. To hold otherwise would lead to an absurdity.”

I agree with Mr Mpofu for the first respondent that the applicant had the wrong approach from the start as it appeared to believe that the increase should be based on inflation. This is not the case because the increase is based on the agreement between the parties, clause 3.12 of which clearly states that the basic rent is based on the open market rent being paid on the review date for comparable shops in Harare.

The evidence made available to the arbitrator was that at the review date POSB had already achieved rent of $19,00 per square metre at the same building occupied by the applicant in respect of comparable rentable space. This was the open market rent for the premises. Any other argument is an exercise in futility which, no matter how many times the applicant elects to run around the City of Jericho, the walls will not come down.

As stated by GUBBAY CJ in Zesa v Maposa 1999(2) ZLR 455(S) at 466E.

“Under article 34 or 36, the court does not exercise an appeal power and either uphold or set aside or decline to recognise or 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 it 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 intolerably hurt by the award, then it would be contrary to public policy to uphold it.”

See also Delta Operations v Origen Corp (Pvt) Ltd 2007 (2) ZLR 81 (S) 85C-D, Provincial Superior Jesuit Province of Zimbabwe v Kamoto & Others 2007(2) ZLR 8 (S) 13C-D;.

Ms Mahere argued the point that the award is so outrageous in its defiance of logic that a sensible person would consider that the conception of justice in this country would be intolerably hurt. She however failed dismally to show how this would be so. I have already stated that the arbitrator followed the rent achieved by POSB at the same building as this was the open market rent. Instead of this being illogical it was the right thing to do in the circumstances. It was in accordance with the provisions of the agreement of the parties.

It was also argued on behalf of the applicant that raising hand by 61,7% was unreasonable in that such increases drive up prices and as such is against the public policy of Zimbabwe. Reliance was placed on the authority of Telone (Pvt) Ltd v Communication & Allied Services Workers Union of Zimbabwe 2007 (2) ZLR 262 (H) which case involved the determination of a fair wage and HUNGWE J reasoned that awards which would drive employers out of business, thereby destroying the economic fabric of the nation, could not be said to be in the best interests of the general good of Zimbabwe.

That case is distinguishable from the present in that it concerned itself with balancing the interests of the employer and employees and stemed on the ability of the employer to pay the wage. In the present case, the applicant bound itself to the provisions of a lease agreement requiring rent to be fixed at an open market level. The applicant went into that agreement with its eyes very wide open.

I agree with Mr Mpofu that the interest of the first respondent to achieve the highest possible rent is firmly protected by the lease agreement and that what is reasonable rent is determined by the perception of a reasonable man. What is in the domain of a reasonable man is that at the same building comparable space occupied by POSB was already priced at $19,00 a square metre. Therefore a reasonable man would expect the applicant’s rent to be fixed at that rate as well.

To my mind, the arbitral award cannot be faulted.

Accordingly the application is dismissed with costs.

Mhishi Legal Practice, applicant’s legal practitioners

Gill Godlonton &  Gerrans, 1st respondent’s legal practitioners