Air Duct Fabricators (Pvt) Ltd v A. M. Machado & Sons (Pvt) Ltd. (HC 1367 of 2015) [2016] ZWHHC 54 (22 January 2016)

1 HH 54-16 HC 1367/15 AIR DUCT FABRICATORS (PRIVATE) LIMITED versus A. M. MACHADO & SONS (PRIVATE) LIMITED HIGH COURT OF ZIMBABWE CHIGUMBA J HARARE, 12 November 2015 & 22 January 2016 Opposed Application M. Mafo, for the applicant S. N. Nyathi, for the respondent CHIGUMBA J: This is an opposed matter in which the applicant (defendant in the main matter) filed a special plea, that the respondent’s (plaintiff in the main matters) action be stayed, pending the final determination of the dispute by the arbitrator in terms of the parties’ agreement. Both parties are companies which are duly incorporated in accordance with the laws of Zimbabwe. This case brings to the fore the vexing question of the effect that the raising of a special plea ought to have on the proceedings in the main matter. Various other contentious issues come to mind; such as; whether a special plea should only be raised in circumstances where, if it is upheld, it is likely to dispose of the matter; and; what the purpose of a special plea is, as a tool in litigation? These interesting legal conundrums aside, the issue that arises for determination in this matter is simple. Does the existence of an arbitration clause in an agreement between parties preclude one of the parties from instituting legal proceedings until the matter has been referred to and determined by an arbitrator? The background to this special plea is that the respondent issued summons against the applicant on 16 February 2015 in which it claimed payment of the sum of USD$17 313-75 being the 5% retention fund held in terms of the agreement between the parties, as well as costs of suit. On 5 February 2013, the parties entered into an agreement in terms of which the respondent HH 54-16 HC 1367/15 undertook to supply and fix air-conditioning and mechanical ventilation systems as a nominated sub-contractor in the Nestle new laboratory and administration block project. The respondent averred in the summons that it completed its mandate by 4 February 2014 and that it was issued with a certificate of practical completion of works by the Architect. It is common cause that on the 13 May 2014, the final certificate of payment in the sum of USD$17 313-75, the 5% retention fund held in terms of the agreement, was issued to the applicant for onward transmission to the respondent. The respondent averred that the applicant had failed or refused to release this money to it, in breach of the parties’ agreement. The applicant filed notice of entry of appearance to defend on 3 March 2015, and, on 24 June 2015, after further particulars and further and better particulars had been sought and supplied, the applicant filed its special plea. The basis of the special plea was clause 27 of the CIFOZ Conditions of Building Subcontracts, which the applicant averred provided that any dispute or difference that arose between the parties would be referred to arbitration. According to the applicant, the dispute between the parties arose from the fact that the retention money, to the value claimed by the respondent, was and is still being held in a retention fund trust at Tetrad Investment Bank Limited for Nestle Zimbabwe Private Limited (Nestle) and the respondent. The retention fund was created on 16 November 2012 under the instruction of the respondent and a nominated architect, together with the applicant for the benefit of Nestle. The applicant contended that the respondent ought to have sued Nestle in its summons. The applicant contended further, that in terms of clause 13(c) of the CIFOZ conditions of subcontractors, respondent accepted the cession of the retention money to it by the applicant, therefore its claim ought to be against Nestle. It is common cause that Tetrad Investment Bank Limited (Tetrad) was placed under judicial management, that is why the applicant has not been paid from the retention fund. The filing of a special plea is provided for as follows by Order 21 of the High Court rules 1971; “137. Alternatives to pleading to merits: forms (1) A party may— (a) take a plea in bar or in abatement where the matter is one of substance which does not involve going into the merits of the case and which, if allowed, will dispose of the case; (b)… (c) … (d) … HH 54-16 HC 1367/15 (2)…” In the case of Cabat Trade & Finance v Movement for Democratic Change1 it was held that;- “A special plea is a plea in trial susceptible of a replication and must be heard separately on the adduction of evidence. Doelcam v Pitchanik and ors 1999 1 ZLR 390 (H) 396 G-E”. The applicant contends that the dispute between the parties is premised on Clause 27 (b) of the agreement between the parties which reads as follows;- “Arbitration. If either the contractor or the subcontractor is unwilling to accept mediation or is dissatisfied with or unwilling to accept the opinion expressed by the mediator, then and in such case either the Contractor or the Sub-Contractor may within twenty eight (28) days after receiving notice of such proposal or decision require that the matter shall be referred to arbitration and the final decision of some person to be agreed upon by the parties or failing agreement, to a person to be appointed by on a request of either party by the President for the time being of the Construction Industry Federation of Zimbabwe and the award of such arbitration shall be final and binding on the parties. Such reference, except on the question of certificates and /or payments, shall not be opened until after the completion or alleged completion of the Contract works, unless with the written consent of the Architect or the Contractor; provided that in any such arbitration as is provided for in this clause any decision of the Architect is final and binding between and upon the contractor and the sub-contractor. The provisions of this sub-clause shall not affect the sub-contractor’s rights under sub-clause 12 (c) hereof”. (my underlining for emphasis) I accept as correct, the submission made on behalf of the respondent that a close reading of Clause 27 will show that arbitration is not mandatory. The Clause is couched in permissive terms. Before taking a look at what our own courts have had to say on the distinction between the word ‘may’ and ‘shall’ in the context of statutory interpretation, let us take a brief look at the approach which has been adopted in South Africa. It has been held that language of a predominantly imperative nature is generally taken to be indicative of peremptoriness, and that the verb “shall” is one such word-see Messenger of Magistrates Court, Durban, v Pillay2, Maharaj & Ors v Rampestad.3 The cases have a common thread, that a court called upon to determine whether a particular provision is peremptory or directory must construe the language of the concerned provision in the context, scope, and object of the act which it forms part”. Use 1 SC 50-12 p4 2 1952(3) SA 678(A), 3 1964(4) SA 638 (A) at 644. HH 54-16 HC 1367/15 of the word “shall”, has been held to be “…a strong indication that the requirement was peremptory”. (see Pillay) It has been held further that, categorizing statutory requirements as “peremptory”, or “directory” are concise and convenient labels to use for the purpose of differentiating between the two categories. Peremptory requires exact compliance whilst directory requires substantial compliance, though the distinction between the two has now become blurred. In Nkisimane & Ors v Santam Insurance Co Ltd 4, it was held that: “Care must be exercised therefore not to infer from the use of such labels what degree of compliance is necessary and what the consequences are of none or defective compliance. These must ultimately depend upon the proper construction of the statutory provision, or in other words, upon the intention of the lawgiver as ascertained from the language, scope and purpose of the enactment as a whole”. In Maharaj & Anor v Ramperstad supra, the court said that: “It is a recognized principle of statutory construction that a court, when determining which of these two alternative constructions is to be placed upon a statutory enactment, must seek to ascertain the real intention of the Legislature and in so doing have regard to the scope and object of the enactment as a whole” In Charleston Town Board and Another v Vilakazi, 5 the court said the following: “…every enactment must be dealt with in light of its own language, scope and object and the consequences in relation to justice and convenience of adopting one view rather than the other…” Our own superior courts have given us sufficient guidance. In the case of Diocesan Trustees for the Diocese of Harare v The Church of the Province of Central Africa6It was held that:- “…the general rule is that, when the legislature uses the word “may” in a statute by which it confers power on a public official to do a thing, the intention is to confer the power only without a duty to exercise it. The statute must be construed as conferring on the repository of the power a discretion to decide whether or not to do the thing, unless there is something in the subject-matter to which the statute relates which shows that the word “may”, is used in an imperative sense to impose a duty on the public official to exercise the power. The something referred to in the general rule may be in the nature of the thing the public official is empowered to do, in the object for which the thing is to be done, in the condition under which 41 978 (2) SA 430 (A) 5 1951 (3) S. A. 361 (AD) at p 370 6 SC 9-10 pp7-8 HH 54-16 HC 1367/15 it is to be done, in the title of the persons for whose benefit the power is to be exercised. That something may couple the power to a duty and make it an obligation on the person in whom the power is reposed to exercise it when called upon to do so. If upon consideration of the subject- matter to which the statute relates, the only reasonable conclusion that can be reached is that the intention of the legislature is that the repository of the power would have no justification for failing to exercise the power, the word ‘may” must, in such a case, be held to mean “shall”.(My underling for emphasis) See Craies on Statute Law 7 ed p 284; Annison & Ors v District Auditor for St Pancras Borough Council & Anor (1962) 1 QB 489 at 497; Salisbury Financial Holdings (Pvt) Ltd v Van Niekerk 1974 (1) RLR 333(G) at 335D-E. It is accepted that the court in Diocesan Trustees made these remarks in connection with the wording of a statute, but it is my view that the meaning attributed to the words ‘may’ and ‘shall’, applies to those words in any context, ‘may’ implies permissiveness, as in a discretion or a choice, while ‘shall’ is an imperative, a duty or obligation to take the prescribed course of action. See also Jonathan Nathaniel Moyo & 2 Ors v Austin Zvoma N. O. & Anor7, where the court made a similar distinction in the meaning of the words ‘may’ and ‘shall’, also in relation to statutory interpretation. It was held that;- “The learned author Francis Bennion in his work Statutory Interpretation suggests that the courts have to determine the intention of the legislature using certain principles of interpretation as guidelines. He had this to say at pp 21-22: 'Where a duty arises under a statute, the court, charged with the task of enforcing the statute, needs to decide what consequence Parliament intended should follow from breach of the duty. This is an area where legislative drafting has been markedly deficient. Draftsmen find it easy to use the language of command. They say that a thing "shall" be done. Too often they fail to consider the consequence when it is not done. What is not thought of by the draftsman is not expressed in the statute. Yet the courts are forced to reach a decision.’ It would be draconian to hold that in every case failure to comply with the relevant duty invalidates the thing done. So the courts’ answer has been to devise a distinction between mandatory and directory duties. Terms used include "absolute", "obligatory", "imperative" and "strict". In place of "directory", the term "permissive" is sometimes used. Use of the term "directory" in the sense of permissive has been justly criticised.” [See Craies Statute Law (7th ed, 1971) p 61 n 74.] instead of "mandatory" 7 SC 28-10 p17 HH 54-16 HC 1367/15 The guidance that emanates from these cases is that when ‘may’ is used, it is merely directory and choosing not to act in the manner prescribed is permissible. When the word ‘shall’ is used it denotes mandatory action and compliance with the prescribed course of action is obligatory, imperative, and strict. Failure to comply with a mandatory course of action invalidates the thing done whereas failure to comply with a directive is not fatal, it may result in some being sanction imposed. See Associated Newspapers of Zimbabwe Private Limited v Minister of Information and Publicity & 2 Ors8, Association of Independent Journalists & 2 Ors v The Minister of State for Information and Publicity in the President’s office & 2 Ors9, Doctor Daniel Shumba & Anor v The Zimbabwe Electoral commission & Anor 10, Zeellco Cellular Private limited v Post & Telecommunications trading as Net-One11. Counsel for the respondent correctly states the position that it is clear from a reading of Clause 27 in the Schedule of conditions that what is mandatory or imperative is the giving of notice of the dispute as evidenced by the use of the word ‘shall’ in relation to notice. It is common cause that the applicant was given such notice in a letter dated January 2015. It is clear from a reading of Clause 27 that mediation, or arbitration is not mandatory. The wording is not couched in peremptory terms in terms of the meaning of peremptory, as opposed to permissive, which meaning is settled at law, as shown by the cases cited above. Referring the matter to arbitration is a choice, not an imperative, as evidenced by the use of the word ‘may’ in relation to the issue of arbitration. This court also agrees with the statement of law, made on behalf of the respondent that the arbitration clause in Clause 27 does not oust the inherent jurisdiction of this court. See Shell Zimbabwe Private Limited v Zimsa Private Limited & Anor12, Zimbabwe Broadcasting Corporation v Fkame Lily Broadcasting Private Limited13, Recoy Investments Private Limited v Tarcon Private Limited14. These cases provide authority for the proposition that Article 8 of the UNICTRAL model law set out in the Schedule to the Arbitrator Act [Chapter 7:15] is an 8 SC 111-04 p25 9 SC 136-02 p15 10 SC 11-08 pp20-23 11 1998 (2) ZLR 106 (H) 12 2007 (2) ZLR 366(H) 13 1999 (2) ZLR 448(H) 14 2011 (2) ZLR 65(H) HH 54-16 HC 1367/15 alternative to litigation and cannot take away the inherent jurisdiction of the court. It is only when an arbitration clause is clear and unequivocal that arbitration must proceed at first instance in resolving the dispute that such a clause can have the effect of staying proceedings. Clearly, Clause 27 does not state in no uncertain terms that arbitration must proceed first before litigation. This court’s inherent jurisdiction is not ousted by the wording of Clause 27. If it had been, such ouster would have been legally permissible in terms of Article 8 of the UNICTRAL model law. What is also clear is that the arbitration process must be set in motion by the existence of a dispute. The terms of the dispute must be set by the party wishing to have the matter referred to arbitration. In the case before me, it is common cause that the main contractor has failed to pay the sub-contractor. It is also common cause that the parties agreed to place certain funds in an escrow account with Tetrad which is now in liquidation. It is common cause that the reason why the main contractor is unable to pay the sub-contractor is that the escrow funds are stuck at Tetrad, the account has been frozen in the process of liquidation. The amount due and payable is not disputed. There is no dispute between the parties which requires resolution by arbitration. The special plea is not properly before the court because it does not constitute a matter of substance which is capable of disposing of the matter as required by Order 21 rr137 (a) of the rules of this court. A special plea should only be taken in circumstances where it is likely to dispose of the matter without delving into the merits. This special plea falls short of that requirement. Clause 27 of the CIFOZ conditions does not provide in clear and unequivocal terms that if there is a dispute between the parties it must be referred to arbitration first, before litigation. It does not oust the inherent jurisdiction of this court in clear and unequivocal terms, thereby denying the applicant the use of the Arbitration Act as a shield or the use of Article 8 of the Model law as a sword. The applicant knew, or ought to have known that the special plea would not dispose of the matter, because the law is clear. The applicant can simply petition the court that Nestle be joined as a party to the proceedings. This will alleviate its obvious difficulty. Raising a special plea was not the appropriate legal remedy in the circumstances. The court awards a punitive order as to costs as a mark of its displeasure at this waste of its time. For these reasons, the special plea be and is hereby dismissed with costs on a legal practitioner and client scale. HH 54-16 HC 1367/15 Scanlen & Holderness, applicant’s legal practitioners Coghlan, Welsh & Guest, respondent’s legal practitioners