Universal Web (Pvt) Limited v Malawi National Examination Board (23 of 2008) [2008] MWCommC 7 (18 April 2008);

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IN THE HIGH COURT OF MALAWI

 

COMMERCIAL DIVISION

 

BLANTYRE REGISTRY

 

COMMERCIAL CASE NUMBER 23 OF 2008

 

BETWEEN

 

 

UNIVERSAL WEB (PVT) LIMITED……………...……………………………......PLAINTIFF

 

AND

 

MALAWI NATIONAL EXAMINATION BOARD………………………………. DEFENDANT

 

 

 

 

CORAM: HON. JUSTICE DR. M.C. MTAMBO

Chirwa, of Counsel for the Plaintiff

Kaphale, of Counsel for the Defendant

Kamanga, Court Clerk

 

 

 

 

 

RULING

 

 

 

 

 

 

 

 

Dr. Mtambo J.

 

BACKGROUND

 

This is the Defendant’s application for stay of court proceedings made under section 6(1) of the Arbitration Act pending reference of the dispute to arbitration in terms of the contract between the parties herein. The summons is supported by an affidavit sworn by the Defendant’s lawyer Mr. Kalekeni Kaphale. It is opposed by the Plaintiff and the Plaintiff’s lawyer Mr. John Chirwa has sworn an affidavit to that effect.

 

The underlying dispute relates to a contract dated 12th May 2007 between the Plaintiff and Defendant for the printing and supply of the 2007 Malawi School Certificate of Education Examination question papers at a price of ZAR 3,634,320.00 inclusive of value added tax. The Plaintiff printed and supplied the required quantities by delivering them to the Defendant’s nominated carrier, Concargo, at the Plaintiff’s premises but the Defendant has not fully paid for the same leaving a balance of ZAR 2,984,320.00. The Defendant refuses to pay for the balance on the basis that it feels the Plaintiff breached an essential term of the contract by negligently or wilfully leaking about five of the examination papers to the driver that was sent to collect them at the Plaintiff’s premises in Durban, South Africa. The leaked examination papers were reset and resat at great expense and inconvenience to the Malawi Government and students.

 

 

ISSUES

 

  1. Whether the provisions of Clause 10 of the Agreement between the Plaintiff and Defendant to refer disputes to arbitration makes such reference obligatory or optional.

 

  1. Whether the dispute in this case raises allegations of fraud or professional negligence affecting the reputation of a party to an arbitration agreement thereby rendering it unsuitable for reference to arbitration.

 

 

THE LAW

 

Section 6(1) of the Arbitration Act provides:

 

If any party to an arbitration agreement, or any person claiming through or under him, commences any legal proceedings in any court against any other party to the agreement, or any person claiming through or under him, in respect of any matter agreed to be referred, any party to those legal proceedings may at any time after appearance, and before delivering any pleadings or taking any other steps in the proceedings, apply to the court to stay the proceedings, and that the court, if satisfied that there is no sufficient reason why the matter should not be referred in accordance with the agreement, and that the applicant was, at the time the proceedings were commenced, and still remains, ready and willing to do all things necessary to the proper conduct of the arbitration, may make an order staying the proceedings”.

 

The grant or refusal of an application for a stay of proceedings pending reference of the matter to arbitration is at the discretion of the court. See Kayode v Royal Excahnge Assurance (1955-1956) at page 158 cited in Chanthunya v Ngwira 12 MLR 133. Halsbury’s Laws of England, 4th edition, Vol. 1, paras 561 to 565 lays down the five preconditions for the court’s consideration in this matter. These are that (i) there must be a valid arbitration agreement covering the question in dispute, (ii) the applicant must be entitled to rely on the agreement, (iii) the applicant must have taken no steps after entering an appearance otherwise they will be taken to have submitted to the court’s jurisdiction; (iv) the applicant must be ready and willing to arbitrate, and (v) the court must be satisfied that there is no sufficient reason why the matter should not be referred to arbitration in accordance with the agreement.

 

According to Halsbury’s Laws of England (supra) at 332, a court’s grant or refusal of a stay of legal proceedings is an interlocutory decision and as such under Order 59/1 of the Rules of the Supreme Court, leave to appeal against that decision is required. But in terms of Order 18 of the High Court (Commercial Division) Rules, 2007 no appeal shall lie against the decision of a judge in an interlocutory matter unless the decision has the effect of completely disposing of the matter. Where there is a contradiction, the application of the rules of this division override those of the Rules of the Supreme Court in view of Order 1 rule 4(i) which provides:

 

These Rules shall apply to all proceedings in the High Court (Commercial Division) and all other rules of practice shall apply to those proceedings subject to the provisions of these rules”.

 

Where parties have entered into an arbitration agreement, they must honour it and not rush to court before referring any dispute to arbitration. The party who does not wish to have the matter referred to arbitration as agreed has the onus to prove why the matter should not be so referred. See Radford v Hair and Others 1971 Ch. D. 1089, Hodson v Railway Passengers Assurance’ Company (1904) 2 K.B. 833 and Metropolitan Tunnel and Public Works, Limited v London Electric Railway Company 1925 Ch. D. 371. But the parties will lose the right to refer an issue to arbitration if they fail to adhere to the terms of the agreement such as time limitation within which to bring an issue for arbitration. In H. Ford and Company Limited v Compagnie Furness (France) and Others (1922) 2 K.B. 797, a charterparty contained a clause providing that all disputes arising out of the contract should be referred to arbitration, the claimant’s arbitrator to be appointed within a time therein limited, and if he was not so appointed the claim was to be deemed to be waived and absolutely barred. Loss to cargo was suffered owing to the ship’s unseaworthiness. The cargo owners claimed damages and went to arbitration but did not appoint their arbitrator within the time limited. The arbitrator’s award was set aside by the court on the basis that the arbitrator had no jurisdiction to make the award as the parties had not complied with the terms of the contract.

 

In Russell v Russell [1879] Ch. D. 1880 it was decided that where the dispute relates to fraud, it is not suitable for reference to arbitration

 

 

THE EVIDENCE

 

The evidence in this case is in the nature of affidavits in support of the application and opposition thereto. The Defendant has exhibited and marked EEK1 the contract between the parties which clause 10 on Settlement of Disputes reads:

 

10.1 The Procuring Entity and the Supplier shall make every effort to resolve amicably by direct informal negotiations any disagreement or dispute between them under or in connection with the contract.

 

10.2 If the parties fail to resolve such a dispute or difference by mutual consultation within twenty eight (28) days from the commencement of such consultation, either party may require that the dispute be referred for resolution to the formal mechanisms specified in the SCC”.

 

The SCC is abbreviation for Special Conditions of Contract according to which the mechanism for resolution of disputes was stated to be arbitration.

 

With respect to clause 10 of the special conditions referred to above, the Plaintiff argues that the use of the word “may” as opposed to “must” therein means that reference of a dispute to arbitration was optional and not mandatory. This specific point is not addressed by the Defendant although the general purport of their argument is that reference to arbitration under this clause is obligatory.

 

Both parties exhibit additional correspondence in the form of letters and e-mails relating to the dispute about whether the Defendant should pay the full contract price in view of the leakage, packaging and packing problems of the examination question papers and whether the Plaintiff or Defendant is responsible for the default of the driver of the carrier of the question papers suspected of stealing them and causing the leakage.

 

 

FINDINGS OF THE COURT

 

One of the central issues in the dispute in this matter relates to an allegation of theft by a driver of the carrier nominated by the Defendant. Clearly, the Plaintiff would not be responsible for the default of someone not being their agent. Therefore, this case does not involve an allegation of fraud or professional negligence against a party to the arbitration agreement and as such there would be no bar to refer the dispute to arbitration on that point alone.

 

Out of all the exhibited correspondence between the parties, the Plaintiff’s exhibit “JMC1” being a letter of demand from the Plaintiff’s former attorneys in South Africa who acted before the current attorneys in Malawi summarizes the facts of the matter, the dispute at issue and the positions taken by the parties at the commencement of this action. It is reproduced hereunder.

 

 

23 January 2008

 

The Malawi National Examinations Board

ATTENTION : MW MATEMBA, Executive Director

 

Dear Sirs

 

UNIVERSAL PRINT GROUP : PROCUREMENT REFERENCE NO. G07-03-01

 

We refer to your letter dated 21 December 2007

 

We wish to place the following record

 

  1. On 7 November 2007, after our client had performed all its obligations in terms of the contract with your board dated 12 June and 7 August 2007, our client requested payment of the outstanding amounts due in terms of the contract.

 

  1. On 8 November 2007 you responded raising issues concerning problems that you had experienced with the packaging and packing of the examination papers and leakage of the papers before the start of the exams. You undertook to revert to our client with further details in this regard as soon as possible.

 

  1. Despite your undertaking to revert “soon”, you had not done so by 23 November 2007. On that day Neville Gurriah, our client’s Export Business Development Manager, wrote to you responding to the allegations raised in your email of 8 November 2007 making a request that you address the response and also that you arrange for payment of all outstanding amounts as our client believed that it had acted in good faith in connection with the performance of its obligations…

 

  1. You did not address our clients’ response and no payments have been received.

 

  1. Your letter addressed to us dated 21 December 2007 raises essentially the same issues as those raised in your email dated 8 November 2007…

………

Our client is not prepared to entertain further delays with regard to payment….

 

In the circumstances you are hereby given a final opportunity to make payment…If you do not do so our client will instruct attorneys in Malawi…..

 

Yours faithfully

 

TERRY MOON

JN NICOLSON STILLER & GESHEN

 

In this letter, the Plaintiff’s former attorneys also assert that in terms of clause 10 of the contract the parties are required to make every effort to resolve amicably and by direct informal negotiation within 28 days any disagreement or dispute and that since the Defendant first made the allegations against the Plaintiff 28 days had elapsed and as such the provisions of clause 10 of the agreement were of no further application. The Defendant disagrees with this interpretation and argues that the 28 day period relates to the time within which to conduct informal and direct consultation and that after the expiry of this period, there is no time limit specified in the contract within which to refer the dispute to arbitration. I agree with the Defendant’s interpretation.

 

Prior to the letter of the Plaintiff’s attorneys of 23 January 2008, the same attorneys had written to the Defendant on 14 December 2007 requiring the Defendant to notify them in writing if they had a dispute furnishing full details and the grounds thereof by 21 December 2007. The Defendant responded by the deadline outlining the nature and details of the dispute only to be served with a Writ of Summons and Statement of Claim issued out of this court on 14 February 2008, almost two months after the dispute was stated and details thereof furnished. It is worth noting that the right if I may call it so to refer the dispute to arbitration was available to both parties so that none of them should blame the other for not taking any steps so to refer. Accepting the Defendant’s position that the 28 day period in clause 10 of their contract was not a time limit within which to refer an unresolved dispute to arbitration, it is patently unreasonable for a party to wait for two months to refer or demand a reference of a dispute to arbitration in the circumstances. Thus, in the absence of a specified period within which to refer a dispute to arbitration, such a reference was supposed to be made within a reasonable time. And this demand to have the matter referred to arbitration is only being made now because the Plaintiff commenced this action. I am sure that if no action had been commenced, the Defendant would still have been sitting on their laurels.

 

 

CONCLUSION AND DISPOSITION

 

As rightly argued by Mr. Chirwa, learned Counsel for the Plaintiff, clause 10 of the Special Conditions does not make it mandatory for the parties to refer an issue to arbitration. The word used is that the parties “may” and not “must” refer a dispute to arbitration. Even if it were to be said that reference of the dispute to arbitration was mandatory, the preconditions for such reference if necessary by implication under the special conditions were not met by the parties. Neither party made any attempt to refer the dispute to arbitration within a reasonable time of the expiry of the 28 days stipulated within which to conduct informal consultations which dispute was well outlined and known to both parties even before the Plaintiff’s former attorneys asked the Defendant to furnish details thereof. In fact, from the correspondence, both parties appear to have been entrenched in their positions well before the letter of 14 December 2007. And for the Defendant to claim that they have been and are still ready and willing to have the matter arbitrated is nothing but an exercise in empty rhetoric. Further, a serious question of law as to whether the Plaintiff is responsible for the default of a person who it can be argued is an agent of the Defendant is at issue which only a court of law can conclusively adjudicate upon.

 

 

Disposition

 

In the circumstances I dismiss the application for stay. The matter should now proceed to mediation if the parties do not wish to invoke their right under Order 3 rule d of the High Court (Commercial Division) Mandatory Mediation Rules to have the matter exempted from mandatory mediation. The Defendant has 7 days from the date hereof within which to file and serve a defence and the Plaintiff 5 days from the date thereafter to file and serve a reply to defence if any.

 

In view of the special nature of the facts of this case, costs shall be in the cause.

 

Pronounced in Chambers this 18th day of April 2008.

 

 

 

Dr. M.C. Mtambo

JUDGE.