Allan Gwamba v Swift Capital Limited (APPEAL NO. 249/2022) [2023] ZMCA 338 (22 November 2023)

IN THE COURT OF APPEAL OF ZAMBIA APPEAL NO. 249/2022 HOLDEN AT NDOLA (Civil Jurisdiction) BETWEEN: ALLAN GWAMBA AND APPELLANT SWIFT CAPITAL LIMITED RESPONDENT CORAM: CHASHI, NGULUBE AND PATEL, SC, JJA. On 15th and 22nd November, 2023. For the Appellant: Mr. B. A. N. Zulu and Mr. M. Mweene, Messrs G. M. Legal Practitioners For the Respondent: No appearance JUDGMENT NGULUBE JA, delivered the Judgment of the Court. Cases referred to: 1. Ody's Oil Company Limited vs The Attorney General and Constan tinos 2 . 3. 4. James Papoutsis (2012) ZR. 164 Paul Wilson and Company A/ S vs Partendreederel Hannah Blumanthal, The Hannah Blumanthal (1989) 1 All ER 34 Audrey Nyambe vs Total Zambia Limited - SCZ Appeal Number 29/ 2011 Konkola Copper Mines Pie vs NFC Africa Mining Plc - SCZ Appeal No. 118 of 2006 Legislation referred to: 1. The Arbitration Act, Number 19 of 2000 1.0 INTRODUCTION 1.1 This appeal is against a Ruling of the High Court (Musona, J) dated 1 September, 2022, pursuant to which the Court stayed the proceedings in the lower court and referred the parties to arbitration in accordance with clauses 17.8 and 17.9 of the contract of sale which was executed by the parties. 2 .0 BRIEF BACKGROUND 2 .1 The appellant was the plaintiff in the court below and the respondent was the defendant. In this introductory part of the Judgment, we shall refer to them as they were in the court below. According to the statement of claim, the plaintiff is the bonafide proprietor of Lot Number 1234 7 / M, situate at Kafue in the Lusaka Province of Zambia. 2.2 The defendant is a limited company incorporated under the Laws of Zambia which purportedly assumed ownership of the pla intiff's land, Lot Number 12347 / M, Kafue. 2.3 The plaintiff averred that sometime in September, 2020, he needed financial assistance to pay for his medical bills as h e was J2 recovering from prostate cancer. He was availed a loan facility amounting to US$1 ,300 which was equivalent to K25,000.00 at the time and h e placed his piece of land in Kafue as security fo r the said loan. 2.4 The defendant disbursed a total of K23 ,000.00 to the plaintiff after deducting the processing fee. The plaintiff then handed over th e mother title of Lot Number 12347 / M to the defendant as security for the loan. He stated that, he signed d ocuments which had spaces in them as security for the loan facility that he obtained from the defendant. According to the plaintiff, the intention of th e p arties was to utilise th e property as security for the loan facility and not to sell the property to the defendant. 2.5 The plaintiff paid the loan in instalments through a Mr. Jimmy Ngonga and the total amount that h e pa id was K21 ,200. He requested for copies of the loan documents that he signed prior to obtaining the loan facility but they were not availed to him. 2.6 The plaintiff later learnt that there were people building on the remaining extent of his land and h e m a de inquiries abou t it. He was informed by the person who was building on his property that h e bought it from the defendant. The plaintiff conducted a search at the Ministry of Lands and discovered that the defendant h ad J3 secretly changed ownership of Lot 12347 /M Chilanga into its name without informing the plaintiff. 2 .7 When he was confronted, the defendant showed the plaintiff documentation which he allegedly signed to the effect that he sold the property to the defendant when that was not the case. According to the plaintiff, the defendant only held the plaintiffs certificate of title as security for the loan. The plaintiff averred that the m oney that he obtained from the defendant was a loan that had since been paid. He also alleged that the defendant altered the loan agreement to show that a contract of sale and a deed of assignment were execu ted when infact not. 2.8 The plaintiff stated that th e defendant obtained consent to assign without his consent. He denied signing a power of attorney dated 2 September, 2020. The plaintiff averred that the defendant took advantage of his desperation for money to pay h is medical bills and gained undue influence. 2.9 The plaintiff accordingly sought a declaration that the transaction between him and the defendant was a loan facility and not a sale. The plaintiff further sought an order that the power of attorney dated 2 September, 2020 be declared null and void, illegal and unenforceable. He also sought an order that the contract of sale J4 and deed of assignment be declared fraudulent unenforceable and null and void. 2.10 The plaintiff sought an order that he is the rightful proprietor of Lot 12347 / M Kafue and that an order be made by the court for specific performance. He also sought an order that he be allowed to pay back the balance of K3,800 plus interest to the defendant to fully settle the loan. 2.11 The plaintiff sought an interim injunction, restraining the defendant and its agents from constructing, changing or undertaking to process change of ownership in respect of the property in issue. 2.12 The defendant filed a defence on 11 July, 2022. It was averred that the property in issue, Lot Number 12347/ M, was legally purchased from the plaintiff as all the conditions for the sale or conveyance were met. 2.13 The defendant denied having a loan facility with the plaintiff and maintained that a sale transaction occurred between the parties. That the plaintiff sold the property to the defendant at the price of US$1 ,300. 00 and that the parties agreed to sell the property freely and voluntarily without any coercion. The defendant stated that the following documents were executed- JS i) con tract of sale ii) deed of assignment iii) consent to assign form iv) ZRA update form v) memorandum of understanding vi) power of attorney vii) hand written memorandum of understanding viii) intention to place a caveat ix) payment voucher as consideration 2. 14 The defendant denied making the plaintiff to sign bank documents and emphasized that he freely and voluntarily signed the contract of sale and that no loan facility existed between the parties. 2.15 The defendant denied taking advantage of the plaintiff nor did it have undue influence as the plaintiff signed the documents freely. The defendant denied having a loan facility with the plaintiff nor was the property in issue offered as security for a loan. The defendant averred that after executing the contract of sale it proceeded to register its interest in the property by way of caveat as intending purchaser of the property. The defendant then applied for state consent to assign, which was granted on 16 November, 2021 . The defendant subsequently conveyed the J6 property into its names after withdrawing the caveat on 6 December, 2021. 2.16 The defendant averred that the p laintiff was not entitled to any reliefs. The defendant stated that th e contract of sale executed by the parties under clauses 17 .8 and 17. 9 provided that if there was any dispute between the parties, they would be referred to arbitration. 2.17 On 22 July, 2022, the defendant made an application to stay the proceeding and refer the parties to arbitration. The defendant's chief executive officer, Ermias Kifle deposed in the affidavit in support of the application that the contract of sale executed by the parties has an arbitration clause that stated that where there is a dispute between the parties, they would be referred to arbitration. It was deposed that the defendant desired to stay the proceedings and have the parties referred to arbitration in accordance with Clauses 17.8 and 17.9 of the contract of sale. 2.18 The plaintiff opposed the application to refer the parties to arbitration and maintained that the transaction between the parties was a loan transaction as evidenced by the writ of summons and statement of claim. The plaintiff stated that he challenged t h e existence of the said con tract of sale as he was of J7 the view that it was a fraud as there was only a loan agreement between the parties. 2 .19 The pla intiff stated that the contract of sale was invalid , inoperative a nd incapable of being p erformed, because it did not exist. Further the plaintiff stated that th e defendant altered the loa n agreement a nd that the contract of sale was invalid and incapable of being performed. 2.20 The plaintiff stated that the arbitration clause that the defendant seeks to invoke cannot be performed as th e existence of the contract of sale is ch a llen ged and can only be determined a t trial. 3 .0 CONSIDERATION OF THE MATTER BY THE LOWER COURT 3. 1 The lower court considered t he defendant's a pplication to refer th e parties to arbitration which was anchored on clauses 17 .8 and 17. 9 of the contract of sale. The court stated that the said clauses obligated the parties to be referred to arbitration in th e event of a dis pute. 3.2 The Court was of the view that there was n o reason why the parties could not be referred to arbitration in accordance with clauses 1 7 . 8 and 1 7. 9 of the con tract of sale which was executed by the parties. The court then ordered a stay of proceedings and referred J8 the parties to arbitration in accordance with Clauses 17 .8 and 17. 9 of the contract of sale. 4.0 THE APPEAL 4.1 The appellant (plaintiff in the lower court) was dissatisfied with the decision of the lower court and appealed to this court, advancing two grounds of appeal couched as follows- 1. The honourable trial court erred in law and fact by holding that the proceedings before it be stayed and the matter be ref erred to arbitration on account that the Contract of Sale has no arbitration clause when in fact the alleged contract in dispute does not exist. 2 . The honourable trial court misdirected itself in both Law and fact by failing to adjudicate upon each and every issue raised by the appellant especially relating to the reasons as to why the matter could not be ref erred to arbitration. 4.2 In a rguing ground one, it was submitted that the trial court concluded that the parties had signed the contract of sale when the said document did not exist. It was argued that the appellant signed a loan agreement and remitted monthly instalments to the respondent (defendant in the lower Court) as evidenced by the J9 receipts that were issued by the respondent to the appellant, exhibited on pages 112 to 128 of the record of appeal. 4.3 The appellant denied the existence of the contract of sale. According to Counsel, for an arbitration Clause to be invoked in a dispute, it should be embodied in a contract as it is ancillary to the agreement, thus making it a collateral contract. 4.4 The Court's attention was drawn to section 10 of the Arbitration Act, Number 19 of 2000 which provides that- "(lJ. A court before which legal proceedings are brought in a matter which is the subject of an arbitration agreement shall, if a party so requests at any stage of the proceedings and notwithstanding any written law, stay those proceedings and ref er the parties to arbitration unless it finds that the agreement is null and void, inoperative or incapable of being performed." 4.5 The case of Ody's Oil Company Limited vs The Attorney General and Constantinos James Papoutsis1 was referred to wh ere the court guided that- ". . . the court must be satisfied that there is first and foremost an agreement that the arbitration agreement is valid and or that it is not null and void, inoperative or incapable of being performed." JlO 4 .6 It was contended that wh ere there is no agreement, there is nothing to arbitrate. Reference was further made to the Article "The doctrine of separability of Arbitration Clause in Commercial Arbitration Revisited" where it is stated that- " ... When a contract is non-existent, there is no consensus upon which arbitration may be based and there is no ground for the arbitrator's jurisdiction to rule on a dispute. An allegation of non-existence, therefore, may be examined by a national court of competent jurisdiction." 4. 7 The appellant argued that, he was m a de to sign blank papers and that copies were not given to him on the understanding that he was signing a loan agreement. The a ppellant denied executing the contract of sale, deed of assignment and power of attorney, which h e saw for the first time at the hearing of the matter. 4.8 Further reliance was placed on the case of Paul Wilson and Company A/S vs Partendreederel Hannah Blumanthal, The Hannah Blumanthal2 , where Lord Diplock stated that- "The first characteristic is that which was established by the House in Heyman vs Darian Limited:- an arbitration clause "is a collateral contract to the main contract in which it is incorporat ed and it gives rise to J11 collateral primary and secondary obligations of its own." 4.9 It was submitted that since the existence of the contract of sale is in dispute, the existence of the arbitration agreement is also in dispute. 4.10 On the issue of which disputes cannot be resolved by arbitration, it was submitted that- a) An agreement which is contrary to public policy b) A dispute which, in terms of any law, may not be determined by arbitration are disputes which fall under the category of those which may not be resolved by arbitration. 4.11 The appellant maintained that there was no contract of sale nor was any assignment executed by the parties. It was argued that the contract of sale in issue violates the fundamental principles of contract formation. The appellant argued that the contract of sale was doctored by the respondent as different sizes of font were used in some parts of the document. 4. 12 Counsel maintained that the contract of sale does not exist and that the arbitration agreement accordingly falls away for being illegal and void abinitio. It was contended that the lower court misdirected itself when it stayed th e proceedings and referred the J12 parties to arbitration when there were allegations of fraud and illegality regarding the authenticity of the contract of sale. 4.13 In arguing ground three, it was submitted that for the contract of sale to be valid there must be intention to create legal relations. Referen ce was made to Clause 17 .8 of th e contract of sale which provides that- "The parties agree that any dispute, claim or difference arising under or in connection with the contract of sale any non-contractual obligation connected with it, or in connection with the negotiation, existence, legal validity enforceability or termination of this contract of sale, which cannot be amicably settled by the parties within 20 working days, shall be ref erred to arbitration to be conducted pursuant to the Arbitration Act Number 19 of 2000 and in accordance with the Rules published by the Chartered Institute of Arbitrators Zambia Branch." 4.14 It was the appellant's submission that no attempt was made to resolve the matter ex-curia and that a condition of the purported arbitration Clause was not met. The case of Audrey Nyambe vs Total Zambia Limited3 , was referred to, where the Supreme Court guided that the learned Judge should h ave considered the wording of the arbitration clause as opposed to its severability. J13 .... 4.15 It was argued that the conditions of the arbitration clause were not met and the parties should not have been referred to arbitration. Counsel went on to argue that the third parties, Mr Malama and Mr Kabwata would be prejudiced if the parties are referred to arbitration as they are not parties to the contract of sale. 4.16 The Court was urged to discharge the order of stay of proceedings and the reference of the parties to arbitration with costs to the appellants, to be taxed in default of agreement. 4.17 The respondent did not file any heads of argument. 5 .0 HEARING 5.1 At the hearing, the appellant's counsel relied on the heads of argument filed with brief augmentation. 6 .0 CONSIDERATION OF THE APPEAL AND DECISION 6.1 We have carefully considered the record of appeal with the appellant's heads of argument. 6.2 The issue for consideration is whether the lower court was on firm ground to refer the parties to arbitration based on the contract of sale which the appellant disputes. We will address the two J14 <. grounds of appeal as one because they are interrelated. Section 10 of the Arbitration Act provides that- "A court before which legal proceedings are brought in a matter which is subject to an arbitration agreement shall, if a party so requests at any stage of the proceedings and notwithstanding any written law, stay those proceedings and ref er the parties to arbitration unless it finds that the agreement is null and void, inoperative or incapable of being performed." 6.3 In casu, th e appellant denies entering into a contract of sale with the respondent. The appellant conten ds that he borrowed $1 ,300 from the respondent, and paid back the money in instalments leaving a balance which he was ready to settle, until he discovered that the respondent had changed title of the property that h e used to secure the loan into its name. The appellant alleged that the respondent even sold part of the piece of land to a third party. 6 .4 In th e case of Konkola Copper Mines Plc vs NFC Africa Mining Plc4 , the Supreme Court guided that- "A court has no obligation to stay proceedings and refer the parties to arbitration where it is demonstrated that the arbitration agreement is null and void, inoperative or incapable of being performed. " JlS 6.5 In the case of Ody's Oil Company Limited vs The Attorney General and Constantinos James Papoutsis (supra) the Supreme Court held that in interpreting section 10 of the Arbitration Act, the Court must be satisfied that there is an agreement which is valid and that it is not null and void, inoperative and incapable of being performed. 6.6 In the present case, the learned trial Judge concluded that the contract of sale was valid and referred the parties to arbitration. However, the appellant disputes the existence of the contract of sale which contains the said arbitrations clause. We are of the view that the learned trial Judge pre-determined the matter when he referred the parties to arbitration based on a contract of sale that was disputed by the appellant. 6.7 The lower Court misdirected itself by referring the parties to arbitration as the contract of sale containing the said arbitration clause was disputed. The Court should have proceeded to trial to determine the matter than to refer the parties to arbitration over a disputed contract of sale. 6.8 The lower Court misconceived the validity of the arbitration clause as the contract of sale was disputed. J16 (. 7 .0 CONCLUSION 7 . 1 The net result is that the appeal is accordingly allowed and the Ruling of the lower Court is set aside. The matter is remitted back to the High Court for hearing before a Judge of the Commercial Court. 7.2 We award costs to the appellant to be taxed 1n default of agreement. P. C. M . NGULUBE COURT OF APPEAL JUDGE A. N. PATEL, SC COURT OF APPEAL JUDGE J17