IN THE HIGH COURT OF MALAWI

PRINCIPAL REGISTRY

JUDICIAL REVIEW CAUSE NUMBER 27 OF 2013

THE STATE

AND

MINISTER OF MINING .................................... 1ST RESPONDENT

SECRETARY FOR MINING ...............................2ND RESPONDENT

EXPARTE: NYALA MINES LIMITED.......................... APPLICANT

RULING

Scope of application

This matter had been set down for the hearing of an inter partes summons to discharge leave to move for judicial review, when the applicant brought up a notice of preliminary objection. The issue raised in the judicial review is whether a decision by the respondents to cancel a Mining Licence (ML) granted to the applicant was proper. In the preliminary objection the applicant prays that the proceedings be stayed for the matter to be referred to arbitration owing to the existence of an arbitration clause in a Royalties Agreement (RA), further entered into in relation to the mining operations.

The arbitration clause is contained in Article 4 of the RA and reads:

"SETTLEMENT OF DISPUTES

Any dispute which may arise relating to the interpretation or application of this Agreement and which cannot be amicably settled by the Parties, shall, at the request of either Party, be submitted for arbitration in accordance with the Arbitration Act, Cap. 6: 03."

Issues for determination

The issues for determination in this application are:

1.   whether the judicial review proceedings ought to be stayed owing to the existence of an arbitration clause in the RA; and

 2. whether the preliminary objection is or is not caught by the provisions of section 6(1) of the Arbitration Act.

The parties' respective submissions

Applicant:

Counsel for the applicant stated that under article 2(c) of the ML and the Memorandum of Understanding (MOU) the validity of the ML was conditional upon the applicant entering into the RA and that the RA was a schedule to the ML. That the RA was executed and is dated 18th June 2008 and Article 4 of the RA is an arbitration clause. Counsel further stated that in Form 86A one the central issues relates to the question whether the respondent complied with the provisions of the RA and that there is divergence of opinion on the question and submitted, therefore, that there was no better case to refer to arbitration as both parties seek the interpretation of the agreement.

On the question whether the present application is or is not caught by section 6(1) of the Arbitration Act (reproduced below) counsel for the applicant submitted that it was not. Counsel was of the view that it rather re-enforced the applicant's position; that the general tenor of the provision was to enable a party to seek reference of the matter to arbitration at any time before the hearing and since the applicant had not delivered any pleadings after obtaining leave it remained open to the applicant to raise the question of arbitration before the hearing of the matter. As a matter of fact, counsel said, when the matter came up for hearing before Justice nyaKaunda Kamanga on 13th March 2014 the applicant had alluded to the prospect of the matter being referred to arbitration and the notes of the Judge do reflect this.

Respondents:

Counsel for the respondents submitted as follows.

That there are two agreements. The first is the ML entered pursuant to the Mining Act, which includes a termination clause. It is that which the applicant is challenging. All the decisions being challenged in Form 86A pertain to the cancellation of the ML. The second is the RA which is of a narrower scope and only deals with royalties and corporate social responsibility issues. It is the RA which makes reference to arbitration. The issue before the court is the cancellation of the ML by the government, and if the court finds that the department of mines needed to give 30 days' notice as per the Mining Act and not bound by the RA, which is separate, then all these proceedings fall away. The respondents had not terminated the RA. Should the court find that the respondents were supposed to follow the RA then the arbitration clause would be applicable. But the respondents' position is that the respondents did not terminate the RA.

Respondents' counsel opined that the application for stay was made in bad faith as exemplified by its being brought after four years of inactivity, and only when the matter had been set down.

On the question whether the present application is or is not caught by section 6(1) of the Arbitration Act the respondents' counsel submitted that the section allowed a party to an arbitration clause to have proceedings stayed only in two instances, namely, i) before delivery of any pleading, or ii) before taking any step in the proceedings. In the case at hand, so it was submitted, the applicant had taken all relevant steps: it had served the motion for judicial review, filed skeletal arguments and the motion had even come up for hearing but was, on the appointed day, adjourned because counsel for the applicant had another matter in the Supreme Court of Appeal.

Counsel also submitted that section 6(1) of the Arbitration Act further required that a party seeking the stay at the time the proceedings were commenced had to be willing to do all things necessary for the proper conduct of the arbitration. However, although in this case counsel had mentioned that there was a prospect of reaching an agreement, there had not been any communication or suggestion for arbitration. The court had to be satisfied that there were sufficient reasons why the matter should be referred to arbitration and it would not be in the interest of justice to do so now as the proceedings had been outstanding for four years, and that that was reason enough to decline reference to arbitration. Counsel further pointed out that stay of proceedings is not mandatory under the provision as the word used is 'may' and not 'must'.

Applicant's reply

In reply applicant's counsel submitted that the respondents' submissions were largely substantive in nature rather than just addressing the preliminary point. That the court granted leave upon being satisfied that there was a case for further investigation. That counsel for the respondent had endeavoured to distinguish between the ML and the RA, which are issues of public and private law respectively.

Applicant's counsel reiterated the fact that the validity of the ML was conditional upon the execution of the RA, that it was not possible for the ML to take effect without the RA which is an addendum to the ML. He stated that there was no dispute between the parties that the judicial review raised issues pertaining to whether or not the terms of the RA are applicable, and that in terms of Article 4 of the RA where there is an issue as to whether the RA applies or not the matter must go to arbitration. That Form 86A dealt with issues to do with the provisions of the RA and since it was argued in the affidavit of the respondents that it does not apply, the matter was fit for arbitration.

In reply to respondents' submissions as regards section 6(1) of the Arbitration Act counsel for the applicant submitted that the applicant was not precluded from initiating judicial review proceedings, and that sight should not be lost of the fact that having done so there were interim reliefs which had to be brought to the respondents' attention and therefore court process was served on the respondents, and that that was all. In counsel's submission all that the provision stipulates is that the applicant must apply for stay before delivery of pleadings, the step referred to therein must be in connection with delivery of pleadings. Therefore, between commencement and hearing, the applicant must initiate the application for stay to pave the way for arbitration.

The law pertaining to the first issue

The right to apply for a stay of court proceedings in order to refer a matter to arbitration pursuant to an arbitration agreement is governed by section 6(1) of the Arbitration Act (Cap. 6:03 of the Laws of Malawi) as follows:

"6.      Staying court proceedings where there is submission to arbitration

(1) 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 that court to stay the proceedings, and that 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 when 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 ".

Where an agreement provides for arbitration as an avenue for resolving disputes the court will honour the provision for arbitration and allow a party to refer the matter to arbitration where such procedure is not exhausted: Industrial Metalurgicus Pescamona v Heavy Engineering Ltd [2002-2003] MLR 84 (SCA); PreferentialTrade Area Bank v Electricity Supply Corporation of Malawi and another [2002-2003] MLR 304 (HC).

Where a party claims that proceedings should be stayed because there is an arbitration agreement in force, the court is under a duty to construe the terms of the contract in order to decide whether there was a valid arbitration clause and that question has to be determined at an interlocutory stage, because it has to be done before the defendant takes any steps in the action, and the court must be satisfied that there is a bona fide dispute: Modern Buildings Wales Ltd v Limmer and Trinidad Co Ltd [1975] 2 All ER 549 (CA); Ashville Investments Ltd v Elmer Contractors Ltd [1988] 2 All ER 577 (CA). The governing consideration in every case must be the precise terms of the language in which the arbitration clause was framed: Heyman and another v Darwins Ltd [1942] 1 All ER 337 (HL).

Lord MacMillan in Heyman’s case provided the following guidance (at p345):

"Where proceedings at law are instituted by one of the parties to a contract containing an arbitration clause and the other party, founding on the clause, applies for a stay, the first thing to be ascertained is the precise nature of the dispute which has arisen. The next question is whether the dispute is one which falls within the terms of the arbitration clause. Then sometimes the question is raised whether the arbitration clause is still effective or whether something has happened to render it no longer operative. Finally, the nature of the dispute being ascertained, it having been held to fall within the terms of the arbitration clause and the clause having been found to be still effective, there remains for the court the question whether there is any sufficient reason why the matter in dispute should not be referred to arbitration. "

For the reason that the parties will have agreed on their chosen tribunal, the court, on an application made to it prior to the arbitration, is enjoined from permitting full-scale argument on the terms of the agreement between the parties, who must be free from the intervention of the courts until the issue has been determined by the tribunal of their choice: Home and Overseas Insurance Co Ltd v Mentor Insurance Co (UK) Ltd (in liq) [1989] 3 All ER 74 (CA). It must follow, I think, that the court would not engage in full-scale assessment of the terms of the agreement, but only limit itself to construing such terms thereof as will only enable it to decide whether there was a valid arbitration clause and a bona fide dispute.

The making of an order under section 6(1) of the Arbitration Act is in the discretion of the court: Pitchers Ltd v Plaza (Queensbury) Ltd [1940] 1 All ER 151 (CA), and, in the words of Mackinnon LJ in that case (construing section 4 of the English Arbitration Act, in pari materia section 6(1) of our Arbitration Act) "the judge is directed to act under it only if satisfied that there is no sufficient reasons why the matter should not be referred in accordance with the submission." (at p155)

Analysis and determination of the first issue

From a reading of the documents laid before this court by the applicant in Form 86A, and the arguments of counsel, it is correct that subsequent to the granting of the ML the parties further entered into the RA. Under Article 2(c) of the ML the validity of the ML was rendered conditional upon the parties entering into a Mining (Royalty) Agreement. This fact is acknowledged in paragraph C in the preamble to the RA. The RA was duly executed and is dated 18th June 2008. Under Article 2(b) of the ML as read with Articles 2(a) and (b) of the RA the applicant was bound to pay to the Malawi Government 10% royalty and a Sales Royalty on sales of corundum, once cut, polished and sold.

The dispute between the parties sprung out of the contents of a letter dated 10th May 2013, authored by the Secretary for Mining, and addressed to the applicant's Managing Director, giving notice of cancellation of the ML on grounds that the operations by the applicant had been "unsatisfactory", which "included undervaluation and under-declaration of ruby and corundum gemstones mined on Chimwadzulu both during production and exports of the said minerals" which had "resulted in loss of revenue by the Government. .." It is quite evident from the contents of this letter that the bone of contention encompasses the issue whether the Malawi Government has been short-changed on the amounts of revenue which would it envisaged to be due and payable to it but for the alleged undervaluation of sales by the applicant.

In paragraph 4.2 of Form 86A the applicant argues that the respondents owe the applicant the duty to comply with the Mines and Minerals Act, delegated legislation and the agreements made thereunder. Further on, in paragraph 5.2., the applicant submits that the decision and directives of the respondents are ultra vires in that the respondents' decisions and directives are contrary to the Mines and Minerals Act and agreements and delegated legislation made thereunder.

One of the agreements alluded to is, evidently, the RA, firstly because it is an agreement made pursuant to a provision in the ML, and secondly, because its provisions encompasses the terms pertaining to the payment of royalties by the aplicant to the Malawi Government, the very ground upon which the ML was purportedly terminated. In my view, therefore, the ML and the RA, at least in so far as they relate to the accrual and payment of royalties to the Malawi Government ought to be read, interpreted and applied as one set of documents comprising one agreement in that regard. It is consequently my further view and finding that the arbitration clause in Article 4 of the RA is material and relevant to the disposal of the dispute between the parties. The dispute is one which falls within the terms of the arbitration clause and ought, in the absence of anything militating against doing so, be referred accordingly.

As the respondents' submissions will already have shown, the respondents are of the view that there are matters which do militate against referring the dispute to arbitration, the foregoing notwithstanding. I will now consider those matters, which in essence, brings us to the second issue, i.e. whether the preliminary objection is or is not caught by the provisions of section 6(1) of the Arbitration Act.

The law pertaining to the second issue

As earlier on noted from section 6(1) of the Arbitration Act whereas the court may make an order staying the proceedings if satisfied "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" the court may not do so if the applicant has taken a further step in the proceedings. It was further noted that the court must also take into account whether there is sufficient reason why the matter in dispute should not be referred in accordance with the submission: Heyman and another v Darwins Ltd; Pitchers Ltd v Plaza (Queensbury) Ltd (supra).

Lindley LJ, in Ives & Barker v Willans [1894] 2 Ch 478 (CA) (at p 484), described a step in the proceedings to be

"... something in the nature of an application to the court, and not mere talk between solicitors or solicitors' clerks, nor the writing of letters, but the taking of some step, such as taking out a summons or something of that kind, which is, in the technical sense, a step in the proceedings. "

This definition was upheld in Lane v Herman [1939] 3 All ER 353 (CA).

The point is illustrated by the decision in Pitchers Ltd v Plaza (Queensbury) Ltd(supra), whose facts are summarised in the headnote of the report as follows:

"The plaintiffs sued the defendants by a specially indorsed writ for £3,236 2s 1 d, which they alleged to be due to them under a building contract. The contract included an arbitration clause, to be operative on either party forthwith giving to the other notice of any dispute or difference. The plaintiffs took out a summons under RSC Ord 14, for leave to sign final judgment. The defendants filed an affidavit, and appeared before the master claiming that they had a defence to the action. On the master's giving leave to sign judgment, the defendants appealed against his order, and only then applied for a stay of the action by reason of the arbitration clause included therein:-

Held - (i) the defendants were precluded from relying on the arbitration clause as they had taken a step in the action when they opposed the summons for leave to signfinaljudgment before the master. "

Analysis and determination of the second issue

The interpretation ascribed to section 6(1) of the Arbitration Act by the applicant's counsel to the effect that the general tenor of the provision is to enable a party to seek reference of the matter to arbitration "at any time before the hearing" is erroneous. It is also not correct that since the applicant had not delivered any pleadings 'after obtaining leave, per se, left it open to the applicant to seek a stay at any time before the hearing of the judicial review. Section 6(1) allows a party to an arbitration agreement to have proceedings stayed in two instances, namely, i) before delivery of any pleading, or ii) before taking any step in the proceedings, as the case may be. It being the case herein that the applicant served the motion for judicial review, filed skeletal arguments and attended court for the hearing of the motion for judicial review, albeit resulting in an adjournment, the applicant clearly "took a step" in the proceedings. The submission by counsel that all the applicant did after obtaining leave was to bring to the attention of the respondents the interim reliefs granted by the court is not borne out of the facts. The applicant clearly did more. No doubt, in my view, the steps taken by the applicant herein fall in the same category as those defined and cited in the cases cited above. Further, counsel's restricted interpretation to the effect that all that section 6(1) stipulates is that the applicant must apply for stay before delivery of pleadings and that the step referred to therein must be in connection with delivery of pleadings is also not correct. If that were so the legislature would not have used of the word "or", which signifies that the two instances must be read disjunctively.