Last week I attended the winter school held by the Institute of Chartered Accountants of Zimbabwe (ICAZ) in Victoria Falls, where in addition to attending as a member of the institute, I was also a speaker on legal updates and their implications on business.
My presentation also covered commercial contracts and arbitration. After the presentation, I was overwhelmed. Many people wanted to know more about commercial arbitration and commercial disputes.
Commercial arbitration
I explained to them that commercial arbitrators are appointed by different people.
Parties to a commercial dispute can agree between themselves.
Some arbitrators are appointed by the Commercial Arbitration Centre while others are appointed by the High Court (Commercial Division).
Depending on the arbitration clause or agreement, others can be appointed by the Law Society of Zimbabwe or the Institute of Chartered Accountants of Zimbabwe.
Common sources of disputes
The following are the common sources of commercial disputes:
Pricing and price variations
Payments
Tenure
Termination
Shareholding and dividends
Breach and consequence of breach
Dispute resolution mechanism.
Pricing
Disputes may easily arise on pricing as this is about the value of the contract or benefits to be derived from the contract. Parties may want to negotiate or force price variations after a contract has been signed.
This may happen if, for example, a supplier has under-priced or has overlooked taxes such as VAT or capital gains tax.
In the case of rentals, it is quite common for parties to disagree on rent reviews. In some lease situations, a lessee may improve the leased property and the lessor may demand higher rent. 0In the case of joint ventures, a party may demand a higher share of profits.
Payments
This is arguably one of the sources of many disputes and usually results in breaches.
A party with the obligation to pay by certain dates may not do so, resulting in breach or default. Depending on the agreement, such breach or default may lead to the right by the aggrieved party to terminate the agreement before its expiry.
Hell may break loose after summary termination. There can be rumbling, muddling, and all. If the aggrieved party summarily terminates the agreement, the terminated party usually fights the termination. This may result in long drawn-out legal action.
Tenure
Tenure defines the period a contract is binding. A party may want to exit a contract before the expiry of its tenure. For example, a contractor may want to exit if the contract is not commercially viable.
On the other hand, where a contract has expired a party, such as a lessee, may want to continue. There can be disputes over refusal to renew or a premature termination of a valid contract.
Termination
A party may refuse to disengage or to be disengaged when the contract period has expired. Another party may want to terminate a contract prematurely. This may happen if one of the parties are alleged to be defaulting on or breaching its contractual obligations.
Remember someone's obligations are another person's rights.
Shareholding and dividends
Common disputes between shareholders are usually in the form of shareholding and dividends. Where there is inadequate documentation such as shareholder agreements, parties may fight over the actual shareholding. Shareholders may also fight over dividends not paid or underpaid.
Disputes over dividends or profit shares are prevalent. There has to be a dividend policy.
Breach and consequence of breach
Disputes in pricing, payments, tenure and termination may easily result in disputes over breach and the consequence of breach. Unless the breach is rectified, this may lead to disputes and require a dispute resolution mechanism.
Dispute resolution
It is quite common for parties in a commercial dispute to fight over dispute resolution mechanisms. The fight is usually over arbitration or litigation. Where arbitration is provided for, parties may not agree on the arbitrator or outcome of arbitration. Parties may use dilatory tactics to frustrate the proceedings.
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Conclusion
When people marry, the idea of a divorce is foreign but divorces are real. When drafting contracts make sure there are safeguards, especially around the areas explained above.
Disclaimer
This simplified article is for general information purposes only and does not constitute the writer's professional advice.
Godknows (GK) Hofisi, LLB(UNISA), B.Acc (UZ), Hons B.Compt (UNISA), CA(Z), ACCA (Business Valuations) MBA(EBS, Heriot-Watt, UK) is the Managing Partner of Hofisi & Partners Commercial Attorneys, chartered accountant, insolvency practitioner, registered tax accountant and advises on deals and transactions. He has extensive experience from industry and commerce and is a former World Bank staffer in the Resource Management Unit. He writes in his personal capacity. He can be contacted on +263 772 246 900 or [email protected] or [email protected]. Visit www//:hofisilaw.com for more articles.
