|
|
[Home]
[Databases]
[WorldLII]
[Search]
[Feedback]
Uganda: Commercial Court |
[Database Search] [Name Search] [Recent Decisions] [Noteup] [Help]
EAST AFRICAN DEVELOPMENT BANK
v
ZIWA
HORTICULTURAL EXPORTERS LIMITED
HIGH COURT OF UGANDA AT
KAMPALA
(COMMERCIAL COURT)
HIGH COURT MISC APPLICATION NO. 1048 OF
2000
ARISING FROM COMPANIES CAUSE NO. 11 OF 2000
BEFORE:
HON. MR. JUSTICE R.O. OKUMU WENGI
October 20, 2000
The parties to this suit had entered into a loan agreement whereby EADB
advanced a loan to Ziwa Horticultural Exporters Ltd. A dispute
arose between the
parties and EADB, filed a petition seeking various orders against the respondent
including an order of winding
up of the respondent company. The respondent filed
the present application for a stay of the proceedings, and reference of the
matter
to arbitration on grounds that the loan agreement contained an
arbitration clause, which provided for resolution of disputes by arbitration.
Held:
Section 6 of the Arbitration and Conciliation Act, provides for
mandatory reference to arbitration of matters before court which are
subject to
an arbitration agreement; Where court is satisfied that the arbitration
agreement is valid, operative and capable of being
performed, it may exercise
it’s discretion and refer the matter to arbitration.
Cases referred to:
Shell (U) v AGIP (U) Supreme Court Civil Appeal No. 49 of 1995(Unreported)
Home Insurance Co . Ltd v Mentor Insurance Co. (U. K) Ltd (in liq) (1989) 3 All ER 74
Jureidini v British and Irish Millers Insurance Co. Ltd [1914-15] All ER 328
Tritonia Shippinq Inc. v South Nelson Forest Products (CA) (1966) I Lloyds Rep. 114
Emson Contractors v Protea Estates Ltd (1988) 4 Construction LJ 119
Legislation referred to:
Arbitration and
Conciliation Act (7) of 2000, Sections 6, 10
Counsel for
applicant: Mr. Katende
RULING
OKUMU WENGI, J: This is an application for stay of
proceedings in a petition brought by a minority shareholder for certain reliefs
including in the
alternative a winding up order. The applicant is the company
against which the orders are sought and the petitioner respondent is
the
minority shareholder in it. Before hearing of the petition could commence
counsel for the applicant Ziwa Horticultural Exporters
Ltd (Ziwa), Mr. Katende
sought to stay the petition brought by the East African Development Bank (EADB).
The reasons for the application
are that a loan agreement whereby EADB financed
ZIWA contained an arbitration clause. Further that Ziwa’s articles of
Association
also provided for arbitration. For ease of reference the stated
arbitration clauses are indicated in the loan agreement and articles
as follows:
“9.03 Any dispute or difference which may arise touching the meaning of this agreement or the rights or obligations of the parties hereunder or any other matter or thing in connection with this agreement shall be subject to arbitration in Uganda under provisions of the Uganda Arbitration Act or any statutory modification or re-enactment thereof for the time being in force.”
And the articles of Ziwa stipulated as follows:
“126. If and whenever any difference shall arise between the company and any of the members or their respective representatives touching the construction of any of the articles herein contained or any act or thing made or done or to be made or done or omitted or in regard to the rights and liabilities arising hereunder or arising out of the relation existing between the parties by reason of these articles or of the Act such difference shall forthwith be referred to two arbitrators one to be appointed by each party in difference or to an umpire to be chosen by the arbitrators before entering in the consideration of the matter referred to them and every such reference shall be conducted in accordance with the provisions of the laws of arbitration for the time being in force in Uganda.”
In arguing his application Mr.
Katende contended that in terms of section 6 of the Arbitration and
Conciliation Act (7) of 2000 the dispute ought to be referred to
arbitration. Section 6 of the Act provides:
"6 (1) A judge or magistrate before whom proceedings are being brought in a matter which is subject of an arbitration agreement shall, if a party so applies after filing of a statement of defence and both parties having been given a hearing, refer the matter back to the arbitration unless he or she finds;
(a) that the arbitration agreement is null and void in operative or incapable of being performed; or
(b) that there is not in fact any dispute between the parties with regard to the matters agreed to be referred to arbitration.
(2) Notwithstanding that an application has been brought under subsection (1) and the matter is pending before the Court, arbitral proceedings may be commenced or continued and an arbitral award may be made."
Mr. Katende further referred this Court to the Supreme Court
authority in Shell (U) v AGIP (U) Supreme Court Civil
Appeal No. 49 of 1995(Unreported), to say that his applications satisfied all
the conditions set out in that decision.
Counsel further argued that the
arbitration clauses he referred to in his application were not disputed by
either side and were binding.
He cited the English Court of Appeal decision in
Home Insurance Co . Ltd v Mentor Insurance Co. (U. K) Ltd (in liq)
(1989) 3 All ER 74 to argue that commercial arbitration was imperative. Dr.
Byamugisha for the petitioner/respondent opposed the application
for stay of
proceedings and reference of the dispute to arbitration. Learned counsel
contended that this was a dispute not between
the petitioner against the company
as such but between the minority and majority shareholders of the company. The
minority were complaining,
he, argued, of being oppressed by the majority who as
such were not party to the loan agreement containing the arbitration clause.
Counsel further contended that the oppression complained of did not arise by
reason of the articles of association of Ziwa either.
He also urged that the
alleged stripping of the company assets by the majority shareholders had
disabled the company from performing
the arbitration agreement (in the clauses)
rendering the same inoperative. He then pointed out that the stripping
allegations which
have been set out in the petition and repeated in affidavits
in reply had not been controverted by the applicants. He further stated
that the
issue of winding up of Ziwa which was sought by EADB was no longer interpartes
as third parties (seven in number) had come
up to contest the original
proceedings before court which should not shut them out by an interpartes
arbitration. Learned Counsel
cited the House of Lords case of Jureidini v
British and Irish Millers Insurance Co. Ltd [1914-15] All ER Rep. 328 to say
that where a fundamental breach of the underlying contract had been breached
then a party could
not resort to a subordinate arbitration clause. Learned
counsel prayed that the application be dismissed.
There is no doubt that
both cases cited in support of the application state the law. The Shell v
Agip case (supra) related to an arbitration clause worded differently in a
way from the present ones but stated that “questions,
disputes and
differences arising between the participants out of under, or in relation to or
in connection with (this) agreement”
would be referred to arbitration.
JUSTICE TSEKOOKO in that case set out the law and emphasized that the decision
whether, or not
to grant a stay order by a court, is in its discretionary power.
The learned Justice stated:
"From the provisions it appears that the following are the necessary conditions which influence a court in its exercise of discretion.
1. There is a valid agreement to have the dispute concerned settled by arbitration.
2. Proceedings in Court have been commenced.
3. The proceedings have been commenced by a party to the agreement against another party to the agreement.
4. The proceedings are in respect of a dispute so agreed to be referred.
5. The application to stay is made by a party to the proceedings.
6. The application is made after appearance by that party, and before he has delivered any pleadings or taken any other step in the proceedings.
7. The party applying for stay was and is ready and willing to do all the things necessary to the proper conduct of the arbitration.
As in that case conditions 6and 7seem to be the bone of
contention. At the same time conditions 3 and 4 above also seem to be in issue
here. I must point out that both the arbitration clauses being invoked are found
in annextures A and B to the petition and I find
it difficult to agree that the
parties to them are not in effect the parties to the arbitration agreement and
to the petition. This
is inspite of the argument by counsel for the Petitioner
seeking to lift the corporate veil to explain the dispute as arising between
different classes of shareholders in order to bring the proceedings outside
condition 3 above. I do not think that it is proper for
me to accept that
argument for the further reason as contained in article 126 of Ziwa's articles
of association that makes reference
to acts or omissions regulated by the
Companies Act. I would like to think that the substance of the petition relates
to these. I
have the feeling that the petition also relates to matters governed
by the Companies Articles of Association. As such I would not
have any
hesitation in allowing this application. This is principally because commercial
arbitration as an alternative dispute resolution
process should be encouraged to
enable parties contract on their chosen forum without undue intervention by the
formal court system.
This is particularly so where the construction or
implication of terms or trade practice are in issue and where the plaintiff
seeks
summary judgment in circumstances in which the chosen tribunal would not
favour. (See Home Insurance v Mentor (supra)).
However the
Arbitration and Conciliation Act 7 of 2000 under which this application
has been preferred as well as the loan agreement on which arbitration is chosen
indicate a
few complications to this case which I would like to dispose of
first. In the first instance this Act seems to have firstly removed
a perceived
bar to Court proceedings where an arbitration was agreed on. Section 6 of the
Act clearly envisages a situation where
a stay of proceedings is sought in an
interpartes suit. In other words the Court determines the propriety or otherwise
of arbitration
and this too is done inter partes. And this is done at the
discretion of the Court which must satisfy itself that the arbitration
agreement
is valid, operative and capable of being performed. To put it strictly the
mandatory reference to arbitration is subject
of the Court's decision on this
question such that if Court finds the arbitration agreement null and void,
inoperative or incapable
of performance or that there is in fact no dispute with
regard to matters agreed to be referred to arbitration then no such reference
will be made. Then subsection 2 of section 6 of the Act goes further and
provides that arbitration could still be commenced or continued
and an arbitral
award made whether or not a proceeding or application for stay of such
proceeding is pending in court. This in my
mind is the final green light to the
parties if they still wish to proceed to arbitration despite the court
proceedings. This is
well and good since both options in dispute resolution are
left open to the parties. But section 10 of the Arbitration and conciliation
Act
goes further to provide a bar to court intervention. It states:
"10. Except as provided in this Act no Court shall intervene in matters governed by this Act."
According to its objects the Act seeks to "amend the law
relating to domestic arbitration international commercial arbitration and
enforcement of foreign arbitral awards, to define the law relating to
conciliation of disputes and to make other provision relating
to the foregoing."
Matters governed by the Act are so wide ranging that section 10 seems to amount
to an ouster of the inherent jurisdiction
of this Court. Firstly, it appears to
make arbitration and conciliation procedures mutually exclusive from Court
proceedings as for
instance to make Court based or initiated mediation or
arbitration untenable. Secondly, it seems to divorce or restrict alternative
dispute resolution mechanisms from Court proceedings. Thirdly, it trends to
greatly curtail the courts inherent power which is fundamental
in judicature. By
so doing the judiciary is easily emasculated in its regulation of arbitration
and conciliation as adjudication
processes; its remedial power in granting and
issuing prerogative orders of mandamus and certiorari is not addressed if not
sidelined.
Clearly, empowering people to adjudicate their own disputes need not
oust the core mandate and function of courts in the context
of governance.
In this regard it is not clear how to give effect to section 10 of the
Arbitration and Conciliation Act in view of the power given to the Courts
by relevant provisions of the Constitution of Uganda and the Judicature Statute
1996. In
this regard I envisage a myriad of situations when court intervention
in arbitration generally may be fettered. For instance the
English section 10 of
the Arbitration Act 1950 (as amended) makes provision for Court to appoint an
arbitrator in certain circumstances
such as when parties to an arbitration
agreement do not concur to an appointment or when an appointed arbitrator is
incapable. this
power is in the discretion of Court. See: Tritonia Shippinq
Inc. v South Nelson Forest Products (CA) (1966) I Lloyds Rep. 114.
The consideration here is not that the Court desires to intervene in all
disputes but that circumstances do arise when court intervention
is essential
and may come about inherently. For instance an arbitration may take so long and
cause undue hardship. In Emson Contractors v Protea Estates Ltd (1988) 4
Construction LJ 119 a delay of 20 weeks was held to be excessive in relation to
a 14 day time bar on a building contract.
While the Centre established under the
Ugandan Act may handle all such unforeseen circumstances the role of the court
in dispute
settlement would by that mandate not be wholly replaced in effect as
provided in section 10 of the Act. There may in fact be a problem
in which the
centre itself, its officers, organs, or their actions are called into question
and the issues are governed by the Arbitration
and conciliation Act. The Act or
rules themselves may get entangled in litigation or come in question. For
instance the First Schedule
to the Act states in the marginal note that the
Arbitration rules therein are made under section 73 of the Act. However, section
73 of the Act provides:
“ 73. The forms set out in the second schedule to this Act or forms similar to them with such variations as the circumstances of each case require, may be used for the respective purposes in that schedule, and, if used, shall not be called in question. ”
Secondly, sections 5 and 6
of the said arbitration rules refer to the procedure when there is a case
stated. It stipulates:
"5. Where a special case has been stated under section 40 of the Act, the case stated and all relevant papers must be lodged with the Registrar or a district registrar of the High Court as the case may be together with the necessary fees and names of the parties interested and their address.”
Section 6 of the arbitration rules then goes on to state the
procedure the court shall follow to cause notice of the matter to be
given to
the parties. However looking at section 40 of the Act there is no provision for
a case stated. It provides:
"40 (1) A "New York Convention award" means an arbitral award made, in pursuance of an arbitration agreement in the territory of a state (other than Uganda) which is a party to the convention on the Recognition and Enforcement of Foreign Arbitral Awards (the "New York Convention") adopted by the United Nations Conference on International Commercial Arbitration on June 10, 1958."
Having said the above I am however inclined to have an
arbitration in this kind of matter and get answers specifically as regards
whether the certificate No.3 dated February 2, 1993 was or was not in form and
or substance in accordance with the agreement by which
the Petitioner paid for
10,000 shares. Secondly there is the problem of the assets of the company.
Finally this Court will deal with
the remedies that only it can deal with after
the arbitration which must be completed within 30 days from today to, enable the
Court
deal with the matters within its jurisdiction. Costs will be in the
cause.
SAFLII:
|
Terms of Use
|
Feedback
URL: http://www.saflii.org/ug/cases/UGCommC/2000/8.html
.RTF of original document