THE REPUBLIC OF UGANDA
IN THE HIGH COURT OF UGANDA AT KAMPALA
MISC. APPLICATION NO. 555 OF 2002
SIMBAMANYO ESTATES LTD :::::::::::::::::::::::::::::::::::::::::::::::::: APPLICANT VERSUS
SEYANI BROTHERS COMPANY (U) LTD ::::::::::::::::::::::::::::: RESPONDENT
BEFORE: THE HON. LADY JUSTICE M.S. ARACH -AMOKO
This is an application for an order setting aside a part an award dated 12/8/2002 by Justice S.W.W. Wambuzi (Rtd) registered in this Court on 20/8/2002. The application is by chamber summons and cites sections 28, 34 (1), (2) (a), (iv), (vi) and (vii), (3) of the Arbitration and Conciliation Act (Cap 4) and Rules 7 and 13 of the Arbitration Rules.
The grounds are stated in the affidavit of Peter Kamya the Managing Director of the
Applicant Company sworn on 18/9/2002 and a supplementary affidavit dated
20/11/2003 but briefly they are that:
1. The arbitral award was not made in accordance with the Arbitration and Conciliation Act and the substantive laws of Uganda chosen by the parties as applicable to the dispute.
2. There was evident partiality in the way the arbitral tribunal evaluated the evidence and applied and/or omitted to apply or properly apply the law to it.
3. It is just and equitable that the arbitral award be set aside.
4. The arbitral award deals with a dispute not contemplated by or not falling within the terms of the reference to arbitration or contains decisions on matters beyond the scope of the reference to arbitration.
The Respondent has filed an affidavit in reply by Mr. Suleman Musoke an advocate practicing with the firm of M/S Mwema & Mugerwa Advocates, lawyers for the Respondent.
The brief background to this application is that the parties executed a building contract dated 10/8/2001 for the completion of Simbamanyo House, located at plot No. 2 Lumumba Avenue, in Kampala. A dispute arose between them and the Respondent brought an action in the High Court of Uganda against the Applicant for payment of Shs. 140,397,182, interest and general damages for breach of contract. The High Court referred the dispute for arbitration by consent of both parties in accordance with clause 36 of the Building contract. Justice S.W.W. Wambuzi (Rtd) conducted the proceedings and delivered an award on 12/8/2002. The award was filed in this Court on 20/8/2002.
It contains five (5) orders for the Respondent and two for the Applicant. The Applicant is dissatisfied with the 5 orders against it. Hence this application.
Applications for setting aside arbitral awards are regulated by section 34 of the Arbitration and Conciliation Act (Cap 4). The law is settled. When a Court is called upon to decide objections raised by a party against an arbitration award, the Jurisdiction of the Court is limited, as expressly indicated in the Act, and it has no jurisdiction to sit in appeal and examine the award on merits. See: Law Relating to Arbitration & Conciliation by P.C. Markanda P. 525.
With those principles in mind, and turning to the grounds of application, I shall deal with them in the same order in which they were argued in Court.
Mr. Bamwine, learned counsel for the Applicant started with Ground 4 of the application, that the award deals with a dispute not contemplated by or falling within the terms of reference to arbitration or contains decisions on matters beyond the scope of the reference to arbitration contrary to section 34 (2) (a) (iv). This appears to be the main ground of objection to the award, and Mr. Bamwine argued it at length citing various authorities in support of his argument.
Section 34 (2) (a) (iv) of the Act provides that an arbitral award may be set aside by the Court if the party making the application furnishes proof that:
‘(iv) the arbitral award deals with a dispute not contemplated by or not falling within the terms of the reference to arbitration or contains decisions on matters beyond the scope of the reference to arbitration; except that if the decisions on matters referred to arbitration can be separated from those not so referred, only that part of the arbitral award which contains decisions can be separated from those not so referred, only that part of the arbitral award which contains decisions on matters not referred to arbitration may be set aside.”
Mr. Bamwine relied on the definition of the word ‘dispute’ in Markanda’s text book at page 152 where the author defines the word to mean:
“(i) if one party asserts a right and the other repudiates it” and (ii) any question on which parties join issue which the Court can legally inquire into.”
I have no problem with this definition. The learned author infact goes on to discuss the term dispute on the following page specifically in respect of arbitration in the following words:
“Under the law of arbitration a dispute means one party has a claim and the other party says, for some specific reasons that this is not the correct claim. This is a dispute. A dispute of this type requires that there should be a statement or proposition made by one side and there should be a denial or repudiation of that proposition by the other side.”
Applying this definition to the instant case, the question then is, what was the dispute between the parties which was referred to the arbitrator.
Both counsel relied on page 435 of Markanda’s book where the learned author states that:
“In order to see what the Jurisdiction of the arbitrator is, it is open to the Court to see what dispute was submitted to him. If that is not clear from the award, it is open to Court to have recourse to outside sources. The Court can look at the affidavits and pleadings of the parties; the Court can look at the agreement itself”
According to the learned author therefore, the Court looks at the award first in order to define the dispute and the Jurisdiction of the arbitrator. If the award is not clear, then the Court may look at other sources as well including pleadings, and the agreement itself. I agree with this statement. Since it is the award being challenged, it should naturally be the first point of reference. The pleadings and arbitration agreement can then be referred to in case of clarification.
Now looking at the award in the instant case at page 1 - 2, the arbitrator summarized the dispute as follows:
“According to the statement of claim the parties entered a building contract (with qualities) for the execution of construction works by the claimant at Simbamanyo House on plot 2 Lumumba Avenue for the Respondent. The Claimant invoiced the Respondent for work done and materials on site as per interim certificate in the sum claimed which the Respondent failed to settle. Secondly, the Claimant alleges it applied for a second interim certificate for work done and materials on site in the sum of Shs. 101,393,537.07- which the Respondent’s agents refused to certify. Because of this failure to pay the first interim certificate and refusal to certify the 2nd interim certificate, the Claimant terminated the contract. The Claimant claims-
a. Special damages of Shs. 140,397,182-
b. General damages for breach of contract as detailed in the statement of claim.
c. Exemplary damages for willful conduct as detailed in the statement of claim.
In its defence the Respondent denied liability, and alleged abandonment of the works by the claimant, poor workmanship which did not entitle the claimant to payment till practical completion. The Respondent counterclaimed for:
a. loss of rental income.
b. liquidated and ascertained damages as provided by clause 22.
c. direct loss and/or damage envisaged under clause 25(3) (d).
d. direct loss and damage arising out of poor workmanship and
e. general damages for breach of contract.”
The award clearly stated the dispute referred to the arbitrator. Mr. Bamwine has however, contrary to the authority of Markanda approached this issue by having recourse to the pleadings first. In my view, is a wrong approach, where the award is clear. Even if the award was not clear, the Claim (Annexture ‘A’) to Mr. Kamya’s supplementary affidavit supports the arbitrator’s summary. Paragraph 3 states that:
“The claimant’s claim against the Respondent is for payment of Shs. 140,39,7,182- (in words) due on interim certificate No. 1 payment for works done and executed and materials on site yet to be valued and certified, retention money, interest thereon at Bank rate, general damages for breach of contract and costs of the arbitration.”
Paragraph 4 states the facts giving rise to the cause of action; including the paragraph relied on by Mr. Bamwine which states that:
“It was expressly agreed between the parties that a minimum certificate for works shall be shillings 100 million (in words) payable within 30 days from the date of presentation and the certificates would be issued within 14 days from the date of application.”
‘Annexture B’ to Mr. Kamya’s supplementary affidavit is a copy of the Defence which again confirms the arbitrator’s summary. Mr. Bamwine again relied on paragraph 6 of the defence which stated that:
“6. Content of paragraph 4(a), (b), (c) and (d) will be admitted.” to mean that there was no dispute regarding the 30 days period for the payment of certificates.
I have read the award, and I find that the arbitrator was alive to this point. The arbitrator was however also alive to the fact that he had to decide the matter in accordance with the contract between the parties; and the contract between the parties is the building contract signed by the parties on 10th August 2001 and in particular, clause 30 of the contract, which was not deleted. It is noteworthy that the said contract is a Standard Building Contract. Clauses which were not intended to be relied upon were deleted. (See Annexture ‘A’ to Mr. Kamya’s affidavit in support). The arbitrator dealt with this issue at page 10 of the award, where he stated that:
“Even if I were to accept the Respondent’s claim that prior to the building contract the parties had agreed on a mode of payment, the parties subsequently entered into a formal contract which is admitted, which requires payment of the certificate by the employer within 14 days of presentation and says nothing about the prior arrangement as testified by Kamya.”
The arbitrator finally resolved this question on page 17 of the award where he stated this:
“Perhaps I should pause here a moment and resolve what appears to be a conflict in the evidence regarding the period within which an interim certificate must be paid. The letter of appointment of the Claimant dated 24th July 2001, Exhibit C1 provides in so far as is relevant.”
“Finally please note as agreed that the minimum certificate will be Uganda Shillings 100 million payable within 30 days. As soon as you have mobilised yourself on site and have furnished us with a performance bank we shall make arrangements for contract signature between you and the clients. A contract dated 10th August 2001 between the parties was signed. On the evidence it is a standard building contract and accordingly, such provisions as were not required were deleted or changed. Clause 30 was not altered in any way. As I said before in this award, any prior agreements between the parties are superceded and the parties are bound by their subsequent agreement which they both agreed to enter into.”
The arbitrator also stated on page 18 in respect of termination of the contract that:
“I might mention that even lithe period within which an interim certificate is payable were 30 days, the certificate presented on 31st October 2001 should have been paid not later than 30th November 2001. Accordingly the notice to issue determination dated December 2001 was quite in order.”
On the same page, Markanda cites Mustill & Boyd’s Commercial Arbitration 2nd Edn at page 641 and Halsburys Laws of England volume 4’ Edn para 622 where it is stated that:
“An arbitrator who acts in manifest disregard of the contract acts without Jurisdiction. His authority is derived from the contract and is governed by the Act which embodies the principles derived from a specialized branch of law of agency. He commits misconduct if by his award he decides matters excluded by the agreements. A deliberate departure from the contract amounts to not only a manifest disregard of his authority or misconduct on his part but it may tantamount to a malafide action.”
Clause 36 of the contract vested the arbitrator with the Jurisdiction to determine “any dispute or difference between the Employer or Architect on behalf of the contractor either during the progress or after the completion or abandonment of the works, as to the construction of his contract or as to any matter or thing of whatever nature arising there under or in connection therewith including any matter left by this contract to the discretion of the contractor etc.”
It is not in dispute that the arbitrator had to determine the dispute in accordance with the contract between the parties. The contract is the building contract signed on 10th August 2001 and nothing else. In applying the provision of clause 30, the arbitrator was in my Judgment well within the reference.
I do agree with Mr. Kiggundu’s submission that Mr. Kamya’s affidavits seek to have this Court to re-evaluate the evidence. Mr. Bamwine’s submission also bears out this fact where argues that if the arbitrator had applied the letter of 24/7/2001 and the oral evidence of both parties as to the payment period for a certificate, he would have come to a different final result from what he did.
As I stated earlier, this Court has no appellate Jurisdiction under the Act and cannot therefore re-evaluate the evidence. Markanda states at page 537 that:
“The Arbitrator is the final arbitrator of disputes between the parties and the award is not open to challenge on the grounds that the Arbitrator has drawn his own conclusions or has failed to appreciate the facts. Where reasons have been given by the arbitrator in making the award, the Court cannot examine the reasonableness of the reasons. If the parties have selected their forum, the deciding forum selected must be conceded the power of appraisement of the evidence.”
Mr. Bamwine has also submitted that the agreed issue framed did not include an issue as to whether a minimum certificate of Shs.l00m was payable in 14 or 30 days from the date of presentation, simply because there was no dispute over it. That may well be but then if you look at the agreed issues, this issue kept on coming indirectly especially under issues 1,2,4,6 and 9 regarding the Justification for the delay in issuing the 1st certificate, and failure to pay the Claimant, issuance of notice of suspension termination and the delay in executing the works.
In conclusion and based on the foregoing reasons, I find that the arbitrator dealt with the dispute between the parties namely the claim for payment of special damages of Shs. 140,397,182-, general and exemplary damages by the Respondent and the denial of the claim by the Applicant. The award itself does not and Mr. Bamwine has not stated anywhere that it contains any order that was not prayed for in the claim. Ground 4 therefore fails.
Ground 1 is that the award was not made in accordance with the Act and the substantive laws of Uganda chosen by the parties contrary to section 28 of the Act.
During his submission on this point, Mr. Bamwine made a very serious allegation that
the arbitrator failed to apply the substantive law chosen by the parties, namely the
Arbitration and Conciliation Act (Cap 4) and the Contract Act (Cap 73). He then cited
Markanda at page 434 where the author states that:
“In the event of any such agreement, the duty of the arbitrator is to decide the questions submitted to him according to the legal rights of the parties, and not according to what he may consider fair and reasonable under the circumstances.”
and further on the same page that:
“The arbitrator has to decide matters in accordance with the appropriate ordinary law. This rule can only be departed from only under special authorization of the parties.”
Mr. Bamwine then argued that since the parties herein agreed to apply the Arbitration And Conciliation Act, Section 28 (1) and (5) requires the arbitrator to apply the rules of law applicable to the dispute and the terms of the contract, failure to do so vitiates the award. That the arbitrator is not only mandated to apply the law to the dispute but to do apply it properly and the Court has a duty to intervene if the law is ignored or misapplied. He has also cited Markanda’s statement at page 437 to the effect that:
“An arbitrator is not entitled to ignore the law or misapply it and cannot also act arbitrarily, irrationally, capriciously or independent of the contract. Courts of law have a duty and obligation in order to maintain purity of
standards and preserve full faith and credit as well as inspire confidence in alternative dispute redressal method of arbitration to interfere, when on the face of award it is shown to be based upon a proposition of law which is’ unsound or so unreasonable and irrational that no reasonable or right thinking person or authority could have reasonably come to such a conclusion on the basis of the materials on record the governing position of law”
In my view, this is a very strong statement and it is trite law that he who alleges must prove. In this case the Applicant must prove these allegations against the arbitrator. In an attempt to do so, Mr. Bamwine has given several instances, which in his view, show that the arbitrator ignored the law or misapplied it. He has referred to failure by the arbitrator to infer breach of contract by the Respondent in view of evidence which in his view would lead to a contrary finding. He has also attacked the arbitrator’s findings regarding the notices of suspension and acting outside his mandate on the issue whether or not a certificate is payable within 14 or 30 days.
All the arguments in my view require this Court to re-evaluate the evidence before the arbitrator which this Court has no Jurisdiction to do. Markanda states at page 526 that:
“The Court will not take it upon itself the task of being a Judge of the evidence before the arbitrator. It may be possible that on the same evidence the Court might have arrived at a different conclusion than the one arrived at by the arbitrator, but that itself is no ground for setting aside the award.”
In conclusion therefore, I agree with Mr. Kiggundu that the example cited by the Applicant in support of this ground are untenable as the Applicant seeks to vest this Court with appellate Jurisdiction by calling upon the Court to sift through the evidence and reappraise the same. The Applicant has not cited any incident where the arbitrator ignored or misapplied the Arbitration and Conciliation Act or the Contract Act. If anything, all the evidence shows that the arbitrator complied with and strictly applied the Arbitration and Conciliation Act and the Contract Act particularly when he refused to rely on a letter which was not incorporated into the contract under which the dispute arose. This ground also fails for those reasons.
Ground 2 is that there was evident partiality in the way the arbitral tribunal evaluated the evidence and applied and/or omitted to apply the law to it, contrary to section 34 (2) (a) (vi) and S. 28 (4) of the Act. Section 34 (2) (a) (vi) provides that the award may be set aside if there is proof that “(vi) the award was procured by corruption, fraud or undue means or there was evident partially or corruption in one or more arbitrators;”
and S. 28 (4) provides that:
“The tribunal shall decide on the substance of the dispute according to considerations of Justice and fairness without being bound by the rules of law, except if the parties have expressly authorized it to do so.”
Instances cited by Mr. Bamwine included the following:
The arbitrator interpreted the provisions of clause 30 (1) of the contract very strictly when held under issue No. 1 that there was no Justification for the delay in issuing the first interim certificate by the Architect. Mr. Bamwine noted that the strict interpretation of the contract between the parties was regulated by S.28 (5) of the Act, but alleged that the arbitrator did not maintain the same strictness where he found that it would operate against the contractor (Respondent). He gave the following instances:-
(i) Having found that there was an unjustified considerable slowing down of the works and reduction of the work force from 50 to 7 between October and November 2001, the arbitrator did not conclude that this showing down was in breach of clause 21(1) of the contract which required the contractor to regularly and diligently proceed with the work. The arbitrator did not apply the terms of the contract in this issue like he did under Issue No. 1, because if he did so, it would have operated against the contractor Respondent) for whom he found. Instead of pinning the contractor for breach under clause 21(1), the arbitrator instead blamed the employer and said “that the issue of failure to proceed regularly and diligently was not taken up by the employer as required by clause 25 (1) of the contract (See page 13 of the award). It was for the same reason that the arbitrator played down the letter of 31/10/2001 by the Employer because it was not issued under clause 25 (1) of the contract.
(ii). In a bid to Justify the contractors notice dated 27/11/2001 the arbitrator — when he found that the notice could not be sustained under clause 21 (3) (b) where a contractor may suspend works if he has not received payment, the arbitrator Justified it under clause 21(3) (a) under which a contractor can suspend works if he has not got a payment certificate within the prescribed time, since according to the arbitrator, the contractor had not received a payment certificate which he had applied for on 27/9/2001. There is no reason why the arbitrator made this blunder other than that he was evidently partial in favour of the Claimant. He had to bend the rules of the same. Unfortunately for him. He got caught up in his own contradictions.
(iii). By finding that the contractors notice dated 27/11/2001 was proper when it was given after, and not before suspension of works took place, the arbitrator did not only fail to apply the terms of the contract to the dispute but also showed his partiality in determining the dispute. According to Mr. Bamwine, the terms of clause 21 (3) are mandatory, a notice of intention to suspend the works had to be given before the works are suspended. The proviso to clause 21(3) (b) provided that the “Contractor shall not suspend the carrying out of the work before he has issued a 7 days notice.” In the instant case, the suspension of the works took place on 8/10/2001. The notice was purportedly given on 27/11/2001. Such invalid notice could only be justified by a partial mind in the circumstances of the instant case.
(v). In lumpsum contracts the notice of 27/11/2001 and other letters issued before or after it, were issued without legal basis since the contractor was in breach of the contract in clause 21(1) and it could not legally require the employer to fulfill its part of the bargain. The arbitrator did not apply the rule of lump some or entire contracts because it would have operated against the contractor.
In conclusion, Mr. Bamwine cited Markanda at page 613 — 614 where it is stated:
“A predisposition to decide for or against one party, without proper regard to the merits of the dispute is bias, The reasonable apprehension must be based on cogent materials”
and at pages 615 — 616 where the author goes further to say:
“With regard to bias in relation to a Judicial tribunal the test that is applied is not whether in fact a bias has affected the Judgment but whether a litigant could reasonably apprehend that a bias attributable to a member of the tribunal might have operated against him in the final decision of the tribunal. The test of likelihood of bias is whether a person in possession of relevant information would have thought that bias was likely and whether the person concerned was likely to be disposed to decide the matter on/v in a particular way.”
According to Mr. Bamwine, his client had shown five instances where the arbitrator was predisposed and actually decided against his client (the Employer) without proper
regard to the true merits of the dispute and this is only indicative of his bias or partiality. His action or lack of action to apply the proper terms of the contract to the dispute is not capable of any other explanation other than partiality. He cited Markanda at page 580 where the author states:
“In a situation where the arbitrator reached certain conclusions without any evidence in support thereof this indicated a pre - disposed mind of arbitrator to favour the contractor with unsubstantiated conclusions.”
and submitted that the arbitrators pre - disposed mind also indicates evident partiality on the part of the arbitrator.
Mr. Kiggundu contended that the arbitrator was impartial and that the allegations under this ground are serious, unfounded and unfortunate. That the instances cited by the Applicant to prove the allegations are untenable and do not amount to proof of partiality. That the arbitrator was justified in holding that there is no Justification for the delay in certification based on the fact that there is no mention in the contract of any extension or suspension of the 14 days requirement within which the Architect has to certify the certificate (see page 8 of award).
Secondly, the arbitrator was also Justified in holding that the issue of failure to proceed regularly and diligently was not taken up by the Employer as required by clause 25 (1) of the contract this is in light of his finding that the parties had a gentleman’s agreement where it was agreed “to carry on the works albeit at a lower pace until the materials on site were exhausted and there would be no penalties for any delays on the project” (See page 14 of the award). Moreover, the Employer’s Managing Director, Mr. Kamya was also the Project Architect. (See page 27 of the award).
Mr. Kiggundu further submitted that the parties were treated with equality and each party was given reasonable opportunity of presenting its case. The arbitrator even found for the Applicant on some issues like the issue of poor workmanship. The arbitrator therefore acted in an impartial way in making the award, and this ground must also fail.
I have examined the ground of objection as well. I agree with Mr. Kiggundu that the allegations there under are not only serious, but unfounded. The arbitrator is accused by the Applicant of using different standards when applying the provisions of the contract. I find these allegations unfair to the arbitrator. The instances given by Mr. Bamwine do not in my view support the allegation of bias. I have read the award, and I have no doubt in my mind that the arbitrator dealt with all issues raised and decided each one of them according to the evidence before him. Clause 30 (1) for instance clearly provided that:
“30 (1) (a) upon written application by the Contractor, at intervals of not less that 4 weeks, the Architect shall issue within 14 days a certificate stating the amount due to the Contractor from the Employer, and the Contractor shall, on presenting any such certificate to the Employer, be entitled to payment thereof within 14 days from presentation. Interim valuations shall be made whenever the Architect considers them to be necessary for the purpose of ascertaining the amount to be stated as due under an Interim Certificate.”
The arbitrator found that clause 30 (1) does not provide for any extension of the 14 days. Mr. Bamwine also agrees with him.
Now concerning the application of clause 21 (1) which requires the contractor to proceed regularly and diligently with the works, again I find that the arbitrator considered all the evidence before him before arriving at the finding he did. I find no evidence of bias or impartiality in his reasoning contained on page 10 - 13 of the award.
Regarding the accusation under section 28 (4) of the Act (supra), there are two well recognized principles of natural Justice which must be adhered to by an arbitrator, namely:
(i). that an arbitrator who is entrusted with the duty to decide a dispute should be disinterested and unbiased. (nemo Judex in cause sua).
(ii). that the parties to the dispute should be given adequate notice and opportunity to be heard by the authority. (audi al teram partem).
(See: Markanda at page 616).
As stated earlier, the allegation of bias has not been substantiated and there is no complaint that the arbitrator did not give the parties the opportunity to be heard or that had an interest in the matter before him. This ground also fails for these reasons.
The last ground is that it is just and equitable that the award is set aside. My findings on the previous grounds do not support this ground. Moreover after carefully examining the award and the supporting affidavit together with their annextures, I find that the award is within the submission of the parties and contains the honest decision of the arbitrator, after a full and fair hearing of the parties. This Court therefore has no authority to interfere with it.
In the result, I agree with Mr. Kiggundu that the Applicant has not disclosed any tenable ground for setting aside the award. I therefore dismiss the application with costs to the Respondent.
M.S. Arach - Amoko
Ruling delivered in Court in the presence of:
1. Mr. Bamwine Benard for the Applicant.
2. Applicants Directors.
3. Mr. Kiggundu.
4. Respondent’s Managing Director.
5. Okuni - Court clerk.
M.S. Arach - Amoko
Mr. Bamwine: I apply for leave to appeal to the Court of Appeal. The Applicants are
dissatisfied with my ruling. Basically they aggrieved on all the grounds:
- The award was not made in accordance with the Arbitration/Conciliation Act.
The Applicants have a right of appeal according to Makula International. The CPR only points out orders made under the CPR. I also apply for an order of stay of execution pending the Appeal. (See: Kyazze Musitwa —Vs- Eunice Busingye CA No. 18/90).
The Applicant would be prepared to meet any conditions to give security for the due performance of the decree in case he loses the appeal.
Mr. Kiggundu: I oppose the application and pray that the application makes a final application because this application has taken us by surprise. There are salient matters that we need to address including the right of appeal.
Ct: Whether he requires leave or not, I think this Court should not stand in the way of any aggrieved litigant. I think the Applicants are free to appeal if they so wish. Let the execution be stayed pending agreement on the security to be provided. An interim stay of execution for two weeks is accordingly issued until 3rd September 2003 at 11.30 a.m to report to the Court the security agreed upon.
M.S. Arach - Amoko