MASWI DRILLING RULING

IN THE HIGH COURT OF TANZANIA GEITA SUB-REGISTRY AT GEITA Misc. CIVIL APPLICATION No. 20959 OF 2024 CHATO DISTRICT COUNCIL ---------------------------- APPLICANT Versus MASWI DRILLING COMPANY LTD ------------------- RESPONDENT RULING Date of last Order: 13/09/2024 Date of Judgment: 11/10/2024 K. D. MHINA, J. This application has been preferred under sections 15(1), (2), (3) and (4) of the Arbitration Act Cap 15 R: E of 2020 by way of Chamber Summons supported by an affidavit deposed by Mr. Felician Daniel, State Attorney for the 1st and 2nd Applicants in which the grounds for the prayer sought are pleaded. 1 Equally, the application was opposed by a counter affidavit deponed by Maligisa Sakila, the advocate for the respondent. Briefly, this application resulted from Civil Case No. 12056 of 2024, pending before the court. The applicant faults the act of the respondent, who had contractual terms which specified the modes of dispute settlement for filing the suit before the court. Affronted by the respondent's path, the applicant prays for the following: - i. This honourable court be pleased to stay the proceedings in Civil Case No. 12056 of 2024 to allow the parties to resort to a mechanism of resolving disputes as agreed in their contract. ii. Any other reliefs this court deemed fit and just to grant. iii. The cost of the application. At the hearing, the applicant was represented by Mr. Felician Daniel and Mr. Manguya State Attorneys and Mr. Maligisa Sakila represented the respondent. In supporting the application, Mr. Daniel S.A. submitted that their cardinal prayer was for this court to stay civil case No. 12056 of 2024 to allow parties to invoke arbitration proceedings as they agreed in their contract. 2 He explained that contract No. LGA/039/2013/2014RWSSP/W01 was entered between parties, and clauses 26.1, 27.1.2, and.3 bound them in case of any dispute first to invoke arbitration. In paragraph 7 of the affidavit, he submitted the claim by the plaintiff in the main case is for unpaid retention money, TZS. 139, 620,307.84/=. In the contract, the issue of retention money was covered under clauses 50.1.2 and .3 of the contract, and that retention shall be paid at the completion of the work after the issuance of the certificate by the project manager as per clause 57. From above, he submitted that the respondent has not exhausted dispute resolution as agreed upon in the contract as per the letter OSG 2 attached in para 6 of the affidavit. Supporting his argument, he cited the case of Songea Municipal Council & another vs. Lukolo Company Limited (Misc. Civil Application Ref No. 26255 of 2023) [2024] TZHC 5713 (13 June 2024) where it was held that the role of the court is to enforce the terms of the contract and not to re-draft or order otherwise. In response, Mr. Sakila Advocate submitted that he was aware of the arbitration clause as per the contract between the parties and the addendum 3 dated 16 June 2018. He stated that in both documents, the clauses for arbitration were set, but the problem was the requirement for the appointment of an adjudicator. Referring to clause 28.1 of the main contract, the adjudicator was to be appointed by the Chato District Council (the applicant), while in the general interpretation part of the contract, it was agreed that both parties were to nominate the adjudicator. In the addendum, the adjudicator was to be appointed by the National Construction Council (NCC). He also submitted that the gist of the dispute was that the respondent requested the retention money from the applicant, and there was no response. Therefore, there was no dispute to refer it to the adjudicator and later to arbitration. He explained that the project manager issued a certificate and acknowledged the issue of retention money. Therefore, no dispute was to be referred to the adjudicator as per clause 26 of the contract, which defined the kinds of disputes in the contract. The reason was within the meaning of disputes in the contract, the issue of retention money was not covered. 4 For that reason, Mr. Sakila insisted that the arbitration process was rendered ineffective and it was proper to refer the matter to court as per Section 15 (4) of the Arbitration Act, which gave room to the Court when the arbitration agreement became null or inoperative. On the cited case of Songea Municipal Council (supra), he submitted that the case is distinguishable for the reasons that in that case, arbitration was possible, and there was a decision of the adjudicator, while in the case, the procurement of an adjudicator was not easy because of the contradictions in the contract. In the rejoinder, Mr. Daniel SA submitted that in the respondent's counter affidavit, it was not stated whether the project manager had issued a certificate of completion and the respondent was entitled to payment of retention money. Further, he added that there was a dispute that led the respondent to file the case, which was to be referred to arbitration as per the terms of the contract. Mr. Manguya SA also added that as per the contract, the role of appointment of the arbitrator was for the applicant, but in the event of 5 failure, the respondent was empowered to appoint an arbitrator under section 21(2) of the Arbitration Act. He also stated that in the addendum to the contract, the NCC was given the mandate to appoint the arbitrator and, when it fails, under section 22(2)(a)(c) of the Arbitration Act, the aggrieved may request the Tanzania Arbitration Center to appoint the arbitrator. Therefore, it was not true that the arbitration agreement was null, void and inoperative. Having gone through the pleadings and submissions by both parties, I proceed to determine the application, and the issue is where the application has merit. There is no dispute as indicated in the applicant’s affidavit, which was also not opposed by the respondent's counter-affidavit; parties entered into a contract, and the terms of that contract were set. One of the terms of the contract between the parties was that in case of any dispute, the offended party should first resort to adjudication and arbitration before filing a suit in a court of law. 6 In the instant application, the applicant is challenging the act of the respondent to institute Civil Case No. 12056 of 2024 for the claims of unpaid retention money, TZS. 139, 620,307.84 based on the terms of the contract entered. Having read and analysed the contract between the parties, I found that clauses 26.1, 27.1.2, and 3 of the contract No. LGA/039/2013/2014RWSSP/W01 entered by parties mandatorily requires that in case of any dispute, parties have to resolve first by referring their dispute to the adjudicator and, if not satisfied, invoke arbitration proceedings. For ease of reference, clauses 26.1, 27.1 and 27.2 read that: - 26.1 If the Contractor believes that a decision taken by the Project Manager was either outside the authority given to the Project Manager by the Contract or that the decision was wrongly taken, the decision shall be referred to the Adjudicator within 14 days of the notification of the Project Manager’s decision 27.1 The Adjudicator shall give a decision in writing within 28 days of receipt of a notification of a dispute. 7 27.2 The Adjudicator shall be paid by the hour at the rate specified in the Bid Data Sheet and Special Conditions of Contract, together with reimbursable expenses of the types specified in the Special Conditions of Contract, and the cost shall be divided equally between the Employer and the Contractor, whatever decision is reached by the Adjudicator. Either party may refer a decision of the Adjudicator to an Arbitrator within 28 days of the Adjudicator’s written decision. If neither party refers the dispute to arbitration within the above 28 days, the Adjudicator’s decision will be final and binding. On careful scrutiny of the above clauses, it is quite clear that an articulate construction of the agreed terms enlightens that parties' rights and dispute settlement mechanisms are managed by the free-entered contractual terms. The parties to the contract as a dispute settlement mechanism agreed in their contract were First, to refer the dispute to the adjudicator within 14 days and Second, if a party is aggrieved by the decision of the adjudicator, invoke arbitration proceedings within 28 days of the decision of the adjudicator. Flowing from above, in the absence of any amendment of the agreed terms, the parties to the contract are bound by the terms of the contract, 8 including reference of the dispute to adjudication and arbitration as stipulated. It is the settled principle that, strictly when parties have freely agreed on their contractual clauses, it would not be open for the courts to change or alter. It is not the role of the courts to re-draft clauses in agreements but to enforce those clauses where parties are in dispute. See Songea Municipal Council (supra). Further, in the case of Simon Kichele Chacha vs. Aveline M. Kilawe, Civil Appeal No. 160 of 2018(Tanzlii), the Court of Appeal held that: "It is settled law that parties are bound by the agreement they freely entered into, and this is the cardinal principle of the law of contract. That is, there should be a sanctity of the contract as lucidly stated in Abualy Alibhai Azizi v. Bhatia Brothers Ltd [2000] TLR 288 at page 289 thus: The principle of sanctity of contract is consistently reluctant to admit excuses for non-performance where there is no incapacity, no fraud (actual or constructive) or misrepresentation, and no principle of public policy prohibiting enforcement". On why he skipped the arbitration proceedings, Mr. Sakila defended his decision to approach this court directly based on two reasons; One, there were no clear terms on the nomination of the adjudicator and; 9 Two, the respondent claims that the claim for unpaid retention money, TZS. 139, 620,307.84 filed before the court was not a dispute as under clause 26, for the project manager had certified and acknowledged the issue of retention money. In determining the first reason, it is clear that clause 28.1 of the main contract provided that the adjudicator was to be appointed by the applicant, while in the general interpretation, both parties were to nominate the adjudicator. In case a party is aggrieved by the decision of the adjudicator, it shall commence arbitration proceedings. In the instant application, the records do not show how the respondent complied with the contract terms. It is not enough to say that it was difficult to appoint the adjudicator while the respondent did not exhibit to the court that he complied with the terms of the contract to cause the applicant to nominate the adjudicator as per clause 28.1 of the contract or invoke the appointment by both parties as per general interpretation part of the contract. 10 On the second reason, simply the contract between the parties created the arbitration clause. If the respondent had claims of non-payment of retention money and the applicant did not pay, that it’s a dispute. The contract between the parties is straightforward in that, in case of a dispute, the dispute resolution is first through adjudication and then arbitration. The arbitration clause did not distinguish the type of disputes arising between the parties in exercising their contractual obligations, the contract and the arbitration clause did not set for dual dispute settlement mechanisms, that there are disputes to be referred to courts, straight and other disputes be referred to adjudication and arbitration. In that regard, the cause of action originated from the contract, which, according to the terms agreed upon, the dispute was first to be referred to adjudication and arbitration. The Court of Appeal in Tanzania Motor Services Ltd and another vs. Mehar Singh t/a Thaker Singh, Civil Appeal No. 115 of 2005 (Tanzlii) cited Heyman vs. Darwins Ltd. (1942) AC 356 at page 375 where it was held that; "I venture to think that not enough attention has been directed to the true nature and function of an arbitration clause in a contract. It is quite distinct from other clauses. The other 11 clauses set out the obligations that the parties undertake towards each other, but the arbitration clause does not impose an obligation in favour of the other on one of the parties. It embodies the agreement of both parties that if any dispute arises with regards to the obligation which the one party has undertaken to the other, such dispute shall be settled by a tribunal of their own constitution”. [Emphasis provided] Further, in Travelport International Ltd vs. Precise Systems Ltd, Misc Commercial Case No. 359 of 2011 (Tanzlii), it was held that; “It is the court's position that where there is in existence an agreement between the parties for them to refer the dispute to arbitration regardless of the nature of the complaint the parties have to go before the Tribunal and not the court. (Also see Shamji vs. Treasury Registrar Ministry of Finance [2002] 1 EA 273)”. Therefore, from the discussion above and the holdings of the cited cases, the respondent was barred from filing Civil Case No.12056 before this court without first adhering to the agreed-upon terms to refer the dispute first be referred to adjudication and arbitration. 12 As already alluded, nothing material and with merits was submitted and exhibited by the respondent as to why he skipped the dispute resolution mechanism they agreed to in their contract. I perused the letter by NCC to the respondent (Annexed as OSG 2). That letter was quite clear that the arbitration proceedings could not be commenced because there was no adjudicator’s decision. However, the last part of the letter advised the respondent to refer the dispute to the court. In my opinion, that was advice; it was not a decision, thus not binding further, I don’t think it meant skipping the binding terms of the parties in the contract. Regarding this letter, I shall end here. Flowing from above, in view of this court's findings, this application is hereby granted. Consequently, Civil Case No. 12056 of 2024 is hereby stayed to pave the way for the arbitration process to take place. The application is granted with costs. It is so ordered. 13 K. D. MHINA JUDGE 11/10/2024 Court: Right to appeal explained. K. D. MHINA JUDGE 11/10/2024 14 15