Loinette v Fabec PO

1

IN THE HIGH COURT OF THE UNITED REPUBLIC OF TANZANIA

COMMERCIAL DIVISION

AT DAR ES SALAAM COMMERCIAL CASE NO. 1475 OF 2024 LOINETTE CAPITAL LIMITED ……………………………………………… PLAINTIFF

VERSUS FABEC INVESTMENT LIMITED………………………………….. 1ST DEFENDANT MES INTERNATIONAL LIMITED…………………………………. 2ND DEFENDANT MES INTNL FINANCE SERVICES (PTY) LTD ………………… 3RD DEFENDANT MES MINE SERVICES TANZANIA LIMITED……………………. 4TH DEFENDANT

RULING August 20th, 2024 & October 4th, 2024 Morris, J Loinette Capital Limited sues the above four defendants alleging that the latter breached a contract which they executed with him. His suit, however, faces a legal siege from the second, third and fourth defendants’ preliminary objection (PO) claiming that: the Plaintiff lacks locus standi to bring this suit; this Court lacks jurisdiction to hear and determine this suit; and this suit is res judicata. The three points of the PO are respectively engraved in the defence’s contention that plaintiff is suing on a contract to which he is not a party; if he is, the alleged contract contains an arbitral clause thus, parties should resort to arbitration proceedings; and that the 2 plaintiff has included in this suit the assets which were subject of the fully and finally determined suit by this Court. The parties were ordered to argue for and against the PO by written submissions. The submissions were filed as scheduled. Advocate Frank Kifunda appeared for the plaintiff while Mr. Renatus Shiduki, learned Advocate, represented the second to fourth defendants. However, the first defendant’s counsel – Mr. Braysoni Shayo had no active role hereof. Although the PO stood on three limbs, as stated above, the Mr. Shiduki prayed to both abandon the first ground and amend the third one to “read that this Court is functus officio to grant the

permanent injunction in respect of the assets pleaded in the plaint”. Consequently, the PO remained with two grounds id est, the Court lacking jurisdiction and it being functus officio regarding the sought permanent injunction. Nevertheless, while I do not hold the strict view in respect of the abandoned limb of the PO, there is a serious concern by this Court vis-à-vis the amendment of the last ground of the PO. As it is unveiled later in this ruling, the plaintiff strongly opposed such approach by the defendants. I feel inclined to start by addressing the purported amendment of the ground of PO. 3 The approach adopted by the defendants’ counsel is professionally unhealthy and totally unacceptable. The reasons for my position are forthright. I will account them here and now. Firstly, amending and/or introducing a new or different ground poses as a surprise to the opposite party. Indeed, as such change is raised at the spur of the moment, the opposite party against whom ‘notice of the PO’ was not served; is without adequate time to prepare and respond accordingly. Subsequently, his right of being heard and/or the principle of fair hearing become prejudiced. Secondly, the party making the purported amendment ends up pursuing or submitting over the matter not before the court. Thirdly, the said party drags both the Court and the opposite party into afterthoughts and extraneous

matters thereby distracting the coherence of the proceedings. Fourthly, the unsanctioned amendment defeats the objective of the PO. As a general rule, a successful PO leads to termination of proceedings without wasting time which would otherwise be required in determining the merit of the matter. Thus, when the purported PO is raised inordinately late, this mischief is far from being cured. Fifthly it is upon the Court to control proceedings by setting out, inter alia, the mode of addressing the court, the timelines and the scope of the matters for 4 determination according to the law. If such systematisation resistor of the proceedings is arbitrarily taken away from the Court by the parties, the role and nobility of the court in the society will end up in disrepute. Sixthly and the most serious of all, the party raising and arguing such so-called PO illegitimately usurps the powers of the Court by giving himself the mandate to submit on the matters outside and/or not sanctioned by the Court. As it can be observed herein, such party purports to seek leave of the Court to amend/add the new ground but before such leave is granted, he proceeds to argue the illicit cause. The above observations notwithstanding, I am mindful that the plaintiff raised his concern over this aspect but went ahead and submitted in reply thereto. That is, his counsel had an option of imploring the Court

to expunge the new/amended ground. Alternatively, subject to the leave of the Court to the other party, he would have sought an adjournment in order for him to make necessary preparations and subsequent submissions in response to the added/amended ground. Nonetheless, the plaintiff’s contentious response against the wrongly amended ground by the defence counsel is a nonstarter. It a common rule that two wrongs do not make a right. 5 In line with the foregoing foundation, I will accordingly hold that the third point of PO was not pursued by the defendants and thus, proceed to expunge the respective submissions for and against it. In consequence, the salvaged ground of PO is only the second one. The same was formulated as follows: “To the extent that the Plaintiff has filed this suit alleging breach of the Payment Arrangement Agreement, annex “LC-1”, that arises from Loan Agreement No. LCL001-21, annex “LC-2”, to the plaint, between the Plaintiff and the 3rd Defendant, as per paragraphs 6.1, 7 and 8 of the plaint, in terms of clauses 18 and 19 of annex “LC-2”, read together with section 13 (1) and (3) of the Arbitration Act, No. 2 of 2020 and item (a) of the Schedule to the said Act, this Court lacks jurisdiction to hear and determine this suit.” For the ease of comprehension of the above ground of PO, I will preface its underlying milieu. According to the plaintiff’s pleadings

there are two agreements involved in this matter (paragraphs 7, 8, 9 and 10 of the plaint). One, the plaintiff alleged that on 02.03.2021 he executed the loan agreement (No. LCL001-21) with the second defendant for USD 663,658.00 (the loan agreement). Two, the plaintiff claims that on 23.03.2021, 6 another agreement was executed by the first and second defendants. Through this agreement, the money due to the second defendant from the business between him and the first defendant was payable through the plaintiff. Under this arrangement thus, the plaintiff’s loan to the second defendant would be repaid. For clarity, I will refer to this agreement as the payment agreement. It is alleged further that the plaintiff was not paid in line with latter agreement. This suit thus, ensued. However, while the loan agreement contained an arbitration clause, the payment agreement did not. The PO is accordingly based on the contention whether or not the arbitration clause in the former agreement applies to the latter agreement which is the prime subject of the present suit. In support of the PO, the defendants’ counsel submitted that, the relevant paragraphs of the plaint to the PO are 7, 8 and 9 under which the plaintiff alleges that the suit is based on the loan agreement. To him, paragraph 7 of the plaint fused two agreements in one cause of action on the basis that the plaintiff averred

that the payment agreement had “its genesis from the loan agreement”. He thus, argued that the foundation of the suit was the loan agreement, without which the whole suit could not 7 stand. He also stressed that the amount of money claimed therein allegedly resulted from the loan agreement. On the foregoing basis, the defendants argued that the dispute arising from the subject loan agreement should be resolved in accordance with clauses 18 and 19 therein. To augment his view, the defence counsel submitted that clause 18 related to the applicable law while the latter clause was about the dispute settlement mechanism. That is, parties covenanted to apply the laws of Mauritius; and settle disputes through arbitration by the Arbitration and Mediation Center of the Mauritius Chamber of Commerce and Industry (MARC) pursuant to the MARC Arbitration Rules. To the defendants, the foregoing choice carried with it a significant impact on the jurisdiction of this Court. He also argued that, if parties choose the law and forum to settle their disputes arising from contractual arrangements, they become accordingly bound. He cited section 6 of the Arbitration Act, No. 2 of 2020 (the Act) to buttress the fronted position. Blending the stated provision to the present suit, the defendants’ counsel submitted that the contents of clause 19 of the loan agreement qualify as the arbitration

agreement. Likewise, sections 12 (1) and 13 (1) & (3) of the Act was cited to indicate the repercussion to the party who ignores or 8 violates the arbitration agreement. The respective advocate argued that Court, in the circumstance of this case and under the law, should refer the parties to arbitration. Nonetheless, he asserted that alternatively, the Court should stay the suit and let the parties go to arbitration first. It was his further argument that the parties’ choice of the suitable dispute settlement mechanism for them does not amount to ousting the jurisdiction of the Court but rather promotion of their mutual desire thereof. In this regard, I was referred to the cases of Sunshine Furniture Co. Ltd v Maersk (China) Shipping Co. Ltd & Nyota Tanzania Limited, Civ. Appeal No. 98 of 2016; Scova Engineering S.p.A & IRTEC S.p.A v Mtibwa Sugar Estates Ltd, Kagera Sugar Ltd, Super Star Forwarders Company Limited & General Motors Investment Ltd, Civ. Appeal No. 133 of 2017 (both unreported); and Carl Ronning v. Societe Navale Chargeurs Delmas Vieljeux (The Francois Vieljeux) [1984] eKLR. Hence, he finalised by submitting that because the agreement bound the plaintiff and the second defendant to go for arbitration, it was not open for the former to resort to this Court. Then he prayed for the PO to be sustained. 9 As for the plaintiff, the PO is without merit. As alluded to

earlier in this ruling, the plaintiff did not condone defendants’ amendment of the third point of PO without the leave of the Court. He argued that, in Tanzania, amending a legal document without the court order is a serious irregularity which may lead the court to reject or disregard the amended document. He likened such approach to the abuse of court process. He had the authorities to cite, namely, Tangerm Construction Ltd and Another v Tanzania Ports Authority and Another, Comm. Case No. 117 of 2015; Zephrenus Clement Marushwa v The Attorney General and 4 Others, Land Appl. No. 241 of 2018 (both unreported); and the definition in the Black's Law Dictionary, 6th ed., Continental Edition 1981-1991 (p.990 at 10 -11). Then he prayed for the Court to disregard the unauthorised amendment. As this point has already been settled above, I will not repeat myself. As for the remaining ground of PO, the plaintiff’s counsel submitted that the defendants misconstrued the meaning and essence of the cause of action. He opted to refresh their minds of what the term entails by citing Order VII Rule 1(e) of the Civil Procedure Code; Alpha Risk Management Ltd v Stella Maris University College and Another, Civ. 10 Case No. 9 of 2022; Antony Leonard Msanze and Another v Juliana Elias Msanze, Civ. Appeal No.76 of 2021 (both unreported). Thereafter, the plaintiff’s counsel submitted that the

present suit was instituted basing on the payment agreement under which he was the beneficiary [paragraphs 6.1, 7 and 24(i) of the Plaint]. To him, the breached agreement is categorically stated by the plaintiff. However, he conceded that under paragraph 7 of the plaint, the plaintiff asserted that the payment agreement had its genesis from the loan agreement signed between the plaintiff and the second defendant on 2nd March 2021. To him, the latter is not at issue. Nevertheless, he submitted that if the Court proceeded to entertain the issue regarding its jurisdiction based on the arbitration, then it would go beyond the meaning and objective of the PO. He also asserted that by them going into the details of the agreements (including the arbitration clause) the parties would be contravening the principles in Mukisa Biscuit Manufacturing Company Ltd v West End Distribution Ltd (1969) E.A 696 (page 701). That is, going through the evidence stated by the defendants to see whether the agreement contained the arbitration clause or not; which was not the issue before the Court, would defeat the purpose of raising the PO since the parties would argue facts instead of points of law. 11 I have impassively considered the pleadings and rivalry submissions of the two sides hereof. The Court is now required to determine the competence of the suit in the presence of the arbitration clause

in the loan agreement. Before doing that, however, I feel predisposed to start by interrogating if the arbitration clause in the loan agreement really extends to the payment agreement. In the interest of ease of follow up, I restate a few undisputed facts. One, the loan agreement was entered between the plaintiff and the second defendants only. Two, it contained an arbitration clause. Three, the payment agreement was executed by the first and the second defendant only. Three, the plaintiff was made a beneficiary in the latter agreement. That is, payments thereunder were to be channeled through the plaintiff’s bank account. Four, the amount of money payable under the payment agreement was quantified/calculated on the basis of the loan agreement. Five, the payment agreement did not contain the arbitration clause/agreement. Six, the plaintiff pleaded that the suit was mainly for recovery of money following breach of the payment agreement by the defendants (paragraphs 7 of the plaint). Seven, the genesis of the claimed money in the present suit was the loan agreement. 12 Having laid the foregoing position, the Court steers towards determining the nexus of the arbitration clause in the loan agreement and the payment agreement, if any. The plaintiff’s advocate argued that for the court to go into such details as to existence of the subject clause in the agreements would amount to

venturing into facts and evidence contrary to precepts of PO [Mukisa Biscuit’s case (supra)]. With sufficient respect to him, I do not reason along the same latitude. In the cited case of Mukisa Biscuits (supra), the context of points that can be raised as PO are diverse. The relevant point in this case, at the present stage, is “which if argued as a preliminary point may dispose of the suit”. That is, when the raised point suffices to dispose the matter without resorting to determining the whole case on merit; such point qualifies to constitute the PO. Hence, if the matter under determination has the effect of achieving this objective, the raised point qualifies as the PO. Further, the present ground of PO has an intrinsic bearing to the jurisdiction of this Court. Thus, it would be seriously irregular if the trial proceeds to full trial only the Court to confirm later that it indeed lacked the requisite mandate over the dispute. Likewise, the plaintiff expressly pleaded the existence of the said loan agreement. Hence, prima facie the plaintiff based his claims on the pleaded 13 agreements to present his cause of action against the defendants. It would be absurd if he undermined them from the outset. Truly, in the absence of such foundations, the plaintiff would be deflating his cause of action and/or the suit as a whole. Not only that but also, it settled the position of the

law that the arbitral agreement in “a contract within a contract”. That is, the arbitral clause in the agreement stands independent of the remaining terms of the contract. If, for example, other terms of the contract are not breached and/or no dispute between parties arises howsoever, the arbitral clause remains to be a dormant agreement incapable of being implemented or executed by the parties. In view of the foregoing interrogation, it is an obvious conclusion of this Court that the present PO is appropriate and has to be determined fully. On such basis, I now have to answer the question I posed earlier: the relevance of the arbitration clause in the loan agreement to the payment agreement and/or the present suit. For ease of comprehension of the subsequent discussion herein, clause 19 of the loan agreement, which clause constitutes the arbitration agreement is quoted below. ” 19.1 In the event of any dispute whatsoever arising in connection with the interpretation and/or fulfilment of this agreement, the matter shall be referred and finally settled 14 under the arbitration administered by the Arbitration and Mediation Center of the Mauritius Chamber of Commerce and Industry (MARC) under the MARC Arbitration Rules in force when the request for Arbitration is submitted under the following conditions: 19.1.1 the seat of arbitration shall be Port Louis, Mauritius; 19.1.2 the law

of this arbitration clause shall be Mauritius law; 19.1.3 the number of arbitrators shall be one; and 19.1.4 the arbitration proceedings shall be conducted in English.” [bolding rendered to emphasise most relevant areas] From the quoted clause above, parties to the loan agreement covenanted that any dispute arising in connection with fulfillment of the subject agreement ought to be referred to arbitration. Essentially, the parties made six choices: not to except any dispute regarding interpretation or implementation of the agreement; the laws to be applied; the mode of dispute settlement; and the seat of such proceedings; the number of arbitrators; and the language of arbitration. Consequently, the Court is to narrow down the above discussion towards responding to another equally important enquiry: did the scope of the disputes to be referred to arbitration in the loan agreement extend to include subsequent agreements (the payment agreement included). In law, 15 the phraseology of the arbitral clause matters a lot. If the parties to the agreement are not express in limiting the nature, extent and type of dispute; they will be considered as leaving the scope of disputes ‘‘open handed’’. Hence, to determine whether or not the matter in controversy is encompassed in the subject clause, the court will be guided by the circumstances of each case. See, for instance, Heyman v

Darwins Ltd [1942] AC 356; Overseas Union Insurance Ltd v AA Mutual International Insurance Co Ltd [1988] 2 Lloyd's Rep 63; Premium Nafta Products Limited and Others v Fili Shipping Company Limited and Others (UKHL 2007) 40. Testing the foregoing tenets to the present case, I have revisited the plaintiff’s pleadings. The link between the dispute arising from the payment agreement and the loan agreement is mainly pleaded under paragraphs 7 to 13 of the plaint. By going through these paragraphs, it is evident that the plaintiff expressly averred that the money due to him from the loan agreement was payable through the modus specified in the payment agreement. Indeed, he pleaded that he was made the beneficiary in the latter agreement “in order to facilitate recovery of the (above) loan amount” (paras 11 and 12 of the plaint). 16 It is the plaintiff’s further assertion that the payment was not effected as per the payment agreement which omission caused him “not to recover her loan payments as guaranteed” (para 13 of the plaint). Thus, it is obvious to me that the alleged breach of the payment agreement is an integral part of the dispute associated with the fulfilment of the loan agreement. Hereof, I need not overemphasise the definite principle of law that parties are bound by own pleadings. Reference to this regard is made to Salim Said Mtomekela v Mohamed Abdallah Mohamed, Civ.

Appeal No. 149 of 2019; Scan Tan Tour v The Catholic Diocese of Mbulu, Civ. Appeal No. 78 of 2012; Lawrance Surumbu Tara v The Hon. Attorney General and 2 Others, Civ. Appeal No. 56 of 2012; (all unreported); and James Funke Ngwagilo v Attorney General [2004] TLR 161. On the basis of the discussion above, I hold that the arbitration clause in the loan agreement squarely envisaged the dispute associated with repayment of the loan. Hence, the clause is applicable to the dispute arising from the payment agreement in so far as the payment of the loan is concerned. After settling the question I posed at the beginning of this ruling, it is time for the Court to test the appropriateness of the case at hand in the 17 presence of the arbitration clause in the agreements from which the suit emanates. The respective defendants submitted that this suit should not be adjudicated by this Court as the parties to the loan agreement covenanted to refer their disputes to arbitration. On the way forward, they referred the Court to sections 12 (1) and 13 (1) & (3) of the Act to the effect that the parties to the present suit should be referred to arbitration in accordance with their contractual explicit and specific choice. I suppose the counsel for the respective defendants intended to cite sections 14 (1) and 15 (3) of the Act. It is undisputable that, in this country court litigation and

arbitration processes co-exist. However, it is the position of the law that, suits filed in relation to disputes arising from contracts which contain arbitration agreements may be dealt with under four procedural categories. I will expound them here, each at a time. One, the defendant may not prefer his defence but files an application to the court so that the matter is referred to arbitration instead. This procedure is pursuant section 14 of the Act. Two, the defendant may opt to present his defence with the application for stay of the proceedings pending referral of the matter to arbitration. The provisions of sections 14 and 15 of the Act cover this category squarely. 18 Three, under the common law principles where the court is the in- charge institution of case management; when it suo motu finds that befittingly it is more appropriate for the matter to be referred to arbitration in line with the respective arbitral agreement, it may do so. In this regard, the issue as to the appositeness of the suit is raised by the court and the parties are invited to address it accordingly. At the conclusion of the subject hearing, the court makes its founded decision on the mechanism to be adopted (either court litigation or arbitration) in order to resolve the disputes between the parties. Four, the defendant who does not opt for any of the above preceding procedures, may raise a PO in

his defence to challenge the maturity of the suit and/or exercise of jurisdiction of the court for want of prior referral of the dispute to arbitration. Obviously, the parties will be heard accordingly. If the PO sails through [on the basis of the Mukisa Biscuits’ Case (supra)], the suit will be considered incompetent before the court. The tetrad categories above are well recapitulated in the cases of, for example, Alchemy Resources Ltd v Impoexpo Logistics Co. Ltd, Comm. Case No. 012187 of 2024; Azania Bank Ltd and Another v Grill House Ltd and 4 Others, Comm. Case No. 103 of 2023; Tanzania Motor 19 Services Ltd and Presidential Parastatal Sector Reform Commission v Mehar Singh t /a Thaker Singh, Civ. Appeal No. 115 of 2005; Scova Engineering Spa and Another v Mtibwa Sugar Estates Limited and 3 Others, Civ. Appeal No. 133 of 2007 (all unreported). The courts in the cited cases adopted one common approach in this regard. That is, to respect the parties’ autonomy expressed in their freely executed agreements. In so doing, the court promotes the principles such as parties being bound by own agreements; parties’ autonomy in contracts; sanctity of arbitration agreements. Technically stated, it is in this regard that the Court is enjoined to promote effective utilisation of arbitration process by the parties who freely chose such mode of dispute resolution at the time of executing

the arbitral agreement. In Azania Bank Ltd (supra) this Court recorded the following reasoning: “… by entering into an arbitration agreement, the parties commit to submit certain matters to the arbitrators' decision rather than have them resolved by law Courts. Thus, the parties: (a) waive their right to have those matters resolved by a Court; and (b) grant jurisdictional powers to private individuals (the arbitrators). These two main effects of the arbitration agreement are called ‘negative’ and ‘positive’, respectively... where the arbitration agreement is valid, it is not 20 the Courts which should take cognisance of the matter, but rather the arbitral tribunals”. I do not find it a misplacement for me to state further that, the philosophy behind promotion of arbitration process is straightforward. At the time of choosing such medium, the parties are neutral and dispassionate about the dispute. That is, none of them would be sure then that the dispute shall ensue from the contract. However, the situation is different when the dispute has actually arisen. By this time; vengeance, dishonesty, ill-motive, afterthought and hope-for-unfair gain become part of the now-sour relationship between the subject parties. Hence, by letting their dispute to be arbitrated as contracted, the court returns the parties to basics of their contracts, as far back to originality of state of

affairs as possible. Having deliberated on the appropriateness of the PO; the connection between the arbitration clause in the loan agreement and the present suit; and the procedural modes capable of being adopted by the Court when the suit involves a contract which bear the arbitral clause, like the matter at hand; I am left with one aspect to settle. That is, the remedy available to the parties hereof. The defendants prayed for alternate orders. On the one hand, they implored the Court to refer the parties to arbitration under 21 sections 12 (sic) and 13 (sic) of the Act; and on the other, they sought the Court order stay of the proceedings pending the parties’ referral of the dispute to arbitration. After what the Court has analysed above, it is fathomable that the invocation of section 14 of the Act (wrongly referred to as 12 by the defendants) is not possible in the present matter. Simply, the defendants did not make a formal application as per the law. Likewise, stay of proceedings is not tenable either. The import of section 15 of the Act in relation to the stay of proceedings (pending referral to arbitration) is that such order may be given by the Court to give room for determination of the application filed by the defence seeking the referral of the dispute to arbitration. In other words, when such application is fully determined, the stay of proceedings order becomes

exhausted. There will be nothing left to stop for either the dispute will be referred to arbitration (if the application succeeds) or the trial will continue thereafter. The foregoing position in perspectives, what then is the consequence of this Court finding that the arbitration clause in the loan agreement takes precedence hereof? It is undisputed that this deliberation has been initiated by the defendants’ PO. Hence, blending the rule in Mukisa Biscuits’ Case 22 (supra) to this case, it is obvious that these proceedings lack the legal justifications to be pursued further in the presence of the binding arbitral agreement between the parties hereof. That is, the Court cannot stay them because of two basic reasons. First, after referring the parties to arbitration, this court will remain with no legitimacy to retain the proceedings which the competent tribunal is mandated by the parties to resolve to finality. That is, upon finalising the arbitration process, the parties will only resort to the Court for registration and enforcement of the award resulting therefrom. What usefulness then, will the stayed proceedings serve at such time? None. Second, the order of stay of proceedings will act as a bar to the envisaged arbitral proceedings under the doctrine of res subjudice and/or such doctrine will be rendered useless in the parlance of jurisprudence. That is, because the

present suit would stand filed earlier than the arbitration proceedings, it would be outlandish for the proceedings which are yet to be filed to stay the ongoing trial before the Court. To adopt such approach is equivalent to putting the cart before the horse. I desist to anchor my legal mind in such evident incongruity. In view of the respective conclusions and reasons I have reached at and given above, the PO is found to be of merit. Accordingly, I sustain it. For 23 avoidance of any doubt, the present suit is hereby struck out to facilitate effective implementation of the respective parties’ contractual choice - arbitration. The willing party may thus, pursue arbitration proceedings in accordance with the agreements as expounded above. In appreciation of the reality that the envisioned proceedings may consequently ensue; and given the circumstances of this suit each party shall bear own costs. It is so ordered. C.K.K. Morris Judge October 4th, 2024 24 Ruling delivered this 4th day of October 2024 in the presence of Advocates Pelazia Emmanuel for the plaintiff; Braysoni Shayo for the first defendant; and Noel Mosha for the second to fourth defendants. C.K.K. Morris Judge October 4th, 2024