nam enterprises ltd vs kariakoo market corporation 2012 tzhccomd 59 20 june 2012

IN THE HIGH COURT OF TANZANIA

COMMERCIAL DIVISION

AT DAR ES SALAAM COMMERCIAL CASE NO.80 OF 2011 NAM ENTERPRISES LIMITED....... RESPONDENT/PLAINTIFF

VERSUS

KARIAKOO MARKET CORPORATION............................. APPLICANT/DEFENDANT

RULING BUKUKU, J . This is an application of stay of proceedings filed on the 19th day of October, 2011, with a view to refer the matter to arbitration. The application which has been preferred under section 6 of the Arbitration Act, Cap.15 R.E 2002, Order XLIII Rule 2 of the Civil Procedure Code, Cap.16 R.E 2002 and Rules 1 and 18 of the Second Schedule (Arbitration) of the Civil Procedure Code, Cap.16 R.E 2002, is supported by an affidavit of one Marieta L. Massaua, the Finance Manager of the Kariakoo Market Corporation. In essence the following prayers are made:- (i) That, this suit be stayed and be referred to arbitration as per agreement of the parties hereof; and (ii) Costs be provided for. Page 1 of 17 The Application was disposed of by way of oral submissions, Mr. Mgare, Advocate represented the Plaintiff and Ms. Kalamamu represented the Defendant. For full appreciation of the gist of the application, Paragraphs 2,3,4,5 and 6 of the sworn affidavit of Ms. Marieta L. Massaua captures the factual background of the matter as follows:- "2. That, since 2003 the Defendant had entered into several agreements for garbage collection and disposal of various occasions upon being awarded tender contract.

3. That, the Plaintiff's claim has been stated in a lump sum covering the period between 2003 to 2008; 4. That, under Clause 18 of the agreement of 2006/07, 2003/04 of garbage collection and disposal agreement provides that any dispute arising out of the agreement shall first be referred to an Arbitrator to resolve the matter.

5. That, the Respondent has instituted this suit against the Applicant/Defendant without first referring the matter to the arbitration contrary to what is stated Page 2 of 17 under clause 18 of garbage collection and disposal agreement.

6. That, all issues and disputes centered on the garbage collection and disposal on the plaint can be amicably settled and completely determined by the arbitrator." Ms. Kalamamu submitted that, the parties have entered into several agreements which contain a dispute resolution clause to refer the matter to arbitrator. Therefore the matter was supposed to be brought before an arbitrator. The Applicant herein is willing and ready to do the proper conduct of arbitration. As agreed by parties the Applicant is willing to act according to arbitrators instructions. Thus, the Applicant is praying the matter be stayed and referred to arbitration. Ms. Kalamamu supported her submission by making reference to the decision of the Court of Appeal of Tanzania in the case of Construction & Engineering Builders Ltd versus Sugar Development Corporation, Civil Appeal No.23 of 1983, (CAT) TLR (1983) at pg 13, where Justice Mwakasendo observed as follows:- 'Tt is clear that the parties to a contract have agreed to submit all their disputes or differences arising "under" the contract to an arbitrator, the dispute must go to arbitration unless there is good reason to justify the court to override the agreement of the parties." Page 3 of 17 With this submission Ms. Kalamamu prays that the application for stay be granted with costs. The application is strenuously opposed by Mr. Mgare, Learned Advocate

for the respondent in that, this application is misconceived and without substance and the same should be dismissed with costs. The Plaintiff does not dispute the existence of an agreement for garbage collection. The said agreement expired in 2007 and followed by another agreement which was terminated in 2008. Therefore an agreement of 2008 forms the basis of this case. Mr. Mgare submitted further that, the provisions of the law as cited by the Applicant in this application are discretional and not automatic. It is upon satisfaction of the Court that there is need to go to arbitration before the Court can stay the proceedings. Under the present application, there are no good grounds submitted by the learned Counsel for the Applicant to convince this Court to stay this suit and refer the matter to an arbitrator. Mr. Mgare submitted further that, this matter has been negotiated out of Court on several occasions and to the extent that the Applicant had agreed on their own volition to pay the sum demanded. So there is no need to go back to an arbitrator for arbitration. Page 4 of 17 Contending further, Mr. Mlgare submitted that, as per the decision of the Court of Appeal in the case of Construction & Engineering Builders Ltd versus Sugar Development Corporation (supra), there must be good reasons for this Court to override the agreement between the parties. In this case, there are

good reasons for this Court to refuse stay of proceedings because parties had negotiated and reached consensus. However, the Applicant has failed to comply with terms and conditions of negotiation. In rejoinder, Ms. Kalamamu submitted that, further to the contract of 2007 there is no any subsequent contract rather than an offer. The negotiations alleged by the respondent were conducted without an arbitrator and therefore should not be considered by this Court. M.s Kalamamu submitted further that, no reconciliation has been made by the parties on the purported amount subject of being paid by the Applicant. She therefore surmised that, the stay be granted as prayed. The main issue for consideration here is whether this is a fit case for arbitration and thus the proceedings be stayed. Before I delve into the merits of the application, let me first come to a rather important consideration to which unfortunately neither counsel has referred it adequately. Much as counsel for the respondent tried to raise it, he neither pursued it further. The Page 5 o f 17 proper procedure for making any application under the Arbitration Act is by way of a petition with affidavit in support. This is in line with Rule 5 of the Arbitration Rules, G.N No. 427 of 1957. This application having been preferred under section 6 of the Arbitration Act Cap 15 R.E, 2002, ought to have been brought by way of a

petition and not by way of a chamber summons. Again, this application having been brought under section 6 of the ordinance, which section by operation of section 3 of the Arbitration Ordinance applies to suits triable only by the High Court, and therefore, cannot at the same time be preferred under Rules 1 and 18 of the second schedule (Arbitration) of the Civil Procedure Code, Cap 16 R.E 2002.The reason being that, Rules 1 and 18 of the second schedule (Arbitration) of the Civil Procedure Code, Cap 16 R.E 2002 are basically applicable in subordinate courts. This legal position has been clearly stated in the case of Pradhan Mulji Walji versus Nurbai Jina jeraj [1962] 1 EA 400 (HCT). Under such circumstances therefore, the use of these rules herein is misconceived. With this, one can only conclude that, this court cannot be properly moved under the provisions of section 6 of the Arbitration Act by way of a chamber summons, it was supposed to be by way of a petition supported by an affidavit. These two anomalies in themselves renders the application incompetent. Page 6 of 17 Even if I were to come into a different conclusion, still the application is incompetent. I will give reasons. As earlier on mentioned, this application has been preferred under section 6 of the Arbitration Act and Rulel and 18 of the Second Schedule to the Civil Procedure Code for stay of proceedings in view

to refer the matter to Arbitration. Section 6 of the Arbitration Act provides:- "6(l)-l/l//7ere a party to a submission to which this Part applies, or a person claiming under him, commences a legal proceedings against any other party to the submission or any person claiming under him in respect of any matter agreed to be referred, a party to the legal proceedings may, at any time after appearance and before filing a written statement or taking any other steps in the proceedings apply to the court to stay the proceedings; and the court, if satisfied that there is no sufficient reason why the matter should not be referred in accordance with the submission and that the applicant was, at the time when the proceedings were commenced, and still remains, ready and willing to do all things necessary for the proper conduct of the arbitration, may make an order staying the proceedings, (emphasis is of this Court)'7. Page 7 of 17 When a properly presented application for stay of proceedings is placed before a court, it is not a simple matter of glancing at an arbitration clause in the agreement and automatically packing the parties to go for arbitration. The matter is of judicial discretion of the court. This legal position has been stated by Hon Katiti, J. in the case of Covell Mathews Partnership versus Tanzania Railways Corporation, Civil Case No.106 of 1998 where his Lordship had this

to say:- "The High Court, has inherent jurisdiction to make an order for reference to arbitration in any case, where the parties desire that the cause, or other matter should be decided by an arbitrator instead of by the court...". Section 6 of the Arbitration Act does not permit parallel proceedings to be handled simultaneously and consequently, it is not open for the defendant to take out an application for stay of proceedings and at the same time file a written statement of defence. By bringing an application for stay of proceedings under section 6 of the Arbitration Act, the defendant's duty to file written statement of defence is suspended. It is trite law that, parties who wish to invoke the provisions of section 6 of Cap 15 must establish the following, to the satisfaction of the court:- Page 8 of 17 (i) It has to consider the precise nature of the dispute which has arisen between the parties (see: Construction Engineers and Builders Ltd. V. Sugar Development Corporation (supra). (ii) Whether the question(s) in dispute are one within the terms of the arbitration clause and that such questions should therefore be referred to arbitration. (iii) Whether the petitioner/applicant has file the application at anytime after appearance, but before taking any steps as outlined under section 6 of Cap 15- such steps include the filing of a written statement of defence or taking of

other steps in the proceedings. (iv) Whether the matter was one that both parties agreed to be referred to arbitration. (v) Whether the applicant was at the time the proceedings were commenced, and still remains ready and willing to do all things necessary to the proper conduct of arbitration. (vi) That there are no sufficient reasons before the court to make it refuse granting the stay. Page 9 o f 17 The matters enumerated herein, do not ipso facto bind the court to refer the matter to arbitration. There is no dearth of authorities on the subject of reference to arbitration. The Court of Appeal of Tanzania and the High Court have both come up with what I consider to be sound decisions on the issue. The following are some of the recent cases: SGS V. VIP Engineering & Marketing Company Ltd. (Civil Application No. 84 of 2000; B.E Shamji & Others V. Ministry of Finance (Misc. Commercial Case No. 14 of 2001; Motokov Auto Garage Ltd. V. 1970 E.A 249 and many more. It is the norm that, if parties in a contract or agreement have accepted to be bound by "reference" to the arbitration clause then, the courts will normally be bound by the said arbitration clause. The courts would then proceed to give effect to that clause unless there are compelling reasons which the court ought not to stay the proceedings and refer the matter to arbitration. It must however be remembered that, the fact

that there is a conflict which has culminated into commencement of a suit between the parties to the contract which contains arbitration clause does not in itself automatically imply that there is a dispute which must be referred to arbitration and thus cause the proceedings be stayed pending arbitration. All things being equal, the court can only order stay if it satisfied that there is sufficient Page 10 of 17 reasons why the matter should not be referred in accordance with the submission. Let me now apply the principles explained herein, to this application. As already hinted, I am of the considered opinion that this matter should not be stayed. My reasons being that, at this stage, the written statement of defence so filed, does not dispute the main area of the claims by the respondent. For example, the applicant herein admits the respondent's entitlement to the claim pursuant to the contract. The applicant also admits the liability to pay. It is only that the sum owing is disputed. Could then, the said disputed sum form a basis for arbitration before resorting the matter to this court? It could have been so, provided the defendant complies with the relevant provisions of the law. It is trite that, if a debtor agrees that the money is due, but simply fails to pay it, there is no dispute and the creditor can and must proceed by action, rather than by arbitration;

equally silence in the face of a screaming claim does not constitute nor raise a dispute. My understanding is that, the relevant part of section 6 of Cap 15 is crucial. This provision allows the respondent, like the one in this application, at any time after appearance and before taking any step in the proceedings, including filing his written statement of defence or taking any other steps in the proceedings to apply to the court to stay the Page 11 of 17 proceedings, (see: Capital Trust Investment Ltd. V. Radio Designer (2001) 3 ALL ER CH. DIV. 62). The same legal position had also been amplified in the case of the City Council of Dar Es Salaam V. Taj Mohamed (1968) HCD 247 wherein Hon. Georges, J,(as he then was) had this to say; "The High Court may order a stay of proceedings to permit arbitration only if application is made "at any time after appearance and before filing a written statement, or taking any other steps in the proceedings" Where a party wishes to rely on an arbitration clause in a contract to stay the proceedings in a court, he must make an application for an order to stay the proceedings. Upon making the application, he must fulfill certain conditions as already mentioned herein, and among the conditions to be fulfilled in order for the stay to be granted on account of an arbitration clause is that the applicant must have taken no steps in the proceedings

after appearance. The term "step in the proceedings" has not been defined in our statutes. However, Hon. Massati, J. in Commercial Case No.55 of 2006 between Transnet Ltd t/a Spoonet and Page 12 of 17 Comazar (Proprietary) Ltd has tried to explain the meaning in detail to mean; "Some step which indicates an intention on the part of a party to the proceedings that he desires that the action should proceed and no desire that the matter should be referred to arbitration." Here, the deep involvement in the litigation in court by the pplicant's participation after entering appearance is a manifestation of waiver. It clearly waived the arbitral conditions. In other words, the applicant has taken a step further. This seems to be the position, and a correct one as taken by Mrosso, J. (as he then was) in the East African Breweries Limited V. G.M.M Company, High Court (Mwanza) Civil Case No. 67/99 when he stated: "The remedy is provided in section 6 o f the Arbitration Ordinance cited above........... That is to say, to apply for stay o f proceedings at the appropriate tim e/' By implication, it means that, the applicant herein has consented and resorted to the settlement of their dispute through the court of law. The other issue is that, Counsel for the applicant has failed to satisfy the court by giving good reasons to make it refuse Page 13 of 17 granting the stay. I am alive of the

sanctity of contacts as embedded in the contract Ordinance, Cap 433. Furthermore, I am aware of the decision of the Court of Appeal of Tanzania in the case of Construction Engineers V. Sugar Development Corporation (supra) where it was held that: "Where it is clear that the parties to a contract have agreed to submit at their disputes or differences arising under the contract to an arbitrator, the dispute must go to the arbitrator unless there is good reason to justify the court to override the agreement of the parties". In my considered opinion, good or sufficient reasons include adherence to the relevant provisions of the law like this one requiring to apply for stay of action soon after entering appearance and before filing of written statement of defence, or taking any other steps in the proceedings. If defendant had time to compose and file his written statement of defence, then he also had all the time required to file the appropriate application for stay of action. Unfortunate for him, he did not do so, and no reason is given for the failure. Here, in view of the fact that the applicant did not mind fighting the claim in court ever since it was lodged in court, to initiate arbitration process at this late hour with no certainty Page 14 of 17 whether the arbitrator will be agreed upon fairly quickly, will cause further delay, occasion extra expenses and

entertain unnecessary anxiety. These considerations, taken together with the applicant's conduct referred to above mitigate against a reference to arbitration. From the above therefore, one can conclude that, the applicant's failure to follow the procedure prescribed by section 6 has disentitled him a stay. In passing, I wish to observe what the learned counsel for the applicant had raised in the course of making her submission. She said that, there was no other contract other than the one which expired in 2007. I am alive in the decision by my learned brother Hon. Werema, J (as he then was) in the case of Misc Civil Cause No. 1 of 2008 between G.K Hotels and Resorts (Pty) versus Board of Trustees of the Local Authorities Provident Fund when he made reference to Article 21.2 of the UNCITRAL RULES OF ARBITRATION in that; "The arbitral tribunal shall have the power to determine the existence or validity of the contract of which an arbitration clause forms part. For the purpose of article 21, an arbitration clause which forms part of the contract and which provides for arbitration under these Rules shall be treated as Page 15 of 17 an agreement independent of the other terms of the contract. A decision by the arbitral tribunal that the contract is null and void shall not entail ipso jure the invalidity of the arbitration clause." I fully subscribe to the above observations made by

my learned brother Hon. Werema, J. Indeed, an arbitral clause in a contract/ agreement is separate and independent from the other terms of that contract. The expiration of the contract or agreement does not affect the applicability of the arbitration clause. It goes therefore to demonstrate that, even if the contract had expired, still the arbitration clause subsisted. In the upshot and for the foregoing reasons the application by the Defendant/Applicant fails and is hereby dismissed with costs. It is accordingly ordered. A.E. BUKUKU

JUDGE 20™ JUNE, 2012 Page 16 of 17 Ruling delivered in Chambers this 03rd day of July, 2012 in the presence of: For the Applicant: > For the Respondent: A.E. BUKUKU

JUDGE 20t h JUNE, 2012 Words Count: 3,244. Page 17 of 17