TFC LTD Vs EXIM BANK T LTDMisc

IN THE HIGH COURT OF TANZANIA (COMMERCIAL DIVISION) AT DAR ES SALAAM MISC. CIVIL APPLICATION NO. 322 OF 2017 (Originating from Commercial Case No.83 of 2017) TANZANIA FEDERATION OF COOPERATIVES L T D .......................APPLICANT VERSUS EXIM BANK (TANZANIA) LIM ITED.......................................... RESPONDENT RULING MWANDAMBO, J The parties to this application are 1st Defendant and Plaintiff respectively in Commercial case's No. 83 of 2017. That case is for declaratory orders for breach of terms of loan facility agreements and Inter-creditor Loan Agreement amongst others. Acting pursuant to rule 1 (1) and 18 of the Civil Procedure (Arbitration) Rules, 2nd schedule to the Civil Procedure Code, Cap 33 [R.E 2002] (the Civil Procedure Code), the Applicant seeks for stay of the suit pending reference to arbitration in accordance with the submission under the underlying agreement. It is averred by the Applicant that the dispute falls under the scope of disputes for which parties agreed to refer them to arbitration and that the Applicant has been and is ready and willing to do all things necessary for the proper conduct of the arbitration. The Respondent resists the application through a counter-affidavit deponed to by Emmanuel Nasson learned Advocate. The Respondent has raised several grounds in opposition to the application namely; 1) the application has been made belatedly as the main suit has gone post 1st pre-trial and scheduling conference 1 2) the dispute in the main suit does not arise from the inter-creditor Loan Agreement rather from Loan Facility Agreement and 3) the parties have submitted to the jurisdiction of the Court. On account of the foregoing, the Respondent has urged the Court to dismiss the application. Mr. Sylvester Shayo and Dr. Onesmo Kyauke learned Advocates for the Applicant and Respondent respectively filed their skeleton arguments pursuant to rule 64 of the High Court (Commercial Division) Procedure Rules, 2012.1 also heard the learned Advocates orally in addition to their skeleton arguments. Earlier, on the Respondent's Advocates had filed a preliminary objection against the application and so the skeleton arguments filed are by and large premised on the said preliminary objection which was marked withdrawn on 1st October 2018. Submitting on the merit of the application, Mr. Shayo argued that the dispute in the suit fits to go to arbitration because the suit has not gone beyond first pre­ trial conference and thus well covered by rule 18 of the second schedule to the Civil procedure Code. That rule gives the Court power to stay the suit and refer the dispute to arbitration before the settlement of issues. It was the learned Advocate's submission that according to the pleadings in the main suit, the dispute arises from Inter Creditor Loan Agreement which is inseparable from the rest of the agreements including the mortgage and guarantee and term loan facility between the parties. Dr. Kyauke took issue with the Applicant's Advocate on both aspects. Firstly, the learned Advocate was adamant that the application has been made belatedly regardless of the language used in rule 18 of the second schedule to the Civil Procedure Code. Secondly, the learned Advocate submitted that the Inter creditor Loan Agreement which contains an arbitration clause is for sharing of securities amongst the lenders on the one hand and the borrower on the other and so it is not an agreement from where the Respondent alleges breach of loan facility agreement. 2 The learned Advocate conceded that there was an error in making reference to the Inter creditor Loan Agreement in the amended plaint. Otherwise, the learned Advocate submitted that at any rate the suit involves several parties who are not parties to the Inter creditor Loan Agreements involving several agreements which fall outside the ambit of the arbitration clause. I heard Mr. Shayo in rejoinder submitting that clause 11.5 of the Inter-Creditor Loan Agreement prevails over all other credit agreements but any rate, the same agreement covers issues pertaining to the borrower's obligation to repay the loan. As to the timing of the application, the learned Advocate argued that contrary to the Respondent's Advocate's submissions, the cut-off point in accordance with rule 18 of the 2nd schedule to the Civil Procedure Code is settlement of issues on the main suit. Having heard the submissions for and against the application, the following issues arise for determination namely:- 1) whether the application has been made belatedly; 2) whether the dispute in the main suit falls within the arbitration clause under the Inter Creditor Loan Agreement and if so, whether the same extends to other agreements pleaded in the main suit. The first issue does not appear to be involving because its determination depends on the proper construction of rule 18 of the second schedule to the Civil Procedure Code which stipulates; "18 where any party to any agreement to refer arbitration, or any person claiming under him, institutes any suit against any other party to the agreement, or any person claiming under him, in respect earliest possible opportunity and in all cases where issues ore settled a t or before such settlement, apply to the court to stay the suit; and the court, i f satisfied that there is no sufficient reason why the matter should not be referred in accordance with the agreement to refer to arbitration, and that the applicant was, a t the time when the suit was 3 instituted and still remains, ready and willing to do all things necessary to the proper conduct o f the arbitration, may make an order staying the suit". The language used in the foregoing provision is very clear. As rightly submitted by Mr. Shayo, everything being equal, the cut-off beyond which no one can make any application for stay of the suit is settlement of issues. Admittedly the suit has gone beyond 1st Pre trial conference but the law makes it plain that a party to agreement the subject of a suit is entitled to make an application to refer the dispute to arbitration any time before settlement of issues in a suit. It is common ground that issues have not been settled in terms of Order XIV of the Civil Procedure Code and so the argument that the application has been made belatedly is, but misconceived and rejected accordingly. The second is not as straight forward as the first one. Dr. Kyauke submits that the suit is not founded on the Intercreditor Loan agreement but in any case, the said agreement relates to security sharing amongst lenders which does not entitle the Applicant (the borrower) to enforce the arbitration clause. With respect, I am inclined to go along with Dr. Kyauke. It will be clear from the plaint that the Plaintiff has instituted the suit to enforce its rights under the loan agreement mortgage and guarantees independent of the Intercreditor Loan Agreement. Indeed, Dr. Kyauke admitted in his oral submission that reference to the Intercreditor Loan Agreement in para 8 of the amended plaint was an error and so there can be no basis upon which an application for referring any matter in the agreement to arbitration. Mr. Shayo would have me hold that enforcement of the arbitration clause is inevitable by reason of clause 11.5 of the Intercreditor Loan Agreement which subordinates all other credit agreements. With respect I disagree with him because as submitted by Dr. Kyauke, the Intercreditor Loan Agreement regulates security sharing amongst lenders vis-a-vis the borrower 4 (the Applicant). At any rate the fact that one of the lenders has taken steps to enforce its rights under the relevant loan agreement does not lead to automatic invocation of the arbitration clause in favour of the borrower. This is so, because there is no dispute in relation to the securities the subject of the Intercreditor Loan Agreement. At any rate, as submitted by Dr. Kyauke, the suit from which the application has been made involves several parties who are not privy to the Intercreditor Loan Agreement containing an arbitration clause. Strangers to the said agreement are not covered by the arbitration clause. That being so, despite Mr. Shayo's attempt to down play that aspect, the question which he did not answer is what practical purpose will the arbitration serve by dealing with a dispute covered by the arbitration clause between the Applicant and the Respondent leaving the rest of the parties in limbo? In other words, what will happen to the suit as between the Respondent and the rest of the Defendants in the main suit? With those lingering questions remaining unanswered, I think much as the Court will be more than willing to facilitate resolution of dispute through arbitration, this is not a fit case to order stay of the suit pending reference to arbitration. The above said, I decline the invitation to stay the suit and refer the dispute to arbitration with the result that the application stands dismissed. Costs shall be in the main suit. Order accordingly. Dated at Dar am this 31st day of October 2018. JUDGE 31/10/2018 5