[2024] UGCommC 169

# 5 **THE REPUBLIC OF UGANDA IN THE HIGH COURT OF UGANDA AT KAMPALA [COMMERCIAL DIVISION] CIVIL SUIT NO. 216 OF 2022**

| 10 | AFRI-POWER ENGINEERING<br>COMPANY LIMITED | | ]<br>] | PLAINTIFF | |----|-------------------------------------------|--------|--------|-----------| | | | VERSUS | | | | 15 | ROKO CONSTRUCTION LIMITED | | ] | DEFENDANT |

#### **Before: Hon. Justice Thomas Ocaya O. R**

#### **RULING**

#### 20 **Introduction**

The present objection is a fairly unique one. The Plaintiff commenced this suit against the Defendant for recovery of USD 73,532 which it claims it is entitled to under a sub contract in pursuance of which it provided electrical installation works at Cairo International Bank Lotis Towers branch. The Plaintiff contends that it did the work as

25 requested, including some additional works, obtained approval (certification of the same) but the Defendant declined to make payment. The Plaintiff therefore avers that having undertaken the works and not being paid, even inspite of a demand letter.

The Defendant raised a preliminary objection to competence of the suit, contending 30 that this dispute ought to be referred to arbitration in accordance with the agreement of the parties. The Defendant contends that the parties contract provides that all disputes should be determined in accordance with the specified contract which provides for arbitration and not litigation. The Defendants therefore objected to the competence of these proceedings and prayed that this suit be stayed and referred to

35 arbitration in accordance with the Arbitration and Conciliation Act ["ACA"]

#### **Representation**

The Plaintiff was represented by M/s Verma Jivram & Associates while the Defendant was represented by M/s Newmark Advocates.

#### 5 **Submissions**

Both sets out counsel made written submissions in support of their respective cases with eave of court which I have considered before arriving at my decision below. I have, however, not felt the need to entirely reiterate their submissions here as the same are not evidence.

## **Decision**

Jurisdiction means and includes any authority conferred by the law upon the court to decide or adjudicate any dispute between the parties or pass judgment or order. A court cannot entertain a cause which it has no jurisdiction to adjudicate upon. See

15 **Koboko Local Government v Okujjo Swali HCMA 1/2016, Owners of Motor Vessel Lillian "s" v Caltex Oil Kenya Limited [1989] KLR 1, NBL v Lugogo Events and Entertainment Limited HCMA 1497/2022.**

A Court's jurisdiction flows from Law. Thus, a Court of law can only exercise 20 jurisdiction as conferred by the constitution or other written law. It cannot arrogate to itself jurisdiction exceeding that which is conferred upon it by law. A court ought to exercise its powers strictly within the jurisdictional limits prescribed by the law. See **Pastoli v Kabale District Local Government Council and others [2008] 2 E. A 300, Kasibante Moses v. Katongole Singh Marwaha and another, HCEP. 23/2011.**

The Defendant's application was premised on **Section 5** of the Arbitration and Conciliation Act. **Section 5(1)** reads thus:

"A judge or magistrate before whom proceedings are being brought in a matter which is the subject of an arbitration agreement shall, if a party so applies after the filing of

30 a statement of defence and both parties having been given a hearing, refer the matter back to the arbitration unless he or she finds—

(a) that the arbitration agreement is null and void, inoperative or incapable of being performed; or

(b) that there is not in fact any dispute between the parties with regard to the matters 35 agreed to be referred to arbitration."

- 5 Essentially, for the powers of court under Section 5(1) to be invoked, it must be demonstrated that; - a. There is a dispute - b. The dispute is arbitrable - c. The dispute is governed by a valid and enforceable arbitral agreement. - 10 d. The dispute is within the scope of the arbitration agreement.

See **ATC Uganda Limited v Smile Communications Uganda Limited HCMA 621/2023**

In **British American Tobacco v Lira Tobacco Stores HCMA 924/2013**, this 15 honourable court held thus:

*"Section 5 (1) of the Arbitration and Conciliation Act clearly provides that a judge or magistrate before whom proceedings are brought in a matter which is the subject of an arbitration agreement shall, if a party so applies after the filing of a written statement of defence and both parties have had been given a hearing, refer the matter back to the*

- 20 *arbitration. In other words, a party may apply for reference to arbitration after filing a written statement of defence. The filing of a written statement of defence does not operate as a waiver of the right to apply for reference of the matter to arbitration*. Consequently, *the submission of the Respondents Counsel that both the Respondent and the Applicant waived the right to apply for reference of the dispute to arbitration has no* - 25 *merit.*

*Concerning submissions on the exercise of the court's discretion (if any) so as to enable the Respondent adduce evidence of any custom or usage in the circumstances of the case, the issue is whether the court has discretion in the matter. The wording of section 5 of*

- 30 *the Arbitration and Conciliation Act is that a judge or magistrate before whom proceedings are brought in a matter which is the subject of an arbitration agreement shall, if the party applies after the filing of a defence and having given both parties a hearing, refer the matter back to arbitration. In other words, the court has no discretionary powers under section 5 (1) of the Arbitration and Conciliation Act, not to* - 35 *refer the dispute for arbitration. The powers of the court are only to determine whether the arbitration agreement is null and void, inoperative or incapable of being performed*


- 5 *or whether there is not in fact any dispute between the parties with regard to matters agreed to be referred to arbitration. In other words, the powers of the court are confined to establishing whether the agreement is null and void, inoperative or incapable of being performed on whether there is no dispute as contemplated by the parties in the arbitration clause. The power whether to refer the dispute for arbitration or not under* - 10 *section 5 (1) of the Arbitration and Conciliation Act is not a discretionary power. It is simply a power to determine whether the conditions or grounds upon which the dispute may not be referred exist. The grounds for not referring the dispute for arbitration are statutory. The powers of the court are confined to establishing the statutory grounds for refusal of an application by any of the parties to an arbitration agreement to refer the* - 15 *dispute for arbitration. In the premises, the arguments of the Respondents Counsel so as to move the court to permit the adducing of evidence about any customs or usages cannot be sustained. The only basis for refusal of any reference has to fall within the grounds set out under section 5 (1) of the Arbitration and Conciliation Act. The question of adducing evidence of any "customs or usages" does not fall within the statutory* 20 *grounds for refusal of the reference."*

#### *Is there a dispute?*

A reference of a matter to arbitration requires a dispute to exist between the parties. See **Section 5(1) of the Arbitration Act, Redfern and Hunter On International**

25 **Arbitration, 6th Ed, Para 1.60-1.65.**

Black's Law Dictionary, 11th Edition, P 593 defines the word "dispute" thus "A conflict or controversy, esp. one that has given rise to a particular lawsuit." It is common ground that the Plaintiff filed the main suit against the Defendant seeking various remedies. This claim is opposed by the Defendant on the basis of the

30 grounds set forth in its Written Statement of Defence.

The filing of the civil suit is in itself evidence of the existence of a dispute. Further, as seen in the pleadings in the suit, there are contentions advanced by one party and disputed by another, and it follows that a dispute exists as to those matters. See **NBL**

35 **v Lugogo Events and Entertainment Limited HCMA 1497/2022, Newplan**


# 5 **Limited v Mercentile Properties Limited HCMA 234/2022, ATC Uganda Limited v Smile Communications Uganda Limited HCMA 621/2023**

### *Is the dispute arbitrable?*

It must be noted that not all disputes are capable of being disposed of by arbitration. 10 Specific provisions of law may require that certain disputes are resolved either by conventional courts of law, or by other modes of adjudication, such as expert determinations or specialist tribunals. See **Arbitration and Contract Law. Common Law Perspectives by Neil Andrews, Pp 63-65, John Billiet, et al., International Investment Arbitration, A Practical Handbook, Maklu Publishers, 2016, p. 196.**

- 15 Arbitrability can be broken down into objective and subjective arbitrability. Subjective arbitrability (or "arbitrability ratione personae") concerns certain individuals or entities that are considered to be unable to submit their disputes to arbitration due to their status or function, such as states or local authorities,4 (see also Jurisdiction ratione personae). The objective arbitrability (or "arbitrability ratione materiae") - 20 focuses on whether a certain subject-matter can be settled through arbitration (see also Jurisdiction ratione materiae). In determining whether a matter is arbitrable one should consider that both criteria – i.e. subjective and objective arbitrability – supplement each other. See **Lew, J., Mistelis, L. and Kröll, S., Comparative International Commercial Arbitration, Kluwer, 2003, pp. 100, 130, 189, 193,** - 25 **Mistelis, L. and Brekoulakis, S. (eds.), Arbitrability: International & Comparative Perspectives, Kluwer Law International, 2009, p. 10.**

In determining whether a dispute is "arbitrable", a practitioner should look to relevant law, depending upon where and at what stage of the proceedings the question arises. Arbitrability is governed by the law of the arbitration agreement and the law of the

30 seat. See **Anupam Mittal v Westbridge Ventures II Investment Holdings [2023] SGCA 1, M/S Dozco India P. Ltd vs M/S Doosan Infracore Co. Ltd SCAP 5/2008**

**In Nedmar Technology BV Ltd v The Kenyan Anti-Corruption Commission & Anor HCP 360/2006**, the court held thus;

35 "It is the national laws which establish the domain of arbitration as opposed to that of the courts. It is the prerogative of each state to decide which matters may or may not

5 be resolved by arbitration in accordance with its own political, social and economic policy. It is for the Legislature and the courts in each country to balance the domestic need of reserving matters of public interest to the courts against the more general public interest in promoting trade and commerce and also the settlement of disputes. Regard must be had to the issue of arbitrability, to the local law of Kenya 10 (and the effect of the specific exclusion of public law ..), to the law governing the arbitration agreement (ie the United Kingdom law), the law of the seat of arbitration

(the Netherlands) and the law of the place of enforcement of the award (this could be Netherlands or Kenya or whenever the assets of Kenya are (the Agreement having waived the immunity of the Kenya assets! – it could be anywhere the assets are at the 15 moment and therefore the position is fluid."

Accordingly, the determination of the arbitrability of a dispute is a function of the applicable law and public policy. See **Midland Finance & Securities Globetel Inc v Attorney General & another [2008] eKLR, Kenya Ports Authority v Base** 20 **Titanium Limited (Miscellaneous Application 456 of 2019) [2022] KEHC 265 (KLR)**

In determining whether a dispute is arbitrable, there is a general presumption in favour of arbitrability. Unless there is a clear bar against a dispute being amenable to 25 arbitration, arbitration should be enforced, including where it is not clear whether the dispute is arbitrable or not. See **United Steel Workers of America v Warrior & Gulf Navigation Company 363 US 574 (1960), Moses H. Cone Memorial Hospital v Mercury Construction Corporation 460 US 1 (1983)**.

- 30 Generally, all disputes capable of settlement by ordinary court proceedings are arbitrable. See **Acord Acvedo v PPG Industries Inc. 514 F.2d 614 (1st Circuit, 1975), Griffin v Semperit of America 414 F. Supp. 1384. (S. D Tex. 1976) Modern Juniors Inc v Spinnerin Yarn Co. 29 NY 2d 946** - 35 Disputes arising out of, or regulated by legislation intended to protect the public from harm such as antitrust laws, criminal laws, laws dealing with the welfare or guardianship of children, employment laws among others are generally not arbitrable. ### 5 See **Hoellering, Michael F. "Arbitrability of Disputes." The Business Lawyer 41, No. 1 (1985): 125–44.<http://www.jstor.org/stable/40686674>**

As a general rule, save for matters for which public policy does not allow to be subject to arbitration, all matters that can be handled by a court can be handled by arbitration.

10 The existence of a statute conferring jurisdiction to a court is not by itself evidence that such a dispute is not arbitrable.

The present dispute between the parties is contractual, and involves private rights (or claims thereto) by a party or parties to the dispute. There is no law or public policy 15 barring the reference of the current dispute between the parties to arbitration. Accordingly, this court returns the finding that this dispute is arbitrable. See **NBL v Lugogo Events and Entertainment Limited HCMA 1497/2022, Newplan Limited v Mercentile Properties Limited HCMA 234/2022 (unreported), ATC Uganda Limited v Smile Communications Uganda Limited HCMA 621/2023**

*Is there a valid and enforceable arbitration agreement? And Is this dispute within the scope of the agreement, if any?*

It is common ground that the principal document regulating the parties' relationship is the sub-contract agreement. The clause reads;

25 "In the event of any dispute or difference between and Contractor and the Sub-Contractor, Clause 18 inclusive of the main contract shall apply."

**Section 16(1)** of the Arbitration and Conciliation Act provides thus

"The arbitral tribunal may rule on its own jurisdiction, including ruling on any objections with respect to the existence or validity of the arbitration agreement, and

30 for that purpose—

(a)an arbitration clause which forms part of a contract shall be treated as an agreement independent of the other terms of the contract; and

(b)a decision by the arbitral tribunal that the contract is null and void shall not itself invalidate the arbitration clause."

Arbitration clauses constitute a separate and distinct contract from the underlying contract to which it relates. This is what is called the principle of separability. See

- 5 **Harbour Assurance Co. Ltd. V. Kansa General International Insurance Co. Ltd., [1992] 1 Lloyd's L. Rep. 81, Nigel Blackbay and Constatine Paratasides, QC, Redfern and Hunter On International Arbitration. 6th Edition. Para 10.42., Republic of Serbia v. Imagesat International NV [2009] EWHC 2853 (Comm).,** - 10 Without this principle, arbitration would be heavily compromised as a termination or repudiation or other invalidity in respect of the main contract would also serve to invalidate the parties' agreement to arbitrate. This enables the arbitration clause to be effected even if the underlying contract is void or voidable, subject to applicable limitations. See **DHL Project v Gemini Ocean Shipping (The Newcastle Express)** 15 **[2022] EWCA Civ 1555, Harbour Assurance Co. Ltd. V. Kansa General International Insurance Co. Ltd., [1992] 1 Lloyd's L. Rep. 81, Heyman v. Darwins, Ltd [1942] App. Cas. 356 (HL).** - According to **Black's Law Dictionary (supra pg 944)**, inoperative means having no 20 force or effect. According to distinguished authors (**Andrew Tweeddale et al at page 114**), inoperability applies where the arbitration agreement has ceased to have effect. In my view, an arbitration agreement is inoperable if is no longer legally valid. I have already found above that there are no circumstances impeaching the validity of the agreement executed by the parties.

The Plaintiff contended that

- (1)There is no valid arbitration clause because the Plaintiff is not a party to the agreement between Lotigo Properties Ltd and the Defendant ("the main contract"). - 30 (2)The arbitration clause is unenforceable as it is vague.

#### Privity

Arbitration is a contractual mode of dispute resolution. One of the fundamental principles of arbitration is party autonomy, which is essentially the principle that a 35 party has the right, in concert with others, to determine the mode of dispute resolution and the character, nature, configuration and tennets of that dispute resolution. A party cannot, barring certain exceptions, be compelled to arbitrate

- 5 except if they contractually agreed to do so or, where applicable, lost their right to object. See **TMA Architects & Anor v Prome Consultants Limited HCMC 80/2021, A Steingruber, Consent in International Arbitration, Oxford University Press (2012), para. 9.01.** - 10 In the construction sector, sub-contracts have become a main stay essentially because it is unusual for one contractor to have the technical expertise or capacity to undertake every aspect of the scheme of work. Even if they do, usually, engaging a sub-contractor is usually either efficient or more cost saving. - 15 Whereas sub-contracts are usually related to the main contract, the sub-contract and the main contract will usually remain two separate and distinct contracts; no multiparty contract will be created between the employer, contractor and subcontractor. See **A Masadeh, 'Vicarious Performance and Privity in Construction Contracts', 31 International Construction Law Review 1, 108 (2014), Interserve** 20 **Industrial Services Ltd v ZRE Katowice SA, [2012] EWHC 3205 (TCC)**

Therefore, as a general rule, the existence of an arbitration clause in the main contract does not mean that the parties to the sub-contract are so bound to proceed by arbitration. There must be a specific arbitration clause or a specific incorporation of 25 such clause or an implied agreement that the said arbitration applies and binds the parties (this requires very clear evidence). See **Provincial Construction Company & another v Attorney General [1991] KLR, MR Engineers & Contractors Pvt. Ltd. v. Som Datt Builders Pvt. Ltd., 2009 7 SCC 696, Standard Bent Glass Corp. v. Glassrobots, 333 F.3d 440, Barrier Limited v Redhall Marine Limited [2016]** 30 **EWHC 381 (QB)**

It was argued by counsel for the Defendant that the sub-contract incorporated the main agreement because

(a) Paragraph 3 of the preamble to the sub-contract expresses the sub-contract as 35 supplemental to the main agreement.

(b)Clause 16(a)(i) of the sub-contract defines the sub-contract to include the provisions of the main contract

I am unable to accept the view that the incorporation of the main contract into a subcontract per se constitutes an incorporation of the arbitration clause. This is because an arbitration clause is a separate and distinct contract for which clear and special provision must be made for; the agreement ought to be clearly and separately

# 10 incorporated. See **ATC Uganda Limited v Smile Communications Uganda Limited HCMA 621/2023, Aya Investments (U) Ltd v Mugoya Construction & Engineering (U) Ltd HCMA 1 of 2008**

Therefore, an unconditional denial of the validity/applicability of an arbitration clause 15 because it is contained in a separate agreement holds no merit if the said arbitration agreement has been clearly incorporated in the agreement between the two parties. Further, the incorporation of a main agreement into a sub-contract agreement does not mean the incorporation of the arbitration clause provided for in the main agreement unless the same is clearly and specifically provided for.

In my view, there was clearly an incorporation of provisions of the main contract. Therefore, the existence and enforceability of arbitration requires an assessment of the incorporated provision(s) and whether they constitute a valid arbitration clause.

25 Does the incorporated provision constitute a valid arbitration clause?

The relevant clause in the sub-contract reads thus;

"In the event of any dispute or difference between and Contractor and the Sub-Contractor, Clause 18 inclusive of the main contract shall apply."

- 30 In my opinion these are the following possible meaning; - (a) Clause 18 and the main agreement apply. - (b)Clause 18 in the main agreement applies (this is interpretation can only be taken if you take the view that the word "inclusive" was wrongly or mistakenly used and the parties intended to refer to "included". - 35

A vague arbitration clause is considered incapable of being performed since it is not capable of certain construction and the parties cannot therefore act on it. See **Lucky-**

## 5 **Goldstar International (HK) Ltd v. NG Moo Kee Engineering Ltd [1993] HKCFI 14, Bulkbuild Pty Ltd v. Fortuna Well Pty Ltd & Ors [2019] QSC 173, AC Yafeng v Living World Assembly HCMA 739/2021**

The Plaintiff contended that **Clause 18** of the main contract provides

- 10 "(i) the contractor shall be liable to and shall indemnify the employer against any expenses, liability, loss or proceeding whatsoever arising under any statute or at common law in respect of personal injury to or death of any person whomever arising out of or in the course of or caused by the carrying out of works, unless due to any act or neglect of the employer or of any person for whom the employer is responsible." - 15 A reading of both the main contract and sub-contract (including both of the above clauses) creates confusion at the meaning of the same, and the mode of dispute resolution agreed by the parties. It is hard to make out a sensible interpretation let alone a single and clear one. I find that the agreement is vague and therefore incapable of being performed.

Having held as above, it follows that this suit is competently before this court.

### **Conclusion**

In the premises, the present Preliminary Objection is overruled.

25 The Plaintiff is directed to take the necessary measures to fix the matter for trial. Costs will be in cause.

**DATED** this\_\_\_\_\_\_\_\_\_\_\_day of\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_2024 and uploaded on ECCMIS. 14th February

**Ocaya Thomas O. R Judge**

**14th February 2024**