[2025] UGCommC 30

### THE REPUBLIC OF UGANDA

# IN THE HIGH COURT OF UGANDA AT KAMPALA (COMMERCIAL DIVISION)

### **MISCELLANEOUS APPLICATION NO. 1314 OF 2024** ARISING FROM CIVIL SUIT NO. 0544 OF 2020

#### 1. WHITE NILE CONSULT LTD

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2. PATRICK BITATURE APPLICANTS

#### **VERSUS**

#### 1. NABOTH MUHAIRWE

#### 2. EDGAR AGABA T/A AGABA

#### **MUHAIRWE & CO. ADVOCATES ::::::::::::::::::::::::::::::::::::**

#### (Before: Hon. Justice Patricia Mutesi)

#### **RULING**

#### **Background**

The Applicant brought this application by notice of motion under Sections 5 and 9 of the Arbitration and Conciliation Act Cap 5, Section 98 of the Civil Procedure Act and Order 6 Rules 28 and Order 52 Rules 1 and 3 of the Civil Procedure Rules for orders that:

- 1. Civil Suit No. 0544 of 2020 be stayed and referred to arbitration. - 2. Civil Suit No. 0544 of 2020 be dismissed as against the 2^nd Applicant. - 3. Costs of the application be granted to the Applicant.

Briefly, the grounds of this application are that:

1. The Respondents filed Civil Suit No. 0544 of 2020 (hereinafter "the main suit") to recover the sum of USD 452,450 from the Applicants under the Agreement for Provision of Legal and Transaction Advisory Services dated 16^th January 2015 (hereinafter "the Agreement").

- 2. The Agreement provides that the principal/first instance forum of dispute resolution between the parties shall be arbitration under Ugandan law. - 3. The dispute in the main suit should have been resolved in arbitration and this Court has no jurisdiction to entertain the main suit. - 4. The Respondents do not have a cause of action against the 2^nd Applicant in the main suit.

The application is supported by an affidavit sworn by Mr. Baguma Laurel, a Legal Officer in the 1^st Applicant. Mr. Baguma stated that the Respondents filed the main suit against the Applicants for recovery of a sum of USD 452,450 allegedly arising out of the Agreement. He stated that the Agreement provides that the principal/first instance forum of dispute resolution between the parties shall be arbitration in accordance with Ugandan law. He affirmed that, having perused the plaint, he is convinced that the dispute in that suit is covered by the dispute resolution clause of the Agreement. Mr. Baguma further said that 2^nd Applicant executed the Agreement on behalf of the 1^st Applicant and not in his own right. He affirmed that the 2^nd Applicant is, therefore, not a party to the Agreement and cannot bear any liability for its alleged breach.

The Respondents opposed the application through an affidavit in reply sworn by the 2^nd Respondent. He averred that this application is misconceived since it is premised on a null and void arbitration clause. He noted that the Agreement has both an arbitration clause and a clause allowing parties to resolve their dispute through court litigation. He, however, admitted that the $2^{nd}$ Applicant was acting on behalf of the $1^{st}$ Applicant when he executed the Agreement.

#### **Issues arising**

- 1. Whether the main suit should be referred to arbitration. - 2. Whether the Respondents have a cause of action against the $2^{nd}$ Applicant in the main suit. - 3. What reliefs are available to the parties.

#### **Representation and hearing**

When the application was called for hearing, the Applicants were represented by of Mr. Brian Moogi of M/s Moogi Brian & Co. Advocates while the Respondents were represented by M/s Kyagaba & Otatiina Advocates (Dentons). I have carefully considered all the submissions of counsel, the relevant laws and authorities and all materials on the record while deciding this application.

#### Determination of the issues

# Issue 1: Whether HCCS No. 0544 of 2020 should be referred to arbitration.

According to **Section 5(1)** of the Arbitration and Conciliation Act Cap 5 ("ACA"), a judge or magistrate before whom proceedings are being brought in a matter which is the subject of an arbitration agreement must, if a party so applies after the filing of a defence and after allowing both parties a hearing on the question, refer the matter back to arbitration. However, the judge or magistrate need not make any such referral if the arbitration agreement is null and void, inoperative or incapable of being performed, or if there is no dispute between the parties with regard to the matters agreed to be referred to arbitration.

In the main suit, the Applicants raise allegations of breach of the Agreement by the Respondents. Therein, it is claimed that the Respondents failed to pay the Applicants' legal fees as stipulated in the Agreement. **Clause 7** of the Agreement provides that:

### "7. Disputes

(a) Any dispute between the PARTIES concerning the execution, interpretation and performance of the terms under this agreement, consequential matters arising as a result of this agreement or validity of this agreement will entail negotiation and mutual resolution by the Parties prior to any legal proceedings. If the dispute has not been resolved by such negotiation, the parties shall submit the dispute to arbitration in accordance with the Ugandan laws.

(b) The arbitration shall be held in Kampala and shall be conducted in English. Judgment upon award rendered may be entered in any court of competent jurisdiction and this Agreement to arbitrate is not in any way an agreement to take away any parties right to file any matter arising or connected to this Agreement in the local court system in Uganda." Underlining mine for emphasis.

It is on the basis of this provision that the Applicants now contend that the main suit should be referred to arbitration. The Respondents oppose the proposed referral of the main suit to arbitration claiming that the arbitration agreement in Clause 7 of the Agreement is "pathological, inoperative and void".

From the pleadings in the main suit, it is evident that there is a dispute between the parties to the Agreement as the Respondents allege that there was breach of the Agreement while the Applicants deny any such breach of the Agreement. Since Clause 7 of the Agreement covers any dispute between the parties relating to the performance of the Agreement, it is clear that the dispute in the main suit is covered by the dispute resolution clause of the Agreement. What remains to be determined is whether or not the Respondents' grounds for challenging the proposal to refer the main suit to arbitration are legally valid.

I have already highlighted the permissible grounds which can justify the refusal of an application to a refer a matter which is subject to an arbitration agreement to arbitration. The Court will limit itself to the allegation by the Respondents that the impugned arbitration clause is inoperative and void since Section 5 of the ACA does not mention an arbitration clause/agreement being "pathological" as one of the grounds upon which the Court can reject an application for referral to arbitration.

Black's Law Dictionary, 9^th Edition, at page 1709, defines the word "void" to mean "of no legal effect". Section 1 of the Contracts Act Cap 284 defines a "void agreement" as an agreement that is not enforceable by law. Consequently, a void arbitration agreement is one that is not enforceable by law. On the other hand, inoperability arises where the arbitration agreement ceases to have legal effect. As such, an inoperative arbitration agreement is one which is no longer legally valid. (See Afri-Power Engineering Co. Ltd v Roko Construction Ltd, HCCS No. 216 of 2022).

Additionally, in the case of Tumo Technical Services Ltd v China Railway 18^th Bureau (Group) Co. Ltd, HCCS No. 432 of 2022, it was held that

"... arbitration agreements are purely matters of contract and the effect of section 5(1) of the Arbitration and Conciliation Act Cap 4 [now Cap 5] is to make contracting parties respect their agreement by disallowing any of them to refuse to perform the contract when it becomes disadvantageous to him or her."

It should also be remembered that the foundational basis for arbitration is party autonomy. Party autonomy recognises the rights of the parties to a dispute to select and design their dispute resolution mode. In arbitration, party autonomy posits that, as much as possible, parties should be afforded an opportunity to design the character of the arbitration they are to subject themselves to. (See ATC Uganda Ltd v Smile Communications Uganda Ltd, HCMA No. 621 of 2023). Section 9 of the ACA cements the respect for party autonomy in arbitration matters when it prescribes that no court is to intervene in a matter that is governed by the ACA except as expressly permitted therein.

Turning to the facts of this case, Clause 7 of the Agreement recognised 3 modes of dispute resolution. The parties were to initially explore negotiations between themselves to see if they could mutually settle a dispute. If negotiations failed, the parties would then resort to arbitration. The arbitration would be conducted in Kampala in English. The Clause recognised that a "judgment" from the award in arbitration could be

$\mathsf{S}$

entered in any court of competent jurisdiction. Finally, the Clause reserved the parties' rights to file and prosecute court action against each other to settle any dispute arising between them.

Save for the Respondent's contentions, the Court did not receive any evidence from the parties proving that Clause 7 of the Agreement is not or is no longer enforceable by law. What appears to be the issue is that the parties cannot agree on whether to resolve their dispute through arbitration or through the main suit.

It is understandable why there is uncertainty as to whether it is arbitration or litigation that takes priority in dispute resolution under the Agreement. Clause 7 of the Agreement simultaneously allows the parties to pursue both arbitration and court litigation to settle disputes. To resolve the uncertainty over which mode of dispute resolution takes priority, careful regard should first be had to the principles of interpretation of contracts in order to decipher the true intention of the parties when they framed and agreed upon Clause 7 of the Agreement.

In interpreting a contract, the Court must first be guided by the express wording of the contract. If it becomes necessary to ascertain the intention of the parties to a contract, as it has in this case, the words of the contract ought to be given their ordinary meaning in their contractual context. (See Andrew Akol Jacha v Noah Doka Onzivua, HCCA No. 1 of 2014). Secondly, the court should construe the contract with a businesslike intention or a commercial sense. The ultimate aim of interpreting a provision in a contract, especially a commercial contract, is to determine what the parties meant by the language used. This usually involves ascertaining what a reasonable person would have understood the parties to have meant. (See Rainy Sky Sa & Ors v Kookmin Bank [2011]1 WLR 2900 cited with approval in Andrew Akol Jacha v Noah Doka Onzivua, (supra).

In applying these principles to the present case, the impugned Clause 7 of the Agreement prescribed negotiation and arbitration as the permissible modes of dispute resolution. The Clause further recognised the parties'

enduring rights to settle their disputes through court action. In accordance with the first canon, it appears that the parties intended that both modes of dispute resolution remain available to them if disputes were to arise. It is apparent that the parties wanted to keep their options open and not to tie themselves down to either arbitration or court action for the resolution of their disputes.

This interpretation, however, remains incomplete since the question of order of priority for the two modes of dispute resolution remains unsettled. The impasse necessitates a consideration of the other canon that posits that contracts ought to be construed with a businesslike intention or a commercial sense in light of what a reasonable man would have thought had been intended by the parties in their uncertain contractual language.

It is trite under the ACA that, while courts can check the propriety of arbitration proceedings and implement or execute arbitral awards, arbitration can neither check the propriety of court proceedings or decisions nor implement or execute court decisions. In my considered view, a common sense interpretation which would preserve the 2 dispute resolution modes agreed upon in the Agreement and ensure that they complement, and do not invalidate each other, favours initial resort to arbitration so that the parties only resort to Court proceedings for enforcement or setting aside of the arbitral award. By comparison, if court action was to be found to have priority over arbitration, the parts of Clause 7 of the Agreement prescribing arbitration as a dispute resolution mode would have been rendered illusory and moot since there is no window in law for arbitration to check or complement court proceedings.

In any case, this Court, in Vehicle and Equipment Leasing (U) Ltd v I. Engineering Uganda Ltd, HCMA No. 1067 of 2021, held that:

"... the provisions of an arbitration clause in the agreement are binding on the parties thereto. The arbitration clause takes precedence in dispute resolution by the parties, unless the Court finds that the arbitration agreement is null and void, inoperative or incapable of being performed which is not the case here." (Emphasis mine).

In my opinion, this dictum settles the ambiguity of priority between arbitration and court litigation. It clarifies that, where both arbitration and court litigation are available modes of dispute resolution, arbitration will always take precedence over court litigation as long as the arbitration agreement is not null and void, inoperative or incapable of being performed.

In the present case, the arbitration agreement in Clause 7 of the Agreement is not null and void, inoperative or incapable of being performed and neither can it be said that the parties have since waived their rights to arbitrate. While both arbitration and court litigation are available modes of dispute resolution in this case, the Court finds that arbitration takes priority over court litigation and that the main suit should be referred to arbitration on that ground.

# Issue 2: Whether the Respondents have a cause of action against the 2^nd Applicant in the main suit.

In light of the findings in Issue 1, the main suit should be dismissed and referred to arbitration. Any further interrogation of issues arising from it would be moot.

### Issue 3: What reliefs are available to the parties.

The Court has found that the Agreement bears an arbitration agreement which is not null and void, inoperative or incapable of being performed. Consequently, this application succeeds and I make the following orders:

Civil Suit No. 0544 of 2020 is dismissed and referred to İ. arbitration because it is on matters which are the subject of a legally valid and enforceable arbitration agreement.

Costs of Civil Suit No. 0544 of 2020 and those of this application $\mathbf{H}$ are awarded to the Applicants.

e a denter . . . .

**Patricia Mutesi**

**JUDGE**

$(27/02/2025)$