Elgonia One Cafe International Limited & 3 Others v Stanbic Bank Uganda Limited & Another (Miscellaneous Application 259 of 2020) [2024] UGHC 901 (3 October 2024)

Full Case Text

### THE REPUBLIC OF UGANDA

### IN THE HIGH COURT OF UGANDA HOLDEN AT MBALE

### MISC. APPLICATION NO.259 OF 2020

# (ARISING FROM ARBITRATION REFERENCE, ARISING FROM CIVIL SUIT NO.0015 OF $2014)$

- 1. ELGONIA ONE CAFÉ INTERNATIONAL LTD - 2. BUKAWA CASSIM MUSENE - 3. WAKIKONA JOHN - 4. ELGONIA INDUSTRIES LTD APPLICANTS

### **VERSUS**

- 1. STANBIC BANK UGANDA LIMITED - 2. ACE-AUDIT CONTROL & EXPERTISE - LIMITED (ACE-GLOBAL) RESPONDENTS

### BEFORE: LADY JUSTICE MARGARET APINY

### **RULING**

#### Introduction 20

The applicant brought this application under Section 34 (2) (a)(iv) and (vii) of the Arbitration and Conciliation Act and Rule 13 of the Arbitration Rules for orders that;-

- a) The arbitral award that was delivered by the Arbitrator S. W. W. Wambuzi, Chief Justice Emeritus on the $26$ th October 2020 be set aside. - b) Costs of the application be provided for.

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$\mathsf{S}$

The grounds of the application as set out in the application and the affidavit in support of the application deponed by Mr. Bukaawa Cassim Musene, the 2nd applicant and Managing Director of the 1st and 4th applicants, but are briefly that;

- 1. The 1st Applicant instituted a suit against the 1st and 2nd respondents in this court in 2014 for breach of contract, the torts of conversion, detinue and negligence in respect of its coffee stock which got lost while in custody of the 2nd respondent. - 2. At the instant of the 2nd respondent, the High Court in Mbale presided over by Justice Tadeo Asiimwe on 14th February 2020 ordered that the matter be referred and did refer the matter to arbitration. - 3. The referral was predicated on an arbitration clause in the Field Warehousing and Storage Agreement executed between the 1st applicant, the 1st and 2nd respondents only. - 4. The 2nd, 3rd and 4th applicants were not parties to the said agreement. - 5. Pursuant to the said order, a sole arbitrator, S. W. W. Wambuzi, Chief Justice Emeritus was appointed and held a preliminary meeting on 16th July 2020 and the hearing commenced on 11th August 2020. - 6. Before the hearing commenced, the 1st respondent filed an amended Written Statement of Defence and Counterclaim introducing the 4th applicant to the proceedings. - 7. The arbitration hearing commenced on 11th August 2020 at Silver Springs Hotel, 45 Bugolobo, Kampala and hearing of evidence was completed on the 13th August 2020. Submissions were filed and an oral recap of the submissions done on the 5th October 2020. - 8. The arbitrator made the award on the 26th October 2020, outside the statutory period within which the award ought to have been made.

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- 9. The final Orders by the arbitrator against the 2nd, 3rd and 4th applicants to pay to the 1st respondent a sum of US.395,215.53(United States Dollars Three Hundred Ninety-five Thousand, Two Hundred and Fifteen, Fifty-three pence only) is premised on the counterclaim which arises from a mortgage that was never the subject of the arbitration referral and subsequent proceedings. - 10. There was never an agreement to arbitrate under the Mortgage transaction so the arbitrator lacked jurisdiction to entertain the counterclaim and render the order he rendered. - 11. The purported guarantees under which the 2nd, 3rd and 4th applicants were sued do not have any arbitration clause. - 12. The arbitrator wrongly considered matters to do with the 1st respondent's counterclaim in the arbitral proceedings and award. - 13. It is in the interest of justice that this award be set aside and the court proceeds to hear this matter or render appropriate orders in the circumstances. - The 1st respondent opposed the application through an affidavit in reply deponed by Mr. 65 Weere Jornasan, the Legal Affairs Manager of the 1st respondent who inter-alia averred that he was advised by the 1st respondent's lawyers, M/S Sebalu & Lule Advocates that this application is misconceived, frivolous, vexatious and is a bad faith attempt at delaying the 1st respondent from realizing the fruits of a valid arbitral award. - That the 1st applicant filed High Court Suit No. 0015 of 2014 in the High Court of Mbale against 70 the respondents. The $2^{nd}$ respondent raised a preliminary objection that the dispute was subject to an arbitration clause and court had no jurisdiction to entertain the matter and the preliminary objection was upheld, the suit was by order of court dated 14th February 2020 referred to arbitration and the suit determined.

- He was advised by the 1st respondent's lawyers that neither of the parties preferred an appeal 75 against the ruling. The parties agreed to subject the matter to arbitration before one arbitrator and accordingly appointed Justice Samuel Wako Wambuzi (Chief Justice Emeritus) as a sole arbitrator. He was informed by their lawyers that a planning meeting was held by the parties and Arbitrator on 16th July 2020 and they agreed as follows: - 80

a. The parties would adopt the pleadings filed in High Court Civil Suit No. 0015 of 2014 in the impending arbitration proceedings

b. The Respondents would file their witness statements by Thursday 23rd July 2020

- The hearing of the case would be conducted from 10th- 13th August 2020 C. - d. The parties would file submissions and appear before the Arbitrator for clarification on submissions on 16th September 2020. - 85

e. An award would be delivered on notice but not later than 16th October 2020.

The 1st respondent amended their defence with consent of the applicants and introduced a counterclaim and added the 2nd to the 4th applicants. The applicants filed an amended reply to the written statement of defence and counterclaim and parties prepared an amended joint scheduling memorandum and agreed on issues by consent. He was advised by the 1st respondent's lawyers that the applicants having participated from the start of the proceedings in arbitration are estopped from asserting that those proceedings were improper.

He was advised by the 1st respondent's lawyers that the delay in delivering the award was occasioned by the parties who served their written submissions outside the time provided by the arbitrator and that parties also remitted the arbitration fees late, fees being collected and 95 remitted to the arbitrator between 3rd to 5th November 2020. Further that parties conducted the oral highlights/ clarification of submissions on 5th October 2020 as opposed to 16th September 2020 as agreed in the planning meeting of 16th July 2020.

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- That the Field and Warehousing agreement executed between the parties contained an 100 arbitration agreement. It was a condition precedent to the grant of credit facility where the 2nd to 4th applicants executed personal and corporate guarantees in favour of the 1st respondent. He contended that the application was made in bad faith and it is in the interest of justice that it is dismissed. - The 2nd respondent filed an affidavit in reply deposed by Mr. Stephen Kaye, deputy Country 105 Manager of ACE-Global wherein he averred that the complaints by the applicants regarding the award of US. Dollars, 395.215.53 to the 1st respondent do not benefit the 2nd respondent although the matter falls within the scope of arbitration proceedings and award.

He contended that the 2nd respondent did not counterclaim against the applicants and indeed no award was made against the applicants to benefit the 2nd respondent in respect of the 1st 110 respondent's counterclaim. He stated that should court be inclined to set aside the award, then it should separate what is within the scope of the award and only set aside that which is not within. He contended further that the applicants did not lodge any objections to any noncompliance with any provisions of the Arbitration and Conciliation Act or that the decision/ award was made out of the time prescribed and as such, should be deemed to have waived 115

their right to object.

That he was advised by the 2nd respondent's lawyers that the said summons having been issued on 1st December 2020 and served on 17th February 2021, the same had lapsed and there was no extension of time. He prayed that the application be dismissed with costs.

#### Representation 120

At the hearing Mr. Machel Nyambok Omondi who held brief for Mr. Micheal Mafabi represented the 1st respondent, Mr. Richard Okalany represented the 2nd applicant and Gilbert Nuwagaba appeared for the $2nd$ respondent.

$\mathsf{S}$

### Submission

- When the matter came up for hearing parties sought leave of court to file written submissions, 125 which was granted accordingly. Whereas counsel for the applicants and the 1st respondent complied and filed their respective submissions within the timeline provided by this court, the 2nd respondent vide theirs Ref: G/KGN/ 2022, dated 9th August 2022 forwarded their submissions with reasons for the delay or non-compliance with timelines. - Whereas the 2nd respondent ought to have filed their submissions by 2nd August 2022, the 130 same was filed on 10th August 2022, six days out of time. I have considered the said submissions since no prejudice was occasioned to the applicants. I have addressed my mind to the submissions and shall refer to them where necessary in this ruling.

## Issues for determination.

- In their submission, the applicant framed two issues to wit;-135 - 1. Whether there are sufficient grounds for setting aside the arbitral awards - 2. What are the remedies available?

Issue 1: whether there are sufficient grounds for setting aside the arbitral award.

The applicant advanced 5 grounds for setting aside the ward to namely;-

- i) the award was delivered out of time contrary to the Arbitration and Conciliation Act. 140 - ii) Whether the award contains matters beyond the scope of reference of the arbitration. - iii) Whether the orders made against the 4th applicant are valid because it was not a party to the arbitration agreement or reference. - iv) Whether the arbitral award deals with issues not contemplated by or not falling within the terms of reference to arbitration.

v) Whether the award of USD 395,215.53 is part of the scope of the arbitration agreement.

# Ground 1. Award delivered out of time.

In advancing ground 1, the applicant relied on section 31 of the Arbitration and Conciliation Act, Cap 4 (now Cap 5). He submitted that the Act provides a timeline within which an arbitral award should be delivered which is within two months. He contended that whereas the Act allows for the extension of time in writing, the same was not sought which renders the delivery of the arbitration ruling a nullity. He submitted that the provisions of section 31 are couched in mandatory terms and failure to adhere to it is grounds for setting aside the award. He relied

on the case of Fountain Publishers vs Harriet Nantamu & another High Court Arb Cause No. 155 1 of 2011 to support his proposition.

Counsel for the applicant argued that in the instant case, the proceedings commenced on 11th August 2020 and the award is dated 26th October 2020. That no notice was issued by the arbitrator extending the time to deliver the arbitration award. According to counsel, the timelines are not only intended to avoid delays but also to prevent the miscarriage of justice.

In his submission in reply, counsel for the 1st respondent maintained that the award was given within 3 months as envisaged under the Act. He contended further that the delay in the delivery of the award was occasioned by the applicants who filed and served their submissions outside the agreed schedules issued by the arbitrator, hence they should not take benefit from it. That failure to comply with the set timelines had a knock-on effect on the entire proceedings including the time for delivery of the award. He relied on the case of Katamba Philip & 3 others vs Magala Ronald Arb Cause No. 3 of 2007.

He argued further that the applicants also agreed to the delivery of the award outside the envisaged period when they attended the proceedings on 5th October 2020 where the

- arbitrator intimated to the parties that the award be published on 31st October 2020 and none 170 of the parties objected to the same and accordingly on the 26th October, the award was published, hence the applicant consented. Counsel submitted further that under section 4 of the Act, the right to object is waived where a party fails to object at the time when the objection arose. He invited court to consider the ground baseless. - For the 2nd respondent, it was submitted that the arbitration proceedings commenced on 16th 175 July 2020 and continued until 5th October 2020 at Silver Springs Hotel, Kampala. The hearing commenced on the 11th August and the award was made on the 26th October 2020, a period of 2 months and 15 days. According to counsel, the proceedings' adjournments were made in the presence of both parties who acquiesced in the proceedings going beyond the 2 months. 180

That by the provisions of section 32(2) of the Arbitration and Conciliation Act, an applicant may apply to terminate proceedings if they felt that there were unconscionable delays but none of the parties applied to terminate the proceedings. He submitted that failure to extend time does not vitiate an award except where there is manifest prejudice suffered by a party.

In rejoinder, the applicant reiterated his earlier submissions that section 31(1) of the Act is 185 couched in mandatory terms and must be complied with strictly, hence failure to extend time by a notice renders an award a nullity. He submitted that failure to object to the proceedings does not salvage the illegality.

### Determination.

Section 31(1) of the Act provides that arbitral awards be published within two months. It thus 190 provides;

> "The arbitrators shall make their award in writing within two months after entering on the reference, or after having been called on to act by notice in writing from any party

to the submission, or on or before any later day to which the arbitrators, by any writing signed by them, may, from time to time, enlarge the time for making the award".

It is not in contention that the reference was entered on 11th August 2020 and the award is dated 26th October 2020, which is clearly beyond the envisaged period of two months by an approximate 15 days. Whereas the Act allows for the extension of time by notice in writing by the arbitrator, there is no evidence to suggest that such notice was indeed issued. It should be noted that the above notwithstanding, the proceedings went on and an award was published.

I make reference to section 4 of the Act which provides that;-

"A party who knows of any provision of this Act from which the parties may derogate or of any requirement under the arbitration agreement which has not been complied with and yet proceeds with the arbitration without stating his or her objection to the non-compliance without undue delay or, if a time limit is prescribed, within that period of time, shall be deemed to have waived the right to object".

According to the record of proceedings at page 91, on 5th October 2020 at the 5 meeting, the parties were heard before the arbitrator closed the arbitration and informed the parties that the award would be given at the end of the month. It is evident that none of the parties raised any objection and or concerns to the proceedings thereto.

I, therefore find that having participated in the proceedings up to 5th October 2020 and subsequent failure by the applicants to object to the arbitration proceedings before the award was made amounted to a waiver of their rights to object to the award at that stage, hence estopped from challenging the ward at this point, a move I find to be an afterthought intended to defeat the ends of justice. Therefore, in the absence of a serious prejudice suffered by the applicants, I am inclined to dismiss this ground.

# Grounds 2, 3, 4 & 5.

#### Applicants's submission 220

Counsel for the applicants contended that the arbitral proceedings breached section 38 of the Act by entertaining questions which did not form part of the arbitration agreement.

Counsel contended that the arbitrator entertained matters arising from a mortgage which was not part of the arbitration agreement or the dispute referred to arbitration, hence not within the ambit of arbitration. He argued that the arbitral award worth USD 395,215.54 is premised 225 on a counterclaim which arose from a mortgage which was never a subject of the reference to arbitration. He argued further that the 2nd, 3rd and 4th applicants were not parties to the arbitration agreement and therefore, the proceedings and orders against them are void because the arbitrator was not clothed with jurisdiction to entertain the matter against them.

He relied on the authority of Usafi Market Vendors Association vs Kampala Capital City 230 Authority, HCMA No. 547/2018

Regarding the 4th applicant, counsel submitted that the 4th applicant is a stranger to the arbitration agreement which confers jurisdiction on the arbitrator and yet detrimental orders have been made against it. He submitted that the arbitration agreements are governed by the rules of contracts and that the principles of privity of contract apply to it. He prayed that the award be set aside accordingly.

### Submission of 1st respondent.

For the 1st respondent, counsel contended that the applicants are barred by section 38 of the Act from contesting the award on a question of law since no provision in the arbitration agreement provided that such questions of law be determined in arbitration. He explained

that in the absence of such an agreement, the applicants have no locus to contest the award. He cited the case of Babcon Uganda Ltd vs Mbale Resort Hotel Ltd SCCA No. 06 of 2016. He prayed that the application be dismissed on that basis.

On the merits of the above grounds, counsel submitted that the applicants consented to the issues raised and the addition of the 4th applicant as a party to the arbitration proceedings. 245 He argued that one of the core principles of arbitration is party autonomy hence addition of a party by way of consent of parties suffices. He further argued that the 1st respondent filed a counterclaim against all the claimants and by consent, the 4th claimant was added to the proceedings without any objections. He contended that the claimants are therefore estopped from challenging the jurisdiction of the arbitrator. 250

According to counsel, the 4th applicant is bound by the arbitration clause under the doctrine of the group of companies, where sister companies are bound by the commitment of affiliate companies even when they are not signatories to the agreement. That the principle applies where there is a common intention to be bound by the agreement regardless of whether they are parties to the agreement. Counsel argued that the 1st and 4th applicants are sister companies whose beneficial owners are the $2^{nd}$ and $3^{rd}$ applicants as admitted in the amended written statement of defence and counterclaim. He contended that the participation of the 4th applicant in providing security for the 1st applicant was necessary for obtaining the Agricultural Loan Facility as averred in paragraph 22 of the affidavit of Jonarsan Weere.

He therefore prayed that the application be dismissed with costs. 260

## Submission of 2nd respondent

Counsel for the 2nd respondent submitted that the provisions of section 38 is not useful to the applicant since there is no agreement for the question of law to be determined by the High

Court. Regarding the 4th applicant, counsel submitted that court may vary the award against it since it was not a party to the arbitration agreement. 265

As to whether the arbitrator exceeded the scope of arbitration by determining the question on the mortgage, counsel for the 2nd respondent submitted that looking at the Field Warehousing Receipt System, the issues involving the monies owed to the 1st respondent cannot be divorced from the arbitration agreement or its construction and operation

### Rejoinder 270

In rejoinder, Counsel for the applicants reiterated their earlier submissions which I need not reproduce.

### Determination.

This court has reviewed the pleadings and the submissions of both parties, together with the laws and authorities cited in support of the arguments advanced by each party. The gist of 275 grounds 2, 3, 4 and 5 can be summarised that the arbitrator proceeded beyond the scope of the agreed subject of arbitration by entertaining the dispute in respect of the mortgage and also allowed the addition of the 2nd, 3rd and 4th applicants to the proceedings whereas they are not parties to the arbitration agreement.

#### Preliminary objection 280

In their submission, counsel for the 1st respondent raised a preliminary objection to the effect that section 38 bars the applicants from instituting proceedings on questions of law in the absence of an express provision in the arbitration proceeding.

Section 38 (1) provides;

"Where in the case of arbitration, the parties have agreed that— 285

(a) an application by any party may be made to a court to determine any question of law arising in the course of the arbitration; or

(b) an appeal by any party may be made to a court on any question of law arising out of the award, the application or appeal, as the case may be, may be made to the court".

In the case of Babcon Uganda Ltd vs Mbale Resort LTD SCCA No 6 of 2016, Justice 290 Mwondha held that:

> "it's clear that it deals with a question of law which has been agreed upon in the arbitration agreement. There is no evidence by the appellant or respondent that there was any question of law agreed upon to bring the dispute in the ambit of Section 38 of ACA. Section 38 cannot be invoked as it's outside the dispute".

What can be made out of section 38 of the Act is that the provision can only be invoked when there is a prior express provision in the arbitration agreement to determine questions of law arising from arbitration proceedings by the court.

In my view, the contention in the instant case is purely on the jurisdiction of the arbitrator which is a pure question of law yet there is no specific provision in the arbitration agreement on the determination of questions of law by this Court. In the absence of such provision in the agreement, the applicants are automatically barred from invoking section 38 of the Act to challenge questions of law arising from the arbitration proceedings.

## The scope of the arbitration

It is not disputed that Elgonia One Café International Ltd, the 1st applicant entered into a 305 Warehouse Receipt System arrangement under which Elgonia One Café International, the 4th applicant undertook to deposit its coffee products in a Field Warehouse which by an agreement was managed by Ace Global Uganda Ltd, the 2nd respondent as a collateral

manager who accordingly issued a Warehouse Receipt which was used to secure an Agricultural Facility from Stanbic Bank, the 1st respondent.

I have reviewed the Field Warehouse and Storage Agreement and the Loan Facility Agreement which are attached to the application and affidavits in reply as annexure "H" and "I" at paragraph 22 and it is indeed true that they are precisely the documents that establishes the relationship among the respective parties herein. There is no doubt that clause 15 of the Field Warehouse and Storage Agreement provides for Arbitration and Governance whereas there is no specific clause in the Loan Facility Agreement that makes mention of arbitration.

I am however alive to the provisions of section 3 (4) of the Arbitration and Conciliation Act which defines the scope of an Arbitration, it thus provides-

The reference in a contract to a document containing an arbitration clause shall constitute an arbitration agreement if the contract is in writing and the reference is such as to make that arbitration clause part of the contract.

In the case of Smile Communications Uganda vs ATC LTD & Eaton Towers High Court Arbitration Cause No. 4 of 2022, it was held that;

"A non-arbitrable issue therefore can be decided in an arbitration when it is inextricably intertwined with an arbitrable issue, particularly where the determination of the arbitrable claim may dispose of the non-arbitrable claim. Thus, by arbitrating both the arbitrable issue and the non-arbitrable issue, the interests of judicial economy are served and the risk of inconsistent results avoided.

In the instant case, it is evident that the Agricultural Loan Facility Agreement does not only refer to the contents in the Field Warehouse and Storage Agreement but are also inextricably 330 intertwined and interwoven by its very abstract concept that they cannot be divorced from the other. It would seem and rightly so in my view that it is the very reason why the Bank, the

Depositor and the Collateral manager are all parties in the Field Warehouse and Storage Agreement wherein the Bank in the agreement instead appears to be a bystander.

- In this case, it can rightly be said that the execution of the Field Warehouse and Storage 335 Agreement was a condition precedent to the execution of the Agricultural Loan Facility Agreement, hence all the contents of the Field Warehouse and Storage Agreement must have been had in contemplation at its execution. The Agricultural Loan Facility under clause 3 also provides for the operations and drawdowns under which the duties of the collateral manager - and although Ace -Audit Control and Expertise Ltd (ACE Global) is not a party therein, it is a 340 reference to the contents of the Field Warehouse and Storage Agreement which makes the two transactions so interwoven and not divorceable.

The above notwithstanding, the applicants participated fully in the arbitration and never raised any objections during the proceedings, which amounts to a waiver of the right to object. (See

- section 4 of the Act). The parties were referred to arbitration by an order of court that was 345 delivered on 14th February 2020 and none of the parties that now seek to have the orders set aside appealed against the said orders on the grounds that have been advanced above. I also hasten to add that the applicants have not demonstrated any prejudice suffered. I am therefore of the opinion that the arbitrator rightly entertained the disputes and served the - ends of justice at hand. 350

### $2nd 3rd$ and $4th$ applicants are not parties to the arbitration agreement.

The applicants contend that the $2^{nd}$ , $3^{rd}$ and $4^{th}$ applicants were wrongly added to the arbitration proceedings. According to the Field Warehouse and Storage Agreement, the 2nd and 3rd applicants appended their signatures as directors of the 1st applicant as well as in the Agricultural Loan Facility which I have held to be interwoven with the Field Warehouse and 355 storage Agreement. The 2nd and 3rd applicants respectively undertook to provide a personal guarantee under clause 7 of the Agricultural Loan Facility hence, in determining the issues in arbitration, they were necessary and interested parties.

Regarding the 4th applicant which is the sister company of the 1st applicant, it is evident that it undertook to provide a corporate guarantee under clause 7 of the agreement in the Agricultural Loan Facility making it an interested party in the arbitration settlement with the right to be heard. Furthermore, the 4th applicant being a sister company of the 1st applicant is bound by the doctrine of a group of companies since they share directors and operate under the same directorships comprised of the $2^{nd}$ and $3^{rd}$ applicants.

In the case of Plinth Consultancy Services Ltd vs Inyatse Construction LTD & anor HCMC 365 No. 53 of 2024, it was held that

> "Arbitration jurisprudence under the English law (common law that Uganda subscribes to) has evolved to come up with what has been termed as 'arbitration without privity.' Arbitration without privity is an exception to the general doctrine of privity of contract. This however only applies to arbitration matters. Some of the instances where arbitration without privity applies include; consent of the party or parties, agency relationship, assignment and novation, corporate veil doctrine and the group of companies doctrine"

In my view, the 2nd and 3rd applicants who are directors of the 1st and 4th applicants were joined as parties to the arbitration by consent since none of the parties objected to their joinder 375 or better still, under the doctrine of lifting the corporate veil. Having found that, the doctrine of a group of companies applies to the 4th applicant since they are sister companies operating closely under the same group of companies, I am of the view that the 2nd 3rd and 4th applicants are bound by the arbitration clause in the Field Warehouse and Storage Agreement.

Although it is trite law that the parties have unfettered autonomy in arbitration, to that extent, 380 a party cannot be compelled to participate in an arbitration without their consent, in this case, the $2^{nd}$ $3^{rd}$ and $4^{th}$ applicants participated in the arbitration without any objection until the

arbitration was concluded. Section 4 of the Act bars an applicant from objecting to an award on a technicality if such a technicality was not raised at the commencement of the arbitration.

This application seems to have been brought as a means to defeat the ends of justice. 385 Resultantly, I find no merit in this application and dismiss it with costs

I so order.

Dated this 3rd day of October 2024.

Margaret Apiny **JUDGE**