Farmland Industries Limited v Globe Exports Limited (Arbitration Cause 3 of 1991) [1991] UGHC 36 (25 October 1991)

Full Case Text

Thre Hon. Mr. Justice A. R. Solucide

THE REPUBLIC CF UGANDA

IN THE HEGH COUPT OF UGANDA AT KAMPALA

## ARBITRATION CAUSE NO. 3 OF 1991

IN THE MATTER OF THE ARBITRATION ACT (CAP 55)

$AND$ ---

AN AREITRATION BETWEEN

FARMLAND INDUSTRIES LTD APPLICANT VERSUS

GLOBE EXPORTS LTD **RESPONDENT** BEFORE:- The Honourable Mrs. Ag. Justice M. Kireju

## R U L I N G

This ruling is in respect of a Chamber Summons dated 27/9/91 filed by the applicant Company, Farmland Industries Ltd, sacking an order that the Court appoints an arbitrator to arbitrate and make award in a dispute that has arisen between the parties. The application is supported by the affidavits of Samuel Kakande (hereinafter referred to as Kakande) Managing Director of the Applicant Company. The first affidavit is dated 17/9/91 and the second one, referred to as supplementary affidavit is dated 15/10/91.

The application is brought under section $6(2)$ of the Arbitration Act and rule 16 of the Arbitration Rules. These provisions in summary empower the Court to appoint an arbitrator on application of one of the parties after the parties have failed to concur on the appointment of an arbitrator.

The grounds for these summons are that:-

- $(1)$ The Respondent has failed to concur in the appointment of an arbitrator. - It is fair and just that this honourable Court doth $(2)$ intervene in the matter in order that arbitration proceedings commence.

Mr. *Serwanga* learned counsel for the applicant based his submissions on the two affidavits of Kakande. The facts giving rise to the' existing -disupte are that on 24/4/90 the applicant entered into a contract with the respondent for the supply o'f 120 metric-tons of beans at a cost of US-Dollars 400 per ton', the contract was F. O. T Kampala. The applicant submitted that .beans 'were duly .delivered to therespondent who has. re fused... .to pay for them on grounds inter alia that they didnot correspond to the quality specified in the contract. According to the above facts it is clear that a dispute has arisen, and Mr,. Mulenga learned counsel the for ./ ' respondent loosn.t dispute the fact that a dispute has arisen, regarding the performance of the contract.

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Under the agreement it -ras agreed that in case of a dispute parties had to resort to negotiated settlement and in case of failure to agree the case had to be referred to arbitration in Djibouti. By a letter dated 7th May, 1991 annexture .'-Br by mutual consent the venue for arbitration was *Mr 9* changed, from Djibouti to Uganda^ / Serwanga submitted that the change of venue was in anticipation of the arbitration and [tha\.it](tha/.it) goes to show that amicable settlement had failed. Hr. Mulenga disagreed with the . trove inference and submitted that nowhere in the two affidavits of Kakande was it suggested that change of venue nas because the negotiated settlement had failed. In the r. \id letter it had been specifically stated that the change of v-nue would not change the legal standing of either party

I agree with Mr. Mulenga on this matter that the letter specifically enrphassised that nothing else should be read in that letter except that the venue had changed.

It was submitted by Mr. Serwanga that Kakande stated in his affidavits that he had tried but failed to reach an amicable understanding with the respondent. He also pointed out that delivery of the goods was done around June 1990 and that a year had already passed and the applicant had not been paid and that there ha.'. n t been any indication from the respondent that he wanted the matter settled. He therefore submitted that parties had failed to reach a settlement and therefore this case was re. dy to go for arbitration.

It was further stated that the applicant had approached the respondent with a view to agreeing on an arbitrator, that on 27/5/9^ counsel for the applicant wrote to the. respondent suggesting that Mr. Paul Sebalu bo appointed an arbitrator. The letter was attached to the\* supplementary affidavit as annoxture 'A\* that from this letter it appeared to the applicant as if the respondent hod agreed. to the appointment of Mr. Paulo Sebalu. Subsquent to the above said letter, the applicant drew up the necessary instruments for arbitration but the respondent refused to sign them and as a result no arbitrator has been appointed

According to paragraph 13 of the affidavit a notice was served on counsel for the respondent on 3/9/91 stating that if he doesnot agree to an arbitrator within 10 days the matter would be referred to Court. Mr. Serwanga submitted that 10 d.xys have elapsed and hence those proceedings and that the application. •was properly before 0 »vrt -since the

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provisions of arbitration Act relating to service of notice have been complied with. lie therefore pr&yed that the Court appoints an arbitrator.

Mr. Mulenga ixor the respondent based his submission on the affidavit in reply of Karim S.omani dated 8/10/91\* Globe 3omani is the local representative for \$ . Exports Limited of England. Mis main argueMent is that the appointment of an arbitrator ic pr .nature .s far as the terms of the contract prescribe a condition precedent before arbitration proceedings Cnn be invoked. i:o submitted that learned counsel for the applicant did not ..idcr.ss the crucial issue of settlement, sufficiently or at .1 that ho had submitted generally that amicable settle ?.c?it could not bo reached and therefore arbitration had to be resorted to. That after reading the affidavits of K ,hands c.nd Somaui , you could not say that is Evidence of no got i,ions for amicable settlement having taken place. Negotiati. ;i he sub/.itted is a discussion with view to reaching an igrcercnt, people with differences sit together and see how they rc-r.i v-.: their differences in a spirit of give and take. it. t = t is stated in Kakande's affidavits is just a gener .1 *ass-.*,-vtion that he tried but failed to reach amicable underst .nilng. The efforts the applicant made are not describ- d or somehow explained and there is no hint nor' suggestio?-- that there was: any negotiations. That looking at paragraph 4 of supplementary affidavit of Kakande it is apparent that ccu-isel ..nd his client misconstrued the terms of the agree-men ; in respec t of the negotiations\* That the letter dated 22-P-91 fro-- the- counsel for the .

applicant to the respondent counsel shows vitridty that the applicant .vas bear on trbitration and lost sight of the condition precedent that amicable settlement had to be trx&d first. That no other form of evidence has been adduced to show that any .no otiations had been tried on contrary SomEtni expresses and states in par?/;raph 5 of his affidavit that the respondent was vzilling to sit -.nd negotiate with the applicant. In par.?;•?? aph 6 of his affidavit Somani point; out that he had gone out for medical treatment that on his return instead of applic rt going for settlement, he was pressing for arbitration. Also referring to counsel for the applicant's subrnissi .n that a. year had elapsed since payment was due, Mr. ilulezw;.- submitted th t this was a matter to be determined at the time of settlement of the dispute and not at the st jo of this application That if the parties have boon slow in processing their matters, the delay is there .'or.; not one sided and one party cannot use it to avoid negotir.ti' ns and go for arbitration.

Mr. Mulenga also responded to a letter from his firm dated 5/9/91 to M/S Katcnde and Sempebwa Advocates which was tendered by counsel for the applicant in an attempt to prove that counsel f-u? the respondent had agreed on Mr. Sebalu acting as ai i-bi.tr-; tor in the matter and that all along the parties had been in contact. He submitted th?fc -'hat was meant waa that the respondent didnot object to Mr. Sebalu's being appointed as an arbitrator. That the letter stressed v.'hat was said on telephone that as they had to wait for instructions from their client,

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He stressed that their firm had been consistant in all its letters that they had to got instructions first and that the condition precedent was never waived by the §aid letter or any other. In conclusion Mr. Mulenga submitted that Under the agreement negotiation is mandatory before arbitration proceedings can be started. That the provision via6 put there intentionally and. parties couldnot fp.il to give it effect the provision was put 'co avoid unnecessary expenses of arbitration and Courts and also to encourage good commercial relationships, and therefore should be encouraged rather than discouraged by the Court. He stated that his clients were willing to sit down and negotiate and that, the applicant is also committed by the agreement in case negotiations fail then an arbitrator could be appointed and this may not even require Court intervention. He therefore prayed that the application be dismissed with costs.

In reply to the respondent's submission Mr. Serwanga submitted that the objection raised by counsel for the respondent should have been brough0as a preliminary point of objection to the application. He therefore submitted that the application w is .properly before Court as a condition precedent has not been properly made. He also submitted that the question of negotiation is a question of evidence and that the agreement did not stipulate where negotiations v/ould take place neither did it state how they were to be conducted, that it is sufficiently shown in the affidavit of Kakande that he had tried to reach settlement, failed&gt; lie- submitted that it juas- -a -question of arodlbi1 i t y, e i1hor

Kakande is lying or gomani is lying, that the only way to find the truth. Was to examine the parties. He maintained that the application --as propery before Court.

•After hearing submissions from counsels for the .applicant and respondent and reading the affidavits to the summons, I find that the issue to bo decided now is whether the application for the appointment of an.arbitrator is properly before the Court. I gre ;• vrith •>.o counsel for the applicant that the issue should have bo a raise-• as preliminary point as it is a determining fact to the le application.

At this sta,/~ it io app.v opr into to quote the clause under which arbitr J:i< jus spelt out under the contract namely that:-

> "All disputes in connection «'ith the contracts shall first bo settled amicably by negotiation. In case no settlement can be reached-, the case shall be submitted for arbitr- .cion. The arbitration shall to.h. pl.a co in a pre agreed country namely Djib ont i(l-.ter ohattged to Uganda)

All parties agree th a dispute exists arising from the agreement and they .. Iso .--.roe that all disputes have to be settled amicably by negotiation before submitting to arbitration. bhat is not is whether negotiations have taken placezrfc all.

It is the applicant's contention that negotiation as required by the agreement die take place and failed hence the application for the appointment of / n arbitrator^

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On the other hand the respondent in the affidavit of Soman denies any negotiations having taken place.

Cxford - dictionary defines the word negotiate as ''Confer (with another) with r.view to compromise or agreement". Negotiations communicate ideas between two or more parties on matters of mutual interest to achieve a position acceptable to all on issues of disagreement. I gree with counsel for the contract applicant that / did not spell out the procedure to be followed when negotiating settlement. But the applicant is underduty to inform this Court which method of negotiation he used be? it by letters, telex, f/csinilc, telephone or face to face meeting inorder to assist the Court determine whether negotiations took place or not. No specifics or slight hint were given in the applicant's affidavits as to how negotiations were carried out. In paragraph of Kakande's supplementary affidavit, he spates that his counsc.1 also made an effort to settle the matter amicably as evidenced by the letter dated 17/05/91? but in his submission counsel for the applicant does not mention anything, about having been involved in any negotiations, with due respect, I think this was a serious omission on his part. I disagree with the submission that the letter of 27/05/91 was evidence of the applicant having tried to settle the matter amicably, nothing is mentioned -'.bout having attempted negotiations and failed, the letter in effect go to show that the applicant went in straight for arbitration.

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It has been hold that in matters of arbitration the Court must give support to the intetion of the parties as expressed in the contract?in the case of British East African Co Ltd Vs Abdulla Alibhai Kanjir^Another (1939) 6 EACA 62 (K) Whitley C. J\* had and ~ this to say about th? role of Courts in arbitration case. Quote uTho one underlying principle which runs throu- h all the decisions seems to be that the d"ty of Court is to carry out the intentions of tho parties so far as they can be gathered from the t-.vms of the particular contract under considerations."

In the instant case the intention of the parties was that before going for expensive and long procedures of arbitration, the parties had to first get together and negotiate settlement failing which they could resort to arbitration. Applying the principle quoted in the above case to the instant application, I find that the condition precedent requiring the parties to go for amicable settlement before going for arbitration has not been sufficiently proved by the applicant.' Tho onus of establishing that negotiations took place is on the applicant and as I have already indicated he has in my opinion failed to discharge the onus. There is no need to examine the parties to find out the truth as the affidavits were enough.

I therefore hold that the application for appointment of an arbitrator is premature and therefore I shall not go in the merits of the application in that respect.

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Parties are advised to follow the terms of the contract and start with negotiations for amicable settlement failing after whicjCt-he-y should start arbitration proceedings. ..

As I had already stated, the objection raised by counsel for the respondent should have been argued as a preliminary point of objection, that?. ay tine would have been saved. With this in mind, I order that the application be estruck out as being premature and incomptent each party to bear its own costs.

I sc order.

M. KIREJU Ag. JUDGE. 25710/91

Ruling derivered before Mr. NkuriziZa for the Respondent Holding brief for Mr. Mulenga Mr. Serwanga for the applicant absent. Mr. Oburu Court Clerk 2.^0 p.m.

> ?i. KIREJU Ag» JUDGE. 25-10-1991