Huvaz Investment Ltd and Others v Equity Bank Ltd (Miscellaneous Application 159 of 2023) [2024] UGHC 955 (11 October 2024)


# **THE REPUBLIC OF UGANDA IN THE HIGH COURT OF UGANDA AT MBARARA HCT-05-CV-MA-0159-2023** 5 **(ARISING FROM HCT-05-CV-CS-0071-2022)**

- **1. HUVAZ INVESTMENT LIMITED** - **2. AGABA ARMSTRONG** - **3. ASIIMWE RUTH ------------------------------------------- APPLICANTS**

# 10 **VERSUS**

# **EQUITY BANK UGANDA LTD ---------------------------- RESPONDENT**

**BEFORE:** Hon. Justice Nshimye Allan Paul M.

#### **RULING**

# 15 **REPRESENTATION**

The Applicants were represented by Adv. Kwikiriza Ronald from M/s Kaganzi & Co Advocates, while the Respondent was represented by Adv. Bright Arinaitwe from M/s Muhumuza-Kiiza Advocates & Legal Consultants.

#### 20 **BACKGROUND**

This application was brought under: Section 5(1) & 9 of the Arbitration and Conciliation Act Cap 4, Rule 13 of the Arbitration Rules, Section 5 & 98 of the Civil Procedure Act Cap 71, Section 33 of the Judicature Act and Order 7 Rules 11 (d)(e) of the Civil Procedure Rules SI 71-1 seeking orders that;

- 25 1. The dispute between the Applicants and the Respondent in Civil Suit No.71 of 2022 is the subject of a valid, binding and enforceable arbitration agreement/clause between the parties within the premises of the Arbitration and Conciliation Act Cap 4 of the laws of Uganda and should be referred and resolved through arbitration. - 30 2. The arbitration agreement/clause should be enforced by dismissal of Civil Suit No.71 of 2022.

3. Costs of the application, High Court Civil Suit No.71 of 2022 and the counterclaim be awarded to the Applicants.

The application was supported by two affidavits deponed by the 2nd Applicant, on his behalf and on behalf of the 3rd Applicant, and by John Allan Kwatampora,

5 an Advocate from M/s Kaganzi & Co Advocates. The application was opposed through an affidavit deponed by Joseph Agaba – the Mbarara Branch manager of the Respondent Bank.

# **SUBMISSIONS**

10 The court issued the parties with a schedule to file submissions, and the parties filed written submissions.

#### **Applicants' submissions**

Counsel for the applicants raised two issues;

- 15 1. Whether the matters raised in HCCS No.071 of 2022 ought to be referred to arbitration within the confines of the Arbitration and Conciliation Act? - 2. What remedies are available to the parties?

On the first issue, it was submitted that Section 5(1)(a) of the Arbitration and Conciliation Act requires reference to arbitration unless there is no binding

20 arbitration agreement between the parties. Counsel cited **BRITISH AMERICAN TOBACCO VS LIRA TOBBACO STORES HCMA No.924 of 2013** for the holding that for a matter to be referred for arbitration, what is material under Section 5 of the Arbitration Act is whether there is an arbitration agreement between the parties.

Counsel argued that to determine existence of a valid and enforceable arbitration agreement, Court should consider, the wording and scope of the arbitration clause. That in this case, paragraph 11 of the loan agreement provides for the governing law and jurisdiction in a clear and unambiguous form.

Counsel also cited **GOLF VIEW INN (U) LTD VS BARCLAYS BANK (U) LTD HCCS No.358 of 2009** for the position that once parties have executed agreements, they are bound by them and evidence of the agreement should be obtained from the agreement itself and not from extrinsic evidence. Counsel further relied on

**VANTAGE MEZZANINE FUND II PARTNERSHIP VS SIMBA PROPERTIES INVESTMENT CO. LTD & ANOTHER MA No.201 of 2020** and **POWER AND CITY CONSTRUCTION LTD VS LTL PROJECT (Pvt) LTD HCMA No.062 of 2011** for the position that Section 9 of the Arbitration and Conciliation Act ousts the 5 jurisdiction of Court in matters governed by the Act, and contended that this Court is not clothed with jurisdiction to hear and determine HCCS No.71 of 2022.

On the second issue, counsel prayed that Civil Suit No.71 of 2022 be dismissed with costs, and that the Applicant be awarded costs therein.

#### **Respondent's submissions**

On the first issue, counsel invited Court to consider 3 documents mainly; the Eazzystock Finance Loan Form & Contract, the Personal Guarantee agreement and the Key Facts Document. Counsel noted that clause 11 of the loan 15 agreement provides for the governing law and jurisdiction to be of the Republic of Kenya, but the Personal Guarantee agreement and the Key Facts Document give jurisdiction to Ugandan Courts.

Counsel submitted that in such a case of conflict of laws, thus Court has to 20 consider the law of the place where the contract was made under the private international law principle of *lex loci contractus*.

Counsel contended that since the loan contract was executed in Mbarara – Uganda, this Court is automatically given jurisdiction. Counsel cited **HUADAR**

25 **GUANGDONG CHINESE CO. LTD VS DAMCO LOGISTICS UGANDA LTD CS No.4 & 5 of 2012** for the holding that Article 139(1) of the Constitution confers unlimited original jurisdiction on the High Court and that a contract cannot oust the jurisdiction of the High Court, more so where a Defendant wants to use the exclusive jurisdiction clause to avoid liability.

On the second issue, counsel prayed that this application is dismissed with costs, and that the main suit be set down for hearing.

#### **Applicant's submissions in rejoinder**

Counsel contended that there is no conflict of laws as clause 11 clearly gives jurisdiction to Kenyan Law to preside over arbitration proceedings. Counsel prayed that the parties be left to the bargain of their agreement as it is not 5 ambiguous.

#### **DETERMINATION**

It is a principle of law that a statute that ousts the jurisdiction of this court must be express as was held by Manyindo DCJ in **DAVID KAYONDO VS THE** 10 **COOPERATIVE BANK LTD SC CIVIL APPEAL 19 OF 1991,** where he stated that;

*"Under the Constitution and Judicature Act the High Court has unlimited jurisdiction over all matters civil or criminal subject to any written law. It is settled law that for a statute to oust the jurisdiction of the court, it must say so expressly. Of course, ouster may be inferred from the words of the* 15 *statutes if such inference is irresistible"*

The evidence on court record shows that this application is in respect to the Arbitration and Conciliation Act CAP 5. I have perused the Arbitration and Conciliation Act and find that it provides in section 9 that:

*"9. Extent of court intervention*

20 *Except as provided in this Act, no court shall intervene in matters governed by this Act"*

Section 9 of the Arbitration and Conciliation Act CAP 5 ousts the jurisdiction of this court. I am fortified in this reasoning by the decision in **BABCON UGANDA LIMITED V. MBALE RESORT HOTEL LIMITED, COURT OF APPEAL CIVIL APPEAL** 25 **NO 87 OF 2011,** where Hon Justice Kenneth Kakuru, JA held that;

> *"I agree with justice Egonda Ntende, JA that ACA is a restrictive statute that limits the intervention of court in matters that are governed by that Act and ousts the jurisdiction of the courts to entertain disputes that fall under it"*

30 I find that the jurisdiction of court is ousted expressly in matters that the parties agree to be governed by the Arbitration and Conciliation Act CAP 5.

The question we have to now determine is what is governed by the Arbitration and Conciliation Act?. I am of the considered opinion that section 3 and 5 of the Arbitration and Conciliation Act CAP 5 are instructive in determining when the Arbitration and Conciliation Act is applicable.

5 Section 3 the Arbitration and Conciliation Act states that;

*"3. Form of arbitration agreement*

*(1) An arbitration agreement may be in the form of an arbitration clause in a contract or in the form of a separate agreement.*

*(2) An arbitration agreement shall be in writing.*

10 *(3) An arbitration agreement is in writing if it is contained in-*

*( a) a document signed by the parties; or*

*(b) an exchange of letters, a telex, a telegram or other means of telecommunication which provides a record of the agreement."*

Section 5 the Arbitration and Conciliation Act states that;

# 15 *"5. Stay of legal proceedings*

*(1) 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 a statement of defence and both parties having been given a hearing, refer the matter back to the arbitration unless he or* 20 *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 agreed to be referred to arbitration."*

- 25 My analysis of **SECTION 3 AND 5 OF THE ARBITRATION AND CONCILIATION ACT CAP 5** is that for court to conclude that a matter is governed by the Act, it will determine whether. - 1. There is a written arbitration clause or agreement signed by the parties.

- 2. The arbitration agreement is null and void, inoperative or incapable of being performed. - 3. There is any dispute between the parties with regard to the matters agreed to be referred to arbitration. - 5 The evidence on court record in annexture B to the affidavits in support as well as the Eazzystock Financing Loan Form & Contract signed by the 2nd applicant on behalf of the 1st applicant as well as a relationship manager of the respondent. Clause 11 of the general terms and condition of the Eazzystock Financing Loan Form & Contract provides as follows.

#### "*11. LAW GOVERNING LAW AND JURISDICTION*

*This letter shall be governed by the laws of the Republic of Kenya. The Borrower hereby irrevocably submits to the jurisdiction of the Kenyan Courts. The submission to jurisdiction by the Borrower shall not prevent* 15 *proceedings being brought in any other competent court. Any dispute, difference or question whatsoever which may arise between the parties including the interpretation of rights and liabilities of either party shall be referred to an arbitrator under the rules of the Arbitration (Amendment) Act 2009 of Kenya or any statutory modification or re-enactment for the* 20 *time being in force. Such arbitrator to be appointed by agreement of both parties and in the absence of agreement within fourteen (14) days of notification of the dispute by either party to the other then on the application of any one party to the Chairman of the Chartered Institute of Arbitrators and the decision of such arbitrator shall be final and binding* 25 *on the parties hereto. Neither party shall be entitled to commence or maintain an action in a court of law upon any matter in dispute until such matter shall have been submitted and determined as hereinbefore provided and then only for the enforcement of the arbitration award*." (emphasis mine).

I find that there was an arbitration clause in the written loan agreement signed by the 1st applicant and the respondent. It therefore follows that the condition that an arbitration clause ought to be in writing signed by the parties is fulfilled in Clause 11 of the general terms and condition of the Eazzystock Financing Loan Form & Contract.

The Respondent argued that, whereas clause 11 of the loan agreement provides for the governing law and jurisdiction to be of the Republic of Kenya, but the

5 Personal Guarantee agreement and the Key Facts Document give jurisdiction to Ugandan Courts, and that in such a case of conflict of laws, Court has to consider the law of the place where the contract was made under the private international law principle of *lex loci contractus.*

I am of the considered opinion that before invoking the guarantor agreement, 10 which is a separate agreement, the liability would have been determined using the primary loan agreement which in this case is the Eazzystock Financing Loan Form & Contract. It is this primary loan agreement that is key in determining the dispute between the parties.

- A summary of the dispute in **Civil Suit No.71 of 2022** is that the Respondent sued 15 the Applicants by specially endorsed plaint for recovery of UGX98,894,109/= (Uganda Shillings Ninety Eight Million, Eight Hundred Ninety Four Thousand One Hundred Nine only) being moneys outstanding from a loan agreement executed on 6th July, 2021 between the 1st Applicant (Borrower) and the Respondent (lender). - 20 I therefore find that indeed there is a dispute between the partiesthat promoted the respondent to file **Civil Suit No.71 of 2022** for a recovery of UGX98,894,109/= from the applicants basing on the terms of the Eazzystock Financing Loan Form & Contract. It is the same Eazzystock Financing Loan Form & Contract signed by the parties that contains the arbitration clause. - 25 It is trite that parties are bound by the agreements they freely execute in line with the spirit of **SECTION 9(1) OF THE CONTRACTS ACT CAP 284**. On this basis, courts in Uganda have promoted arbitration clauses where the arbitration agreement doesn't fall in the exceptions in **SECTION 5 (1)(A) & (B) OF THE ARBITRATION AND CONCILIATION ACT CAP 5.**

# In the case of **FULGENSIUS MUNGEREZA V AFRICA CENTRAL SUPREME COURT CIVIL APPEAL NO.18 OF 2002, the facts of the case where that;**

*" The respondent by chamber summons, brought under Sections 40 and 41 of the Arbitration and Conciliation Act No.7 of 2000, applied for orders* 5 *staying the proceedings in the High Court civil suit, and referring the matter to arbitration in accordance with Clause 29.2 of the Framework Agreement. The appellant argued that he could not afford going to London for arbitration and/or to pay his lawyers to represent him at the arbitration. The learned trial judge allowed the application, holding that* 10 *the alleged impecuniosity did not render the Agreement incapable of being performed, so as to bring it within the exceptions under Section 41 of the Arbitration and Conciliation Act. The appellant appealed to the Court of Appeal where his appeal was dismissed; and he subsequently appealed to the supreme court."*

15 His Lordship Hon Justice Benjamin Odoki, Chief Justice held;

*"The appellant was a party to the Framework Agreement and he was entitled as a member to have this dispute resolved in accordance with the Framework Agreement"*

I find that the Eazzystock Financing Loan Form & Contract does not fall within 20 the exceptions **IN SECTION 5 (1)(A) & (B) OF THE ARBITRATION AND CONCILIATION ACT CAP 5**. It therefore follows that the arbitration clause 11 in the Eazzystock Financing Loan Form & Contract is applicable to the parties, and it therefore ousts this court jurisdiction in this matter.

### **Issue 2**

#### 25 **What remedies are available to the parties?**

The law in **SECTION 5 (1) THE ARBITRATION AND CONCILIATION ACT CAP5** states that;

*"5. Stay of legal proceedings*

*(1) A judge or magistrate before whom proceedings are being brought in* 30 *a matter which is the subject of an arbitration agreement shall, if a party so applies after the filing of a statement of defence and both parties having been given a hearing, refer the matter back to the arbitration.."*

In my view, a party to a suit subject to Section 5 (1) the Arbitration and Conciliation Act can request court to refer the matter to arbitration. In this case, having considered that the arbitration is subject to the law in Kenya, which is a different country, and in an effort to avoid leaving cases hanging in the system

- 5 thereby causing a backlog, I find that this suit was premature as the respondent that drafted the terms in the Eazzystock Financing Loan Form & Contract ought to have known better and refer the dispute to arbitration. I am therefore of the view that High Court Civil Suit 71 ought to be dismissed. - 10 Lastly, before I conclude on this matter, since the Eazzystock Financing Loan Form & Contract was drafted by the respondent, if the intention of the respondent bank operating in Uganda was not to subject Ugandan borrowers to arbitration in Kenya, it would have redrafted clause 11 in the agreement to refer arbitration to Uganda law. The bank argument that the applicants are buying time not to 15 pay is frustrated by its own contract that the applicants signed. The bank can consider having loan agreements that refer parties to arbitration in Uganda basing on Ugandan laws, which would be easier for all the parties and make - 20 I would like to believe that Bank of Uganda, the Uganda Bankers Association and the Uganda Law Society would take interest in this matter to ensure that borrowersin Uganda are subject to arbitration in Uganda, using Ugandan trained arbitrators and basing on Ugandan law.

sense since the respondent bank is operating in the Republic of Uganda.

25 In the circumstances as held above, the respondent's clause 11 of the Eazzystock Financing Loan Form & Contract signed by both parties refers the dispute between these parties to arbitration in Kenya, this Court is legally bound to respect the agreement between the parties, as guided by **THE ARBITRATION AND CONCILIATION ACT CAP5** and **THE CONTRACTS ACT CAP 284.**

In conclusion, I order that

1. The dispute between the parties ought to be referred to arbitration in accordance with Clause 11 of the general terms and condition of the Respondent's Eazzystock Financing Loan Form & Contract.

- 2. The High Court Civil Suit 71 of 2022 is dismissed, with no order as to costs. - 3. The respondent shall pay the costs of this application.

Wieners .......................................

**NSHIMYE ALLAN PAUL M. JUDGE** 11-10-2024

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