Liberty Construction Company Limited & Another v African Development Bank & Another (Miscellaneous Application 877 of 2015) [2016] UGCommC 287 (13 June 2016)

# IN THE REPUBLIC OF UGANDA IN THE HIGH COURT OF UGANDA AT KAMPALA **COMMERCIAL DIVISION MISC APPLICATION NUMBER 877 OF 2015** (ARISING FROM CIVIL SUIT NUMBER 220 OF 2011 LIBERTY CONSTRUCTION COMPANY LTD.................................... <table> EDMUND MABIRO....................................

#### **VERSUS**

AFRICAN DEVELOPMENT BANK.................................... AKERE T. MUNA. SANCTIONS COMMISSIONER AFRICAN DEVELOPMENT <table>

BANK GROUP....................................

## BEFORE HONOURABLE LADY JUSTICE ELIZABETH JANE ALIVIDZA **RULING**

This Application was brought under Article 40(2) and 42 of the Uganda Constitution, Sections 33, 36 & 38 (1) of the Judicature Act CAP 13, Section 98 of the Civil Procedure Act, CAP 71 and Rules 3,6,8 of the Judicature (Judicial Review) Rules SI No 11 of 2009. The 1<sup>st</sup> Applicant, Liberty Construction Company Ltd and the second Applicant, Mr. Edmund Mabiro, who by his Affidavit in support of the Application, indicated was the managing director of the 1st Applicant, applied to court for the following orders;

- 1. A declaration that the Respondents' decision to proceed with sanctions proceedings against the Applicants is sub judice, illegal and an affront on the independence of the judiciary of the Republic of Uganda. - 2. An order for certiorari quashing the Respondents' sanctions decisions - 3. Damages - 4. Costs of the Application.

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This Application was based on grounds included in the Affidavit of Edmund Mabiro, the $2^{nd}$ Applicant, which I will refer to as I go long in determining this Application. There were supporting documents marked as annexures to the Application. These documents were very useful in throwing light to the sanction procedures and proceedings conducted by the Respondents and decision reached.

The Respondents filed an Affidavit in reply by James Katono, an Advocate representing the Respondents. Both parties made oral submissions before court and availed authorities. All the affidavits, documents, submissions by counsel and legal authorities availed to the court have been very useful to court and I am grateful to Counsel for their assistance. I have taken them all into consideration in arriving at the final decision. I will refer to the salient issues and facts that are not disputed in the body of this ruling. This court also cautions itself that since this application arises out of an existing pending suit, it would be detrimental to rely on disputed facts that are pending determination of the court.

The Applicants were represented by Counsel Kasiisa Ronald Willy while the Respondents were represented by Counsel Nerima Nelson. I will go ahead to first highlight a brief background to the main suit CS 220/2011 and then a summary of the application from the different perspectives of the parties and determine issues raised and make conclusion as to whether to grant the orders applied for or not.

#### Background to Application based on Civil Suit 220 of 2011 between Liberty Construction Company LTD VS Attorney General of Uganda.

The undisputed facts about this pending case before this court is that on $22<sup>nd</sup>$ June 2011, the Plaintiff in this case, Liberty Construction Co Ltd, filed a claim of UG SH 12,368,660,350 against the Ugandan government represented by the Attorney General. According to paragraph 3 of the Plaint, it is stated that the claim is for " sums due for agreed interest on delayed payments, valuation of works executed, claims for damages for losses and expenses incurred, value of

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materials on sites and those that had been ordered". The claim also extended to general damages, interest and costs.

This case is based on a construction contract executed 11/12/2007 with the government of Uganda represented by the Ministry of Agriculture, Animal Industries and Fisheries and Dembe-Liberty Joint venture to execute works on Fish Landing Centers of Lwampanga, Butiaba, Bukungu and Kiyindi. The work commenced, some payments were made and then the contract was terminated.

According to the Written Statement of Defence, the contract was terminated on 30<sup>th</sup> September 2009 citing fundamental breach based on the fact that there was fraud. According to Paragraph 6 of the WSD, the contractor was to secure valid and acceptable advance bank payment guarantee and performance guarantee. This was done but verification process revealed that they were forged.

After termination of contract, parties agreed to joint valuation to ascertain each party's obligations. The dispute arose from disagreement with the valuation process and outcomes. The defendant also filed a counterclaim claiming UG SH 269,550,513, special and general damages and also exemplary damages for fundamental breach and costs. The Plaintiff/ Defendant in Counter claim in the reply filed on 20<sup>th</sup> July 2011, gave details of the Bid Security, which was valid but the bank for unknown reasons, later disowned the subsequent guarantees.

On record is a letter dated 9<sup>th</sup> July 2009 from Orient Bank Ltd denying issuing Furthermore the Plaintiff/ Defendant in Counter claim said guarantees. indicates that termination was accepted so as to focus on post termination obligations to be met by the employer. This case is still at scheduling stage after court ordered joint experts report. Defendant finalizing collecting all witness statements and hearing dates have been fixed.

Under the same main suit CS 220/2011, is other Misc Application No. 311 of 2016, filed on 28<sup>th</sup> April 2016. This new Application seeks to amend the plaint in the main suit. The few amendment include; increased claim to 12,502,232,857 and other additional particulars about retention of payments

and interest accrued and entitlement of loss of income due to wrongful termination. This application is to be heard on 23<sup>rd</sup> September 2016. That is the history of the main case under which this instant Application is filed.

### Background to Misc Application 877 of 2015 between Liberty Construction Co Ltd and another Vs African Development Bank (ADB) and Another

The 1<sup>st</sup> Respondent, African Development Bank (ADB) was the funders of the said contract that was executed by the Applicants in part before it was terminated. This is the connection between the Applicants and the Respondents.

The comprehension of this background is based mainly on reading documents attached to this application. In a letter dated $26/2/2015$ , marked Annexure "F", ADB wrote to the 1<sup>st</sup> and 2<sup>nd</sup> Applicant notifying them of Sanctions Proceedings issued by the Bank Group's Integrity and Anti-corruption Department. Notice of Sanction proceedings are marked Annexure "K" had summary of notice and document titled Annex A, Sanction procedures governing the process were brought to the attention of the Applicants. The Applicants' through their lawyers, Counsel Kasiisa Ronald Willy, responded by indicating that termination of the said contract was a matter which was sub judice in a Uganda court and thus Applicants would not take part in these sanctions proceedings. This was contained in a letter marked Annexure "G". Still ADB sent another notice seeking clarification in a letter dated 14/3/2015 marked Annexure "H". Applicants' Counsel confirmed non participation in sanction proceedings since the matter was sub judice in the high court in civil suit $220/2011$ . This was in a letter dated 23/4/2015 attached marked Annexure "I".

In a sanction decision issued on $16/4/2015$ , the 2<sup>nd</sup> Respondent, the Sanctions Commissioner barred the Applicants from being eligible to benefit from the bank funded projects for a period of three years. Annexure "J" which is the decision was based on investigations by the bank that the supplied guarantees expired before contract would be completed and the Applicants were required to furnish new securities. That on the new Advance payment and performance guarantees

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said to have been issued by Orient Bank were found to be forgeries and thus a fraudulent act. The decision was accompanied with information about the Sanctions procedures for appeal. It is not clear from documents on record or even submission that the Applicants ever appealed against this decision. On record is also detailed instructions about appeal process.

On 26<sup>th</sup> October 2015, the Applicants filed this Application against the Respondents. On 22/3/2016, Counsel made oral submissions. The `Applicants main argument was based on the issue that the sanction proceedings were illegal since they were based on a matter that was sub judice before this court in civil suit 220/2011 between Liberty Construction Co LTD Vs Attorney General. Counsel for the Applicants contended that the Respondents had been informed of the court case but in total disregard for the independence of the Uganda judiciary, went ahead to make decisions to the detriment of the Applicants. That this was illegal since the Respondents were not party to the contract between the Applicants and the Uganda Government. The Applicants also questioned the low standard of proof used by ADB in finding the Applicant guilty of fraud. This was despite the fact that ADB sanction procedures recognize national laws. That the Respondents never informed the Applicants that they were going ahead with proceedings and issued their final decision. Impact of decision denied the Applicants a livelihood. For the above reasons, the sanction decision should be quashed.

The Respondents' counsel in opposing the application argued that the court had no jurisdiction to handle a dispute involving ADB due to diplomatic immunity limitations. The immunity applies even to its officers. Furthermore, the cause of action arose outside this court's jurisdiction in Abidjan, Ivory Coast. On the issue of judicial review, Counsel for the Respondents contended that what was important was the process rather more than the final decision. That the process complied with natural justice. Counsel further submitted that the Respondents wrote to the Applicants informing them of the sanction proceedings but Applicants decided to stay away. That bank was conducting internal

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investigations just as police was also investigating the forged guarantees. This administrative action does not affect the decision of this court in the main suit. That there was no illegality since ADB is not party to this suit 220/2011.

As a re-joinder, the Applicants' counsel submitted that the effect of immunity in the case of the Respondents is not absolute and never prevents Ugandan courts retaining residual jurisdiction to protect its citizens from arbitrary acts.

I will now go ahead to determine issues raised along thematic points as outlined below

### 1. Whether this court has the jurisdiction to hear this application made against the Respondent since African Development Bank (ADB) enjoys diplomatic immunity

The concept of diplomatic rights under public customary international law was formalized in the 1961 Vienna Convention on Diplomatic Relations. It is not a disputed legal fact that Uganda laws recognize international norms of sovereign and diplomatic immunity. These international norms have been domesticated by the enactment of the Diplomatic Privileges Act CAP 20 of 1965. It provides in Section 2 that the President may by statutory instrument make regulations on diplomatic agents of international organization. Indeed under Statutory Instrument 201-1 2003 The Diplomatic Privileges (Extension to Prescribed Organization) Regulation, Regulation 2(a) and (b) expressly extend diplomatic privileges to African Development Bank and its representatives including employees with some exceptions.

The fact that diplomatic agents enjoy diplomatic privilege of immunity from criminal jurisdiction of receiving States and also civil and administrative jurisdiction of the justice system is not disputed. The point for determination is whether immunity is absolute and thus oust this court's jurisdiction to entertain this application.

This calls for further discussion on the growing trends in the school of thoughts on issues of diplomatic immunity. There is interesting discourse about official suctioned functions as opposed to personal acts by diplomatic agents especially on issues dealing with human rights and humanitarian international law. With the developments in private and even customary international law, issues of restrictive immunity are gaining ground against absolute immunity.

However, my thinking is that each case depends on the nature of the case and the surrounding circumstances dealing with each diplomatic immunity claim, the politics and economic interests at stake. This is why some times states waive or even others revoke diplomatic immunity to enable foreign diplomat to be held accountable for acts or omissions. It is not by accident that at the international level, in 1963, a treaty called the Vienna Convection on Consular Relation which regulates Personal inviolability of consular officers was enacted. It states in Art 41, that "Consular officers shall not be liable to arrest or detention pending trial, except in the case of grave crime and pursuant to a decision of a competent judicial authority.

Therefore, diplomatic privileges have never been absolute and depends on the relationship between nations at a particular time and space. Diplomatic immunity had come to include other privileges of a social and economic nature. As foreign nationals continue to interact more with citizens of host nations, the rules of immunity are becoming more flexible with disputes with citizens such as employment or failure to pay for goods and services became more common and being entertained in national courts. After 1948 with the creation of United Nations, diplomatic immunity was extended to organizations whose members or stakeholders are member states.

Of course when considering diplomatic immunity in this case, court is mindful of the fact that sovereign state immunity is different from immunity granted with regional and international organizations who often deal directly with citizens. African Development Bank (ADB) is a regional organization made up of

$\overline{7}$ governments with a common purpose of promoting economic development among member states. It is increasingly becoming difficult to use the defence of diplomatic immunity especially for organizations that take on a corporate personality. Financial institutional that borrow and lend money and are involved in development projects that directly impact on the lives of citizens especially in areas of the environment or right to livelihood of individuals are bound to sue or be sued in national courts for their actions. The court is aware of the inherent power of the national courts especially under the doctrine of the right to justice which ensures that citizens are not denied rights justiciable under the international and municipal laws and public policy. National courts as custodians of justice cannot turn away citizens seeking redress unless special circumstances warrant so.

ADB has explicitly waiver part of its immunity in Article 52 (1) & (2) of the Agreement establishing the bank. It reads as follows

...." (1) The Bank shall enjoy immunity from every form of legal process except in cases arising out of the exercise of its borrowing powers when it may be sued only in a court of competent jurisdiction in the territory of $a$ member in which the bank has its principle office, or in the territory of $a$ member or non-member State where it has appointed an agent for the purpose of accepting service or notice of process or has issued or guaranteed securities. No action shall, however, be brought by members or persons acting for or deprived claims from members.

(2) The property and assets of the Bank shall, wherever located and by whomsoever held, are immune from all forms of seizure, attachment or execution before the delivery of final judgement against the Bank

Therefore since the ADB is in the business of lending and borrowing money and sometimes acts as a private bank. Absolute immunity would be against public policy. National court always retain residual jurisdiction to handle any case

involving citizens of the state especially where other alternative dispute settlement mechanisms are unavailable.

There are a number of cases involving financial institutions in different courts especially acts or omissions considered arbitrary.

I was greatly persuaded by the precedent set in the case of **Tononoka Stells Ltd** Vs The Eastern and Southern African Trade and Development Bank. Reported in EALR 2000 (2) at page 536. Though the facts in this case are distinguishable from this instant case. Some key principles are outlined. For example, market place rules apply whenever a diplomatic entity engages in activities in the market place. In this case, it was noted that the bank, the Eastern and Southern African Trade and Development cannot be immune from the consequences of its acts. Courts in Uganda vehemently enforce the rules and practices in the market place. This role gives this court residual jurisdiction to handle a dispute involving right to justice for any citizen threatened in the market place by the acts or omissions of the Respondent.

Therefore court finds that it has jurisdiction to handle disputes involving ADB in its commercial activities. The defence of diplomatic immunity is not absolute and depends on the nature of dispute and role played by the diplomatic entity.

## 2. Whether the Respondents acted illegally by handling matter sub judice

The gist of the grievance or complaint made against ADB is for imposing sanctions against the Applicants. That is the core issue this court has to deal with in the context of lifting immunity privileges. I am also aware of the fact that a Judicial Officer only makes fair and just decisions based on law and evidence and is prohibited from making judicial decision based on fanciful theories, rumors, speculations and conjuncture (refer to Court of Appeal case *Mbabazi* Rovence Natukunda and Loyce Kahunda Vs Uganda. (Criminal Application **Number 47 of 2012);** where this trite law was re-emphasized.

For purposes of clarity, I will also remind myself of what amounts to a illegality in relation to the sub judice rule that protects the integrity of court proceedings under the principle of independence of the judiciary. I found the case of Mucunguzi Myers Vs Sarah Kulata Basangwa, the Commissioner for Land Registration MA 1329 of 2014 (arising out of CS 211 of 2009) very useful especially reproduction of Lord Diplock's opinion in the case of **Council of Civil** Service Unions Vs Minister for Civil Service (1984) 3 ALL ER at 936. In this case it was held...."Illegality is a ground for judicial review and it means that the decision maker must understand correctly the law that regulates his decision making powers and must give effect to it. The authority must not exceed its jurisdiction by purporting to exercise powers it does not possess; it must direct itself properly on the law and must not use its powers for an improper use.

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Apart from the above, the imperative to observe the principles that underpin the sub judice rule cannot be overemphasized. Once a dispute is before a competent court of law for determination, other persons, institutions or organs whether private or public ought not to do anything by way of commission or omission whatsoever that would in one way or another affect the outcome of the proceedings pending in the court of law. The principles is intended, inter alia, to protect the independence of the courts by ensuring that courts of law arrive at decisions in cases before them in a fair and just manner independently of any interference of extraneous overt or covert influences of other actors that may have a bearing on the subject matter in contention before the courts.

Disregarding the sub judice rule thus renders untenable the above articulated objectives and particularly undermines the principles of independence of the courts in executing their constitutional and legal mandates in the adjudication of disputes between persons, which inevitably breeds the undesirable effects of impunity and anarchy in society. Such conduct cannot be condoned by a legitimate court of law.

With the above principles in mind, I will now go ahead to determine whether the Respondents contravened the sub judice rule and thus committed a illegality

that empowers this court to quash their administrative decision. From the onset, it should be noted that this application faces a number of limitations. The issue of the 2009 forged or not guarantees which caused the Uganda government to terminate the contract and later on, in 2015 compelled the Respondents to impose sanction against the Applicant is out of the scope of this court's determination. Court will also not speculate on disputed facts as to whether there was fraud or not. The facts and the circumstances in which the said contract was terminated has not been proved in the main suit 220/2011. Only fact that was not disputed was that the Orient Bank disowned the guarantee submitted by the Applicants claiming they were false documents. This was the fundamental breach that was used to terminate the contract is a clear fact. It has not been proved up to this stage that Orient bank disowning the bank guarantees is a false statement of fact.

This court was at pains trying to connect the argument about illegality and violating the rules of sub judicie with the sanction proceedings initiated against the Applicants. As already pointed out CS 220/2011 is about post termination obligations that were disputed by the Applicants. ADB is not a party to the suit or even a third party. Orient bank is also not party to the suit, nor a third party. This suit is not about the alleged forged guarantees. It is about failure to agree on money owed to the Applicants after termination of the contract between the Applicants and government of Uganda.

I believe that without dwelling more on this issue, this is sufficient reason to disallow the application as being very remote to the main cause of action. The Applicants should have brought separate action against the Respondent separate from CS 220 of 2011. The matter which was sub judice was unrelated to the sanction proceedings. It would have been relevant if the case was against Orient Bank in relation to the disowned bank guarantees.

Issue of forged guarantees was also investigated by the Uganda police as indicated in the WSD of the said civil suit 220/2011. In practice civil suits

usually proceed and do not act as a bar to criminal prosecution. In Uganda, which has many accountability bodies, formal and informal investigations are not uncommon even by parliament.

ADB in asking the Applicants to participate in proceedings and availing them information about the sanction procedures was in my opinion acting in good faith. Refusal to participate was a tactical error since the said court case is remotely connected and cannot act as a bar to other investigations concerning the forgery of the guarantees.

It is also my opinion that the sanctions imposed by the Respondents do not in anyway affect the outcomes of the proceedings in civil suit 220/2011 or undermines this court's independence to handle the above dispute which is based on post contract termination obligations under dispute.

Therefore, in conclusion, I find the following;

On diplomatic Immunity, national competent courts can discard the shield of immunity and inquire into a matter concerning a citizen that especially has commercial impact. However on the issues of holding individual diplomatic agents personally accountable for their official actions, doctrine is still absolute immunity unless there is proof that they acted outside official capacity or there was an abuse of power. Therefore the Application against second respondent AKERE T. MUNA, SANCTIONS COMMISSIONER AFRICAN DEVELOPMENT **BANK GROUP** cannot stand. The 2<sup>nd</sup> Respondent was acting in official capacity and therefore immune from being sued in personal capacity

Furthermore, the Applicants have not given this court justifiable reasons to compel this court inquire into the administrative quasi-judicial decision made by the Respondents. It has not been proved that the Respondents' decision directly impacts on the court case before court whether overtly or covertly. It is the understanding of court that the dispute in CS 220/2011 is based on post termination obligations of the parties. Connection between the case for post termination obligations and African Development Bank (ADB) is very remote in

my opinion to cause this court to interfere with administrative sanction decisions taken by way of judicial review. The Applicant can seek redress in a other forum. Therefore this application is dismissed with costs.

Elizabeth Jane Alividza Judge

13<sup>th</sup> June 2016