National Insurance Corporation v Arconsults Architects (Arbitration Cause 4 of 1991) [1992] UGHC 28 (27 April 1992)

Full Case Text

THE REPUBLIC OF UGANDA

IN THE HIGH COURT OF UGANDA AT KAMPALA

## ARBITRATION CAUSE NO.. 4 OF 1991

—Tn~t-he~Matter O'f"SA 13 of"the Arbitration Act

and'

In the Matter of Arbitration

between

National Insurance Corporation

and

Arconsults Architects

BEFORE The Honourable Mr. Justice J. W. N, Tsekooko

## ORDER

This matter v/as instituted in court under Rules 7 and 16 of the Arbitration Rules (S.1.55-1) by Chamber Summons. In it the applicant seeks for an order setting aside arbitration award made on 13th September, 1991 and filed1 in court on 12th November., 1991. The grounds in support of the application are contained in the Chamber Summons. They are 5 grounds and I find it necessary to set them out herebelow seriatim

1. The arbitrator 'misdirected himself in awarding M/S Arconsult Architects, the sum of money in the award based on wrong facts especially the meeting of the task force of National Insurance Corporation • of- the 15th August,. 1989 which was discussing the Muyenga and not Bukoto Project.

2. The Arbitrator wrongly-directed the objector Corporation to pay his fee note whereas the letter from the President of the Society of Architects dated 2^th April, 1991 expressly provided for payment .to be made by both parties equally..

3., The Arbitrator misdirected himself when he failed to address himself to the issue of written authority as provided for by the ''conditions of Engagement and Scale of Professional Fees and charges for Architects in Uganda". The said conditions are herewith annexed as "A".

4. The Arbitrator misdirected himself when he considered matters which were outside his appointment letter dated 2^+th April, 199^ which strictly empowered him to consider Fee No. 1• The letter is herewith annexed as "B".

The Architect was not justified in presenting Fee Note No. 2 5. it does and did not comply with the conditions herewith annexed as "A"."

The summons is supported by affidavit of Mr. Peter James Nkambo-Mugerwa sworn-on ' 8th January, 1992.

At the hearing of this application Mr. Buyondo argued the application on behalf of the applicants while Mr. Kateora opposed the application for the respondent. Mr. Buyondo gave general backgro .d of the arbitration. He then argued ground 3 first followed by ground two, ground five and generally touched on the -4 grounds. He appears to have abandoned the first ground.

The learned counsel for the respondent, Mr. Kateera, in effect submitted that the application is misconceived because it was presented and argued as if it was an appeal against the decision and arbitration of the arbitrator.. He referred to the first Schedule to the Arbitration Act (Hula- 8) which makes the award of an arbitrator or Unmpire final and binding. He then made comments on each of the 5 grounds in the Summons,

Before I consider learned counsel's submissions I would for the summary of the background to the arbitration findings of the arbitrator) and I shall then refer to the award of the arbitrator. I ought to point out, however, th^t perusal of the award shows that'iuntil disagreement arose there was least regard for legal formalities in't-he^ relationship of the applicant and respondent. (which are sake of clarity give a

The applicant desired to develop-for residential purposes two siter. One is referred to as Plot 447 Block 21? Bukato hereinafter called "Bukoto Project". The second site hereinafter called "Muyenga Project" comprised of plots 1704, 1705 and 1706 Block 244 Muyenga. According to the summarised facts in- the ruling of the arbitrator, there were preliminary verbal and written contacts between the officials of the applicant and the respondent about the two projects between November, 1987, and 10th May, 1988 when the applicant by letter appointed the respondent to carry out certain loprnent. he respondent acknowledged the letter on the same da\$ (10/5/1988), Stating therein that the fees to be charged would be in accordance with the conditions of service. There followed discussions' concerning the work on the two projects on 15th May, 1988 between Mr. Were for the applicant and Mr. S. Kapimpina for the respondent. The latter reduced these discussions into a letter dated 14th May, 1988 addressed to the applicant. He further wrote to the applicant appointment of supporting consultants. Un 6th December, 1988 the aPPiican^ advised the respondent by letter to withhold work on both an official of applicant wrote to the respondent. In the letter the on 4th May, a letter on 6th July, 1988 in which he recommended specified acts in respect of both projects which were due for deve-T investment Manager of the projects, among other things. According to the ruling *&lt; 1'* 1988, (I think the date is 'Ith . May, 1-989) a Mr. Katungwensi,

applicant approved the support consultants (quantity Surveyor, Structural Engineer and Electrical Engineer) recomended by the respondent. In the same lettor the applicant advised that it was only Bukoto project which was to be handled. The same letter ackowledged cost estimates which had bc-en submitted the previous month. On 12th May, 1989 the respondent formally appointed those consultants to handle Bukoto Project only. The consultants accepted their respective appointments between 15th and igth May, 1989^

On 19th Hay, 1989, the respondent submitted to the applicants the Fee Note No. 1 for Shs. 27,815,233/=•

On 20th June, drawings for Bukoto Project to the applicant. Apparently some had been sent previously. 1989 the respondent sent a set of sketch

On 15th August, 1989 the respondent (represent by Kapimpina) held a meeting with the applicant (Represented by Mr. F. F. Magezi Deputy Director as Chairman, Mr. P. E. Okwi General Manager, P. Iga Magoro, the investment /Estates Manager and Fredrick K. Karugonjo, Legal Secretary as Secretary)*•* Minutes of that meeting are annexed to the ruling. The•minutes show that various matters were discussed during the meeting. These primariry related to Muyenga Project. As minute 2 thereof shows, the applicant's representative (Kapimpina) initially gave a brief about the two project's preliminary work. Site lay out plans were apparently drawn for both Projects.

On 28th August, 1989 the respondent reminded the applicant about payment of Shs. 27,815,233/=. investment Manager discussed the fees. Note No. 1 with Mr. Kapimpina. On same day Investment Manager wrote Director of the applicant about that fee Note and other matters. On 20th September, .1989 applicant's a memorandum to the Managing

There are two more reminders for. payment of the fees. On 20th July, 1990 the present advocates for the applicant wrote to the respor^nt proposing that the applicant would pay J0% of Shs. 27,815,233/=. ■8r5rhre29-/H7 woiHd—be—Shsv

*5*

Subsequently the respondent sent to the applicant Fee Note 1A for Shs. 55,641,867/= being stage 2 Fees based on the estimates (presumably of the project by the Quantity Surveyor). That estimates was Shs. 5,555,486,700/=. Fee Note 1A superceding Note 1 was not accepted by the applicant. In summary those were the finginds of the arbitratoro

In September, initially conducted their relationships rather casually in the sense that for instance, there doesn't appear to have been a written agreeone , which I doubt, it never provided for such eventuality as settlement of disputes• Notwithstanding the provisions of Section 2 and 16 of the Arbitration Act and though neither side raised the matter, I formed the view that the dispute was properly before the arbitrator. See Laws of England, Vol. 2 Para 509\* The parties to this application did not contest arbitrator's jurisdiction. 4th Edition of Halsbury's in 1990 the two parties concurred/to submiting their disagreement to arbitration. As remarked earlier the two parties had ment in relation to-the project or projects, or if there was

Uganda Society of Architects appointed Mr. Sam Wajjo arbitrator in the dispute. I shall hence forth refer to Mr. Wako as ''the arbitrator." On 24th April, 1991 Mr. Stanley Mulumba as President of the

As the arbitrator correctly obseved at page 3 of record of his typed award, the letter appointing him as arbitrator was not in the least explicit about the nature of the dispute between the'parties to the proposed arbitration. He therefore defined the disputes between the parties when he heard evidence of both parties on 31st

See para 3.10 and 3.02 of his (typed) ruling. Since July, 1991. the parties raised v/h-.it appeared relevant matters of contention during the hearing of the dispute, the arbitrator in my view acted correctly. Again Seo Para 533 of the same 'Vol. 2'~ofTalb'ri Laws' (Supra) (page 272). The High Court of Kenya in Virji and Others Vs. Sood /197^7 E. A. 399 held that parol submission is sufficient for arbitration.

Now back to Counsel's submissions. The essence of the application is found in Section 12 of the Arbitration Act. That Section states;-

the court may set aside the award". arbitration or award has been improperly procured, "Where an arbitrator or unpire has misconducted himself, or an

Identical provisions of the lav; together with another Section the then East African Court of Appeal in Rashid Moledina Vs. Hoima Ginners /19677E. A. 6^5\* The matter in that case was an application seeking to set aside an award does. appeal but a study of that decision shows useful guidelines which the present application of Ke.nya Arbitration Act were ithe subject of consideration by on an

As I have said earlier Mr. Buyondo begun his submission with the third ground. He referred to annexture "A" to the Summons which contains conditions of Engagement and Scale of Professional Fees and charges for Architects in Uganda. He submitted that there was no bidding contract for respondent to be -paid fees on the note submitted by respondent because the respondent did not comply with the requirement that ho should have first submitted outline proposals on the project. That the proposals should have had the Scale of fees attached. That the applicant would have then accepted in writing so as to make payment of the fees on fee Note 1 binding.

On the other hand Mr. Kateera submitted that the advice on fees- was given by respondent and accepted. That this issue was not argued before the arbitrator. By implication Mr. Kateurei's views is that the applicant can't chaHenge f inding - on fees now,

In his ruling at page 12 para (e) this is what the. arbitrator found as a fact under the heading ''Fees";-

''The terms of reference indicated in 4.07 did not indicate the conditions of Service and Scale of Fees under which AA (respondent) *was* to be engaged. discuss the project and define the project Scope was held on the advice of AA as indicted in 4.08, 4,09 'uid 4.10. in the schedule above. AA however in the letter of acceptance of the stated letter of appointment/the terms of engagement and a meeting to

NIC did not in that meeting and thereafter prior to July, 1990 dispute the scale and mode under which AA's services were to be remunerated as stated by AA through several communications with AA refers to the respondent. NIC."

evidence. seated the parties (applicant and Respondent) were generally inform?1 in the way they handled the Projects work. A perusal of the ruling together with other document.s available on the record leave no doubt in my mind that there was a binding contract between the applicant and the respondent to perform the responsibilities of an Architect. I have no doubt that at some stage the idea on fees was communicated to the applicant as indicated by the arbitrator. And as I have earlier on Clearly this is a finding of fact by the arbitrator based on

At this stage the memorandum of Mr. P. B. Katungv/ensi (who was the Investment/Estates Manager of the'Applicant) to.his Managing Director is instructive. Its reference is CP/BKT/9 and is dated 20th September, 1989. I shall quote it here,:-

"HOUSING PROJECT AT BUKOTO FEE NOTE 1

## ARCONSULT ARCHITECTS

1. I met Mr, Kapimpina S. of Archonsuit Architects in our office this morning in connection with the above subject.

2. expenses bearing in mind the size of tho project. However the corporation has neither taken up the project nor discussed the plans with him. on the scheme drawing last year and in the process he had to incur Mr. Kapimpina explained that he was commissioned to work

3. He explained further that under normal circumstances the said fee note would have covered *2%* of the project estimated cost, but he felt that at this time where there is a general financial difficulty, his foe note is reasonable and can only consider the amount being paid in three consecutive monthly instalments starting with 10th October, 1989\*

4. When it came to discuss the proposed project in general, it transpired at the meeting that the main purposes of the housing project, though not in writing, was to accommodate the Senior staff of NIC. Therefore no commercial value was taken into account when drawing up the plans.

5. In view of the heavy investment envisaged in the proposed project, I asked Mr. Kapimpina if it were possible to adjust the drawings so chat the project is commercially viable. He advised that it was possible and proposed that the Corporation could leave out the construction of the executive houses and instead consider the following

(a) (b) (c)

He further advised that ho would be willing to discuss this matter with Corporation and prepare the adjusted drawings at no extra /9

cost to the Corporation.

6. In view of the points raised in paragraphs 4, and 5 above I would propose that Mr. Kapimpina should bo asked to come and meet the^uJdr-^-n-v-e-s-tineii I Task-force Committee for father . discussions on the matter.-

• -./Signed) P. T\ Katungwensi

## c.c. Mr. S. Kapimpina Arconsult Architects"

It is clear from that memorandum that although tho'meeting and discussion between the author (Mr. Katungwensi) and Mr. Kapimpina the scale of fees as previously submitted in th.? fee note was not querried. Contents of para 6 of the memo supports this conclusion. Furthermore para J of the same memorandum implies that the fee note 1 was for less than normal Fees. Be it note that that meeting and the memo had been preceded by a bigger meeting of 15th August, 1989 attended by five senior officials of the applicant and Mr. Kapimpina which dealt mainly with Muycnga. Part of minute 7 of tho meeting of 15th August, 1989 states: 6th July, 1988 recommeding the consultants to be appointed for both Muyenga and Bukoto. rnents for Bukoto but remained silent on Muyenga'1. "Ho (Kapimpina) had written on was about Bukoto Project, Fee Note No. 1, NIC had, however, accepted the recommended appoint-

The arbitrator's findings on pages 6 and 7 of his typed ruling particularly the finding in paragraph ^.16 suggests that, estimates had been submitted and acknowledged by the applicant in respect of Bukoto Project. Even if I assume that the applicant had not reacted as submitted by Mr. Buyondo, subsequent conduct of the applicant by dealing and discussing Bukoto Project affairs with the respondent in my view amounted to acceptance of what should have been reacted on in writing eaelier. The applicant waived the formalities. The

applicant is estopped from requiring such formalities belatedly.

T therefore hold that the third ground fails.

mix up. Ground 2 in the summons in objection on arbitrator's fees. Yet in his submissions learned counsel was critical of the arbitrators consideration of both Fees Note 1 and Fee Note \_1A. That is Indeed it includes ground 5\* Counsel submitted that the arbitrator acted outside the scope of his letter of appointed dated 24th April, 1993 by awarding to the respondent Shs. 55,641,867/= which was raised in Fee Note 1A which was not referred to in th& letter of appointment. Fcr the respondent, Mr. Kateera justified the award by submitting that after fee Note 1 for Shs. 27,815,733/= had been submitted in 19th May, 1989 and the respondent continued: worki ng . Learned counsel submitted that it was, therefore, proper for the respondent when the dispute' arose because that latter note was in accordance with the Scale of Fee for Architects. He further submitted that even if there was an error of law or fact (presumably by acting on substituted Fee Note 1A) there was no justification for Court to interfere with the award. That interference is permissible (a) if there are irregularities such as not hearing both sides (b) acceptance of hospitality specified date. He then asked me to refer to the law on arbitration contained in Vol. 2 of Halsbury's Laws of England, 4th Ed. On this Arbitration, it was his duty to assist, court by referring to specific pages or paragraphs of the last aspect of the submission, I ought to remark with due respect to the learned counsel that whilst it was correct that the Volume to raise fee Note 1A for Shs. 55,641,867/= -W-hat—Mi?--—Bii-y-ondo.\_iiejx\_t\_Jle\_ferred to as ground 4 in the summons. cited by him contains the law on from one side (c) failure to serve notice on either party for a jground 2 appears to be a while it remained unpaid,

/11

Volume which he considered relevant to his submission. This lessens burden on court in searching for relevant portions.

te ounsei submitted that I am nnt-sU44^-H-g--fre—au uppsrllaCe coui-uT

Court is given discretionary powers under Section 12 of the Arbitration Act to set aside an award where the arbitrator (1) has misconducted himself (2) or an arbitration or award has been improperly procured. The Act does not define the word "misconduct" or the expression "Improperly procured".

But the said grounds para 621 of Vol. 2 of ^th Ed. of Halsbury's Laws of England. In the following para (622) the learned Editors list 10 examples of what amounts to misconduct. And, aside an award under'S. 12 was considered in Rashid's case (supra). But it is word for word he then was, had this to say: There the Section is from the Kenyan Act. with k . ours. as I said earlien the question of setting for . setting aside an award are stated m At page 655 of the report Sir Charles Newboled, P. as

"Section 12 of the Arbitration Act gives to the Court a power to set aside an award when an arbitrator has misconducted himself or the award has been improperly procured; and these proceedings were apparently taken out under that Section. 't is not suggested that there was any misconduct tors), other than the fact that the arbitrators hs.d misdirected themselves in law. If the parties in the dispv.te choose to refer the determination of that dispute, whether it be on a matter of fact, or a matter of law or a mixed matter of f;ict and law, to an arbitrator, neither should have the right, to set aside the award. A good reason for setting as:'ide the award would then the parties have chosen their own tribunal and save for a very good reason, on the part of th< appeal Committee or the arbitrator (whom I shall collectively ref-?:? to as. arbitra-

/12

is set out in Section 12, misconduct of the arbi-It has also been is where an error of law is apparent though as was pointed out by this court in Sohan La-1 Vs» E. A, Builders ground for upsetting an award exists. It was argued that this court should now take the opportunity to abolish this ground for upsetting an award# I would not, however, do so for two reasons; first, it has been established as a ground for a very long time; and, secondly, so long as the ground is kept within proper limits its existance may, enable the courts to correct a manifest injustice# in the Sohan Lal case this court followed the decision of the Privy concil in Champsey Vs# juvraj Ballo /^92?7 A. C. error of law on the face of the record only exists where there appears in some document incorporated therein, some proposition. which is the basis of the award and which is .erroneous# The question therefore is: was there in the award of the arbitrators only legal proposition which was the basis of the award and which could be said to be erroneous. . In my view there quite clearly was none",' Merchants /1951? 18 EACA 50) it is perhaps unfortunate that this trator or the improper procuring of the award# held (See Tame V • Zagoritis /^96O/ E. A. 370) that another good reason on the face of the record, obviously be, as ^80, and held that an in the award, or

I -agree with these views.

It is not clear to me whether Mr# Buyondo in his submission the reposdent as Provisional Fee Note 1# The arbitrator so found. The applicant has sl.ad nothing about this# The letter of appointment by the President; of the Society is reproduced below# treated consideration of Fee Note 1A by the arbitrator as misconduct# Perhaps I must mention here that the first note was deseribed by

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''ARBITRATION BETWEEN NATIONAL INSURANCE CORPORATION

## .'. ND *M/S* ARCONSULT ARCHITECTS

\rcon-sult's letter of April, 22, 1990 copied to you and requesting that you be formally appointed as the Arbitrator in the above-mentioned case. And further refer to our telephone c -nversati n a few weeks ago during which you indicated that you are quite willing nd ready to undertake the j-b.

**13**

On behalf of Uganda Society of Architects I am writing to formally appoint y :u as the arbitrator in the dispute between M/S Nati '-nal Insurance Corporation and m/S Arconsult . Architects regar- • ding the latter's Feo Note No. 1 of M^y, 19, 1989.

You are advised to obtain all the relevant documentary and any other information from the relevant parties.

Your arbitration fees will be paid by- both parties in the normal manner at the rate of Uganda Shillings equivalent to US \$60,00 per h -ur.

Yours sincerely,

## Stanley S. Mulumba"

stated at page J not quite clear from the appointing letter. of his ruling that the nature of the dispute was As earlier observed, the arbitrator was clearly right when he

Normally submissions to and appointment of a single arbitrator in the furm of Forms 1 and II of the second Schedule to the Arbitration Act. And according to Section 16 of the Act, if a submission is in such form or similar thereto, the same shall not be called in question. The same is for the form of appointment cf the arbitrator\* are similar to or

/1ZF

In our case that fori?, was not used. The parties who appear to have engaged advocates before 24th April, 1991 when the appointing letter was written apparer7tTy"~Ti:l~h^tn3-^rcern"thorns e-lves-with—ttu need for a Statutory Submission. It is net surprising that the dispute• Proceedings at the hearing are n ?t available on the court record, but neither of the two counsel has said that page 3 of the arbitrator's ruling doesn't reflect what transpired at the hearing •:..n J1st July, 1991. arbitrator had to improvise, each in the way he saw the matter in President of the Uganda Society of Architects and, eventually, the

It is true that the appointing letter refers to the dispute rega- • rding Note No. 1 dated 19th May, 1989- And yet the arbitrator considered disputes, namely the said note No. 1 and the second Fee Note No. 1A dated 1st August, 1990. ^nd that is where Mr. Buyondo has directed his objections. Because of this submission and the finding by the arbitrator that the respondent's first fee Note was that note. The Registrar of High Court called for it. The letter forwarding it dated 19th Hay, 1989 addressed to the Investment Manager of the Applicant in its enclose our Provisional Fee Note No. 1 in the sum of Uganda Shs. 27,815,233/= .... for part cf .<ur services rendered to date on the above Project"• The Project is Bukcto as the letter shows. opening paragraph stated "We a provisi-. nal fee Note (See para 4,12 of the Ruling) I called for

The other letter dated 1st August, 1990 regarding Fee Note No. 1A on the same Bukoto Project which was addressed to the Managing Director cf the Applicant states in its first, and 3rd paragraphs which are relevant.

"We enclose Fee Note No. 1A in the sum of Shs. 55,641,867/= ... for our services rendered on the above Project.

We provisionally prepared our Fee Mete No, 1 (on 19/5/1989) iLLciherinstructions regarding the project progress. Due to your total failure to respond to our communications, and as per the conditions of Engagement and Scales of Professional charges for Architects in Uganda, we have decided to prepare our Fee Mote No, 1A covering a total of 1.0% aIth .ugh the work stage handled covers 2,5% Fees,'7 with the understanding that, you were going to. issji£\_\_iis.

Finding 4.29 of the arbitrator-shows that on 19th December, 1989 the respondent had indicated his desire to submitted a revised Fee Note.

Fee Note 1A was submitted to the applicant on 1st August, 1990 before the arbitrator was appointed I am not certain that the arbitrator was appointed under S.5 of the Act, on 24th April, 1991.

In the present application reference to the arbitrator appears to have been made substantially under the common law. Under such a reference the scope of the dispute is ascertained up to the moment the arbitrator is actually nominated, i.e, in this case by 24th April, 1991. Since Fee Note No. 1 was provisional and was substituted by Fee Note No. 1A before the appointment of the arbitrator, correct in taking Note 1A as part of the dispute. See Halsbury's Laws Vol. 2 earlier referred to, paragraphs 508 and 509 thereof. I think that the arbitrator was

55^641 ,86?/= took into Account any work on Muyenga Project by the respondent. The arbitrator did not make the award outside the I find nothing in the ruling showing that, other than his the alluding to Muycnga Project meeting to illustrate that/applicant and respondent were in contact, the conclusion to award Shs»

../16

Fees and charges for Architects in Uganda. Nor did he act outside his letter of appointment in. this" respect. provisions of the conditions cf Engagement and Scale of Professional

therefore hold that grounds 4 and 5 fail. In matter of fact I ground 1 also fails because it actually referred to what grounds 4 and 5 dealt with, though in different words.

The last ground is ground 2. This refers to payment of arbitration costs. Mr. Buyondo objected to the order for the appliaant to Mr. Buyc-ndo submitted that the arbitrator has to either party. no powers to award costs pay the costs of the respondent and the arbitrator's fees.

The letter appointing the arbitrator indicated to the arbitrator that arbitration fe.-s would be paid by both parties in the normal manner. It was silent on costs of either party.

In the award dated 12th November, 1991 the arbitrator asked the applicant to pay the arbitration fees amounting to Shs. 3,324,000/=. He also directed the applicant to pay Shs. 2,317j000/= by way of legal costs to the applicant.

Rule 9 of the First Schedule to the Arbitration Act states:- "The costs of the reference and award shall be in the discrepart thereof, and may award costs to be paid as between.advocate and client". tion of the arbitrator or umpire, who may direct to and by whom, shall be and in what manner those costs or any part thereof / paid or any

This provision is very clear. The arbitrator is empowered to award costs.

/17

In my view therefore the award of costs to the respondent was lawful. See also Rashid's case (Supra).

My worry is a.bout the rt!eiT

If Rule 9 gives powers to the arbitrator to award costs and appointment letter suggests that the arbitrator is entitled to costs, it looks to me contrary to normal practice to require the winning party to pay part of the arbitration fees. Possibly that explains why the arbitration asked the applicant to pay his fees. In any case the letter cf appointment did not allocate percentages payable by either party.

order that the applicant pays his fee is supportable and I uphold it. I think the arbitrator's

All in all I find nothing to justify setting aside the award.

For all the reasons I hT^ve given above I dismiss this application. The applicant shall pay the costs of this application to the respondent.

27/4/1992. .v J. V/41. TSEKOOKO *A* U D G E

27/4/1993.

Mr. Kaggwa for the cpplicant.

Mr. Mukv/atanise for respondent.

Ssensonga Interpreter.

Ruling delivered in chambers in presence of the above.

/ ' **A. ,** TSEKOOKO

JUDGE 27/4/1992.