Shimizu-Konoike Joint Venture v Abubaker Technical Services & General Supplies Limited (Miscellaneous Application 436 of 2024) [2024] UGCommC 223 (4 July 2024)

# 5 **THE REPUBLIC OF UGANDA IN THE HIGH COURT OF UGANDA AT KAMPALA (COMMERCIAL DIVISION) MISCELLANEOUS APPLICATION NO. 0436 OF 2024 (ARISING OUT OF CIVIL SUIT NO.0805 OF 2022)**

10 **SHIMIZU-KONOIKE JOINT VENTURE :::::::::::::::::::::::::::::: APPLICANT**

#### **VERSUS**

#### **ABUBAKER TECHNICAL SERVICES &**

#### **GENERAL SUPPLIES LIMITED ::::::::::::::::::::::::::::::::::::: RESPONDENT**

#### **BEFORE: HON. LADY JUSTICE PATIENCE T. E. RUBAGUMYA**

15 **RULING**

Introduction

This application was brought by way of Notice of Motion under **Section 33 of the Judicature Act**, **Section 98 of the Civil Procedure Act, Order 6 rule 30 and Order 52 rules 1 and 3 of the Civil Procedure Rules SI 71-**

- 20 **1**, seeking orders that: - a) Civil Suit No.805 of 2022; Abubaker Technical Services & General Supplies Limited Vs Shimizu-Konoike Joint Venture & DFCU Bank Ltd be struck out for; - i. Disclosing no reasonable cause of action against the Applicant 25 herein; - ii. Being misconceived, incompetent and bad in law; and - iii. Being frivolous or vexatious.

b) Civil Suit No.805 of 2022; Abubaker Technical Services & General Supplies Limited Vs Shimizu-Konoike Joint Venture & DFCU Bank 30 Ltd be referred for arbitration under the International Chamber of Commerce Rules of Arbitration as agreed upon by the parties

- 5 pursuant to clause 18.4 of the General Conditions and Appendix A of the Particular Conditions. - c) Costs of this application be provided for.

#### Background

The background of the application is contained in the affidavit in support 10 by Mr. Derrick Kuteesa, an Advocate currently practicing with M/s AF Mpanga Advocates, and is summarized below:

- 1. That the Applicant executed a Contract with Uganda National Roads Authority (UNRA), Contract Procurement No. UNRA/Works/2016- 2017/00127 for the Kampala Flyover construction and road 15 upgrading Project: Lot-1 (Package1: Clock Tower Flyover and package 2: Nsambya-Mukwano road (main Contract). - 2. That the Respondent and Applicant then entered into Subcontracts for Package 2 Works vide Contract No. SKJV/COT/039 (Package 2 20 Works Contract) and Asphalt Works vide Contract No. SKJV/COT/057 (Asphalt Works Contract) for the Kampala Flyover construction and road upgrading Project which were slated to expire on 28th December, 2021 and which Project was to be carried out under strict timelines. - 3. That the Package 2 Works Contract provided as a condition that the Respondent would avail to the Applicant an irrevocable and unconditional on-demand Performance Security Demand Guarantee and an Advance Payment Security Demand Guarantee issued by a 30 Bank in favour of the Applicant which would be renewable until the end of the defects of liability period and until fully repaid, respectively.

- 5 4. That pursuant thereto, the Respondent, at the request of the Applicant, issued an unconditional and on demand Performance Guarantee No. PBG0120201217001 for UGX 1,357,660,196/= (Uganda Shillings One Billion Three Hundred Fifty-Seven Million Six Hundred Sixty Thousand One Hundred Ninety-Six Only) and an 10 Advance Payment Guarantee No. ABG012020120798 for UGX 2,063,490,294/= (Uganda Shillings Two Billion Sixty-Three Million Four Hundred Ninety Thousand Two Hundred Ninety-Four Only) to and for the benefit of the Applicant payable by the Bank upon demand and slated on 28th December, 2021 at 5:00pm. - 5. That the Applicant and Respondent upon execution of an Addendum to the Package 2 Works Contract (Addendum), the Applicant on 25th October, 2021 reliably informed DFCU Bank Ltd (the Bank) of the amendments to be made to the Package 2 Works Contract and the 20 Guarantees as follows: - i. To revisit the contract sum from UGX 13,756,601,961/= to UGX 13,526,042,626/=; - ii. To revisit the Performance Bond to UGX 1,352,604,262.6/= and - 25 iii. To revisit the Advance Payment Bond to UGX 1,616, 487,059/=. - 6. That the Respondent upon execution of the Addendum availed renewed on-demand and unconditional Guarantees being Performance Guarantee No. PBG0120220103001 for UGX 30 1,357,660,196/= to expire on 3rd January, 2023 at 5:00pm and an Advance Payment Guarantee No. ABG012022030953 for UGX 1,469,199,721/= to expire on 7th January, 2023 at 5:00pm.

- 5 7. That during the performance of the Package 2 Works Contract and Asphalt Contract, the Respondent failed to maintain a reasonable rate of progress of performance of the Contracts causing delays affecting the Applicant's obligations under the main Contract and that the Respondent failed to produce Asphalt and to release 10 bitumen material which prompted the Applicant to issue a notice of default on 27th August, 2022 requiring the Respondent to rectify the defaults. - 8. That upon failure by the Respondent to rectify the identified defaults, the Applicant made a demand and/or call to the Bank under the 15 said Performance Guarantee No. PBG0120220103001 and Advance Payment Guarantee No. ABG012022030953 for payment of UGX 1,357,660,196/= and UGX 813,085,542/= respectively to the Applicant which was made. - 9. That the Respondent instead filed a Suit vide Civil Suit No.805 of 20 2022; Abubaker Technical Services and General Supplies Limited Vs Shimizu-Konoike Joint Venture and DFCU Bank Ltd claiming breach of Performance Guarantee and Advance Payment Guarantee Contracts. - 10. That pursuant to clause 18.4 of the General Conditions and 25 Appendix A of the Particular Conditions of the Package 2 Works Contract, the Applicant and Respondent agreed to have all disputes resolved by arbitration under the International Chamber of Commerce Rules of Arbitration.

In reply, the Respondent through Mr. Emma Wandukwa, the Respondent's 30 Project Manager, opposed the application contending that:

- 5 1. The Applicant's affidavit was sworn by an advocate and it contains matters relating to execution, performance and alleged breach of the Subcontracts yet the deponent has no capacity to depone the affidavit in support of the application on such contentious matters. - 10 2. The Applicant delayed in providing the approved designs, in inspection and approving completed work items, failed to approve materials at the source/site and delayed in payments on approval of invoices and all this amounted to breach of contract. - 15 3. On 9th September, 2022, the Applicant forwarded the approved shop drawings for Kibuli road cross sections directing the Respondent to complete the works already done based on their previous instructions notwithstanding the issuance of the termination notices and the call on payment on their Guarantees. - 4. The works on Kibuli road cross sections were concluded and the Certificates for payment issued but the Applicant has not paid the same yet this work was done after the Guarantor had paid the beneficiary money secured under the Bonds. - 5. The Applicant released back the sums paid under the Performance Bond in the final Certificates for works; an admission of breach of the terms of the Performance Bond on their part and a further admission that performance was done in accordance with the terms 30 of the underlying Contract. - 6. The Applicant is a beneficiary of the Guarantees whose basis is found in the underlying Contract, the Guarantees and intrinsic nature thus where the Applicant makes a call not within the terms of the 35 underlying Contract of the Guarantee Deeds, it is in breach.

- 5 7. The dispute relates to the call on the Advance Payment Guarantee and Performance Guarantee which are governed under the laws of Uganda and the issues relating to the performance of the civil works can later be determined at arbitration. - 10 8. By the Applicant releasing the money paid under the Performance Guarantees to the Respondent in the final payment Certificate is clear evidence that the Performance Bond was called unlawfully and that the Applicant shall seek a refund of the same and request the Honourable Court to refer the matter to arbitration to determine the 15 alleged issue of breach of contract.

The Applicant through Mr. Derrick Kuteesa, deponed an affidavit in rejoinder reiterating the earlier averments and added that:

- 1. The averments in paragraphs 6, 7, 8, 9, 11 and 14 of the affidavit in 20 reply point to disputes between the parties which should be subject to arbitration proceedings owing to the parties' valid and binding Contract SKJV/COT/039 and the Asphalt Works Contract No. SKJV/COT/057 to determine questions among others whether; - i. There was any delay on the part of the Respondent to warrant 25 a call on the Performance Guarantee? - ii. The Applicant was in breach of contract for allegedly delaying to provide the approved designs, inspection, approving completed work items, approve materials at the source/site and approval of payments and invoices? - 30 iii. The Applicant is justified to make payments for the Kibuli road cross section works?

5 2. An unconditional Performance Guarantee is a contract between the Bank and the Applicant, the Respondent cannot sue on it and that thus the main Suit contravenes the doctrine of privity of a contract.

## Representation

The Applicant was represented by Learned Counsel Yusuf Mawanda and 10 Learned Counsel Timothy Akampurira of M/s AF Mpanga Advocates while the Respondent was represented by Learned Counsel Frank Taremwa of M/s Jason & Co. Advocates.

Both parties were directed to file written submissions which they did and the same have been considered by Court.

- 15 Issues for Determination - 1. Whether the deponent has the capacity and authority to depone the Applicant's affidavit in support? - 2. Whether Civil Suit No. 805 of 2022 ought to be struck out or 20 dismissed on account of being misconceived, premature and incompetently filed in this Court instead of a reference to arbitration under the International Chamber of Commerce Rules of Arbitration? - 3. Whether the Respondent can sustain an action in the suit against the Applicant after dismissal of the main suit against DFCU Bank - 25 Ltd, the 2nd Defendant therein for lack of a cause of action? - 4. What remedies are available to the parties?

Issue No. 1: Whether the deponent has the capacity and authority to depone the Applicant's affidavit in support?

### 5 Applicant's submissions

Relying on **Order 19 rule 3 (1) of the Civil Procedure Rules**, which provides for affidavits to be confined to such facts as the deponent is able to his or her knowledge to prove, except for interlocutory applications, on which statements of his or her belief may be admitted, provided that the

- 10 grounds thereof are stated; Counsel for the Applicant submitted that it is discernible from the above provision that the test of a deponent's capacity to depone an affidavit shall be whether such deponent can demonstrate personal knowledge of the facts contained in the affidavit save for or except in interlocutory applications, on which a deponent's statements of his or - 15 her belief may be admitted, provided that the grounds thereof are stated. That knowledge is usually acquired by a deponent through human senses like seeing, hearing, smelling, testing, or touching followed by understanding and perceiving what one has sensed. He referred the Court to the case of *Greenwatch (U) Limited Vs Attorney General and Another*

20 *[2003] 1 EA 83 at pg. 87*.

Counsel submitted that the Applicant's affidavits in this application were deponed by Mr. Derrick Kuteesa in his professional capacity as an advocate currently practicing with M/s AF Mpanga Advocates, Counsel for the Applicant and not for or on behalf of the Applicant. That the deponent 25 demonstrated his knowledge of the matters of law and facts within his knowledge in support of this application. Counsel relied on the case of *Friecca Pharmacy Limited Vs Anthony Natif Misc. Application No.498 of 2019*, and submitted that it is settled law that an affidavit is incurably defective if sworn for and on behalf of another without 30 authorization or for non-compliance with the requirements of the law and

5 cannot support the application. Counsel contended that the decision in the above case is inapplicable in the circumstances.

Counsel for the Applicant contended that it is ascertainable from the Court record that Mr. Derrick Kuteesa has never appeared in this matter and his averments in the affidavits relate to both issues of law that are 10 ascertainable and or apparent on the Court record and issues are informed from procedural matters within the knowledge of the advocates of both parties hence he has not breached any rule against an advocate acting as a witness in the same matter to contravene **Regulation 9 of the Advocates (Professional Conduct) Regulations** and the decisions in the

15 cases of *Uganda Development Bank Vs Kasirye, Byaruhanga & Co. Advocates SCCA No.35 of 1994* and *Electro-Maxx Uganda Ltd Vs Oryx Oil Uganda Ltd, HCMA No.251 of 2020*.

In conclusion, Counsel for the Applicant submitted that the deponent had the capacity to swear the affidavits and that the Respondent's objection 20 has no merit and should be dismissed.

## Respondent's submissions

In reply, Counsel for the Respondent cited **Order 29 rule 1 of the Civil Procedure Rules**, contending that it stipulates that in a suit by or against a corporation, any pleading may be signed on behalf of the corporation by 25 the secretary or by any director or other principal officer of the corporation who is able to depose to the facts of the case. Counsel also referred to the case of *Bank One Limited Vs Simbamanyo Estates Limited Misc. Application No.645 of 2020* in which **Hon. Justice Stephen Mubiru** discussed the law on affidavit evidence.

- 5 Counsel contended that though the Applicant's Counsel submitted that Mr. Derrick Kuteesa is well versed with the matters which are the subject of the application and demonstrated his knowledge of matters of law and facts well within his knowledge and that his averments are part of the Court record within the knowledge of the advocates of both parties, he - 10 disputed the same contending that the questions raise the breach of a Contract which the deponent has no knowledge or capacity to depone on unless advised by the Applicant or its officials who directly supervised the performance of the Contract. That the deponent does not state the source of his information. In conclusion, Counsel for the Respondent prayed that - 15 the affidavit in support and rejoinder be struck out for being defective with costs.

## Applicant's submissions in rejoinder

Rejoining the above, the Applicant's Counsel reiterated his earlier submissions and added case law in support of his submissions. He cited

20 the case of *Huthy Dat Mutumba Vs Pamco Real Estate Agency Limited Misc. Application No.1277 of 2020* wherein the Court stated that an advocate with the knowledge of the facts of the matter before the Court may swear an affidavit.

Counsel for the Applicant also quoted **Hon. Justice Stephen Mubiru** in

25 the case of *Bank One Limited Vs Simbamanyo Estates (***supra)** wherein he stated that the golden thread as is required in affidavit evidence is the knowledge or belief of the deponent as opposed to an authorization by a party to the litigation. Considering the foregoing, Counsel for the Applicant invited the Court to dismiss the Respondent's preliminary objection.

### 5 Analysis and Determination

Considering paragraphs 4 and 6 of the Respondent's affidavit in reply, both the affidavit in support and rejoinder are disputed on grounds that the deponent is an advocate in the firm representing the Applicant and that the matters deponed to are contentious and he has no knowledge of what

10 he deponed.

As to whether the deponent had the capacity to swear the affidavit in this application, the Respondent relied on **Order 29 rule 1 of the Civil Procedure Rules** which stipulates that:

*"In a suit by or against a corporation any pleading may be signed* 15 *on behalf of the corporation by the secretary or by any director or other principal officer of the corporation who is able to depose to the facts of the case."*

# **Order 3 rule 1 of the Civil Procedure Rules** is to the effect that:

*"Any application to or appearance or act in any Court required or* 20 *authorised by the law to be made or done by a party in such Court may, except where otherwise expressly provided by any law for the time being in force, be made or done by the party in person, or by his or her recognised agent, or by an advocate duly appointed to act on his or her behalf; except that any such appearance shall,* 25 *if the Court so directs, be made by the party in person."*

An analysis of the above provisions does not preclude an advocate from deponing an affidavit in his capacity as an advocate in his/her client's case provided the affidavit is in compliance with the law.

# **Regulation 9 of the Advocates (Professional Conduct) Regulations SI**

30 **No. 267-2,** stipulates that:

5 *"No advocate may appear before any Court or tribunal in any matter in which he or she has reason to believe that he or she will be required as a witness to give evidence, whether verbally or by affidavit; and if, while appearing in any matter, it becomes apparent that he or she will be required as a witness to give* 10 *evidence whether verbally or by affidavit, he or she shall not continue to appear; except that this regulation shall not prevent an advocate from giving evidence whether verbally or by declaration or affidavit on a formal or non-contentious matter or fact in any matter in which he or she acts or appears."*

15 The purpose of the above provision is reflected in several cases including *Uganda Development Bank Vs Kasirye, Byaruhanga & Co. Advocates* **(supra***)* wherein **Wambuzi CJ** held that:

"*It is generally accepted that the main intention of this regulation is that an advocate should not act as Counsel and witness in the* 20 *same case*."

In the case of *Henry Kaziro Lwandasa Vs Kyas Global Trading Co. Ltd HCMA No.865 of 2014*, **Hon. Justice Christopher Madrama** (as he then was) explained that:

"*The regulation bars an advocate who may be required to appear* 25 *as a witness to give oral or affidavit evidence in any contentious cause or matter from appearing before any Court or tribunal hearing the matter. The regulation is permissive on one part and mandatory on another part. The first duty is placed on an advocate and is subjective in that it is upon the advocate, based on his or* 30 *her belief about the facts and circumstances of the case that he or she will be required to appear before the Court or tribunal as a*

- 5 *witness, to decide whether to represent a party in the proceedings. This first part of the regulation is couched in permissive terms and imposes a duty on an advocate to step down once he or she believes that he or she will be required to appear as a witness. The second part of regulation 9 however, makes it imperative for an* 10 *advocate to cease appearing for a client when it appears or becomes apparent during the proceedings that he or she will be required to give evidence in the cause or matter before the Court or tribunal. When it becomes apparent, the advocate shall not continue with the representation of a client in the cause or matter*." - 15 Considering the above authorities, it is therefore trite that an advocate should not act as Counsel and witness in the same case. The Regulation however lays an exception to the effect that an advocate shall not be prevented from giving evidence whether verbally or by declaration or affidavit on a formal or non-contentious matter or fact in any matter in 20 which he or she acts or appears. This was upheld by the Supreme Court in the case of *Mbarara Municipal Council Vs Jetha Brothers Ltd Misc. App No.10 of 2021*, in which the Supreme Court held that:

"*In my view, affidavits can be sworn by anyone to prove a set of facts and an advocate is not an exception. An advocate is therefore* 25 *not prohibited to swear an affidavit where necessary especially on matters that are within his or her knowledge.*"

In the case of *Electro Max Uganda Ltd Vs Oryx Oil Uganda Ltd* **(supra), Hon. Justice Wamala** held that:

"*It is clear to me that the above regulation is not meant to bar an* 30 *advocate from giving evidence on behalf of a client. It is meant to bar an advocate from appearing before a Court on behalf of a client*

5 *when the advocate is a witness or a potential witness in a contentious matter.*"

From the above, it is perceived that it is not the swearing of an affidavit by an advocate in personal conduct of a matter that renders an affidavit defective but its contents.

- 10 In the instant case, since Mr. Derrick Kuteesa is an advocate in the firm representing the Applicant, I have to establish whether the affidavits in issue contain contentious averments. The averments in both the affidavit in support and rejoinder, give a background of this application which emanates from Civil Suit No. 805 of 2022 arising from the Contracts 15 between the parties herein. The said affidavits contain facts as pleaded by both parties in the plaint and written statement of defence. All the annexures to the said affidavits are attached to the pleadings in the suit. In the circumstances, I consider these facts formal as they lay out the Court record and can be accessed by any interested party hence in - 20 compliance with **Regulation 9 of the Advocates (Professional Conduct) Regulations**.

It is also noteworthy to consider the purpose of this application which seeks the dismissal of Civil Suit No.805 of 2022 and refer the same to arbitration on the basis that it was the intention of the parties to arbitrate 25 any matters arising out of the Subcontracts in dispute. The Respondent does not dispute the existence of the Sub-Clause. Whatever, Mr. Derrick Kuteesa deponed was within his knowledge. Considering the foregoing, it is my finding that the affidavits in issue do not contain any contentious matters to render them defective as all the averments made therein are in 30 compliance with **Order 19 rule 3 (1) of the Civil Procedure Rules**.

5 Accordingly, I find no merit in the preliminary objection and the same is hereby dismissed.

Issue No.2: Whether Civil Suit No. 0805 of 2022 ought to be struck out or dismissed on account of being misconceived, premature and incompetently filed in this Court instead of a reference to 10 arbitration under the International Chamber of Commerce Rules of Arbitration?

#### Applicant's submissions

In submission on this issue, Counsel for the Applicant relied on **Section 3 (1) of the Arbitration and Conciliation Act** which is to the effect that 15 an arbitration agreement may be in the form of an arbitration clause in the contract or in the form of a separate agreement. He submitted that the arbitration clause contained in both the Package 2 Works Contract and the Asphalt Works Contract, form separate agreements to dispose of all the disputes between the parties arising out of both Contracts by

20 arbitration.

That as per **Sub-Clause 18.4** of both Subcontracts, arbitration is the selected mode of dispute resolution between both parties using the English language and guided by the **International Chamber of Commerce Rules of Arbitration**. That **Article 6** of the said Rules is to the effect that where 25 parties have agreed to submit to arbitration under the said Rules, they shall be deemed to have submitted ipso facto to the Rules in effect on the date of commencement of the arbitration, unless they have agreed to submit to the Rules in effect on the date of their arbitration agreement.

Counsel further submitted that **Section 9 of the Arbitration and**

30 **Conciliation Act** restricts the intervention of Courts in matters governed

5 by the Act except as provided in the Act specifically under **Sections 34 and 38** thereof. To the foregoing, Counsel for the Applicant cited the case of *Babcon Uganda Limited Vs Mbale Resort Hotel Ltd SCCA No. 06 of 2016.* Counsel also discussed **Section 5 of the Arbitration and Conciliation Act,** which mandates a Court before which proceedings are 10 being brought in a matter subject to an arbitration agreement to refer it back to arbitration unless if the Court finds the arbitration agreement null and void, inoperative or incapable of being performed or, that there is no dispute between the parties concerning the matters agreed to be referred to arbitration. Counsel contended that the application meets the criteria 15 stipulated under **Section 5 (1) (a) and (b) of the Arbitration and Conciliation Act** as elaborated below.

That there is a suit before this Court vide Civil Suit No.805 of 2022 between the parties and that the Applicant filed a defence to the same and the suit is based on the Performance Guarantee and the Advance Payment 20 Guarantee arising out of the Package 2 Works Contract. Counsel submitted that the said Contracts are annexed and marked as "**A**" to the affidavit in rejoinder. That there is a binding and enforceable arbitration agreement/clause in the package 2 Works Contract between the parties that subjected all disputes arising thereunder to arbitration. Counsel 25 further contended that the dispute under the main Suit is within the scope of the said arbitration agreement/clause as demonstrated in **paragraph 9** of the Applicant's affidavit in rejoinder and annexures "**C" , "D"** and **"E**" thereto. Counsel contended that it is clearly shown that the Respondent on 5th September, 2022, wrote to the Applicant appointing an arbitrator to 30 handle the dispute which means that the Respondent is not confused about the forum supposed to handle the dispute at hand.

- 5 Counsel further contended that the Court cannot find that there is no dispute between the parties neither has the Respondent pleaded that the arbitration clause is null and void, inoperative or incapable of being performed. That the Respondent has not also demonstrated that the suit or application falls outside the scope of the arbitration clause. Counsel - 10 then referred to the Ruling of this Court in the case of *Tumo Technical Services Limited Vs China Railway 18th Bureau (Group) Co. Limited Civil Suit No.432 of 2022* wherein this Court quoted **Hon. Justice Stephen Mubiru** in the case of *Converge Systems Limited Vs Post Bank Limited Misc. Application No.839 of 2023*. - 15 In his conclusion, Counsel submitted that the arbitration agreement is drafted in a clear language and ought to be construed accordingly and prayed that the Court be pleased to strike out the plaint and refer the matter to arbitration.

#### Respondent's submissions

- 20 In reply to the above submissions, Counsel for the Respondent jointly submitted on both issues 2 and 3 though I have singled out the ones applicable to this issue. Counsel for the Respondent contended that the main Suit was filed to injunct the Guarantor (DFCU Bank Ltd) from honouring a call made by the Applicant as a beneficiary. He admitted that 25 upon payment by the Guarantor before the grant of the injunction, the cause of action against the Guarantor was extinguished and what remained was for the Court to stay the Suit and refer the case to arbitration under the ICC Rules 2021 as the remaining issue related to performance of the two Contracts. - 30 Counsel however contended that the above circumstances changed when the Applicant issued a final Certificate dated 7th February, 2024 releasing

- 5 the money paid to the Applicant that was secured under the Performance Guarantee. That the Applicant by releasing the money back to the Respondent after filing its written statement of defence, expressly meant that it had forfeited its rights to arbitration and thus the dispute should be tried in the Court. - 10 Analysis and Determination

**Section 2 (1) of the Arbitration and Conciliation Act, Cap.5** defines an arbitration agreement as an agreement by the parties to submit to arbitration all or certain disputes which have arisen or which may arise between them in respect of a defined legal relationship, whether 15 contractual or not.

**Section 3 (1) of the Arbitration and Conciliation Act** also provides that the agreement may be in the form of an arbitration clause in a contract or in the form of a separate agreement. In the case of *Heyam and Another Vs Darwins Ltd [1942] 1 All ER 337* at page *342*, **Viscount Simon L. C** 20 defined an arbitration clause as a written submission agreed to by the parties to the contract, and, like other written submissions to arbitration, must be construed according to its language and in light of the circumstances in which it was made. It is therefore trite that an arbitration agreement may cover not only "disputes" but also "disagreements" and 25 "differences of opinion." The existence and the validity of an arbitration agreement should be determined primarily in light of the common intent of the parties, the requirement of good faith and the belief that the person who signed the clause had the power to bind the company. (See: *Premium Nafta Products Ltd and Others Vs Fili Shipping Company Ltd and* 30 *Others [2007] UKHL 40; Fiona Trust and Holding Corporation Vs Privalov [2008] 1 Lloyd's Rep 254, [2007] 4 All ER 951).*

- 5 The construction of an arbitration clause should start from the assumption that the parties, as rational businessmen, are likely to have intended that any dispute arising out of the relationship into which they have entered or purported to enter to be decided by the same tribunal. The clause should be construed with this presumption unless the language - 10 makes it clear that certain questions were intended to be excluded from the arbitrator's jurisdiction. This type of presumption provides that a valid arbitration clause should generally be interpreted expansively and, in cases of doubt, extended to encompass disputed claims.

In the case of *Omugabe Mbabazi Sam Vs Tumwesigye Dan HCMA No.10* 15 *of 2023*; **Hon. Justice Vincent Wagona** held that:

> "*Section 5 of the same Act provides that when a matter is presented to Court and there is a valid and enforceable arbitral clause in the transaction documents between the parties, then Court is required to stay proceedings and refer the parties for arbitration*."

20 In the instant case, and for proper appreciation, I shall reproduce the Sub-Clause in issue as stipulated in the two Contracts between the parties.

**Sub-Clause 18.4** of the General Conditions of Subcontract stipulates that:

"*All disputes between the Parties arising from or in connection with this Subcontract which cannot be amicably settled thereby* 25 *including any question regarding its existence, validity, interpretation, performance, breach or termination or any dispute between the parties regarding non-contractual obligations arising from or in connection with it, shall be finally settled by this arbitration agreement by way of an arbitration in accordance with*

5 *the arbitration provisions stated in the Appendix. The award of the arbitral tribunal shall be final and binding on the parties."*

Furthermore, the Particular Condition on arbitration proceedings under Appendix A of the Particular Conditions Subcontract pursuant to **Sub-Clause 18.4**, provides as follows:

10 "*The rules of arbitration applicable to arbitration proceedings arising from or in connection with this subcontract shall be:*

*International Chamber of Commerce Rules of Arbitration. The number of arbitrators forming the arbitral tribunal shall be (1 or 3), the language shall be English, the seat of arbitration shall be the* 15 *Republic of Uganda."*

Considering the above, it is evident that there is an arbitration clause that provides for all disputes arising from the said Subcontracts including performance and breach of contractual obligations to be finally settled by arbitration. The Sub-Clause confirms that the parties intended to arbitrate

20 any dispute that would arise under the Subcontracts. The arbitration clause is unambiguous as to the resolution of any matter arising from the Subcontracts to be referred to arbitration as a mode of dispute resolution.

However, the Respondent disputes the above in relation to arbitration contending that it was forfeited by the Applicant when it issued a final 25 Certificate dated 7th February, 2024 releasing money that was secured under the Performance Guarantee to the Respondent, meaning that the call on the Performance Guarantee was made in error and that the declaration that the said call was unlawful can be determined by the

Court.

- 5 As to whether this Court has jurisdiction to handle this matter, I shall first refer to **Article 139 (1) of the Constitution of the Republic of Uganda, 1995 and Section 14 (1) of the Judicature Act, Cap. 16** that vests unlimited original jurisdiction in all matters upon this Court. However, it is trite that this jurisdiction has to conform with other written laws and 10 procedures as portrayed under **Section 14 (2) of the Judicature Act.** It is a cardinal principle of the law that jurisdiction is a creature of statute as emphasized by the Supreme Court in the case of *Baku Raphael Obudra & Another Vs Attorney General S. C. C. A No.1 of 2005*, where it held that: - 15 *"It is trite that the Courts are established directly by the Constitution or indirectly under it, and that their respective jurisdictions are accordingly derived from the Constitution or other law made under the authority of the Constitution*."

## *(*See*: Uganda Revenue Authority Vs Rabbo Enterprises (U) Ltd & Anor* 20 *S. C. C. A No.12 of 2004*.

Given the above, **Section 9 of the Arbitration and Conciliation Act,** limits the extent of this Court's intervention in matters of arbitration stipulating that except as provided in the Act, no Court shall intervene in matters governed by this Act. The unlimited original jurisdiction of the 25 Court cannot override this provision. (See: *Babcon Uganda Ltd Vs Mbale Resort Hotel Ltd* **(supra).** The above section has been resounded in several decisions by this Court including the case of *Lakeside Dairy Limited Vs International Centre for Arbitration and Mediation Kampala and Midland Emporium Limited Misc. Cause No.21 of 2021*, 30 in which **Hon. Justice Stephen Mubiru** stated that:

- 5 "*By stating that "except as provided in this Act, no Court shall intervene in matters governed by this Act," Section 9 of the Arbitration and Conciliation Act seeks to restrict the Court's role in arbitration. The section, clearly in mandatory terms, restricts the jurisdiction of the Court to only such matters as provided for by the* 10 *Act. The provision epitomises the recognition of the policy of parties' autonomy which underlies the concept of arbitration*, (emphasis mine*). Consequently, there are only three categories of measures under the Act which involve Courts in arbitration namely; (i) such measure as involves purely procedural steps and which the* 15 *arbitral tribunal cannot order and/or cannot enforce, e.g. issuing witness summons to a third party or stay of legal proceedings commenced in breach of the arbitration agreement; (ii) measures meant to maintain the status quo like granting of interim injunctions or orders for preservation of the subject matter of the* 20 *arbitration (interim measure of protection); and (iii) such measures as give the award the intended effect by providing means of enforcement of the award or challenging the same (*See: *Coppee-Lavalin SA/NV Vs Ken-Ren Chemicals and Fertilizers Ltd [1994] 2 All ER 465)*." - 25 **Section 5 (1) of the Arbitration and Conciliation Act**, requires a Court before which proceedings are being brought in a matter which is the subject of an arbitration agreement, if a party so applies after the filing of a statement of defence and both parties having been given a hearing, to refer the matter back to arbitration unless the Court finds; - (a) that the 30 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.

- 5 The term "inoperative" covers situations where the arbitration agreement has become inapplicable to the parties or their dispute and "incapable of being performed" relates to situations where the arbitration cannot effectively be set in motion. - The case of *Broken Hill City Council Vs Unique Urban Built Pty Ltd* 10 *[2018] NSWSC 825*, defined the term "inoperative" as "having no field of operation or to be without effect." It covers those cases where the arbitration agreement has ceased to have effect. The ceasing of effect to the arbitration agreement may occur for a variety of reasons, including; where the parties have implicitly or explicitly revoked the agreement to 15 arbitrate; where the same dispute between the same parties has already been decided in arbitration or Court proceedings (*principles of res judicata*); where the award has been set aside or there is a stalemate in the voting of the arbitrators; or the award has not been rendered within the prescribed time limit; where a settlement was reached before the commencement of 20 arbitration, and so on.

On the other hand, the phrase "incapable of being performed" was considered in the cases of *Lucky-Goldstar International (HK) Ltd Vs NG Moo Kee Engineering Ltd [1993] HKCFI 14* and *Bulkbuild Pty Ltd Vs Fortuna Well Pty Ltd & Others [2019] QSC 173*, where it was said to 25 relate to the capability or incapability of the parties to perform an arbitration agreement; the expression would suggest "something more than mere difficulty or inconvenience or delay in performing the arbitration." There has to be "some obstacle which cannot be overcome even if the parties are ready, able and willing to perform the agreement."

30 It applies to cases in which; - the arbitration cannot be effectively set in motion; the clause is too vague or perhaps other terms in the Contract

5 contradict the parties' intention to arbitrate; an arbitrator specifically named in the arbitration agreement refuses to act or if an appointing authority refuses to appoint; the parties had chosen a specific arbitrator in the agreement, who was, at the time of the dispute, deceased or unavailable, and so on. These are situations in which the arbitration 10 agreement is frustrated or becomes incapable of being fulfilled or performed, due to unforeseen contingencies.

In his decision in *Lakeside Dairy Limited Vs International Centre for Arbitration and Mediation Kampala and Midland Emporium Limited* **(supra***),* **Hon. Justice Stephen Mubiru** explained that where the parties

15 have evinced a clear intention to settle any dispute by arbitration, the Court should give effect to such intention, even if certain aspects of the agreement may be ambiguous, inconsistent, incomplete or lacking in certain particulars.

As quoted by the Court of Appeal in the case of *National Social Security*

20 *Fund Vs Alcon International Ltd CA No.2 of 2008*, **David St. John Sutton** in **Russel on Arbitration, (22nd Ed. Sweet & Maxwell) paragraph 2-119, page 80** states that:

*"… a party may abandon its right to arbitrate for example by delay or inaction, or by commencing Court proceedings in breach of an* 25 *arbitration agreement. However, the Courts are slow to find such repudiation or abandonment without very clear evidence of, an intention to abandon the right to arbitrate together with reliance by the other party to its detriment. Even if the right to arbitrate a particular dispute has been abandoned, that does not necessarily* 30 *mean that the arbitration agreement itself has been abandoned*."

- 5 The circumstances of the case before me are that both parties do not dispute the existence of the arbitration clause but the Respondent argues that the Applicant forfeited its right to arbitrate by releasing the money secured under the Performance Guarantee back to the Respondent after it filed its written statement of defence. - 10 Counsel for the Applicant contended that the above allegations are unfounded and unsustainable and added that on 5th September, 2022, the Respondent wrote to the Applicant appointing an arbitrator to handle the dispute as evidenced by annexures "**C" , "D"** and "**E**" to the affidavit in rejoinder. - 15 Having considered the above, I find Sub-Clause 18.4 of the Package 2 Works Contract and the Asphalt Works Contract as portrayed in annexure "**A**" of the affidavit in rejoinder operative. The Sub-Clause is selfexplanatory; that all disputes arising therein including questions regarding performance, breach or termination or any dispute between the 20 parties regarding non-contractual obligations arising from or in connection with it, shall be finally settled by the arbitration agreement by way of arbitration. The Sub-Clause does not provide any exclusions of any dispute to be outside the jurisdiction of arbitration but provides for all disputes arising therein to be finally determined by arbitration. - 25 Further, the alleged release of the money secured under the Performance Guarantee referred to by the Respondent does not in any way operate as a waiver by the Applicant to arbitration. On the contrary, it points to a dispute since the parties are not in agreement on the same and would thus require determination in the context of the contractual provisions in the 30 Subcontracts; particularly whether or not the Respondent's claim for repayment of money under the Performance Guarantees would still stand.

5 In the circumstances therefore, this cannot render the arbitration agreement inoperative or null and void.

In addition, I have perused the plaint and paragraph 4 therein claims breach of Performance Guarantee and Advance Payment Guarantee Contracts. It cannot therefore be argued by the Respondent that the 10 Applicant forfeited its right to arbitrate when it issued the Respondent a final Certificate and released money secured under the Performance Guarantee. In addition, the Respondent now seeks a declaration that the call on the Performance Guarantee was made and paid in error and unlawful. I find the remedy sought as per the Respondent's submission, 15 originating from the claim of breach of the above Subcontracts and the above dispute is provided for under the arbitration agreement. Also, through this application, it is evident that the Applicant is interested in the operation of the arbitration clause and besides, the Respondent has not adduced any evidence of the Applicant's intention to forfeit its right to 20 arbitrate.

Furthermore, it is also clear as per the affidavit in reply specifically under paragraph **16** that the Respondent agrees that the dispute between the parties relating to breach of contract should be referred to arbitration for resolution.

25 Since arbitration agreements are purely matters of contract, and the effect of **Section 5 (1) of the Arbitration and Conciliation Act** is to make contracting parties live to their agreement by disallowing any of them to refuse to perform part of their contract when it becomes disadvantageous to them, in the instant case, the parties in my view negotiated the 30 arbitration clause and included the same for a good reason. It would therefore, be unfair for the Court to disregard the parties' intention

5 especially where no forfeiture or inoperation of the arbitration clause has been proved by the Respondent. Accordingly, I am inclined to invoke **Section 5 (1) of the Arbitration and Conciliation Act**, which requires this Court, to refer matters such as this, back to arbitration.

This Court shall therefore allow this application to enable the contracting 10 parties to live up to their agreement as stipulated in **Sub-Clause 18.4** of the General Conditions and Appendix A of the Particular Conditions of the Package 2 Works Contract to refer **all** disputes arising from the Subcontract to arbitration.

Arbitration cannot proceed along with litigation, save within the necessary

- 15 statutory exceptions. A stay of the Suit serves no purpose since the parties can only come back to Court in the manner provided for in the Arbitration and Conciliation Act. Accordingly, I hereby dismiss Civil Suit No.805 of 2022. - Issue No. 3: Whether the Respondent can sustain an action in the suit 20 against the Applicant after dismissal of the main suit against DFCU Bank Ltd, the 2nd Defendant therein for lack of a cause of action?

I shall not delve into the resolution of issue No. 3 and the issues relating to whether or not the suit discloses a cause of action against the Applicant 25 or the issue of refund of sums paid under the Performance Guarantee and Advance Payment Guarantee by DFCU Bank Ltd, as this is would require considering the merits of the suit and all the related issues in dispute which this Court cannot go into having found that the matter be referred to arbitration.

## 5 Issue No. 4: What remedies are available to the parties?

Having found as I have above, I find that the best remedy is a referral of the Suit and all disputes arising from or in connection with the Subcontract to arbitration for determination by the arbitral tribunal in accordance with Sub-Clause 18.4 of the General Conditions and Appendix

- 10 A of the Particular Conditions of the Package 2 Works Contract. The disputes between the parties shall be adjudicated upon by the arbitral tribunal in accordance with the International Chamber of Commerce Rules and I hereby dismiss the Suit with costs to abide the outcome of the arbitration. - 15 In the premises, I therefore make the following orders: - 1. The disputes between the parties are referred to arbitration. The parties shall appoint arbitrators within thirty (30) days from the date of this Ruling and follow the International Chamber of Commerce Rules of Arbitration. - 20 - 2. High Court Civil Suit No.805 of 2022 is hereby dismissed. - 3. The costs of the Suit and the applications thereunder shall abide the outcome of the arbitration.

It is so ordered.

Dated, signed and delivered electronically this **4th** day of **July**, **2024.**

30 Patience T. E. Rubagumya

## **JUDGE**

4/07/2024

7:45am