High Court Reaffirms The Enforceability of Arbitration Agreements And Holds That a Court Cannot Determine A Suit For Want of Prosecution After Finding That The Dispute Must Be Referred To Arbitration
Snap shot
The High Court has determined a dispute arising from two construction contracts had to be referred to arbitration because the parties had entered into a valid and enforceable arbitration agreement.
The Court found that Clause 12 of the contracts constituted a binding arbitration clause despite its unconventional drafting, and that filing a written statement of defence did not, by itself, amount to a waiver of the right to arbitration.
The Court further clarified that section 5 of the Arbitration and Conciliation Act requires referral where a dispute exists, is arbitrable and is governed by a valid arbitration agreement, unless a statutory ground for refusal is established.
Although the Court acknowledged inordinate delay in prosecuting the main suit, it declined to strike it out separately for want of prosecution, holding that it could not determine that question after finding that the dispute was subject to arbitration. Consequently, the Court stayed and referred the dispute to arbitration, dismissed the main suit as a consequence of the referral, and awarded the Applicant the costs of the application and the main suit.
Facts
Uniworks Transporters and Logistics (U) Limited (the Respondent) sued Shimizu-Konoike Joint Venture (the Applicant) in Civil Suit No. 0603 of 2023. It claimed a declaration that the Applicant breached two contracts dated 18 January 2021, UGX 506,783,200/= in outstanding contract sums, damages of several kinds, loss of future earnings and costs. The contracts covered rockfill supply and compaction on the Kampala fly-over project and the excavation and disposal of materials at the underpass structure.
Clause 12 of each contract, headed "Governing Law", identified Ugandan law and the Arbitration and Conciliation Act 2000 (Chapter 4), now Cap 5, by a tick against each item.
The Applicant filed its defence on 28 July 2023, challenging the Court's jurisdiction on the ground that the parties had agreed to arbitrate. It then applied for a stay and reference to arbitration under Section 5. In the alternative, it asked the Court to strike out the suit for want of prosecution. The Respondent opposed the application by affidavit, asserting that there was no valid arbitration clause, but filed no written submissions. The Court decided the application on the record.
LEGAL REPRESENTATION
For the Applicant
M/s AF Mpanga Advocates.
For the Respondent
M/s AK Mugisha & Co. Advocates.
Submissions of the Parties
The Applicant's Submissions
The Court did not reproduce the Applicant's submissions but considered them with the cited authorities. As the ruling records, the Applicant argued that the dispute fell within Clause 12 and should be stayed and referred to arbitration under Section 5 of the Arbitration and Conciliation Act, Cap 5.
In the alternative, it urged the Court to strike out the main suit for want of prosecution, relying on Mugisha and 3 Others v Chwezi Properties Limited, Civil Miscellaneous Application No. 1053 of 2020, [2021] UGCommC 160 and Order 17 rule 4 of the Civil Procedure Rules.
It submitted that engaging an advocate is not an abdication of the duty to follow up one's case diligently, and that inordinate delay or negligence to comply with plain requirements of law are not mistakes of counsel for which a client can be excused. It cited Mpower Oil Company v Norvik Hospital HCCS 1219/2023 and Kalyesubula Akuwati v Bank of Africa HCMA 922/2022.
The Respondent's Case
The Respondent filed no submissions. Its position rested on its affidavit in reply and the contentions the Court recorded.
It contended that there was no valid arbitration clause. It also contended that the Applicant submitted to the Court's jurisdiction by filing a written statement of defence and making several appearances, so that its objection was an afterthought. It further contended that a reference would dispose of triable issues on a technicality and risk a multiplicity of suits.
On the delay, it attributed the inaction to criminal charges that one of its two counsel, Mr. Mugisha Akleo, was facing before the Anti-Corruption Court.
Court's Findings
On the nature of the Court's power under Section 5(1)
The Court held that, for Section 5(1) to be invoked, three things must be shown: there is a dispute, the dispute is arbitrable, and it is governed by a valid and enforceable arbitration agreement. Relying on British American Tobacco (U) Ltd v Lira Tobacco Stores, HCMA No. 924 of 2013, [2013] UGCommC 192, it held that the Court has no discretion to refuse a reference. Its task is limited to deciding whether the agreement is null and void, inoperative or incapable of being performed, or whether there is in fact no dispute.
The Court reinforced this with Section 9 of the Act, which bars court intervention except as the Act provides. It cited Babcon Uganda Limited v Mbale Resort Hotel Ltd, SCCA 6/2016.
On whether there is a dispute
The Court found that a dispute existed. The filing of the main suit was itself evidence of a dispute, and the pleadings showed contentions by one party that the other disputed. The ground for refusal under Section 5(1)(b) was therefore not made out.
On whether the dispute is arbitrable
The Court noted a general presumption in favour of arbitrability. Disputes regulated by laws protecting the public, such as criminal law, tax legislation and child welfare, are generally not arbitrable, but contractual disputes between private parties ordinarily are. It found Vidya Drolia v Durga Trading Corporation, Civil Appeal No. 2402 of 2019 (Supreme Court of India) persuasive.
The dispute arose from the performance of two construction contracts and concerned private rights between private entities. No statute reserved it to the courts and no public policy barred its reference. The Court found it arbitrable.
On whether there is a valid and enforceable arbitration agreement
The Court treated the Respondent's contention as raising three questions: existence, scope and validity.
Under Sections 2 and 3 of the Act, an arbitration agreement may be an arbitration clause in a signed written contract. The contracts were in writing and signed. The Court acknowledged that Clause 12 was not drawn in the ordinary way, but held that it was not non-compliant. The tick against the Arbitration and Conciliation Act showed that the parties chose arbitration. It cited Heyman v Darwins Ltd [1942] AC 356 and Premium Nafta Products Ltd and Others v Fili Shipping Company Ltd and Others [2007] UKHL 40.
Clause 12 contained no words excluding any category of dispute. A dispute arising directly from performance of the contracts fell squarely within it.
By Section 16 of the Act, an arbitration clause is treated as an agreement independent of the other terms of the contract.
The Court held that filing a defence does not waive the right to arbitrate. A party loses that right only by taking a step that affirms the court proceedings, such as furthering the suit on the merits or participating extensively. It cited British American Tobacco v Lira Tobacco Stores, Eagle Star Insurance Co Ltd v Yuval Insurance Co Ltd [1978] 1 Lloyd's Rep 357, Patel v Patel [2000] QB 551 and Capital Trust Investments Ltd v Radio Design AB [2002] EWCA Civ 135. There was no evidence of extensive participation by the Applicant, so the waiver contention failed.
The Court concluded that the dispute was governed by a valid and enforceable arbitration agreement, that neither ground for refusal under Section 5(1) was made out, and that the stay should be granted.
On the effect of the stay
Following British American Tobacco v Lira Tobacco Stores, the Court held that once a stay under Section 5 is granted, the proceedings in court collapse. The main suit determines and is struck out, as a suit barred by law and incapable of being lawfully continued where it was pending. The Court explained that the Applicant's prayer for striking out is granted in that sense. The striking out is a consequence of the stay and reference, not a separate or discretionary order.
On striking out for want of prosecution
The Court accepted the Applicant's submissions that engaging an advocate does not abdicate a litigant's duty to follow up its case, and that inordinate delay or negligence is not an excusable mistake of counsel. It rejected the Respondent's explanation. One counsel's difficulties could not account for the inaction of the firm or of co-counsel, and the Respondent produced no evidence of any step taken to advance the suit. The delay since the dismissal of the Respondent's amendment application on 25 June 2024 was inordinate.
The Court held that Mugisha does not hold that inordinate delay automatically ends a suit. A plaintiff should not lose the right to continue proceedings without very good reasons. Where there is good reason, the Court may strike out a suit under its inherent jurisdiction in Section 98 of the Civil Procedure Act, Cap 282 and Section 17(2) of the Judicature Act, Cap 16.
The Court added that Order 17 Rule 4 does not provide for striking out or abatement. It only allows the Court to decide the suit immediately where a party fails to perform a necessary act. Abatement is now governed by the amended Order 17 Rule 5, which applies where no step is taken for six months after the mandatory scheduling conference. The "two or more years" standard in Mugisha came from the former Order 17 Rule 6, which the Civil Procedure (Amendment) Rules, 2019 (S.I. No. 33 of 2019) replaced. No scheduling had occurred, so the abatement provisions did not apply.
The Court declined to strike out the suit for want of prosecution. Having found a valid arbitration agreement, it was without jurisdiction by Section 9 of the Act. A court without jurisdiction cannot investigate the parties' conduct and pronounce a suit abated or dismissed for want of prosecution. The only competent order was to stay the proceedings and refer the parties to arbitration.
HOLDING
The Court allowed the application and made the following orders:
1. Clause 12 of Contract No. SKJV/COT/S050 and Contract No. SKJV/COT/S051, both dated 18 January 2021, constitute a valid and enforceable arbitration agreement between the parties.
2. Civil Suit No. 0603 of 2023 is stayed and referred to arbitration in accordance with the parties' agreement and Section 5 of the Arbitration and Conciliation Act, Cap 5.
3. Owing to order 2, Civil Suit No. 0603 of 2023 is determined andOrder dismissed.
4. The Applicant is awarded the costs of the application and of Civil Suit No. 0603 of 2023.
The Court declined the alternative prayer to strike out the main suit for want of prosecution.
Key takeaways
1. Parties who sign contracts in which the arbitration clause is a ticked option or a cross-reference to the Act risk litigation over its validity. This ruling shows that courts will give effect to a clear intention to arbitrate, in keeping with the maxim pacta sunt servanda. Clear drafting remains the safer course.
2. A defendant does not forfeit its right to arbitrate by filing a defence. The right is lost only by taking a step that affirms the court's jurisdiction, such as participating extensively in the suit. A defendant should still raise the arbitration agreement in its defence and apply for a stay promptly.
3. The Court has no discretion under Section 5(1). A claimant who sues in court despite an arbitration agreement should expect the suit to be stayed and, as this ruling shows, dismissed with costs.
4. A claimant cannot rely on its own delay or its counsel's difficulties to avoid arbitration, and a defendant cannot use want of prosecution to obtain dismissal from a court that has no jurisdiction. The orders available once the Court finds a valid arbitration agreement are limited to stay and reference.
5. Practitioners should note the Court's observation that Order 17 rule 4 does not provide for striking out, and that the "two or more years" test in earlier decisions no longer states the rule following the 2019 amendments.
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