High Court rules that arbitration clauses in a contract are enforceable and binding, and attempts at amicable resolution, once exhausted, activate the mandatory arbitration route under agreements.

Waboga David
2 days ago
2 min read

The High Court has upheld an arbitration clause in a contractual dispute and stayed suit for breach of the tenancy agreement

Brief for the case of The Microfinance Support Centre Ltd v Kurbstone Investment (U) Limited (Civil Suit No. 0388 of 2024) [2025] UGCommC 122 (5 June 2025)

Background

On 24 July 2023, the Plaintiff and Defendant entered into a five-year tenancy agreement for commercial premises located at Plot 1 Kanjokya Street, Kisementi. The agreement required a monthly rent of USD 3,000 payable quarterly.

Pursuant to the agreement, the Plaintiff paid a lump sum of USD 24,240 as a rental installment and security deposit. Following failed negotiations on a revised payment plan, the Defendant terminated the agreement.

The Plaintiff sued for breach of contract, seeking recovery of the USD 24,240, special and general damages, interest, and costs.

Preliminary Objection

The Defendant raised a preliminary objection, arguing that the suit was barred by an arbitration clause under Clause 10 of the agreement, which required disputes not resolved amicably to be referred to arbitration under the Arbitration and Conciliation Act, Cap. 4.

The Defendant prayed for the matter to be struck out for want of jurisdiction.

Court's Determination

The Court held that

The preliminary objections on jurisdiction go to the root of a matter and must be resolved before delving into the merits.

The court further observed that where a contract contains a valid and enforceable arbitration clause, courts are obliged to refer disputes to arbitration unless the clause is null, void, inoperative, or incapable of being performed.

Interpretation of Clause 10

The Court distinguished this matter from Attorney General v Networth Consults Ltd, finding that the dispute resolution clauses in this tenancy agreement, though containing both arbitration and litigation language, were not inconsistent. The clause requiring arbitration of disputes "not amicably resolved" was enforceable, and the inclusion of courts of law for broader issues did not override the mandatory arbitration requirement for disputes such as the present one.

Arbitration as a Condition Precedent

Given that the parties attempted to amicably resolve the dispute without success, the matter was properly referable to arbitration.

Key Holding

The High Court ruled that it lacked jurisdiction in light of the arbitration clause. The suit was stayed, and the parties were directed to submit the dispute to arbitration in accordance with their agreement.

Key Takeaways

Contractual arbitration clauses are enforceable and binding, and courts will not assume jurisdiction where parties have agreed otherwise.
Drafting clarity is crucial in dispute resolution clauses to avoid interpretive uncertainty or competing remedies.
Attempts at amicable resolution, once exhausted, activate the mandatory arbitration route under agreements governed by the Arbitration and Conciliation Act.

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