Mark Africa (U) Limited v Westwinds Trading (Miscellaneous Application 600 of 2023) [2024] UGCommC 97 (30 April 2024)

THE REPUBLIC OF UGANDA

IN THE HIGH COURT OF UGANDA AT KAMPALA (COMMERCIAL DIVISION)

MISCELLANEOUS APPLICATION NO. 0600 OF 2023 ARISING FROM CIVIL SUIT NO. 0957 OF 2022

MARK AFRICA (U) LTD ::::::::::::::::::::::::::::::::::: VERSUS

WESTWINDS TRADING C/O MATCO LIMITED ::::::::::::::::::::::::::::::::::::

(Before: Hon. Justice Patricia Mutesi)

RULING

Background

This application was brought under Sections 5(1) and 9 of the Arbitration and Conciliation Act Cap 4, Rule 13 of the Arbitration Rules and Order 9 rule 6(3) of the Civil Procedure Rules S. I. 71-1 seeking orders that:

- 1. The dispute between the Applicant/1^st Defendant and the Respondent/ Plaintiff in Civil Suit No. 0957 of 2022 is the subject of a valid, binding and enforceable agreement/clause between the parties within the premises of the Arbitration and Conciliation Act Cap 4 and should be referred and resolved through arbitration. - 2. The arbitration clause should be enforced by dismissal of the suit and referral of all legal proceedings between the parties to arbitration. - 3. Costs of this application and those of Civil Suit No. 0957 of 2022 be awarded to the Applicant.

Briefly, the grounds of this application are that:

- 1. The Respondent filed Civil Suit No. 0957 of 2022 in this Honourable Court. - 2. The Applicant's written statement of defence indicated that the Applicant would contest the jurisdiction of this Honourable Court. - 3. The subject matter of the suit is a dispute arising from and relating to contractual terms of the supply agreement for non-GMO soya beans. - 4. The said agreement contains a valid, binding and enforceable arbitration clause.

- 5. The dispute as set out in the plaint is covered under the terms of the said arbitration clause. - 6. It is in the interests of justice that the suit is dismissed and referred to arbitration.

The application was supported by an affidavit affirmed by Michael Isaac Opkwo, a director in the Applicant. Therein he stated that the Respondent filed Civil Suit No. 957 of 2022 ("the main suit") for breach of contract and recovery of the contractual consideration. In its written statement of defence, the Applicant stated that it would contest the propriety of the proceedings and the jurisdiction of this Court on the grounds that the subject matter of the said suit is the supply agreement for non-GMO soya beans which has a valid, binding and enforceable arbitration clause. Mr. Opkwo averred that the dispute as set out in the plaint is covered by the arbitration clause in the said agreement which implies that this Court has no jurisdiction to hear and determine the dispute.

The Respondent opposed the application through the affidavit in reply sworn by Lovemore Chidochangu Marowa, its representative. He averred that the suit between the Respondent, the Applicant and the $2^{nd} - 5^{th}$ Defendants in the main suit relates to matters which lie outside the arbitration agreement. Specifically that the fact that Civil Suit No. 0267 of 2022 (Tong Makuac Lual V MarkAfrica (U) Ltd) between the 1^st and 3^rd defendants was only invented by the defendants in order to access monies on bank account No. 0050012771 at Exim Bank (U) Ltd in the names of the $1^st$ plaintiff, is not within the scope of the arbitration agreement. He added that the fraudulent and illegal transfer of USD 95,841 from account No. 0050012771 at Exim Bank (U) Ltd in the name of the respondent to E. Wamimbi & Co. Advocates, hence causing loss to the Respondent, is also not within the scope of the arbitration agreement. He concluded that this Court has jurisdiction over the main suit.

The Applicant filed an affidavit in rejoinder also sworn by Michael Isaac Opkwo. He stated that the Respondent had been aware, for months prior to filing the main suit, that the crux of the dispute between the parties is amendable to arbitration. He stated that the Respondent counsel has, on multiple occasions made entreaties for the appointment of an arbitrator and for reference of this matter to arbitration by issuing the notice of commencement of arbitration dated 8^th June 2022, a further notice of commencement of arbitration dated 26^th July 2022 and a notice of arbitration and appointment of an arbitrator dated 9^th August 2022 to the Applicant's counsel. He maintained that breach of the suit agreement is strictly amenable to arbitration.

Issue arising

Whether Civil Suit No. 0957 of 2022 should be referred to arbitration.

Representation and hearing

Court At the hearing of the application, the Applicant was represented by Mr. Morris Okiror of M/s E. Elijah & Co. Advocates. The Respondent was represented by Ms. Joyce Tukahirwa of M/s Fontes Advocates. I have considered all the materials on record, the submissions of the parties and the laws and authorities cited.

Determination of the issue

Whether Civil Suit No. 0957 of 2022 should be referred to arbitration.

The brief facts of the dispute, as can be gathered from the pleadings on the Court record, are that, on 22^nd February 2022, the Respondent entered into an agreement with the Applicant for the supply of 476 metric tons of non-GMO soya beans at a cost of USD 190,400. The Respondent deposited this entire sum on its bank account in Exim Bank. Between 1^st March 2022 and 10^th March 2022, the Respondent paid out 49% of the price (USD 95,120) to the Applicant. On 11^th May 2022, in performance of a garnishee order issued by this Court in Civil Suit No. 0267 of 2022, the balance of USD 95,841 was transferred to E. Wamimbi & Co. Advocates. The soya beans were never supplied by the Applicant.

On 1^st November 2022, the Respondent filed the main suit in this Court against the Applicant (1^st Defendant), Michael Opkwo (2^nd Defendant), Tong Makuac Lual (3^rd Defendant), Emmanuel Wamimbi t/a E. Wamimbi & Co. Advocates (4^th Defendant) and Elijah Enyimu t/a E. Elijah & Co. Advocates (5^th Defendant). The Respondent's claim was that the Applicant and the other 4 Defendants are jointly and severally liable for fraud and loss of business and that the Applicant is liable for breach of contract. The Respondent seeks recovery of USD 191,121, general damages, punitive damages, exemplary damages, interests and costs.

The Agreement for Supply of Non-GMO Soya Beans signed by the Applicant and the Respondent on 22^nd February 2022 contains an arbitration clause (Clause 18 thereof). Specifically, Clause 18.2 provides that:

"... Any dispute between the parties arising out of, or in connection with this agreement, including, without derogating from the generality hereof, its application, breach, interpretation, validity, termination or cancellation shall be submitted to and decided by Arbitration in terms of *the arbitration laws of Mauritius and Uganda."* Emphasis mine.

I am satisfied that the above clause is clear, binding and enforceable between the Applicant and the Respondent. On that basis alone, the main suit would have been referred to arbitration under Section 5 of the Arbitration and Conciliation Act. However, it is critical to examine the peculiar facts and circumstances of this case further. The complication which has arisen in this case is the involvement of the $2^{nd} - 5^{th}$ Defendants in the main suit yet they are not signatories to the Agreement for Supply of Non-GMO Soya Beans, and therefore, not bound by the arbitration clause.

As I have recounted above, the Respondent's case in the main suit is two-fold. The Respondent's first claim is that the Applicant breached the Agreement for Supply of Non-GMO Soya Beans by failing to deliver the soya beans despite receiving payment for the same. The Respondent's second claim is that the Applicant and the other 4 Defendants connived, created a fictitious breach of contract claim vide Civil Suit No. 0267 of 2022 and fraudulently garnished the Respondent's bank account.

It is trite law that, as the matter of principle, an arbitration agreement only binds the parties to it. Although courts generally favour arbitration as an expeditious mode of dispute resolution, they will not compel the arbitration of claims that are outside the scope of an arbitration agreement. This scope is delimited by the nature of claims anticipated and the parties to the agreement. Unless the nonsignatory's intention to be bound can be established, such a non-signatory cannot be referred to arbitration. See AC Yafeng Construction Company Ltd v The Living World Assembly Ltd, HCCS No. 0739 of 2021.

The reluctance to refer to arbitration a dispute involving several parties, some of whom are not subject to the arbitration agreement, is grounded in the need to protect the 3^rd parties to the arbitration agreement from the prejudice that could arise when the arbitration proceeds without them and matters affecting them are finally decided by the arbitrator in their absence. Additionally, for practical reasons, parties in cases involving several other parties are likely to have their claims and defences inextricably linked with the claims and defences of other parties. This makes it impracticable for an arbitrator to conveniently and conclusively determine a dispute in arbitration if some of the parties before him or her are justifying their actions by relying on the actions of other parties to the dispute who are not party to the arbitration agreement and who, thereby, have not appeared before the arbitrator.

Having analysed all the relevant laws and facts in this dispute, it is my finding that, in the instant facts, while the claim for breach of contract between the Respondent and the Applicant is amenable to arbitration, the claim for fraud and loss of business between the Respondent on one part and the Applicant and the $2^{nd}$ – $5^{th}$ Defendants on the other hand is not. It is, therefore, my considered decision that the Respondent's claim for breach of contract in the main suit against the Applicant shall be referred to arbitration. The claim for fraud, which involves the $2^{nd} - 5^{th}$ Defendants who are not bound by the arbitration clause, shall not be referred to arbitration.

As the Applicant and the Respondent proceed to arbitration, the main suit shall be stayed pending the conclusion of the arbitration. Once the arbitration is complete and an award is issued, this Court shall then hear and determine the residue of the issues in the main suit if the parties so elect.

In reaching this decision, I am satisfied, from all the materials on record, that the breach of contract claim can be conveniently extricated and severed from the rest of the claims in the plaint. Additionally, the defences of the $2^{nd} - 5^{th}$ Defendants in their written statements of defence are not so intricately-linked to the pleadings of the Applicant and the Respondent in respect of the breach of contract claim. This implies that the arbitrator will be able to conveniently and conclusively hear and determine the breach of contract claim, without any resultant direct or incidental prejudice to the $2^{nd} - 5^{th}$ Defendants who will not be party to the arbitration.

I also noted that from the affidavit in rejoinder that, although the Respondent opposed this application, it has previously written to the Applicant confirming

that a dispute between them had arisen in respect of the Agreement for Supply of Non-GMO Soya Beans and asking that the same be resolved through arbitration.

Consequently, this application succeeds in part and I make the following orders:

- The Respondent's claim for breach of contract against the Applicant in Ĵ. Civil Suit No. 0957 of 2022 is dismissed and referred to arbitration. - Civil Suit No. 0957 of 2022 is stayed pending the conclusion of the ii. arbitration between the Applicant and the Respondent. - Costs of this application shall abide by the outcome of Civil Suit No. iii. 0957 of 2022.

cadenten

Patricia Mutesi JUDGE $(30/04/2024)$