Court name
Commercial Court of Uganda
Judgment date
2 March 2009

Chevron Kenya Ltd & Anor v Daqare Transporters Ltd (Miscellaneous Application-2008/490) [2009] UGCommC 25 (02 March 2009);

Cite this case
[2009] UGCommC 25


THE REPUBLIC OF UGANDA
IN THE HIGH COURT OF UGANDA AT KAMPALA
[COMMERCIAL DIVISION]
MISCELLANEOUS APPLICATION NO. 490 OF 2008
(Arising from AB No. 6 of 2008)

IN THE MATFER OF THE ARBITRATION AND CONCILIATION ACT [CAP 4]
LAWS OF UGANDA
AND
IN THE MA
TTER OF AN APPLICATION TO SET ASIDE AN ARBITRAL AWARD

CHEVRON KENYA LIMITED & CHEVRON UGANDA LIMITED ::::::::::::::: APPLICANTS
VERSUS
DAQARE TRANSPORTERS LIMITED ::::::::::::::
:::::::::::::::::::::::::::::::::::: RESPONDENT
 

BEFORE: THE HON. JUSTICE GEOFFREY ICIRYABWIRE
RULING

This is an application brought by Chevron Kenya limited and Chevron Uganda limited (hereinafter called the 1 and 2 applicant respectively) against Daqare Transporters Limited (hereinafter referred to as the respondent) under section 34(1), (2) (a) (vii), (b) (ii), (3) of the Arbitration and Conciliation Act [CAP 4) Laws of Uganda and Rule 13 Of the Arbitration Rules for the orders that:-
a)       The arbitral award made by the arbitral tribunal 2nd September, 2008 which was filed / registered in the High Court of Uganda (commercial division) by the respondent on the 10th September, 2008 under serial number AB. No. 6 of 2008( herein after called ‘the arbitral award’) be set aside;

b)       Costs of this application be provided for.

The general grounds for the application are that: - 1.The arbitral award is not in accordance with the Arbitration and Conciliation Act
2. The arbitral award is in conflict with the public policy of Uganda.

The brief background of this application is that Chevron Uganda Limited the 2nd applicant and Daqare Transporters Limited entered into an agreement for the transportation of petroleum products of the 2nd applicant by the respondent company. The agreement was signed on the 27th September 2004 for a three year period and stated the specified routes, the price payable and the volume. Clause 14 of the agreement provided that the 2nd applicant had the right at any time in writing to the contractor, Daqare, to terminate the agreement upon 30 days’ written notice to the respondent company. The 2nd applicant exercised its rights under the said agreement and terminated the agreement accordingly. Since the contract provided for arbitration as a final means of dispute resolution , the 2nd applicant and the respondent then nominated Mr. Christopher Bwanika to arbitrate over the dispute. The arbitral tribunal heard the dispute and made a final award against the 2nd applicant on 2nd September 2008. It is that award that is the subject of these proceedings.

The applicants claim that the tribunal failed to decide the dispute in accordance with the rules of the law, to take into account the usages of the trade applicable to the transaction, to decide the dispute In accordance with the terms of the contract in particular clause 14.1 (g) which gave the applicant the option to terminate the agreement without cause, clause 15 which limited liability of the 2nd applicant and clause 6.1(c) which allowed the 2nd applicant to make deductions on Daqare’s account as and when necessary in accordance with the agreement.

The respondent on the other hand contended that chevron Kenya and Santos did not have locus to terminate the Ugandan contract, and that it was not given a hearing and thus claimed wrongful termination or breach of contract and sought the following lost income due to parking.

I shall now turn to consideration of the grounds upon which this application is made. However, I will consider initially what is the duty of this court, when as in this case, parties have decided on the means and process of resolution of their dispute. It is the duty of this court, to honour and enforce the agreement of the parties, with regard not only to dispute resolution, but to other terms of the agreement as well. In this case I shall therefore confine myself to mode dispute resolution chosen by the parties.

The application was argued by way of written submissions The submission of both Counsels was elaborative for which I thank them.

Recourse against an arbitral award is governed by section 34 of the Act. In the case of SDV TRANSAMI v AGRIMAG LTD Arb cause 2/2006 Justice Engonda Ntende held that there are limited grounds for setting aside an arbitral award and it is only upon the grounds laid down in s.34 that court can set aside the award. I shall set it out in full.

Section 34. Application for setting aside arbitral award

(1)      Recourse to the court against an arbitral award may be made only by an application for setting aside the award under subsections (2) and (3). (2) An arbitral award may be set aside by the Court only if:
(a) The party making the application furnishes proof that:

(i)      a party to the arbitration agreement was under some in Cape city;

(ii)     the arbitration agreement is not valid under the law to which the patties have subjected it or, if there is no indication of that law, the law of Uganda;

(iii)    the party making the application was not given proper notice of the appointment of an arbitrator or of the arbitral/ proceedings or was unable to present his or her case;

(iv)     the arbitral award deals with a dispute not contemplated by or not falling within the terms of the reference to arbitration or contains decisions on matters beyond the scope of the reference to arbitration; except that lithe decisions on matters referred to arbitration can be separated from those not so referred, only that part of the arbitral award which contains decisions on matters not referred to arbitration may be set aside;

(v)      the composition of the arbitral tribunal or the arbitral procedure was not in accordance with the agreement of the parties, unless that agreement was in conflict with a provision of this Act from which the parties cannot derogate, or in the absence of an agreement, was not/n accordance with this Act;

(vi)     the arbitral award was procured by corruption, fraud or undue means or there was evident partiality or corruption in one or more of the arbitrators; or

(vii)    the arbitral award is not in accordance with the Act;

(b) The court finds that:

(i)      The subject matter of the dispute is not capable of settlement by arbitration under the law of Uganda; or

(ii)     The award is in conflict with the public policy of Uganda.

Clause 14.1 (g) of the contract provided that;

“CALTEX shall have the right to terminate the contract upon 30days written notice to the contractor without cause.”

Counsel for the applicant submitted that whereas the applicants terminated the road transport carriage agreement in accordance with clause 14.1(g) thereof by giving 30 days written notice without cause to the respondent, the arbitral tribunal wrongly concluded that the applicants terminated the contract under clause 14.1(b) of the agreement a different clause altogether as per the last paragraph of page 30 to 3lof the final award (annexture “B”) where the arbitral tribunal held that,

....the respondents (now the applicants in this present case) did not stick to termination without cause under clause 14.1(g) or 142. The respondents themselves adduced overwhelming evidence and the respondent’s counsel’s submissions are clear that the termination was for ca use... ....in all this evidence the tribunal was not shown compliance with clause 14.1 (b) of the agreement which gave caltex the right to terminate

....If the contractor (claimant) breached any of the other previsions of the agreement and failed to remedy the breach within 14 days of being requested in writing

...the failure to give such notice when Caltex was terminating for cause on the basis of the several breaches was therefore not in accordance with the contract and it is the tribunal’s finding that the respondents wrongfully terminated/repudiated the transportation contract.....”

Counsel for the respondent however submitted that before the proceedings, the applicants claimed to have terminated the contract under the provisions of clause 14.1 (g) of the contract that allowed for the termination of the contract without cause. Counsel for the respondent went on to submit that the applicants in their defence pleadings and during the arbitral proceedings abandoned this line and adopted the line of termination for cause and that the tribunal found that termination for cause brought into play another clause of the same agreement that is clause 14.1 (b). Counsel further submitted that this could not have amounted to failure by the tribunal in deciding the dispute in accordance with the Arbitration and Conciliation Act.

Counsel for the respondent went ahead to cite the case of SDV Transami Ltd. V. Agrimag Ltd, Arbitration cause 2/2006 where Justice Egonda Ntende held that quoting verbatim

“Section 34 provides the instances in which an arbitral award may be set aside, and it is upon those grounds that this court is authorised to set aside the award.”

Having read the submissions of both parties, I find that the arbitral tribunal was not wrong in concluding that the contract was terminated for cause for on page 31 of the final award (annexture “B”). The tribunal gives reasons for its ruling on the matter which included first of all that the counsel for the applicant in their submissions on pages 11-21 concede that the termination was for cause, further more, that they adduced overwhelming evidence during the proceedings to show that the termination was for cause. Thus since the termination was for cause they should have proceeded to comply with clause 14.1(b) of the contract (annexture “A”) which provided that;

“14.1. Caltex shall have the right at any time by giving notice in writing to the contractor to terminate this agreement
(b) Immediately after the contra
ctor breaches any of the other provisions of this agreement and falls to remedy the breach within 14 days of being requested in writing by Caltex to do so.”,

In Associated Engineering co. v. Government of Andhra Pradesh (1991) 4 SCC 93: (AIR 1992 Sc 232), the supreme Court of India held that the arbitrator could not act arbitrarily, irrationally, capriciously or independently of the contract; his sole function is to arbitrate in terms of the contract. Court further held that the arbitrator’s authority is derived from the contract and is governed by the Arbitration Act which embodies principles derived from a specialised branch of the law of agency. The Indian Arbitration and Conciliation Act 1996 is similar to that of Uganda (cap 4) and I find this authority persuasive.

In the instant case I find that the arbitral tribunal did not act contrary to the transport carriage agreement with clear reason and thus did not act contrary to the Act.

Failure to apply clause 21 of the agreement

Counsel for the applicant submitted that the arbitrator failed to apply the waiver clause 21 in the favour of the applicant.

Counsel for the respondent in reply submitted that no argument was ever raised before the arbitrator concerning the waiver. That it is arising for the first time it was not pleaded anywhere no evidence was led on it, no submissions by either party were made on it and certainly no mention is made of the waiver in the award. Counsel further submitted that court can only deal with the particular objections to the award that arose under arbitration.

In NUCC & TE .v. Uganda Bookshop [1965] E.A at 539 Sir Udo Udoma CJ held that;

It is trite law that it is the duty of an arbitrator to decide neither more nor less than the dispute submitted to him to comply strictly with his terms of reference.”

In the instant case the issue of the waiver was never raised nor pleaded any where and no evidence was submitted on this issue thus it was therefore not the duty of the Arbitrator to decide more than the dispute that was submitted to him.

Failure to apply clause 15 of the agreement
Counsel for the applicant submitted that the tribunal failed to apply the exclusion clause provided for under clause 15 of the transport carriage agreement which provided for the excludability of Caltex to the contractor. Counsel further submitted that under this clause the liability of Caltex was not to exceed the amount set out in item 9 of schedule 1 which is the “cost of services at that time’

Counsel for the respondent in reply to this submitted that the applicants in the proceedings never alluded to or sought to rely on, or invoke the exclusion clause. That it was the arbitral tribunal on its own that examined this clause in the agreement to establish if it affected the decision. Counsel for the respondent went on to further submit that the tribunal explained why this clause was not applied. The explanation was to the effect that when read together with other subsequent clauses such as clause 21, clause 15.6 is contradictory and defeated clause 21 of the agreement.
In looking at looking at both clause 15 and 21 of the agreement I find that they do contradict each other thus the arbitrator rightly decided not to apply Clause 15 when making the award.

The arbitrator failed to take into account the usages of trade applicable to the transaction
The second part of the final award which counsel for the applicant claimed was contrary to the Act is that, the arbitrator failed to take into account the usages of trade applicable to the transaction.

Section 28 (5) of the Act states that,

“In all cases, the arbitral tribunal shall decide in accordance with the terms of the particular contract and shall take into account the usages of the trade applicable to the particular transaction.”

Counsel for the applicant submitted that there was an established 3-day turn around period for delivery trucks which amounted to usage within the meaning of S.28(5) of the Act. He further submitted that there was failure by the tribunal to properly consider the 3-day turn around period for delivery of trucks in respect of the claim for the parking delays which was an accepted usage of trade and accordingly made the award contrary to section 28(5) of the Act. Counsel for the applicant further submitted that the respondent did not give sufficient evidence to prove that they had paid the sum of Ug.Shs.682,095,429/= (Uganda shillings six hundred eighty two million ninety five thousand four hundred twenty nine only) for the parking delays or that there was any demand for them from any entity.

Counsel for the respondent however submitted that if the contract has its own terms on any given issue, they would prevail over any trade usage. Counsel referred to clause 15.5 o f the contract which he claimed ousted the application of the trade usages.

Clause 15.5 provides that;

“All warranties, conditions and other terms implied by statute, common law, trade usages or course of dealing are, to the fullest extent permitted by law excluded from this agreement.”

Trade usage is a term used in contract law to interpret ambiguous terms according to common business practices the parties should reasonably be able to rely upon. According to Black’s Law dictionary 7th edition 1999 at pg 1539 trade usage is defined as a practice or method of dealing having such regularity of observance in a region, vocation, or trade that it justifies an expectation that it will be observed in a given transaction; a customary practice or set of practices relied on by persons conversant in or connected with a trade or business.
In the United States of America (USA) the Uniform Commercial Code (UCC), adopted in some form by nearly all states, provides for the interpretation of contracts for the sale of goods in light of the general practices of the business sector and of the previous practices between the parties to the contract. Such provisions relating to course of performance, course of dealing and usage of trade are intended to permit the law to adapt to commercial realities. To be binding upon a party, a trade usage must be sufficiently general so that the parties could be said to have contracted with reference to it.
The UCC defines usages of trade as “any practice or method of dealing having such regularity of observance in a place, vocation or trade as to justify an expectation that it will be observed with respect to the transaction in question.”

The Sales of Goods Act cap 82 under section 15(c) provides that,
An implied warranty or condition as to quality of fitness for purpose for a particular purpose may be annexed by the usage of trade”
This section, according to Sale of Goods 10th edition by P.S Atiyah at page 208, merely illustrates the general rule applicable to all contracts that the intention of the parties must be certain the light of all the surrounding circumstances. That where the transaction is connected with a particular trade, the custom and usage of that trade must be consider as part of the back ground against which the parties contracted.

In the case of Hutton .v. Warren (1836) M & W 466 at 475 Lord Parker held that,

“It has been settled that in commercial transactions extrinsic evidence of custom and usage is admissible to annex incidents to written contracts in matters with respect to which they are silent.”

In Mustill & Boyd’s Commercial Arbitration 2nd edition at page 641 and Halsburys Laws of England volume 11 4th edition paragraph 622 it is stated that:

“An arbitrator who acts in manifest disregard of the contract acts without jurisdiction. His authority is derived from the contract and is governed by the Act which embodies the principles derived from a specialized branch of law of agency. He commits misconduct if by hic award he decides matters excluded by the agreement. A deliberate departure from the contract amounts to not only a manifest disregard of his authority or misconduct on his part but may tantamount to a malafide action.

In the transport: carriage agreement, under clause 15.5 it was clearly stated that the use of trade usages shall be excluded from this agreement. This contract was not silent on this issue. Thus the claim that the tribunal did not take into consideration the trade usages thus making the award contrary to the Arbitration and Conciliation Act does not stand for the tribunal was obligated to decide the matter in accordance with the transport: carriage contract which I believe that arbitral tribunal ably did. If the arbitrator done otherwise, it would have resulted into a manifest disregard of his authority derived from the contract.

The tribunal failed to decide the dispute in accordance with the rules of Law of Uganda.
The third part of the arbitral award which the applicants claimed was contrary to the Act is that the tribunal failed to decide the dispute in accordance with the rules of Law of Uganda.

Counsel for the applicant submitted that arbitrator tribunal failed to decide the dispute in accordance with the rules of law of Uganda including in particular Section 28(1) of the Act which provides that;

The arbitral tribunal shall decide the dispute in accordance with the rules of law chosen by the parties as applicable to the substance of the dispute”

Counsel for the applicants submitted that the parties had agreed that the agreement shall be governed by the laws of Uganda. The parties also agreed and authorised the arbitrator to use the relevant rules of law and procedure in arbitration. Counsel thus claims that it was therefore obligatory upon the tribunal to apply the rules of law of Uganda and that the arbitral tribunal was indeed cognizant of this and stated thus in the final award on the first paragraph of page 67 annexture “B” that;

“In determining whether a party who raises a claim for special damages should succeed, the twin requirements of law are settled in this jurisdiction and there is a wealth of authorities to the effect that the party must dearly plead the special damages and strictly prove them”

Counsel for the applicants further submitted that, in support of their claim for alleged lost income the respondent relied on document “B” (now marked as “W” in this application) which was rejected by the arbitral tribunal and referred to by the tribunal as an amplification of pleadings and that it required further evidential support to satisfy the strict proof requirement of special damages under the Ugandan law. Counsel further submitted that the respondents went ahead to use the same document and termed it as document “C” (now marked document “X” in this application) and the arbitral tribunal on page 57 of the arbitral award(annexture “B”) held that on the balance of probabilities the claimants had proved their entitlement to the claim for parking delays. Counsel further submitted on the issue of unpaid invoices that the arbitral tribunal wrongfully shifted the burden of proof on the applicants and that the alleged invoices namely 1369 of 30/7/2002, 1952 Of 30/6/2003 and 1985 of 03/11/2003 pre- dated the agreement and one even predated the existence of the respondent and yet the arbitral tribunal went ahead and awarded special damages to the respondent.

Counsel for the applicant thus submitted that arbitral tribunal in holding as such acted outside the established principles that required specific proof of special damages and that this high level of inconsistency amounted to misconduct on the part of the tribunal.

Counsel for the respondent, however, submitted that the powers of the court when sitting to set aside an award are dis-similar from those of the 1 appellate court whose duty is to re-evaluate and scrutinize the evidence afresh. Counsel further stated that the burden of proof can and will shift if the opposite party has laid out its case to the satisfaction of the court and that if not rebutted the party concerned will lose.

In the case of Raticliffe v Evans [1892] QB 524 is a leading case on proof of damages court stated that;

The character of the acts themselves which produce the damages and the circumstances under which those acts are done must regulate the degree of certainty and particularity with which the damages done ought to be stated and proved. As much certainty and particularity must be insisted on, Both in pleading and proof of damage as is reasonable having regard to the circumstances and to the nature of the acts them selves by which the damage is done to re/ax old and intelligent principles, to insist upon more would be the vainest pendaty”

In Jivanji V Sanyo co, Ltd [2003] EA 84 court held that;

“Its trite law that special damages must be pleaded and then strictly proved in order for a plaintiff to succeed on a claim for special damages.”

The Arbitrator was satisfied with the statement of claim where Daqare proved special damages

The applicants aver under paragraph 13 of Mr. Matovu’s affidavit that the tribunal failed to critically assess the evidence on record. As already stated earlier court cannot interfere with the Arbitrator’s award in this regard. In the case of DB Shapriya and co v Bishint [20031 3 EA 404 court held that;

“All questions of fact are and a/ways have been within the sole domain of the arbitrator… the general rule deducible from these decisions is that court cannot interfere with the findings of fact by the arbitrator…”

In NSSF v Alcon HC Arbitration cause 4/2001 Hon Lady Justice Stella Arach Amoko held that;

Court cannot re-examine and reappraise the evidence which has been considered by arbitrator sit on appeal over conclusions of the arbitrator in application to set aside the award, lithe award Is not perverse.”
I find that in the instant case the award was not perverse in anyway. Thus this court does not have the authority to re-evaluate the evidence given before the arbitrator.

The arbitrator failed to decide the substance of the dispute according to the considerations of justice and fairness

The last part of the final award which counsel for the applicant submits that was contrary to the Act was that the arbitrator failed to decide the substance of the dispute according to the considerations of justice and fairness

Section 28 (4) of the Act provides that:

‘The arbitral tribunal shall decide on the substance of the dispute according to considerations of justice and fairness without being bound by the rues of law, except if the parties have expressly authorised it to do so.’

Counsel for the applicant submitted that in reading section 28 together with section 34 of the Act, it is apparent that the legislature intended that if the award is in contravention of the provisions of the Act, it should be set aside by the court. That in exercising its jurisdiction, the arbitral tribunal cannot act in breach of any substantive law or provisions of the Act or terms of the contract. That to do so would mean that it has acted beyond its jurisdiction and thereby the award would be patently illegal which should be set aside under section 34 of the act.

The counsel for the respondent however submitted that the Arbitration and Conciliation Act cap 4 incorporates the doctrine of substantive justice without undue regard to technicalities enshrined in Article 126 of the 1995 Constitution of the Republic of Uganda, that when section 28 (4) provides that the tribunal shall apply considerations of justice and fairness without being bound by rules of law. Counsel further stated that the test of an award therefore is not how well the arbitrator comprehends the rules of the law, litigation procedure or court practice, but of fairness. That the test is not whether a court of law looking at the same facts would have arrived at a different conclusion but whether the conclusions were just.

IN THE CASE OF MORAN LLODS {1983}2ALLER 200 it was provided that Courts cannot interfere with findings of fact by an arbitrator’s mistake of fact or law. The courts interventions is limited to errors of law which are apparent on the face of the award its Only when an erroneous proposition of law is stated in award and forms the basis of that award that a court can set aside the award or remit it for reconsideration on the ground of an error of law apparent on the face of the record

As regards the grounds for setting aside award, Supreme Court of India has held in the case of Army welfare Housing Organization .v. Gautam Construction & Fisheries Ltd. AIR 1998 Sc 3244 that;

It is not possible for us to re-appropriate the evidence produced before the Arbitrator and then ourselves coming to the Conclusion whether a certain amount claimed was towards ‘firm liability’ or in the ‘nature of anticipated expenses.’ Once the arbitrator had held that the claim would be in the ‘nature of anticipated expenses,’ it is difficult for us to hold the same otherwise. It cannot be said that the award is not good on the face of it on that account.”

According to Sunjan an author of the law relating to arbitration and Conciliation 2nd edition in making reference to the case of DWARKA NATH V KEDAR NATH AIR 1951 Pat 445 and State of Madya Pradesh v Babul Pathak, AIR 1974 MP 179 observed that;

“The court cannot enter into the merits of the dispute if the dispute is found within the scope of the arbitration clause. If the arbitrators have jurisdiction to decide matters and have acted within the scope of their authority according to the principles of natural justice the court cannot sit in judgment over them. The policy of the law is that the award of the arbitrator is ordinarily final and conclusive and that the court should approach the award with a desire to support it if that is reasonably possible rather than destroy it by calling it illegal.”

Sunjan in his book further states that;

“The arbitrator is the master (sole judge) of law and fact. Even though an arbitrator commits a mistake in law and in fact, the award cannot be set aside unless there is an error of law apparent on the face of the award. Even thou the court on the same evidence may have come to a different conclusion still the award cannot be set aside. The decision of the arbitrator wrong or right is binding and cannot be challenged except where there is an error on the face of the award,”

Where the parties decide to have recourse to a private tribunal for the adjudication of their disputes they take the risk that the decision may not be legally and technically perfect. The law does not assist such parties to get a second adjudication from a court merely because they are dissatisfied with the decision of the tribunal of their own choice. The arbitrator’s methods may have been unlike those of courts and their decision not that of a practiced lawyer, however, it cannot be inferred there from that the parties did not get justice. The court is thus reluctant to interfere with the award unless some real injustice or substantial diversion from the law can be proved.

In Simbamanyo Estates Ltd .v. Seyani Brothers Company (U) Ltd H.C.M.APPN 555/2002 Hon Justice Arach Amoko cited Markanda’s book at page526 where the learned author stated that;

“The court will not take upon itself the task of being a judge of the evidence before the arbitrator. It may be possible that on the same evidence the court might have arrived at a different conclusion than the one arrived at by the arbitrator, but that it self is no ground for setting aside the award.”

In Conclusion therefore, I agree with counsel for the respondent that the examples cited by the applicant in support of this ground are untenable as the applicant seeks to vest this court with appellate jurisdiction by calling upon the court to sift through the evidence and reappraise the same. The applicant has not cited any incident where the arbitrator ignored or misapplied the Arbitration and Conciliation Act. Thus this ground fails.

Ground 2: The arbitral award is in conflict with the public policy of Uganda.
The second ground that was raised by the applicants is that the arbitral award is in conflict with the public policy of Uganda.

Sunjan (supra) in attempting to define public policy says it is futile to define public
policy in precise terms as it’s a vague and unsatisfactory term. The supreme court of
India in the case of GHERULAL PARAKH V MAHADEODAS MAYIYEV AIR 1959 SC 781 held that;

“The doctrine of public policy is only a branch of common law. its governed by precedents, the principles have been crystallized under different heads and though its permissible for courts to expound and apply them to different situations it should only be invoked in dear and uncontestable cases of harm to the public though the heads are not closed and though theoretically it may be permissible to evolve a new head under exception circumstances of a changing world its advisable in the interest of stability not to make any attempt to discover new heads in these days.”

Black’s law dictionary 7th edition 1999 pg 1245 defines Public policy as principles and standards regarded by the legislature or by the courts as being of fundamental concern to the state and the whole of society.
Public policy has been equated with public interest or public good; (See: CENTRAL
INLAND WATER TRANSPORT CORPORATION V BROJO NATH GANJULY AIR 1986 SC 1571). The Law relating to public policy does not remain immutable. It keeps abreast of changes itself to suit the requirements of the time. Public policy is shaped by the standard of customary morality. But the basic standard of morality remains a constant e.g. corruption is not countenanced as it would be against public policy

In ENDERBY TOWN FC V THE FOOT BALL ASSOCIATION LTD [1971] CH 591.
It was held that some flexibility is clearly desirable in matters of public policy. It must change with time to suit new conditions of a changing world.
The Californian judicial definition of public policy may be got from the case of Noble v. City of Palo Alto (1928), 89 Cal.App. 47, 50-51. In this case, public policy was defined as follows:

“Public policy is a vague expression, and few cases can arise in which its application may not be disputed. Mr. Story, in his work on Contracts (see 546), says: ‘It has never been defined by the courts, but has been left loose and free of definition in the same manner as fraud” By ‘public policy” is intended that principle of law which holds that no citizen can lawfully do that which has a tendency to be injurious to the public or against the public good, which may be termed the policy of the law. Likewise, it has been defined as “the principles under which freedom of contract or private deal/hg are restricted by law for the good of the community” --the foregoing definitions being supported by respectable authority (32 Cyc. 1251,). Public policy
means the public good,
anything which tends to undermine that sense of security for individual rights, whether of personal liberty or private property, which any citizen ought to feel, is against public policy. It is the evil
tendency
and not the actual result which is the test of illegality
(Maryland Trust Co. v National Bank 102 Md. 608(62 Atl. 79]).
A public officer is impliedly bound to exercise the powers conferred on him with disinterested skill, zeal, and diligence and primarily for the benefit of the public (Harnung v State, 116 Ind. 458(2 L.R.A. 510,19 N.E. 151])

SUNJAN (supra) states that it’s significant that the ground of bias which goes to the root of an essential qualification of the arbitrator does not find a place in section 34 unless it is stretched to be covered by s.34 which talks about an arbitral award being in conflict with public policy.

Christ for all Nation V Apollo Insurance Co. Ltd[ 2002] 2 EA 366 where it was held that the applicant had to show either inconsistency with constitution or that the award is inimical to national interest (national security, public order, public interest)or that the award is contrary to justice and morality.

The applicants argue under several heads showing how the arbitral tribunal’s award was against public policy

a)       In their submission the applicants submitted that the arbitral tribunal misconducted itself

In this regard the applicants relied on the case of Nyangau v Nyakwara [1976- 1985] EA 443 where misconduct was defined to mean not necessarily personal misconduct but if an arbitrator for some reason declines to adjudicate a real issue before him or rejects evidence which if he had rightly appreciated would have been seen by him as vital with in the meaning of the expression misconduct. The applicants however don’t satisfactorily explain this ground save relying on this case.
The respondents on the other hand submit that no particulars of the alleged misconduct were ever given in the application not even in the rejoinder of Mr. Matovu when he was challenged to do so.
In the case of Total Uganda Ltd v Buram General Agencies Ug Comm. LL Rep [1997-2001] 412 Hon. Justice Ogolla held that:

The elements of misconduct must be established, conduct must show dishonesty, bad faith, fraud, collusion or corruption of arbitrator to Constitute misconduct’

The applicants did not show any of the above elements and there fore did not submit evidence in relation to the misconduct of the arbitrator

In the case of NSSF V ALCON Arb cause 4/2001 at page 39 Hon. Justice Arach Amoko held:

“Considering the seriousness of the allegation the rules of natural justice or fair play dictate that the other party must be given sufficient particulars of the allegations.”

Therefore since the applicants did not give particulars of the allegation of misconduct of the arbitral tribunal I find that there was no misconduct and no breach of public policy.

b)       The applicants further submit there was an error on the face of the record which was against public policy when the arbitral tribunal used the group theory and wrongly applied the principle of piercing the corporate veil.

The evidence before the tribunal on pages l4 - 19 satisfactorily discuses these two issues.
It’s the applicants submission that the arbitral tribunal wrongly introduced and applied a legal concept alien to the Ugandan law called the group theory and also wrongly applied the principle of piercing the corporate veil and made an award to an entity that claims it existed before it was incorporated. The applicants rely on the respondents pleadings at page 2 paragraph 3.1 of annexure ‘U’ to show that there was a distinct legal entity that existed since 1994 that had its own employees1owned motor vehicles and insurance policies among others for whose benefit was made where as it was never a party to the claim.

The respondents submitted in response that the group theory is a well known concept and a modern feature of commercial life and gives examples of Uganda Electricity Board (UEB), (Uganda Electricity Distribution Company Limited. They further submit that the companies Act under sections 150-154 provide for this. The carriage agreement under clause 1.1 recognizes this concept and defines chevron texco group to mean:

“Caltex and any other legal entity which directly or indirectly Controls caltex or is controlled by caltex or is under the common control Caltex...”

They further argue that the principal were the principle beneficiaries of the application of the group theory as this caused the dismissal of the case against Adriana Santos and chevron Kenya with costs.

In the case of National Enterprises Corporation and Nec v Nile Bank Limited SCCA 17/1994 Hon. chief justice Odoki at pages 6-7 upheld the group theory and the lifting of the veil

“The argument that subsidiary, companies were separate legal entities each under the control of its own board of directors, is too technical since in the light of the facts and realities of the situation the parent company had full control of the Internal management of its Subsidiaries in my Judgment the learned judge came to the right conclusion...he lifted the veil of the subsidiary companies and found that they were owned and controlled by the appellant who had the majority share holding. He was therefore prepared to ignore the separate legal entities of the various companies with in the group and look instead at the economic entity of the whole group.”

In saying that the group theory was wrongly applied the applicants failed to satisfy the tribunal that Daqare Transporters Limited and Daqare Transport Limited were in reality separate entities. In the various transactions between the applicants and the respondents, Mr. Abdi Abshir the managing director of Daqare transporters signed the agreement between the applicant and respondent and is the brain behind Daqare and had on various occasions operated either as Daqare transporters limited or Daqare transport limited .This goes to justify the application of the group theory. Under law of contract, the operation of the two Daqare; Daqare transporters limited and Daqare transport limited as one was a mere technicality.

The Constitution of the Republic of Uganda 1995 under article 126 (2) (e) provides that:

“Substantive justice will be accorded without undue regard to technicalities.”

Since the applicants did not have regard to the different names the Respondent used he should be estopped section 114 of the Evidence Act which provide that when one person has by his or her declaration act or omission intentionally caused or permitted another person to believe a thing to be true and to act upon that believe neither he or she nor his representative shall be allowed in any suit or proceeding between himself or herself and that person or his representative to deny the truth of that is.

In piercing the corporate veil the tribunal was just satisfying the ends of justice and clarifying who actually had the right to bring the claim.

c)       The applicants submit that there was an infringement of public policy when the arbitral tribunal failed to correctly apply the principle of exturpi causa non oritur and allowed a claim fraught with illegality and corrupt tendencies

The applicants submit that the respondents used a vehicle belonging to an employee of the applicant to routinely load the applicants’ products in Spite of the policy of the applicants and the agreement. The applicants further submit that it is not possible to separate income obtained from corrupt practices which in their argument was benefit obtained from the use of trucks obtained through corrupt practices.

The respondents on the other hand denied any corrupt practices.
The tribunal at page 48 of the award in resolving the issue as to whether the respondents committed discriminatory and corrupt trade practices against or with the claimants and on whether the tribunal could lend its aid to the claimant for acclaim based on illegal or corrupt practices held that it did not find the issue arbitrable and found it Outside the scope of arbitration. I agree with the tribunal on this.

d)       The award of general damages on the premise of alleged misrepresentation was against public policy

It is the applicant’s submission that the trucks claimed to be owned by the respondents were owned by another entity and so according to the applicants this amounted to misrepresentation. They argue that by awarding damages on misrepresentation where as evidence of the respondent scaling up its infrastructure and where as there was proof of that the respondent not being honest about its infrastructure the tribunal acted contrary to public policy.
The respondents merely submitted that arbitral proceedings are civil in nature and that the standard of proof is on a balance of probabilities.
My findings here are similar to (c) above and I shall not rewrite them.

e)       The award of three billion five hundred million shillings only without any legal basis was contrary to principles of law governing the award of general damages and was therefore contrary to public policy.

The respondents submit that the tribunal gave its reasons for the award and that the general damages were clearly pleaded and that the applicants in their submission acknowledge that the annual gross revenue alone was Shs.6,984,336,000/=.

Where two parties have made a contract which one of them has broken the damages the damages which the other party ought to receive in respect of such breach of
contract should be such as may fairly and reasonably be Considered either as arising naturally i.e. according to the usual course of things from such breach of contract itself or such as may reasonably be Supposed to have been in contemplation of both parties at the time they made the contract as the probable result of the breach of it.

Once again as I have found earlier, the tribunal gave reasons for its assessment and award. Legal principles applied in the assessment were outlined.
It is just the resultant amount that the applicant seeks to attack as colossal and Unconscionable I think it is not enough to challenge the figure because the applicant thinks it is too much only. I find no fault on the face of the record in the arbitrator’s award of damages as a result.

In light of the above the arbitration award must stand and I dismiss the application with costs. 03/03/09