[Arising from CADER Arbitration Cause No. 21 of 2008]
MBALE RESORT HOTEL LTD :::::::::::::::::::::::::::::::::::::::::::::: APPLICANT
BABCON UGANDA LTD :::::::::::::::::::::::::::::::::::::::::::::::::: RESPONDENT
Civil law and procedure – setting aside arbitral award
Commercial law – arbitral award – setting aside arbitral award
R U L I N G:
The application seeks orders that
b) That costs be provided for.
3) The Arbitrator is guilty of misconduct.
Mr. William Byaruhanga and Mr. Andrew Kasirye appeared for the Applicants while Dr. Joseph Byamugisha appeared for the Respondents.
The facts of this application are fairly straight forward. The Applicant entered into a construction contract with the Respondent on the 14th June, 2006 to erect and construct an annex building to the existing Mbale Resort Hotel in Mbale Town. The contract sum was agreed at Shs.666,337,984= and the date of practical completion was 30th October, 2007. However, on the 2nd October, 2007, the Applicant terminated the contract which led to the current dispute.
The dispute was then referred to arbitration and by the consent of the parties, The Hon. Mr. Justice A. Karokora (Rtd) was appointed as the Arbitrator. The Arbitrator then made an award in favour of the Respondent on the 8th April, 2010.
The financial implications of the award were that the Applicant had to pay
b) Claims arising out of wrongful termination of contract…………………. 1,272,700,857.00
As to the three grounds for setting aside, Counsel for the Applicants relied on the affidavits of Mr. James Wokadala the Managing Director of the Applicant company.
Referring to the first ground, Counsel for the Applicant submitted that the award was not made in accordance with the ACA as provided for in Section 34(2) (vii). In particular, Counsel for the Applicant submitted that the award was contrary to Section 28(5) of the ACA which provides
It is the case for the Applicant that the award did not follow the provisions of the building contract in granting the awards. Counsel for the Applicant submitted that the arbitrator made awards of Shs.132,585,395.34= for modifications and delays caused by the Respondent but the Applicant did not apply under Clause 23 of the contract for extension of time (EOT) or compensation under Clause 24 of the same contract.
In this regard, Counsel for the Applicant made four distinct submissions.
First because the procedures under Clause 23 and 24 of the contract were not followed then the award was unsustainable and had no basis.
Secondly, the Arbitrator blatantly misconstrued the contractual terms resulting in a gross misdirection of the rights of the parties. Counsel for the Applicant referred to pages 12 and 14 of the award where the arbitrator found that EOT could only be made after the contract period which was not the case. Furthermore, the arbitrator went on further to award Shs.81,910,496= (plus interest of Shs.21,301,217= thereon) at page 58 of the award based on the contractor’s valuation No. 12. Counsel for the Applicant submitted that this was contrary to Clause 30 of the contract that required all work to be assessed by the Architect or quantity surveyor which was not done in this particular instance.
Thirdly, the Arbitrator failed to appoint an Architect or Quantity Surveyor as an expert, to assess this part of the Respondent’s claim which would have been in conformity with Clause 30 of the contract.
Counsel for the Applicant submitted that by the arbitrator disregarding the contract he had acted without jurisdiction. In this regard, he referred me to the case of
I was also referred to the case of
Counsel for the Respondent in response denied that the award was not in accordance with Section 34(2) (vii) of the ACA.
He submitted that there was nothing in the affidavit in support that showed where the award was not in accordance with the ACA. Counsel for submitted that all that was awarded to the claimant was claimed in the Statement of Claim. He referred me to the award at P.57 line 5 where the Arbitrator stated
Counsel for the Respondent therefore submitted that EOT was considered and deliberated upon by the Arbitrator.
I have addressed my mind to the summons before me and the affidavits for and against them. I have also considered the skeleton and oral arguments by Counsel for both parties.
The first principle is that an arbitral award can only be set aside if the Applicant meets the grounds and tests set out under Section 34 of the ACA.
The second principle to my mind that is not well understood by Counsel when arguing an application is that; an application is not appeal in the ordinary sense from an award of an Arbitrator. This was made clear in the Hon. Justice James Ogoola in the case of
A third principle that comes out of the authorities is that outlined by the learned author M. A. Sujan in his book “The Law Relating to Arbitration and Conciliation 2 ed Universal Law Publishing Company page 382 which interprets the Indian Arbitration and Conciliation Act which provisions are similar to those of Uganda) where he writes
Then the court will make a shifting investigation of the entire arbitration proceedings. This shifting investigation by the court is one of superintendence and not substitution of decision making. With the above general principles in mind, I shall now address the grounds in the summons. The first ground is that the award is not in accordance with the ACA and in particular S. 34(2) (vii) and 28 (5) of the said Act. This is because the Arbitrator did not apply his mind to the provisions of the building contract (Clauses 23, 24 and 30) when making his award. The Applicant raised four points under this ground. No all of them were responded to specifically by Counsel for the Respondent who took the view that there was no evidence to support the allegations.
A review of the award and proceedings shows that this building contract went bad when the Respondent contractor made for payment for variation of work that allegedly arose from changes in design, modifications and delay schedules. It appears to me that the variations were not denied by Respondent. Variations as I understand them are mostly extra work from what had been billed in the Bills of Quantities (BOQs).
The third point raised by the Applicant is that; the Arbitrator awarded sum of Shs.81,910,496= under valuation report No. 12 of the contractor which was not certified by the architect contrary to Clause 30 of the contract. Save for faulting this procedural process no sound reason is given why the architect did not certify the amount. Counsel for the Applicant only submitted that, it was open to the Arbitrator to appoint a quantity surveyor as an expert witness to assess that part of the Respondent’s claim. This is because the Arbitrator was not a competent person to do so under Clause 30 of the Contract.
Apart from generally refuting the main ground above, Counsel for the Respondent did not specifically respond to this allegation.
A review of the arbitral proceedings will show that sub ground was not treated in great detail but was largely lump up with the overall arguments relating to extension of time which I have already dealt with. Counsel for the Applicant however points out that the Arbitrator should have appointed an expert to do that. Whether or not to appoint an expert is a point of procedure Section 19 (1) of the ACA provides
Section 19 (2) further provides
The record shows that the parties did not even consider the use of experts as part of their procedure during the proceedings.
Section 26 of the Act then comes in to plug that gap and provides
“…(1) unless the parties agree otherwise the arbitral tribunal may
Clearly, the appointment or not of an expert is in the discretion of the Arbitrator. Whereas I agree with Counsel for the Applicant that the appointment of an expert in these circumstances would have been desirable, the parties did not do so and the Arbitrator was equally not obliged to make such an appointment on their behalf. In reality the Applicants only have themselves to blame for not working on the valuation report and thus having no evidence to challenge it with. I find therefore that the Arbitrator did not offend Section 28 (5) of the Act as this has to be read together with Sections 19 and 26 of the same Act on experts.
The last point on the first ground is that; Arbitrator failed and refused to decide the dispute in accordance with the rules of law chosen by the parties as applicable to the substance of the dispute contrary to Section 28(1) of the Act.
The point in contention here is that special damages worth Shs.1,272,700,857= were not strictly provide in evidence.
Counsel for the Respondent in response referred court to pages 57 throughout to 58 where the Arbitrator write
Counsel for the Respondent submitted that the Applicant never challenged what was put before the Arbitrator and so puts it beyond the Applicant to complain.
I must say that this claim is not as straight forward as the others. It is not part of any valuation report and or certificate. The figures are only to be found in the first part of Annexture “G” without even a single supporting document. There is a bill of Shs.1,068,846,940= which is a claim for the use of plant and equipment. There is evidence that plant and equipment was detained by the Respondent but there is no evidence that this was billed for. Actually the witness statement of Mr. Zaribwende of 20th April, 2009 during the arbitration does not even refer to the said sum.
I agree therefore with Counsel for the Respondent on this particular head of special damages. It is simply not proved and with the greatest of respect to the learned Arbitrator, it is not enough to say that the head was not challenged. This was a colossal sum of money that needed to be investigated but was not, it looks like a figure dropped from the sky. This part of the award is unreasonable and unsafe and that cannot be supported. I according set aside the award of special damages for Shs.1,272,700,857=.
The second ground is that the Arbitrator exhibited evident partiality by the complying with the provisions of the ACA and applying settled rules of law and legal principles and this was evidence of misconduct. Counsel for the Applicant submitted that; partiality does not have to be actuated by dishonesty, fraud or corruption. Counsel for the Applicant argued three sub grounds under this head of partiality which I shall deal with one by one.
The first sub ground listed four instances of partially. First is the blatant omission of the rules of evidence relation to special damages. Secondly, the way in which the counterclaim was dismissed showed partiality. Thirdly by the Arbitrator making a comparison on the amount that had been paid to the Respondent and the value of the contract (approx. 80%) is evidence of partiality; fourthly that the Arbitrator did not apply the same level of scrutiny to both parties especially when it came to special damages. To my mind this first leg largely goes to the Arbitrator’s application of the law and legal principles.
Counsel for the Respondent on the issue of partiality submitted that the Arbitrator reviewed the witness statements filed and evidence received on oath by way of cross-examination. Furthermore, that the Arbitrator applied his mind to the substance of the dispute as required under S.28 (4) of the ACA. It is the case of the Respondent that there is no evidence of misconduct or partiality. The question of partiality of Arbitrators was reviewed in detail in case of Total (Uganda) Ltd (supra) by Justice James Ogoola (as he then was). He reviewed most of the authorities on the subject (and I agree with them) so I shall not repeat them here save for the learned Judge’s findings. The learned Judge (at P. 419) states
The learned Judge also goes further to find that innocent mistake would not amount to partiality. I agree with this restatement of the law. In this case, no evidence has been brought as Justice Ogoola would have put it (P. 420) that the Arbitrator has acted with dishonest, bad faith, ill motive, fraud, collusion or corruption to bring it any where near the ambit of the traditional areas of misconduct.
An error or mistake in applying the law or legal principles without more can not amount to impartiality or misconduct and so, I do not uphold that sub ground.
The second sub ground is that the Arbitrator showed partiality by grounding his award by deciding it on the principle of waiver which was not an issue that was before him for determination.
It is the case for the Applicant that the Arbitrator found that the Applicant was not entitled to damages in the counterclaim because of the principle of waiver which was never raised no pleaded and no evidence was submitted on it.
Counsel for the Respondent in reply submitted that the Arbitrator rightly applied the principle of waiver because it arose from the agreement reached by the disputing parties on the 4th July, 2007 to reduce the scope of work on the project.
I have seen that the Arbitrator made an extensive finding of fact on this point. To my mind, the finding was extensive because ultimately it would provide the basis for rejecting the counterclaim. This was not in any way found in passing. I have already quoted from the learned author H. K. Saharay (supra) that such a finding in a proceeding such as this remains unassailable in the absence of misconduct. In this case, misconduct has not been proved. This sub ground cannot stand either. The last sub ground is that; Arbitrator awarded a relief not prayed for that is granting general damages for punitive purposes.
In this regard, the Arbitrator wrote
Counsel for the Applicant submitted that this was a wrong application of a legal principle and a grave error that goes to the root of the matter.
Counsel for the Respondent submitted that; it was the Arbitrator’s intention to grant general damages and that in any event, the claim before the Arbitrator contained a prayer for further alternative relief.
I must state that reason given by the Arbitrator for granting the general damages on the face of it is confusing even though that in itself does not amount to misconduct. The grant of general damages for punitive purposes as opposed to compensatory to my mind is an error of law on the face of the record. It would be unsafe to allow such a glaring error to remain on the record, and so, I set aside the award of Shs.100, 000,000= of general damages for punitive purposes.
The third last ground of summons relates to errors on the face of the record in support of the earlier grounds relating to the award not being in accordance with the Act and being tainted with impartiality. I have disposed of this ground while dealing with the award of general damages and find no further error on the face of the record.
All in all, the award raises some issues but which to my mind however are not strong enough to set aside the whole of it. Those portions relating to special damages of Shs.1, 272,700,857= and general damages of Shs.100,000, 000= are set aside. As this not an appeal, no figures are substituted for them. The rest of award remains intact.
As to costs, I award the Applicant one third of his taxed bill.
Ruling read and signed in open court in the presence of;
- E. Rukidi for Applicant h/b for Mr. Byaruhanga
- A. Byamugisha for Respondent h/b for Dr. Byamugisha
- MD of Respondent
- MD of Applicant
- Rose Emeru – Court Clerk.