Court name
Commercial Court of Uganda
Judgment date
25 June 2012

CPC Freight Services Ltd v Uganda Property Holdings Ltd (Miscellaneous Application-2012/10) [2012] UGCommC 65 (25 June 2012);

Cite this case
[2012] UGCommC 65

THE REPUBLIC OF UGANDA,

IN THE HIGH COURT OF UGANDA AT KAMPALA

(COMMERCIAL DIVISION)

IN THE MATTER OF THE ARBITRATION & CONCILIATION ACT AND RULES (CAP 4)

AND

IN THE MATTER OF CADER ARBITRATION NO 15 OF 2011

MISCELLANEOUS APPLICATION NO 10 OF 2012

(ARISING FROM CADER ARBITRATION NO 15/2011)

 

CPC FREIGHT SERVICES LTD}…......................................................... APPLICANT

VERSUS

UGANDA PROPERTY HOLDINGS LIMITED}…................................ RESPONDENTS

 

BEFORE HONOURABLE JUSTICE CHRISTOPHER MADRAMA

 

JUDGMENT

The Applicant filed this application under sections 28, 34 (1), (2), (a), (v), (vi) of the Arbitration and Conciliation Act cap 4 and rules 7 (1) and 13 of the Arbitration Rules for orders that the arbitration award of Solome L.M. Luwaga dated 13th of December 2011 be set aside and for costs of the application be provided for. The grounds of the application are that:

  1. The arbitrator/arbitral tribunal did not decide on the substance of the dispute according to considerations of justice and fairness in contravention of section 28 (4) of the Arbitration and Conciliation Act.
  2. The arbitrator/arbitral tribunal did not decide in accordance with the terms of the contract between the applicant and the respondent in contravention of section 28 (5) of the Arbitration and Conciliation Act.
  3. The arbitral award is not in accordance with the Act.
  4. There are errors in law and fact on the face of the record and the award is unjust and unfair.
  5. It is just and equitable that the arbitral award be set aside.

The application is supported by the affidavit of the managing director of the applicant Mr Anthony Okwenye which gives the grounds in support of the application and facts thereof. The affidavit in reply and opposition to the application is disposed to by the managing director of the respondent Mr Martin Kihembo. When the application came for hearing Mr Bernard Tibesigwa and Robert Ojambo appeared for the applicant while Winifred Niwagaba appeared for the respondent. Learned counsels agreed to file written submissions for and against the application.

The applicants written submissions is that in the year 2008 and following a bidding process the applicant was awarded a tender by the respondent to set up and manage a car port at the respondent's premises in Mombasa Kenya. The management contract was executed between the two parties on 19 January 2009. Under the contract the applicant was to pay Kenya shillings 5,227,450/= one month from the commencement of services which was the date of the handover of the car port. The commencement date of 1 June 2009 was agreed upon. Learned counsel submitted that the sum of Kenya shillings 5,227,450/= was based on projections of a minimum of 4000 vehicles a figure that was used by the respondent in the bidding process.

The applicant could not operate a car port in Kenya on the commencement date because it did not have a licence from the Kenya Revenue Authority. Secondly the applicant needed to be coded on the Kenya Revenue Authority system in order to operate. The applicant was given a licence by the Kenya Revenue Authority in November 2009 and was coded on the Kenya Revenue Authority system in February 2010. Due to pending legal action involving the Kenya Ports Authority, the applicant could not receive a licence until at least May 2011 when an injunction that had been filed against the Port Authority was lifted. The respondent was aware of the applicant’s problem regarding obtaining approval from the Kenya Ports Authority.

While awaiting approval from the Kenya Ports Authority, the applicant has begun handling a small number of vehicles. The respondent issued a notice to terminate the management contract and also filed a civil suit in the Commercial Court seeking damages for breach of contract. In response the applicant applied to refer the matter to an arbitrator. The applicant was dissatisfied with the arbitrator’s award and lodged this application seeking to set aside the arbitrators award.

Ground 1

Ground one is that “the arbitrator/arbitral tribunal did not decide on the substance of the dispute according to considerations of justice and fairness "in contravention of section 28 (4) of the Arbitration and Conciliation Act.

On ground one learned counsel submitted that the respondent and the applicant agreed that obtaining a licence from the Kenya Revenue Authority was a pre-requisite for performance of the contract. The arbitrator acted unjustly and unfairly when she decided that the applicant should pay with effect from June 2009 to November 2009 given the fact that the applicant was not granted a license until November 2009. This decision represented a breach of section 28 (4) of the Arbitration and Conciliation Act. That by contravening the above provision the arbitrators decision was also not in accordance with section 34 (2) (a) (vii) of the Act. Learned counsel submitted that the arbitrator should not have found the applicant liable for the period between November 2009 and February 2010 when the applicant was waiting to be coded into the Kenya Revenue Authority system.

 

The arbitrator made a decision without considering the further delay that was caused by the Kenya Ports Authority's inability to issue a service agreement until May 2011 which decision contravened sections 28 (4) and section 34 (2) (a) (vii) of the Arbitration and Conciliation Act.

 

Ground 2

Ground 2 is that the arbitrator/arbitral tribunal did not decide in accordance with the terms of the contract between the applicant and the respondent in contravention of section 28 of the Arbitration and Conciliation Act.

 

Learned counsel for the applicant submitted that it was not in breach of contract because of force majeure and frustration. The delay in licensing and according and the Kenya Ports Authority delay in providing approval were beyond the control of the applicant and prevented the applicant from legally moving forward with the contract. Counsel relied on Chitty on Contracts 1095 (27th edition); Davies Contractors Ltd versus Fareham UDC [1956] AC; Bank of Uganda versus Banco Arabe Espanol civil appeal number 23/2000. He submitted that the factors in the situation were not foreseeable and were beyond the applicant’s control.

 

Furthermore learned counsel submitted that the approval of the Kenya Revenue Authority and the Kenya Ports Authority where a pre-requisite for the performance of the contract given that the approvals did not come and the applicant was therefore not liable or in breach. The arbitrator found that the applicant failed to pay monthly rent and there was no force majeure in this case and as a consequence the applicant was in breach or liable to pay the respondent.

 

Under clause 13.1 and 13.3 of the contract, learned counsel submitted that the parties had identified potential force majeure situations. Because the arbitrator failed to take into account the above provisions she did not decide the dispute in accordance with the contract contrary to section 34 of the Arbitration and Conciliation Act and ought to be set aside.

 

Ground 4

There are errors in law and facts on the face of the record and the award is unjust and unfair.

Learned counsel submitted that where an arbitrator reaches a wrong conclusion on the facts and this conclusion forms the basis of an award then there is an error of law on the face of the record. He relied on Tersons Ltd versus Stevenage Development Corporation (1963) 3 ALL ER 863 at 871 per Upjohn L.J. Learned counsel submitted that the arbitrator held that the events relied on by the applicant in support of the plea of force majeure were expressly excluded by the contract and that according to the evidence the circumstances of frustration existed before the contract was signed. The arbitrator reached a wrong conclusion on the facts. None of the above facts were excluded in the contract but were actually envisaged under clause 13.1. Secondly there was no evidence to show that the circumstances of frustration existed before the contract was signed. Furthermore the delay in granting licence and coding by the Kenya Revenue Authority occurred after the signing of the contract. Additionally the injunction against the Kenya Ports Authority was issued after the signing of the contract.

 

Learned counsel submitted that case law establishes that failure to obtain a licence or authorisation in order to perform a contract amounts to frustration. The applicant took all reasonable steps to obtain licence, authorisation etc but failed to obtain the same. Learned counsel referred to the case of Karia and Company Ltd versus Dhanani (1969) EA 392 at 396. The applicant applied to Kenya Revenue Authority and also appealed to the Kenyan Minister of Finance along with the Ugandan Minister of Finance to expedite the process. To speed up things with the Kenya Ports Authority, the applicant appealed to the Ugandan Minister of Trade who travelled to Mombasa to assist with the process. By the time the service level agreement was ready to be signed Kenya Shipping Authorities had obtained an injunction referred to above. Before the injunction could be lifted the respondent terminated the contract.

 

Consequently the arbitrator did not act in accordance with the terms of the contract in contravention of section 28 (4) and 28 (5) of the Arbitration and Conciliation Act. Learned counsel prayed that the award issued on 13 December 2011 be set aside.

In reply the respondents Counsel submitted as follows:

In the year 2008 the applicant emerged as the best available bidder for management of the respondent's premises in Mombasa Kenya. The winning bid was for Kenyan shillings 5,227,450/= the contract was executed between the parties on 19 January 2009. The premises were handed over to the applicant immediately after this transaction. The contract was subsequently amended to change the date of commencement to 1st of June 2009. The commencement date of the contract was agreed upon on 13 August 2009. The reason for shifting the date of commencement was due to the applicant experiencing delays in obtaining a licence from the Kenya Revenue Authority.

 

When the applicant had paid management fees agreed upon for five months, the respondent decided to issue a notice to the contractor at which time the Applicant preferred arbitration proceedings. At the arbitration proceedings the respondent filed a counterclaim for unpaid management fees and was subsequently awarded Kenyan shillings 95,353,600/=. The applicant appealed against this award.

 

Learned counsel for the respondent submitted that the applicant never alluded to a licensing problem involving the Kenya Ports Authority during the original arbitration hearing. The applicant misuses the term "licence" when it should have been "service level agreement". Learned counsel submitted that the only licensing issue in this case concerns the Kenya Revenue Authority and not the Kenya Ports Authority.

 

Learned counsel for the respondent submitted that an application to set aside an arbitral award can only be based on the grounds stipulated under section 34 of the Arbitration and Conciliation Act. The applicant’s application relies only on one ground under the above provision to argue that the award was not in accordance with the Act. Secondly the applicants major contention is that the arbitrator did not consider the applicants two major concerns namely inability to obtain a licence from the Kenya Revenue Authority and a service level agreement from the Kenya Ports Authority. Learned counsel submitted that the arbitrator fully considered these facts and found that the facts were not sufficient to find that the award was not in accordance with the Arbitration and Conciliation Act.

 

Learned counsel further pointed out that the applicant’s submissions shows that it had abandoned ground 3 which had been incorporated into grounds 1 and 2.

Ground 1

learned counsel submitted that there was no misconduct on the part of the arbitrator amounting to bias as spelt out in section 34 (2) (a) (vii) of the Arbitration and Conciliation Act. Only gross misconduct can lead to the setting aside an award as held in Mehar Singh Brothers Ltd versus Rupera Investment Limited (1964) EA 324 and quoted with approval in civil appeal number 2 of 2008 NSSF and another versus ALCON International Ltd at pages 43 and 45. It was clear that the arbitrator discharged that duty fairly and impartially and did not breach the provisions of section 28 (4) of the Arbitration and Conciliation Act. Learned counsel contended that if the applicant's complaint was truly concerned with the conduct of the arbitrator, then the complaint must have been served on the arbitrator herself. The applicant’s failure to serve the complaint on the arbitrator is fatal and must result in the dismissal of the application to set aside the award.

 

As far as the grant of the licence by Kenya Revenue Authority in November 2009 is concerned, learned counsel submitted that it was proven that Kenya Revenue Authority agreed to licence the facility in question in June 2009 and the actual licensing of the facility was done on 24 July 2009. However the applicant did not pay the licensing fees until November 2009. Learned counsel contended that the applicant should not be allowed to raise the issue about the effective date of the contract as the addendum changing the date was agreed to after the applicant had obtained approval of its licence.

 

As far as the coding of the applicant by the Kenya Revenue Authority is concerned, learned counsel prayed that the court should acknowledge the issue surrounding the coding because the applicant has not sufficiently proven that the coding was superior to the licence. Secondly the applicant did not raise the issue of coding in its pleadings. Parties are bound by their pleadings and this new issue should be rejected. Thirdly if the coding was a significant issue for the applicant, it was an internal matter between the applicant and the Kenya Revenue Authority and cannot be relied upon to deny the respondents payment. Consequently the arbitrator's decision to reject the coding issue was not in contravention of either section 28 (4) or section 34 (2) (a) (vii) of the Arbitration and Conciliation Act.

 

As far as the operation of the applicant without a service level agreements concerned, learned counsel submitted that a service level agreement was not required to operate at the port. They are not required to even operate a business but only improve the operation of the said business. Even without a service level agreement from the Kenya Ports Authority the applicant was already conducting business. The injunction issued against the Kenya Ports Authority had no effect on the applicant’s situations as a service level agreement was not an integral part of the contract. Last but not least the applicant had constructive an actual notice of the requirements pertaining to the obtaining of a service level agreement at the time of execution of the contract.

 

Ground 2

As far as the delay in granting the applicant a licence from the Kenya Revenue Authority is concerned learned counsel for the respondent contended that the applicant was fully aware of what it needed to do in order to operate the car port. Secondly the applicant was in possession of the car port from 19th of January 2009 and had been on the point and become familiar with the legal requirements of its operation before that date.

As far as the delay in the coding of the applicant into the Kenya Revenue Authority system is concerned learned counsel for the respondent submitted that the applicant had not proven that the coding was in fact a superior requirement to licensing by the Kenya Revenue Authority. The applicant is deemed to have been aware of all the necessary requirements for the performance of the contract. Learned counsel submitted that the applicant was in business from January 2009 up to May 2009 and was absolved from making any payments during that period at which point it should have gained full knowledge of the procedural requirements of conducting business at the port.

 

Concerning the failure by the Kenya Ports Authority to authorise the applicant to operate at the port, learned counsel submitted that there is no evidence that Kenya Ports Authority requires a licence. The applicant was operating the facility and even paying royalties to the Kenya Ports Authority and the authority was aware of the operations of the facility and did not move to close it.  In addition learned counsel submitted that under article 13.4 and 13.5 of the contract, the applicant was required to notify the respondent in writing of force majeure events when they occurred.  Learned counsel prayed that the court should consider the overriding principle in matters of appeal against an arbitral award as established in the case of Rashid Moledina and company (Mombasa) LTD and others verses Hoima Ginners Limited (1967) EA 645 and is quoted by honourable justice Ogoola in high court arbitration appeal number 3 of 1998 Total Uganda Ltd. vs. Buramba.  The respondent also cited the case of General Agencies (UCLR), 1997 – 2001 where it was held that “there is no appeal, in the ordinary sense, from the award of an arbitrator…  The circumstances in which the court will intervene are the exceptions to that general rule” learned counsel further referred to the holding of Bingham J in Zermalt Holdings SA v Nu Life Upholstery Repair Ltd (1985) 275 Estates Gazette 1134 and also the case of Bhagwanji Raja v Swanan Singh (1962) EA at 298.

 

Ground 4

learned counsel for the respondent submitted that to constitute an error of law and error on the face of the record, there must be something radically wrong or viscously wrong in the proceedings as was held in the case of Mike and Others Versus Overseas International Fisheries Ltd and two others miscellaneous application number 605 of 2001 which was quoted with approval by the Court of Appeal in civil appeal number two of 2008 NSSF and another versus Alcon International Ltd (supra). Learned counsel submitted that if the applicant had actually possessed no awareness of the necessary steps to operate a successful business in the port, then the applicant may have misrepresented itself as having the required professional skills, personnel and technical resources the contract with the respondent. Learned counsel quoted the case of Karachi Gas Company Ltd versus Isaaq (1965) 1 EA 42 and the case of Norlo Sgio Kenya Ltd versus Alar Khia and others (1970) 1 EA 82 as persuasive authority for the assertion that a person who has failed to take reasonable steps to obtain necessary permits cannot complain of frustration of the contract. Learned counsel for the respondent further submitted that the applicant did not apply for the required licenses in time and did not pay the applicable fees in a timely fashion. On the basis of the above evidence learned counsel urged the court to dismiss the applicants appeal with costs.

 

I have perused the written submissions of counsels and the pleadings on record. I have also read through the written proceedings of the arbitral tribunal. Section 34 (1) of the Arbitration and Conciliation Act provides that 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) of section 34 of the Act. These provisions give specific grounds for setting aside an award and will be considered in due course.

 

Section 34 is consistent with the judicial precedents on the principles to be applied for setting aside arbitral awards.  These principles were summarised by honourable Justice James Ogoola in the case of Total (Uganda) Ltd vs. Buramba General Agencies (1997 – 2001) UCLR 412 where the learned Judge reviewed the following authorities: Rashid Moledina Co. (Mombasa) Ltd & Others vs. Hoima Ginners Ltd (1967) EA 645, Zermalt Holdings SA v Nu Life Upholstery Repair Ltd (1985) Estates Gazette 1134, Christopher Brown Ltd vs. Genossenschaft Oesterrichischer Waldbesitzer Holzwirtschaftbetriebe Registrierte GmbH [1954] 1 QB 8 and James Clarke (Brush Materials)Ltd vs. Carters (Merchants) Ltd [1944] 1 KB 566.) 

The reviewed authorities give the first guiding and overall principle that the parties by choosing their own tribunal are generally bound and must accept the award of the arbitral tribunal whether right or wrong.  This principle draws some substance from the doctrine of estoppels. The parties having agreed to have the dispute referred to an arbitrator and have also impliedly agreed to accept the decision of that arbitrator they chose to resolve their dispute.  Consequently exceptional grounds have to be proved for the setting aside of an arbitral award.  The element of estoppels and the requirement to prove exceptional grounds was held in the case of Tersons Ltd verses Stevenage Development Corporation [1963] 3 All ER 863 per  Upjohn LJ at page 869 paragraph F:

“It is clear and indeed elementary law that when parties voluntarily agree to submit their differences to an arbitrator, they agree to accept his decision in every respect, subject to very limited exceptions.”    

Secondly courts strive to uphold arbitral awards and restrain themselves from thoroughly scrutinising them for faults which effort may result in upsetting or frustrating the process of arbitration. 

Thirdly an arbitral award will be read in a reasonable and commercial way if no substantial fault can be found with it.

Where it is alleged that an award is erroneous or contains insufficient facts to enable the court to tell whether the arbitral tribunals conclusions were justified or not, the court will assume that justifying facts for the award exist.

The first ground argued for setting aside the award is that the arbitral tribunal did not decide the dispute in accordance considerations of justice and fairness in contravention of section 28 (4) of the Arbitration and Conciliation Act. The crux of the applicant's submission on this ground is that there are admitted facts between the parties which were disregarded. These are that the licence to operate the contractual service was granted in November 2009. The licence was a pre-requisite for the performance of the contract. It was a legal requirement for the performance of the contract to possess a licence from Kenya Revenue Authority. The complaint of the applicant is that the arbitrator awarded management fees to the respondent for the period June to November 2009 when the applicant had no licence. Secondly the applicant even with a licence could not legally operate until it was coded into the Kenya Revenue Authority system by the authority. The evidence is that the applicant was coded in February 2010. Thirdly the applicant could not legally operate in Kenya without authority of Kenya Ports Authority. Before a service level agreement could be granted an injunction was issued against Kenya Ports Authority restraining it from signing service level agreements. Consequently the applicants counsel contended that the arbitrator was unfair and unjust to condemn the applicant to pay for the period June to November 2009 when the applicant could not legally operate at the port contrary to section 28 (4) of the Arbitration and Conciliation Act. He asserts that the award violates section 34 (2) (a) (vii) of the Arbitration and Conciliation Act which permits the High Court to set aside the arbitral award for not being in accord with the Arbitration and Conciliation Act.

The respondent on the other hand submitted that that the applicant could be complaining about the absence of a fair hearing in arguing ground 1. Learned Counsel submitted that the arbitrator had given both parties time to present their case and she was even more magnanimous to the applicant. Secondly because there was no misconduct on the part of the arbitrator so as to allege partiality on her part, the invocation of section 28 (4) of the Act by the Applicant’s counsel was misplaced and far-fetched.

The submissions of learned counsels require an interpretation of section 28 of the Act to establish whether it applies to procedural or substantive law. Section 28 of the Arbitration and Conciliation Act provides for rules of law applicable to the substance of a dispute. The applicant relied on subsection 4 of section 28 which reads as follows:

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

The head note to the cited section gives the general intention of the enactment of the section by providing for: "Rules applicable to substance of the dispute." This is a strong pointer that section 28 is concerned with rules of law applicable to the substance of a dispute and not procedural rules. Procedural rules governing the arbitration are taken care of by sections 18 and 19 of the Arbitration and Conciliation Act.  The considerations of justice and fairness referred to can only be determined within the context of section 28 (4). Considerations of justice and fairness are not easy to define in any exhaustive manner. Whereas it may incorporate procedural justice in other contexts, it is confined to the substance of the dispute and not rules of procedure under section 28 (4). Consequently I do not agree with the respondent that the submissions of the applicants counsel are misplaced or far-fetched on the basis of the arbitral tribunal having given opportunity to be heard to both parties. The opportunity to be heard is a procedural requirement that is dealt with under sections 18 and 19 of the Arbitration and Conciliation Act. Section 28 (4) of the Arbitration and Conciliation Act is much wider and more diverse in that it makes reference to the rules of law and provides that the arbitral tribunal shall not be bound by the rules of law except if the parties have expressly authorised it to be so bound. What are the rules of law? Considerations of justice and fairness must necessarily incorporate notions of justice and fairness that may be found in the particular trade or business where the dispute arose. A reading of the words “rules of law” in section 28 (4) strongly suggest that it applies only to substantive law. This is because the arbitrator may apply the law to the substance of the dispute. Secondly, not being bound by the rules of law refers to laws applicable to the substance of the dispute such as the laws of Uganda.  Finally section 28 (4) more than any other statutory provision underscores the principle that failure to apply rules of law by itself may not be a ground for setting aside an arbitral award.  

Case law reviewed is that it is within the discretion of the arbitrator not to abide by the rules of procedure. This suggests that the arbitral tribunal is bound by the rules of law, a position varied by section 28 (4) of the Ugandan Act. In the case of Tehno-Impex v Gebr van Weelde Scheepvartkantoor BV [1981] 2 All ER 669 at page 682 Oliver L.J. Court of Appeal said:

“The arbitrator’s power to award interest is no greater than the power of the court or, to put it another way, that the power is a matter of substantive law and not merely a rule of practice which the arbitrator can disregard at his discretion.”

In Uganda the arbitrator’s power must be considered in the context of the Act which gives the fundamental rules of procedure in arbitration proceedings. Section 18 provides for the equal treatment of parties and a reasonable opportunity for the presentation of his or her case.

The submission of the respondent on fair hearing could have been made under section 18 which deals with opportunity to be heard and incorporates principles of fundamental justice such as fair hearing. Secondly section 19 provides for the determination of the rules of procedure in the conduct of the arbitration proceedings. The parties are free to agree on the rules of procedure that the arbitral tribunal may follow. Where there is no agreement the arbitral tribunal may subject to the provisions of the Arbitration and Conciliation Act conduct the arbitration in a manner it considers appropriate. Section 19 also provides that the arbitral tribunal may determine the admissibility, relevance and materiality and weight of any evidence. Therefore in the context of the Act, section 28 (4) of the Arbitration and Conciliation Act only deals with the rules applicable to the substance of the dispute and not with rules of procedure at all. Section 19 on the other hand specifically deals with the rules of procedure.

Furthermore, when put in its proper context subsection 4 of section 28 is preceded by subsection 3 which provides that the arbitral tribunal shall apply the rules of law it considers to be appropriate given all the circumstances of the dispute. Subsection 2 of section 28 makes provision for the choice of law or the legal system to be applied. The rules of law specifically mentioned in section 28 (1) mean the rules of law chosen by the parties as applicable to the substance of the dispute. Last but not least where the contract spells out the rules of law applicable, the arbitral tribunal shall decide the dispute in accordance with the terms of the particular contract which incorporates the applicable law. The arbitral tribunal also takes into account the usages of the trade applicable to the particular transaction under section 28 (5) of the Arbitration and Conciliation Act.  Choice of law is catered for in the contract containing the arbitration clause.  In this particular case the special conditions of contract GCC 5.1 provides that the contract shall be governed by the laws of Uganda. 

Finally, section 28 (4) incorporates the legal doctrine expounded in the case law that the arbitral tribunal is not bound by legal doctrine provided the substance of the dispute is decided according to the considerations of justice and fairness. Such considerations include commercial prudence or commercial sense.  The court must look beyond the law to establish whether the award was in accord with considerations of justice and fairness. The principle that the arbitral tribunal may be right or wrong as far as legal doctrine is concerned cannot stop the court from considering whether there was justice and fairness in the award.  In the submissions in rejoinder learned counsel for the applicant expressly indicated that they were not complaining about fair hearing or misconduct of the arbitrator.  I agree.  The question of gross misconduct and fair hearing does not arise and the respondent’s submissions are misplaced.

Frustration of the contract

Learned counsel for the applicant maintained that the arbitral tribunal erred on the evidence not to find that it proves frustration of the contract. A lot of the other grounds hinge on whether the doctrine of frustration brought the contract to an end. In considering the ground the remaining grounds may also be partially resolved.  For instance considerations of justice require that the award must be in accordance with the Arbitration and Conciliation Act.  Secondly whether there is compliance with sections 18 and 19 of the Act can form the basis of setting aside an award for non compliance with the Act.  A concept of justice incorporates application of law in the resolution of dispute.  Consequently, some of the other grounds such as errors in law and facts on the face of the record and that the award is unjust and unfair or whether the award is not in accordance with the Act or whether it is just and equitable that the arbitral award be set aside are necessarily incorporated in the first and second grounds of the application. 

Determination of ground 1 would partially determine the rest of the grounds in the application and I will consider it at length. Secondly, the legal doctrine of frustration has peculiar ramifications in the conduct of the proceedings relevant to considerations of when the frustrating event is alleged to have taken place. This is based on the legal doctrine that frustration extinguishes the contractual obligations of the parties. These ramifications have not been addressed in the submissions of both parties. The first aspect is the impact of frustration on clauses in the contract particularly the arbitration clause. Frustration of the contract impacts on the jurisdiction of the arbitral tribunal. Secondly, the question should have been whether the performance of the contract had been frustrated for a specified period and not as a whole. The choice in arguing frustration as above would have influenced how the entire proceedings could have been conducted. It would have influenced the arguments of counsel. I will demonstrate the ramifications of the doctrine in trying to resolve the question as to whether the arbitral tribunal erred in law in finding that the factors submitted on did not fulfil the ingredients of frustrating events which would have terminated the contract.

According to Halsbury's Laws of England 4th edition reissue 1987 – 97 volume 9 (1) paragraph 909 at common law frustration does not rescind a contract ab initio. Instead and upon frustration the contract is discharged as to the future, releasing both parties from further performance. It is brought to an end automatically without any act or election of the parties by the intervening event.

"Given that both parties to the contract are discharged in respect of future performance, an arbitration clause may remain in force to govern matters up to the date of frustration or the issues arising from frustration itself."

The provision goes to show that the time of frustration, the possibility of partial frustration and the effect of both frustration at common law and under statute are very relevant. The time of the frustrating event is relevant to determine whether there was partial frustration or complete frustration of the entire contract. This would affect the jurisdiction of the arbitral tribunal in terms of what it can resolve in the arbitral proceedings.  The submissions of counsels for both parties are on the point that the entire contract was frustrated.  If the entire contract was frustrated, when did the frustrating intervening factor occur?  In paragraph 910 Halsbury's laws of England fourth edition (supra) it is provided that the time of frustration is relevant:

"Time of frustration. As a general rule, the contract will be automatically discharged by frustration at the time of the frustrating event, since the doctrine does not depend on any act or election by the parties."

Last but not least the ramification of the doctrine of frustration is that an arbitrator does not have jurisdiction to make a binding award on a reference of a dispute whether there has ever been a binding contract between the parties. According to Halsbury's laws of England (supra) paragraph 612 whether a contract has been repudiated or frustrated falls within the scope of an arbitration clause which has been suitably drafted. However in certain circumstances frustration does away with the arbitration clause as well and therefore the jurisdiction of the arbitral tribunal. Before I consider the evidence and findings of the arbitral tribunal I need to refer to the locus classicus on the jurisdiction of an arbitral tribunal in the event of frustration of a contract.  The doctrine on frustration and arbitration clauses was enunciated by Lord Sumner in the case of Hirji Mulji and others vs. Cheong Yue Steamship Company Limited [1926] AC 497 at page 505 second paragraph thereof where he said:

“All these arguments, it will be seen, resolve themselves, on examination, into the fundamental inquiry, whether in law and fact frustration had been brought about before any dispute arose with regard to frustration or its cause or its consequences.  The arbitration clause is but part of the contract and, unless it is couched in such terms as will except it out of the results, which follow from frustration, generally, it will come to an end too. This must be so, if the law is, that the legal effect of frustration is the immediate termination of the contract as to all matters and disputes which have not already arisen.”

The doctrine advances the view that frustration is relevant to what occurs after the frustrating event has taken place and not before.  Therefore in the applicant’s case the question should have been when the frustrating event took place. This doctrine is further considered in detail in the case of Heymans and Another vs. Darwin Limited [1942] 1 ALL ER 337. The relevant issue was succinctly stated by Lord Porter at page 356 as the “somewhat difficult question whether an arbitration clause in a contract continues to be effective, though the contract itself has been broken in a matter going to its root or has otherwise been terminated”. On this question Lord Macmillan found at page 348 that the previous case of Hirji Mulji decided by the Privy Council was that:

“Where a contract had been frustrated before performance had begun, in consequence of a government requisition, the contract had terminated as to all matters and disputes which had not already arisen and the arbitration clause had ceased to be operative”.

His Lordship chose not to add any further to the above proposition of law though he suggested that other considerations would apply.  So the question is, was the contract frustrated before performance had begun in the applicant’s case?  Furthermore, Lord Wright on the same question said at pages 352 – 353  

“Frustration, if it occurs, no doubt puts an end to the contract for the future as much as does rescission after repudiation or any other whole breach, though in that case there is a claim for damages for the breach, while in respect of frustration there is no claim for damages. The dispute in all such cases where frustration is alleged is whether there has been frustration at all, and such a dispute would seem logically to arise “under the contract”, and to fall within the submission just as much as if the words had been “arising out of it.”

With some qualifications what is implicit in the judgments quoted above is that the question when it is alleged that the contract has been frustrated does fall within the submission under the contract to arbitration and the resolution of the question determines whether arbitration clause has been extinguished by the frustrating event thereby affecting further jurisdiction of the arbitral tribunal. Jurisdiction only extends up to the point where the alleged frustrating event took effect to terminate the contract.

This is the problem with the submissions on the question of frustration before the arbitral tribunal. If the frustrating event took place as an omission to issue a licence or service level agreement the fact that they were subsequently issued implies that the contract was not thereby frustrated entirely on the basis of the license only. It could still be performed. The second problem with the submissions is that the contract was signed when there was no licence or execution of a service level agreement. These permits were sought for and obtained subsequent to the execution of the contract. The only remaining element is whether there was frustration temporarily. According to Treitel on Law of Contract Twelfth Edition at page 931 a contract may be frustrated if its subject matter or a thing or person essential for the purpose of its performance, though not ceasing to exist or suffering permanent incapacity, becomes unavailable for that purpose.  At page 932 paragraphs 19 – 017 is provided as follows:

“A person or thing essential for performance may as a result of the supervening event, be unavailable at the time fixed for performance, but become available later.  Such temporary unavailability will most obviously frustrate the contract where it is clear from the terms or nature of the contract that it was to be performed only at, or within, a specified time, and that the time of performance was of essence of the contract.”

Therefore the second aspect of the dispute was whether time was of essence.  As far as the evidence is concerned learned counsel for the respondent submitted that the applicant was licensed on 24 July 2009 but only paid for the licence in November 2009. By agreement the parties shifted the effective date of commencement of the contract to 1 June 2009. The applicant had full knowledge of the prevailing circumstances and is estopped from complaining about the effective date which was reached at by both parties after acquiring authority from the Kenya Revenue Authority licensing the facility. The effective date of the commencement was agreed to in a meeting held on 13 August 2009 to shift the date to 1 June 2009. Learned counsel concluded that the arbitrator did not act unfairly to make an award for the payment of fees effective from 1 June 2009. The contract between the parties is annexure "C" to the affidavit in support of the application. The contract was executed on 19 January 2009. The underlying question is whether it is just and fair in the circumstances of the case to award management fees for the period between 1 June 2009 and November 2009. The claimant's contention being that it was unable to carry out any services during the relevant period. In other words the provision for services was frustrated.

The agreed relevant facts are contained in the joint scheduling memorandum signed by both parties on 6 September 2011 and the facts are as follows:

  1. That the respondent is the registered owner of the premises situated at Mombasa land comprised in plot 2448 Makupa Causeway Mombasa.
  2. Sometime in 2008, the respondent invited interested bidders to bid for provision of management services for inland car port at the said premises.
  3. That the claimant submitted a bid prize of Kenya shillings 5,229,450/=.
  4. That the claimant was on the 15th day of July 2008 awarded the tender to manage the said car port.
  5. That the contract between the claimant and the respondent to manage the said car port was signed on the 19th day of January 2009.
  6. That by the addendum dated August 2009, it was agreed that the contract was to commence on June 2009.
  7. That the claimant has made a total payment to the respondent of Kenya shillings 26,487,250/=.
  8. That obtaining a performance licence from K.R.A was a prerequisite to the performance of the contract between the claimant and the respondent.
  9. That the claimant applied for a licence in 2008 to K.R. O to operate an inland car port.
  10. That the said application was rejected by K.R.A but subsequently granted in November 2009 by the same.
  11. K.P.A recently communicated its willingness to sign a service level agreement with the claimant and the same was brought to the attention of the respondent.
  12. On 16 February 2011 the respondent issued a notice to terminate the contract.
  13. That on 15 March 2011, the respondent responded denying liability and gave notice of arbitration.
  14. That the claimant proposed an arbitrator but the respondent denied culminating into an application of an arbitrator.
  15. That and arbitrator was subsequently appointed by CADER.

The agreed issues before the tribunal were:

  1. Whether the claimant breached the contract by failure to pay management fees.
  2. Whether the respondent’s termination of the contract between the claimant and the respondent is valid and or lawful.
  3. Remedies available to the parties (if any).

The first ground of the application is an offspring of the first issue of whether the claimant breached the contract by failure to pay management fees. It is the award of management fees for a particular period that founds the grievance of the claimant in this application. As far as the contention that the arbitrator did not decide on the substance of the dispute in contravention of section 28 (4) of the Arbitration and Conciliation Act, the arbitrators ruling indicates that she considered the reasons for the delays in question and gave due consideration to the submissions of both parties and the evidence on record. She gave her decision on the applicant's argument on whether there was force majeure or frustration of the contract. The arbitrator referred to several definitions of frustration of contract and held that she failed to find any events synonymous with the events that are alleged to have made it impossible to perform the contract by the applicant. She noted that the events/circumstances which purportedly caused frustration existed before the contract was signed and were therefore not within the ambit of the doctrine. She noted that the performance of the contract was not rendered impossible. She also found that inconvenience or hardship or financial loss or delay were not sufficient to frustrate the contract. In arriving at her decision she was guided by the case law and legal doctrine in textbooks. Can it be said that she erred in law?

The question that had been framed by the applicant was that she did not apply considerations of justice and fairness on the basis of the evidence. The arbitral tribunal was fully aware of the facts when she held that the facts and circumstances of the case did not amount to events falling within the doctrine of frustration. Particularly by the time the commencement date was shifted to 1 June 2009 the prevailing circumstances relied on by the applicant were within the knowledge of both parties. The evidence is that the commencement date was shifted to a future date on 13 August 2009 from a previous date before 1 June 2009. By that time, if the argument of the applicant is to be taken as the basis of the facts asserted in support of it, the applicant had not yet been licensed.

For purposes of argument and based on the agreed facts the licence in question was issued in November 2009. This means that by 13 August 2009 there was no licence. The addendum annexure "E" is dated 13th of August 2009. It reads as follows:

"Following negotiation meeting held between UPHL and CPC Freight Services Ltd on 10 August 2009 at UPHL board room, it is hereby agreed that the start date for the contract for provision of management services between Messrs Uganda property Holdings limited and Messrs CPC Freight Services Ltd for inland car Port located on plot 2448 Makupa Causeway is 1 June 2009."

The commencement of services is provided for by clause 8.1 of the contract between the parties. Clause 8.1 provides as follows:

"8.1     The CPC Freight Services Ltd shall commence the services on the date of handover of the car Port."

It is not in dispute that the car port was handed over to the applicant and this explains the need to change the commencement date of the services which otherwise commenced on the date of handover of the car Port. The significance of the commencement date agreed on 13 August 2009 is that the period between 1 June 2009 and 13 August 2009 cannot be included under the doctrine of frustration on the basis of permits or licences because as submitted by the applicants counsel, the license was only issued in November 2009. By the time they agreed on the commencement date to be effective from 1 June 2009, both parties were aware that there were no permits or licences as alleged in the agreed facts quoted above. Secondly agreed fact number 7 is that the applicant paid Kenya shillings 26,487,250/=. It cannot therefore be asserted that the failure to obtain the licence after 13 August 2009 would affect the period between 1 June 2009 and 13th of August 2009 when the parties consciously and being aware that there were no permits or licences decided to set the commencement date of the contract on 1 June 2009. If the doctrine of frustration or force majeure is to be considered at all, then it must be confined to the period after 13 August 2009.  Even then it cannot be reasonably applied to the period immediately after the 13th of August, 2009 on the reasonable assumption that efforts were still being made to obtain the necessary permits.  Secondly, there was payment under the payment terms in the contract.

Clause 20.1 provides that the contract sum shall be payable per month. It follows that payment became due at the end of the first month from the commencement date which is the end of June 2009. It was therefore crucial for the applicant to prove that there was force majeure or frustration in a particular period. Learned counsel submitted at length on the wording of clause 13.2 which deals with force majeure. The wording of clause 13.2 (b) excludes any event which a diligent party could reasonably have been expected to both take into account from the effective date of the contract; and avoid or overcome in the carrying out of its obligations.  Presumably obtaining a licence or permits to carry out these services must have been in the contemplation of the parties. The question is whether the applicant took into account the requirements to obtain a licence when it executed an addendum to the contract in which the date of commencement of the contract was shifted to 1 June 2009 on 13 August 2009. The issue of the licence was within the knowledge of both parties at the time they signed the addendum. Learned counsel for the respondent prayed that the court finds that the applicant is barred by the doctrine of estoppels from raising the issue of licences or service level agreement as frustrating events.

The question is whether the arbitral tribunal misdirected itself on this issue of permits or licences. It is particularly clear that the arbitral tribunal took into account the knowledge of the applicant at the time it executed an addendum to the contract shifting the date of commencement of the contract to the 1 June 2009. Secondly the arbitral tribunal did not misdirect itself on questions of evidence as suggested by the applicant's counsel in submitting on the first issue.  The bone of contention of the applicants counsel is that the failure to obtain a licence could not have been in contemplation of the parties at the time they signed the relevant agreements.  Consequently learned counsel for the applicant submitted that the arbitral tribunal did not properly evaluate the evidence on this issue.  To challenge the award on the ground of failure to take into account evidence is not tenable because the arbitral tribunal ruled on the basis of the materials before it and its conclusions were directed by perception of legal doctrine that is contained in the decision and not misdirection on evidence.  The understanding of evidence was that the parties knew that licenses were necessary at the time of execution of the agreements.  This conclusion did not mean that the arbitral tribunal ruled that the applicant ought to have known that those licences would not be obtained from the authorities at the time of signing of the two agreements.

Evidence on record is that the contract defines the term "services" to mean "the professional specialised services to be performed by the CPC Freight Services Ltd as described in the contract". It further defines a time based contract to mean a contract under which the services are provided on time fixed rates and payments are made on the basis of time actually spent. The scope of the services is provided for under Part IV Appendices to the Contract. It provides that “CPC Freight Services Ltd will handle administrative and technical supervision of inland car port and ensure UPHL gets value for money at the lowest cost to customers provided the services is viable and properties remain in good conditions. In particular CPC Freight Services Ltd will do the following:

  1. To promote market and develop the business of the inland car port by attracting more users thus increasing revenue.
  2. To supervise and manage all operational activities of the car port. This includes directing, supervising and managing all operational activities of the car port in terms of ensuring customers pay promptly, property is well maintained and vehicles for customers are well secured.
  3. To ensure the safety and protection of all inland car port assets including properties and records.
  4. To ensure compliance with company and a statutory laws and directives/guidelines.
  5. Collect and bank all revenue from operation of the inland car port. This should be done on a designated account.
  6. Play a customer service function.
  7. Data collection, analysis and reporting.
  8. Security and Insurance of all equipment entering and in custody within the port.
  9. Security and Insurance services.
  10. Marketing
  11. Documentation
  12. Security and Insurance
  13. Computer Software ..."

Appendix "B" provides that the guaranteed monthly net revenue payable to UPHL is 5,297,450/=. The arbitral tribunal considered two aspects of legal doctrine. The first is frustration and the second is force majeure. As far as frustration is concerned the arbitral tribunal considered whether the delay in obtaining a licence from KRA and the signing of the service level agreement by KPA are frustrating events so as to discharge the parties from the contract. That frustration is solely concerned with events which occur after the date of formation of the contract. That the circumstances alleged to cause frustration existed before the contract was signed and were therefore not within the ambit of the doctrine. She found no evidence showing that the circumstances had altered or that the claimant made any effort to get the service level agreement signed. Secondly that it had not been shown that the absence of the service level agreement had rendered it impossible for the claimant to operate the car port. She followed the test for frustration formulated by the House of Lords in Davis Contractors Ltd versus Fareham UDC [1956] AC. She found that the matter before the tribunal did not prove frustration. She found that the evidence established that the level of performance of the claimant was affected by failure of the Kenya Ports Authority to sign a service level agreement.  She established as a fact that the claimant witness testified that they carried out a field study in Mombasa to acquaint themselves of the situation upon which they found that it was necessary to get a licence from Kenya Revenue Authority. They also established that they needed authority from the Kenya Ports Authority to operate an inland car port.  The claimant was advised of the award of the contract on the 15th of July, 2008 following which they paid a commitment fee and proceeded to apply for a licence in August 2008. The contract was signed on the 19th of January, 2009 after applying for the licence.  The claimant had an obligation to acquire the licence and fulfil other requirements.  The tribunal also found that obtaining a licence was a condition precedent to the fulfilment of the contract because they could not start operating without a licence.  She found that the performance of the contract was not rendered impossible and that mere inconvenience or hardship, or financial loss or delay which is within the commercial risk undertaken by the parties is not sufficient to frustrate a contract.  The doctrine of frustration only applies when circumstances arise that are not in the contemplation of the parties at the time the contract was being made or events that subsequently arise as to make the performance of the contract impossible.  Courts do not permit a party to appeal to the doctrine of frustration to escape from what is proved to be a bad bargain.  Secondly frustration should not be lightly invoked to relieve contracting parties of the normal consequences of imprudent commercial bargains.  Thirdly the arbitral tribunal held that force majeure clauses and hardship and intervener clauses are inserted into commercial contracts to reduce the practical significance of the doctrine of frustration. 

As far as force majeure is concerned the arbitral tribunal found that there was no event synonymous with events that are alleged to have made it impossible to perform the contract. She held that the events relied on by the claimant to plead force majeure were events that were expressly excluded from the force majeure clause. Secondly they were events which any diligent party ought to reasonably have taken into account at the time of preparing their bid and not after signing the contract. A force majeure or cause must not be brought about by the defaulting party and it must be inevitable and unforeseeable and must make the execution of the contract wholly impossible. Furthermore she held that the alleged cause or matter cannot be described as inevitable or unforeseeable since the claimant was aware of them according to the evidence of their sole witness. The claimant commenced business in March 2010 and continues to conduct business up to date.

Licence was obtained in February 2010 and the service level agreement was not signed and is the frustrating event which made the claimant unable to pay management fees. Last but not least the arbitral tribunal found that the claimant had an option under clause 8.2 to give notice declaring the contract null and void when they failed to commence services within three months from the commencement date. Consequently she found that force majeure or frustration could not be invoked to discharge the claimant from its contractual liability.

I have duly considered the submissions of learned counsel for the respondent that I should find that the applicant is barred by the doctrine of estoppels from relying on frustration or force majeure to terminate the contractual obligations of the parties. The evidence is that on 13 August 2009 the parties executed an addendum to the contract. What is peculiar about this addendum is that they backdated the date of commencement of the contract in that they provided for 1 June 2009. Much as this date was brought forward from an earlier date in January 2009, by the time it was put for 1 June 2009, it was already August 2009 about one and a half months later. The question is, if the prevailing circumstances were not conducive to the performance of the contract, why would the applicant agree to a date of commencement prior to the date of the addendum? The parties if they did not want to implement the provisions in the contract for monthly payment of management fees ought to have provided for a later or future date for implementation or bring into effect the payment clause. This conclusion is based on the wording of the provisions for payment of the service fee. Turning back to appendix "B" is very clear that there was a guaranteed monthly net revenue payment to UPBL. A guaranteed net revenue payment would not depend on the volume of business. In those circumstances it is deemed to accrue from the date of commencement of the contract. Consequently, by agreeing to fix the date of commencement on 1 June 2009 before obtaining the necessary permits to operate the business, the applicant agreed to pay the contractual net monthly revenue payment to the respondent with effect from the 30 June 2009. The applicant paid Kenya shillings 26,487,250/=. For which period was this? For emphasis this was before the applicant had obtained a licence or indeed signed a service level agreement with the Kenya Ports Authority. The evidence on record shows that the claimant's Mr. Anthony Okwenye agreed when he stated at page 18 of the record of proceedings before the tribunal:

"We visited Mombasa and established what was required. We found it was necessary to get a licence from Kenya Revenue Authority (KRA) and we also learnt that were needed authority from Kenya Ports Authority (K PA)to operate and inland car port. It is supposed to be an extension of the port. We did not anticipate any difficulties at all in obtaining the licences.…"

This visit was made before the claimant put in their bid for the contract. They signed the agreement on 19 January 2009 after the visit/survey and started recruiting senior staff. They also started following up the issue of licences and then obstacles emerged. It is after the obstacles were seemingly surmounted that the parties to the contract shifted the effective date of commencement of the contract to 1 June 2009. The witness indicated that they could not start operating because they were not on the KRA system. Kenya Revenue Authority did not have staff to deploy as it was a custom controlled area.  The applicant took a calculated risk to set a prior date of commencement of the contract. The word commencement by necessary implication means the effective date of implementation of the contract. Consequently the clauses for payment particularly clause for monthly payment became effective on the agreed date of commencement.  I agree with the tribunal that the applicant made a bad bargain.  This can be seen from the clauses of the contract which spells out the scope of the service provided by the applicant.  Appendix 4 item 5 provides that the applicant was to “collect and bank all revenue from operations of the inland car port.  This should be done on a designated account.” Presumably the service fee which was charged for the services would be obtained from the collection of revenue and therefore would come out of the volume of business.  If this line is followed, it could have been concluded that the applicant was not collecting any revenue without licensed operations of the inland car port.  However, by taking over the premises and undertaking to carry out the services and also to provide a monthly fee, the applicant assumed the risk of the business.  In fact the applicant knew that it could not collect fees or revenue without a licence or permit.  Notwithstanding that knowledge the applicant set the date of commencement to a date prior to the obtaining of any licences or permits possibly on the assumption that the licence would be obtained sooner. This was risky.

In those circumstances, the length of delay in obtaining a licence would not amount to frustration but a bad bargain.  After all the licence was obtained in November 2009 if the facts are as agreed.  The overall conclusion is that ground one of the application and the contention of the applicant that the arbitrator/arbitral tribunal did not decide on the substance of the dispute according to considerations of justice and fairness in contravention of section 28 (4) of the Arbitration and Conciliation Act is not supported by the findings of the arbitral tribunal or the evidence.  Moreover it must be assumed that the arbitral tribunal took into account all the relevant circumstances some of which could be the following: that the applicant was aware of the need to obtain the permits and licences in question by the time it executed a contract to carry out services spelt out in the contract.  The respondent handed over the premises to the applicant.  The respondent had advertised for services and chose the person they thought to be the best for the provision of the management services tendered for. The services were never provided.  The commencement date of the contract was shifted from January to 2009 to June, 2009.  All this time the respondent was not earning any monthly revenue for the tendered services.  The burden was on the applicant to obtain the necessary permits for carrying out the services.  Among the duties of the applicant in appendix 4 is found in item 4 which stipulates that the applicant is to ensure compliance with company and statutory laws and board directives/guidelines.  This is also contained in clause 27 which provides for the obligations of the applicant.  Clause 27.1 provides that the applicant shall perform the services under the contract with due care, efficiency and diligence, in accordance with the best professional practices.  Article 27.3 provides that the applicant shall respect and abide by all laws and regulations in force and shall ensure obedience to such laws and regulations by its staff.  The payment terms under article 20.1 provides that the applicant shall pay the monthly sums one month in advance.  Furthermore article 14.1 (g) gives one of the grounds for termination of the contract by the respondent, the failure of the applicant to pay within 15 days when the amounts fall due.  At page 4 of the record of proceedings item number 7 of the agreed facts is that the claimant has so far paid a total of Kenya shillings 26,487,250/=.  This payment could have only catered for the period starting from the commencement date of the contract which is the 1st of June, 2009.  The amount represents five months payment at the rate of Uganda shillings 5,297,450/= per month as catered for in clause 20.1 of the contract.  If the commencement date is the commencement of performance under the contract, it follows that the amount paid represents payment up to November 2009 which payment is to be made one month in advance under the contract.  Payment was made without the applicant having obtained the necessary permits or licences to operate the business.  Clause 16.1 provides that for the first year of the contract payment shall be made in accordance with the terms of the agreement.  The agreement did not peg payment to the collection of revenue or the volume of business. This is being implied by the applicant. 

Finally the arbitral tribunal was not bound by the rules of law under section 28 of the Arbitration and Conciliation Act.  In the premises ground one of the application to set aside the arbitral award fails.

Ground 2 

Ground two of the application is that the arbitrator/arbitral tribunal did not decide in accordance with the terms of the contract between the applicant and the respondent in contravention of section 28 (5) of the Arbitration and Conciliation Act.  I have already demonstrated above that the arbitral tribunal decided the dispute in accordance with considerations of justice and fairness.

Again the gist of the submissions of the applicant is that the applicant was prevented through no fault of its own from operating at the port and performing the contract as envisaged and was consequently unable to pay the agreed monthly sum.  Learned counsel for the applicant relied on the same factors it relied on to submit that the contract had been frustrated.  The attack on the arbitrator’s award is failure to consider the inability to obtain a licence from the Kenya Ports Authority as force majeure.  In finding that clause 13 of the contract could not be invoked the arbitrator did not decide the dispute in accordance with the contract of the parties.  Learned counsel submitted that the delay by Kenya Revenue Authority to issue a licence to operate at the port was beyond the control of the applicant and there was no evidence to the contrary.  Secondly the delay by Kenya revenue authority to code the applicant into its system was beyond the control of the applicant and there was no evidence to the contrary.  Thirdly the delay and failure by the Kenya Ports Authority was beyond the control of the applicant and there was no evidence to the contrary.  Fourthly the applicant could not operate illegally without the licence from Kenya Revenue Authority and authorisation from the Kenya Ports Authority.  Learned counsel for the respondent did not effectively dispute questions of fact about the failure to obtain the necessary permits or authorizations/licences by the applicant.  He submitted that if there were any force majeure factors, the applicant was required to notify the respondent of the occurrence of such an event and under article 7 of the contract the notification had to be in writing.  Learned counsel for the respondent reiterated his submissions on the question of frustration of the contract in ground one of the application.

The arbitral tribunal also found that as far as force majeure is concerned, the applicant did not notify the respondent of the force majeure factor or event to benefit from the clause absolving the parties from their obligations under the contract.  The requirement for notice is catered for under clause 13.5 of the contract and gives the period of notification as not later than 14 days following the occurrence of such event and the provision of evidence of the nature and cause of such an event.  In other words, the failure to obtain the necessary permits had to be notified to the respondent as an event that frustrated the contract or that frustrated the obligations of the applicant to pay management fees.  In those circumstances the arbitral tribunal came to the correct decision as directed by the contract of the parties.  It cannot be said in those circumstances that the arbitral tribunal did not decide the dispute in accordance with the contract by disallowing the claim that the contract was frustrated by force majeure under clause 13 of the agreement between the parties.  Ground two of the application also fails.

Ground 3of the application was not submitted on by both parties.  It is to the effect that the arbitral award is not in accordance with the Act.  In their submissions on grounds one and two it is apparent that the ground three had also been addressed.

Ground 4 is there are errors in law and facts on the face of the record and the award is unjust and unfair.

Learned counsel for the applicant submitted that where an arbitrator reaches a wrong conclusion on the facts which conclusion forms the basis of an award, then it can be said that there is an error of law on the face of the record.  Learned counsel relied on the case of Tersons Ltd vs. Stevenage Development Corporation [1963] 3 ALL ER 863 where he contended that if the facts are stated in the award disclose a state of affairs in which it is proper to say that there is no evidence to support the arbitrators determination or that the determination is one in which the only true and reasonable conclusion contradicts the determination, there is an error of law on the face of the award.  I agree with the respondents counsel as far as this ground is concerned on the point that the applicant seeks to rely on the same facts as submitted in the earlier grounds.  The court will be repeating itself on the question of evaluation of the evidence and conclusions made by the arbitral tribunal on the first three grounds of the application.  Notwithstanding the above, in the case of Tersons Ltd vs. Stevenage Development Corporation [1963] 3 ALL ER 863 at page 866 the Court of Appeal Willmer L.J. held that:

The motion to remit the award would succeed only if it were shown that the summary of evidence prepared by the arbitrator was unfair in the sense that it was inaccurate so as to amount to a misrepresentation of the evidence. Were that shown, it would, of course, involve a clear case of misconduct on the part of the arbitrator.

The evidence in this particular case was properly summarised by the arbitral tribunal. Secondly UPJOHN L.J. in the same case at page 869 agreed with the trial judge that the courts will not interfere with the conduct of proceedings by the arbitrator except in circumstances which are well defined. That is if the arbitrator is guilty of misconduct, his award may be set aside or remitted. Or if the award contains an error of law on its face, it may be sent back or remitted. The trial judge had said:

"But, if there is no misconduct, if there is no error of law on the face of the award, or if no special case is stated, it is quite immaterial that the arbitrator may have erred in point of fact, or indeed in point of law. It is not misconduct to make a mistake of fact. It is not misconduct to go wrong in law so long as any mistake of law does not appear on the face of the award.

Particularly Upjohn LJ held at page 869 that the parties to an arbitration clause agreed to accept the decision of the arbitrator in every respect subject to very limited exceptions.  This authority was relied on by the applicants counsel for his submission that there was a mistake of law on the face of the record.  

Having ruled on the grounds one and two of the application, this ground was partially resolved in the review of evidence.  The arbitrator examined all the relevant evidence and came to its own conclusion.  The applicant has not shown that the case fell within the limited exceptions by which it could have the arbitral award set aside.  It would be very strange indeed if grounds one and two of the application are dismissed while ground 4 succeeds.  Paragraphs 27, 28 and 29 of the affidavit in support of the applicant’s application introduced certain facts which are not apparent on the record.  The award of the arbitral tribunal is not dated though the order sought in the application shows that it was dated 13th of December 2011.  Secondly the pleadings of the parties are not on record so as to establish from it what the claim was and what the counterclaim was in terms of the pleadings.  In paragraph 27 the applicant avers that it was condemned to pay a monthly fee for the period June 2009 to February 2010.  Secondly, the applicant avers that it was condemned to pay for the period March 2010 until determination of the contract in May 2011. This is a strange averment in that the arbitral tribunal ruled on issue 2 that by a letter dated 16th of February, 2011 giving notice of termination, the respondent validly gave 60 days’ notice of termination bringing the contract to an end.  This is a period of more than one year from November 2009 during which the parties were still in some relationship.  The ruling of the tribunal at page 10 of the ruling is that the monthly pay be made from the 1st of June, 2009 until the date of the award.  The date of the award is 13th December 2011 and the payments so far made for five months are not included in the conclusion.  It is apparent from the orders of the arbitral tribunal that the applicant remained in possession at the date of the award.  Consequently the issue which was framed before the arbitral tribunal relating to whether the notice of termination was lawful assumed from the respondent’s point of view that the contract was still subsisting.  Upon this court disallowing grounds one and two of the application, it is determined that the contract was not terminated by frustration or force majeure.  Consequently the contract terminated in May 2011 upon notice issued by the respondent.  From the order issued by the arbitral tribunal, the applicant was obliged to give vacant possession of the premises to the respondent upon that termination of contract.  The period between May 2011 and December 2011 is a period not covered by the contract.  The award of the arbitrator is based on the continuation in possession of the applicant in the respondent’s property. The issue of why the applicant would remain in possession is a significant detail in this dispute.  The applicant could have exited voluntarily without an order of the arbitral tribunal to mitigate its losses if at all it was suffering losses. The obligation of the applicant to cut its losses or mitigate its losses is provided for by clause 15.2 of the contract which stipulates as follows:

"Upon termination of the contract by notice of either party to the other pursuant to clause 7, the CPC Freight Services Ltd shall, immediately upon dispatch or receipt of such notice, take all necessary steps to bring the services to a close in the prompt and orderly manner and shall make every reasonable effort to keep expenditures for this purpose to a minimum. With respect to documents prepared by the CPC Freight Services Ltd and equipment and materials furnished by the Uganda Property Holdings Ltd, the CPC Freight Services Ltd shall proceed as provided for in this contract."

 The evidence on record shows that there was some activity that was taking place.  At page 23 of the record of proceedings the managing director of the applicant in his examination in chief said as follows:

“We have some responsibilities, some being staff, the utilities and office maintenance.  For some time we met all these expenses from Kampala.  But in March 2010 an opportunity came.  We were approached by some CFS which had connections with the cartel and gave us opportunity of handling on their behalf a few units of cars and trucks.  From March 2010 we approximately brought into the facility about 100 units of cars per month.  Sometimes it would exceed.  But the number was very small.  Up to date that is the arrangement we have.  Out of this we have been receiving income for office running expenses and utilities and some staff salaries and other operational commitments.  The defendant is aware that these units started flowing in.…”

In cross examination by Counsel for the Respondent the managing director of the applicant testified that they started conducting business in March 2010 but not as a car port.  They were handling business for other CFS companies.

Remaining in possession meant maintaining staff and any equipment and thereby incurring more costs assuming they were not making profit. However the applicant was happy to remain in possession of the respondent’s premises at Mombasa. The arbitral tribunal is deemed to have and indeed took into account the factual possession of the applicant of the suit premises up to the date of the award. Moreover the arbitral tribunal held correctly in my view that the applicant ought to have exercised the option of nullifying the contract under the commencement clause. The commencement clause is article 8 of the contract and clause 8.2 thereof provides as follows:

"If the services have not commenced in accordance with clause 8.1 above within a period of three months from the date of commencement either party may, by not less than four weeks written notice to the other party, declare the contract to be null and void, and in the event of such a declaration by either party, neither party shall have any claim against the other party with respect here to."

Clause 8.2 of the contract between the parties is a contractual remedy which could have assisted the applicant to come out of a bad situation. In other words, the applicant had hope of the situation getting better upon obtaining the necessary permissions. However, at whose risk was the contract continued? Three months from the date of commencement of the contract would be 1 August 2009. However, on 13 August 2009 the parties chose to set the commencement date of the contract to 1 June 2009. It is particularly clear that the applicant expected the situation to get better. Clause 8.2 of the contract assumes that a period of three months from the commencement date would be sufficient to establish whether it was worthwhile continuing with the contract if the services have not commenced. Whereas clause 8.1 provided that the CPC Freight Services Ltd shall commence the services on the date of handover of the car port, the addendum to the agreement dated 13th of August 2009 amended the date of commencement expressly to 1 June 2009 as if clause 8.1 reads 1st of June 2009. Clause 8.2 also expressly provided that the contract would be declared null and void and neither party shall have no claim against the other party with respect to the contract. The option provided for in clause 8.2 could only be exercised by a party who wished to get out of the contract upon the failure to commence services within three months from the commencement date.

The arbitral tribunal had already established that five months management fees had been paid to the respondent by the applicant.  Last but not least the order for interest at 20 per cent from the date the money became due in June 2009 till payment in full firstly does not acknowledge that a sum of money for five months fees had already been made.  Secondly, interest cannot run from the 1st of June 2009 because the money due had been paid up to November 2009.  Thirdly, money becomes due on a monthly basis under the contract and this must be factored in to calculate the exact contractual interest per annum that accrues from each monthly fees. The monthly quantum ended with the termination of the contract. The last period for calculation of interest arose from the order of the arbitral award on the 13th of December 2011 covering the period after the termination of the contract and up to the date of the award as the due date to start calculation. Consequently, the final order of the arbitral tribunal should be adjusted to take into account payment for five months up to November 2009.  Secondly interest can only be charged from the time money is due as set out above. 

In the premises and applying the persuasive dictum of Lord Upjohn in Tersons Limited vs. Stevenage Development Corporation (Supra) the parties voluntarily agreed to submit their differences to an arbitrator and agreed to accept the decision of the arbitral award in every respect subject to very limited exceptions which have not been proved in this case. Subject to the slight adjustment above, the applicant’s application to set aside the award is dismissed with costs.

Judgment delivered in open court this 25th day of June 2012.

 

Hon. Mr. Justice Christopher Madrama

Judgment delivered in the presence of:

Candia Emmanuel holding brief for Niwagaba Winfred who is indisposed counsel for the respondent

Ojambo Robert Counsel for the Applicant.

 

Ojambo Makoha, Court Clerk.

Honourable Justice Christopher Madrama

 25 June, 2012.