Court name
Commercial Court of Uganda
Judgment date
5 April 2013

Nalongo Estates Ltd v Kampala Capital City Authority (Miscellaneous Application-2012/22) [2013] UGCommC 56 (05 April 2013);

Cite this case
[2013] UGCommC 56

THE REPUBLIC OF UGANDA,

IN THE HIGH COURT OF UGANDA AT KAMPALA

(COMMERCIAL DIVISION)

MISCELLANEOUS APPLICATION NO 22 OF 2012

(ORIGINATING FROM CADER ARBITRATION CAD – ARB – 27 – 2012)

NALONGO ESTATES LIMITED}............................................................ APPLICANT

VERSUS

KAMPALA CAPITAL CITY AUTHORITY}............................................. RESPONDENT

BEFORE HON. JUSTICE CHRISTOPHER MADRAMA IZAMA

RULING

The Applicants application is by Chamber Summons as prescribed by rule 13 of the Arbitration Rules, section 6 (1) of the Arbitration Act; section 33 of the Judicature Act and article 126 (2) (e) of the Constitution for interim measures of protection and preservation of the status quo by way of an injunction against the respondent and or its officers or agents, operatives, workers and any other person deriving title from the respondent. It is to restrain or prevent them from committing a breach of the management agreement as amended by the memorandum of understanding through termination, taking over of Centenary Park or otherwise interfering or adversely dealing with the performance of the management agreement as amended. Secondly the applicant seeks a restraining order an injunction against the respondents, agents, operatives, workers and any other person from evicting the applicant or its agents from the premises comprised in plot 5 Park link 96 – 100 Kitante Road and plot 34E – 38E Jinja Road or in any way interfering with the applicant's/applicant agents occupation of the said premises until disposal of the Arbitration Cause and for costs of the application.

The grounds of the application are that there is a pending arbitration CAD – ARB – 27 – 2012 between the applicant and the respondent with the subject matter relating to the termination of the management contract as amended between the applicant and the respondent. The applicant had refused to concur in the appointment of an arbitrator and disputed jurisdiction and there is an arbitration cause to appoint an arbitrator. The applicant has a prima facie case with a high probability of success because the termination of the contract was not an act of the Authority and it is not a valid Authority decision to terminate the management agreement between the parties. The termination was as a result of recommendations of a non-existent or otherwise illegally constituted Contracts Committee with no statutory, legal or otherwise mandate to terminate the agreement to which the respondent is a party. The termination was unilaterally done by officials of the authority namely the Executive Director, Director Legal among others who acted with impunity and in abuse of authority. There was no breach of any of the terms of the management agreement between the parties as alleged. It is justifiable for the court to intervene under the arbitration cause. The applicants together with the third-party beneficiaries who invested in Centenary Park stand to suffer irreparable losses that cannot be atoned for by way of damages if injunction is not granted. The applicant further avers that the balance of convenience favours the applicant in that the applicant and the third-party beneficiaries in possession of the premises would be more inconvenienced than the respondent who is not and has never been in possession of the suit premises. Furthermore without the injunction, the applicant's application for arbitration would be rendered nugatory. Lastly that is fair and just that interim measures of protection and preservation by way of a temporary injunction issued to preserve the status quo or prevent the intended termination of the contract pending the hearing and final determination of the arbitration cause.

The application is supported by the affidavit of Sarah Kizito the Managing Director of the applicant. Her evidence by affidavit evidence is that on the 16th of may 2006 the applicant entered into a management agreement which was amended by a memorandum of understanding dated 2 December 2008 with the former City Council of Kampala to among other things develop, manage, control and maintain the Centenary Park. Pursuant to the memorandum of understanding the applicant submitted amended plans for approval to the former Kampala City Council and has duly implemented the management agreement as amended by the memorandum of understanding without breach of any clause. In a letter dated 26th of April 2012 the respondent gave the applicant notice of termination of the management agreement on the ground that the Centenary Park reverted to the respondent. The applicant was dissatisfied and sought a meeting with the respondent to explain its side of the story. This was that clause 9 of the same contract provided that in case of any dispute out of interpretation and implementation of the contract, such dispute would be resolved amicably between the parties and failure of which it would be referred to an arbitrator. All efforts to resolve the dispute amicably between the parties failed and applicant in the letter dated 10th of September 2012 requested for the consent of the respondent to appoint an arbitrator in accordance with the management agreement as provided for in clause 9 thereof. The respondent replied on 21 September disputing jurisdiction and refused to participate in the arbitration. Consequently the applicant filed an application CAD – ARB – number 27 of 2012 for the appointment of an arbitrator to determine the dispute between the parties.

The application for appointment of an arbitrator is pending between the applicant and the respondent and related to the subject of termination of the management contract between the parties. There is a prima facie case with a high probability of success in that the termination of the contract was not an act of the Authority and it is no valid Authority decision to terminate the management agreement as amended. The termination was of the recommendations of the non-existent or otherwise illegally constituted contracts committee. The deponent reiterates the grounds in the chamber summons.

The affidavit in reply is deposed to by Joseph Ssemambo, the Acting Director of Physical Planning of the respondent. It's to the effect that the respondent is the successor to Kampala City Council by virtue of the Kampala Capital City Act 2010 and registered proprietor of the property known as Centenary Park on Jinja road. The agreement between the applicant and Kampala City Council was obtained year management agreement to develop, utilise and maintain the Centenary Park as a Recreational Park and Bridal Gardens. The agreement forbade the erection of structures of whatever description without the express permission of the Council. It also provided that the manager shall keep the pack at all times free from any obstruction and shall maintain the green free and open for public use to the satisfaction of the Council. On 4th of December 2008 Kampala City Council and the applicant entered into a memorandum of understanding where the equity of the land subjectively management agreement was reduced from 5.32 ha to 3.130 ha. The applicant was required to submit new plans for approval by Kampala City Council and proceed with the construction according to plans. In March 2012 the Directorate of Physical Planning presented status report on Centenary Park which clearly revealed gross fundamental breaches of the management agreement by the applicant. On 26th of April 2012 the respondent issued a notice of termination of the management contract on three grounds of fundamental breaches namely (a) commencement of works on the property without prior approval of the Council; (b) erection of structures in the Park without the express permission of the Council; and (c) failure at all times to keep the Park free from obstruction and failure to maintain the green free and open for public use and absence of an occupation permit.

On 27 April 2012 a duly appointed and constituted Contracts Committee of the respondent lawfully terminated the management contract of the applicant. The termination was communicated to the applicant on 28th of June 2012 and directed the applicant to handle other composition of the suit premises within 90 days from 2 July 2012. On 10th of September 2012 the applicant through its lawyers requested the respondent to commit itself to an arbitration process to resolve the dispute between the parties. The respondent wrote by contending that the disputing issue cannot be the subject of an arbitration proceeding because the memorandum of understanding pertains to new demarcations of the Centenary Park and submissions of new plans for approval by the authority. The management contract neither provided for arbitration nor amicable settlement or amendment of the management contract. Alternatively the memorandum of understanding restricted arbitration to disputes arising from demarcations and submissions of plans for consideration by the then Kampala City Council. The respondent maintains that the applicant does not have a prima facie case against it. Secondly the decision to terminate the management agreement was made by a duly and legally constituted Contracts Committee. Thirdly the matters surrounding the termination of the management agreement are now the subject of arbitration before an arbitrator appointed by CADER. The Centenary Park has a profusion of bars and eating places was business undertakings are in breach of the management agreement and the respondent is in a position to compensate the businesses for any damages/loss of business whatsoever in the case the arbitration proceedings are concluded in favour of the applicant. The respondent has the capacity to take care of the interests of the applicant’s tenants by facilitating a relocation plan and therefore no loss shall be occasioned to them. The applicant adamantly refused to hand over Centenary Park to the respondent. The balance of convenience favours the respondent as the registered proprietor since the contract was terminated in April 2012 for fundamental breach.

The applicant was represented by Mohammad Mbabazi of Messrs Nyanzi, Kiboneka & Mbabazi Advocates and the respondent represented by the Mugisha Caleb of the Directorate of Legal affairs of the respondent. Counsels opted to address the court in written submissions.

Submissions

The Applicants Counsel informed the court from the bar that the parties agreed to a sole arbitrator and paid the required fees. Witnesses have been cross examined and the arbitrator has visited the suit premises. Counsel reiterated the grounds of the application and the facts contained in the affidavit in support which have been set out above.

Counsel submitted that the applicant has proved that there is a status quo to be preserved. By the time the application was made the applicant was still in possession of the suit property and the contract had not yet elapsed. Upon being served with the application the respondent took pre-emptive actions and attempted to take over the property in order to render the court action nugatory but the applicant be still in possession of the suit premises. All structures are still standing except for a few which had been destroyed by the respondent in an attempt to take over the suit premises. There being a status quo established the court can only apply the three tests for the grant of a temporary injunction.

Counsel relied on the case of Kiyimba Kaggwa versus Hajji Katende [1987] HCB 79 that the applicant must show that there is a prima facie case with a probability of success, the applicant will suffer irreparable injury that cannot be adequately compensated for by an award of damages if the injunction is not granted and that the balance of convenience favours the applicant if the court is in doubt on the first two principles. Counsel further relied on the case of American Cyanamid Co versus Ethicon [1975] 1 All ER 504 for the proposition that all the applicant needs to prove is that triable issues arise that merit judicial consideration. The applicants counsel submitted that the triable issues arise from the fact that the termination of the contract was not an act of the Authority but that of the non-existent or otherwise illegally constituted Contracts Committee which act was in breach of contract, with impunity and an abuse of authority.

Secondly the applicant would suffer irreparable damage that cannot be adequately compensated by an award of damages because the applicant together with the third-party beneficiaries who had invested in Centenary Park stands to suffer irreparable loss that cannot be atoned for by way of damages if the injunction is not granted to restrain the respondent from enforcing and implementing the termination or taking over of Centenary Park in breach of the management agreement.

On the balance of convenience, the applicant's word possession will be more inconvenienced and the respondent who is not in possession and has never been in possession of the suit premises.

Counsel submitted that the justice of the case requires an injunction is granted pending the hearing and disposal of the main suit which has a prima facie case with a probability of success because the termination of the management agreement as amended by the memorandum of understanding was illegal, unlawful, wrongful and a breach of the management agreement.

In reply the respondent repeats the averments in the affidavit in reply of Joseph Ssemambo, the Acting Director Physical Planning. The facts as averred in the affidavit of Joseph, the Acting Director Physical Planning of the respondent.

The respondents counsel conceded that an arbitrator Mr Kafuko Ntuyo was appointed by the Centre for Arbitration and Dispute Resolution and the arbitration hearing is almost concluded. The applicant's application is brought under section 6 (one) of the arbitration and conciliation act for an interim measure of protection. The protection the applicant seeks is a temporary injunction. Counsel agreed that according to the judgement of honourable justice Egonda-Ntende as he then was in the case of Pan Afric Impex Uganda Ltd versus Barclays Bank PLC Miscellaneous Application number 804 of 2007 a temporary injunction is an interim measure of protection and the same tests for the grant of a temporary injunction pending determination of an ordinary suit are the same. The respondents counsel further contended that the grant of a temporary injunction is the exercise of the discretionary power of the court to maintain the status quo until the dispute is investigated/heard by the court and finally determined. In the case of Foster A Light Ltd versus Kampala City Authority Miscellaneous Application number 16 of 2012, in exercising the discretion to grant a temporary injunction the court does not look to the legal rights of the parties as such but rather whether preservation of the status quo is possible until disposal of the main suit. If the status quo is to be preserved, the applicant has to meet the three tests submitted on by the applicants counsel which not be repeated at this stage i.e. they are the same tests in the case of Kiyimba Kaggwa (supra).

The respondent's case is that the applicant is trying to restrain the respondent from committing a breach of the management agreement as amended by the memorandum of understanding through termination/taking over of Centenary Park or otherwise interfering or adversely dealing with the performance of the management agreement as amended and from evicting the applicant or its agents from the premises or interfering with the applicant/applicants agents occupation of the suit premises pending disposal of the arbitration. Counsel clarified that the application is in respect of plot 34E and 38E Jinja road and not plot 5 Park Link. Secondly counsel prayed that evidence from the bar should be raised disregarded referring to the attempt of the applicants counsel to rely on clause 17 of the Advocates (Professional Conduct) Regulations to give further facts of the dispute. Because the arbitrator never saw an affidavit, the information that the arbitrator also visited the locus and confirms that the applicant is in possession of Centenary Park should be disregarded as being speculative and unfounded.

Respondents counsel further submitted that the respondent had already terminated the management agreement as amended by the memorandum of understanding. The applicant was served with notice of termination of the management agreement on 26th of April 2012. The management agreement was subsequently terminated by the respondent's Contracts Committee on 27th of April 2012 and notice of the termination was communicated to the applicant on 28th of June 2012. Counsel submitted that the case of Foster A Light Ltd versus Kampala Capital City Authority (supra) is on all fours with the applicant’s application. In that case honourable justice Geoffrey Kiryabwire declined to grant a temporary injunction on the grounds that the contract that forms the basis of the dispute had already been terminated. He held that whether the termination was allegedly done or not was an attempt to determine the legal rights of the parties which the court cannot look at this stage. The applicant submission was that of the respondent had terminated the contract, that Contracts Committee was none existent and/or illegal. Consequently by reason of the termination of the management agreement, which termination the applicant concedes, the present application is overtaken by events.

Ruling

The main controversy in this application has been narrowed down by the respondent to the question of whether the application had been overtaken by events. There are three letters that the respondent refers to. The first letter is annexure "E" which is a letter dated 26th of April 2012 written by the Director legal affairs to the Managing Director of the applicant. It is entitled notice of termination of management contract in respect of Centenary Park Road 34E – 38E. The letter of termination lists three fundamental breaches and the use of the premises not conforming to the management contract to run and use the land as a public open space. It provides as follows:

"Therefore, notice of termination of the management agreement for fundamental breach of the provisions of the agreement is hereby given to Nalongo Estates Ltd. The management and control of the Centenary Park shall revert to the Kampala Capital City Authority."

Subsequent events and the conduct of the respondent prove that the applicant remained on the premises. Consequently the second document of the respondent for the submission that the contract had been terminated and the status quo changed is an internal memorandum to the Director of Legal Affairs of the respondent from the Head of Procurement and Disposal Unit of the respondent. It notifies the director of legal affairs as follows:

At its 21st extra ordinary contracts committee meeting that convened on 27 to April 2012, the contract for management of Centenary Park by Messrs Nalongo Estates Ltd was terminated in accordance with clause 10 of the management agreement dated 16th of May 2006 between the defunct KCC and the aforementioned firm.

The purpose of this memo is therefore to request you to communicate this decision to Messieurs Nalongo Estates Ltd"

In a letter dated 28th of June 2012 annexure "G" the Executive Director wrote a letter to the Directors of Messieurs Nalongo Estates Ltd communicating the decision of the Contracts Committee of the respondent at its 21st extra ordinary meeting referred to above. The letter reads in part as follows:

"In accordance with this decision, please arrange to hand over vacant possession of the said property to the authority within 90 days from 2 July 2012."

90 days from 2nd of July 2012 would be 2nd of October 2012. Annexure "H" to the affidavit in reply attaches the response of the applicant through their lawyers in a letter dated 10th of September 2012. In the response, the applicant rejects the notice to terminate the management agreement on the ground that it was an anticipatory breach that renders the Authority liable to specifically implement the contract to its end and claimed compensatory damages computed at Uganda shillings 8,000,000,000/=. They proposed that under clause 9 of the management agreement as amended by the memorandum of understanding, there was a dispute and they sought the concurrence of the Authority to nominate an arbitrator and proposed three names. The plaintiff wrote that should that fail they would apply to the Centre for Alternative Dispute Resolution for the appointment of an arbitrator.

The applicant's application in this court was filed on 25 September 2012 and chamber summons issued on 26 September 2012. An interim order of injunction was issued by this court in miscellaneous application number 563 of 2012 by the registrar on 28th of September 2012 in the presence of counsels for both parties. In light of the letter of the executive director of Kampala capital city authority dated 28th of June and specifying that the applicant was given 90 days from second of July 2012 to hand over vacant possession of the property to the respondent authority, it is hard to appreciate the submission of the respondents counsel that the respondent had terminated the management agreement and therefore the status quo had changed. That by reason of the notice of termination or termination of the management agreement the application had been overtaken by events. First of all the letter of the Executive Director of 28th of June 2012 assumes that the applicant is on the premises. Secondly it overrides by estoppels any submission that there could have been a prior termination of the occupation or tenancy or management contract of the applicant. The respondent clearly gives a notice of termination and vacation to the applicant in June 2012. In any case effect of earlier letters should be determined by the arbitral tribunal appointed by the parties. The applicant clearly disputed the notice and contended that the matter was a dispute under clause 9 of the contract between the parties to refer disputes to an arbitrator for resolution. The matter was subsequently referred for arbitration which is pending at the time of this decision.

The respondent concurred in the appointment of an arbitrator and even conceded that an arbitrator had been appointed and proceedings had commenced. An application for interim measure under section 6 of the Arbitration and Conciliation Act can be made before or during the arbitral proceedings. I am satisfied that at the time the applicant referred the matter for arbitration, the notice of 90 days given by the Executive Director of the Authority had not yet expired. In any case there is a dispute as to whether the termination was lawful and that dispute is the subject matter of the arbitration proceedings. Secondly an interim order of injunction was issued by the registrar on 28 September 2012 prior to the expiry of the 90 days notified by the Executive Director of the respondent to the applicant. Effectively, the interim order of injunction stayed the notice from further running against the applicant pending determination of the application for a temporary injunction/interim measure of protection.

It is my humble view that the parties can present their grievances to the arbitrator who even has power to grant interim reliefs. Under section 16 (1) of the Arbitration and Conciliation Act an arbitral tribunal may rule on its jurisdiction including objections in respect to the existence or validity of the arbitration agreement, and for that purpose the arbitration clause which forms part of the contract shall be treated as an agreement independent of the other terms of the contract. The provision further provides that a decision by the arbitral tribunal that the contract is null and void shall not of itself invalidate the arbitration clause. The question of whether the agreement has been terminated is properly a matter for determination in the arbitral proceedings itself since it relates to jurisdiction. This court cannot make a ruling as to whether the agreement has been terminated which is a matter on the merits of the arbitral proceedings.

As to whether there was fundamental breach on the part of the applicant is also a matter on the merits of the arbitration. So the submission that the respondent has already terminated the management agreement as amended by the memorandum of understanding is not a proper defence to an application for an interim measure of protection under section 6 (1) of The Arbitration and Conciliation Act. Secondly the submission that the status quo had changed is also not tenable in light of the evidence referred to above. All in all, the applicant has proved that it has a prima facie case. The requirement to disclose a prima facie case has been modified by section 6 of the Arbitration and Conciliation Act to mean that there is a dispute which has arisen and there is a clause that such a dispute shall be submitted to arbitration. The clause to submit a dispute to arbitration clause 9 provides as follows:

"The Parties hereto have mutually agreed that in the case of any dispute arising out of interpretation and implementation such disputes shall be amicably resolved between the parties, in the case of failure to resolve the same dispute the same shall be referred to a mutually agreed upon arbitrator."

Clause 9 of the Memorandum of Understanding is annexure "B" to the affidavit in support of the applicant’s application. The fact that the dispute has arisen is confirmed by the appointment of an arbitrator under the clause. The arbitrator is Mr Kafuko Ntuyo an advocate of the High Court of Uganda.

The second test that the applicant would otherwise suffer irreparable harm which cannot be adequately atoned for by way of damages has not been adequately answered by the respondents counsel. Centenary Park houses several businesses and the impact of an eviction before conclusion of the arbitral proceedings cannot be determined. It also involves third parties who are allegedly tenants of the applicant and who own various businesses on the property. I take it that it is difficult with the materials on record to conclude that the Applicant would suffer irreparable harm which cannot be adequately atoned for by an award of damages. What the applicant has proved to the satisfaction of the court is that it is in possession as demonstrated above and the status quo is that it is still on the premises and carrying out its businesses irrespective of whether it is lawful or in fundamental breach which are matters for determination in the arbitration cause. The application will in the circumstances be determined on the balance of convenience.

On the balance of convenience it is proven that the applicant is still in possession. The respondent is not in possession and is unlikely to be inconvenienced by any delay in the resolution of the dispute. The applicant is likely to be inconvenienced by any eviction before the dispute has been resolved through arbitration. Furthermore because an arbitral tribunal has been appointed and arbitration proceedings have commenced, an arbitral award is likely to come out within a short time. An arbitral tribunal is required to render a decision within two months under section 31 of the Arbitration and Conciliation Act unless otherwise time is extended by the tribunal. Consequently an award is likely to be made within the shortest possible time. Thirdly there are third parties, who were referred to as "tenants" of the applicant by the respondent on whom the impact of any eviction and effect on the relationship with the applicant are unknown. Assessing all these circumstances the balance of convenience is in favour of granting an injunction pending the termination of the arbitral proceedings by a final award under section 32 of the Arbitration and Conciliation Act.

The question of whether the respondent should be restrained from committing a breach of the Management Agreement as amended by the Memorandum of Understanding through termination or takeover of the Centenary Park is a matter that properly belongs to the arbitration cause and is accordingly referred to the arbitral tribunal appointed by the parties.

In the premises an interim measure of protection and preservation of the status quo is granted by way of an injunction against the respondent, its officials or agents, operatives, workers and any person deriving title from the respondent restraining and preventing it from evicting the applicant or its agents from the premises comprised one plot 34E – 38E Jinja road or in any way interfering with the applicant/agents occupation of the said premises until the disposal of the arbitration. The costs of this application and any other matters such as a reference to plot 5 Park Link 96 – 100 Kitante road in the application are referred to the arbitral tribunal for determination.

Ruling delivered in open court on the 5th of April 2013

 

Christopher Madrama Izama

Judge

Ruling delivered in the presence of:

Dennis Byaruhanga for the Respondent

Rita Mutua Legal Officer of the Respondent

Muhammad Mbabazi for the Applicant

Charles Okuni: Court Clerk

 

Christopher Madrama Izama

Judge

5 April 2013