Court name
Supreme Court of Uganda
Case number
Civil Appeal 18 of 2002
Judgment date
15 January 2004

Fulgensius Mungereza v Africa Central (Civil Appeal 18 of 2002) [2004] UGSC 9 (15 January 2004);

Cite this case
[2004] UGSC 9

THE REPUBLIC OF UGANDA

IN THE SUPREME COURT OF UGANDA

AT MENGO

CORAM: (ODOKI,
CJ, ODER, TSEKOOKO, MULENGA, AND KANYEIHAMBA, JJ.S.C.)

CIVIL APPEAL NO.18 OF 2002

BETWEEN
FULGENSIUS MUNGEREZA
:::::::::::::::::::::::::::::::::::::::::::::::::::::::::::
APPELLANT
AND
PRICEWATERHOUSECOOPERS
AFRICA
CENTRAL:::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::
RESPONDENT

{(Appeal from the judgment of the Court of Appeal at
Kampala (Okello, Mpagi- Bahigeine and Engwau, JJA) in Civil Appeal No. 34 of
2001)}


JUDGMENT OF ODOKI, CJ.

This is an appeal from the judgment of the Court of Appeal whereby the
decision of the High Court (Commercial Division) staying the
appellant's suit
was upheld.

The appellant, who was a certified Public Accountant, became a partner in the
firm of Coopers and Lybrand in January 1986. On 20th November 1996,
the partners of Coopers and Lybrand, including the appellant, together with
other partners of Coopers and Lybrand
in Africa Central, comprising of Kenya,
Tanzania, Uganda, Zambia, Mauritius and Ghana, entered into an agreement to
create a single
regional entity called Coopers and Lybrand Africa (CALA), with
effect from 1st September 1997.

In September 1997, the global organisations of Coopers and Lybrand and the
firm of PricewaterhouseCoopers wherever they existed in
various countries
merged to form professional partnerships known as
PricewaterhouseCoopers in those respective
countries, with effect from 1st July
1998. The Uganda chapter was accordingly registered as PricewaterhouseCoopers,
with the appellant
as one of the partners.

The members of PricewaterhouseCoopers in the Central Region signed on
1st July 1998, a regulatory Framework Agreement - Annexture D - for
the conduct of the business in their respective countries. Pursuant
to the
Framework Agreement, the parties whose names appeared in Schedule I of the
Agreement formed an association known as PricewaterhouseCoopers
Africa Central.
However, the individual members remained partners in their respective
countries.

On 28th April 2000, the Chief Executive Officer of
PricewaterhouseCoopers Africa Central from Nairobi informed the appellant that
the partners
in PricewaterhouseCoopers (Uganda) had lost confidence in him and
were no longer interested in working with him. After protracted
negotiations by
the Chief Executive Office for an amicable withdrawal, the appellant eventually
left PricewaterhouseCoopers Uganda.
The appellant consequently filed a civil
suit against PricewaterhouseCoopers Africa Central, claiming special damages of
US$ 6200
as leave passages for 1998, US $ 106,000 as refund on his tax account
held by the respondent, and general damages for breach of contract.

The respondent pleaded, in its written statement of defence, that the
appellant had no cause of action against it. It maintained that
PricewaterhouseCoopers Africa Central was not a partnership but an association
of all the partners in the seven country firms in
the Africa Central region. It
stated that it was never registered nor did it carry out any business in Uganda.
The respondent, however,
pointed out that the only monies owed to the appellant
was US $ 289. It contested the jurisdiction of the High Court to try the matter
asserting that the issues in dispute were the subject of a Mediation and
Arbitration under Clause 29 of the Framework Agreement,
for which procedure the
respondent intended to seek stay of the proceedings in the suit. The respondent
counter-claimed US $ 56,596,
general damages for breach of contract, and sought
an injunction restraining the appellant from interfering in any way, with
respondents
business and employees.

Subsequently, on 8 September 2000, the respondent by chamber summons, brought
under Sections 40 and 41 of the Arbitration and Conciliation
Act No.7 of 2000,
applied for orders staying the proceedings in the High Court civil suit, and
referring the matter to arbitration
in accordance with Clause 29.2 of the
Framework Agreement.

The respondent contended that according to Clause 29.1 of the said Agreement,
disputes arising in respect of the said agreement had
to be submitted by the
executive committee to the Board of Governance Entity for mediation, and if the
Board failed to come up with
a mutually agreeable settlement, then the matter
would be resolved by arbitration. The appellant further contended that the
respondent
had, in fundamental breach of the Agreement, dismissed him from the
partnership and denied him leave passage, the refund of balance
on his tax
account as well as his capital contribution to the firm. Therefore, the
appellant concluded, he could not afford going
to London for arbitration and/or
to pay his lawyers to represent him at the arbitration. The learned trial judge
allowed the application,
holding that the alleged impecuniosity did not render
the Agreement incapable of being performed, so as to bring it within the
exceptions
under Section 41 of the Arbitration and Conciliation Act. She ordered
that the civil suit between the parties be stayed and the matter
referred to
arbitration in accordance with Clause 29 (2) of the Agreement. The appellant
appealed to the Court of Appeal where his
appeal was dismissed; hence this
appeal.

The appellant has appealed to this Court on three grounds. They are as
follows:



1. The learned Justices of Appeal erred in law in holding that plaintiffs'
poverty was not sufficient ground for exercising any discretion
by the High
Court to refuse to order a stay.


2. The learned Justices of Appeal erred in law in posing the
following question in respect of Clause 29.1 of the frame work Agreement,
namely

"I think the question is whether non observance of the above
stipulation as to mediation resulted in the appellant's poverty, (per
Mpagi-Bahigeine, JA.)"



3. The learned Justices of Appeal erred in law in failing to
consider grounds 2 and 3 of the Memorandum of Appeal and to decide them
in
favour of the appellant."

The
main argument of Dr. Byamugisha, learned counsel for the appellant on ground
one, was that the Court of Appeal ignored considering
the exceptions to Section
41 of the Arbitration and Conciliation Act. Learned counsel submitted that
Mpagi-Bahigeine, JA, misdirected
herself in her lead judgment after considering
the case of Fakes vs Taylor Woodrow Construction Ltd (1973)
I All E.R 670 when she held that the respondent was not responsible for the
poverty of the appellant. Dr. Byamugisha also criticised
the concurring judgment
of Okello, JA, when he held that there was no sufficient evidence of the
appellant's poverty. It was the
appellant's case that he was rendered too poor
to afford the cost of travel to London, which included the cost of lawyers. It
was
submitted that the appellant's evidence that he was too poor was not
controverted. Therefore, learned counsel contended, the arbitration
agreement
was incapable of being performed due to the poverty of the appellant.

Learned counsel for the appellant referred to the decision of
Slessen L J in Smith vs Pearl Assurance Co. Ltd (1939) I
All E.R. 95 where it was held that the discretion could not be used to interfere
with the contractual agreement arrived at
between two principal parties. Dr.
Byamugisha submitted that this was a hardline approach which was contrary to the
Arbitration and
Conciliation Act which gives exceptions in Section 41.

In reply, Mr. Masembe Kanyerezi, learned counsel for the respondent,
submitted that incapacity to perform an agreement does not include
the means to
contest the arbitration. He relied on Halsburys Laws of England,
paras 616 and 630.

He also cited the case of The Rena K (1979) I QB 377 at pages
378 and 393, where it was held that inability to satisfy the award did not make
the agreement incapable of
being performed. He referred to the cases of
Smith vs Pearl Assurance Co. Ltd (supra) and Home
Overseas Insurance Co. (UK) Ltd
(1989) 3 All E. R. 74, and
Shell (U) Ltd vs Agip (U)
Ltd.
SCCs No. 49 of 1995 (unreported) which emphasised
the need to enforce arbitration agreements.

Mr. Masembe Kanyerezi sought to distinguish the case of Fakes vs
Taylor
(supra) on the ground that this was a case of insolvency and
not poverty. There was bad faith because the defendant wanted to go to
Court to
stop the arbitration. There was legal aid available unlike in the present case.
There was also proof that fakes had no means
because he was insolvent and
therefore his money had to go to creditors. In the present case, counsel
contended, the appellant did
not show how much the arbitration would cost. There
was no evidence in his affidavit to raise a triable issue that poverty was
caused
by the respondent. It was the learned counsel's submission that ground
one should fail as the Court of Appeal was alive to the exception
and the scope
of the law, and that in those circumstances, it was a proper case in which to
order a stay.

In their judgments both Mpagi-Bahigeine, JA, and Okello,
JA, addressed the issue of whether the appellant came within the exceptions
to
Section of 41 of the Arbitration and Conciliation Act 2000. Section 41 provides
as follows:



"When seized of an action in a matter in respect of which the parties made
an arbitration agreement referred to in Section 40, the
Court shall at the
request of one of the parties, refer the parties to arbitration, unless it finds
that the agreement is null and
void, inoperative or incapable of being
performed."

Clause 29.1 of the Framework Agreement, which provided for mediation of
disputes between members before submission to arbitration
stated,



"Mediation: If any dispute or difference in respect of this
Agreement other than an unresolved Matter (as defined in the Merger Agreement)
(a
Dispute)" shall arise between the members, any and all such Disputes
(including the validity, s
cope and enforceability of this clause)
whenever arising shall first be submitted (by the Executive Committee) to the
Board of the Governance
Entity for Mediation. If the Board of the Governance
Entity fails to negotiate mutually acceptable settlement of the Dispute within
30 days of such Dispute having been submitted to such Board, such Dispute shall
be finally settled by the binding arbitration procedures
set forth in Clause
29.2 unless the Board of the Governance Entity recommends any other binding
arbitration procedure in which case
the parties agree to submit such Dispute to
such arbitration so recommended."

Clause
29.2 provided for reference of disputes between members to arbitration, as
follows:

"Arbitration: Any dispute arising out of or in connection with this
agreement including any question regarding its existence, validity or
termination,
shall be referred to and finally resolved by arbitration under the
Rules of the London Court of Arbitration which Rules are deemed
to be
incorporated by reference into this Clause. The tribunal shall consist of a sole
arbitrator. The place of arbitration shall
be London and the language of
arbitration shall be English."

The question
is whether the appellant's poverty brought him within the exception of the
agreement "being incapable of being performed" under section 41 of
the Arbitration ad Conciliation Act. The answer to this question depends on the
construction placed on the words
"incapable of being performed;"
which have been a subject of judicial interpretation.

In her judgment, Mpagi-Bahigaine, JA, considered both the cases of
Fakes Vs Taylor Woodrow Construction Ltd (Supra) and
Smith V. Pearl Assurance Co. Ltd. (supra). In relation to
Fakes V. Taylor Woodrow Construction Ltd

(supra) she said,



"in Fakes V. Fakes V. Taylor Woodrow Construction Ltd. (supra) on
which Dr. Byamugisha relied, Mr. Fakes claimed that his misfortunes especially
his insolvency had been brought about
by Taylor Woodrow's breaching of contract,
in that they did not give him the work as and when they should, so they did not
pay him
as and when they should. By braking their contract they made him
insolvent. It was held that although in general the poverty or insolvency
of a
plaintiff would not per se justify the court in refusing a stay, the rule was
not applicable in circumstances where the plaintiff
showed that his insolvency
had been caused by the defendant's breach. If the action were stayed there would
be a denial of justice.




This case is distinguishable from the instant case on its facts in that
there is no guarantee that mediation if it had taken place
would bear fruit.
Moreover, what he claimed he had not been paid and what rendered him poor were
terminal benefits as he states in
paragraph 8 of his affidavit in reply dated
4th September
2000."


"That the applicant/defendant has, in fundamental breach of the of the
agreement dismissed me from the partnership and denied me my
leave passage, the
refund of balance of my tax account as well as my capital contribution to the
firm. I therefore cannot afford
going to London for arbitration and/or pay my
lawyers to represent me at the
arbitration."


"In Fake's case, the appellant had been denied work and therefore was not
paid. Stay was therefore granted on that ground that the
respondent was
responsible for his poverty though generally, poverty per se is not a ground for
refusing to order a stay."

The learned
Justice of Appeal also considered the case of Smith V Pearl Assurance
Co. Ltd
.
(supra) where it was held that the plaintiffs poverty was
not a sufficient ground for exercising any discretion by the court to refuse
to
order a stay. She also referred to the observation in that case that the parties
had contracted without any condition as to the
poverty of the appellant or
anyone claiming through him and that all differences were to be submitted to
arbitration.

Justice Mpagi-Bahigeine, JA, then concluded:



"In view of the above two authorities it becomes clear that the
appellant's impecuniosity would not stand him in good stead. In Paczy v
Hoendler and Notermann Gmbh
(supra), it was held that the court must grant a
mandatory stay where there is a non-domestic arbitration agreement unless it is
satisfied that either the arbitration agreement is null and void, inoperative or
incapable of being performed which is not the case
within the agreement in
question. The Supreme Court in Shell (U) Ltd.
V
Agio (U) Ltd. Civil Appeal No.
49 of 1995 followed the above authorities and ordered HCCS No.326/95 to be
stayed pending the result of a reference of the dispute
to
arbitration."

Justice Okello, JA, also held
that poverty per se does not justify refusing to order stay of proceedings. He
said,



"According to Halsbury's Laws of England, Vol.2, page 630, an
arbitration agreement is only incapable of being performed even if the
circumstances are such that it could no
longer be performed if both parties were
ready willing and able to perform it. For example where the named arbitrator is
unable or
refuses to act and the Court has no power to alter the situation: see
Paczy vs Hoendler and Notermann Gmbh H (1981) I Lloyds Rep. 302
(CA)

The learned Justice of Appeal agreed with the judgment of the trial judge
that the appellant's self-induced poverty was not a sufficient
reason for
bringing the agreement within the exceptions in Section 41 of the Arbitration
and Conciliation Act. He observed,



"The alleged respondent-induced poverty of the appellant is no good reason
for bringing the agreement between the parties within any
of the exceptions in
Section 41 of the Act. The failure of the CEO to follow the mediation procedure
first could not have rendered
the appellant too poor to afford a travel cost to
London for arbitration. The entitlements which the appellant claimed the
respondent
did not pay as a result of that failure were his leave passage,
balance on his tax account as well as his contribution to the firm,
following
his wrongful dismissed. These are terminal benefits which could be determined by
the arbitration since it is a dispute
arising out of the agreement. There is
therefore no sufficient evidence that the appellant's poverty, if any, was
brought about by
the respondent."

In my
judgment, the Court of Appeal came to the correct conclusion that the
appellant's poverty did not bring him within any of the
exceptions in Section 41
of the Arbitration and Conciliation Act, to justify the exercise of discretion
to refuse to order a stay
of the proceedings. The Court duly considered the law
and facts and came to the right conclusion that poverty of the appellant was
not
a sufficient reason for exercising discretion to refuse to stay proceedings on
the ground that the agreement has been rendered
incapable of being performed. In
order to justify the exercise of the discretion in favour of the appellant, it
had to be established
that the appellant's impecuniosity was caused by the
respondent. In this case there was no sufficient evidence to prove this. The
only allegation was that the respondent had not paid the appellant his terminal
dues which consisted of leave passage, refund of
balance on his tax account and
capital contribution to the firm. He did not allege that he had not been paid
his emoluments while
he was still working nor did he indicate how much it would
cost to undertake the arbitration. The evidence the appellant adduced
was
insufficient to prove that he had been rendered too poor to pursue his rights
under the agreement.

The respondent had not denied the appellant work as was in the case of
Fakes vs Taylor Woodrow Construction Ltd (supra).
The appellant had worked till the dispute arose, and it is assumed he earned his
due emoluments. What he was claiming were
his terminal benefits. In these
circumstances I agree with the Court of Appeal that the arbitration agreement
was freely and voluntarily
entered into by the appellant and the respondent, and
to depart from it required sufficient reason to be shown by the appellant which
he failed to do. Therefore I find no merit in ground one, which should
fail.

The complaint in the second ground of appeal is that the learned Justice
Mpagi-Bahigeine erred in law in posing the following question
in respect of
Clause 29.1 of the Framework Agreement:



"I think the question is whether non observance of the above stipulation
as to mediation, resulted in the appellant's
poverty."

Dr. Byamugisha submitted that the
Court of Appeal confused poverty with mediation. It was wrong, he contended, not
to separate the
two issues. He submitted further that Clause 29.1 of the
Framework Agreement required the Chief Executive Officer to refer the matter
to
the Board for mediation before arbitration, but in this case the dispute was not
referred to the Board first.

Mr. Masembe Kanyerezi, for the respondent, submitted that the learned
Justices of Appeal did not confuse the two issues relating to
poverty and
mediation. He contended that the exception of the agreement being
"incapable of being performed" went to the issue of poverty, while
the exception relating to the agreement being "inoperative" went
to the issue of mediation. It was his submission that the exception of
"inoperative" was not argued in the lower Court.

Mr. Masembe Kanyerezi submitted further that Clause 29.1 and Clause 29.2 were
independent of each other. Clause 29.2 applied to arbitration
for former
members, and was not restricted to members. It was his contention that mediation
did not therefore apply to the appellant
because he was not a member at the
material time. Moreover, he argued, it was the appellant who sued the respondent
instead of applying
for mediation first.

It appears to me that the learned Justice of Appeal misdirected herself in
the manner in which she posed the question relating to
mediation. The proper
question should have been "whether the non observance of the stipulation
in Clause 29.1 relating to mediation rendered the agreement inoperative."
The confusion seems to have been caused by the manner in which the issue
was argued in the Court of Appeal. Dr. Byamugisha did argue
that Clauses 6.5 and
29.1 made it a condition precedent to arbitration that the Executive Committee
first refers the dispute to the
Board of Governance Entity for mediation. But
there is nothing in the proceedings in the lower Court to show that the point
whether
the agreement was rendered inoperative by the failure to submit the
dispute to mediation, was raised as an exception to Section 41
of the
Act.

It seems to me that while mediation and arbitration are distinct procedures,
they seem to be connected under Clause 29 of the Framework
Agreement, in that
members are entitled to pursue mediation first before proceeding to arbitration,
in the event of mediation failing.
It is not clear whether any attempts were
made in this case to refer the dispute to mediation. The appellant alleged that
the Board
of Governance failed to do so.

In her judgment, Mpagi-Bahigeine, JA, held that the question whether the
Chief Executive Officer was in breach of the agreement should
be referred to
arbitration. She concluded:



"in view of the clear provisions of Clause 29.1 of the framework
Agreement, the agreement whether the Chief Executive Officer was
in breach
thereof by not submitting the dispute first for Mediation is part of the
"Dispute arising within the framework Agreement"
between the parties, as
stipulated in the Clause and therefore the forum for its resolution would be
arbitration in Clause 29.2."

I am unable to
faulter this conclusion. It is not clear why the dispute was not referred to
mediation, and if the appellant felt that
the dispute ought to be referred to
mediation why he did not insist on it but instead filed a suit to recover his
terminal benefits.
There is nothing to stop the parties referring the matter to
mediation if there is a chance of its being resolved amicably. Otherwise,
the
dispute should be referred to arbitration for its final resolution. The
appellant was a party to the Framework Agreement and
he was entitled as a member
to have this dispute resolved in accordance with the Framework Agreement. In my
opinion ground 2 should
fail.

The third ground complains that the learned Justices of Appeal erred in law
in failing to consider grounds 2 and 3 of the memorandum
of appeal and to decide
them in favour of the appellant. The second and third grounds of appeal in the
Court of Appeal were:





"2. The learned judge erred in law in not holding that the defendant was
in fundamental breach of the contract and could not rely
on the arbitration
Clause.




3. The learned judge erred in law in not holding that by its pleadings in
paragraphs 2 and 5 of the written statement of defence,
defendant had repudiated
the existence of a partnership and could not be allowed to reprobate and
approbate the contract at the same
time."

In her judgement Mpagi-Bahigeine, JA, declined to consider the two grounds.
She stated,

"The parties clearly voluntarily and willingly subscribed to the
arbitration agreement as a means of solving their differences. I
therefore do
not consider it necessary to discuss the remaining grounds.




They all concern disputes arising out of the Framework
Agreement."

Okello, JA, concurred with Mpagi-Bahigeine, JA, observing:



"Ground 2 to 4 concern disputes arising out of the Agreement to be
determined by arbitration under Clause 29.2. That is the tribunal
of the
parties' choice."

I am unable to accept the
submission of Dr. Byamugisha that the learned Justices of Appeal erred in
failing to consider the two grounds
of appeal. I agree with the learned Justices
of Appeal that the two grounds concerned disputes arising out of the Framework
Agreement
to be determined by arbitration and it was therefore unnecessary to
consider them. Ground 3 should also fail.

In the result, I find no merit in this Appeal. I would dismiss it with costs
here and in the Courts below.


As the other members of the court
agree, this appeal is dismissed with costs here and the courts below.

Date at Mengo this 16th day of January
2004





B J Odoki
CHIEF JUSTICE