Court to Consider These Factors in Determining Whether a Dispute is One For Arbitration

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Case Summary: Huvaz Investment Ltd and Others v. Equity Bank Ltd

Court: High Court of Uganda at Mbarara

Date of Decision: 11th October 2024

Judge: Hon. Justice Nshimye Allan Paul M.

Case Number: HCT-05-CV-MA-0159-2023 (Arising from HCT-05-CV-CS-0071-2022)

Parties:

• Applicants:
  1. Huvaz Investment Limited
  2. Agaba Armstrong
  3. Asiimwe Ruth
• Respondent: Equity Bank Uganda Ltd

Counsel:

• For the Applicants: Adv. Kwikiriza Ronald (M/s Kaganzi & Co Advocates)
• For the Respondent: Adv. Bright Arinaitwe (M/s Muhumuza-Kiiza Advocates & Legal Consultants)

Topic: Application for Referral to Arbitration and Dismissal of a Civil Suit

Facts:

The Applicants, Huvaz Investment Limited and others, sought to refer their dispute with the Respondent, Equity Bank Uganda Ltd, to arbitration, citing the arbitration clause in their loan agreement.

The dispute stemmed from Civil Suit No.71 of 2022, where Equity Bank claimed UGX 98,894,109 as the outstanding loan balance. The loan agreement included an arbitration clause specifying that disputes were to be resolved under Kenyan law through arbitration. The Applicants, therefore, requested the court to dismiss the civil suit and refer the matter to arbitration, as per the agreement.

Issues:

1. Whether the matters raised in Civil Suit No.71 of 2022 should be referred to arbitration.
2. What remedies were available to the parties?

Decision:

The court held that there was a valid arbitration clause in the loan agreement and that the dispute between the parties fell within the scope of the Arbitration and Conciliation Act.

The court found that the arbitration agreement ousted its jurisdiction in this matter and, therefore, dismissed Civil Suit No.71 of 2022.

In determining whether a dispute is subject to arbitration, courts generally consider the following key factors:

1. Existence of a Valid Arbitration Agreement

The court will first establish whether there is a valid arbitration agreement between the parties. This involves examining:

• The presence of an arbitration clause in the contract: The agreement must clearly stipulate that disputes will be resolved through arbitration.

2. Whether the Arbitration Agreement is Operative

Even where an arbitration agreement exists, the court must determine whether it remains operative or has become null and void, inoperative, or incapable of being performed.

3. Existence of a Dispute

Courts must determine if there is an actual dispute between the parties that can be referred to arbitration. If there is no genuine dispute, the court may refuse to refer the matter to arbitration.

Ratio Decidendi:

• The court upheld the arbitration agreement under Section 9 of the Arbitration and Conciliation Act, Cap 5, which restricts court intervention in matters governed by the Act unless certain exceptions are met.
• Clause 11 of the Eazzystock Financing Loan Form & Contract provided for arbitration in Kenya under Kenyan law. The court emphasized that parties are bound by the agreements they freely enter into, in line with Section 9(1) of the Contracts Act, Cap 284.
• The court ruled that there was no conflict of laws regarding the jurisdiction, as the primary loan agreement clearly outlined that disputes would be resolved through arbitration in Kenya.

Laws Applied:

1. Arbitration and Conciliation Act, Cap 5, particularly Section 5 and Section 9.
   • Babcon Uganda Ltd v Mbale Resort Hotel Ltd, Court of Appeal Civil Appeal No.87 of 2011
   • David Kayondo vs The Cooperative Bank Ltd, SC Civil Appeal 19 of 1991

Key Quote

“ It is trite that parties are bound by the agreements they freely execute in line with the spirit of SECTION 9(1) OF THE CONTRACTS ACT CAP 284. On this basis, courts in Uganda have promoted arbitration clauses where the arbitration agreement doesn’t fall under the exceptions in SECTION 5 (1)(A) & (B) OF THE ARBITRATION AND CONCILIATION ACT CAP 5.” – Justice Allan Nshimye.

Author’s Comment

This ruling reinforces the principle that courts must respect and enforce arbitration agreements, provided they are valid and do not fall within the exceptions outlined in the Arbitration and Conciliation Act.

The case further demonstrates that contractual clauses specifying foreign arbitration jurisdictions can be upheld, even when the parties operate within Uganda, thus promoting adherence to freely negotiated contractual terms

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