In the High Court of Uganda at Kampala s9

THE REPUBLIC OF UGANDA,

IN THE HIGH COURT OF UGANDA AT KAMPALA

(COMMERCIAL DIVISION)

MISCELLANEOUS CAUSE NO 241 OF 2015

IN THE MATTER OF A REFERENCE TO ARBITRATION UNDER THE ARBITRATION AND CONCILIATION ACT, CAP 4

IN THE MATTER OF AN APPLICATION FOR AN INTERIM MEASURE OF PROTECTION

BETWEEN

NATIONAL OIL DISTRIBUTORS LTD}...... APPLICANT

THE ATTORNEY GENERAL}...... RESPONDENT

BEFORE HON. MR. JUSTICE CHRISTOPHER MADRAMA IZAMA

RULING

The Applicant filed an original action under section 6 of the Arbitration and Conciliation Act Cap 4 laws of Uganda and section 98 of the Civil Procedure Act as well as rule 13 of the Arbitration Rules for an order of an interim measure of protection to issue directing the Respondent and/or the Ministry of Works and Transport to hand over the ship MV Kalangala to the Applicant who is contracted by the Respondent to manage and operate it.

Alternatively, it is for an interim measure of protection to issue restraining the Respondent, the Ministry of Works and Transport and any other government agency, its agents, assigns and servants and/or any persons claiming authority from it from management or operation of the ship MV Kalangala. Lastly it is for costs of the application to be provided for.

Decision of Hon. Mr. Justice Christopher Madrama Izama *^*~?+: 1 The Applicant’s application is supported by the affidavit of the Managing Director of the Applicant Mr Sadala Musoke.

The grounds of the application are that the Applicant entered into a one-year renewable contract with the Government of Uganda represented by the Ministry of Works and Transport on 15 August 2014 for the commercial/private management and operation of MV Kalangala, pursuant to a public procurement process.

Secondly under the contract, the Applicant was to operate the ship to ensure efficient and reliable services for the people of Kalangala district.

Thirdly that the contract was to commence upon the return of the ship from Tanzania and upon the issuance of a commencement letter to the Applicant by the Ministry of Works and Transport. Fourthly that in the preparation for commencement of business, the Applicant incurred and continues to incur considerable set up costs inter alia for setting up offices at Kalangala and Kampala; printing tickets; hiring and paying salaries for the required stuff; renting accommodation for the staff in the Kalangala; acquiring the required equipment; and payment to other necessary service providers.

The Applicant was issued with a commencement letter on 25 February 2015 and the ship returned on 6 March 2015 but the Permanent Secretary Ministry Works and Transport has refused and/or failed to hand over the ship to the Applicant.

Sixthly instead the Permanent Secretary resumed ferry operations by recruiting or hiring other persons to manage and operate at the ship from March 2015 to date. Seventhly since March 2015 the Applicant engaged in dialogue and negotiated with the Permanent Secretary to honour the contract but all in vain.

On the ninth ground a dispute has now arisen over the management and operations of the ship under clause 17 of the contract and such a dispute should be referred to arbitration where the parties fail to settle the dispute amicably.

Furthermore on the 10th ground the Applicant has invested substantially to obtain the business of managing and operating the ship and is now suffering considerable and irreparable loss and damage due to the Respondent’s wanton and unlawful refusal to hand over the ship.

Decision of Hon. Mr. Justice Christopher Madrama Izama *^*~?+: 2 On the 11th ground in support of the chamber summons, the Applicant avers that the balance of convenience is in favour of the Applicant for the grant of the orders sought. Lastly the Applicant avers that it is just and equitable that the orders sought are granted to protect the Applicant’s interest in the contract and to prevent further breach of the contract by the Respondent until disposal of the arbitration process.

The affidavit in support of the application generally supports the grounds of the application and provides further detailed facts on dates.

In reply the Permanent Secretary Ministry of Works and Transport in the Government of Uganda Mr Alex B. Okello deposes that sometime back in August 2014, the government of the Republic of Uganda represented by the Ministry of Works and Transport executed a commercial management agreement for the private operation and management of MV Kalangala ferry/ship along Lake Victoria. At the time of execution of the management agreement, MV Kalangala, was in Tanzania for major mechanical overhauling and repairs. Sometime back in March 2015 the technical accounts team within the Ministry of Works and Transport established that there were some fundamental errors in the provisions of the commercial management agreement and those errors were brought to the attention of the Applicant.

Subsequently he sought legal advice from the Attorney General’s Chambers on how to rectify the glaring errors which included among others absence of a performance security bond; printing of tickets and collection of revenue which required the clearance of the Accountant General; payment of the lump sum bid price which entailed statutory dues such as PAYE and NSSF.

Subsequently the office of the Solicitor General set out the guidelines on how to make the necessary amendments to the signed agreement. Pursuant to the communication from the Solicitor General, he assigned the Assistant Commissioner of Accounts, the Head of Procurement and Disposal Unit to undertake the complete revision of the contract provisions. There have never been any effective negotiations or failure to reach an agreement on the revision of the contract provisions within 28 days as set out in the agreement. The Ministry of Works and Transport has never recruited or hired other people to operate and manage MV Kalangala ship/ferry as the same is under the management and operation of Government of Uganda as represented by the Minister Works and Transport.

Decision of Hon. Mr. Justice Christopher Madrama Izama *^*~?+: 3 On the basis of advice from the Attorney General's Chambers, the Permanent Secretary deposes that the application is grossly misconceived, frivolous, vexatious and prematurely filed in this court. Secondly the application seeks a final determination of the perceived dispute between the parties to the agreement. Thirdly the Applicant is not likely to suffer any injury that cannot be compensated for in monetary terms or damages. Fourthly the balance of convenience favours the Respondent for the refusal to grant the orders being sought by the Applicant.

In rejoinder the Managing Director of the Applicant Mr Sadala Musoke confirmed the contents of the affidavit in support of the application and deposits that the Respondent has not brought to the attention of the Applicant any fundamental errors in the contract which requires amendment as required by clause 11 of the contract. Secondly the letter of the Permanent Secretary to the Solicitor General of 29 April 2015 was belated as it was written a month from when the contract should have commenced from the time the ship returned in March 2015. In any case the Solicitor General in his response to the letter recognises that there is a legal binding contract between the Applicant and the Government of Uganda and the contract was cleared by the Solicitor General before it was executed. Furthermore the payment of PAYE and NSSF contributions are creatures of statute binding on every employer to make the necessary deductions and remitted amounts to the relevant authorities and those issues cannot stop the implementation of the contract. The Applicant’s representatives have not held any meetings with the PS Ministry of works with a view of resolving any errors in the contract and the purported assignment of officials from the Ministry to undertake the revision of the contract on 12 June 2015 was done after the suit had already been filed.

The Applicant had a written to CADER to initiate arbitration proceedings and requested for the appointment of an arbitrator. The application is brought under the relevant rules and is therefore not frivolous, vexatious or an abuse of the court process.

The Applicant is represented by Counsel Fred Muwema while the Respondent is represented by Senior State Attorney Bafirawala Elisha and both Counsels agreed to file written submissions.

Applicant’s submissions

Decision of Hon. Mr. Justice Christopher Madrama Izama *^*~?+: 4 In the written submissions Counsel for the Applicant proposed to deal with the one issue which is whether the Applicant is entitled to the remedies sought. He submitted that the Applicant seeks an interim measure of protection as detailed in the application.

The consideration for grant of interlocutory injunctive orders apply with equal measure to applications seeking interim measures of protection according to the case of Pan African Impex versus Barclays Bank Plc and another decided by Honourable Justice Egonda-Ntende. Honourable Justice Egonda-Ntende held that in considering an application under section 6 (1) of the Arbitration and Conciliation Act, the necessary prerequisites for the grant of an interim remedy should be available before an order can issue (see Miscellaneous Cause No. 15 of 2013; John Sekaziga and another versus Church Commission Holding Company Ltd). The requirements include the disclosure of a prima facie case with a high likelihood of success. Whether there would be irreparable damage that cannot be atoned for by an award of damages and fourthly the balance of convenience.

For the disclosure of a prima facie case the Applicant relied on the affidavit of the Managing Director of the Applicant referred to above filed in court on the 29th of May 2015 as well as the affidavit in rejoinder filed on 1 July 2015. Secondly the affidavit of the Permanent Secretary Ministry of Works and Transport filed on 29 June 2015. The facts disclosed the execution of a contract for commercial private management of MV Kalangala for a period of one year which period was renewable. The contract was executed after a public procurement process. The contract was to commence upon the return of the ship from Tanzania where it had been taken for repairs. The acting Chief Mechanical Engineer Mr JK Ngatuna on 25 February 2015 wrote to the Applicant advising it to prepare for the handover of the ship which was set to return in the first week of March 2015. The ship returned on 6 March 2015. However instead of handing over the ship to the Applicant who was contracted to manage and operate it, the Permanent Secretary instead hired other persons who have been managing the ship.

Lastly it is the allegation of the Respondent that the Ministry of Works and Transport discovered errors in the contract and that is why the ship was not handed over to the Applicant.

The Applicant’s Counsel submitted from the facts that there is a dispute as to the enforcement of the contract. Clause 17 of the contract provides for settlement of disputes amicably and where

Decision of Hon. Mr. Justice Christopher Madrama Izama *^*~?+: 5 the parties fail to do so within 28 days, the dispute should be resolved in accordance with the arbitration laws of Uganda. It was agreed when the application came for hearing by both Counsels that there is indeed a dispute to be resolved through arbitration. The refusal by the Permanent Secretary to hand over the ship to the Applicant is an apparent breach of the contract and is the kind of dispute envisaged to be handled through arbitration proceedings.

Counsel submitted that the Permanent Secretary cannot rely on the alleged errors to defeat the performance of the contract. The alleged errors are clearly dealt with in the contract itself for instance clause 32 deals with taxation; clause 45 is on performance security and if the Ministry wanted the contract amended, it could do so under clause 11 of the contract. Under section 29 of the Public Procurement and Disposal of Public Assets Act 2003, it is the Contracts Committee and not the Permanent Secretary with powers to amend contracts. Furthermore Counsel contended that section 26 (K) of the PPDA act 2003 provides that the appellant secretary to the accounting officer has power to ensure implementation of the awarded contract in accordance with the terms and conditions of the award and not to frustrate its performance. He submitted that the court cannot sanction this illegality according to the case of Makula International versus His Eminence Cardinal Nsubuga and Another [1982] HCB 11. Consequently he submitted that there was a prima facie case with a high likelihood of success.

As far as irreparable damage is concerned, the Applicant’s Counsel submitted that the contract is for a period of one year renewable and the Applicant described the expenses it has incurred so far and continues to incur while awaiting the commencement of the contract. The Applicant also entered contracts with third parties in an effort to ensure they start operation of the ship when it is eventually handed over to it. The business of the Applicant is suffering considerable and irreparable damage for which no amount of compensation can atone.

As far as the law is concerned Counsel relied on the case of Performance Unlimited incorporated versus Questar Publishers Inc, United States Appeals, and Sixth Circuit Court No. 75 – 6271 cited and relied upon in John Sekaziga and Another versus Church Commissioners Holding Company Ltd (supra) for the definition of the type of irreparable harm. The Applicant was likely to suffer what is called loss of business and it is the kind of harm which necessitates the granting of preliminary injunctive relief pending arbitration because arbitration will be rendered meaningless or hollow. This is because the Applicant’s contract was

Decision of Hon. Mr. Justice Christopher Madrama Izama *^*~?+: 6 for one year and the Applicant has already lost six months of business due to the actions of the Respondent. Furthermore the permanent loss of opportunity to the management of the ship shall injure its business profile. The loss of profile building cannot be atoned for by any amount of money.

As far as the balance of convenience is concerned, Counsel submitted that it favours the Applicant. This is because there is a binding contract between the parties and the ship has returned and is currently running normally, it would not inconvenience the responded in anyway if it is handed over to the Applicant who is contracted to operate and manage it while the parties sort out their dispute through arbitration.

Finally section 6 (1) of the Arbitration and Conciliation Act Cap 4 allows a party to an arbitration agreement to apply to court for an interim measure of protection pending arbitration and this is a proper case for the grant of such an interim measure of protection as prayed for in the application.

Submission of the Respondent's Counsel in the reply

The Respondent’s Counsel does not dispute the basic facts about the award of the contract for the management of MV Kalangala to the Applicant and an agreement was signed on 15 August 2014. Instead he relies on the affidavit of the Permanent Secretary Ministry of Works and Transport which is to the effect that before commencement of the agreement, he discovered fundamental errors in the commercial contract which necessitated an amendment of the agreement. Secondly the Permanent Secretary Ministry of Works and Transport subsequently engaged the Applicant’s officials in negotiations on how to effect the amendments. Thirdly before the negotiations for effecting the amendments could meaningfully commence, the Applicant filed the present application without exhausting the amicable channels in clause 17 of the contract.

Whether the Applicant is entitled to the remedies being sought?

The Respondent’s Counsel submitted that the law for the grant of an interim measure of protection is section 6 (1) of the Arbitration and Conciliation Act and he was in agreement with

Decision of Hon. Mr. Justice Christopher Madrama Izama *^*~?+: 7 the Applicant’s submissions on the requirements for the grant of an interim measure of protection based on the law submitted to court.

He submitted that the only question is whether there is a dispute within the meaning of clause 17 of the Commercial Agreement to trigger arbitral proceedings.

Counsel submitted that the dispute only arose in regard to the deliverables or reimbursing to be provided by the Applicant/provider. Upon realisation of the situation, there is a need to negotiate on how to amend the agreement to fit the intention of the parties. The negotiations have not commenced when the Applicant preferred the application and a request for arbitration. The Respondent contends that there is no dispute within the meaning of clause 17 and therefore the Applicant has no prima facie case.

The Respondent’s Counsel further submitted that the only question that arises without necessarily going through the requirements for the grant of an interim measure of protection is whether the reliefs being sought by the Applicant can be granted as interlocutory reliefs before the institution of arbitration proceedings.

Counsel contended that an interlocutory order as defined by Black's Law Dictionary (Ninth Edition) is an order that relates to some intermediate matter in the case and any order other than a final order. The Respondent’s Counsel further contended that the reliefs being sought by the Applicants would dispose of the arbitral dispute. The order being sought is for the court to order the handing over of MV Kalangala to the Applicant for management and operation. There is ample evidence from the Applicant that the nature of the dispute between the Applicant and the Respondent is the alleged failure to hand over MV Kalangala to the Applicant for management or operation according to the agreement. Consequently the interim measure of protection being sought by the Applicant would dispose of the entire dispute and there would be nothing for the arbitrator to adjudicate upon.

The issue of a final order was discussed in the East African Court of Justice (First Instance Division) at Arusha, Tanzania; in Application Number 3 of 2014 in the case of the East African Law Society versus the Attorney General of Burundi and the Secretary-General of the East African community. The East African Court of Justice and cited with approval the case of the Republic of Philippines versus Sandiganbayan (fourth division – G.R. No.

Decision of Hon. Mr. Justice Christopher Madrama Izama *^*~?+: 8 152375 (December 16, 2011) in which the Supreme Court of Philippines defines an interim order as contrasted to a final order. It was held that an interlocutory order does not dispose of the case completely, but leaves something more to be adjudicated upon. The term "final" judgment or order signifies a judgment or order which disposes of the case as to all the parties, reserving no further questions or directions for future determination. In contrast an interlocutory order leaves substantial proceedings to be heard in connection with the controversy. It does not end the task of the court in adjudicating the parties contentions and determining their rights and liabilities as against each other. In that sense, it is basically provisional in its application.

Consequently Counsel contended that the court should peruse section 6 (1) of the Arbitration and Conciliation Act and consider whether the specific form of relief sought is permissible. In those circumstances and because the Applicant is seeking the final relief, the application ought to be dismissed.

Furthermore the Respondent’s Counsel contended that an interim measure of protection is an equitable relief and discretionary in nature and the court exercises this equitable remedy for purposes of bringing about an equitable result. Counsel submitted that the property MV Kalangala is a government owned ship set up to ease water transport to Kalangala district for purposes of opening up the existing resources for social economic development. The Ministry has never recruited other persons to operate MV Kalangala and it is under the management of the Government of Uganda. The prayer of the Applicant is likely to disrupt water transport for the people of Kalangala district and above all, drastically forestall social economic development to the said people.

In the circumstances the Respondent’s Counsel submitted that if the interim measure of protection is not granted, the Applicant is only likely to suffer loss of business which can be readily compensated by an award of damages. In those circumstances the balance of convenience favours the Respondent who is more likely to be inconvenienced by the grant of an injunctive order than the Applicant. He invited the court to dismiss the application for the interim measure of protection with costs.

Applicant's submissions in rejoinder to the Respondents reply.

Decision of Hon. Mr. Justice Christopher Madrama Izama *^*~?+: 9 On the question of whether the orders sought by the Applicants would dispose of the entire dispute before the arbitral tribunal, the Applicant’s Counsel submitted that this is not true. The orders sought by the Applicant shall not dispose of the entire dispute as claimed by the Respondent. The order sought by the Applicant is an order directing the Respondent to hand over the ship which is the Respondent’s obligation under the contract. He contended that the contract under clause 4.2 of the general conditions deals with amendments and does not require the suspension or non-execution of the contract in order for the parties to agree to amendments.

By refusing or failing to hand over the property to the Applicant, the Permanent Secretary Ministry of Works and Transport is frustrating the performance of the contract. The order sought is for fulfilment of the Respondent’s contractual obligation and shall not dispose of the dispute since the arbitrator shall determine issues to do with the amendment of the contract, an account for the period between the return of the ship to when it shall be handed over to the Applicant, damages etc.

In any case courts have awarded positive injunctive orders where the ends of justice demand and they do even where it appears to dispose of the entire suit. Because the contract is time bound, it would be greatly affected by the delay in its performance and the order sought would serve the ends of justice.

The alternative order to restrain the Respondent, its agents or anybody claiming authority from operating and managing the ship is to prevent persons who are not contracted to manage and operate the ship from deriving benefit from its operations in total breach of the contract and to the detriment of the Applicant. The Permanent Secretary Ministry of Works and Transport has not demonstrated any legal basis for refusing or failing to commence the contract by handing over MV Kalangala to the Applicant. The reasons stated in paragraphs 5 and 6 of the affidavits in reply do not warrant a breach of the contract since they were dealt with at the time of negotiations. For instance clause 4.6.6 of the terms of reference is in the contract gives the Applicant the mandate to collect revenue and bank it in the Respondent’s dedicated account for transmission to the consolidated fund.

Ruling

Decision of Hon. Mr. Justice Christopher Madrama Izama *^*~?+: 10 I have carefully considered the Applicant’s application and the facts which are mainly not controversial. The only controversial fact is whether the Applicant commenced negotiations in terms of clause 17 of the commercial agreement before commencing arbitral proceedings and this application.

The issue framed by the parties is whether the Applicant is entitled to the remedies sought in the application. The remedy sought in the application is a mandatory injunction that amounts to an order of specific performance for the Respondent which is the Government of Uganda represented by the Ministry of Works and Transport to hand over the ship MV Kalangala to the Applicant who is the contractor, contracted to manage and operate it and to provide transport services between Kalangala district and other areas. The ship operates in Lake Victoria. In the alternative the Applicant seeks an interim measure of protection to restrain the Respondent through Ministry Works and Transport and any agent or assigns or anybody claiming authority from the Government from the management or operation of MV Kalangala.

The facts are that the Ministry of Works and Transport and the Applicant on 15 August 2014 signed a one-year renewable contract for the commercial/private management and operation of MV Kalangala. Under the contract the Applicant is required to operate MV Kalangala to ensure efficient and reliable services for the people of Kalangala district and the mainland by offering fuel supply and delivery services, vessel voyage scheduling, crew supervision, marketing and public announcements, passenger tickets and manifest, revenue collection, operation on-board of canteen services, carrying out scheduled maintenance, carrying out of minor and unscheduled and corrective maintenance, waste management, and carrying out major maintenance with the approval of the government.

The contract was to commence upon return of MV Kalangala from Tanzania where it had been taken for repair and upon the issuance of a commencement letter to the Applicant by the Ministry of Works and Transport. On 25 February 2015 the Chief Mechanical Engineer of the Ministry of Works and Transport wrote to the Applicant indicating that the Ministry would arrange to hand over the ship to the Applicant as soon as it returned and tentatively in the first week of March 2015. Secondly he wrote that the effective date of commencement of contract in accordance with the terms and conditions of the contract for commercial management of the ship will coincide

Decision of Hon. Mr. Justice Christopher Madrama Izama *^*~?+: 11 with the date of handover. The Applicant was required to arrange to obtain tickets and other logistics in preparation for the handover of the vessel.

The contract was cleared by the Solicitor General in a letter dated 14th of July 2014 and was executed by the parties on 15 August 2014.

It is an agreed fact that the MV Kalangala has not been handed over to the Applicant by the Respondent.

The Respondent’s Counsel raised a preliminary point in objection to the application on the ground that the remedy sought by the Applicant would grant the main remedy which is sought in the intended arbitral proceedings. Secondly he contended that there was no dispute between the parties within the meaning of clause 17 of the agreement that could be resolved through arbitration.

Clause 17 deals with the settlement of disputes and provides as follows:

"17.1 The Procuring and Disposing Entity and the Provider shall make every effort to resolve amicably by direct informal negotiation any disagreement or dispute arising between them and or in connection with the contract or interpretation thereof.

17.2 If the parties fail to resolve such a dispute or difference by mutual consultation within 48 days from the commencement of such submission, either party may require that the dispute be referred for resolution in accordance with the Arbitration Law of Uganda or such other formal mechanisms specified in the SCC."

The Applicant submitted that the Respondent’s Counsel conceded that there was a dispute which had been referred to arbitration when the matter was mentioned in court on 1 July 2015. I have carefully considered the record and it indicates that on 1 July 2015 Counsel Fred Muwema appeared for the Applicant while Senior State Attorney Bafirawala Elisha appeared for the Respondent. The Respondent’s Counsel informed the court that the dispute is about whether the reliefs sought in the application can be granted by the court and the Counsel’s agreed to file written submissions on that issue. This did not amount to a concession that there was a dispute within the meaning of clause 17 of the agreement executed on 15 August 2015.

Decision of Hon. Mr. Justice Christopher Madrama Izama *^*~?+: 12 Secondly the question of whether there is a dispute contemplated by the parties is not ordinarily a matter to be handled under section 6 (1) of the Arbitration and Conciliation Act. Such questions are usually raised under section 5 (1) (b) of the Arbitration and Conciliation Act cap 4 laws of Uganda which has explicit provision in that regard.

Section 6 (1) of the Arbitration and Conciliation Act provides for the right of a party to an arbitration agreement to apply to a court before or during arbitral proceedings for an interim measure of protection and the discretion of the court to grant that measure. The question of whether the dispute sought to be referred or which is the subject matter of the arbitration, is a dispute envisaged by the parties is not for the court to decide and I will give the reason why.

The question of whether a dispute is a dispute contemplated in an arbitration clause or contract is considered under section 5 (1) (b) of the Arbitration and Conciliation Act which provides:

“5. Stay of legal proceedings.

(1) A judge or magistrate before whom proceedings are being brought in a matter which is the subject of an arbitration agreement shall, if a party so applies after the filing of a statement of defence and both parties having been given a hearing, refer the matter back to the arbitration unless he or she finds—

(a) that the arbitration agreement is null and void, inoperative or incapable of being performed; or

(b) that there is not in fact any dispute between the parties with regard to the matters agreed to be referred to arbitration.”

The assertion of fact that there is no dispute between the parties with regard to matters agreed to be referred to arbitration is a ground for refusal to refer a dispute which is the subject matter of a suit filed in court to arbitration. On the other hand section 6 (1) deals with the right of the parties to an arbitration agreement to apply to the court. It provides as follows:

“6. Interim measures by the court.

(1) a party to an arbitration agreement may apply to the court, before or during arbitral proceedings, for an interim measure of protection, and the court may grant that measure.”

Decision of Hon. Mr. Justice Christopher Madrama Izama *^*~?+: 13 The application for an interim measure of protection may be made before or during arbitral proceedings. In this particular application, the application was made before the arbitral proceedings took off. The submission that the Applicant ought to have first exhausted amicable negotiations is a matter that can be raised before any arbitral tribunal that is appointed. Section 16 of the Arbitration and Conciliation Act permits an arbitral tribunal to rule on whether it has jurisdiction to conduct the arbitration. A submission that a reference to arbitration is premature goes to the jurisdiction of the arbitral tribunal. It is a submission that the arbitral tribunal should not consider the claim of the Applicant because the Applicant has not exhausted alternative avenues for resolution of dispute meant to be used before commencement of arbitral proceedings.

In considering whether there is a prima facie case, the question is whether there is an arbitration clause to submit disputes to arbitration which is valid and whether a dispute has arisen between the parties. I agree with the Applicant’s Counsel that a dispute has arisen with regard to whether the agreement between the Applicant and the Ministry of Works and Transport should be modified in certain material respects and connected to that is whether the MV Kalangala should be handed over to the Applicant who is the contracted service provider contracted to manage and operate the MV Kalangala in a contract dated 15 August 2014. As to whether the Applicant is entitled to such a remedy is a matter on the merits of application. The Applicant’s application coupled with the affidavit in support of the application and the Respondent’s affidavit in reply clearly demonstrate that the matter in controversy is whether the Respondent should hand over the MV Kalangala to the Applicant in the circumstances and despite issues raised by the Permanent Secretary Ministry of Works and Transport. There is therefore an arguable case as to whether the Respondent is entitled to continue holding onto the ship pending the said negotiations on matters of the contract.

The Applicant has established that the Chief Mechanical Engineer indicated that what was left was for the Respondents to arrange to hand over the ship upon its return from Tanzania probably in the first week of March 2015. The Applicant was required to obtain tickets and other logistics in readiness for the handover of the vessel to begin the management operations.

The Applicant alleges that it set up offices and started printing tickets. It also alleges that it hired and paid salaries for the requisite staff. It commenced renting accommodation for staff in

Decision of Hon. Mr. Justice Christopher Madrama Izama *^*~?+: 14 Kalangala and acquiring the required equipment. It also commenced payment to other service providers. The Applicant attached a contract for the provision of security services annexure "C1". In annexure "F" to the application and in a letter dated 13th of March 2015, the Applicant informed the Permanent Secretary Ministry of Works and Transport that it had complied with the requirements of the Ministry and tickets were printed and submitted for embossment, on fuel contracts for the vessel secured, offices were rented in Kalangala and Kampala and staff houses were also secured. The Applicant was therefore awaiting the handover of the vessel to commence operations. Subsequently on the 20th of May 2015 the Applicant’s lawyers Messrs Muwema and Company Advocates wrote to the Permanent Secretary, Ministry Works and Transport indicating that the ship had been operating in total disregard of the actions taken by the Applicant in readiness for the handover, the signing of the contract and the fact that the vessel had not been handed over. The Applicant’s Counsel sought an account for the operations of the vessel since March 2015 and demanded a handover of the vessel.

Clause 17.1 of the contract required both parties to make every effort to resolve amicably by direct informal negotiations any disagreement or dispute. There is no evidence of what transpired after the demand of the Applicant. This application was filed on the 29th of May 2015 and in my ruling the filing of the application per se cannot saddle amicable negotiations though it may increase costs. In the premises the Applicant has indeed a question for consideration by an arbitral tribunal as envisaged under clause 17 of the contract because the ship had not been handed over as notified by the Chief Mechanical Engineer and the Permanent Secretary raised many matters which require amendment of the contract after it was executed.

Secondly section 6 (1) of the Arbitration and Conciliation Act provides for an interim measure of protection. An interim measure of protection includes any interlocutory intervention or order that the court may grant pending arbitration proceedings. This may include an order for deposit of security. It may include orders of attachment on the ground that the Respondent is likely to frustrate the outcome of the arbitral proceedings by disposing of the goods and leaving the jurisdiction of the court. I agree it also includes interim injunctions.

In this application the Applicant seeks an order of specific performance of the contract which may be the final order sought by the Applicant in the arbitral proceedings. The Respondent objected to the order sought on the ground that it is a final order and not an interlocutory or

Decision of Hon. Mr. Justice Christopher Madrama Izama *^*~?+: 15 interim order and after granting it would leave the arbitral tribunal with nothing to adjudicate upon.

In this application, the Applicant is seeking an interim mandatory injunction and the principles for the grant of interim mandatory injunctions are discussed below. According to Halsbury's laws of England 4th Edition Reissue Volume 24 paragraph 846, the court has jurisdiction to grant a mandatory injunction and that the jurisdiction must be exercised with the greatest care possible. It is further written that every injunction, whether restrictive or mandatory and all injunctions should be granted with care and caution and no more care or caution is required in the case of a mandatory injunction than a restrictive injunction. In the case of mandatory injunctions in an interlocutory application, paragraph 848 of Halsbury's laws of England (supra) is relevant and provides as follows:

"A mandatory injunction can be granted on an interlocutory application as well as at the hearing, but, in the absence of special circumstances, it will not normally be granted. However, if the case is clear and one which the court thinks ought to be decided at once, or if the act done is a simple and summary one which can be easily remedied, or if the defendant attempts to steal a march on the plaintiff, such as where, on receipt of notice that an injunction is about to be applied for, the defendant hurries on the work in respect of which complaint is made so that when he receives notice of an interim injunction it is completed, a mandatory injunction will be granted on an interlocutory application.”

It is therefore a general principle that a mandatory injunction will be granted in an interlocutory application where there are special circumstances. What amounts to special circumstances is for the court to weigh after assessing the facts and circumstances of the case. Additionally it is written in Halsbury's laws of England (supra) paragraph 899 that as a general rule the proper remedy of a person seeking to enforce the obligations of a positive contract or covenant is by way of an action for specific performance. In this case the Applicant seeks to enforce a positive stipulation for commencement of the contract executed between the parties. Before dealing with the merits of the application, I have also considered Snell’s Equity 30th edition London Sweet and Maxwell 2000 for the principles applied in the grant of mandatory interim injunctions. These principles are summarised at page 737 and paragraph 45 – 49. It is written that the court will seldom ground a mandatory injunction on an interim application before trial. The court

Decision of Hon. Mr. Justice Christopher Madrama Izama *^*~?+: 16 usually requires a high degree of assurance that at the trial it will appear that the injunction was rightly granted. The author further states that a mandatory injunction may be granted even though it amounts to a decree of specific performance of part of the contract.

In East Africa the principles for the grant of an interim mandatory injunction were considered in the case of the Despina Pontikos [1975] EA 38 Spry Ag P who read the judgment of the court held that interlocutory mandatory injunctions should only be granted with reluctance and only in very special circumstances. Secondly the issuance of an injunction by the court is an exercise of judicial discretion. In general and as an equitable relief a mandatory injunction would not be granted where damages would provide an adequate remedy. The court further noted that it would be quite unrealistic to refuse a mandatory injunction on the ground that damages would afford a sufficient remedy, if that remedy is likely to prove illusory.

The question for consideration is whether there are any special circumstances disclosed in this application for the grant of an interim mandatory injunction. Secondly the question is whether damages could provide an adequate remedy if the mandatory injunction is not granted. In exercising the necessary caution I have duly considered the principles relating to injunctions to restrain breach of contract. According to Snell's Equity (supra) at page 744 and 745, the equitable jurisdiction of the court to grant an injunction to restrain breach of contract is closely allied to the court’s jurisdiction to order specific performance of a contract. The author further notes that the natural method of enforcing a contract in equity is by specific performance if the contract is positive and injunction if it is negative. An injunction may also be granted to prevent breach of the law.

In the circumstances I will review the contract terms to ascertain the obligation which the Applicant wishes to enforce as well as consider the legal framework for procurement of services and enforcement of contracts after procurement.

I must note that the contract provides for the commencement of services under clause 8 thereof. Clause 8.1 and 8.2 provides as follows:

"8.1 The Provider shall commence the services within the time period specified in the SCC, after the date of the letter of the acceptance on the date of the agreement whichever is the earlier.

Decision of Hon. Mr. Justice Christopher Madrama Izama *^*~?+: 17 8.2 If the Services have not commenced in accordance with the GCC sub clause 8.1 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."

The contract is meant to commence within the time period mentioned in the Special Conditions of Contract. The Special Conditions of Contract GCC 8.1 provides that the period within which the services shall have commenced is from the resumption of ferry operations and issuance of commencement letter. Secondly GCC 18.1 provides that the services are for one year renewable upon satisfactory performance.

The contractual arrangement is that the contract commences from the resumption of ferry operations as well as the issuance of a commencement letter. I have carefully perused the Applicant’s application on the question of the commencement letter. The commencement letter is dated 25th of February 2015 and its annexure "B" to the affidavit in support of the application for an interim measure of protection. The letter is written by the acting Chief Mechanical Engineer, Engineer J.K. Ngatuna and addressed to the manager of the Applicant. The letter is entitled “COMMENCEMENT OF CONTRACT FOR COMMERCIAL/PRIVATE MANAGEMENT OF MV KALANGALA. PROC. REF. MoWT/Svcs/13 – 14/00420”. In that letter from the second paragraph onwards is written as follows:

"We have reviewed your work plan and found it appropriate for the operations of the ship. However, you are advised to provide shelter for passengers at Lotoboka before boarding.

The Ministry will arrange to hand over the ship to you as soon as she returns, tentatively in the first week of March 2015.

The effective date of commencement of contract in accordance with the terms and conditions of the contract for commercial management of the ship will coincide with the date of handover.

It is, therefore, necessary that you arrange to obtain tickets and other logistics in preparation for the handover of the vessel.

Decision of Hon. Mr. Justice Christopher Madrama Izama *^*~?+: 18 Eng. J.K. Ngatuna

Ag. Chief Mechanical Engineer"

Under the Special Conditions of Contract GCC 4.4 the authorised representatives of the Respondent are, as far as the Procuring and Disposal Entity is concerned, the Permanent Secretary Ministry of Works and Transport, represented by the Chief Mechanical Engineer. The Applicant was tentatively notified of the commencement of the contract in the first week of March 2015. By May 2015 the contract had not yet commenced. The ship has however resumed ferry operations as envisaged in clause 8.2 of the General Conditions of Contract which gives resumption of operations as the time of commencement of the contract. What was left was the letter of commencement which was duly issued in annexure "B".

The question therefore is why the ship had not been handed over since it is admittedly being operated by officials of the Ministry of Works and Transport. The Applicant in the affidavit in support of the application deposed by Sadala Musoke deposes that the ship returned from Tanzania on 6 March 2015. Secondly in paragraph 8 he deposes that the Permanent Secretary resumed ferry operations by recruiting or having other persons to manage and operate the ship which they have been doing since March 2015 until the time of making the affidavit on the 20th of May 2015. In the reply the Permanent Secretary Mr Alex B. Okello deposed in the affidavit in reply paragraph 5 thereof that sometime in March 2015 the technical accounts team with the Ministry of Works and Transport established some fundamental errors in the provision of the signed commercial management agreement and the errors were brought to the attention of the Applicant for necessary amendments. He further sought for legal advice from the Attorney General’s Chambers on how to absence of the security bond; printing of tickets; collection of revenue which require the clearance of the Accountant General; payment of a lump sum bid price which entailed statutory reimbursing such as PAYE and NSSF.

In annexure "B" the Permanent Secretary in a letter dated 29 April 2015 wrote about the requirement for performance security. Clause 45.1 of the GCC provided that "performance security shall not be required". He wrote that this was not acceptable because if the contractor does not perform, the government does not have recourse to any security. Secondly he wrote about the printing of tickets and collection of revenue which must be cleared by Accountant

Decision of Hon. Mr. Justice Christopher Madrama Izama *^*~?+: 19 General which had not been done. Finally he wrote that the bid price which was a lump sum figure included some reimbursing is which were illegal such as "PAY AS YOU EARN" (PAYE).

The Permanent Secretary relies on a letter from the Solicitor General and annexure "C" received by the Ministry on the 21st of May 2015 and written on the 19th of May 2015 in which reference was made to clause 11.1 and 1122 as well as 11.4 and 4.2 of the General Conditions of Contract. Clause 11.1 enables the procuring and disposing entity at any time to request the provider through notice to make changes to the contract by agreement to an amendment of the contract.

Secondly clause 11.2 provides for the event of any change by amendment which may cause an increase or decrease of the costs or the time required for the provision of performance of the contract. Thirdly clause 11.4 provides for an amendment to be signed by both parties following agreement to the proposed changes required. Finally clause 4.2 provides that an amendment or modification or any variation shall not be valid unless signed by the duly authorised representatives of each party.

The import of the letter relied on by the Respondent has nothing to do with commencement of services but with amendment of the contract to take into account the issue of performance security bond; printing of tickets; collection of revenue; clearance by the Accountant General; payment of the lump sum bid price and certain statutory contributions of tax and Social Security Fund for employees. Last but not least the Permanent Secretary admitted in paragraph 11 of the affidavit in reply that his ministry has never recruited other persons to operate the ship but the ship is under the operation of the Ministry of Works and Transport. In other words he admitted that the ferry resumed operations under the management of government officials.

I have carefully considered the law regarding the award of contract and the commencement and the legality of the contract.

On the formation of a contract, the Public Procurement and Disposal of Public Assets Regulations, 2003, Statutory Instrument 2003 No. 70 and the regulation 230 provides that:

“230. Formation of a contract

Decision of Hon. Mr. Justice Christopher Madrama Izama *^*~?+: 20 (1) Where a bid is still valid and the letter of bid acceptance or contract document do not contain any counter offer, a contract shall be formed when the letter of bid acceptance or the contract document is signed and issued by a procuring and disposing entity.

(2) Where a contract is formed by the issue of a letter of bid acceptance, the letter shall remain in force until replaced by a contract document which shall state that it replaces the letter of bid acceptance and that it is not a separate or additional contract.

(3) A procuring and disposing entity may require the provider to countersign and return a copy of the contract document, but such signature shall be for confirmation purposes only and shall not constitute acceptance of the contract.”

The regulation provides that a contract shall be formed when the letter of bid acceptance of the contract document is signed and issued by a procuring and disposal entity. In this case the parties executed a contract on 15 August 2014. At the time of execution of the contract, the subject matter of the contract which is MV Kalangala, a ferry/ship was in Mwanza Tanzania. The contract was executed by both parties and thereby fulfilling the requirements of regulation 230 above. Secondly the question is whether the contract was effective. This is provided for by regulation 231 of the Public Procurement and Disposal of Public Assets Regulations, 2003, which provides as follows:

“231. Contract effectiveness

(1) Contract effectiveness shall be as specified in the contract but may depend upon the fulfilment of one or more conditions which may include, but are not limited to receipt by —

(a) a procuring and disposing entity of a performance security;

(b) a procuring and disposing entity of an advance payment guarantee;

(c) a provider of an advance payment; or

(d) a provider of an acceptable letter of credit.

Decision of Hon. Mr. Justice Christopher Madrama Izama *^*~?+: 21 (2) A procuring and disposing entity shall promptly fulfil all its obligations relating to contract effectiveness.

(3) Where a provider—

(a) fails or refuses to sign a contract without due cause;

(b) fails to provide the required performance security within the specified time; or

(c) fails to fulfil any other condition of contract effectiveness, the procuring and disposing entity shall proceed to award a contract to the next best evaluated bidder from among the remaining bidders.

Regulation 231 (1) provides that the effectiveness of the contract may depend on the terms of the contract. Furthermore its effectiveness may be limited by certain conditions in the contract such as the question of performance security, advance payment, acceptable letters of credit etc.

In this case the contract was signed and expressly stipulates that performance security shall not be required. The only stumbling block to full implementation of the contract is that the Respondent would like to have certain clauses renegotiated. The renegotiation however presupposes a valid and effectual contract. The law envisages negotiation by parties for acceptable terms after they are in a contractual relationship. For the moment the question of whether the contract should be amended or not has nothing to do with the validity of the contract. It has nothing to do with the obligations of both parties under the existing contract in terms of the provision for the Applicant to provide the contracted services.

The contract was supposed to be for a period of one year only. Even though it is renewable, for the contract to delay as it has done so far defeats the purpose of the procurement process which went up to the stage of negotiations, clearance of the contract by the Solicitor General as well as the execution of a written agreement which is binding. The question of any desired amendment can only be renegotiated with the necessary notice stipulated by the Solicitor General in the letter dated 19th of May 2015 and annexure "C" to the affidavit of the Permanent Secretary Ministry of Works and Transport. According to the letter of the Solicitor General, changes to the contract are by agreement through notice under GCC clause 7 to make the necessary changes. Furthermore the Solicitor General gave guidance on the cost implications of any amendment which is also

Decision of Hon. Mr. Justice Christopher Madrama Izama *^*~?+: 22 provided for in the contract. All the recommendations of the Solicitor General do not require stopping operation of the contract by not handling over the ship to the Applicant.

I need to add that the intention of Government is to outsource the provision of management services for the MV Kalangala. The government officials have however been operating the MV Kalangala since March 2015. It is now August 14th 2015 and close to a period of five months from March 2015. Moreover the written contract was executed on the 15th of August 2014. Yet the contract stipulated an initial period of one year which is renewable. The procurement process is an expenditure on the government while the applicant has incurred costs pursuant to award of contract and execution of the agreement for provision of services.

The Applicant has established a prima facie case of a dispute relating to questions of contractual clauses and terms of the contract and its interpretation which dispute is appropriate for arbitration under clause 17 of the general terms of contract. Secondly it is unnecessary to prevent the provider from providing services as the negotiations on amendment of contractual terms are matters that can be commenced immediately without affecting the services. I must add that an amendment of any term presupposes an existing term and not that the contract has not commenced or is not effective. Such amendments are through negotiations and recognise the right of the Applicant who has acquired certain rights as in the existing contract. The Government is not exercising unilateral rights in that regard. But if the contract has not even commenced why negotiate for amendment of contractual terms?

Thirdly procurement is a time bound process and envisages a period of one year for the provision of services. From the execution of the agreement on 15 August 2014, it is now close to one year since the execution of the contract. The Respondent has not given any notice in terms of GCC 8.2 which prescribes four weeks written notice to the other party to declare the contract to be null and void if it has not commenced under clause 8.1. A letter of commencement has already been issued for commencement of the contract by the Chief Mechanical Engineer in March 2015 upon return of the ferry from Tanzania. The Respondent has not raised any issue of the competence of the Applicant in terms of its technical ability to provide the services. The Applicant was vetted by a statutory body under the Public Procurement and Disposal of Public Assets Act 2003 and awarded the contract and further, a written contract was signed.

Decision of Hon. Mr. Justice Christopher Madrama Izama *^*~?+: 23 Before concluding the matter, I do not agree that the Applicant’s application grants the final remedy. The dispute thus far is not about the competence or appropriateness of the Applicant but is about terms of the services. Secondly the Respondent has not exercised any contractual remedy of bringing the contract to an end. Lastly the matter having been filed in court, the parties will be obliged to abide by the resolution of the issue by this court. Furthermore I do not agree with the submissions of the Respondent’s Counsel that granting the remedy would disrupt socio economic development in Kalangala District. This was on the question of balance of convenience. It is the intention of Government to grant the management of MV Kalangala to private managers and the Applicant was outsourced for this purpose.

I see no prejudice to the Respondent or to the public if the Respondent is allowed to do what it was contracted to do in the first place pending arbitration proceedings on the proposed amendments, which amendments are proposed by the Respondents Permanent Secretary Ministry of Works and Transport.

All in all from the facts and the grounds for the grant of an interim mandatory injunction as well as the law reviewed above, I find that this is an appropriate case for the issuance of an interim measure of protection by the issuance of a mandatory injunction pending arbitral proceedings between the parties.

An interim measure of protection issues directing the Respondent, who is represented by the Ministry of Works and Transport, to hand over the ship MV Kalangala to the Applicant who has already executed a valid and binding legal contract with the Respondent’s servant to manage and operate the ship MV Kalangala. The ship shall be handed over with immediate effect.

The costs of this application are a matter that is referred to the arbitral tribunal and shall be determined by the arbitral tribunal.

Ruling delivered on 14 August 2015

Christopher Madrama Izama

Decision of Hon. Mr. Justice Christopher Madrama Izama *^*~?+: 24 Ruling delivered in the presence of:

Andrew Oluka for the Applicant

Susan Akello Apita State Attorney

Sadala Musoke MD of applicant in court

Charles Okuni: Court Clerk

Christopher Madrama Izama

14/08/2015

Decision of Hon. Mr. Justice Christopher Madrama Izama *^*~?+: 25