CASE SUMMARY
Miscellaneous Commercial Cause Nos. 25 & 11 of 2021- High Court of Tanzania, Commercial Division at Dar es Salaam.
Date of Ruling: 17 September 2021
Full Ruling available here: https://tanzlii.org/tz/judgment/high-court-commercial-division/2021/3337-0
The Respondent signed a contract worth USD 39,000,000 with the Petitioner for designing, building, supplying and commissioning a new vessel in Lake Victoria. The contract’s applicable conditions were Conditions of Contract for Designing and Building of Construction Works 2018, issued by the Public Procurement Regulatory Authority (PPRA) and effective from 17 January 2019 for a 24-months duration. During execution of the contract, the Respondent claimed for a revision of the contract price by a USD 1,513,750 addition as a means to set off the claimed incurred additional amounts for hiring cranes during assembly and fabrication of the new vessel. The Petitioner refused to pay the additional sum and therefore a dispute arose. The parties failed to settle the matter amicably thus the Respondent initiated the arbitral process at the National Construction Council (NCC) and commenced arbitration before the sole Arbitrator appointed. The Petitioner challenged his jurisdiction unsuccessfully.
In the Final Award, the Sole Arbitrator rejected the then Respondent’s (now the Petitioner) jurisdictional challenges and decided that he was vested with requisite jurisdiction; partly allowed the then Claimant’s (now the Respondent) Claim for Revision of the Contract sum from USD 39,000,000 to USD 40,513,750 by adjusting it, only adding a total of USD 1,333,750 to the original contract sum instead of the claimed USD 1,513,750; shouldered the parties to a liability of jointly and severally paying the costs of the arbitration (each being required to pay TZS 6,435,800); ordered each party to bear its own costs and denied any other relief not specifically addressed in the award.
CHALLENGE OF AWARD PROCEEDINGS
The Respondent then sought leave of the Court to have the award enforced in the same manner as a judgement of the Court pursuant to Section 73(1) of the Arbitration Act, [Cap.15 R.E 2020]. However, the Petitioner having the right to challenge the Award as provided under Section 73(3) of the Act, filed a petition on 19 May 2021 against the filing and enforcement of the Sole Arbitrator’s Award pursuant to Rule 63(1) of the Arbitration (Rules of Procedure) Regulations, G.N 146 of 2021.
In its Petition, the Petitioner prayed for the following orders that: (i) the whole Award be set aside on the basis of there being misconduct and irregularity; (ii) the Award be declared of no effect; (ii) costs of the petition be granted and (iv) any other order(s) /relief this honourable Court may deem just and proper to grant in the interest of justice.
The grounds of challenge were:
i. That the arbitrator misdirected himself and committed serious irregularity when he proceeded with the making of the award without having any pre-requisite jurisdiction.
ii. The Arbitrator misdirected himself when he directed that he had jurisdiction to determine the matter, ignoring the submission by the Petitioner as regards his jurisdiction.
iii. The Arbitrator misdirected himself and committed a serious irregularity by acting with bias when he issued Order of Direction No. 2 on 12 November 2020 which overruled the Petitioner’s (then the Respondent) preliminary objection before receiving confirmation of the Claimant letter Ref. No. GET/TZ/2019/118 from the Petitioner’s (then, the Respondent) Advocate as directed by himself to be furnished with it on 17 November 2020.
iv. That, the arbitrator misconducted himself and committed serious irregularity as the award is marred with uncertainty or ambiguity for failure to interpret contractual provisions between the parties as regards who had a duty to provide cranes.
v. That, the Arbitrator misconducted himself and committed serious irregularities due to his failure to properly interpret the limit of powers of the Project Manager as per Clause 3.1 of the GCC.
vi. That the Arbitrator has committed serious irregularity for failure to consider and determine the issue on distinction between the contract for Lot 1 and Lot 2.
vii. That, the Arbitrator misconducted himself and has committed serious irregularities in awarding USD 1,333,750 to the Respondent without any proof or justification warranting for such an award.
DECISION
- The Judge held that for an Arbitral Tribunal to be regarded to have acted without jurisdiction it must have acted outside the agreed terms in the contract agreed to by the parties. But since the establishment of a Dispute Adjudication Panel after failure of amicable settlement between the parties was not a necessary step to follow then the Sole Arbitrator had acted within his conferred jurisdiction as per the contract.
- The decision by the Sole Arbitrator was made after both parties were heard. It was held that since both parties had presented their submissions before the Sole Arbitrator and the subsequent ruling dismissing the objection to jurisdiction was in fact based on said submissions then the petitioner’s right to be heard was afforded and therefore not ignored.
- The court was of the view that for a claim of biasness to be considered, such bias needs to be obvious and apparent to a reasonable man. Bias or partiality was not apparent from the conduct of the Sole Arbitrator because the letter that was received after the ruling that overruled the objection, was not of a decisive effect to the decision.
- The matter of failure to interpret a contractual provision cannot be brought before the court through a petition to set aside an arbitral award. The reasoning of the court was that a court tasked with setting aside of an arbitral award does not have the same powers as an appellate court. The Court is merely there to ensure that said award is proper and valid at the face of it. Hence, the valid mode of recourse would have been to state in a form of special case to the court on the claimed failure to interpret such contract.
- The Court held that a decision made by an Arbitrator shall not bless an illegality. The Arbitrator was wrong in awarding the Respondent an additional amount whilst the agreement entered into by the parties required the Project Manager to seek for approval from the employer should any variation to the contract price be needed. The variation of the contract price without prior approval from the employer violated both the contractual terms and the law. Regulations 110(5) to (8) of the Public Procurement Regulations, G.N. No.446 of 2013 requires a contractor or project manager to always seek for approval whenever the need to amend a contract arises. The aim of the provision being to reduce risk of mismanagement and/or loss of public funds and thus to align with public policy. Finally, the Judge relied on Section 75(2)(g) of the Arbitration Act, [Cap 15 R.E 2020] to uphold ground number five of the petition.
- The non-consideration of the issue on distinction between contract for Lot 1 and Lot 2 does not fall under the law as a “serious irregularity”. Section 75(2) of the Arbitration Act, [Cap 15 R.E 2020] provides for serious irregularities that can be employed to challenge an arbitral award however the Judge held that such provisions are not applicable to the ground but rather such issue would have been properly raised through Section 76 of the Arbitration Act, [Cap 15 R.E 2020] and stated in a form of special case as a point of law.
- An arbitrator is not required to provide an exhaustive account of each argument brought forward by the parties. An arbitrator is only required to provide reasons that are clear enough to a degree that allows a reader to understand how a particular decision was arrived at. The Court stated that the required reasons for an arbitral award were indeed given by the Arbitrator thus the absence of an arithmetic breakdown did not amount to an irregularity or a breach of Section 59 and 75(2)(h) of the Arbitration Act, [Cap 15 R.E 2020].
CONCLUSION
- When seeking to challenge an arbitral award on serious irregularity, an aggrieved party should be aware that whatever right they are seeking for must be capable of realization within the confines of the law as provided under Section 75(2) of the Arbitration Act, [Cap 15 R.E 2020]. Therefore, where a Petitioner seeks to set aside an arbitral award, they should be armed with grounds which correlate and are therefore maintainable as per said provisions. One should not approach setting aside of an arbitral award on serious irregularity as a sort of appeal since the Court entertaining such petition shall not have powers of reappreciating evidence and facts of the dispute nor assessing the quality of the Arbitrator’s decision. And as such the Court is limited in its power. Hence, where a question of law arises out of an arbitral award which does not touch on a serious irregularity, as per Section 75(2) of the Arbitration Act, [Cap 15 R.E 2020], it is best, as was similarly recommended by the presiding Judge, to employ the use of Section 76 of the Arbitration Act, [Cap 15 R.E 2020] which will enable said party to argue on said point of law before the Court and to, therefore, reap similar reliefs as would have been obtained from challenging the award as per Section 75 of the Arbitration Act, [Cap 15 R.E 2020] without being placed under the confines of Section 75(2) of the Arbitration Act, [Cap 15 R.E 2020] which limit what amounts to a serious irregularity.
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