VIP Engineering & Marketing Limited vs Societe Generale de Surveillance (S.A) and Another (Commercial Case No. 16 of 2000) [2000] TZHC 540 (28 September 2000)

,i IN THE HIGH COURT OF TANZANIA (COMMERCIAL DIVISION) AT DAR ES SALAAM COMMERCIAL CASE N0.16 OF 2000 VIP ENGINEERING & MARKETING LIMITED ---- PLAINTIFF VERSUS

1. SOCIETE GENERADLE DE SURVEILLANCE (S.A}]---- DEFENDANTS
2. TANZANIA REVENUE AUTHORITY ] RULING NSEKELA, J. In Civil Case No.16 of 20,00, the plaintiff is VIP Engineering & Marketing Ltd, a limited liability company incorporated in the United Republic of Tanzania. The 1 st defendant is Societe Generale de Surveillance (SGS), a limited liability company incorporated under the laws of Switzerland with a liason office in Dar-Es-Salaam and the 2 nd defendant is the Tanzania Revenue Authority established under the Tanzania Revenue Authority Act No.11 of 1995. The plaint was filed on the 15.5.200. On the 6.6.2000, the 1 st defendant filed a chamber summons under Order XLIII rule 2; Sections 68 (e) and 95 of the Civil Procedure Code, 1966 and section 6 of the Arbitration Ordinance, Cap. 15 seeking, inter alia, the following order - " (a) That the Hon. Court may be pleased to stay the proceedings pending reference of the dispute to the arbitration as provided in the PSI Agreement referred to in para 4 of the Plaint." The chamber summons is supported by an affidavit affirmed by the learned advocate for the 1 st defendant, one Mustafa Hassanali Chandoo. The said affidavit provides in part as follows: - "4. That in its plaint the plaintiff made the PSI Agreement as its exhibit and relied on it to found its claim against the _ -: . ·:--.:;:-st defendant. ,<·\'1 Ut- 1'.A ·-- ,._ 'I:::-~ ... ,.,,,~ .!$~ ,;,\ ~;../f[Y;J i; ~';;;.: '~'f:, -:.;Jj_-:~~~- . J I /

2 5. That on the instructions of the 1 st defendant I have given notice on ? June, 2000 of the 1 st defendans intention to apply to stay the proceedings pending the reference of the dispute to arbitration as provided in the PSI Agreement between 1 st and? defendants. 6. That the 1 st defendant has not filed any written statement nor taken any step in the proceedings. 7. In support of this application the 1 st defendant relies on the said PSI Agreement referred to in paras 4 and 5 above. 8. That in Art. 7 in the said PSI Agreement there is the arbitration clause which stipulates that any dispute which cannot be settled amicably shall be referred to arbitration in the manner stated therein. 9. That the plaintiff in so far as it claims to be privy to the said PSI Agreement did not refer the matter to arbitration. " As regards the plaintiff/respondent, a Counter-affidavit affirmed by Ms. Hawa Bayona was filed in court on the 20.6.2000. It provides in part as under- " 3(a). ..................... .. (b) In reply to paragraph 4 of the affidavit, I state that save for the fact that the PSI Agreement has been mentioned in the plaint as an exhibit, it is denied that the suit is founded on the breach of the PSI Agreement. (c) Save for the fact that the Notice of Intention to apply to stay the proceedings was misconceived, and not according to law, paragraph 5 of the affidavit is not disputed. (d) As far as paragraph 6 of the affidavit is concerned, I state that the record will show that on tf11 June 2000, learned Counsel for the applicant,/ first defendant, appeared in court and undertook to file written statement of defence in the afternoon on the same day. Written statement of defence was duly filed on gh June 2000 wherefore, it is not true :."!>:. .... that the first defendant has not filed any defence to ,- f0;/he, case or taken a step in the proceedings herein. / "I, .. - ✓, . ""• .... ~ • - ·~' j ~.. • ~,. , " I:;_. 1 , :.::· f1:- .. -

3 {e)........................ . {f) Paragraph 8 of the affidavit has been noted but the plaintiff further restates that the said Article 7 of the PSI Agreement does not bind the plaintiff. {g) In reply to paragraph 9 of the affidavit I have been instructed to state that the plaintiff/ respondent is not a party to the PSI Agreement and had no obligation to refer the dispute to arbitration and further that even the 1 st defendant chose not to refer the dispute to arbitration when it was given notice of the intended suit by the plaintiff as it also did not recognise such an obligation. (h) ............................... . 4. The applicant has not moved the court properly in this application as required under the law. 11 With the concurrence of the' learned advocates for the parties, written submissions were made. I am grateful to all of them for the research involved and the vigour with which this application was pursued. It will be recalled that the chamber summons was brought under Order XLIII rule 2; sections 68(e); 95 of the Civil Procedure Code, 1966 and section 6 of the Arbitration Ordinance, Cap. 15. Under Order XLIII rule 2 of the CPC applications to the court are made by chamber summons supported by affidavit. On the other hand rule 5 of the Arbitration Rules, 1957 provides - " 5. Save as is otherwise provided, all applications made under the Ordinance shall be made by way of petition. " The applicant herein invoked both the CPC and the Arbitration Ordinance and the question that arises is, should the application be made under the CPC or under the Arbitration Ordinance? The applicant/1 st defendant has submitted that the two sets of rules are not mutually exclusive and that rule 5 of the Arbitration Rules permits other ways of making applications. The respondent/plaintiff however contends that in so far as the applicant made the application under section 6 of the Ordinance, then rules 5 and 10 of the Arbitration Rules, 1957. came into play. Section 64 of the CPC is in the following

4 " 64. Save in so far as is otherwise provided by the Arbitration Ordinance, or by any other law for the time being in force, all references to arbitration whether by an order in a suit or otherwise, and all proceedings thereunder, shall be governed by the provisions contained in the Second Schedule. '' And section 3 of the Arbitration Ordinance provides as follows - " 3. This Part of this Ordinance shall apply only to disputes which, if the matter submitted to arbitration formed the subject matter of a suit, the High Court only would be competent to try: Provided that in regard to disputes which, ,t they formed the subject of a suit would be triable otherwise than by the High Court, the Governor may with the concurrence of the Chief Justice confer the powers vested in the court by this Part either upon all subordinate courts or any particular subordinate. court of class of court. " The cumulative effect of section 64 of the CPC and section 3 of the Arbitration Ordinance is that the former is subject to the latter, that is section 3. According to paragraph 40 of the plaint the value of the subject matter of the suit is US$ 775,611.85 which is well above the pecuniary jurisdiction of this Court. It is therefore the Arbitration Ordinance which applies and not the Second Schedule to the CPC. (See: Kassam Ahmed v Mohamed Dewshi & Sons Ltd {1973} LRT n 42'). On reading the contents of the affidavit in support of the application, it is clear that the application is for stay of execution pending arbitration. True it is headed "Chamber Summons"instead of "Petition'; but this to me is a minor procedural irregularity which has occasioned no prejudice to the respondent/plaintiff. In Civil Application No.47 of 1996 VIP Engineering & Marketing Ltd v Said S Bakhressa(unreported), Samatta, J.A (as he then was) speaking for the Court, had this to say - " There can be no rational dispute over the fact that procedural rules are enacted to be complied _ with. Usually there is a legal principle behind every -{ftRf- o~~rocedural rule. But those rules differ in importance. , , ., ~ -~- Some are vital and go to the root of the matter: these ..... ~~ ~. ~ -. ~ fnnot be broken. Others are not of that character ~ ~~., -, {:~~~ . '. (i= f:},).. ,_: ;)•~~ I ' ~~]?::>; f ' .\ ·.~ .... :.'"'",,J .. ".'-1,./ ' .. :·- ..... _:--:-, ·,,: !ti

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5 and can, therefore, be overlooked provided there is a substantial compliance with the rules read as a whole and provided no prejudice is occasioned. lSee also: Fortunatus Masha v William Shija and Another {1997} TLR 154). In the result, I overrule the learned advocates for the respondent/plaintiff objection on this point of procedure. I now proceed on to consider section 6 of the Arbitration Ordinance. It provides as follows - " 6. Where any party to a submission to which this Part applies, or any person claiming under him, commences any legal proceedings against any other party to the submission or any person claiming under him, in respect of any matter agreed to be referred, any party to such legal proceedings may at anytime after appearance, and before filing a written statement, or taking any other steps in the proceedings, apply to the court to stay the proceeding and the court, if satisfied that there is no sufficient reason why the matter should not be referred in accordance with the submission, and that the applicant was, at the time when the proceedings were commenced, and still remains, ready and willing to do all things necessary to the proper conduct of the arbitration, may make an order staying the proceedings." The crucial question to be decided by this Court is whether or not Commercial Case No.16 of 2000 should be stayed pending a reference by the applicant/1 st defendant to refer the suit to arbitration in terms of section 6 of the Arbitration Ordinance quoted above. The first requirement under section 6 is the presence of a ''submission "by the parties involved to refer their present or future differences to arbitration. ''Submission" has been defined in the Ordinance as follows - ''submission" means a written agreement to submit present or future differences to arbitration whether an arbitrator is named therein or not. " The applicant/1 st defendant had this to say in the written submissions - "The 1 st defendant contends that since the plaintiff has made the PSI Agreement the sheet auchor of the plaint and relied on it to found many of its allegations, then the plaintiff is bound by the provisions of the said PSI Agreement including the provision for arbitration. For

6 this purpose the plaintiff is deemed to be "any person daiming under. "(Section 6 of the Arbitration Ordinance). The plaintiff cannot pick and choose only those clauses of PSI Agreement, which are favourable to the plaintiff and refuse to be bound by the rest The plaintiff must take the rough with the smooth. The plaintiff is bound by the PSI Agreement for all purposes. " Under section 6 of the Arbitration Ordinance the first pre-requisite before invoking it, is that there must be a submission to arbitrate, that is the existence of a written agreement to submit present and future disputes to arbitration. It is not in dispute by the parties that the Pre-shipment Inspection Agreement was entered into between the applicant/1 st defendant and the 2 nd defendant (Tanzania Revenue Authority). The details of its contents need not detain us. What is obvious however is the uncontroverted fact that the respondent/plaintiff was not a party thereto and I have not seen any clause in the said agreement making any reference to or incorporating the respondent/plaintiff. It has been said that the very foundation for the jurisdiction of the court to stay a trial-of a suit is the existence of an arbitration agreement. The applicant/1 st defendant has come to court asserting that there is such an agreement while on the other hand, the respondent/plaintiff is disputing the existence of such an agreement, but the applicant/1 st defendant has strongly argued that the respondent/plaintiff must be deemed to have been a party under the PSI Agreement. It is definitely an ingenious argument, but I am not prepared to accede to it. It is not part of the judicial function of the court to "force" unwilling parties to a contract. This is not, in my view, a case whereby the respondent/plaintiff is wriggling out of a concluded bargain. He is not disowning his signature on the PSI Agreement. It is plainly not there! But the applicant/1 st defendant has moved a step further by arguing that he is" any person claiming under him. "I am equally not persuaded by this submission. In what capacity would the respondent/plaintiff be claiming under the applicant/1 st defendant? There is no affidavit evidence on this matter. As legal representatives; as assignees of the contract or whatever? In the result, the applicant/1 st defendant has not been able to jump over the first hurdle that he was a party to a submission in terms of sections 2 and 6 of the Arbitration Ordinance read 9@-J.. was inclined to end here and dismiss the application forthwith but as I have 00~ ',1 :··~ ❖ . ,. , (.. ~ .. '~ . .... ,... ••\ ·-,., " /M ~ ~:r ' ~ \ f , ••• ,, -~~.;!.,. 7 , /-.j.J, ,;jJ . i\ :'i: It/·•;;/).v.'-- . 1 k-'ft. Y:. ~ ::;;:,' ...,...., .. . ..' \ --:fJ.:,s,:: • ,. '/ "' ,, ' ~ . , I... .,,,," , .'

7 stated earlier on, the learned advocates did canvass a wide area in their written submissions. It is only fair in the circumstances that I do express my views on another issue that was extensively canvassed by them. The most hotly contested issue was whether or not the applicant/1 st defendant had made an application for stay of proceedings at any time after appearance and before filing a written statement, or taking any other steps in the proceedings. Mr. Chandoo has very helpfully set out the sequence of events that happened since the respondent/plaintiff filed the suit on the 15.5.2000. The summons for appearance and filing of the written statement of defence together with a copy of the plaint was served on the applicant/1 st defendant on the 16.5.2000 requiring him to file the written statement of defence within twenty-one days of service of the notice upon him and that the case would be mentioned on the 6.6.2000. According to Mr. Chandoo, the first appearance was to be on the 6.6.2000 and consequently no application could be made before this date. On the 2.6.2000 however, Mr. Chandoo gave notice to the effect that after appearance, he would apply to the court to stay the proceedings pending a reference of the dispute to arbitration. The learned advocate contended that after appearance on the 6.6.2000 and before filing the written statement of defence, the applicant/1 st defendant first filed the chamber summons for stay and obtained GRR No.09359987 and soon thereafter filed the written statement of defence since it was the last day mentioned in the summons and GRR No. 09359988 was issued. On their part the learned advocates for the respondent/plaintiff submitted that the applicant/1 st defendant had already taken a step in the proceedings by filing a defence and could not now seek to enforce the arbitration agreement under section 6 of the Arbitration Ordinance and referred to a number of cases including Pitchers Ltd v Plaza {Queensbury) Ltd {1940} I.All ER 151; Maluki v Oriental Fire & General Insurance {1973} EA 162 and Motokov v Auto Garage and Others {1970} EA 429.The applicant/1 st defendant does not dispute the fact that the summons that was served upon him on the 16.5.2000 was for appearance and to file the written statement of defence within twenty-one days. The cut-off date for filing the written statement of defence was the 6.6.2000. What exactly happened on the 6.6.2000? The record, in part, reads as follows: - -r"o,~~ e·' - -1,f~ ~~ :\ -.-, .. s- ~~~~~ ;. \ ~ \

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8 "Date 6.6.2000 Coram: H.R. Nsekela, Judge. For Plaintiff - Dr. Tenga assisted by Ms H.Bayona. For 1 st Defendant - Mr. Chandoo For rt Defendant - Mr. Beleko CC: R Mtey. Mr. Chandoo: Later on today the 1 st defendant will be filing the written statement of defence. The contents of the notice will be part of the written statement of defence. Order: The 1 st defendant to file his papers today i.e. 6.6.2000 and serve the same to the zid defendant and the plaintiff. The plaintiff in turn should make a reply thereto by the 20.6.2000. The plaintiff should reply to the Z1d defendants written statement of defence by the 20.6.2000. Mention on 22.6.2000 at 11.00a.m. It is accordingly ordered. H.R.Nsekela, J 6.6.2000." The notice Mr. Chandoo is referring to is the one sent to the court on the 2.6.2000. It is clear from the record that on the 6.6.2000 when Mr. Chandoo entered appearance on behalf of the applicant/1 st defendant, he informed the court that he was going to file the written statement of defence later that day and that the contents of the notice will form part of the defence. Indeed that is what Mr. Chandoo did in fact do! But he adds he filed the chamber summons first and then the written statement of defence. In his own words, this is what he said on page 6 of the written submissions - " The first appearance was scheduled on tfh June, 2000 at 8. JO in the morning. Therefore no application could have been made before appearance on t1'1 June 2000. However on Z1d June, the 1 st defendant gave notice that it would, after appearance, apply to stay the proceedings pending reference of the dispute to arbitration. So the 1 st defendant made its intention absolutely clear and declared its readiness and willingness at the commencement of the legal proceedings to do all things necessary to the proper conduct of the arbitration. This was done even -•n,(ore entering appearance. 01..,v·- ·1,y.~ ,. ~ /2. ,;,.,.., - 1.::, .,,. ' I .._ _. /:·.....,..c,V-'T'>. 7 J ~ . '1 ·: ; = .,. 1. \ ••• . \ ... .:{• I ~ ;✓,, ,, .. ,, Y. iJ,'t5¥.'i-:i:" . \ •• '"'-, ,-~ l~.,

9 d11 June, 2000 was also the last date under the summons by which the 1 st defendant had to file its Written Statement of Defence. The pt defendant therefore had no choice but to appear on the d'1 June and also to file its Written Statement of Defence on the same date. Such compulsion cannot disclose an unambiguous, intention to give up the benefit of the arbitration agreement. H _ It is my considered view however that on the 6.6.2000 when Mr.Chandoo entered appearance on behalf of the applicant/! st defendant as indicated in the summons, he could have raised the question of the arbitration agreement as contained in the PSI Agreement (assuming of course that it was a submission in terms of section 2 of the Arbitration Ordinance) and could have applied that the suit be stayed pending arbitration. On the other hand, he could have proceeded on with the hearing of the suit. Before simultaneously filing the chamber summons in which he sought to stay the proceedings and the filing of the written statement of defence, Mr. Chandoo stated that the written statement of defence would be filed later on in the day. In the Indian case of Food Corporation of India and another v Yadav Engineer Contractors, AIR 1982 SC 1302 the Supreme Court of India had occasion to construe section 34 of the Arbitration Act, 1940 which is in pari materia with section 6 of the Arbitration Ordinance. Speaking through Desai, J the court stated at page 1307 as under - " The legislature by making it mandatory on the party seeking benefit of the arbitration agreement to apply for stay of the proceedings before filing the written statement or before taking any other steps in the proceedings unmistakably pointed out that the filing of the written statement discloses such conduct on the part of the party as would unquestionably show that the party has abandoned its rights under the arbitration agreement and has disclosed an unequivocal intention to accept the forum of the court for resolution of the dispute by waiving its right to get the dispute resolved by a forum contemplated by the arbitration agreement. When the party files written statement to the suit it discloses its defence, enters into a contest and invites the court to adjudicate upon the dispute. Once the Court is invited to adjudicate upon the dispute there is no question of then enforcing an arbitration agreement by forcing the parties to resort to the forum of their choice as set out in ---.-=----e arbitration agreement. This flows from the well settled \T 01;~~ 1/:·· -1- ., '\ .-1-:- is ·. ~~ ' .. . '~ ,:...;·,t~~ l~ fjj·::£, I;,.;;·.~."' .. ., i. , '\A: (' ; .., ,.7 \ •!..a . . -,J:. ~I,- !..(, <.I.'•P":r..- · .• ":! :: 1 ~-· 8 • .::, '· f_ •

principle that the court would normally hold the parties to the bargain." I am in entire agreement with these views. The applicant/ 1 st defendant simultaneously 1 ./ith the filing of a chamber summons on the 6.6.2000, filed the written statement of defence. This was his own undoing. It is my humble view that it is no answer to state that by filing the defence the applicant/1 st defendant was complying with the twenty-one days deadline in which to do so. I am of the settled view that by filing the written statement of defence, the applicant/1 st defendant unequivocally abandoned its rights under the purported arbitration agreement and by this action subjected itself to the jurisdiction of the court to adjudicate upon the dispute on the merits. In view of section 6 of the Arbitration Ordinance and the various legal authorities I have referred to above including Construction Engineers and Builders Ltd v Sugar Development Corporation {1983} TLR 13, I am of the view that a stay should be refused and I do refuse it. The application is hereby dismissed with costs to the respondent/plaintiff. It is accordingly ordered. H. R. Nsekela, Judge 28.9.2000 Ruling delivered in the presence of Ms. H.Bayona and Mr. Chandoo, learned advocates for parties. H.R.Nsekela, Judge. Order: Mention on 17.10.2000 at 11.00a.m. H.R.Nsekela, Judge 28.9.2000.