Why the bare arbitration clause works in Uganda

Phillip Karugaba

& Esther Namugenyi

Abare arbitration clause, like the one included in the Ugandan government s contract with Vinci Coffee, merely provides for the submission of disputes to arbitration without specifying the place of the arbitration, the number of arbitrators or the method for establishing the arbitral tribunal.

In Lakeside Dairy v International Centre for Arbitration and Mediation in Kampala v Midland Emporium (Mubiru J), the court ruled that such a clause remains valid and binding if the parties have shown a clear intention to settle any dispute by arbitration.

The arbitration clause is sometimes referred to as a champagne clause, because it is often drafted halfheartedly while the parties are toasting the successful negotiation of other clauses; or a sunset clause because it is drafted late in the evening; or the honeymoon clause because of the exotic venues for arbitration often selected by the parties. Whatever the name and whatever the inspiration it is common to find bare arbitration clauses, even in Ugandan legislation.

The government had entered into an agreement with Vinci Coffee to establish a coffee processing plant in Uganda. In that agreement, the arbitration clause provides the dispute will be referred to an arbitrator appointed by both parties in accordance to the Arbitration and Conciliation Act

Many lawyers may cringe at all the missing customary detail from this arbitration clause such as the appointing authority, seat, venue, language and rules of the arbitration. It is easy to condemn the clause as pathological, missing in the essential detail to support smooth progress of dispute resolution by arbitration as described in the Lakeside case. Thankfully, the Arbitration and Conciliation Act steps in to supply the missing detail.

The act prescribes default settings to flesh out an arbitration clause provided that the parties have shown a clear intention to submit their disputes to arbitration.

Where the arbitration clause has not specified the number of arbitrators, the default provision of the act is for a single arbitrator to be appointed by an appointing authority (being either the International Centre for Arbitration and Mediation In Kampala (Icamek) or the Centre for Dispute Resolution (Cader), upon application of either party.

The second default is that the language of the arbitration shall be English.

The act empowers the arbitrator or arbitral tribunal to flesh out all other details such as the rules of procedure, the place of arbitration and the law governing the dispute.

Tested against the prescription of the essentials of an arbitration agreement in the Lakeside case, this fleshed out Vinci Coffee clause works:

● It produces mandatory consequences for the parties;

● It excludes the intervention of the courts in the settlement of the dispute at least before the issuance of the award;

● It gives powers to the arbitrators to resolve disputes likely to arise between the parties; and

● It permits putting in place procedure of the arbitration.

Under the Arbitration and Conciliation Act the court may only intervene to consider interim measures of protection, or if agreed by the parties to determine a point of law, to hear an appeal from such determination of a point of law or on an appeal from the award only on a point of law. The court is empowered to stay proceedings brought before it if there is evidence of an agreement between the feuding parties to submit their disputes to arbitration.

Dispute Resolution Under The Investment Law

If the bare arbitration clause is between the government and a foreign investor, it is important to review the investment licence issued to that investor. Our investment law makes it mandatory for a foreign investor doing business in the country to obtain an investment licence from the Uganda Investment Authority. The law also provides for options to deal with investor state disputes, ranging from negotiation, domestic and international to investment treaty arbitration.

Where the parties do not agree on the mode or forum of arbitration, then the dispute goes to litigation in the high court.

The practice is for the Uganda Investment Authority to simply annotate the investment licence, to crossrefer to the dispute resolution provision of the investment law without specifying a particular mode of dispute resolution.

Under the four-part test in Lakeside, this kind of annotation of the investment licence would not constitute a submission to arbitration. An investor intending to submit to arbitration must specify the form of arbitration either in the investment licence or in a project implementation type of agreement as Vinci Coffee did. This may be especially important for investors wishing to seek recourse to the International Centre for Settlement of Investment Disputes in event of a dispute with the state.

The Vinci Coffee arbitration clause is not so bare after all, especially with the Arbitration and Conciliation Act. If a dispute should arise, either party should apply to one of the appointing authorities for the appointment of a single arbitrator. The arbitration will be conducted in Uganda under rules of procedure determined by the arbitrator.

But it is always best for the parties to place the bubbly on ice and flesh out this sunset clause first.