In a groundbreaking decision, the High Court of Uganda has ruled that arbitration can be commenced against non-signatory parties, challenging conventional wisdom that arbitration agreements only bind signatory parties.
Justice Harriet Grace Magala of the Commercial Division of the High Court made the landmark ruling in a case involving PLINTH Consultancy Services Limited, which had entered into a subcontracting arrangement with Inyatsi Construction Uganda Limited, a subsidiary of Inyatsi Construction Limited. The subcontract was for the construction of Kabuyanda Earth Dam in Isingiro District, a project undertaken by the government through the Ministry of Water and Environment.
The court found that Inyatsi Construction Limited and Inyatsi Group Holding (PTY) Limited, as shareholders of Inyatsi Construction Uganda Limited, could not deny being party to the arbitration agreement. This decision paves the way for more flexible dispute resolution mechanisms, allowing arbitration to commence against non-signatory parties.
The court granted interim measures, ordering the government to withhold payment of Shs21.2 billion to Inyatsi Construction Limited pending the hearing and final determination of the dispute before the International Chamber of Commerce (ICC). Additionally, Inyatsi Construction Limited was ordered to furnish security for costs in the form of a bank guarantee and restrained from discharging the bank guarantee until the dispute is resolved.
This ruling has significant implications for dispute resolution in Uganda, expanding the scope of arbitration agreements and providing more options for parties seeking to resolve disputes outside of traditional court proceedings.
The decision also underscores the importance of carefully drafting arbitration agreements to ensure that all parties are bound by their terms.
