What lessons from EADB’s legal drama in Dar?

On the last day of August 2005, a Tanzanian arbitrator awarded a Tanzanian transport company known as Blueline Enterprises Ltd damages in the sum of $61,386,853 against the East African Development Bank.

The basis of the company’s claim included alleged delay by the bank in disbursing the loan and insuring the imported vehicles on one hand and alleged loss occasioned by the appointment by the Bank of a receiver and manager in November 1995 pursuant to the loan agreements on the other hand.

The award was registered in the High Court of Tanzania as a judgment of the court, thereby triggering a protracted legal battle between the Bank and the transport company that is about to reach its climax.

The decade-long legal dispute between the Bank and Blueline will come to a controversial end this Monday, March 8, when the Court of Appeal in Dar es Salaam will hear an appeal by the Bank against the ruling delivered by Justice Shangwa of the Tanzania High Court on May 12, 2009.

In the ruling, the judge held that while the Bank’s “property and other assets” are immune from attachment under Article 45 of the Treaty & Charter of the Bank as amended by Tanzania’s Finance Act No. 13 of 2005, money in a bank account in the name of the Bank does not comprise such property or asset and that money was “incapable of being immunised.”

Accordingly, the judge charged monies in a bank account in the name of the Bank with repayment of Blueline’s award that now stands at $104 million.

Among other issues, the Bank argues in its appeal that the High Court decision is contrary to law and violates well-established rules of international law.

As The EastAfrican in its issue of July 20-26, 2009 reported, the very survival of the Bank hangs in the balance depending on how the Court of Appeal decides the appeal, because, “EADB may not have assets of its own worth $100 million” and already “Rwanda, Kenya, Uganda and Tanzania have said that they will not be shelling out their taxpayers’ money to pay a private businessman.”

The outcome of the Bank’s appeal will have short and long term effects on the litigants themselves, the business community and probably diplomatic relations among the partner states of the East African Community.

To Blueline, the failure of the appeal could result in incredible wealth given that it first moved to court in December, 1995 to resist appointment of a receiver and manager by the Bank over non-payment of $13,754,962 but at the end of the legal process it would be leaving the halls of justice $104 million richer.

For the Bank, losing the appeal is likely to bring its operations to a crashing halt, with many development projects financed by the Bank collapsing, not to mention the loss of jobs in the Bank itself and among the investors it finances.

What if the Bank’s appeal succeeds?

To Blueline, the success of the Bank’s appeal will delay its efforts to recover the damages awarded to it on August 31, 2005 by A.T.H. Wakyusa, a Tanzanian architect who was appointed as arbitrator by the High Court, because so far the endeavours of the Bank to challenge the award have been futile, and the allowing of its appeal could well amount to no more than a temporary reprieve, depending on the outcome of another appeal currently awaiting judgment.

This other appeal originates from a ruling delivered by Justice R. Sheikh on March 26, 2009 in which an application by the Bank seeking the High Court to extend the limitation period for the filing of an application to set aside the arbitration award in favour of Blueline was struck out.

Appeals

The reason for the striking out of the Bank’s application was that it had withdrawn an earlier application for extension of time without liberty to file a fresh application of a like nature.

If the first appeal — whose judgment will be delivered on notice — goes in favour of Blueline, then it would be free to attach the money and other property of the Bank irrespective of the outcome of the second appeal scheduled to be heard on Monday, March 8.

However, if the decision of the Court of Appeal goes in favour of the Bank, then it will get a chance to file an application for extension of time to challenge the merits of the arbitration award to Blueline.

The heap of court decisions containing the Bank’s efforts to challenge the merits of the arbitration award attest to the fact that whatever decision the highest court in Tanzania makes in the two appeals lodged by the Bank, this protracted legal dispute should give food for thought and cause for concern to policymakers, investors, the legal fraternity and the general public in the Community states.

Accordingly, as the dispute unfolds in the Tanzanian courts it will help to analyse the issues in dispute, challenges brought to fore and lessons, if any, that arise from the strikingly contrasting judicial fortunes of the Bank and Blueline.

There are three phases of the protracted dispute between the Bank and Blueline.

Phase One began on January 6, 1989 when Blueline applied for a loan facility from the Bank to expand its road transport business.

On March 7, 1990, the Bank and Blueline entered into a loan agreement to partially finance the purchase of various trucks, trailers and other equipment needed for a project for hauling petroleum products from Dar es Salaam to upcountry stations, Malawi, Zaire and other neighbouring states.

The court proceedings made no progress over the next five years, prompting the parties to compromise the suit as settled in order to pave the way for resolution of the dispute through arbitration.

The parties agreed in court that Hon Francis Nyalali (the former Chief Justice of Tanzania) be appointed sole arbitrator and that A.T.H. Mwakyusa be appointed as sole arbitrator in the event of Mr Nyalali’s refusal or inability to act.

Justice Nyalali, then an advocate, accepted the appointment and subsequently heard the dispute submitted by the parties for arbitration.

The Bank was the claimant while Blueline lodged a counter-claim. Justice Nyalali delivered his award on September 30, 2002 in which he dismissed Blueline’s counter-claim but made no determination of the Bank’s claim against Blueline.

This brought Phase One of the dispute to an inconclusive closure.

Phase Two commenced with Blueline’s petition for the setting aside of Justice Nyalali’s award in which it succeeded beyond its expectations because Justice Luanda, who heard the petition, not only set aside the award but also appointed a sole arbitrator despite the objections of the Bank.

Dissatisfied with the appointment of the sole arbitrator, the Bank tried to reverse it through an appeal to the Court of Appeal but its efforts hit the rocks on July 9, 2004 when its application for extension of time to appeal was dismissed by another judge..

In effect, the Bank was stuck with the appointment of the sole arbitrator as the new arbitrator with the mandate to hear and adjudicate afresh the parties’ dispute.

Just before the arbitration proceedings started, the Bank requested the arbitrator to disqualify himself but he declined to do so.

This refusal prompted the Bank to file a petition in the High Court for his removal as the sole arbitrator but the petition was struck out on a technicality.

The Bank embarked on an appeal against the High Court decision and simultaneously made an application for stay of execution to prevent the commencement of the arbitration proceedings.

Again the said application was struck-out by the Court of Appeal on the ground that the order of the High Court was not capable of execution.

In the meantime, of course, that in the absence of such an order of stay the arbitrator was free to proceed with the arbitration with or without the presence of the Bank.

Protests

Faced with that stroke bad luck in the courts, the Bank elected to cut its losses and move on and so in early 2005 it abandoned its intended appeal to the Court of Appeal against the dismissal of its petition for the removal of the sole arbitrator and submitted to the arbitration albeit under protest.

The record of arbitration proceedings shows that protests by the Bank against the conduct of the arbitrator characterised the entire hearing.

The objections involved, among others, claims about the manner in which the evidence of some witnesses was recorded and the use of evidence of persons who never appeared before the arbitrator.

In the end, on August 31, 2005, the arbitrator delivered his award in which he awarded Blueline damages for losses allegedly occasioned by the Bank in the sum of $61,386,853.

No award was made in respect of the Bank’s claim for the outstanding loans and interest due from Blueline.

It is settled law that an arbitrator owes the parties three principal duties — namely to take care, to proceed diligently and to act impartially.

The duty of care requires the arbitrator to perform his duties with reasonable skill and care expected of a judicious person.

Even then, in many ways no reasonable person could make some of the awards made to Blueline such as damages to the wife of its managing director for pain and suffering occasioned by the Bank’s appointment of a receiver and manager.

The duty to proceed diligently requires an arbitrator to proceed with reasonable dispatch while taking account of all necessary factors for just determination of the dispute.

The duty to act impartially enjoins the arbitrator to act fairly to both parties and in the proceedings throughout the reference he must not favour one party more than another, or do anything for one party that he does not do or offer to do for the other.

He must observe the fundamental rules which govern judicial proceedings including upholding the parties’ right to be heard and giving each of them fair opportunity to rebut adverse evidence and materials.

Enter Phase Three. The Bank, aggrieved by the award in favour of Blueline, filed a petition seeking to set aside the award of the arbitrator dated August 31, 2005 and a declaration that arbitration proceedings had failed and consequently the dispute should be heard and determined by a court of law.

Stay of execution

Simultaneously with filing the petition, the Bank also filed an application for stay of execution of the arbitral award pending the final determination of the Bank’s petition.

Blueline, once again, raised technical objections against the competence of the said petition and application that were upheld by a judge of the High Court of Tanzania on June 29, 2006.

The Bank did not give up because soon after its petition and application were struck out, it filed a new petition to set aside the arbitrator’s award and for lifting of the garnishee order issued on November 15, 2006 for $68,546,653 to attach the Bank’s account at Standard Chartered Bank, International House branch, Dar es Salaam.

Whereas this application to set aside the garnishee order was filed under certificate of urgency in December 2006, it was heard in July 2008 and ruling was delivered on May 12, 2009.

Again the court upheld the technical objection on the reasoning that the application was based on “speculation in the sense that there was no guarantee that the said petition would be successful.” This is the ruling (Shangwa J) in respect of which the Bank’s appeal against it will be heard this Monday.

What was not mentioned in that ruling is that on December 17, 2007, the Bank had filed an application seeking an order of the court to extend limitation period for the institution of an application to set aside the arbitration award.

The said application was heard and dismissed by a ruling delivered on March 26, 2009.

This means that the Bank’s latter application was filed, argued and ruled upon during the 30 months it took the Court to rule upon the Bank’s application on the garnishee order.

The discerning reader should have noticed two things by now.

First, that almost every application filed by the Bank was struck out on the basis of preliminary objections — meaning that they were not heard and determined on merit.

Second, as a result of those applications and petitions being struck out through preliminary objections, the amazing award in favour of Blueline has not been interrogated and justified before the Tanzania High Court or Court of Appeal.

Accordingly, if the pending matters in the Court of Appeal are not determined in favour of the Bank, then it will mean that for all its five years’ labour in the Tanzanian higher judiciary, it did not get even one shot at the merit of the arbitrator’s award.

Rule of law

In an engaging paper entitled, “Big Bills left on the Sidewalk: Why some Nations are Rich, and Others Poor,” published in the Journal of Economic Perspectives vol 10, Mancur Olson Jr, economics professor at the University of Maryland, argued that “a country’s institutions, constitutions and economic policies are decisive for its economic performance.”

In the context of this article the courts are, without doubt, some of the institutions vital to a country’s economic progress and wellbeing.

It is now axiomatic that the maintenance of the rule of law is essential to economic growth, prosperity and political stability, without which no meaningful economic activities are possible.

Prof Shadrack Gutto has written that diligence “in complying with international agreements is, or ought to be, an important indicator of a state that respects the rule of law”... and such “agreements/treaties are binding upon state parties and must be performed by them in good faith.”

Thus two of the key elements of the rule of law as a living, evolving and dynamic concept, are: First, there should be reasonable degrees of understanding and general commitment in the society as a whole to the principle of governance in accordance with the law and agreements at the national, regional and international levels.

Second is the presence of institutions for law enforcement that have the capacity to enforce the laws/agreements and that are independent and impartial at the national, regional and international levels.

In this connection it bears noting that the East African Development Bank is one of the autonomous institutions of the Community.

To enable the Bank to fulfil its obligations, the Charter which established it vests upon it immunities and privileges in judicial proceedings and protection of its assets under Articles 44 and 45.

When all is said and done the arbitration and court proceedings between the Bank and Blueline have called into question the value and efficacy of the Bank’s special status, exemptions, immunities and privileges under the Charter without which it would not be easy for it to fulfil its obligations.

In my considered opinion, the courts in the partner states cannot be blind to this reality.

To be sure, Articles 2 and 6 of the United Nations Basic Principles of the Independence of the Judiciary provide as follows:-

2. The judiciary shall decide matters before it impartially, on the basis of facts and in accordance with the law, without any restrictions, improper influences, inducements, pressures, threats or interferences, direct or indirect from any quarter or for any reason.

6. The principle of the independence of the judiciary entitles and requires the judiciary to ensure that judicial proceedings are conducted fairly and that the rights of the parties are respected.
This commentary does not in any way suggest that the Bank should not suffer liability in appropriate cases.

Even in this case, it must pay the award in favour of Blueline if that is the just thing to do.

It helps to remember the adage that justice must not only be done but be seen to be done.

In a protracted legal battle that has made it virtually impossible for one party to contest the merits of an arbitral award, it is not easy to see how justice has been done even if it has actually been done.

Kibe Mungai is an advocate of the High Court of Kenya