Court name
Court of Appeal of Tanzania

Construction Engineers and Builders Ltd vs Sugar Development Corporation () [1983] TZCA 10 (28 November 1983);

Law report citations
1983 TLR 13 (TZCA)
Media neutral citation
[1983] TZCA 10

Mwakasendo, J.A. delivered the considered judgment of the court: The question that D has to be decided by the Court in this appeal is whether the suit filed in the High Court by the appellants against the respondents should, on the application of the latter, be stayed pursuant to the provisions of section 6 of the Arbitration Ordinance, Cap. 15 of E the Laws of Tanganyika, so that the matter in dispute may be dealt with by an arbitrator appointed in accordance with clause 36(1) of the contract entered into by the parties.
To answer the question posed we start with an examination of the dispute that has arisen between the parties. The appellant, as one can see from the plaint is a Construction or F Building Engineers (hereinafter referred to as "the Contractor"), and the respondent is a parastatal organization (hereinafter referred to as "the Employer"). By an Agreement made between them on 19th September, 1980, the employer employed the contractor to carry out the work of erecting "Sukari House", the work to be completed on 3rd G January, 1983. Clause 25 of the Contract empowered the Employer in certain events to terminate the contract, take possession of the works and complete the works by employing and paying other people to do so. Clause 26 stipulated the circumstances in which the contractor might terminate the contract. The contract also contained an H arbitration clause-clause 36. I

According to the Statement of claim in the plaint, the Employer on 7  June, 1982, issued A a notice addressed to the Contractor in terms of Clause 25(1)(b) of the conditions of the contract. The notice, entitled "Notice of Determination by Employer" reads:
   In accordance with Clause 25(1)(b) of the Agreement and Schedule of Conditions of the B Building Contract between the Sugar Development Corporation and yourselves, and the Agreement dated 19th September, 1980, we hereby give notice to you that you are in default by reason of: "Your failure to proceed regularly and diligently with the works". C
   If this default continues for the ensuing fourteen days from the date of receipt of this notice, the Employer may determine your employment as contractor without serving further notice. D
It is then alleged in the plaint that on 4th February, 1983 the Employer wrote a letter to the Contractor notifying him that he was terminating the contract and taking possession of the works pursuant to the provisions of clause 25 of the Contract. Following this notice the Contractor filed a suit in the High Court raising a number of issues of dispute. E These issues are set out in paragraphs 6 to 10 of the plaint. They read as follows:
   6. By notice dated 4th February, 1983, the defendant has purported to terminate the contract F acting under the above conditions and the notice of the 7th June, 1982 annexed here to and marked "B" is copy of the said notice of the fourth February, 1983 of the plaintiff, states that the defendant is not entitled to terminate the contract aforesaid. In February, 1983 acting on the notice of 7th June, 1982 as under condition 25 (1) (b) the defendant was obliged to terminate G the contract within 14 days of the date of the said notice and that if the defendant found any breach by the plaintiff that would entitle the defendant to a termination in February, 1983, a clear fresh notice was necessary and a precondition under the said condition before H termination.
   7. Moreover the plaintiff states that the defendant has waived the said notice of the 8th June, 1982 in that after the issues of the said notice and the expiry of the days, the defendant has I acknowledged and accepted the plaintiff as continuing in

   contract for the said work with the defendant and has issued further instructions to the plaintiff, A has obtained further work from the plaintiff and made various payments to the defendant.
   8. Further and in the alternative, the plaintiff states that the plaintiff has complied with the requisitions in the notice of the minutes of the site meetings. B
   9.  The plaintiff will also contend that the purported termination is unreasonable and vexatious as the defendant unreasonable (sic.) fails to take into account the prevailing conditions in Tanzania. Defendant is actuated by a desire to replace the plaintiff with a contractor of (sic.) the C choice.
   10.  In the premises the plaintiff contends that the purported termination of the contract by the defendant is illegal and inoperative. D
On being served with a copy of the plaint, the Employer immediately made an appearance before the High Court and applied for the action to be stayed in terms of E section 6 of the Arbitration Ordinance, Cap. 15. Section 6 reads:
   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 such legal proceedings F may, at any time after appearance, and before filing a written statement, or taking any other steps in the proceedings, apply to the court to stay the proceedings;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, G 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.
Where proceedings are instituted by one of the parties to a contract containing an H arbitration clause, as was the case here, and the other party, acting pursuant to the arbitration clause, applies to the High Court for a stay of proceedings, the first thing to be decided is the precise nature of the dispute which has arisen and the next question is I whether the dispute is one within the terms of the

arbitration clause. In the instant case the matters in dispute are set out in paragraphs 6 to A 10 of the plaint-supra. But to answer the question whether the dispute in the case falls within the arbitration clause, one has to construe the arbitration clause. The arbitration clause - clause 36 contained in the contract between the parties, is a standard form of B clause which is to be found in most building contracts based on the Royal Institute of British Architects (R.I.B.A.) form of contract. It is framed in the widest terms possible and embraces "any dispute or difference between the Employer and the Contractor.... as C to the construction of the contract or as to any matter or thing of whatever nature arising thereunder or in connection therewith... or the rights under clause 25.... then such dispute or difference shall be and is hereby referred to the arbitration and final decision of a person to be agreed between the parties...."
Counsel for the parties agree that the arbitration clause in this case covers all the issues in D dispute because on a proper construction of the clause the dispute or difference relates to matters arising "under" or "in connection with" the contract and/or the rights and liabilities of the parties under clause 25. That, we think, is a perfectly correct construction of the arbitration clause - clause 36 of the Conditions. What, however, the E advocates of the parties are not agreed upon is the question whether in the circumstances of this case the learned High Court Judge was right in ordering a stay of proceedings in the exercise of this discretion under section 6 of the Arbitration Ordinance. Mr. Lakha, learned counsel for the Contractor, has submitted that the learned High court Judge acted on a wrong principle in ordering a stay in the present F case. He has contended that in view of the nature of the dispute which, he submits, involves only questions of law, and of the character of the submission, this was a case in which the High Court, if it considered that the arbitrator had jurisdiction, would exercise G its discretion and refuse to stay the proceedings. On the other hand, Mr. Banturaki, learned counsel for the Employer, has countered Mr. Lakha's arguments by submitting that the matters in dispute and difference between the parties arose "under" the contract H and were within the scope of the arbitration clause contained in the contract and were, therefore, fit and proper matters to be referred to and decided by an arbitrator appointed under the arbitration clause. He submitted further that there was no sufficient reason why the dispute should not be so referred and decided.
To decide if Mr. Lakha's submissions are correct and should be upheld, we have to I examine the dispute more closely.

The first two matters in dispute raised in paragraph 6 of the plaint relate to the question A of notice. The Contractor in this paragraph is saying that the two notices issued by the Employer, that is, notices dated 7th June, 1982 and 4th February, 1983, were invalid and did not entitle the Employer to terminate the contact. Further, the Contractor has contended that he was entitled to notice specifically pointing out his defaults at least B fourteen clear days before being served with the notice dated 4th February, 1983. He has said that such a notice, which he calls, "a clear fresh notice" was "necessary and precondition under the said condition before termination by the defendant".With respect, there is clearly a misapprehension on the part of the Contractor as to what the effect of a C notice under Clause 25 of the conditions really is. Its effect is not, as the Contractor appears to think, to terminate the contract. The effect of a notice under this type of a building contract was well described by MEGARRY, J. in the case of Hounslow D L.B.C. v Twickenham Developments [1970] 3 W.LR. 538 at p. 363 in these words:
   In one sense it is a mere warning, it does not determine the contract, and it gives the E Contractor an opportunity of mending his ways. On the other hand, the notice has a continuing effect, for even if the Contractor puts matters right within fourteen days the building owner may without any further architect's notice give notice determating the Contractor's employment if the contactor "shall at any time thereafter repeat such default (whether previously repeated or F not)". Even so, the notice determines nothing, the notice loads the pistol, but unless something else occurs, the pistol cannot be discharged and the contract remains a foot.
We think it is clear from what we have said on this matter, that the issues raised by the G Contractor in paragraph 6 of the plaint are not, as contended by the Contractor, purely questions of law. No doubt the Contractor's contentions give rise to interesting questions of law, but as it seems to us, these questions cannot be answered as questions of law, H without ascertaining all the surrounding facts, some of which may be technical and others may not. Thus, to answer the two questions raised by the contractor with regard to the validity of the Employer's notices, one has to consider not only the factual foundation for the Employer's notices but also construe the contract. I

Mr. Lakha in opposing a stay of proceedings in this case, cited a number of English A reported cases in support of his submissions. We will refer to only two of these cases here. One of the cases cited by Mr. Lakha to which we would like to refer is the case of Re Carlisle; Clegg v Clegg [1910] 1 Ch 495. FARWELL, J. in Crowe v Crossley B (1912) 108 L.T. 11 at p.15 commented on the decision in Re Carlisle as follows:
   Both my brothers in this court think that the discretion was properly exercised, and I am unable to say that there is a sufficient reason why the matters should not be referred to arbitration. C The mere fact that there must be questions of law is not sufficient. Certainly Willes, J. in Seligmann v Le Boutilier (L. Rep. 1CP. 681) said so, and North, J. in a case we have been referred of Re Carlisle; Clegg v Clegg (62 L.T. Rep. 821; 44 Ch. Div 200) put it on the ground D which is perfectly intelligible - that there was only one question in the action, and that was a question as to the construction of the deed of partnership, as I think it was there, and there were no facts in dispute. He said it would be idle to go to arbitration when the first and only E thing would be to state a case for the opinion of the court. That is a perfectly intelligible principle which I should be very glad and ready to follow at any moment.
The other case cited by Mr. Lakha is the case of Barnes v Young [1898] 1 Ch. 414. F This was a case of a partnership in which the article provided that a partner might be expelled for breach of certain acts therein specified, and that if any question should arise whether a case had happened to authorize the exercise of this power, such question should be referred to arbitration. The defendants served a notice on the plaintiff to determine the partnership on the ground that he had committed a breach within the G expulsion clause, but gave no details of the particular act complained of. The plaintiff thereupon brought an action to restrain the defendants from acting on this notice; the defendants moved to stay proceedings and refer all matters in dispute to arbitration. The H Court held that the preliminary question whether or not the notice of expulsion was valid was one more suitable for decision by the court than by an arbitrator, and that as there was a suggestion of a fraudulent exercise of the power of expulsion, the court in the exercise of its discretion, ought not to stay proceedings and enforce a reference. The I decision in Barnes v. Young was approved by the Court of Appeal in Green v.

Howel [1910] 1 Ch. 495, another partnership case cited by Mr. Lakha in argument. A
A common feature of the two cases: Re Carlisle and Barnes v Young is that in both cases the only issue in dispute was the construction of partnership deed, there being no facts in  dispute. This is certainly not the case with the two matters in dispute as raised by B the Contractor in paragraph 6 of the plaint.
The third matter of dispute between the Contractor and the Employer is the question of waiver - see paragraph 7 of the plaint. In this connection we think it is pertinent to observe that in view of what Megarry J. said in Hounslow's case with regard to the C effect of a notice under condition 25 of the Building contract, the Contractor's contention on the question of waiver appears to be unsound.
The fourth matter of dispute, which is put as an alternative issue to the other three issues, is set out in paragraph 8 of the plaint and concerns a claim by the Contractor that he "complied with the requisitions in the notice of the 7th June, 1982 as is manifest from the D minutes of the site meetings" This question, as we understand it, is largely a matter of disputed fact which will have to be resolved against the general terms of the contract. As the Contractor seems to be asserting in paragraph 8 of the plaint that from 7th June, 1982 he had been carrying out the work of construction "regularly" and "diligently", it Eseems to us that in order to decide whether the Contractor's claim is true, one will have to examine the factual basis of this claim and so determine the meaning of the words "regularly" and "diligently". This exercise will, as it seems to us, require evidence to be F called from persons who are familiar with the building trade. MEGARRY, J. in Hounslow's case points to the difficulties that are involved in construing the two words: "regularly" and "diligently". He discusses this matter at p. 571 as follows: G
   These are elusive words, on which the dictionaries help little. The word convey a sense of activity, of orderly progress, and of industry and perseverance: but such language provides little help on the question of how much activity, progress and so on is to be expected. They are words used in a standard form of building contract in relation to functions to be discharged by H the architect and in those circumstances it may be that there is evidence that could be given, whether of usage among architects, builders and building owners or otherwise, that could be helpful in construing the words. At present all I can say is I

   that I remain somewhat uncertain as to the concept enshrined in these words. A
The last issue in dispute is set out in paragraph 9 of the plaint. The Contractor claims in that paragraph that the Employer, in terminating the contract, acted unreasonably and B vexatiously. Whether the Employer is guilty of what he is accused we think, is a question of fact.
These then are matters in dispute between the parties. We do not think that after what we have said on these matters, it can now be seriously contended that the dispute C between the parties is one of pure law. That the dispute involves an investigation and determination of the background facts leading to the alleged termination of the contract was, we think, made clear in argument by both counsel. Much as we are attracted by D Lakha's forceful argument, there is no way we can ignore the law which governs the question which we have to decide. The law on the subject-matter of dispute is clear and well established. We will refer here to only a few of the leading cases which, though not binding on us, lay down clear and sound principles on the subject-matter with which we are concerned.
As an answer to Mr Lakha's main argument that the matters in dispute in this case are E not fit and proper to go to arbitration, one is reminded of a famous passage from the judgment of LORD SELBOURNE in the case of Willesford v Watson, 28 L.T. Rep. 428; L. Rep. 8 Ch. App. 473 at 497 which was cited with approval by COZENS F -HARDY, M.R., in Crowe v Crossley (1912) 108 L.T. 11 at 13, as follows:
   Then we are told that this is an arbitrary tribunal final and without appeal, and so forth, and that there are not fit questions to go before the arbitrator. But I think that the Legislature and the Act G of Parliament under which the Court is now asked to act, have given the answer to that argument. If parties choose to determine for themselves that they will have a domestic forum instead of resorting to the ordinary courts, then since the Act of Parliament was passed a H prima facie duty is cast upon the courts to act upon such an agreement.
After quoting the above passage COZENS-HARDY, M.R., discussed at p.14 the question before him in these words: I

   It is said - and said very forcibly by Mr. Clavell Salvell Salter and his junior -that it is apparent A that the questions which have arisen....are really questions of law. And it is said that there cannot be anything more absurd than to refer to a civil engineer difficult questions arising under the law of contract as interpreted and enforced by courts of law in this country. There is B no doubt considerable force in that. But the Arbitration Act 1889 itself seems to me to furnish an answer to that. It is quite clear that Act contemplates that the arbitrator shall deal or may deal with questions of law.
He then went on to discuss the principles which guide the court in the exercise of its C discretion to interfere with the agreement of the parties to submit their differences or disputes arising under a contract to arbitration. He dealt with the matter thus: D
   I therefore do not think that it can be enough to say as questions of law of a serious kind will arise here the court ought not in the exercise of its discretion to interfere. This is not a case in E which questions of law can be kept apart from the facts of the case. If, for instance, it had been merely a question of law arising upon the construction of certain words in a lease or a contract of sale, or what not, I can quite conceive that the court might say - as the court has done in one or two cases - that there is only one question of law here, and that it is idle to refer that to arbitration, because the first thing the arbitrator would undoubtedly do would be to refer F that to the court for the decision of the court as a question of law.
It may be noted that in Crowe v Crossley the Court of Appeal granted a stay notwithstanding that the dispute involved difficult questions in the law of contract, which G the arbitrator would be unable to decide, as this was a case in which "it would be as hard for lawyers to understand the machine as for an engineer to understand the law".
In Metropolitan Tunnel etc. Ltd. v London Electric Ry [1926] 371, a contract for H engineering works provided that any disputes arising should be referred to an arbitrator, who was to be an engineer. One of the parties took out a summons for the construction of a clause in the contract. It appeared that evidence would be needed, both as to custom in such matters and as to the meaning of technical terms used, before the clause could be construed. The Court of I

Appeal, overruling the judge below, held that the proceedings should be stayed. A
We now turn to consider the case of Heyman v Darwins Ltd. [1942] A.C. 356. That was a decision of the House of Lords in which their Lordships had to answer questions which are similar to those which we are required to answer in the present case. In B Heyman v Darwins Ltd. an arbitration clause in a contract provided that "If any dispute shall arise between the parties hereto in respect of this agreement of any of the provisions herein contained or anything arising hereout the same shall be referred for arbitration in accordance with the provision of the Arbitration Act, 1889". A dispute C having arisen between the parties, the appellants commenced an action against the respondents claiming (a) a declaration  that the respondents had "repudiated and/or evinced an intention not to perform" the contact and (b) damages. The respondents who admitted the existence of the contract and denied they had repudiated it, applied to have D the action stayed in order that it might be dealt with under the arbitration clause. CASSELS, J. in chambers held that the issue involved only a question of law and in exercise of his discretion refused to grant a stay. The Court of Appeal allowed the E appeal by the respondents, holding that the arbitration clause applied and that CASSELS, J. had wrongly exercised his discretion. The plaintiffs appealed to the House of Lords. In the House of Lords the plaintiffs argued first that CASSELS, J. in exercising his discretion in favour of the plaintiffs followed no wrong principle and his discretion F should not be interfered with. Secondly, it was contended that the plaintiffs had repudiated the contract and the respondents had accepted this repudiation. Accordingly, the whole contract was at an end and with it the arbitration clause, so that the dispute did not fall within it. The respondents countered by arguing that the contract was never G repudiated by them, and, accordingly, the arbitration clause applied to the dispute. They further argued that CASSELS, J. exercised his discretion wrongly since no difficult questions of law were involved in the interpretation of the agreement or of the correspondence; and that in any case, no sufficient grounds had been shown why the H appellants should not proceed by way of arbitration in accordance with the agreement.
Their Lordships in their considered judgments were unanimous in holding that the dispute fell within the arbitration clause and that the action should be stayed. Since the arguments advanced by the advocates in this case bear some resemblance to those raised by I counsel before the House of Lords, we think it will be useful if

we refer to some excerpts of their Lordships' comments on the principal arguments A advanced before them. On the argument that a repudiation of a contract has the effect of ending the contract and with it the arbitration clause, VISCOUNT SIMON, L.C. put what he conceived to be the correct view of the matter as follows: B
   An arbitration clause is a written submission, agreed to by the parties to the contract, and, like other written submissions to arbitration, must be construed according to its language and in the light of the circumstances in which it is made. If the dispute is whether the contract which contains the clause has ever been entered into at all, that issue cannot go to arbitration under C the clause, for the party who denies that he has ever entered into the contract is thereby denying that he has ever joined in the submission. Similarly, if one party to the alleged contract is contending that it is void ab initio (because, for example, the making of such a contract is D illegal), the arbitration clause cannot operate, for on this view the clause itself also is void. But in a situation where the parties are at one in asserting that they entered into a binding contract, but a difference has arisen between them whether there has been a breach by one side or the E other, or whether circumstances have arisen which have discharged one or both parties from further performance, such differences should be regarded as differences which have arisen "in respect of or "with regard to" or "under" the contract, and an arbitration clause which F uses those or similar, expressions should be construed accordingly.
Commenting on the same matter LORD MACMILLAN made the following observations at pages 370-371: G
   If it appears that the dispute is whether there has been a binding contract between the parties, such a dispute cannot be covered by an arbitration clause in the challenged contract. If there has never been a contract at all, there has never been as part of it an agreement to arbitrate. H The greater includes the less. Further, a claim to set aside a contract on such grounds as fraud, dures or essential error cannot be the subject-matter of a reference under an arbitration clause in the contract sought to be set aside. Again, an admittedly binding contract containing a general arbitration clause may stipulate that in certain events the contract shall come to an I end. If a question

   arises whether the contract has for any such reason come to an end I can see no reason why A the arbitrator should not decide that question.
LORD MACMILLAN after discussing the question of repudiation and its effect on the B existence of a contract, made the following pertinent observations regarding the true nature and function of an arbitration clause in a contract. He said:
   I venture to think that not enough attention has been directed to the true nature and function of C an arbitration clause in a contract. It is quite distinct from the other clauses. The other clauses set out the obligations which the parties undertake towards each other but the arbitration clause does not impose on one of the parties an obligation in favour of the other. It embodies the agreement of both parties that, if any dispute arises with regard to the D obligations which the one party has undertaken to the other, such dispute shall be settled by a tribunal of their own constitution. And there is this very material difference, that whereas in an ordinary contract the obligation of the parties to each other cannot in general be specifically E enforced and breach of them results only in damages, the arbitration clause can be specifically enforced by the machinery of the Arbitration Acts. The appropriate remedy for breach of the agreement to arbitrate is not damages, but is enforcement. Moreover, there is Fthe further significant difference that the courts in England have a discretionary power of dispensation as regards arbitration clauses which they do not possess as regards the other clauses of contract.
Although the principles of law ably enunciated by VISCOUNT SIMON, L.C. and G LORD MACMILLAN in the above excerpts fully demonstrate the futility of Mr. Lakha's arguments in this court and in the court below, this outline of the decided cases which are relevant to the matter before us, would be incomplete without a reference to the judgment of LORD WRIGHT in Heyman v Darwins Ltd. That master of the HEnglish common law answers the question whether the issues in dispute in that case were fit and proper matters to be referred to arbitration, in these words at page 389:
   I need not quote authorities for what has been said so often, that under a general submission I the arbitrator is appointed to

   decide issues both of fact and of law. In the background, indeed, is the courts, jurisdiction to A set aside an award if it is bad in law on its face, and the opinion of the court on issues of law may be invoked by means of cases stated under the Acts of 1889 and 1934, but, if the submission is general, it will require some substantial reason to induce the court to deny its B due effect to the agreement of the parties to submit the whole dispute, whether it includes both fact and law or is limited to either fact or law. In the present case I can find no sufficient reason. The dispute is of the most ordinary character. C
This is as clear a statement of the law on the subject with which we are concerned as anyone is likely to come across. The Employer and the Contractor in this case by their agreement, which follows closely the standard R.I.B.A. form of contract, have chosen to submit their "disputes or differences" as to the construction of the contract or as to any D matter or anything of whatever nature arising thereunder or in connection therewith", to arbitration. On the authorities reviewed above, it seems to us that the operation of the arbitration clause in the contract to which this case relates does not depend on the question whether the dispute that has arisen includes both fact and law or is merely E limited to either fact or law. If it is clear from the submission, as it is in this case, that the parties have agreed to submit all their "disputes or differences arising "under" the contract to an arbitrator, then the dispute must go to arbitration unless there is some good reason to justify the court to override the agreement of the parties. In the present case we can F find no good reason to do so and we are accordingly of the opinion that the learned High Court Judge properly exercised his discretion in ordering a stay of proceedings in this case.
In the result this appeal fails and is dismissed with costs. G
Appeal dismissed

A