In a landmark decision, the High Court has ruled that arbitration can be commenced against a non-signatory party, challenging the conventional belief that arbitration agreements are only binding on signatory parties.
Justice Harriet Grace Magala of the Commercial Division of the High Court held that parties can create and enter into an arbitration agreement regardless of the underlying performance agreement.
The court’s decision came in a case where PLINTH Consultancy Services Limited petitioned the court against Inyatsi Construction Limited, Inyatsi Group Holding (PTY) Limited, and ABSA Bank (U) Limited.
The dispute arose from a subcontract agreement for the construction of Kabuyanda Earth Dam in Isingiro District.
According to documents, PLINTH Consultancy Services entered into a subcontracting arrangement with Inyatsi Construction Uganda Limited, a subsidiary of Inyatsi Construction Limited, which had been engaged by the government, via the Ministry of Water and Environment, to undertake the construction of Kabuyanda Earth Dam in Isingiro District.”
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.
The court observed that there was a valid and enforceable arbitration agreement between the parties, allowing them to commence arbitration to resolve disputes.
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).
The court also ordered Inyatsi Construction Limited to furnish security for costs in the form of a bank guarantee and restrained them from discharging the bank guarantee until the dispute is resolved.