University of Strathclyde

Law School

RESOLVING CONSTRUCTION DISPUTES THROUGH ARBITRATION: AN OVERVIEW OF TANZANIAN LEGAL FRAMEWORK

By George Mandepo
Reg. No. 200957963 Supervisor: Dr. Bryan Clark

Dissertation Submitted for the Degree of LLM in Construction Law, September 2010

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DECLARATION AND COPYRIGHT This thesis is the result of the authors original research. It has been composed by the author and has not been previously submitted for examination which has led to the award of a degree. The copyright of this thesis belongs to the author under the terms of the United Kingdom Copyright Acts as qualified by University of Strathclyde Regulation 3.50. Due acknowledgement must always be made of the use of any material contained in, or derived from, this thesis.

Signed. (George Mandepo)

Date:.

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DEDICATION

This dissertation is dedicated to my parents, my wife Veronica and to my children Hans and Rene.

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ACKNOWLEDGEMENT I would like to express my gratitude and appreciation to my supervisor, Mr. Bryan Clark for your useful guidance, suggestion and encouragement that enabled me to accomplish this study successfully. Thanks to my employer, the Permanent Secretary, Ministry of Agriculture Food Security and Cooperative of the United Republic of Tanzania for sponsoring my studies. To Dr. A. P. Rutabanzibwa and my officemates, I am most grateful for your support and encouragements during my studies. My special gratitude to my beloved parents, brothers, sisters and all relatives whose love and affection is the source of inspiration and support for my studies. Finally yet importantly, I would like to thank my friend and fellow classmate Donald Sheedy for your invaluable assistance and encouragement throughout my time at Strathclyde University.

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ABSTRACT The complex nature of projects in the construction industry has made disputes unavoidable. Arbitration as an alternative to litigation has been widely acceptable as an effective dispute resolution method especially in domestic and international trade transactions including construction industry. The main purpose of the study was to examine the effectiveness of arbitration legal framework in Tanzania in resolving construction disputes. The study involved a thorough review of the existing legal and institutional framework for arbitration in Tanzania in comparison with the international arbitration agreements and arbitration laws of the other common law countries including the UK. The study has revealed that the resolution of construction disputes through arbitration in Tanzania is governed by the Arbitration Act, Cap. 15, Civil Procedure Code and the National Construction Arbitration Rules 2001. However the principal arbitration law i.e. Arbitration Act is out-dated and not compliant with the requirements of various International arbitration agreements including the UNICITRAL Model Law and New York Convention. It has been observed that there are several inconsistencies in the procedures with the current arbitration legislation that cannot afford effective resolution of construction disputes between the parties. The observed shortcomings in the law include too much power of the courts over the arbitration proceedings, which can affect parties autonomy in the arbitration process and distort the general purpose of arbitration. In addition, the study has observed that the arbitration system in Tanzania lacks active and competent arbitration institutions and practitioners to facilitate arbitration process for the construction disputes. Based on the findings, the study recommends for the review of the legal and institutional framework for arbitration in Tanzania with a view of making arbitration more effective method in resolving of construction disputes in line with requirements of the international arbitration agreements.

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TABLE OF CONTENTS
DECLARATION AND COPYRIGHT ............................................................................ i DEDICATION .............................................................................................................. ii ACKNOWLEDGEMENT ............................................................................................. iii ABSTRACT ................................................................................................................ iv ABBREVIATIONS .................................................................................................... viii TABLE OF CASES ...................................................................................................... i LIST OF STATUTES .................................................................................................. xi CHAPTER ONE ......................................................................................................... 1 INTRODUCTION TO RESEARCH ............................................................................. 1 1.0 BACKGROUND ................................................................................................... 1 1.2 PROBLEM STATEMENT ..................................................................................... 2 1.3 AIM AND PURPOSE ............................................................................................ 3 1.4 RATIONALE AND OBJECTIVE ........................................................................... 3 1.5 SIGNIFICANCE OF THE STUDY ........................................................................ 4 1.6 LITERATURE REVIEW ........................................................................................ 4 1.7 HYPOTHESES ..................................................................................................... 6 1.8 RESEARCH METHODOLOGY ............................................................................ 6 1.9 ORGANISANISATION OF STUDY ...................................................................... 7 CHAPTER TWO......................................................................................................... 8 CONSTRUCTION DISPUTES AND RESOLUTION TECHINIQUES ......................... 8 2.0 INTRODUCTION .................................................................................................. 8 2.1 CONSTRUCTION DISPUTES ............................................................................. 8 2.1.1 Dispute Defined ............................................................................................. 8 2.1.2 Cause of Disputes .......................................................................................... 9 2.1.3 Effects of Disputes in Construction .............................................................. 10 2.2 DISPUTE RESOLUTION METHODS................................................................. 10 CHAPTER THREE ................................................................................................... 13 ARBITRATION IN PRACTICE ................................................................................. 13 3.0 INTRODUCTION ................................................................................................ 13 3.1 ARBITRATION DEFINED .................................................................................. 13 3.2 HISTORICAL PERSPECTIVE ............................................................................ 13 3.3 PRINCIPLES OF ARBITRATION ....................................................................... 14 v

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3.4 ADVANTAGES AND DISADVANTAGES OF ARBITRATION ............................ 14 3.5 STARTING AN ARBITRATION .......................................................................... 15 3.5.1 Genuine dispute or difference ...................................................................... 16 3.5.2 Arbitration agreement................................................................................... 18 3.5.3 Submission or reference of a specific dispute .............................................. 19 3.6 SEVERABILITY OF ARBITRATION AGREEMENT ........................................... 19 3.7 APPLICABLE LAW AND SEAT OF THE ARBITRATION................................... 20 3.8DUTIES AND POWERS OF ARBITRAL TRIBUNAL........................................... 20 3.9 ENFORCEMENT OF AWARD ........................................................................... 22 3.10 CHALLENGING AN AWARD ........................................................................... 23 3.11 COURTS POWERS ON ARBITRATION ......................................................... 23 CHAPTER FOUR ..................................................................................................... 25 LEGAL FRAMEWORK FOR ARBITRATION IN TANZANIA .................................... 25 4.0 INTRODUCTION ................................................................................................ 25 4.1 ARBITRATION ACT (CAP. 15) .......................................................................... 25 4.1.1 Applicability .................................................................................................. 26 4.1.2 Reference to arbitration................................................................................ 26 4.1.3 Powers of an arbitrator ................................................................................. 27 4.1.4 Effect of arbitration agreement ..................................................................... 27 4.1.5 Court powers in support of arbitral proceedings........................................... 30 4.1.6 Extension of time for commencement of arbitration ..................................... 31 4.1.7 Appointment of an arbitrator or umpire......................................................... 33 4.1.8 Removal of arbitrator.................................................................................... 33 4.1.9 Procedural and evidential matters ................................................................ 34 4.1.10 Powers of the Arbitrator or Umpire ............................................................. 34 4.1.11 Confidentiality ............................................................................................ 35 4.1.12 The arbitral award ...................................................................................... 35 4.1.13 Challenging an award ................................................................................ 37 4.1.14 Recognition and enforcement of domestic award ...................................... 39 4.1.15 Enforcement of Foreign Arbitral Awards .................................................... 40 4.2 ARBITRATION UNDER THE CIVIL PROCEDURE CODE ................................ 42 4.2.1 Arbitration by order of Court ......................................................................... 42 4.2.2 Agreement to refer to the arbitration ............................................................ 44 4.2.3 Arbitration without the intervention of court .................................................. 44 4.3 COMPARING ARBITRATION UNDER THE ARBITRATION ACT AND CPC .... 44 4.4 ARBITRATION UNDER THE NATIONAL CONSTRUCTION COUNCIL ............ 45 4.4.1 Scope of application ..................................................................................... 46 4.4.2 General principles ........................................................................................ 46 4.4.3 Jurisdiction and powers of the arbitrator ...................................................... 47

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4.4.4 Arbitration costs ........................................................................................... 48 4.4.5 Procedures for enforcement and challenging an award ............................... 48 4.5 ARBITRATION UNDER THE PUBLIC PROCUREMENT .................................. 48 CHAPTER FIVE ....................................................................................................... 51 INSTITUTIONAL CHALLENGES FACING ARBITRATION IN TANZANIA............... 51 5.0 INTRODUCTION ................................................................................................ 51 5.1 ARBITRATION INSTITUTIONS ......................................................................... 51 5.1.1 Arbitration in Commercial Courts of Tanzania .............................................. 52 5.1.2 Arbitration under NCC .................................................................................. 52 5.1.3 Tanzania Institute of Arbitrators ................................................................... 53 5.1.4 Arbitration Professionals .............................................................................. 54 CHAPTER SIX ......................................................................................................... 55 FINDINGS, CONCLUSION AND RECOMMENDATIONS........................................ 55 6.1 FINDINGS AND CONCLUSION ......................................................................... 55 6.2 RECOMMENDATION ........................................................................................ 57 BIBLIOGRAPHY ...................................................................................................... 58

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ABBREVIATIONS A.C ADR ALL MR BLR CA Cap. CPC DRB EWHC G.N GCC HGCRA ICE ICSID JCT K.B Appeals Cases Alternative Dispute Resolution All Maharashtra Law Reporter Building Law Reports Court of Appeal Chapter Civil Procedure Code Dispute Resolution Board High Court of England and Wales Government Notice General Conditions of Contract Housing Grants Construction and Regeneration Act Institution of Civil Engineers International Centre for Settlement of Investment Disputes Joint Contract Tribunal Kings Bench Lloyd Law Reports National Construction Council Public Procurement Regulatory Authority Revised Edition Royal Institute of British Architects Special Conditions of Contract Scots Law Times Technology and Construction Tanzania Institute of Arbitrators

Lloyds Rep NCC PPRA R.E R.I.B.A. SCC SLT/S.L.T TCC TIA -

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TLR UK

Tanzania Law Reports United Kingdom United Nations Commission on International Trade Law Weekly Law Reports

UNICITRAL WLR -

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TABLE OF CASES AMEC Civil Engineering Ltd v The Secretary of State for Transport [2005] 1 WLR 2339 Azov Shipping Co. v Baltic Shipping Co. 2 Lloyds Rep. (1999)159 Bilta (UK) Ltd v Nazir [2010] EWHC 1086 (Ch) Biwater Gauff (Tanzania) Ltd. V. United Republic of Tanzania ICSID Case No. ARB/05/22 Construction Engineers and Builders Ltd V. Sugar Development Corporation (1983) TLR 13 (CA) Crow Estate Commissioner v Mowlew (1994) 70 B.L.R 1 Earl of Malmesbury v Strutt and Parker [2008] EWHC 424 (QB) Edmund Nuttall Ltd v R.G. Carter Ltd [2002] EWHC 400 (TCC) Farrans (Construction) Ltd. -v- Dunfermline District Council, 1991 SLT 365 Fastrack Contractors Ltd v Morrison Construction Ltd & Imreglio UK Ltd [2000] 1 BLR 168 Ford's Hotel Co Ltd v Bartlett [1896] AC 1 Halki Shipping Corporation v. Sopex Oils Ltd [1998] 1 Lloyds Rep. 465 (CA) Halsey v Milton Keys NHS Trust [2004] EWCA (Civ) 576 Hamlyn & Co. v Talisker Distillery (1894) 21 R (H.L.) 21 at 27 Heyman v Darwins Ltd [1942] A.C. 356 John G. McGregor (Contractors) Limited -v- Grampian Regional Council 1988 S.L.T. 466 Patel v Patel [1999] BLR 227 Robert Lawrence Co. v. Devonshire Fabrics, Inc, 271 F.2d 402, 411 (C. A. 2d Cir. 1959) RS Jiwani v Ircon International Ltd 2010(1) ALL MR 605 (F.B.) SAB Miller Africa v East African Breweries [2010] 1 Lloyd's Rep. 392 SAB Miller Africa v East African Breweries [2010] EWCA Civ 1564 Sanderson v Armour & Company 1922 S.C. (H.L.) 117 at 126 Smith v. Martin [1925] 1 K.B 754 Tanzania Cotton Marketing Board v Cogecot Cotton Company SA (1997) TLR 165 Tanzania Cotton Marketing Board vs Cogecot Cotton Company S.A, Civil App. No 60 of 1998) [2002] TZCA 4 (unreported) Tanzania Motor Services Ltd and Others v Mehar Singh t/a Thaker Singh (Civil Appeal No. 115 of 2005) [2006] TZCA 5 (21 July 2006) (unreported)

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LIST OF STATUTES Tanzania 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. Appellate Jurisdiction Act, 1979 (Cap 141 RE 2002) Arbitration Act, 1931 (Cap 15 RE 2002) Arbitration Rules 1957 (G.N. No.427) Civil Procedures Code (Cap. 33 of R.E 2002) Disposal of Public assets by Tender) (GN NO. 97/2005) Employment and Labour Relations Act, No. 6 of 2004 Government Proceedings Act, 1967 (Cap. 5 RE 2002) High Court Registries (Amendment) Rules, 1999 Judicature and Application of Laws, Cap. 358 Law of Evidence Act 1967 (Cap. 6 R.E 2002) Law of Limitation Act, 1971 (Cap 89 RE 2002) National Construction Arbitration Rules 2001 Edition Public procurement (Goods, Works, Non-consultant services and Public Procurement Act No. 21 of 2004 Tanganyika Order In Council, 1920

Other countries 1. 2. 3. 4. 5. 6. 7. Arbitration and Conciliation Act, 2000 (Uganda) Arbitration (Scotland) Act 2010 asp 1 (Scotland) Arbitration Act No. 4 of 1995 (Kenya) Arbitration Act, 1996 (England & Wales) Arbitration and Conciliation Act, 1996 (India) Housing Grants, Construction and Regeneration Act 1996 (UK) Indian Arbitration Act 1899(India)

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International Conventions 1. The Convention on the Settlement of Investment Dispute between States and Nationals of Others States, 1965 2. The Geneva Convention on the Execution of Foreign Arbitral Awards, 1927 3. The Geneva Protocol of Arbitration Clauses, 1923 4. The New York Convention on the Recognition and Enforcement of the Foreign Arbitral Awards, as adopted by the United Nations Conference on International Trade Law on 21 June 1985 (as amended in June 2006).1958. 5. UNICITRAL Model law on International Commercial Arbitration as adopted by the United Nations Commission of the International Trade Law on 21 June 1985 (as amended in June 2006)

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CHAPTER ONE INTRODUCTION TO RESEARCH

1.0 BACKGROUND The construction industry worldwide is dispute-prone due to the complex and fragmented nature of the industry and the adversarial relationships that traditionally exist between project participants. In construction, dispute often arise when parties to a contract cannot agree on the interpretation and implementation of contractual clauses during execution of contract (Oladapo and Onabanjo, 2009). According to Murdoch and Hughes (2008), disputes if not dealt with swiftly and equitably, can ruin the success of the project objectives. Disputes can consume many resources which could otherwise be used in a more productive manner and they can lead into poor performance of construction project (Cheung and Yiu, 2007; Elis and Baiden, 2008). In todays complex construction projects, resolving dispute has become an inevitable part of a project manager's work (Cheung, 1999). The use of Alternative Dispute Resolution (ADR) techniques has gained great momentum during recent years in various common law jurisdictions as part of managing construction disputes. These alternative methods embody a range of processes, the most common of which are mediation, arbitration and adjudication. In order to promote and encourage the use of ADR, there have been several legal and institutional reforms in various countries to make the techniques user-friendly. For instance in the UK, besides its Arbitration Act, 1996 (for England and Wales), following the recommendations of The Latham Report1, the Government enacted the Housing Grants, Construction and Regeneration Act 1996 (HGCRA) to formalise adjudication in construction contracts by giving parties to the contract a right to refer the dispute to adjudication based on the procedures set out under the Act as a matter of the parties right2. HGCRA culminated in the review of the standard forms construction contracts such as JTC to incorporate statutory requirements for the adjudication process whose
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The Latham Report, Constructing the Team 1994. See section 108 of HGCRA.

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decision is binding upon the parties until the dispute if finally resolved through arbitration or litigation3. Further, to the HGCRA, the UK government introduced the Civil Procedure Rules, 1999 based on the Lord Woolf Reforms to transform the Civil Justice landscape in England and Wales in order to improve access to justice 4. The reform encourages the early settlement of disputes through a combination of preaction protocols, active case management by the courts, and cost penalties for parties who unreasonably refused to attempt negotiation or consider ADR5. In Scotland where the use of mediation is patchy, the Scottish Parliament passed the Arbitration (Scotland) Act 2010 to regulate arbitration proceedings. The new Act reforms and codifies the Scots law of arbitration, which was mainly based on common law and precedents6. At the international level, the reforms involve modernization of arbitration procedures in order to promote international trade by making the arbitration process more effective and quicker method of dispute resolution as alternative to litigation. Through international instrument such as UNICITARL Model law, various countries of the world have harmonized their national arbitration procedures to standardize their arbitration systems in compliance with the international requirements. 1.2 PROBLEM STATEMENT Effective implementation of any dispute resolution approach mainly depends on the legal framework of a particular country where it is subjected. Apart from having the law to govern the procedures of allowing the parties to access justice machineries to assert their rights, the institutional framework also plays a great role in considering what the system can deliver to its stakeholders. In most developing countries of which Tanzania is, ADR techniques such as mediation and adjudication are not very familiar in use for the resolving of construction disputes. However, in Tanzania, arbitration is one of ADR technique that has been legally recognised since the colonial time. The statutory regulation of law relating to arbitration in Tanzania is contained in Arbitration Act Cap.15 of R.E 2002.
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Section 108(3). See. Access to Justice Final Report, by The Right Honourable the Lord Woolf, Master of the Rolls, July 1996, Final Report to the Lord Chancellor on the civil justice system in England and Wales. 5 See Halsey v Milton Keys NHS Trust [2004] EWCA (Civ) 576 and Earl of Malmesbury v Strutt and Parker [2008] EWHC 424 (QB). 6 th Came into force on 7 June 2010.

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Apart from the arbitration Act, the Civil Procedure Code for Tanzania7 provides also for arbitration under the supervision of the court. The Code was amended in 19948 to incorporate court annexed ADR wherein the Courts were empowered to encourage early settlement of disputes through use of ADR mechanisms including arbitration, negotiations and mediation procedures. Arbitration is also recognised through industrial law under the Employment and Labour Relations Act9 which regulates conciliation, arbitration an adjudication of labour disputes. Despite the presence of the legislative framework to govern settlement of disputes through arbitration, there is still an issue to be raised as to how the existing legal framework is effective in facilitating disputes resolution. This study is designed to examine and reveal the effectiveness of the system from evidence on the ground. 1.3 AIM AND PURPOSE The main aim of this study is to examine the current legal and institutional frameworks for the arbitration in Tanzania in order to determine their adequacy and effectiveness in facilitating resolution of construction disputes. 1.4 RATIONALE AND OBJECTIVE For over a decade, the use of arbitration as a method of dispute settlement has been established as a part of the world agenda to promote trade and commerce. As pointed out by Murdoch and Hughes (2008),arbitration is one form of dispute settlement which is mostly under the control of the parties. However, if a party to the dispute wishes to take the matter to arbitration or further to a court of law, he will be bound to comply with certain set procedures under the arbitration agreement or governing legislation. The resolution of disputes in the construction industry must of necessity be within the legal framework of national legislation and applicable international protocol and conventions (Oladapo and Onabanjo, 2009). However, it is important that the law should be clear and certain in both procedures and substantive issues. Therefore, the main objective of the study is to determine the effectiveness of the arbitration system in Tanzania in resolution of construction disputes.

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Cap. 33 of R.E, 2002 Government Notice No. 422 of 1994 9 NO. 6 of 2004

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1.5 SIGNIFICANCE OF THE STUDY The past practices of arbitration as an informal and non-judicial process has received great challenge through on-going legal reforms taking place all over the world with the view to institutionalise the arbitration system. Though arbitration is not the only form of dispute settlement amongst ADR techniques, it is widely acceptable as a consensual, cost effective and binding method of resolving contract disputes with fewer procedures and techniques compared to the cumbersome court processes. Given all its inherent problems, the reforms of arbitration procedures through governing laws is expected to make arbitration a more effective way of resolving disputes in the construction industry. The basic area of concern is to identify and examine any potential gaps or weaknesses in the existing legal and institutional frameworks for resolving construction disputes in Tanzania through arbitration and thereby to suggest appropriate recommendations which will yield improvement of the arbitration system in order to ensure effectiveness in disputes resolution. 1.6 LITERATURE REVIEW Although several researchers have established various problems facing construction industry including disputes and their resolution techniques, there is no any literature existing in respect to the arbitration of construction disputes in the Tanzania. Samson (1992) discusses the views, difficulties and considerations of African governments and African lawyers in dealing with international commercial arbitration and their search for new universally applicable principles and rules. He argues that the challenge in Africa with regard to the evolution of the international arbitral process would appear unique and time and need revision to accommodate new developments and enable Africa to comply with the rapid expansion of international commercial arbitration. The author urges the African States to establish regional arbitration centres in a single formulating approach to service arbitration in Africa, in line with international legal instruments such UNCITRAL Model Law. Although the whole study does not relate to Tanzania, it covers various African countries having ineffective arbitration laws including Tanzania.

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Chau (2007) explains various issues relating to arbitration in practice with particular reference to the Hong Kong construction industry. The author describes the importance of arbitration in its traditional nature as an informal, fair, and nonadversarial way of resolving disputes. However, Chau (2007) challenges modern arbitration in respect of the use of litigation techniques including involvement of trained lawyers, who sometimes are not interested in assisting the parties to reach to an amicable solution to the extent of making the arbitration an excessively complicated process. The author concludes that although the modern arbitration process appears to be adversarial in the form of procedures, it can still be used alongside other forms of ADR techniques in resolving construction disputes. Despite the fact that this work was meant for the Hong Kong construction industry, it represents a substantial input and justification for the reform of arbitration to accommodate modern techniques. Andrew (2005) examines and discusses the merits and popularity of both adjudication and arbitration processes as it has been in use in the UK construction Industry. His work elaborates the historical background of arbitration from medieval times and its development in European international trade and commerce. The author makes an account of the use of arbitration in Scotland as evidenced from domestic arbitration case law dating back at least to 1207. Though the author considers the possibility of arbitration declining following adoption of statutory adjudication, through HGRCA 1996, he admits the reforms in arbitration procedures will eradicate its main problems and accommodate its use as an effective form of dispute resolution in the construction industry parallel with the adjudication process. This study is important, as it provides a clear background of arbitration and elaborates its benefits despite the rise of other forms of ADR such as adjudication. Further, the study is helpful in considering various important issues pertaining to the review of the arbitration system in Tanzania in line with reforms taking place in other countries. Smith (2004) critically analyses the problems of disputes in the construction industry and the relationship between arbitration and adjudication as two forms of disputes recognised in the Scottish construction industry. The work is mainly concerned with the Arbitration (Scotland Bill) which is now the Arbitration (Scotland) Act 2010. Comparing the two forms of dispute resolution, the author is of the view that the Page | 5

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adjudication is a rough and ready process that is unsuitable for certain types of dispute,. The process provides no means of appeal, therefore, the courts have no option but to enforce decisions even when they are clearly wrong. The author comments that the new arbitration Act for Scotland will provide a viable alternative to adjudication especially in dealing with complex cases while providing the arbitrator with the power to control the process. Like other previous studies, this study though is not relevant to Tanzania it contains very useful information to show experience of the use and benefits of the modern arbitration. Daele (2010) reports on the current system of arbitration in Tanzania, the work highlights among others, the legal framework and arbitral institutions; the constitution of the arbitral tribunal, its jurisdiction, arbitral proceedings, awards, on what grounds an award could be challenged, and recognition and enforcement of awards. The study tries to review the arbitration system in Tanzania by identifying some shortcomings in the existing legislation. However, the review is not sufficiently exhaustive to cover a detailed comparative analysis of the current arbitration system in practice vis--vis other jurisdictions. Also, as the purposes of this work was to identify the arbitration landscape in Tanzania, it lacks a thorough analysis of all issues pertaining to the actual practice of arbitration including case laws which will be examined in this study. 1.7 HYPOTHESES This study has been written based on the following proposed assumptions, namely:(i) The legal and institutional frameworks for Tanzanian arbitration are not sufficiently effective to promote resolution of construction disputes; (ii) The existing arbitration laws are too out-dated to accommodate modern arbitration techniques; and (iii) Parties to construction disputes delay and unnecessary costs. 1.8 RESEARCH METHODOLOGY In order to achieve the aim, the author gathered and analysed data from the following sources: Relevant previous academic literature Relevant case laws and statutes relating to the topic Page | 6 cannot resolve their disputes without

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Technical and academic journals and text books The internet, Westlaw and Lexis Library websites Reports from government and other bodies Materials/ Course Handouts on the subject

The author adopted a qualitative methodology involving a comprehensive literature review and analysis of gathered information to present the work. The study may by no means be exhaustive due to the words, time and monetary restraints to undertake an extensive and detailed field survey. It is merely designed to present some ideas for the contraction industry in order to improve the existing arbitration system in Tanzania. 1.9 ORGANISANISATION OF STUDY This study is organised into six chapters. Chapter One covers an introduction to the research. It deals with the background, aim, objective and rationale of the research. It also explains the methodology used, and literature review. Chapter Two provides for an examination of root causes and effects of the disputes on construction projects based on various literatures. It also gives an overview of various dispute resolution techniques commonly used in the construction industry. Chapter Three discusses arbitration in practice by highlighting its contextual legal meaning, advantages and disadvantages and the governing principles of the method. Chapter Four examines the legislative framework and arbitration institutions in Tanzania in order to establish their effectiveness in facilitating resolution of construction disputes. Chapter Five discusses challenges on arbitration the institutional framework in Tanzania and Chapter Six provides for the findings, conclusion and recommendations of the study.

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CHAPTER TWO CONSTRUCTION DISPUTES AND RESOLUTION TECHINIQUES

2.0 INTRODUCTION This chapter examines root-causes and effects of disputes on construction projects based on the literature. It also gives an overview of various dispute resolutions techniques which are commonly used in the industry. Due to the word limitation, detailed examination will only be done on arbitration. 2.1 CONSTRUCTION DISPUTES Disputes between parties to construction contracts have become an inherent feature of the construction industry. They may arise in projects due to the number of factors which are within and outside the control of the parties. As argued by Cheung et al. (2000), disputes are a common occurrence in construction and their resolution is now among routine management functions of the project actors. There has been considerable research undertaken that has sought to determine the causes of disputes (Love, et al., 2008). 2.1.1 Dispute Defined A review of the literature reveals that the term dispute has no fixed or definite meaning. There are a number of literatures that try to define what constitutes a dispute in the construction industry and the word has been used interchangeably or in pair with the term conflict (Love et al., 2008). The study by Langford et al., (1996) reveals that a dispute is one of the effects of conflicts. In the work, the authors defined disputes as events which resulted in some form of formal contractual notice and which could be resolved by the recognisable contractual resolution process whereas a conflict cannot be resolved by contractual means without becoming a dispute. They suggest that a conflict could mutate into a dispute if its severity escalated. Love et al.,(2008) have adopted the legal meaning of dispute from the principle derived in the case of Halki Shipping Corporation v Sopex Oils Ltd10, in which the court held that a dispute does not exist until a claim or request for compensation for

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damages incurred by any party to the contract has been submitted and rejected by the other. From a contextual point of view, disputes can arise because of disagreement, misunderstanding, poor relationships or escalated conflicts between the parties. Disputes arise not just because people enter into contracts but because of a wide variety of interactions between diverse people and the failure of one party to the contract to keep their promise (Murdoch and Hughes, 2008). 2.1.2 Cause of Disputes It is a matter of fact that at the time of entering into a contract, parties are often motivated by different objectives, which guide the entire construction process. As pointed out by Sir John Egan in the Rethink Construction, 1998, clients need better value from their projects and their main objective normally is to see that the project is be delivered on time, within budget and to the standards of quality expected. However, on the other hand, construction companies need reasonable profits to assure their long-term future the success of the project. In construction, disputes may arise due to the failure to achieve the perceived objectives by each of the parties to the contract. In addition, disputes can arise because of the failure of one party to the contract to perform his/her obligation(s) or seeking to exploit the other party (Murdoch and Hughes, 2008). Disputes in construction contracts are generally rooted in fact that while the client on one hand usually aims to optimize quality and functionality at minimum cost, the contractor on the other hand strives to satisfy the client and achieve maximum profit at the same times using minimum resources (Howard et al., 1997). Levy (2007) identifies common causes of disputes in construction projects to include poor or ineffective communication; inadequate finance to support the project; errors in planning and coordination; problems with site conditions which occur during contract execution; unforeseen events beyond the contemplation of the parties; increase in scope of works or variations; breach of contracts and disruption or delays ending up in costs overruns. Sharing the similar views, Yates (2003); Walton (2005), Hall (2002) and Langford et al., (1996) identify the cause of construction disputes to include unfair allocation of risks; multiple contracts; unrealistic expectations and schedules; poorly drafted or Page | 9

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inadequate contract documents; design omissions, tighter funding; the lack of experienced personnel, communication problems; complexity of construction projects; poor choice of the method of procurement; and failure to identify and deal timely and properly with problems when they arise. Generally, the root cause of disputes can well be described as the failure of one party to the contract to honour his/her obligation which in the legal context is considered as the breach of the contract giving an affected party a right to redress. As such, disputes in the construction project can occur at any time of the projects life. Therefore, in anticipating that disputes may arise, most of the modern standard form construction contracts contain provisions on how disputes should be dealt with. 2.1.3 Effects of Disputes in Construction Like any other business transactions, the achievements of the objectives in the construction project invariably depend upon a good relationship between the parties. Therefore, when a dispute arises at any point in the execution of the project it can ruin both the objectives and the relationship between the parties to the project (Murdoch and Hughes, 2008). Disputes in construction are detrimental and if not properly managed, they may cause project delays, undermine team spirit, increase project costs, and, above all, damage continuing business relationships (Cheung et al., 2002). Wahi (2008) has attempted to review various literatures regarding the effect of disputes in the construction industry. The summary from the study suggest that there are several effects of construction disputes ranging from contractual to social relationships. Among identified effects, include increase in project costs because of project overruns or litigation; deterioration of the quality of product to be delivered; loss of productivity due to untimely utilization of labour, equipment and other resources at site; reduction in investment profits and loss of trust among parties to the dispute. 2.2 DISPUTE RESOLUTION METHODS Cheung and Wing (2006) point out that dispute form part of the portfolio of engineering managers and that, managing construction disputes is akin to conflict resolution. Once a dispute occurs, it requires resolution approach which addresses the problem between the parties for the betterment of the project. Page | 10

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Epling (1987) adds that in the hope of avoiding the long delays, skyrocketing costs and expenses, enormous legal fees, and other disadvantages attendant upon court adjudication, the parties to construction contracts look to substitute for quicker, easier, less costly determination of claims and disputes. In todays world, there are several methods of dispute resolution techniques ranging from litigation to consensual or mutual agreement between the parties. The recognised form of dispute resolution in the construction industry apart form litigation include, adjudication, negotiations, conciliation, mediation, private enquiry, mini-trial, Dispute Resolution Board (DRB) and arbitration. The following are the main factors which can influence disputants in the selection of resolution methods: (i) how fast to get the dispute resolved; (ii) need to preserve commercial relationships; (iii) cost effectiveness (fee for tribunal/lawyers etc ) ; (iv) quality of decision in terms of reaching the expected results; (v) recoverability of expenses incurred; (vi) privacy of the procedure; (vii) finding a creative solution to suit all parties; and (viii) finality of decision (without further possible challenges or appeals). It is worth noting that the dispute resolution method whether is based on consensual or adversarial approach, has several of its requirements in both procedural and substantive matters. In addition, each resolution method has both advantages and disadvantages. Despite the fact that there are several dispute resolution techniques, in most of subSahara African countries like Tanzania, the only popular methods in use for settlement of construction disputes are adjudication and arbitration. It is not the intention of this study to cover much on the other forms of dispute settlement apart from arbitration which is now gaining popularity for use in construction industry in various developing countries, including Tanzania.

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Although adjudication is a dispute resolution method which recognised within Tanzanian construction industry and can be found in most of the public procurement construction contracts, its applicability is not well preferred as compared to the UK whereby the method is legally recognised through HGCRA, 1996 upon extensive research to determine its efficacy and adequacy in the resolving of construction disputes. Therefore, the author finds that as it was in the UK before the enactment of the HGCRA, there is a need for a separate and in-depth study on adjudication for Tanzania which cannot be addressed well in this work due to the limitation factors indicated under paragraph 1.8 above.

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CHAPTER THREE ARBITRATION IN PRACTICE

3.0 INTRODUCTION Arbitration was originally devised as an alternative to litigation but is prone to many of the problems that beset litigation (Murdoch and Hughes, 2008). However, the method is still accepted worldwide as one of the best forms of dispute settlement and thus there are several reforms in various jurisdictions to make the method more user-friendly by eliminating some of its shortcomings. This chapter discusses arbitration in practice by highlighting its contextual legal meaning, advantages and disadvantages and the governing principles of the method. 3.1 ARBITRATION DEFINED Commenting on UK arbitration, Uff (2009) argues that there is no agreed definition of the word arbitration. However, for its popular usage in commercial disputes, the term arbitration denotes the placing of a dispute before a third party to obtain a fair or equitable resolution based on discretion rather than on fixed rules. Arbitration as a form of ADR is a voluntary process based on the agreement between the parties who wish to resolve their dispute outside the court by referring the same to the tribunal or person of their choice for making a decision that is legally binding for both sides. 3.2 HISTORICAL PERSPECTIVE Arbitration as a dispute resolution technique has been in use since time immemorial (Andrew, 2005). The use of the arbitration in private disputes started to be sanctioned through law by various states as an alternative to what was perceived to be shortcomings of litigation, with its concomitant escalation in costs, delays and adversarial relationship (Oladapo and Onabanjo, 2009). In recent years, the use of arbitration in the construction industry, has been preferred through incorporation of procedures in the standard form contracts as a voluntary approach by the parties to arbitrate in case a dispute arises which they cannot resolve by their own initiatives. Smith (2004) describes arbitration as a dispute settlement approach which has its foundation in medieval times. It is a procedure for resolving disputes whereby the Page | 13

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parties put their dispute to an independent person for a decision that is binding on them. Smith refers also to the courts position on arbitration including the decisions of Lord Watson on the origin of arbitration where it was held that The law has, from the earliest time, permitted private parties to exclude the merits of any dispute between them from consideration of the court by simply naming their Arbiter11. As regards enforceability of the arbitration agreement, the courts have held that If the Parties have contracted to arbitrate, to arbitration they must go12. 3.3 PRINCIPLES OF ARBITRATION Arbitration as mechanism of dispute resolution is based on its founding principles which intend at giving the parties autonomy to decide on the rules of the game while maintaining fairness based on the relevant laws. The modern arbitration statutes such as the English and Scottish Arbitration laws have attempted to incorporate the principle expressly in the body of statutes. For instance, section 1 of the Arbitration (Scotland) Act, provides for the principles as follows:(i) that the object of arbitration is to resolve disputes fairly, impartially and without unnecessary delay or expense, (ii) that parties should be free to agree how to resolve disputes subject only to such safeguards as are necessary in the public interest, (iii) that the court should not intervene in an arbitration except as provided by the law for smooth and effective administration of the arbitration proceedings. The arbitration principles are covenants by the parties to the arbitration agreement and provides for guidance to the tribunal or court in determining the matter between the parties in order to ensure that the clear purposes of arbitration are not distorted. 3.4 ADVANTAGES AND DISADVANTAGES OF ARBITRATION From its founding principles, arbitration being a creature of contract and a method which can be fashioned by parties in many ways, has several major advantages to offer in comparison with other disputes resolution techniques such as adjudication and litigation. However, the method also has its own disadvantages that need to be taken into account.
11 12

Hamlyn & Co. v Talisker Distillery (1894) 21 R (H.L.) 21 at 27. Sanderson v Armour & Company 1922 S.C. (H.L.) 117 at 126.

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According to Smith (1998) and Mazirow (2008), among the advantages of arbitration, include time and cost savings, convenient process to the parties, limited discovery and smaller attorney's fees. The process is also faster than the court procedures unless there are multiple parties. The parties are also free to choose a dispute resolver according to their preference. The process is private, confidential and usually final. It also provides easy way to enforce an international arbitral award in another country as opposed to the decisions of the courts. The perceived disadvantages of arbitration include very limited possibilities of appeal even if the arbitrator makes a mistake of fact or law. In addition, the process lacks precedents and often no explanation for the reasoning behind the award (Mazirow, (2008). The other disadvantages is that, unless there is an agreement to the contrary, it is impossible for the arbitrator to consolidate actions or dispute between the same parties and also on the basis of privity, he cannot order the joinder of a party who is not a signatory to the arbitration agreement (Sherwin,Vermal and Figueira, 2007). 3.5 STARTING AN ARBITRATION Murdoch and Hughes, (2008) submit that whereas there is normally an automatic right to take a dispute to court, the right to go to the arbitration is by its nature more restricted. There are three prerequisite conditions to be met before an arbitration proceeding can be commenced. The conditions are as follows:(i) First, there must be a genuine dispute or difference between the parties capable of being arbitrated and determined through an award by the arbitrator which can be enforced as a judgment of the court. (ii) Secondly, there must be a binding contractual agreement to arbitrate which allows a party to such agreement to submit a dispute or difference between them to arbitration by a chosen third party or one appointed in accordance with their instruction. The agreement to arbitrate can be made when the dispute has already arisen or can be provided from the outset in the construction contract document. (iii) Thirdly, there must be a submission or reference of a specific dispute to the arbitrator or tribunal in accordance with the procedures set out in the

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arbitration agreement. The procedure mainly includes a notice to refer the dispute to arbitration13. The above prerequisite conditions for arbitration are important to make the arbitration proceedings valid. Otherwise, a party who wishes not to go to arbitration may challenge the proceedings. 3.5.1 Genuine dispute or difference Reid and Ellis (2007) argue that it is a prerequisite on both adjudication and arbitration that a dispute must exist before such proceedings can commence. If there were no dispute, then an appointed adjudicator or arbitrator would have no jurisdiction to decide the matters referred and any decision reached in the absence of a valid appointment can result in challenge of enforcement of that decision due to the lack of jurisdiction or breach of natural justice. The question of whether or not there is a dispute that must be referred to arbitration arises with great frequency in many different contracts and has produced a large number of cases. Construing what the dispute means in arbitration or adjudication, Reid and Ellis (2007) are of the views that there is no definitive meaning of the word dispute. The authors reviewed the decision of Halki Shipping Corporation v. Sopex Oils Ltd14 in which upon construction of section 9 of the English Arbitration Act 1996 and the arguments by the parties in respect to the application for stay of the proceedings, the Court of Appeal held that there is a dispute once money is claimed unless and until the defendants admit that the sum is due and payable. Accordingly, Reid and Ellis (2007), submit that in determining whether a dispute exists or not, it is necessary for the arbitrator or the court to take into account the circumstances and facts existing in each particular case based on the common sense approach and having cognisance of time-related issues i.e. what transpired before the matter was referred to the arbitration or adjudication.

13

For example, clause 66C (1) of ICE 7 Standard form contract as amended in 2004, requires a notice to refer has to be served not later than 3 months after the decisions of an adjudicator. 14 [1998] 1 Lloyds Rep. 465 (CA).

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In Fastrack Contractors Ltd v Morrison Construction Ltd & Imreglio UK Ltd15, upon considering various cases including that of Halki (supra), HHJ Thornton QC derived the following principle at paragraph 27 to define the word dispute: A dispute can only arise once the subject-matter of the claim, issue or other matter has been brought to the attention of the opposing party and that party has had an opportunity of considering and admitting, modifying or rejecting the claim or assertion. In another case of Edmund Nuttall Ltd v R.G. Carter Ltd16 His Honour Judge Seymour QC considered that while a "dispute" can be about a "claim", there is rather more to a "dispute" than simply a "claim" which has not been accepted. The decision of this case suggests that for there to be a "dispute" there must have been an opportunity for the protagonists to each consider the position adopted by the other and to formulate arguments of a reasoned kind. The current settled principle on what constitutes a dispute in both arbitration and adjudication is derived from the decision of the Court of Appeal in the case of AMEC Civil Engineering Ltd v The Secretary of State for Transport17. In the case the main issue which the court was invited to consider is whether there was existence of a dispute for the purposes of ICE (5th) Clause 66. In the case, the Court of Appeal endorsed the decision of Jackson J at first instance in which the judge had the following views under part 68 of the decisions: 1. The word dispute which occurs in many arbitration clauses and also in section 108 of the Housing Grants Act should be given its normal meaning. It does not have some special or unusual meaning conferred upon it by lawyers. 3.The mere fact that one party (whom I shall call "the claimant") notifies the other party (whom I shall call "the respondent") of a claim does not automatically and immediately give rise to a dispute. It is clear, both as a matter of language and from judicial decisions, that a dispute does not arise unless and until it emerges that the claim is not admitted.

15 16

[2000] 1 BLR 168. [2002] EWHC 400 (TCC). 17 [2005] 1 WLR 2339.

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According to Jackson J, in order to determine whether there is a failure on part of the defendant to admit the claim, it is upon the court to review and make an appropriate conclusion based on the circumstances or facts of a particular case. It is interesting to note that some of the modern arbitration statutes such as the Arbitration (Scotland) Act 2010 provides for the clear definition of a dispute based on the judicial findings. For instance, section 2 of the Act defined the word disputes as follows: dispute includes (a) any refusal to accept a claim, and (b) any other deference (whether contractual or not). 3.5.2 Arbitration agreement Application of arbitration in the construction industry and other areas of commercial law is regarded as a consensual process for which a party cannot be forced to go to arbitration unless he agrees to do so through an arbitration agreement. The requirement for arbitration agreement can distinguish arbitration from the adjudication process as applicable in the UK construction industry, in which the adjudication is regarded as a statutory right irrespective of whether the contract so provides (Uff, 2009). As it is required under the law of contracts, every arbitration agreement needs to have an element of consent for the arbitration to have legal force. Lack of consent can invalidate the arbitration process. In Azov Shipping Co. v Baltic Shipping Co18, the court set aside an award on the ground that the plaintiff never agreed to be bound by the underlying contract or the arbitration agreement contained in it. As opposed to the normal agreements recognised under law of contract regimes, various arbitration statutes such as the English and Scottish Arbitration laws require the agreement to be in writing19. Section 5(2) (6) of the English Arbitration Act, 1996 is more elaborative and constitutes an agreement in writing for validity of arbitration proceedings. Under the provision, any writing or exchange of communications in respect to the arbitration

18 19

2 Lloyds Rep. (1999)159 See section 5 of the Arbitration Act 1996 (English) and section 4 of the Arbitration (Scotland) Act, 2010.

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can be deemed as evidence of an agreement, and need not be signed by the parties. 3.5.3 Submission or reference of a specific dispute Submission or reference of a dispute to the arbitration can be in any form. However, it is important to note that this step is crucial, as it is an essential formal step without which no dispute may be held to have occurred. For instance, Rule 1 of the Scottish Arbitration Rules, 2010 provides that An arbitration begins when a party to an arbitration agreement (or any person claiming through or under such a party) gives the other party notice submitting a dispute to arbitration in accordance with the agreement. In the most usual way, unless otherwise specified, reference to the arbitration is deemed to be to a single arbitrator who is either named in the arbitration agreement or selected/appointed thereafter by the nomination or appointment body (Uff, 2009). Most of the arbitration legislation requires the parties to agree on the appointment of the arbitrator in advance or prior to the occurrence of a dispute. If the Arbitrator is not named in the contract, the nominating body will select and send a list of arbitrators from whom the parties will choose their arbitrator in accordance to their preference. Normally arbitrators are required to be individuals with extensive experience in alternative dispute resolution apart from their professional background. 3.6 SEVERABILITY OF ARBITRATION AGREEMENT Generally, an arbitration agreement is not distinguished from the main contract between the parties and is always governed by the law that governs the main contract (Uff, 2009). Although the arbitration agreement can be incorporated in the main agreement, it is considered separate and independent from the main contract. An arbitration agreement is not void, voidable or otherwise unenforceable only because the agreement of which it forms part is void, voidable or otherwise unenforceable20. The analytical rationale of severability or separability doctrine is to accord with the original intention of the parties to the arbitration agreement whereby mutual promises to arbitrate would form the quid pro quo of one another and constitute a separable

20

See for instance Section 5 of Arbitration (Scotland) Act.

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and enforceable part of the agreement21. In arbitration proceedings, under the principle of severability, the matter submitted to arbitration can be separated from one not submitted, the court may set aside that part of the arbitral award alone which is not submitted to arbitration. In RS Jiwani v Ircon International Ltd22 a full bench of the High Court of Bombay held that an arbitration award is severable and if a part of it is illegal and incapable of enforcement the other part that is valid and legal can still be enforced. In that case, the court was invited to decide on whether the Court could set aside an award partially under Section 34 of the Arbitration and Conciliation Act, 1996 of India. The court held that once an award attains finality and vests a legal right in one of the parties, it would be unjust to deny such a party the vested right on the grounds that other portions of the award are invalid. 3.7 APPLICABLE LAW AND SEAT OF THE ARBITRATION Most of jurisdictions recognize and put a mandatory requirement for the applicability of a particular law to the arbitration agreement and also for the geographical and legal jurisdiction to which the arbitration is tied. For example, section 6 of the Arbitration (Scotland Act) 2010 provides that where the parties to an arbitration agreement agree that an arbitration is to be seated in Scotland, but the agreement does not specify the governing law, that unless the parties otherwise agree, the arbitration will be governed by Scots law. It is important to note that the governing law and seat normally determine the procedural rules of arbitration to be followed, and the courts which will exercise jurisdiction in the matter. 3.8 DUTIES AND POWERS OF ARBITRAL TRIBUNAL Though there is great flexibility in arbitration, the arbitrator or arbitral tribunal is required to act in accordance with the agreement of the parties and the law. The tribunal is bound to observe principles governing administration of justice as it is for the courts of law. Subject to the agreement by the parties and applicable law, among the duties of the arbitral tribunals are-

21

See Robert Lawrence Co. v. Devonshire Fabrics, Inc, 271 F.2d 402, 411 (C. A. 2d Cir. 1959) 22 2010(1) ALL MR 605 (F.B.)

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(i)

to act fairly and impartially as between the parties, giving each party a reasonable opportunity to present and defend the case;

(ii)

to ensure that the adopted procedures to deal with the case do not cause unnecessary delays or expenses to the parties; and

(iii)

to decide all evidential matter, including whether to apply the strict rules of evidence as to the admissibility, relevance or weight of any materials on any matters of fact or opinion.

Although the arbitration is considered as a flexible method in which an arbitrator can have wider powers, in some countries, the arbitrator has limited jurisdiction in determining some issues in the disputes. In the UK, it was formerly the case that an arbitrator did not have power to decide whether or not the contract is void 23 or if his jurisdiction is challenged, whether or not he himself has jurisdiction upon any question24. These points were reserved to the exclusive determination of the courts. Section 30 of the English Arbitration Act 1996 has altered the position whereby, unless parties agree otherwise, the arbitrator may have jurisdiction to decide on the validity of the arbitration agreement, proper constitution of the tribunal and legality of reference to the arbitration. Accordingly, pursuant to Section 31 of the Act a party who wishes to challenge the jurisdiction of the arbitrator must do so at the outset, before taking any step to answer the case on merit (Murdoch and Hughes, 2008).In Scotland, among powers vested to the arbitrator under the Scottish Arbitration Rules, 2010 is to decide the dispute in accordance with the law chosen by the parties as applicable to the dispute and not on the basis of general considerations of justice, fairness or equality, unless such matters form part of the law chosen by the parties or an agreement of the parties25. In reaching its decision, the tribunal has to take into account among other factors, the provisions of contract relating to the dispute, normal trade or commercial customs or practices and other matters which the parties have agreed 26. As for the

23 24

See Heyman v. Darwins Ltd [1942] A.C. 356 Smith v. Martin [1925] 1 K.B 754 25 Rule 47 (1) and (2). 26 Rule 47(3).

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orders which the arbitral tribunal can issue in Scotland pursuant to Rules 48-47, include the following:(i) order as to the payment of damages;

(ii) declaratory or injunctive orders; (iii) order of rectification or reduction of any deed or document other than a decree of court; and (iv) order of interest to be paid in whole or in part of any amount claimed in respect of any period up to the date of award and or up to the date of payment. The arbitral tribunal power to award interest as provided for in the Arbitration (Scotland) Act, has altered a common law position as it was considered in the case of Farrans (Construction) Ltd. -v- Dunfermline District Council27 in which it was a matter for the parties to the arbitration agreement to ensure that any issue relating to interest is put before the arbiter for his decision. Otherwise, as it was also held in John G. McGregor (Contractors) Limited -v- Grampian Regional Council28, the arbiter could not have any implied power at common law to award interest before the date of his final decree. 3.9 ENFORCEMENT OF AWARD As noted before, the main advantage of arbitration as opposed to other forms of ADR is that the decision of the arbitral tribunal is final and binding on the parties and any person claiming through or under them (except a third party) 29. Either of the parties to the arbitral award can apply to the Court for enforcement of the decision of the arbitrator as if it were a judgment or order of the court. In some countries, enforcement of either domestic or foreign arbitral awards is made through bringing an action to the court of competent jurisdiction, though approaches may differ from country to country. However, most of the common law countries have adopted quicker mechanisms, in the form of summary enforcements.

27 28

1988 S.L.T. 466. 1991 SLT 365 29 See also section 11 of Arbitration (Scotland) Act.

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Under the Arbitration (Scotland) Act, the arbitral award may be enforced as if it is an extract registered decree bearing a warrant for the execution granted by the court30. Under section 66 of the English Arbitration Act, a party wishing to enforce the award has to seek leave of the court so as a judgment may be entered in terms of such an award. Further, the Act provides that leave to enforce an award shall not be given where, or to the extent that, the person against whom it is sought to be enforced shows that the tribunal lacked substantive jurisdiction to make the award. 3.10 CHALLENGING AN AWARD The finality of the award does not affect the right of a person to challenge the award by any available arbitral process including appeal or review to the competent court of law on jurisdictional or procedural grounds or on the basis of an error of law31. Under the English Arbitration Act, 1996, an arbitration award is incapable of direct enforcement by the successful party in case that there is a challenge to it on the grounds of serious irregularity or a question of law arising out of an award made in the proceedings32. It should be noted that an appeal process under the Act is very complex and or restrictive; it requires either consent of the parties to the arbitration or leave of the court. The party in the arbitration who seeks to challenge an award on grounds of lack of jurisdiction or serious irregularities has first to exhaust the appeal or reviewing process provided by the arbitration agreement itself (Murdoch and Hughes, 2008). 3.11 COURTS POWERS ON ARBITRATION In contrast to the old practice where courts had traditionally used to exercise wide range of powers in the arbitration process, in recent years, arbitration is regarded as a private process of resolving disputes with very limited interferences by either the administrators or the courts. Therefore, the determination of the dispute has been left to the parties autonomy. In most jurisdictions, there have been gradual changes of laws to reduce powers of court to intervene in the arbitration process. For instance, under the English and Scottish arbitration Acts, the courts can only exercise supportive powers in order to ensure that there is fairness and justice in the arbitration process. Such powers include appointment and removal of the arbitrator;

30 31

Section 12. See also section 58 of English Arbitration Act 1996. 32 Section 67, 68 and 69 (ibid)

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extension of time and stay of proceedings; supportive powers to the process

and

enforcement or challenges to awards33. Both the English and Scottish Arbitration Acts have adopted the requirements of UNCITRAL Model law to restrict courts interferences on arbitration by incorporating a provision in their laws stating that the court should not intervene in the arbitration except provided expressly by the Act34.

33 34

See sections 17, 18, 24, 44, 45, 68 and 69 of English Arbitration Act, 1996. Section 1 of the Arbitration (Scotland) Act, 2010.

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CHAPTER FOUR LEGAL FRAMEWORK FOR ARBITRATION IN TANZANIA

4.0 INTRODUCTION Depending on the form of the arbitration process which the parties choose to resolve their dispute, the laws and institution governing a particular process are very important in determining the effectiveness of any outcome from the process. This Chapter examines the legislative framework in Tanzania in order to establish their effectiveness in facilitating resolution of construction disputes. 4.1 ARBITRATION ACT (CAP. 15) The Arbitration Act35 is the principal legislation regulation arbitration in Tanzania. It is a replica of the English Arbitration Act 1889 and amongst the oldest pieces of legislation in the Tanzanian statute books enacted in 1931. The Arbitration Act regulates both domestic arbitral proceedings and enforcement of foreign arbitral awards. It also gives effect to the two international measures, viz. the Geneva Protocol on Arbitration Clauses of 1923 and the Geneva Convention on the Execution of Foreign Arbitral Awards of 1927 appended to the Act as 3 rd and 4th Schedules. Since the last amendments to the Act were made in 1971, the Arbitration Act does not incorporate requirements of most important international arbitration agreement entered into force or ratified by Tanzania after that period. The agreements include the Convention on the Settlement of Investment Dispute between States and Nationals of Other States (ICSID), 196536 and the Multilateral Investment Guarantee Agency of 198537. As pointed out by Mkono et al., (2007), to date, Tanzania has entered into four bilateral agreements relating to arbitration with Switzerland, Germany, Netherlands and UK for the purposes of the investment treaty. On the other hand, UNCITRAL Model Law of 1985 has no influence on the Tanzanian Arbitration Act. Besides the
35 36

Cap 15 R.E 2002. Ratified on 17 June 1992. 37 Ratified 19 June 1992.

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Act, there are also Arbitration Rules of 195738 which are made under section 20 of the Act to provide for arbitration procedures. However, the Rules contain thirteen provisions which cover very few matters on arbitration procedures. It is also worth noting that by virtue of sections 17 (2) Tanganyika Order In Council39 and sections 2(3), 14, 16 and 17 of Judicature and Application of Laws 40 respectively, the English common law, doctrine of equity and statutes of general application and Indian Law in force as by 22 nd July 1920 (in England) and 1st December 1920 (in India) was made applicable in Tanganyika inhabitants permit. 4.1.1 Applicability The Tanzanian Arbitration Act is applicable to any arbitration dispute which, if the matter submitted to arbitration formed the subject of a suit, only the High court would have competence to try41. 4.1.2 Reference to arbitration Pursuant to section 4 of the Arbitration Act read together with the First Schedule, unless there is any agreement to the contrary, a submission to the arbitration is deemed to be irrevocable except by leave of the court. Section 5 of the Act allows parties to the arbitration agreement to agree on the name of an arbitrator(s) to be appointed by a third person or appointment body designated therein. The arbitrator(s) are bound under the Act to make an award in writing within three months after entering on the reference, or after having called on to act by notice in writing from any party to the submission or on or before any later day to which the arbitrator(s) may, from time to time, extend the time for making the award 42. Under the Act, the umpire may forthwith enter on the reference in lieu of the arbitrators if the arbitrators have allowed the time to be extended or expire without (now Tanzania mainland) with such modification and so far as the circumstances of Tanzania and its

38 39

G.N. No. 427 of 1957 1920 40 Cap. 358 R.E 2002 41 Section 3 42 Clause 3 of the First Schedule to the Act.

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making an award or have shown an indication in writing that they cannot agree 43. Once the umpire enters on the reference, he will be bound to make his award within one month after the original or extended time appointed for making the award of the arbitrators has expired, or on or before any later day to which the umpire, in writing signed by him may, from time to time, extend the time for making his award 44. Pursuant to section 14, the law empowers the High court to extend the time for making an award by the arbitrator or umpire. 4.1.3 Powers of an arbitrator Under the law, the arbitrator or umpire has power to examine any document to be relied upon by the parties to the arbitration proceedings, to examine witnesses on oath, to issue an award which is final and binding on the parties and the persons claiming under them respectively, to determine and direct which party to the dispute has to pay the costs of the proceedings and may tax such costs45. 4.1.4 Effect of arbitration agreement Though there are few reported cases in Tanzania in respect to the courts power to enforce arbitration agreement, the application of common law cases has been of great significance to the Tanzanian legal system in which the courts have shown a keen interest to compel the parties to respect their arbitration agreement. Where there is an arbitration agreement, by virtue of section 6 of the Act, a party to a submission, or a person claiming under him, has a right to apply to the court to have any legal proceeding barred/ stayed so as the dispute may be determined through arbitration. An application under section 6 must be made by the defendant before filing a written statement or taking any other steps in the proceedings. Further to section 6, rule 11 of the Arbitration Rules 1957 reads as follows: 11. A judge may stay proceedings on such terms as he thinks fit, but not without notice to the opposite party except where it appears that the object of granting the stay would be defeated by the delay occasioned by the notice. Arguably, as the law provides, the courts power to stay arbitration proceedings in Tanzania is a matter of the discretion of the presiding judge. It should also be noted
43 44

Clause 4 of the First Schedule. Clause 5 of the First Schedule. 45 Section 11.

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that contrary to the other arbitration statutes in the common law, there is no any conditions to guide the court on the circumstances for which stay should or should not be allowed. In Kenya for example, through section 6 of the Kenya Arbitration Act46 , for the order of stay to be issues by the court, the applicant must prove existence of an arbitration agreement which is valid and enforceable, and that he/she is a party to the arbitration agreement or at least a person claiming through a party e.g. a personal representative or trustee in bankruptcy and that the dispute in question has arisen fall within the scope of the Arbitration Clause (Muigua,2008). The decisions of Construction Engineers and Builders Ltd V. Sugar Development Corporation47 provides for the authority in Tanzania regarding the circumstances in which the court can order stay of proceedings pursuant to section 6 of Tanzania Arbitration Act. This case involved termination of a building contract contained an arbitration clause based on R.I.B.A. The Court of Appeal of Tanzania held that where it is clear that the parties to a contract have agreed to submit all their disputes or differences arising "under" the contract to an arbitrator, the dispute must go to arbitration unless there is good reason to justify the court to override the agreement of the parties. In arriving to the decision in the above case, the Court of Appeal was highly in which upon construing the true nature and function of the

persuaded by the decision of the House of Lords in the English case of Heyman v Darwins Ltd48 arbitration agreement and the wording of the arbitration clause in the contract between the parties, the House of Lords concluded for the order of stay pursuant to section 4 of the Arbitration Act 1889 was proper to allow the matters in dispute between the parties to be dealt with under the arbitration clause. The above referred English case was later considered by the Court of Appeal of Tanzania in another case of Tanzania Motor Services Ltd and Others v Mehar Singh t/a Thaker Singh49. In this case, the parties entered into a building contract contained an arbitration clause whereby the parties agreed to refer any dispute or difference arising between them to arbitration. A dispute having arisen between the parties, the respondent instituted a civil case in the High court seeking to recover from the
46 47

Act No. 4 of 1995, Laws of Kenya. (1983) TLR 13 (CA) 48 [1942] A.C. 356. 49 (Civil Appeal No. 115 of 2005) [2006] TZCA 5 (21 July 2006) (unreported).

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appellants outstanding monies under the contract. Instead of filing a written statement of defence, the appellants applied by way of petition for a stay of the proceedings in terms of Section 6 of the Arbitration Act. The learned judge dismissed the petition, hence the Appellant decided to appeal to the Court of Appeal. However, at the commencement of hearing the appeal, the respondent raised a preliminary objection challenging the competence of the appeal by reason of Section 5(2) (d) of the Appellate Jurisdiction Act 1979, on the ground that the decision in question was interlocutory and it did not finally determine the case between the parties in the trial court, therefore was not appealable50. Dismissing the respondents objection, the Court of Appeal held that the decision of the learned judge refusing to stay the proceedings in the case instituted by the appellant had a final determination of the petition by barring the parties from going to arbitration. Accordingly, the Court of Appeal considered that the decision by the trial judge closed the door to arbitration thus rendering provisions in contract for arbitration meaningless. It should be noted that the wording of Section 6 of the Arbitration Act for Tanzania is in pari materia with section 4 of the old English Arbitration Act, 1889. Under the English law, the defendants sometimes inadvertently lost their rights of stay when taking some fair trivial procedural step in response to the legal proceedings against them. For instance, as held in Fords Hotel Co Ltd v Bartlett51, the defendants who took out a summons seeking an order for an extension of time would have precluded from applying for a stay unless there was an express reservation of rights. Before the 1996 Arbitration Act, the judges in English courts would have refused stay in the case involving more than two parties with consideration that such kind of disputes could be easily handled up by the court than in arbitration. Relying on the discretion of court to refuse to grant stay, it was possible under the old law to bring a multi-party proceeding. However, under the new Act, all multi-party arbitration proceedings must be based on consent (Uff, 2009). Murdoch and Hughes (2008) comment that section 9 of the English Arbitration Act 1996 has revised the old law whereby, in interpreting the section, the English

50

Section 5(2) (d) of the Appellate Jurisdiction Act, 1979 as amended by Act No. 25 of 2002 bars appeals against preliminary or interlocutory decision or order unless such decision or order has the effect of finally determining the suit. 51 [1896] AC 1.

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Courts have

been unwilling to deprive defendants rights of stay on technical

grounds. Under section 9, the court must order a stay of proceedings unless satisfied that the arbitration agreement is null and void, inoperative or incapable of being performed. Based on the strict interpretation of section 9 of the English Arbitration Act, 1996, the judges have applied the law to favour arbitration. For instance, a party applying to set aside a default judgment with associated leave to defend cannot thereby be regarded to take any substantial step in proceedings which would debar him from insisting that the matter be stayed pending a referral to arbitration52. Similarly, it was held in Bilta (UK) Ltd v Nazir53 that an application for an extension of time to serve a defence will not amount to a waiver of the right to seek a stay of proceedings pending arbitration if a party has expressly reserved its rights. In that case, Sale J. reviewed previous decisions including that of Patel v Patel (supra.), and approved the principle that "the right to apply for a stay will be lost if the Defendant in the judicial proceedings has expressly or impliedly represented that he does not intend to refer the dispute to arbitration". In contrast to English arbitration law, section 6 of Tanzanian Arbitration Act can deprive the defendants right of stay of proceedings just by mere filing a written statement of defence or by making an application for adjournment of the proceeding. The technicalities on right to stay under section 6 appear not to favour the intention of arbitration agreement and contradict requirements of the international conventions such as the New York Convection 1958, which require each Contracting party to recognize and or respect an arbitration agreement54. 4.1.5 Court powers in support of arbitral proceedings Under the English Arbitration Act 1996, courts have inherent power to support arbitration proceedings whereby pursuant to Section 44, the courts can issue an injunctive order where it is appropriate to preserve the status quo and the greater risk of potentially irremediable injustice lay in refusing injunctive relief. In the case of SAB Miller Africa v East African Breweries55, Justice Christopher Clarke of the High
52 53

Patel v Patel [1999] BLR 227. [2010] EWHC 1086 (Ch). 54 See Article I(1). 55 [2010] 1 Lloyd's Rep. 392.

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Court of Justice, Queens Bench Division granted such an injunctive relief pending further order of the arbitral tribunal, which at the time of hearing was yet to be appointed in order to determine the disputes between the parties. The application for the leave to appeal made against such an injunctive order

against the respondent was later refused by the Court of Appeal as the court found that it had no power to grant permission to appeal for the order made under section 4456. Under the Tanzania Arbitration Act, such an inherent power by the court to honour the arbitration agreement is not specifically provided. Therefore, if there is no any agreement to the contrary, the parties have to rely upon the common law if they wish to preserve the status quo on their case. 4.1.6 Extension of time for commencement of arbitration Section 7 of the Tanzania Arbitration Act empowers the court to extend time for commencement of the arbitration proceedings, if it is of the opinion that in the circumstances of the case hardship would otherwise be caused and notwithstanding that the time so fixed in the arbitration agreement has expired. In that provision, the courts power to extend time is without prejudice to any written law limiting the time for the commencement of arbitration proceedings57. Under the Law of Limitation Act58 which governs limitation of claims in Tanzania the word arbitration" is defined to mean arbitration on a submission or under any written law59. Section 40 of the Law of Limitation provides that the Act apply to arbitrations in the same manner as it applies to other proceedings. For the purpose of limitation, the law considers that where a submission contains a term that no cause of action shall accrue in respect of a matter, the cause of action shall accrue in respect of any such matter at the time when it would have accrued but for the term in the submission. The Law of Limitation provides further under section 40(3) as follows:(3) For the purposes of this Act, an arbitration shall be taken to have commenced when one party to the arbitration serves on the other party a notice requiring him to appoint an arbitrator or, where the submission provides
56 57

SAB Miller Africa v East African Breweries [2010] EWCA Civ 1564. Sub-section (2). 58 Cap. 89. 59 Ibid. section 2.

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that the reference shall be to the person named or designated in the submission, requiring him to submit the dispute to the person so named or designated. Usually, a construction contract may contain certain provisions which trigger commencement of claims. For instance, under the standard construction contracts such as clause 66 of ICE Conditions and clause 30.9 of JTC 98 respectively, the engineer or architect decision on the certificate is final and binding unless challenged by a notice of arbitration. In one English case of Crow Estate Commissioner v Mowlew60, the employer sought to rely upon the power of the court to extend time for commencing arbitration proceedings in order to avoid the binding effect of the final certificate under the JCT 80 form of contract. The court held that the power to extend time for arbitration could override the binding effect of the final certificate as agreed upon in construction contract by the parties. Based on the old English Arbitration law, the courts could not avoid the effect of time-bar and binding effect of the decisions by the engineer or contract administrator in respect of the final certificate. However, the position has now been revised by section 12 of the Arbitration Act 1996 in which the court can on discretion extend the time only if the claimant proves that (i) the circumstance which barred or extinguished the claimants rights to

begin the arbitral proceedings or other dispute resolution are such as were outside the reasonable contemplation of the parties when they agreed the provisions in question, and that it would be just to extend the time; and (ii) the conduct of one party makes it unjust to hold the other party to the strict terms of the provision in question. As opposed to the above-referred English position, section 7 of Tanzania Arbitration Act gives a wider discretion to the judge to determine extensions of time by importing the word hardship without further clarification.

60

(1994) 70 B.L.R 1.

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4.1.7 Appointment of an arbitrator or umpire The Tanzania Arbitration Act also empowers the court to intervene in the arbitration proceeding by the appointment of an arbitrator or umpire61. This power can only be exercised by the court under the following situation: (i) where the parties fail to agree on an appointment of an arbitrator; (ii) where the appointed arbitrator (s) or umpire neglects or refuses to act or is incapable of performing or dies or is removed; and (iii) where parties or two appointed arbitrators fail to appoint an umpire or third arbitrator (if they were to do so). One party to the arbitration agreement could seek the intervention of the court if the other party has not decided on the appointment of an arbitrator or umpire within seven clear days after the service of the notice of appointment62. However, it is not provided under either Arbitration Act or Rules if in appointing the said arbitrator, umpire or third arbitrator, the court is bound to consider any factors, which will ensure effective determination of dispute among the parties such as the nature of the subject matter, qualification, age or competency of a particular arbitrator or umpire. In other jurisdiction such Scotland, the law excludes persons under 16 years old and any incapable adult from becoming arbitrators63 4.1.8 Removal of arbitrator Sections 9(a) and 10(1) (a) of the Arbitration Act allow the arbitrator who is appointed by one party to become a sole arbitrator in case the other party has failed to appoint or replace his own arbitrator within seven clear days upon being served with a written notice to make the appointment. Under section 9(b) and 10(2), the court can set aside the appointment made by one party but it is not clear on what specific grounds the court can set aside such an appointment before the end of arbitration proceedings. It should be noted that the only ground provided for in the Act in which the court can remove an arbitrator or umpire is when the said arbitrator or umpire has committed

61 62

Section 8 (1). Section 8(2). 63 See Rule 4 of the Scottish Arbitration Rules, 2010.

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misconduct64. Nonetheless, the word misconduct is not defined or elaborated in the Act or Rules, something which may make difficult for the court to remove an arbitrator from office. In addition, as opposed to Scottish Arbitration Rules in which the arbitrator can be removed from office at any time by the parties who appointed him/her65, the Tanzanian Arbitration Act or Rules does not provide such right to the parties to remove the arbitrator at their wishes. 4.1.9 Procedural and evidential matters In contrast to the English and Scottish arbitration laws66, in Tanzania, neither the Arbitration Act nor the Rules provide specifically on what form of procedures should be adopted by the arbitrator or umpire. Although the Tanzanian Law of Evidence Act67 excludes strict application of evidentiary rules to the arbitration proceedings 68, sometimes, it is upon the parties to agree on the specific powers to be vested to the tribunal including evidential matters to guide the tribunal. Otherwise, if an arbitration agreement by the parties lacks detailed information, then the whole procedure of administering the dispute before tribunal including filing of pleadings, calling of witnesses, examination of evidence etc., will largely depend upon the experience of a particular arbitrator handling the matter and legal counsels of the parties to the dispute (if at all represented). 4.1.10 Powers of the Arbitrator or Umpire Section 11 of the Arbitration Act read together with the First Schedule provide for the specific powers of the arbitrator as follows (i) to determine cost of reference and award (ii) to administer oaths to the parties and witnesses appearing; (iii) to state a special case for the opinion of the court on any question of law involved; (iv) to correct in an award any clerical mistake or error arising from any accidental slip or omission.

64 65

Section 18. Rule 10 -12 of Scottish Arbitration Rules 66 See also section 33(b) of the English Arbitration Act 1996 and Rule 28 of the Scottish Arbitration Rules, 2010. 67 Cap. 6 of the Laws of Tanzania (R.E 2002) 68 Section 2

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As opposed to the arbitration laws of other countries including that of its neighbour Kenya69, the Tanzanian legislation does not specifically empower the arbitral tribunal to determine its own jurisdiction/ competence or order interim measures such as injunction, prohibition or security for costs70. Although under the Tanzania Arbitration Act the arbitrator has powers to award costs, such powers are limited to the costs relating to what is in the submission by the parties. The arbitrator can award costs within his discretion if satisfied that the arbitration agreement is silent on cost and the governing legal provision empowers him to do so. However, there is nowhere in the Arbitration Act empowering the arbitrator to award interest on costs in whatever form. In Kenya, under section 32C the of Kenya Arbitration Act, where there is no any agreement to the contrary, an arbitral award may include provision for the payment of simple or compound interest calculated from such date, at such rate and with such rests as may be specified in the award. 4.1.11 Confidentiality As opposed to the arbitration laws of other countries such as Scottish Arbitration Rules, which provide for confidentiality of arbitration proceedings71, in Tanzania, both the arbitration Act and its Rules do not provide specifically whether the arbitration is a confidential process. Therefore, the parties will only consider the issue of confidentially of proceedings in the arbitration process as a matter of practices or agreement. 4.1.12 The arbitral award Pursuant to section 12 of the Arbitration Act, the arbitrator is entitled to make and sign an award and thereof notify the parties to the dispute of the delivered award together with any fees and charges payable in respect of arbitration and award. Unlike section 52 of the English Arbitration Act 1996 and Rule 51 of the Scottish Arbitration Rules, the Tanzanian Arbitration law does not provide for any mandatory form or conditions that the tribunal should take into account in the award.

69 70

The Arbitration Act No. 4 of 1995, Laws of Kenya as amended in 2009. Ibid, section 17 and 18 (1)(a)-(c). 71 See Rule 26 of Scottish Arbitration Rules, 2010.

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The only requirement under the law is for the arbitrator to make an award on the format provided for in Form 5 to the Second Schedule to the Act. Notwithstanding that requirement, the Act does not provide any fate or remedy if an award has not complied with Form 5 of the Second Schedule. As for the judgment of the court, an arbitral award is just a determination and declaration of the rights and obligations of the parties in a case. Under section 12(2) of the Act, once the arbitrator or umpire has made his award and notified the parties thereto, he will only file the award or cause it to be filed in court upon a request by any of the parties to the submission or any person claiming under such party. The filing of the award shall be after payment of all fees, charges and all costs in respect to the arbitration and award and the costs of filing it in court. In order to file an award to the High court, rule 4 of the Arbitration Rules requires that the arbitrator or umpire to forward the award or certified true copy with all accompanying documents to the Registrar of the High court by a registered post and in a sealed envelope. In Tanzania Cotton Marketing Board v Cogecot Cotton Company SA72 the Court of Appeal of Tanzania provided clear guidance on the procedure for filling an award pursuant to section 12(2) and rule 4. In that case a dispute arose between the appellant and the respondent which resulted in the matter being referred to arbitration before the Liverpool Cotton Association Limited. An award granted in favour of the respondent and confirmed by the Technical Appeal Committee of the Arbitrators was filed in the High Court of Tanzania through the service of one local law firm in Tanzania having being forwarded by DHL courier and not by registered post as required by rule 4 of the Arbitration Rules, 1957. The appellant objected to the award on the ground that the proper procedure as required under the Arbitration Act was not followed. The court held that there was no reason for a restrictive interpretation of the provisions of section 11(2) of Arbitration Act73 which allowed the arbitrator to `cause the award, or a signed copy of it to be filed in the court'. The import of this was that the arbitrator either could file the award himself in court or could cause the award to be filed by instructing somebody else to do it on his behalf. The court went on to consider that:72 73

1997 TLR 165 [now section 12(2)]

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the words `registered post' had to be interpreted widely enough in order to take into account the current development in communication technology, such as courier postal services, that had taken place since 1957 when the rules were enacted. In the circumstances the award had been properly filed.

The court was of the views that also rule 4 of the Arbitration rule, 1957 is more restrictive than the principal legislation. Therefore, it should be interpreted widely in order to accord to it a more meaningful and practical interpretation which is in line with the spirit behind the principal Act. As guidance on what happens after the award has been filed, the court also upon considering various arbitration decisions by the Supreme Court of India in light of the Indian Arbitration Act 1899 74, was of the view that from the date of filing, the award is capable of being enforced as though it were a decree. The court as well challenged the practise in the enforcement of an award through the Arbitration Act Cap. 15 of Tanzania as follows:So far in our country the practice in matters of arbitration awards is that the court is moved by an application for an order for filing which is then followed by proceedings. On the basis of the Indian decisions we are persuaded to take the view that as a matter of law it is not necessary to conduct proceedings before an order for filing is made. In our view, the receipt of the award by the Court Registry constitutes the filing of the award. Thereafter, the court is required to notify the parties who may wish to challenge or to enforce the award in terms of the law. The observation by the Court of Appeal in the above case would support for the reform of Tanzanian arbitration law in order to accommodate new developments in the arbitration procedures taking place elsewhere in the world. 4.1.13 Challenging an award While under the English and Scots laws it is required that a party first exhausts any available review or appeal process under the arbitration agreement before going to the court, in Tanzania, the decision of the arbitrator or umpire under the Arbitration Act is not appealable; instead an aggrieved party can make an application/petition to the court for the same to be set aside or remitted back to the arbitrator or umpire for reconsideration.
74

The Indian legislation was in pari materia with Arbitration Act Cap 15 of Tanzania,

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The court may set aside the award only when it is satisfied that there are elements of misconduct or improper procurement of an award by the arbitrator or umpire 75. Once an award is remitted back for reconsideration, the arbitrator or umpire shall, unless the court direct otherwise, make a fresh award within three months76. As noted before, pursuant to section 12 (1) of the Arbitration Act, when and arbitrator or umpire makes his award, is required to give a notice to the parties in that effect. It was considered in the case of Tanzania Cotton Marketing Board v Cogecot Cotton Company SA, (supra), that a party to the arbitration can apply for the enforcement or changing an award once it has been filed in court and upon being notified such filing by the Registrar of the High Court. In the circumstances, should there be a time limitation to apply for the enforcement or challenging the award, the time has to be counted starting from the date when a party has received a notice of the filing of an award by the arbitrator from the Registrar but not from the date when the award has been filed in court. In Tanzania Cotton Marketing Board Vs Cogecot Cotton Company S.A77, the Court of Appeal was to consider what form of pleading should be filed in the court to challenge an award and time limit for taking such action. In that case, the appellant petitioned to the High Court to impeach an award under section 15 of the Arbitration Act and Rules 5 and 6 of the Arbitration Rules. The matter was dismissed by High Court on the ground that it was time-barred pursuant to Item 21 of Part III of the First Schedule to the Law of Limitation Act that provides for the limitation period of 60 days. The Appellant then appealed against that decision contending that the High court erred in holding the time of limitation to be 60 days. The Appellant contended that a petition was a suit founded on a judgment, namely the award and therefore, the time of limitation under the Law of Limitation Act is 12 years reckoned from the date the notice of filing the award was served on the appellant. In its judgment, the Court of Appeal held that a petition under rules 5 and 6 of the Arbitration Rules is an application rather than a suit and that all applications under the Arbitration Act fall under Item 21 of Part III of the First
75 76

Section 15 and 16 of the Act read together with Rule 5 and 6 of the Arbitration Rules 1957. Section 15(2). 77 60 of 1998) [2002] TZCA 4 (1 January 2002) http://www.saflii.org/tz/cases/TZCA/2002/4.html (accessed on 4 August 2010).

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Schedule to the Law of Limitation Act, and the period is 60 days78. On the contrary, as we will see later on, the same Law of Limitation Act provides for the time limit of 30days for making an application to set aside an award under the Civil Procedure Code79. In furtherance to the above, the Law of Limitation Act is silent on when the right of action accrues as far as application/petition for the challenging of an award is concerned. Section 6(j) of the Law of Limitation Act provides for when a right of action accrues in respect to the appeals This section provides that time starts to run on the date when the judgment, decision, award, decree or order appealed against was delivered, passed or made. Section 2 of the Law of Limitation defines appeal to mean an appeal against a decree, order, award, judgment or decision passed, delivered or made in a proceeding of a civil nature. The word award is defined to mean an award of an arbitrator. Section 19 (4) of the Law of Limitation Act provides further that in computing the period of limitation prescribed for an application to set aside an award, the time requisite for obtaining a copy of the award shall be excluded. Interpretation of section 6 and 19 of the Law of Limitation Act can cause confusion in determining an appropriate way of challenging the award and the time limit for doing so. As a matter of law according decisions of the court of appeal in the case of Tanzania Cotton Marketing Board vs. Cogecot Cotton Company S.A, an award under the Arbitration Act can only be challenged by way of application referred as petition instead of appeal. Therefore, the whole procedure under the Law of Limitation for challenging an award does not involve an award made under the Arbitration Act. 4.1.14 Recognition and enforcement of domestic award Under the Tanzania Arbitration Act the award upon being filed in the court, unless the court remits it to the consideration to the arbitrator(s) or umpire(s) or sets it aside, is enforceable as if it were a decree of the court80. An award can be enforced by filing

78

Note: The Arbitration Act does not provide for the period of limitation but refers to the limitation period under the Law of Limitation Act. 79 Under Part III, item 2 of the First Schedule. 80 Section 17.

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a petition in the High Court in the manner set out in the Arbitration Rules 81, to which a copy of the submission (or arbitration clause) have to be attached. Under Part I, item 9 of the First Schedule to the Law of Limitation Act, the award can also be enforced as a suit to be filed in court within 6 years. Contrary to the English Arbitration law where an award can be enforced through an application for the leave of court or an action for a summary judgment on the sum awarded82, in Tanzania, a party who wishes to enforce the award under the Act has to follow the normal procedures for the enforcement of the decrees of the court as provided for under the Civil Procedure Code. This is a subject which may involve a lot of other legal complications which may end up in justice delayed if not denied. Twaib (2009), challenges the civil justice system of Tanzania as far as process of enforcement of decree is concerned. The author argues that even when the litigation ends, another problem usually arises that of enforcing whatever decree or order a person might have obtained from the Court. The execution process is full of procedural complications, especially where, as in most cases, the losing party is not willing to comply with the court order. 4.1.15 Enforcement of Foreign Arbitral Awards In Tanzania, the enforcement of foreign arbitral award is governed by sections 29 to 32 of the Arbitration Act. A foreign award is enforceable either by action or through a petition made to the High Court upon the award being filed. Although the law does not define what action means, it can be construed to imply a formal suit. A party to the foreign award may rely upon it in any legal proceedings by way of defence, setoff or otherwise83. Pursuant to section 32, in order that a foreign award to be enforceable under the Act, it must (i) have been made in pursuance of an agreement for arbitration which was valid under the law by which it was governed; (ii) have been made by the tribunal provided for in the agreement or constituted in manner agreed upon by the parties;

81 82

Rule 5, 6 and 7. Section 66 of Arbitration Act 1996. 83 Section 29.

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(iii) have been made in conformity with the law governing the arbitration procedure; (iv) have become final in the country in which it was made (there is no any proceedings for contesting its validity in the country in which was made). (v) have been in respect of a matter which may lawfully be referred to arbitration under the law of Tanzania, and its enforcement must not be contrary to the public policy or the law of Tanzania. The foreign award cannot be enforced if the court is satisfied that(i) the award has been annulled in the country in which it was made; or (ii) the party against whom it is sought to enforce the award was not given notice of the arbitration proceedings in sufficient time to enable him to present his case or was under some legal incapacity and was not properly represented; or (iii) the award does not deal with all the questions referred or contains decisions on matters beyond the scope of the agreement for arbitration. Section 31 of the law requires that a party seeking to enforce a foreign award must prove the existence of a particular award by producing (i) the original award or its copy duly authenticated in the manner required by the law of the country in which it was made; (ii) evidence proving that the award has become final; and (iii) such evidence as may be necessary to prove that the award is a foreign award including certified translation of any of document if it is in the foreign language. Recognition and enforcement of a foreign award in Tanzania is based on the Convention on the Execution of the Foreign Arbitral Awards of 1923 and The Protocol on Arbitration Clauses of 1923 for which Tanzania is a member. The two international agreements are incorporated in 3dr and 4th Schedules to the Arbitration Act. Unlike Scots Arbitration Law which incorporates the international agreements in its national law84 , the Arbitration Act for Tanzania does not make any reference to

84

Arbitration Act (Scotland) Act 2010 expressly recognises these two agreements through Sections 18 22 and 26 respectively.

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the New York Convention or and UNICITRAL Model Law though the United Republic of Tanzania is a member to such agreements. Lack of recognition of international agreement through its national arbitration law has made most of the arbitration cases involving the government of United Republic of Tanzania and some international companies to be referred to the international arbitrators even if the companies are registered and have their place of business in Tanzania. Among recent cases referred to the international arbitration tribunal (ICSID) is that of Biwater Gauff (Tanzania) Ltd. V. United Republic of Tanzania 85 which involved a dispute on the termination of the World Bank funded project for the management and operation of the water and sewerage services in Tanzania. In that case, though the implementation of agreement involved a locally incorporated company in Tanzania, named City Water Services Limited, the seat of arbitration was in Paris. In the circumstances, it was very expensive for a poor country like Tanzania to handle the case abroad. The costs that are incurred in submitting the dispute to the international centres for disputes resolution could be avoided by having strong national arbitration institutions and competent arbitration practitioners. 4.2 ARBITRATION UNDER THE CIVIL PROCEDURE CODE The Civil Procedure Code provides for its own unique arbitration through the Rules incorporated in the Second Schedule made under Section 80 to the Code. The Rules governs both arbitration by the order of the court and that without an intervention of the court. 4.2.1 Arbitration by order of Court The Arbitration by order of Court requires that the parties in the proceedings who

wish to settle the dispute through arbitration, to apply in writing for the order of the court that the matter be referred to arbitration before judgment has been pronounced. In that circumstance, the arbitrator will be appointed by the court in such manner as may be agreed upon between the parties and be required to make an award within a specified time86. As for the Arbitration Act, the court may as well

85 86

ICSID Case No. ARB/05/22 Rules 2 3 of the Second Schedule

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assist the proceedings by compel attendance of witness and extend time for making an award by an arbitrator87. Once the arbitrator has made an award in the suit will then cause it to be filed in court. The court is empowered under Rules 12 and 14 to order modification, correction or reconsideration of only if: (i) it appears that a part of the award contains matters which were not referred to the arbitration; (ii) the award is imperfect in form, or contains an obvious error which can be amended without affecting such decision; or (iii) the award contains a clerical mistake or an error arising from an accidental slip or omission. The court can also interfere with the award by making such order as it thinks fit respecting the costs of the arbitration if the award contains no sufficient provision regarding the cost. Pursuant to Rule 15(1), the court cannot set aside the award except on one of the following grounds, namely(i) corruption or misconduct of the arbitrator or umpire; (ii) fraudulent concealment or misleading of any matter which ought to have been disclosed to the arbitrator or umpire; and (iii) the award having been made after the issue of an order by the court superseding the arbitration or after the expiration of the period allowed by the court or being otherwise invalid. The rule 15 provide further that if the court sees no cause to remit the award for reconsideration in whatever manner and no application has been made to set aside the award or the court has refused such application, the court shall, after the time for making such application has expired, proceed to pronounce judgment according to the award which then shall be followed by a decree. A party to the proceedings is allowed to challenge the decree only if it is in excess of, or not in accordance with the award.

87

Rules 7 and 8

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4.2.2 Agreement to refer to the arbitration By virtue of Rule 17(1), any persons who agree in writing that any difference between them shall be referred to arbitration, may make a written application to any court having jurisdiction in the matter to which the agreement relates, that the agreement be filed in court. The application in this nature shall be accepted and registered as a suit between the parties. Then the court will direct a notice thereof to be given to all the parties to the agreement, requiring such parties to show cause within the time specified in the notice, why the agreement should not be filed. In the absence of any objection against the agreement, the court will order the agreement to be filed in court and the arbitrator be appointed in accordance with the agreement. In line with section 6 of the Arbitration Act, the court can stay any legal proceeding pending arbitration on application by any party to the proceeding88. 4.2.3 Arbitration without the intervention of court By virtue of rule 20 of the Second Schedule of CPC, where any matter has been referred to arbitration without the intervention of a court and an award has been made thereon, any person interested in the award shall make an application in writing to the court that the award be filed in court. The application made in this manner shall be registered as a suit between the parties and the court shall direct notice to be given to the parties to show cause as to why the award should not be filed in court. If there is no any objection as regard to the filling, setting aside or remitting of the award, the court will pronounce judgment according to the award. Upon the judgment, so pronounced a decree shall follow and no appeal shall lie from such decree except insofar as the decree is in excess of or not in accordance with the award89. 4.3 COMPARING ARBITRATION UNDER THE ARBITRATION ACT AND CPC It is submitted that, in contrast to the Arbitration Act, the CPC provides for two procedures of arbitration i.e. arbitration which can or cannot involve intervention of the court. However, both the proceedings require existence of an arbitration
88 89

Rule 18 Rule 21.

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agreement between the parties. Under the CPC, the procedure of filing, enforcement or challenging an arbitral award is different from that provided for in the Arbitration Act. While in the Arbitration Act an award can be challenged by way of petition to High court upon the award being filed by the arbitrator pursuant to section 12 of the Arbitration Act, under CPC an award without intervention of the court can be enforced by way of an action or a suit in which a judgment and a decree can be pronounced straight forward. The remedy for any of the parties who is aggrieved by the decree under the CPC arbitration is to file an appeal against the decree whereas under the Arbitration Act recourse of an aggrieved party is to challenge the award so as it should not be treated as a judgment or decree of the court. As noted before, the Law of Limitation Act provides under Part III, item 2 of the First Schedule that an application to set aside an award under the CPC is within thirty days (30) this is different from 60 days for challenging an award under the Arbitration Act . Another contradiction in the arbitration procedures is that, while the Arbitration Act requires all applications to be made in court by way of petition and that suit cannot be recognized as an application, under the CPC, a party can use an action known as a suit to enforce an award and the time limitation provided under the Law of Limitation Act is six (6) years90. On the other hand, while the Arbitration Act does not provide when an award has to be filed in the High court for the enforcement or challenge, the Law of Limitation Act requires that an application under the CPC for the filing an award in a suit made in any matter referred to arbitration by order of the court or without the intervention of a court be made within six (6) months91. Unless the laws are harmonized, it can be confusing if a party to an award decides to quote both the provisions of CPC and the Arbitration Act on making his application for the challenging or enforcement of an arbitral award. 4.4 ARBITRATION UNDER THE NATIONAL CONSTRUCTION COUNCIL The National Construction Council (NCC) is a statutory body that was established in 1979 through the National Construction Act 1979. Cap 162, as amended in 2007 92. Pursuant to section 4 of its Act, among functions of NCC include promoting and
90 91

Part I, item 9 of the Schedule to the Law of Limitation Act. Cap. 89. Part III, item 18 of the First Schedule of the Limitation Act. 92 No. 20 of 1979, Cap. 162.

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providing strategic leadership to the stakeholders for the development of the construction industry as well as advice the government on all matters relating to the construction industry in Tanzania. Apart from its main statutory mandates in the Act of establishment, the Council is also engaged in facilitating construction dispute settlements through adjudication and arbitration under the National Construction Council arbitration rules. The current Rules applicable in the arbitration are the Arbitration Rules 2001 Edition, which replaced the old Rules of 1984. The Rules are in the form of guiding procedures for regulating arbitration between parties who seek to resolve their construction dispute through NCC. 4.4.1 Scope of application By virtue of its preamble, the NCC Rules are applicable to both domestic and international arbitration. For the international arbitration, the Rules take recognizance of the UNCITRAL Model Law. It is provided under the preamble that the parties who wish to have their construction disputes determined through the Rules, they should insert an arbitration clause in their contract to provide that any dispute or difference of any kind whatsoever which may arise in relation to any matter in connection with the agreement shall be referred to the arbitration under the Rules of NCC. If there is no any prior agreement to arbitrate, the Rules allows the parties to enter into an agreement to refer the dispute through the NCC Rules at the time of occurrence of such dispute. The NCC Rules state that any matters, which are not covered therein, shall be governed by the agreement between the parties and the laws of Tanzania in case of disputes under domestic contract or in accordance with the law agreed by the parties in case of dispute arising out of, or in connection with international contract. However, the word domestic or international contacts are not defined in the Rules, neither is there any clause in the Rules defining words used therein. 4.4.2 General principles Unlike the Arbitration Act Cap. 15, the NCC Rules contains a provision for the general principles regarding the objective of arbitration. In addition, they provide clear duties of the arbitrator and parties to the arbitration proceedings 93. Generally,

93

Rule 1.0 - 3.0.

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the object of arbitration is considered as an approach to obtain fair resolution of dispute by an impartial tribunal without unnecessary delay or expense. The arbitrator on his part is required to act fairly and impartially between the parties and to adopt procedures suitable to the circumstances of the case to avoid unnecessary delay or expenses to the parties. Likewise, parties to the disputes are also required to do whatever possible for the proper an expeditious conduct of the proceedings. Under Rule 3.2 Parties may agree to confer any other power to the arbitrator apart from those in the rules or their arbitration agreement. As a matter of procedure, pursuant to Rule 4, a party who wishes to commence arbitration shall send to the NCC a written request to that effect. A request shall contain particulars of the parties, brief statement of the dispute, copies of agreement and a separate submission with a copy sent to the other party. On receipt of the request, NCC shall then submit to the claimant a list of approved arbitrators and the claimant shall select three names and send back the names to NCC and NCC shall thereafter upon checking the availability of the arbitrators, request the Respondent to select one with 14 days, otherwise if there is a disagreement on the name, parties may request NCC to appoint an arbitrator who shall not be from the list proposed by the claimant. The procedure involving two arbitrators and umpire is only applicable on complicated arbitration whereby NCC is the one, which appoints the umpire after each party has appointed his own arbitrator94. 4.4.3 Jurisdiction and powers of the arbitrator The jurisdiction and powers of the Arbitrator under NCC Rules are provided for under Rule 7.0 in which the arbitrator is required to exercise his powers and discretion so far as Tanzanian law allows. Among the powers of the arbitrators under the Rules include to determine validity and enforceability of contract by the parties, to order correction or amendment to such contract, to determine any question of law arising in the arbitration, to determine validity of arbitration agreement, to determine any question as to his jurisdiction, to order a joining of any party by consent and make single award, to make any interim orders and to award interest on any sum from and to any date as such as he determines to be appropriate etc.
94

Rule 5.0

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As it has been noted above, most of the referred powers in the NCC Rules are not in the principal arbitration law, thus Arbitration Act Cap.. 15 and Rules of 1957. 4.4.4 Arbitration costs As opposed to the Arbitration Act which does not stipulate how costs are to be allocated at the end of the proceedings and or interest thereof, NCC Rules require parties to pay in equal contribution all costs and fees relating to arbitration in advance. The said contributions, which are deposited with the NCC before or during the arbitration proceedings, will probably differ from the costs at the end of the arbitration, the entire costs of the arbitration are usually ordered to be borne by the unsuccessful party95. The arbitration expenses are payable to cover for the arbitrators fees, and all facilitation costs to be incurred by the NCC. 4.4.5 Procedures for enforcement and challenging an award The procedure for making an award under the NCC Rules is completely different from that provided in the Arbitration Act and CPC. Under Rule 12 of NCC it is provided that the arbitrator will make his reasoned award in writing and then send his award to NCC within 14 days after the conclusion of the hearing. NCC will then notify the parties for collecting of the award upon payment of any outstanding fee and costs. Rules 15.1 provides that if the award is not taken within one month of notification , NCC may by action recover all outstanding costs of the arbitration from any or all the parties. Nonetheless, NCC Rules do not specify what follows a party had taken the award. In the other hand, rule 12 of the NCC Rules contradicts with section 12 of the Arbitration Act, which requires the arbitrator to file or cause to be filed an award in court upon being requested by any party to the arbitration to do so. 4.5 ARBITRATION UNDER THE PUBLIC PROCUREMENT Amongst mandatory conditions in the procurement of public works or services in Tanzania is a requirement that all Public Procurement Entities (PE) make use of an appropriate standard model tender document and contract form prepared by the PPRA96. As far as dispute settlement is concerned, the procedures are provided for
95 96

Rule 14 Sections 63(1) and 70(3) of the Public Procurement Act No. 21 of 2004 read together with Regulations 77 (4) and 83 (3) and (4) of the of the Public procurement (Goods, Works, Nonconsultant services and Disposal of Public assets by Tender) (GN NO. 97/2005)

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under clause 27 and 28 of under the Clause of the General Conditions of Contract (GCC) in the current standard form tender documents approved by PPRA. The conditions require that a dispute in a public project between the contractor and the Project Manager should be determined by the Adjudicator whereby the contractor who is aggrieved by the decision of the Project Manager has to refer the matter to the Adjudicator within 14 days of the notification of the Project Managers decision. The Adjudicator is bound to give a decision in writing within 28 days of receipt of a notification of a dispute and if either is aggrieved with the decisions of the Adjudicator, he may refer the matter to an Arbitrator within 28 days of the Adjudicators written decision. Otherwise, the Adjudicators decision becomes final and binding. Pursuant to the said GCC, the Adjudicator is the person appointed jointly by the Employer and the Contractor to resolve disputes in the first instance and such appointment needs to be done through Special Conditions of Contract (SCC) within the same standard tender documents. It is provided further under Clause 28(3) of the said GCC that The arbitration shall be conducted in accordance with the arbitration procedure published by the institution named and in the place shown in the Special Conditions of Contract. In the circumstances, parties have to nominate through SCC both the adjudicator and the rules of an arbitration institution of which their dispute will be determined in case it is unresolved through adjudication. Apart from the fact that the standard tender documents (GCC) lack the procedure on how the dispute can be referred to the adjudication or arbitration as it is under JTC, 2005 as commonly in use for the UK construction Industry97, it is the settled position that in Tanzania, the adjudication process is the first step for the settlement of disputes relating to public procurement and that the arbitration can only be instituted as an appeal or review of the adjudicators decision. However, the position is unclear as what should be the approach in a case where the dispute between the parties does not involve the decision of the Project Manager.

97

Section 9.2 9.8

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Similarly, the GCC does not make clear what will be an implication if the decision of the adjudicator is unchallenged within 28 day, because the finality of the decision does not always carry the same weight as a binding decision which renders the decision enforceable before the court of law as it is for the adjudicators decision in the UK under the HGCRA 1996.

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CHAPTER FIVE INSTITUTIONAL CHALLENGES FACING ARBITRATION IN TANZANIA

5.0 INTRODUCTION An attempt has been made in the preceding chapter to review the legal aspects of arbitration in Tanzania. As noted, there are various weaknesses to the existing arbitration legislation which cannot assist the parties to the arbitration proceedings to resolve their dispute more effectively and enjoy all the benefits attached to arbitration as one method of dispute resolution in the modern world. On the institutional aspect, the arbitration is a form of dispute resolution method, which requires a workable institutional framework to facilitate disputes resolution without causing unnecessary delay or costs to the parties. This chapter examines and all the challenges facing arbitration as far as the institutional aspect is concerned. 5.1 ARBITRATION INSTITUTIONS Though Tanzanian courts have traditionally adopted a favourable attitude towards arbitration, there are less private institutions for arbitration in the country. As it has been observed, arbitration construction disputes proceedings in Tanzania can be commenced directly in specialist arbitration tribunals or upon start of the proceedings in the court if parties thereto agree to arbitrate. Tanzanian legal system is based on the English common law in terms of substantive law and procedures. Depending on jurisdiction issue and subject matter, apart from arbitration, that requires a different approach, normal construction disputes can also be adjudicated in the ordinary courts of law. About arbitration, pursuant to section 3 of the Arbitration Act, the only court having jurisdiction on arbitration cases is the High Court of Tanzania whose decisions can be appealed to the Court of Appeal. Currently, the High Court has three specialized divisions that are Commercial, Land, and Labour divisions. The Commercial Court shares jurisdiction over commercial matters concurrently with the general division of the High Court and can act as a court of law as well as an arbitral tribunal.

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5.1.1 Arbitration in Commercial Courts of Tanzania The Commercial division commonly known as the Commercial Court was established under the High Court Registries (Amendment) Rules, 199998. The Rules empower the Court to determine all civil cases of a commercial nature including arbitration proceedings99. The Commercial division of the High Court of Tanzania was established with the express purpose of improving the efficiency and fairness of commercial dispute resolution. The division was established in order to solve the problem of poor case management, delays and backlog of cases in the general registries of the High Court. However, access to the commercial court can be very difficult for poor litigants due to the higher case filing fees and pecuniary jurisdiction of the court. The statutory minimum fee in 2002 was at least Tanzanian shillings 100 million (about US$94,250). This has reduced the number of cases that are being brought before the Commercial Court (Finnegan, 2005). In the other hand, though arbitration of commercial dispute is part of the role of the court, this study has failed to find any case determine through arbitration by the commercial court of Tanzania. Also, as opposed to the UK where construction disputes are determined by the Technology and Construction Court, in Tanzania neither the Commercial court nor the ordinary High Court registries have such a specialized section to deal with construction disputes. Therefore, all construction cases be it normal litigation or an arbitration case, can be dealt either as a commercial case or normal disputes depending on the registry where the matter has been filed. In that regard, as for other cases, if the matter is taken to the court, the same problem of delays in decision will be suffered by the litigants in the construction disputes. 5.1.2 Arbitration under NCC As noted before, currently NCC is the only semi-government institution facilitating arbitration of construction disputes in Tanzania. Under the NCC Arbitration Rules, 2001, NCC role regarding arbitration, is only to facilitate appointment of arbitrators and coordination of all proceedings as the parties may agree.

98 99

. G.N. No 141 of 1999 Rule 2(a) (xi).

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In the process, NCC has been charging facilitation costs referred in the NCC Rules as administrative costs imposed as part of the arbitration costs calculated by NCC based on the estimated time required by the arbitrator to arrive at an award 100 (not the time required by Arbitration Act). NCC is empowered under the Rules to determine the arbitration fees of the arbitrator based on the work done, his special qualification, and complexity of a particular case to be determined. Pursuant to Rules 14.3 and 4, the arbitration fees include the administrative costs of NCC but do not cover other specific expenses incurred by NCC or arbitrator such as travel costs, fees for venues, subsistence allowances, report of experts and any advisory services which are charged at cost. Rule 14.1 of the NCC Rules state categorically that from the commencement of the arbitration, all parties shall be jointly and severally liable to the NCC for arbitration cost until they are fully paid. NCC has a right to enforce payment of arbitration costs by filing an action in the court to recover all unpaid costs of arbitration against any party 101. In such circumstances, sometimes, arbitration under NCC Rules may be an expensive process for the parties as opposed to litigation in which the only required costs are court fess for filling the case but not costs of adjudicating their matters. Being a public-owned entity, NCC operations depend upon funds from the central government. Due to the lack of financial and human resources, sometimes it can be difficult for the NCC to undertake effectively the role of facilitating arbitration. The other challenge to the arbitration under NCC is that, currently NCC has no offices only in Dar es Salaam region despite the fact that Tanzania has more than 25 regions. Due to the lack of branch offices in other regions of the country, it is difficult for all stakeholders in the construction industry outside Dar es Salaam to have their arbitration disputes resolved through facilitation of NCC without incurring unnecessary cost and delays. 5.1.3 Tanzania Institute of Arbitrators The Tanzania Institute of Arbitrators (TIA) is another registered private NGO in Tanzania whose main objective is to deal with arbitration. The Institution has been collaborating with NCC in training of construction professionals and lawyers to
100 101

Rule 14.2 Rule 15.2

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become arbitrators. However, there is no record to show that the activeness of the Institute in facilitating arbitration as it is for the neighbouring countries such as Kenya and Uganda where private arbitration institutions are well organised and active102. With increased pace in the use of ADR for commercial disputes, TIA can empowered to work effectively as a trusted institution for the promotion determination of disputes through arbitration and other forms of ADR in Tanzania. It appears that lack of effective arbitration institutions in Tanzania compel the parties in construction disputes to opt for litigation through traditional courts. 5.1.4 Arbitration Professionals Apart from institutions, the success of arbitration also depends on the quality of arbitrators. Concurrently with competent arbitration institutions to facilitate arbitration, the need to have skilled arbitrators who are knowledgeable of arbitration procedures and other forms of ADR is very important in the arbitration process. As already pointed out, under the NCC Rules for instance, the appointment is made from the list of arbitrators who are enrolled under NCC panel of arbitrators For a person to be enrolled as an arbitrator under NCC he/she has to attend training courses administered by NCC in collaboration with TIA and pass the relevant examinations in procedures and practices of arbitration. The published list of arbitrators by NCC103, as of July 2009, reveals that currently, there are only forty five (45) approved arbitrators in Tanzania of which only 14 are lawyers and the rest are engineers, quantity surveyors or architects. This figure of 45 arbitrators is very small compared the to number of registered contractors and the number of disputes occurring in the construction industry. As by July 2010, there were about 2,527 local contractors, who constitute 96.41% of all registered contractors in Tanzania104 be and

102

In Kenya there is a Chartered Institute of Arbitrators Kenya Branch, established in 1984 and now has about 300 registered (http://www.ciarbkenya.org/about.html) and the Centre for Arbitration and Dispute Resolution of Uganda ( established by the Arbitration and Conciliation Act, 2000 of Uganda 103 http://www.ncc.or.tz/ArbitratorsListJuly09.pdf. 104 The Express News Paper of 07/29/2010 (Tanzania) http://theexpress.server295.com/node/894

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CHAPTER SIX FINDINGS, CONCLUSION AND RECOMMENDATIONS

6.1 FINDINGS AND CONCLUSION The complex nature of projects in the construction industry has made disputes unavoidable. Disputes in construction can be caused by various factors mostly being risk or uncertainties inherent in the project concerned or parties attitudes. As argued by Brown and Marriot (1999), dissatisfaction with litigation as a form of dispute resolution has led to the development of various alternative forms of dispute resolution including arbitration. Arbitration as an alternative to litigation has been widely acceptable as an effective dispute resolution method especially in domestic and international trade transactions. This is evidenced by the worldwide reforms of arbitration systems in the form of international harmonization of the procedures and substantive arbitration laws. The main focus of this study was to examine how the existing legal and institutional framework for arbitration in Tanzania is effective in assisting the parties to the construction dispute to resolve their dispute. The study was made by identifying gaps and or inconsistencies with the existing Tanzanian laws and arbitration institutions. The study has revealed that the resolving of construction disputes through arbitration in Tanzania is governed by the Arbitration Act, Cap. 15, Civil Procedure Act Cap. 33 and the NCC Arbitration Act 2001 Edition. It has been also found that the main arbitration law (Arbitration Act and its Rules) being a replica of the English Arbitration Act 1889 contain various provisions which cannot assist in the facilitation of resolution of commercial disputes in compliance with modern arbitration requirements. It has been observed that the procedure under the Arbitration Act is different from that provided in the CPC and the NCC Rules. CPC provided for the arbitration that can arise in the course of the courts proceedings, whereas arbitration under the Arbitration Act and NCC Rules are based on the arbitration agreement without an intervention of the court. Though NCC Rules that deal with construction disputes are Page | 55

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based on the UNICITRAL Model law, they are just as procedural rules in a form of subsidiary legislation that cannot in any way supersede the main legislation i.e. Arbitration Act (Cap. 15) and its Arbitration Rules, 1957 which are however outdated. Among others, the following shortcomings have been identified in the arbitration system for Tanzania, namely:(i) lack of founding principles in the legislation to guide arbitration as compared with arbitration legislation of other countries such as the English and Scottish Arbitration laws; (ii) too much power vested to the court to control the arbitration proceedings including discretion of judges to order stay of proceedings pending arbitration; (iii) lack of powers of arbitrator(s) or umpires to determine their

competence/jurisdiction of tribunal, to issue interim orders, to award interest on costs, to order joinder of proceedings or parties; (iv) lack of details on procedural matters to guide the tribunals on the conduct of arbitration proceedings such as filing of proceedings, discoveries and administration of evidence; (v) lack of provision to allow the parties to remove the arbitrator at their own wishes; (vi) inconsistencies in procedures for enforcement or challenging of an award delivered by the arbitrators appointed under the Arbitration Act and those appointed under CPC or NCC Rules; (vii) lack of any provision in respect of mandatory issues which should be

covered in the arbitral award; and (viii) lack of appropriate provision empowering the arbitrator to award interest on costs of the matter. The study also observed that as far as arbitration institutions in Tanzania are concerned, NCC seems to be an active arbitration institution in dealing with construction disputes. However, NCC as a public owned institution entrusted with other core mandates in respect of the construction industry lacks enough competent

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enrolled arbitrators something that poses a great challenge to the institution for effective resolution of construction disputes. 6.2 RECOMMENDATION Although parties are free to determine the procedure applicable to their arbitration, national laws also have a significant impact on arbitral proceedings. International agreements such as UNICITRAL Model law, Geneva Convention and New York Convention on Enforcement have played a major role in harmonization of procedures and promotion of settlement of the international trade disputes through consensual methods such as arbitration. Several Contracting parties to the aforementioned international agreements have enjoyed great support in developing their own national arbitration legal frameworks so as to create better environment for the settlement of disputes through arbitration. It is therefore recommended that Tanzania should modernize its arbitration law in the light of the ratified multilateral and regional conventions so as to ensure effectiveness in settlement of disputes. Apart from compliance with the international conventions of arbitration, the revising of its arbitration law will enable Tanzania to step on the same footing with her neighbours and trading partners under the East Africa Community i.e. Kenya and Uganda whose laws have been revised in line with the UNCITRAL Model law. It is also recommended that the Tanzanian Government should promote the establishment of private arbitration institutions so that they can work effectively in facilitation and promotion of arbitration and other ADR forms of dispute resolution in the construction industry.

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