Background:

In 2022, Inyatsi Construction Ltd, an Eswatini-based company, was awarded a contract by Uganda’s Ministry of Water and Environment to construct the Kabuyanda Earth Dam in Isingiro District, funded by the World Bank. Inyatsi’s Ugandan subsidiary subcontracted Plinth Consultancy Services Ltd for part of the work.

Dispute:

By October 2023, Inyatsi Uganda Limited terminated Plinth’s subcontract, citing disagreements over project execution. Plinth, alleging wrongful termination, initiated arbitration proceedings under the International Chamber of Commerce (ICC) rules and sought interim protective measures from the Ugandan High Court.

Court Ruling:

On August 30, 2024, Justice Harriet Grace Magala of the Commercial Division of the High Court granted Plinth’s application for interim measures. The court:

• Restrained Inyatsi from accessing a UGX 21.2 billion bank guarantee related to the project.
• Ordered Inyatsi to provide UGX 5 billion as security for costs within 30 days.
• Froze Inyatsi’s accounts held in Absa Bank to secure potential arbitration outcomes.

The court recognized that Inyatsi Construction Ltd, though not a signatory to the subcontract, was deeply involved in the project and could be held liable. This ruling emphasized that non-signatory parties could be subject to arbitration if they are closely connected to the contractual relationship.

Arbitration Against Non-Signatories Permitted

Significance:

In the same case, the High Court addressed the issue of whether non-signatory parties could be compelled to arbitrate.

Court’s Analysis: Justice Magala held that:

• An arbitration agreement can bind non-signatory parties if there is evidence of their involvement or control over the contractual relationship.
• Inyatsi Construction Ltd and its parent company, Inyatsi Group Holdings (Pty) Ltd, were found to be beneficial owners and closely connected to the Ugandan subsidiary, thereby making them subject to the arbitration agreement.

This decision expands the scope of arbitration in Uganda, allowing for more inclusive dispute resolution mechanisms.