01/03/2021

Impact of insolvency on African arbitration proceedings – Court allows joinder and rejects s67 challenge in Ugandan Rift Valley Railways dispute

Republic of Uganda (Claimant) v Rift Valley Railways (Uganda) Limited (Defendant) and (1) RVR Investments (Pty) Limited and (2) KU Railways Holdings Limited (Additional Parties) [2020] EWHC 3653 (Comm) and [2021] EWHC 970 (Comm)

The Court has rejected Uganda’s challenge to a tribunal’s decision refusing to stay arbitration proceedings following the appointment of a liquidator over the Defendant in Uganda.

In the London-seated arbitration, the Defendant claims damages against the Claimant arising from its alleged wrongful termination of a concession agreement to manage, operate and invest in Uganda’s freight railway system covering the Ugandan portion of the Rift Valley Railway that connects Kampala, the capital of landlocked Uganda, to the Indian Ocean port of Mombasa in Kenya. There is also an outstanding application for the Additional Parties to be joined to the arbitration. The Additional Parties are the Defendant’s shareholders, who share the Defendant’s claims but additionally allege that the Claimant has expropriated their assets within Uganda.

In May 2019, the Defendant was ostensibly placed into involuntary liquidation in Uganda and a liquidator was appointed. The Claimant applied to the tribunal to stay the arbitration proceedings pending a decision of the liquidator on whether to continue the arbitration. In a series of decisions, the tribunal decided to continue the arbitration. One of these (PO5) noted that the liquidator was aware of the arbitration but had not yet decided whether to sanction its continuation. The Claimant sought to challenge this decision under s67 of the Arbitration Act 1996 on the basis that the Defendant’s management had lost its powers on the presentation of the winding up petition and the tribunal therefore lacks substantive jurisdiction over the dispute. The Claimant asked the Court to set PO5 aside.

The Claimant also challenged an application by the Additional Parties to be joined to the s67 court proceedings and sought a declaration from the Court as to the lack of standing of what it describes as the “former management” of the Defendant to manage and control the company.

In December 2020, Mrs Justice Cockerill allowed the Additional Parties’ joinder application applying CPR 19.2 in one of the only cases to consider the application of that provision to arbitration claims. In allowing the joinder, the Judge had regard to the need for finality and the existence of issues in relation to which the shareholders could provide the court with assistance. The Judge also noted that the Claimant issued an application claiming that the current representation of the Defendant has no right to represent the Defendant. This might mean that the Defendant would not be present at the main hearing to make points which the Additional Parties would want to make. The fact that the Additional Parties were not yet joined to the arbitration was not a barrier to them being joined to the court proceedings. Among other things, that issue was live and key in the arbitration.

In a second hearing held in February 2021, Mr Justice Butcher rejected the Claimant’s applications under s67 of the 1996 Act and for a declaration as to the lack of standing of the Defendant’s management. Applying the points identified in ZCCM Investments Holdings Plc v Kansanshi Holdings Plc [2019] EWHC 1285 (Comm), the Judge found that PO5 was an order not an award. It did not call itself an award, did not contain the formal features required for an award under the relevant rules, and would not have been understood by a reasonable recipient as an award as to jurisdiction. PO5 was also provisional and did not finally determine an issue or dispute between the parties.

The Court further declined the declaration application. The fact that the Claimant lost the s67 challenge was a strong factor against making a declaration, the issue was one before the tribunal, and the position in the Ugandan liquidation was uncertain.

Wendy Miles QC and Harris Bor were instructed by Alston & Bird LLP and acted for the Defendant and Additional Parties on all matters before the English Court.

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