arbitration / adr news

Tanzania: Gas Entec's Bid for Extra $1.5 million nullified 

7 October 2021

By Bernard James

Dar es Salaam — Attempts by a shipbuilding company to win additional $1.5 million (Sh3 billion) to a $39 million (about Sh89.7 billion) contract for the building of a passenger and cargo vessel at Lake Victoria has failed in the High Court.

The Commercial Division of the High Court has nullified an arbitral award in which Gas Entec Company Limited had won a claim to alter the originally agreed contract price of $39 million to $40.5 million (Sh93.1 billion). The court set aside the award given in January this year for infringing public policy consideration.

"The finding that the award is tainted with serious irregularity for being procured in a manner that is contrary to public policy is grave enough to warrant setting it aside," said Judge Deo Nangela.

The dispute between the shipbuilder and the government-owned Marine Services Company Limited, however, had little effect to the implementation of the 24-month project that was to start in January 2019.

"The case that was pending in court had never affected implementation of the project," said MSCL's acting CEO, Philemon Bagambilana. He said more than 80 percent of the project had been implemented so far.

All started on September 3, 2018 when shipbuilder signed a two-year contract for the design and building of a 1,200 passenger and 400 tons of cargo vessel with MSCL.Dispute arose before the implementation of the project had gone far after MSCL refused to accept request for additional $1.5 million to the project.

Gas Entec was claiming for a revised contract price of $40.5 million instead of the original agreed $39 million, arguing that the alteration was necessary to carter for costs of hiring cranes to support building of the new vessel. While Gas Entec claimed that MSCL should have shouldered the increase in financial burden, MSCL shifted the burden to the shipbuilder, arguing that the contract so dictated.

Following the disagreement, Gas Entec initiated arbitration process and approached the National Construction Council (NCC), as agreed arbitration institute, to appoint an arbitrator to handle and resolve the dispute.

On September 7, 2020, the Council appointed engineer Julius Mamiro as sole arbitrator. He heard the parties and on January 28, this year published his final award in favour of the shipbuilder.

The arbitrator partly allowed Gas Entec claim for revision of the contract, adding $1.3 million to the original contract price. A new legal battle ensured after the shipbuilder approached the Commercial Court to enforce the award in the same manner as a judgment or order of the court.

MSCL responded by challenging the filling and enforcement of the sole arbitrator's award on, among other reasons, that the arbitrator failed to correctly interpret the provision of the contract regarding who had a duty to provide cranes and what was the limit of the project manager. MSCL maintained that since the contract was governed by the Public Procurement Act, the sole arbitrator erred in blessing alterations of contract price without approvals of relevant authorities.

Regulation 110 (5) and (8) of the Public Procurement Regulations restricts increase of contract price without approvals from the authorities involved in the tender process.

Justice Nangela sided with MSCL that the sole arbitrator failed to consider requirements of clause 3.1 of the contract that disallow project manager to amend the contract without written approval of the employer. The judge also said the sole arbitrator disregarded Clause 3.1 (b) (ii) of the General Conditions of Contract (GCC). According to the clause, any variation to increase the agreed contract price ought to be backed employer.

"It is from such premises, I hold that failure on the part of the sole arbitrator to take into account the requirements of Clause 3.1, Clause 3.1 (b) (ii), Clause 13.1 of the GCC regarding the need to adhere to other applicable laws such as the Procurement Act amounted to blessing an illegality in the award.

Source: The Citizen