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How Italian firms lost Sh3.4bn suit

Wednesday April 14 2021
Court pic
By Bernard James

Dar es Salaam. Two Italian firms have for the second time lost a 10-year legal battle in which they were demanding the payment of Euro 1.2 million (about Sh3.4 billion) from Mtibwa Sugar Estates Limited after supplying the latter with irrigation machines and accessories.

Initially, Scova Engineering S.p.A and Irtec S.p.A brought a suit against Mtibwa Sugar and three other Tanzanian firms in 2016 for defaulting payment of Euro 1.2 million but the suit was dismissed by the Commercial Division of the High Court, saying it did not have jurisdiction to hear the matter.

Recently, the Court of Appeal has upheld the ruling and the order of the High Court to refuse to entertain the case for lack of jurisdiction.

Scova and Irtec which are companies incorporated under the laws of Italy moved to the Court of Appeal in 2017 to challenge the decision of the commercial court issued in June 22, 2016, believing that the court had jurisdiction to the suit.


Root of the dispute

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The dispute arose from an agreement for the supply of irrigation machines with accessories that Mtibwa Sugar Estates Limited entered into with the two Italian firms mid-2011.

The foreign firms also entered into two guarantee agreements with Kagera Sugar Limited, Super Start Forwarders Company Limited and General Motors Investment Limited on June 10, 2011.

Under the agreement, the three firms undertook to pay any amount due under the supply agreement between the appellant’s and the first respondent.

Court documents show that after the signing of the deal, the two Italian firms performed their part of the contract by supplying the machines to Mtibwa Sugar.

But it accused Mtibwa Sugar of failing to pay the amount in full and that their frequent demands to have the guarantors pay the outstanding sum went unheeded.

At the commercial court, respondents denied liability and asked the court to dismiss the case. While admitting existing of the alleged supply agreement, Mtibwa Sugar partly denied its terms.

Other respondents--- Kagera Sugar Limited, Super Start Forwarders Company Limited and General Motors Investment Limited---denied having guaranteed the payment of the amount due under the supply agreement.

They raised preliminary objections and asked the court to dismiss the suit on ground that the court did not have jurisdiction to entertain the suit against them.

They further argued that the plaintiff’s institution of the suit in the High Court contravened the terms of clause 1.9.2 of the guarantee agreement issued to the second, third and fourth defendants in favour of the plaintiffs.

The clause stipulated that the guarantee shall be governed by and construed in accordance with Italian laws.

Under the agreement, the Court of Rome shall have an exclusive jurisdiction to settle any dispute which may arise from or in connection with it.

Having heard the parties, the commercial court sustained the preliminary objection and ruled that the court lacked jurisdiction to try the suit.

The court also rejected the appellant’s submission that Tanzania was the proper forum for determination of the dispute on the ground that it was both the place of business of the respondents and the place of delivery of the goods.

“Both plaintiffs are companies incorporated under the laws of Italy. In their guarantee and indemnity agreement which they entered with the defendants they chose the laws and the court which would govern and settle any dispute arising from the said agreement to Italian law and the court of Rome respectively. The fact that the agreement was performed and possibly breached in Tanzania is immaterial,” said the commercial court.

Scova, Irtec challenge decision. The two foreign firms were not satisfied with the decision of the commercial court and went to the Court of Appeal to challenge decision, arguing that the court erred in holding it had not jurisdiction to determine the matter.

They also argued that the court erred in holding that the jurisdiction of the High Court of Tanzania was ousted by clause 1.9.2 of the contract between the appellants and the second, third and fourth respondents.

Lawyer for the two Italian firms, Ms Miriam Bachuba, censured the High Court for misconstruing clause 1.9.2 of the agreement, contending that the said clause permitted the parties to submit themselves to the jurisdiction of the Court of Rome except for “cases where jurisdiction may not be derogated from.”

She strongly argued that the trial court did not take into account that the clause could not oust the jurisdiction of Tanzanian courts as it had specifically reserved the jurisdiction of other courts in cases when jurisdiction may not be derogated.

She also contended that in terms of section 18 of the Civil Procedure Code (CPC), her clients were at liberty to institute a suit at any court within whose jurisdiction the defendants resides, or carries on businesses, or personally work for gain at the time of commencement of the suit.

While conceding that the High Court’s jurisdiction was unlimited and that it could not be ousted by agreement between parties, lawyer for respondents Edward Mwakingwe, argued that the law recognizes circumstances where the jurisdiction of the court can be expressly barred.

He cited section 7 (1) of the CPC providing that courts have jurisdiction to try all suits of a civil nature save for suits of which their cognizance is either expressly or impliedly barred.


Court decides

In their recent decision, Court of Appeal judges---Rehema Mkuye, Gerald Ndika and Jacobs Mwambegele---agreed with the lower court that clause 1.9.2 the agreement between the parties chose in clear, explicit and specific terms that the Court of Rome would be their forum of litigating any dispute between them in exclusion of other courts.

“That agreement bound the parties and it was not open for the appellants to resort to the High Court, Commercial Division. To that extent, the High Court was right to refuse to take cognizance of the suit and rightly bound the parties to their bargain,” said the judges.

However, the judges rejected holding of the High Court that its jurisdiction was ousted by Clause 1.9.2 and, as a result, it had not jurisdiction to try the matter.

“An exclusive jurisdiction clause only allows parties to choose a forum out of two or more competent courts to try disputes between them. It does not, so to speak, oust the jurisdiction of the other competent courts not chosen as the forum,” said the judges.

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