Mediation of Corporate Governance Disputes
through
Court annexed mediation
A Case Study from Uganda
By Justice Geoffrey W. M. Kiryabwire
Mediation of Corporate Governance Disputes through
Court annexed mediation
By Justice Geoffrey W. M. Kiryabwire 1
Introduction.
The observance of good Corporate Governance has taken on renewed
significance in Uganda as indeed it also has globally.
For Uganda, being a country that emerged from a history of political, social and
economic strive leading to among other things institutional breakdown, a lot of
effort is now being placed on institutional and capacity building. Over the last
16 years the Ugandan economy has moved from one which was largely state
controlled through state owned enterprises (SOEs) to one which is private sector
driven. Central to this economic change was a deliberate Government policy of
privatization and liberalization of the economy which was spear headed through
the enactments of the Investment Code Act 1991 and the Public Enterprise
Reform and Divesture Act 1994 2 .
As a result of this both foreign and local
investment in the economy grew and a stock exchange was established. The
Ugandan Courts of Judicature also under went several reforms to meet the
challenges of this private sector development by the creation of a specialized
Commercial Court in 1996 to deal with business and investment disputes. 3
1
© Justice Geoffrey W.M. Kiryabwire LLB(MUK) LLM (LOND) DIP.L.P (LDC) AuarbA, ACII is a
Judge of the Commercial Court Division of the High Court of Uganda. He is a former C.E.O of an
Insurance company and ardent ADR practitioner. [email protected] or
[email protected]. Paper given to The Global Corporate Governance Forum on
Mediating Corporate governance Disputes. World Bank office Paris – February 12, 2007.
2
Chapter 91 and 98 Law of Uganda 2000 Rev Edition, respectively.
3
Legal Notice No. 5 of 1996 (Statutory Inst. No. Constitution 6) now statutory instrument – constitution 6
Revised Laws of Uganda 2000. Direction 4 gives it Jurisdiction all disputes of a commercial or business
nature.
/1
The statutory instrument setting up the commercial court in an apparent break
from the prevailing Judicial practice enjoined the Commercial Judge to be
proactive. 4
It also made it the objective of the court to deliver to the
commercial community an efficient, expeditious and cost effective mode of
adjudicating disputes. 5
The instrument setting up the Commercial Court
therefore allowed the court to explore more efficient and effective methods of
dispute resolution outside the conventional method of litigation.
One such method used by the Commercial Court is court-annexed mediation.
This paper shall show how mediation has become a central part of the court’s
dispute resolution service and also point out its strengths, weakness and
challenges.
This paper shall also provide a case study of mediation in corporate governance
disputes. Indeed more and more new laws and regulations enacted in Uganda
are making provision for corporate governance and the need for its
observation. 6
Private sector players in Uganda in 1998 also came together and set up the
Institute of Corporate Governance of Uganda. Its mission is to promote good
corporate governance through the propagation of the highest ethical standards
of ethical conduct, efficiency, accountability and probity, for the benefit of
shareholders, workers, consumers and all stakeholders. 7
4
Direction 5 (2)
Direction 2 (2)
6
Examples of these laws and regulations are the Financial Institutions Act 2004, the Financial Institutions
(Corporate Governance) Regulations 2000, the Capital Markets Corporate Governance Regulations
2003, the Micro Finance Deposit taking Institutions Act 2003
7
Vincent Kaheeru “what is the Institution of Corporate Governance of Uganda (ICGU) all about? Journal
of sustainable wealth creation July – September 2005 P.10.
5
/2
It is against this background and the desire to attain the goals of good corporate
governance that one can inevitability expect corporate governance disputes to
arise.
Suitability of mediation as a dispute resolution mechanism.
Just like the subject matter arbitrability in Commercial arbitration, there is a
tendency as a preliminary matter to decide whether or not a dispute is suitable
for mediation.
The general tendency in Uganda over the years was to litigate disputes with the
view to get a legally binding decision.
The courts themselves emphasized
litigation as the main dispute resolution mechanism and its rules did not provide
for mediation 8 .
However a Uganda Commercial Justice Study carried out in
1999 showed that 53.75% of all respondents interviewed found delays in the
regular courts to be a serious problem 9 .
Of course the Judicial system and
courts in Uganda as an institution was inherited from the colonial days; which
did not provide for court annexed ADR.
However, mediation as a dispute resolution mechanism is not all together new in
traditional Ugandan and African society.
There has for centuries been a
customary mediation mechanism, using elders as conciliators/mediators in
disputes using procedures acceptable to the local community but which were not
as formal as those found in the courts. Some Western Writers referred to it as
8
Clare Manuel, Richard Hooper, Justice Ben Odoki under auspices of the Department for International
Development (UK) and Private Sector Foundation Uganda 23, July 1999.
9
Average taken from statistics given in para 1.24 on delays P.17.
/3
“Judgment by agreement” as opposed to “Judgment by Decree”. 10 Indeed many
of these customary mediation mechanisms have given way in these so called
modern times to the more formal court system which is regarded as superior.
Even when parties themselves chose a private dispute mechanism like
arbitration, the courts looked at these arbitration agreements with relative
hostility 11 and even regularly set aside their arbitral awards 12 . Of course this
hostility as far as Ugandan courts are concerned is now by and large over.
Instead what can now be seen is a return to the acceptance of “mediation based
Justice” if the parties to the dispute so desire to use it in preference to litigation.
In Uganda inspired by the customary mediation/conciliation mechanism, grass
root local councils have been given judicial powers under the Local Government
Act 13 and the Resistance committees (Judicial powers) statute 14 to operate local
council courts. These courts however have very limited monetary Jurisdictions
though in practice they do go over the limit. A study of the Commercial Justice
Reform Programme in 2004 15 showed that there were about 4000 such local
council courts throughout Uganda as compared to one (1) Commercial Court. In
terms of nation wide user perceptions, the formal sector (where most
corporations fall) said they had greater access to these local council courts
(59%) as opposed to the Commercial Courts (27%) 16 . What ever the situation,
it shows that the formal commercial sector also uses these local courts where
10
See “An Introduction to Legal Systems in East Africa” by William Burnett Harvey East African
Literature Bureau @ 1975 P.388.
11
Ibid P. 351
12
NUCCTE V Uganda Bookshop 1965 EA 533
13
Chapter 243 revised Laws of Uganda 2000 S. 26 (e)
14
Statute No. 10 1988.
15
Commercial Justice Reform Programme fist follow up user survey – April 2004 Para 3.1.2 P11.
16
OP Cit the perception was a lot higher for the capital city where the Commercial Court is based where
figures were 55% for Local Council courts and 52% for the Commercial Court.
/4
customary mediation is applied.
Even in the area of criminal law involving
crimes against humanity in Northern Uganda, the Government of Uganda has
been reported to be agreeable to using the local Justice system in the area
called “Mato Oput” 17 .
Clearly it can be seen that mediation is not an entirely a new concept in Uganda
and whereas litigation as a dispute resolution mechanism still takes centre stage,
mediation as a dispute resolution mechanism is gaining ground over a wide
range of subjects.
The evolution of court annexed mediation in Uganda.
Given the above history it is not surprising that mediation as a dispute resolution
mechanism would find its way into the court system in Uganda.
The courts in Uganda are institutionalized and work based on a formal system of
laws, rules and regulations. The first challenge therefore was to create a set of
rules within which mediation would work within the courts. This was first done
in 1998 with the amendment of the Civil Procedure Rules (made under the Civil
Procedure Act) by adding a new order 12 to the rules 18 on “Scheduling
Conference and Alternative Dispute Resolution”
Order 12 rule (1) (1) provides
17
Justice in a law less World – IRIN news.org UN office for the co-ordination of humanitarians affairs
www.irinnews.org/webspecials/Rights and Reconciliation/54259.asp accessed 03/02/07. This is in
relation to atrocities committed in Northern Uganda by the “Lords Resistance Army”.
18
The Civil Procedure (Amendment) Rules 1998 Order 10B now Order 12 revised Laws of Uganda 2000.
/5
“The court shall hold a scheduling conference to sort out points of
agreement and disagreement, the possibility of mediation, arbitration and
any form of settlement…”
Order 12 rule 2 an Alternative Dispute Resolution provides
“(1) Where the parties do not reach an agreement under rule 1… the
court may, if it is of the view that the case has a good potential for
settlement, order alternative dispute resolution before a member of
the bar or the bench, named by the court.
(2)
Alternative dispute resolution shall be completed within twenty-one
(21) days after the date of the order… the time may be extended
for a period not exceeding 15 days on application to the court,
showing sufficient reasons for the extension…
(3)
The Chief Justice may issue directions for the better carrying into
effect alternative dispute resolution…”
Even though this amendment to the law was made in 1998 its application was
slow in coming largely because of lack of awareness and training. As a result
litigation continued to take centre stage in dispute resolution.
Indeed the 1999 Uganda Commercial Justice Sector Study 19 specifically
recommended the use of ADR in commercial cases and to lobby funding from
international donors in order to subsidize its use in the courts.
/6
The Mediation Pilot Project 2003 – 2005
However it was not until 2003, after various studies, that the Chief Justice of
Uganda under two instruments namely;
-
The Constitutional Commercial Division (Mediation Pilot Project
Rules) Practice Direction, 2003 (Legal notice 7 of 2003) and
-
The Commercial Court Division (Mediation Pilot Project) Rules,
2003.
Formally for the first time created court annexed mediation in Uganda to be
applied for a pilot period of 2 years at the Commercial Court. The Pilot Project
was funded by International donors through the Commercial Justice Reform
Programme (CJRP) and run from September 2003 to September 2005.
The
main characteristics were;
1.
It made an attempt at mediation compulsory in most cases
filed in the court and if the attempted mediation failed then
the case could be fixed before a Judge for litigation.
2.
All such cases filed in court would be referred to
institutional mediation under the Centre for Arbitration and
Dispute Resolution CADER (which is attached to the court
and established under the Arbitration and Conciliation Act
TP
19
OP Cit P. 75
/7
2000 Chapter 4 Laws of Uganda Revised Edition 2000).
The mediation was carried out under the strict Code of
Conduct of CADER.
3.
The reference to CADER for the mediation was free to the
parties as the costs were covered by CJRP
4.
If the mediation was successful then it would be registered
as a consent judgment of the court for purposes of
enforcement.
Performance of the Mediation Pilot Project
At the time of this paper the period of the Pilot Project has expired and new
rules now making mediation a permanent feature of the court have been drafted
though they are not yet in force.
As a result this service is temporary not
available at the court but the court continues to hold mediations though other
means as shall be discussed later in this paper.
The new draft rules are a result of the evaluation of the Pilot Project done by a
pre-working group and working group of its stakeholders. During the two years
of the Pilot the following were the results of the mediation.
Cases referred to
mediation
Mediation cases
settled
Mediation cases
completed but
Cases
discontinued
unsuccessful
778
172
251
278
Period 03rd October 2003 to 05thAugust
2005 source CADER
/8
The statistics would show the following results:1.
Total mediations held from start to finish
54.3%
(successful and unsuccessful)
2.
Mediations that failed at reference for
35.7%
various reasons
3.
Mediations that settled and disposed of the
22.1%
dispute
Just over fifty percent (50%) of all disputants agreed to submit their disputes to
mediation even though they had originally filed a case for litigation in the court.
Of these cases twenty two percent (22%) had their disputes disposed of through
the mediation without recourse to litigation.
Clearly the Mediation Pilot Project reduced the court’s work by over twenty
percent (20%) allowing the court to concentrate on only cases for which
mediation had failed or was not an option.
Secondly mediation allowed for
settlement within a far shorter time than litigation. This evidently was a good
start to the court annexed mediation. It is not possible to establish how many of
these settled mediations involved Corporate Governance disputes as the
contents of these settlements are not reportable cases and so are not reflected
in our law reports. But since such cases come to our courts it is perceivable that
Corporate Governance disputes were handled.
/9
Of course just over one third (1/3) of the cases referred to mediation failed at
reference for various reasons. These reasons were evaluated at the post Pilot
Project stage.
One of the reasons for failure was the lack of awareness and general training in
the area of mediation.
In one case before me SS Enterprises Ltd & Anor V Uganda Revenue
Authority H.C.C.S Commercial Court Division) No. 708 of 2003 (un reported)
the parties refused to go to mediation because the in house counsel for the
defendant (Uganda Revenue Authority) argued that mediation required the
settlement of a dispute and only the Board of Directors of the Revenue Authority
had the power to agree to a settle of a tax dispute. In that case I ruled that
under rule 8(1) of the mediation rules a party opposed to a mandatory
mediation reference had to provide reasons to the courts Registrar in order to be
exempted under rule 9 thereof.
I further ruled that internal institutional processes (for settlement approval) were
not a proper cause to avoid mediation. I then referred the dispute for mediation
to be attempted under the rules before litigation 20 .
Of course there are still strong perceptions that litigation is better than
ADR/Mediation. This of course is not always true in commercial or corporate
matters. Here I refer to wise observation of Lord Justice Lindley in the English
case of
20
The mediation in this dispute was attempted and failed. It was then referred to court for trial. However
during mediation the parties were able to do extensive discovery of documents and agree matters for
trial that greatly reduced on the time for pre-trial discovery.
/10
Verner V General and Investment Trust (1894) 2 CH 239 at 264 where he
said
“A proceeding may be perfectly legal yet opposed to sound commercial
principles…”
There is also a criticism that mediation could turn in to a time wasting fishing
expedition. The Mediation Pilot Project rules provided for a fine on the party
who caused delays at mediation 21 . This fine was rarely applied during the pilot
period.
The other issue is that of sustainable financing of this court annexed service as
the Pilot was donor funded. This was to encourage parties to use the service. It
is proposed that when this service resumes each party will bear its own costs for
the mediation.
The creation of a multi door court house
Mediation at the Commercial Court has now become wider than the Pilot Project.
Even where mediation had failed during the court annexed process parties were
still free to suggest mediation and or settlement before a Judge. Indeed eighty
percent (80%) of all cases which come to a Judge eventually settle through
mediation or some other ADR process. 22
One such that I handled involving a Corporate Governance dispute was
K.M. Patel and another V United Assurance Company Ltd Company Cause
No. 5 of 2005. In that case two Asian brothers both by the names of Patel who
21
Rule 19 provides a fine of Uganda Shillings 50,000/= (about US$25). In the English case of Susan
Dunnet V Railtrack PLC [2002] 2 All E.R. 850. It was held that a court should deny a successful
party at litigation costs if it can be shown that the mediation would have worked.
22
OP Cit 2004, Commercial Justice Reform Programme P. 21
/11
as shareholders filed a minorities petition to wind-up one of Uganda’s largest
private insurance companies on the grounds that their 40% shares in the
company had been wrongfully and illegally diluted during a restructuring and
sale of the company without notice to them.
In that case I decided to have a mediation before me as a Judge with the
consent of the parties.
To show how unique this decision to mediate was, a journalist in a leading
newspaper wrote “Justice Geoffrey Kiryabwire of the Commercial Court did more
advisory than a Judges role over a case between United Assurance Company
and two shareholders…”
Clearly the journalist did not see mediation as a role of a Judge. However, the
mediation was successful leading to a consent Judgment where the insurance
company bought out the two shareholders and thus settling the dispute. The
same journalist then carried another report in the newspaper highlighting the
/12
settlement and quoting the Chief Executive Officer of the insurance company
saying
“…we are happy this has been amicably concluded. I believe the Patels
as the founders will leave us with their blessings…”
Evidently this is a clear case where mediation worked to resolve a corporate
governance dispute.
Another avenue created by the court to handle mediations was by dedicating
one of the court’s Registrars to handle mediations where the parties so agree.
This done to bridge the evaluation time for the Pilot Project. Thus out of 118
cases referred to mediation by the court’s Registrar, 60% of them were
successfully settled without going to litigation.
This shows a three (3) fold
improvement after the Pilot Project ended. With these results in mind the new
draft rules now envisage a multi door court house where apart from litigation,
court annexed mediation shall now also be available using
/13
(i)
CADER as an ADR Institution
(ii)
A Registrar of the Commercial Court
(iii)
A Judge of the Commercial Court
(iv)
A private mediator agreed to by the parties.
The impact of mediation and other reforms on the Commercial Court.
The Commercial Court in Uganda has initiated many procedural and legal
reforms in the country. Mediation is one of its success stories even though there
is still a lot to be done. The impact of these reforms including court annexed
mediation have been very positive on the court as a whole making it more
efficient and effective.
The work of the Commercial Court in Uganda is starting to draw international
recognition. Indeed the World Bank in its report entitled “Doing Business 2006”
out of 177 countries ranked Uganda overall 107 but ranked her at 71 the in case
of the enforcement of contracts.
This put Uganda above the sub Saharan
average and while at the same time competing favourably with some OECD
countries.
Conclusion
The experience in Uganda will show that court annexed mediation can work in
the settlement of Corporate Governance Disputes.
However the Uganda
experience has also shown that for mediation to succeed it has to be made part
of rules of procedure of the court so that parties are clear that the filing of a
case in court will not mean automatic litigation. There is still however need for
/14
awareness of mediation as a dispute resolution mechanism which is suitable for
most commercial disputes including those of Corporate Governance.
/15