Note: Below is a hypothetical example of a commercial dispute and how CAB can help resolve this situation. This story is fictitious and for illustrative purposes only.*
Fatima and Ali were childhood friends from Pakistan. Fatima got married to Aslam, an established businessman in Tanzania with a chain of hotels. After three years of marriage, Aslam opened a restaurant for Fatima so that she could utilize her degree in business. Fatima ran the business for one year and was not very passionate about it. In a call with Ali, she mentioned that she was willing to sell the business. Ali had plans to visit Tanzania and heard there were good prospects of business, too. Ali’s background in hotel management got him excited to buy the business, but when offered $300,000, he hesitated. Ali offered $200,000 to be paid in cash and the remaining $100,000 to be paid in instalments over the period of two years. The offer for $200,000 in cash was very tempting for both Fatima and Aslam because they could keep the transaction off the record; hence they told Aslam to give the money to Fatima’s father in Pakistan and offered to help him settle in Tanzania.
Fatima’s lawyer advised against transferring the business to Ali unless he completed the $100,000 payments; hence, they decided not to prepare any agreement in writing. Ali operated the business for one and a half years and paid Fatima only $30,000, which was received by way of signing on a petty cash voucher. Fatima kept following up on payments and unfortunately due to COVID 19, Ali was not able to operate the business for almost four months. Ali pleaded with Fatima for more time to complete the payment, as the two years were coming to an end. Fatima refused and sent a legal notice to evict Ali.
Ali visited the Conciliation and Arbitration (CAB) office based in Dar es Salaam and shared what happened as he felt betrayed, since he had given $200,000 in cash already but had no proof, and another $30,000 signed on a petty cash voucher. After listening to his situation, the CAB member concluded that the nature of the cases was a commercial case and decided to note down the root causes that led to the whole dispute. The root causes that were identified by the CAB mediator were:
- Poor or no documentation: The parties did not have any documents to prove that an agreement existed for the sale of the business. There was only a petty cash voucher for $30,000.
- Unethical practices: Due to their arrangement, Fatima and Aslam did not follow legal business regulations.
- Financial stress: Due to COVID-19, Ali’s business had been slow and at times, had to close down when the cases increased.
After three weeks of mediation at the CAB office, the parties agreed on the following:
- Ali will be given ten months to finalize the payment of $70,000, at $7,000 per month.
- Fatima and Aslam will prepare a sale agreement through their lawyer, for $300,000 and put it on official records.
- Fatima and Aslam will also prepare all the transfer documents for the business to be transferred to Aslam upon completion of the payment.
At the end of the mediation, the parties maintained a cordial relationship and decided to resolve any future disputes through CAB prior to engaging any lawyers or courts.
---end of case story---
The Conciliation and Arbitration Board for Tanzania wishes to inform the Jamat that many disputes of commercial nature occur due to the following:
- Poor or no documentation: Conflicts that are caused by one or more of the following issues governing the relationship between the parties:
- Lack of written agreements, contracts, or terms of references: Relationship was not formalized by any form of written documentation;
- Inadequate documentation: The documentation that formalized the relationship lacked essential terms regarding the relationship;
- Lack of, or an inadequate, exit strategy: The failure to put in place an agreed procedure for allowing the parties to disengage from the relationship under amicable terms;
- Undocumented management decisions: The parties failed to maintain proper records of meetings and important decisions;
- Unequal agreements/practices: An imbalance of power or authority existed between the parties;
- Differences in expectations of roles and responsibilities and of contractual terms: The parties had different expectations of their respective roles and responsibilities in the relationship and of the terms of their agreement;
- Interpretation: The parties disagreed as to how one or more terms of the agreement should be interpreted.
- Unethical practices: Contracts that are caused by a party’s unethical actions or behaviors.
- Financial distress:
- Lack of financial skills;
- Unexpected financial loss;
- Poor management skills;
- Lack of professional advice;
- Continuing financial weakness;
- Imprudent use of financial resources;
- Change in economic conditions.
- Health stressors: Conflicts that are caused by physical or mental conditions of a party or of a member of his or her family.
- Lack of communication: Conflicts that are caused by one or more of the following:
- Lack of communication: A party failed to communicate with the other.
- Insufficient disclosure or sharing of information: A party failed to disclose or share information with the other party.
- Lack of due diligence: Conflicts that are caused by one or more of the following:
- Insufficient due diligence: A party failed to undertake reasonable measures prior to entering into the relationship, venture, or any other action.
- Lack of industry knowledge and experience: When one or more parties lacked any prior knowledge or experience of the business or industry and, therefore, were unable to manage the enterprise or compete effectively with others in the industry.
- Lack of knowledge or understanding of laws and governance: When one or more parties lacked any prior knowledge or experience of the laws and/or rules and regulations that govern the business or industry.
The following are a few recommendations:
- Prior to engaging into any commercial transactions, seek legal and financial advice. If this is not affordable, contact the Aga Khan Economic Planning Board or the Member for legal at the National Council for guidance.
- At the first instance of a dispute, approach the CAB Chairman or any members to resolve the dispute amicably prior to engaging any lawyers or external advisors.
- Follow best practices in your business as per the guidance of our Imam.
For further assistance and information, contact the CAB office on [email protected]
Remember that everything that is disclosed to CAB is fully confidential.
*The above hypothetical scenario is referenced from the International Conciliation and Arbitration Board on mediation. All views expressed in this article do not necessarily reflect the view of The National Council of Tanzania and Zambia or the Khabar.