James Tugee Arbitration In Kenya ARBITRATION IN KENYA UNDER THE ARBITRATION ACT CAP 49 (ACT NO. 4 OF 1995) 1.1.

. History of Arbitration laws in Kenya 1.1.1. The Arbitration Ordinance, 1914 (1914 to 1968) Kenya has had laws on arbitration from as early as 1914 when the Arbitration Ordinance was enacted. The Arbitration Ordinance, 1914 was a reproduction of the English Arbitration Act, 1889. The principal attribute of this Ordinance is that it accorded courts in Kenya ultimate control over the arbitration process in Kenya. Since the court system was at its infancy then, the Arbitration Ordinance made little if any headway in promoting resolution of disputes by arbitration. 1.1.2. The Arbitration Act, 1968 (1968 to 1995) Before January 1996 when the current Arbitration Act, Cap 49 Laws of Kenya (Act No. 4 of 1995) came into force, the legal framework on Arbitration was contained in the Arbitration Act Cap 49 Laws of Kenya (enacted in 1968). This Act was a mirror image of the English Arbitration Act, 1950 and came into force on November 22, 1968. The Preamble of the Act was emphatic that it was An Act of Parliament to make provision in relation to the settlement of differences by arbitration. The Act defined an arbitration agreement as a written agreement to refer present or future differences to arbitration.1 The scope of the Act was limited in that it could only be relied on in the resolution of domestic disputes. It had no application to international disputes. 1.1.3. The Arbitration Act, Cap 49 Laws of Kenya (Act No. 4 of 1995) Even after the annunciation of the Model Law on International Commercial Arbitration by the United Nations Commission on International Trade Law (UNCITRAL) in June 1985, the Kenyan legislature demonstrated lack of enlightenment by failing to appreciate the benefits of adopting such progressive laws without delays. The crusade for a new Arbitration Act which was spearheaded by the Kenya Association of Manufacturers (KAM) did not come to fruition until December 1995 when the Arbitration Act No 4 of 1995 was enacted. The Arbitration Act, 1995 is for all intents and purposes a replica of the UNCITRAL Model Law on International Commercial Arbitration albeit with a few modifications that generally reflect the domestication of the countrys obligations under the New York Convention.

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James Tugee Arbitration In Kenya Having embraced such a law and domesticated the New York Convention, Kenya could be regarded as having a fairly modern legal system on arbitration and enforcement of awards. 1.2. Legal regime under the Arbitration Act, 1995 1.2.1. Definition of terms and scope of the Act The Preamble to the Act states that it is An Act of Parliament to repeal and re-enact with amendments the Arbitration Act and to provide for connected purposes. The Act is an improvement on the Arbitration Act, 1968. It is clear and simple, and this is partly attributable to the fact that it was largely a reproduction of existing material. For the first time, Kenyan law provided for international commercial arbitration under this Act. Unlike the previous Act whose interpretation section contained a single definition, the Arbitration Act, 1995 embodies several definitions including arbitration, party, arbitral award and others. However, the definition of arbitration as any arbitration whether or not administered by a permanent institution2 is nebulous. The Act defines an arbitration agreement as an agreement by the parties to submit to arbitration all or certain disputes which have arisen or may arise between them in respect of a defined legal relationship whether contractual or not. This definition does not insist that the agreement must be written. However, section 4(2) of the Act ordains that an arbitration agreement must be written. This seeming contradiction may be reconciled by postulating that while an oral agreement to submit disputes to arbitration is valid and enforceable at common law, it is not an arbitration agreement in the context of Section 4(2) of the Arbitration Act. 1.2.2. Autonomy of the parties The provisions of the Act reflect the flexible nature of arbitral proceedings which is predicated on the principle of party autonomy. The Act gives full recognition and effect to the agreement between the parties. The Act does not prescribe a fixed and certain procedure for the arbitral process but encourages the parties and the arbitral tribunal to adopt procedures appropriate to their circumstances subject only to the rules of natural justice. This policy is in accord with international practice. The parties are also free to organize their proceedings as they desire.3 They are free to appoint the arbitral tribunal directly or indirectly as long as they agree.

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Section 2 Sections 20-24

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James Tugee Arbitration In Kenya In summary, the Arbitration Act Cap 49 Laws of Kenya enhances the principle of party autonomy by recognizing, inter alia, the following powers of the parties: Section 11(1): Power to determine the number of arbitrators Section 12: Power to agree on procedure of appointing the arbitrator(s) and power to appoint the arbitrator(s) Section 14(1): Power to agree on procedure for challenging arbitrator Section 20(1): Power to determine the rules of procedure to be used by the arbitral tribunal in the conduct of proceedings Section 21 (1): Power to agree on the place of arbitration the judicial seat of the arbitration and location of hearings and meetings. Section 23(1): Power to agree on the language(s) to be used in the proceedings

The Act recognizes the cardinal principle of arbitral proceedings i.e equal treatment of the parties and giving each party an opportunity to present its case.4 1.2.3 Powers of the court under the Arbitration Act Although courts have no inherent jurisdiction to control the arbitral process, there are instances in which the Arbitration Act permits their intervention at the instigation of the parties. The Act prohibits the courts from interfering with the arbitral process except in the circumstances specifically provided for by the Act.5 1.2.3.1 Stay of proceedings Where there is an arbitration agreement and a dispute arises, one of the parties may in disregard of the arbitration agreement institute judicial proceedings. The other party may apply to the court in which the proceedings have been commenced for stay of the proceedings for the dispute to be referred to arbitration. The court is required to grant a stay unless the provisions of section 6 of the Act apply. Section 6 of the Act provides, inter alia that: A court before which proceedings are brought in a matter which is the subject of an arbitration shall, if a party applies not later than the time when that party enters appearance or files any pleadings or takes any other step, stay the proceedings and refer the parties to arbitration unless: (a) the arbitration agreement is null and void, inoperative or incapable of being performed or (b) there is in fact no dispute between the parties with regard to the matters agreed to be referred to arbitration.

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Section 19. Section 10

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James Tugee Arbitration In Kenya Parties have liberty to commence or continue with arbitration notwithstanding the pendency in court of an application for stay of proceedings. Previously, an application for stay could be made at any time after the applicant has entered appearance in the proceedings. Under the present Act, however, an application for stay cannot be made after entering appearance or filing any pleadings.6 A party ought to make the application not later than the time of filing the memorandum of appearance.7 The Court of Appeal observed in Corporate Insurance Ltd v Loise Wanjiru Wachira [2003] eKLR that: While we agree with the proposition that a Scott v Avery arbitration clause can provide a defense to a claim, we cannot accept the submission that the party relying on it can circumvent the statutory requirement to apply for a stay of proceedings. In the present case, if the appellant wished to take advantage of the clause, it was obliged to apply for a stay after entering appearance and before delivering any pleadings. By filing a defense, the appellant lost its right to rely on the clause. In Niazsons (K) Ltd v China Road & Bridge Corporation [2001] KLR 12 the contract between the parties contained an arbitration clause. When the appellant sued the respondent in damages for breach, the respondent entered appearance but did not file a defence and proceeded to apply for a stay of the proceedings. The application was declined on the ground that it had been made after entering appearance contrary to section 6 of the Act. Section 6 of the Act is couched in mandatory terms, as the Court of Appeal rightly acknowledged in Charles Njogu Lofty v Bedouin Enterprises Ltd [2005] eKLR. It restricts the discretion of the High Court to decline an application for stay of proceedings. In Achells Kenya Limited v Phillips Medical Systems Nederland B.V. Diederik Zeven [2007] eKLR, Nambuye J (as she then was) construed the term shall as a command. Before a court grants a stay of proceedings, it must decipher the following: Whether the applicant has taken any step in the proceedings other than those permitted by the Act; Whether there are any legal impediments on the validity, operation or performance of the Arbitration agreement; and Whether the suit concerns matters agreed to be referred.

6 See Tread Setters Tire Ltd v Elite Earth Movers Ltd [2007] eKLR, Kisumu Walla Industry Ltd v Pan Asiatic Commodities PTE Ltd and Another (1995-1998) EALR 150, where it was held that a defendant who filed a defence in a matter dependent on an agreement providing for arbitration clause waived his right to ask for arbitration. 7 Nambuye, J in Agricultural Finance Corporation & Agricultural Development Corporation v Lutsman & Company (1990) Ltd [2004] eKLR

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James Tugee Arbitration In Kenya In Joab Henry Onyango Omino v Lalji Megji Patel & Co. Ltd [1999] KLR 574 the question was whether the defendant was still obliged to file a defence in the suit after making the application for a stay of proceedings. The court held that section 6 of the Act did not permit parallel proceedings to be dealt with simultaneously. Once an application for stay of proceedings is made, the respondents duty to file a defence is deferred. The court justified its decision on the ground that public policy discountenanced concurrent proceedings before two or more for a. Other relevant cases with regard to the power of the court to stay proceedings are: Majidoon Kenya Limited v Kenya Oil Co. Ltd [2006] eKLR Pamela Akora Imeje v Akore ITC International Ltd & Bart Jan Roze Boom [2007] eKLR Timothy Rintari v Madison Insurance Co. Ltd [2005] eKLR

1.2.3.2 Other powers of the court The High Court has jurisdiction to interfere or play a supportive role in the arbitral process. Some of the powers of the court in this regard include: Power to grant interim measures of protection (section 7). These measures may include an order of injunction, for instance. This may be justified by the need to maintain the status quo pending the determination of the dispute. Similarly, under section 18 of the Act, the Court may on application of the arbitral tribunal or either party with sanction of the tribunal order a party to take such interim measures as are necessary. Power to set aside appointment of arbitrator and to appoint an arbitrator: Where one party appoints the sole arbitrator under section 12(4) of the Act, the other party (defaulting party) may apply to the High Court to set aside the appointment of the sole arbitrator and the court has such powers under section 12(5) of the Act. Where the Court exercises its powers under section 12(5) and sets aside the appointment of an arbitrator it may, by consent of the parties or on the application of either party appoint an arbitrator. Power to assist in taking of evidence (section 28): The High Court is mandated to assist in taking of evidence if an application to that effect is made by the arbitral tribunal or either party with the approval of the tribunal. Power to remove an arbitrator [Section 14(5)]: If circumstances exist giving rise to justifiable doubts as to the arbitrators impartiality, a party may apply to the High Court [section 14(3)] to remove the arbitrator and the High Court may confirm the rejection of the application or uphold the challenge and remove the arbitrator under section 14(5) of the Act.

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James Tugee Arbitration In Kenya This is discussed in greater detail under the next sub-heading (Challenge and removal of arbitrator). Power to set aside arbitral awards (section 35): The High Court has the power to set aside arbitral awards. Section 35(2) gives the circumstances under which an arbitral award may be set aside.

1.2.4. Challenge and removal of arbitrator 1.2.4.1. Grounds of challenge Section 13 of the Act provides for the grounds of challenge of an arbitrator. Section 13(1) requires a person approached in connection with his possible appointment as an arbitrator to disclose any circumstances likely to give rise to justifiable doubts as to his impartiality or independence. Section 13(2) then requires an arbitrator to, from the time of his appointment and throughout the arbitral proceedings, without delay disclose any such circumstances to the parties unless the parties have already been informed of them by him. Section 13(3) provides that an arbitrator may be challenged only if: circumstances exist that give rise to justifiable doubts as to his impartiality and independence; or he does not possess qualifications agreed to by the parties; or he is physically or mentally incapable of conducting the proceedings or there are justifiable doubts as to his capacity to do so.

A party may challenge an arbitrator appointed by him, or in whose appointment that party has participated, only for reasons of which he becomes aware after the appointment [Section 13(4)]. 1.2.4.2 Procedure of challenging an arbitrator Section 14(1) empowers parties to agree on a procedure for challenging an arbitrator. Otherwise, the procedure for challenging an arbitrator is as follows: i. [Section 14(2)] The party who intends to challenge an arbitrator sends a written statement of the reasons for the challenge to the arbitral tribunal within 15 days after becoming aware of the composition of the arbitral tribunal or after becoming aware of any circumstances referred to in section 13(3). Unless the arbitrator who is being challenged withdraws from his office or the other party agrees to the challenge, the arbitral tribunal shall decide on the challenge. [Section 14(3)] If a challenge under agreed procedure or under subsection (2) is unsuccessful, the challenging party, within 30 days after being notified of the decision to reject the challenge, applies to the High Court to determine the matter.

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James Tugee Arbitration In Kenya iii. [Section 14(5)] The High Court may confirm the rejection of the challenge or may uphold the challenge and remove the arbitrator.

Under section 14(4) of the Act, the arbitrator who was challenged is entitled to appear and be heard before the High Court that determines the application. Section 14(6) provides for the finality of the decision of the High court on an application under Section 14(3). 1.2.4.3 The legal test where questions as to the arbitrators impartiality arise Impartiality deals with the arbitrators mental predisposition toward the parties or the subject matter or controversy at hand. It alludes to the arbitrators frame of mind. It is therefore a subjective standard. Section 13(3) as read together with Section 14(3) of the Arbitration Act allows parties to petition the High court to remove an arbitrator if circumstances exist that give rise to justifiable doubt as to his impartiality and independence. The cardinal principle in determining the question of bias has been the oft quoted dictum of Lord Hewart in R v Sussex Justices ex parte McCarthy [1924] 1 KB 256 that justice should not only be done but should manifestly and undoubtedly be seen to be done. This general principle has been adopted and applied by Kenya courts. The English decision of Hagop Ardahalian v Unifert International s.a. (The Elissar) [1984] 1 Lloyds Rep 206 sets the test for impartiality. The question is whether it is reasonable for either party to consider that the arbitrator can no longer conduct the matter properly; in other words, whether in the courts view either party can reasonably say that his confidence has been wholly destroyed. The case of Laker Airways Inc. v F.L.S. Aerospace Ltd & Another [2000] 1 WLR 113 further etrenches the position above by postulating that one need not prove actual bias. The importance of public confidence in the administration of justice is such that even an appearance of bias will disqualify an arbitrator. The English Courts apply the apparent bias test to ascertain impartiality. Apparent bias exists if the facts or circumstances are such that one may be justified in being suspicious about the impartiality of the judge or arbitrator. This standard is expressly captured by section 13(3) of the Kenyan Arbitration Act which provides for removal of the arbitrator if circumstances exist that give rise to justifiable doubt as to his impartiality. Finally, in Porter v Magill [2001] UKHL 67; [2002] HRLR 16 the Court held that the question whether there is bias is to be judged by the court, not based on its own impressions, but from the perspective of a reasonable man.
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James Tugee Arbitration In Kenya

1.2.5. The arbitral award 1.2.5.1. Form, contents and effect of the award An arbitral award may either be made on agreed terms where the parties reach a settlement under section 31 of the Act or by the arbitral tribunal. Section 32 provides for the form and contents of the arbitral award. Inter alia, the award must: Be made in writing and signed by the arbitrator or arbitrators State the reasons upon which it is made, subject to the exceptions under section 32(3). State the date of the award and the judicial seat of the arbitration

Except as otherwise agreed by the parties, an arbitral award is final and binding upon the parties to it, and no recourse is available against the award otherwise than in the manner provided by the Arbitration Act (See section 32A). While underscoring the finality of arbitral awards in Transworld Safaris Ltd v Eagle Aviation & 3 Others [2003] eKLR, Justice Nyamu observed; Awards have now gained considerable international recognition and courts, especially commercial ones, have the responsibility to ensure that the arbitral autonomy is safeguarded by the court as arbitral awards are surely and gradually acquiring the nature of a convertible currency due to their finality. The following cases further entrench the fact that the courts are hesitant to interfere with arbitral awards: Giovanni Gaida & others v Mohican Investment Limited & Others [2003] eKLR Kenya Shell Limited v Century Oil Trading Co Limited [2008] eKLR Chrysanthus B. Okemo v APA Insurance Company Ltd [2006] eKLR

A rather interesting holding was in Pentecostal Assemblies of God v Reverend John Malwenyi & Others [2006] eKLR where the applicant sought to have the award set aside on the premise that it had no date, signatures of all arbitrators, designation of the place where it was made and no reasons for the award. The Court upheld the award in spite of the provisions of section 32 of the Act. The judge made no attempt of explaining the effect of noncompliance with section 32 of the Act.

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1.2.5.2. Setting aside the award In keeping to the philosophy of the UNCITRAL Model Law (see Article 34) and the principle of finality of arbitral awards (section 32A of the Act), the Arbitration Act provides only one method of challenging an arbitral award in a court of law. This is by an application to the High Court for the award to be set aside. Section 35(2) of the Act provides for the circumstances under which an arbitral award may be set aside. This section fails to recognize that serious procedural irregularities could affect an arbitral award.8 Apart from the grounds for making an application for setting aside of an arbitral award captured in section 35(2) (a) of the Act, the High Court has jurisdiction under section 35(2) (b) to set aside an arbitral award if it is satisfied that the award is against public policy or the subject matter of the dispute was not capable of resolution by arbitration under Kenyan law. The phrase public policy is problematic as it is not capable of an absolute definition. In the case of Richardson v Mellish (1824) 2 Bing 229 the Court branded public policy an unruly horse [that] when you get astride it, you never know where it will carry you. English courts have interpreted the phrase against public policy to include fraud, illegality, bribery and other forms of corruption. Ringera J (as he then was) addressed himself to the question of what constitutes public policy of Kenya in the case of Christ of All Nations v Apollo Insurance Co. Ltd [2002] 2 EA 336 and concluded that an act is contrary to public policy if it is: (a) Inconsistent with the Constitution or other laws of Kenya whether written or unwritten; or (b) Inimical to the national interests of Kenya; or (c) Contrary to justice or morality. 1.2.5.3 Enforcement of the award The Act recognizes all arbitral awards as binding and provides for their enforcement by the High Court. The party seeking to enforce the award must lodge a formal application which must be accompanied by (a) a duly authenticated original award or certified copy; (b) the original arbitration agreement or certified copy; and (c) a certified translation of the arbitration agreement if it is not in the English language [see section36(1) and (2)].

The UK Arbitration Act 1996, for instance, provides for the challenge of arbitral awards on the grounds of serious irregularities.

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James Tugee Arbitration In Kenya Rule 4(1) of the Arbitration Rules 1997 provides that any party may file an arbitral award in the High court. The filing must be notified to all other parties and if no application to set aside is made, the applicant may apply ex parte by summons for leave for confirmation of the award as a decree. The arbitral award will not be recognized as binding or enforced if any of the circumstances under section 37 apply. Section 37 replicates section 35(2) of the Act. As long as the relevant provisions of the Act are complied with, an arbitration award will be enforced. Courts have affirmed that the provisions of section 36 are mandatory. This was the holding by Osiemo, J in Busuru Richard Mark t/a Busuru R.M. & Partners Architects v Nzoia Sugar Company Ltd [2007] eKLR. In Adrian Mambili Meja v Trident Insurance Company Ltd [2005] eKLR the applicant had sought leave to enforce an arbitral award as a decree of the court under section 36 of the Act and Rules 4 and 6 of the Arbitration Rules, 1997. Waweru, J observed: I am satisfied that all the necessary provisions of the law have been complied with. In Structural Construction Co Ltd v International Islamic Relief [2007], the applicants sought the reading and recognition of an arbitral award under the relevant section of the Act and Rule 6 of the Arbitration Rules. The defendant objected alleging that it had not been heard by the arbitral tribunal. The court dismissed the argument and recognized the award as binding. In Kenfit Ltd v Consolata Fathers [2005] eKLR, the applicant applied for an order to enforce an arbitral award as a judgment of the court. The respondent claimed that the award was incomplete as the arbitrator had not provided for costs. The court was satisfied that the application was premature because the arbitrator had not determined all the questions referred to him including the matter of costs.

Author: Date:

James Peter Tugee 5th September, 2012.

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