[2022] KEHC 188 (KLR)

Aia Architects Limited v Meru Central Coffee Co-op Union Ltd (Miscellaneous Application E283 of 2021) [2022] KEHC 188 (KLR) (Commercial and Tax) (11 March 2022) (Ruling)

Neutral citation: [2022] KEHC 188 (KLR)

Republic of Kenya

In the High Court at Nairobi (Milimani Commercial Courts Commercial and Tax Division)

Commercial and Tax

Miscellaneous Application E283 of 2021

A Mshila, J

March 11, 2022

Between

Aia Architects Limited

Applicant

and

Meru Central Coffee Co-op Union Ltd

Respondent

Ruling

1. The Applicant filed an Originating Summons dated 16th April 2021 under Section 12 (8) & (9) (a) of the Arbitration Act, 1995, Rule 5 of the Arbitration Rules,2020, Article 159(2) (c) of the Constitution of Kenya (2010), Sections IA, 1B & 3A of Civil Procedure Act and Order 46 Rule 5 of Civil Procedure Rules. The Application was supported by the grounds on the face of it and the sworn Affidavit of Arch. EVANS GITOBU who sought the following orders;a.Eng. Gichuki Thang'a be appointed as sole arbitrator to hear and determine the dispute between the Applicant and the Respondent in respect to the Contract for provision of consultancy services for the development of the new Imenti House in the Nairobi Central Business District.b.In the alternative the Court do direct the Chairman of the Chartered Institute of Arbitrators Kenya to appoint an Arbitrator to hear and determine the dispute between the Applicant and the Respondent in respect to the Contract for provision of consultancy services for the development of the new Imenti House in the Nairobi Central Business District.c.The Court do give such directions and orders as may be necessary to effect the appointment of an Arbitrator to hear and determine the dispute between the Applicant and the Respondent in respect to the Contract for provision of consultancy services for the development of the New Imenti House in the Nairobi Central Business District.

2. The parties were directed to canvass the application by filing and exchanging written submissions; hereunder are the parties rival submissions;APPLICANTS SUBMISSIONS

3. The Applicant and the Respondent entered into a Contract for the provision of consultancy services for the development of the new Imenti House in the Nairobi Central Business District on or about 8th October 2009. A dispute arose between the parties as the Respondent failed to pay the Applicant Kshs.143, 232,654/- on account of various claims under the contract.

4. Under Clause 1. 8 of the Contract, all disputes arising between the Client (Respondent) and the Architect (Applicant) under the contract were to be referred to negotiation and if there is no settlement within twenty (21) days then the same should be referred to mediation and if mediation attempts fails then the dispute should be referred to Arbitration.

5. The Applicant submitted thatthe Contract dated 8th October 2009 is legally binding as it was in writing, duly executed by both parties, clearly stated the obligations of each party and there was performance by both parties that is the Applicant carrying out works and the payments to be made by the Respondent.

6. The Contract dated 8th October 2009 is titled ‘Memorandum of Agreement’ and from the above definitions it constitutes a contract that is legally binding on both parties. The purpose of a Contract is to govern the relationship of the parties.

7. The Contract was executed by both parties, there is privity of the terms therein and both parties are bound by the terms of the contract more so Clause 1. 8 which expressly provides the choice of forum (and order) of dispute resolution between the parties herein as negotiation, Mediation and Arbitration.

8. Therefore, the Contract merely failed to expressly name the appointing authority for the Arbitrator and that is the reason the Applicant moved this Court for the sole purpose of either naming an appointing authority and/or appointing an Arbitrator for the dispute at hand. There is no doubt under Clause 1. 8 about the intent of the parties as to what the parties would resort to in the event of a dispute. The only failure was in respect to the appointing authority as that was omitted/left out.

9. The Applicant relied on the case of Nyutu Agrovet Limited Vs. Airtel Networks Limited[2015] eKLR where the Court of Appeal held that“Arbitration as a dispute resolution mechanism is not imposed on parties. They choose it freely when they incorporate the arbitration agreement into their contract, and at times even include the finality clause as was the case here."

10. While relying on Article 159 (2)(c) of the Constitution, the Applicant submitted that the Court has been equipped with the jurisdiction to refer this matter to Arbitration as the Constitution envisages alternative forms of dispute resolutions other than the Court system. In this particular instance the court is being invited to exercise its judicial authority in giving effect to the clear intent of the parties to refer any dispute to arbitration by appointing an arbitrator or determining the appointing authority in the absence of such clear provision on who the appointing authority would be.

11. Further, Applicant argued that it has attempted to mutually appoint an arbitrator to hear and determine its claim against the Respondent but the Respondent has remained adamant on its position. The Respondent, in its responses to the Applicant, alleges there is no dispute in place, that the claim is time barred and that there is no Contract between the parties. All the issues raised by the Respondent amount to a dispute between the parties, which dispute ought to be determined in accordance with Clause 1. 8 of the Contract.

12. The Respondent has failed to cooperate in the appointment of a mediator and/or an arbitrator or take any definitive steps to resolve the dispute hence this application to have the Court appoint an Arbitrator.RESPONDENTS SUBMISSIONS

13. The Respondent opposed the Application vide a Replying Affidavit dated 28th April 2021 sworn by FREDRICK KIRIMA MBURUGU who stated that the memorandum of agreement dated 8th September 2009 was not an agreement but an understanding between the parties on what terms the parties would include in the agreement which was to be entered into upon financing for the project becoming available.

14. The Respondent stated that it is therefore not true that there was an agreement between the parties from which a dispute may arise at this point capable of going for Mediation or Arbitration and this has been the position all through. Further, that the Mediators and Arbitrators are being called upon to determine a non-existent dispute over a non-existent contract.

15. It was the Respondent’s submission that several clauses in the memorandum leave no doubt that the terms therein were never intended to come into effect or be enforceable immediately but were futuristic in nature.

16. For instance, the Respondent stated that in recital B of the memorandum, the parties were explicit as they WISHED to contract not that they were contracting. Further, the Respondent WISHED to retain the services of the Applicant and the Applicant AGREED TO ACCEPT such appointment not that it ACCEPTED such appointment.

17. It was the Respondent’s argument that if the memorandum of agreement were to be an actual and enforceable contract on itself under Schedule 5 thereof, the Applicant’s fees would have been due on 8th October 2012 which is three (3) years from the date of signing the memorandum of agreement on 8th October 2009. Thus, any claim is time barred under Section 4(1)(a) of the Limitations of Actions Act.

18. The Applicant cannot claim any fees or other redress based on the memorandum unless and until project funding became available;

19. The Respondent relied on the case of Addock Ingram (EA) Ltd vs Surglinks Ltd cited in Health and Water Foundation vs Care International Kenya [2014] eKLR where the Court held that it must be satisfied that there is indeed a dispute over the claim in issue.

20. There is no claim herein sought to be taken to arbitration and nothing stops the Applicant from filing the claim. The Respondent asked the court to dismiss the Application herein.ISSUES FOR DETERMINATION

21. The court has considered the Application, the Response and the written submissions thereto and the following issues are for determination;a.Whether there is a valid arbitration clause?b.Whether there is a dispute to be referred to arbitration?c.Whether the matter should be referred to arbitration?ANALYSIS

22. In determining this issues, Section 6(1) of the Arbitration Act No. 4 of 1995 is key. It provides: -“(1)A court before which proceedings are brought in a matter which is the subject of an arbitration agreement shall, if a party so applies not later than the time when that party enters appearance or files any pleadings or takes any other step in the proceedings, stay the proceedings and refer the parties to arbitration unless it finds-(a)that the arbitration agreement is null and void, inoperative or incapable of being performed; or(b)that there is not in fact any dispute between the parties with regard to the matters agreed to be referred to arbitration.”

23. The tenor and import of Article 159(2) (c) of the Constitution as read together with Section 6(1) of the Arbitration Act is that where parties to a contract consensually agree on arbitration as their dispute resolution forum of choice, the courts are obliged to give effect to that agreement. Secondly, where a party elects to come to court and the other party to the arbitration agreement seeks to invoke the arbitration agreement, the party seeking to invoke the agreement is obligated to do so not later than the time of entering appearance.

24. The obligation of the court, upon being moved under the above provision, has been the subject of numerous court decisions. In Niazsons (K) Ltd v China Road Bridge[2001] eKLR it was held: -“All that an applicant for a stay of proceedings under section 6 (1) of the Arbitration Act of 1995 is obliged to do is to bring his application promptly. The court will then be obligated to consider the threshold things:(a)Whether the applicant has taken any step in the proceedings other than the steps allowed by the section;(b)Whether there are any legal impediments on the validity, operation or performance of the arbitration agreement; and(c)Whether the suit intended concerned a matter agreed to be referred to arbitration”Whether there is a valid arbitration clause;

25. The Applicant argued that Under Clause 1. 8 of the Contract, all disputes arising between the Client (Respondent) and the Architect (Applicant) under the contract were to be referred to negotiation and if there was no settlement within twenty (21) days then the same should be referred to mediation and if mediation attempts fail then the dispute should be referred to Arbitration.

26. The Respondent on the other hand held the position that the Memorandum of Agreement dated 8th October 2009 was not a contract per se but a memorandum of terms and conditions to be included or inferred in the intended agreement if and when entered into.

27. In order to determine this issue, the Court has to establish the intention of the parties in drafting the said memorandum of agreement. How does the Court then determine the intention of the parties? In the Case of Storer –versus- Manchester City Council[1974] 1 W.L.R. 1403 LORD DENNING M.R. stated: -“In contracts you do not look into the actual intent in a man's mind. You look at what he said and did. A contract is formed when there is, to all outward appearances, a contract. A man cannot get out of a contract by saying: “I did not intend to contract” if by his words he has done so. His intention is to be found only in the outward expression which his letters convey. If they show a concluded contract that is enough.”

28. Going by this definition, the Respondent herein pursuant to the Memorandum of Agreement acknowledged that the Applicant was in receipt of Kshs.10, 672,142. 70 to cater for the professional assistance offered to the Respondent in drawing and procuring all documents and licences that were required by financiers so as to get financing for appointment to be effected and all other terms proposed in the memorandum to be operationalized.

29. In light of the above case law this court is satisfied the Respondent’s intentions can be read from its actions and finds that the parties intended to be bound by the said agreement;

30. The same was reiterated in the case ofEldo City Limited v Corn Products Kenya Ltd & another [2013] eKLR where the court relied on the case of Masters v Cameron (1954) 91 CLR 353; (1954) 28 ALJR 438, where the High Court of Australia had an occasion to deal with the issue of enforceability of preliminary agreements. It identified three categories of preliminary agreements. The Court delivered itself thus: -“Where parties who have been in negotiation reach agreement upon terms of a contractual nature and also agree that the matter of their negotiation shall be dealt with by a formal contract, the case may belong to any of three cases. It may be one in which the parties have reached finality in arranging all the terms of their bargain and intend to be immediately bound to the performance of those terms, but at the same time propose to have the terms restated in a form which will be fuller or more precise but not different in effect. Or, secondly, it may be a case in which the parties have completely agreed upon all the terms of their bargain and intend no departure from or addition to that which their agreed terms express or imply, but nevertheless have made performance of one or more of the terms conditional upon the execution of a formal document. Or, thirdly, the case may be one in which the intention of the parties is not to make a concluded bargain at all, unless and until they execute a formal contract.In each of the first two cases there is a binding contract: in the first case a contract binding the parties at once to perform the agreed terms whether the contemplated formal document comes into existence or not, and to join (if they have so agreed) in settling and executing the formal document; and in the second case a contract binding the parties to join in bringing the formal contract into existence and then to carry it into execution. Of these two cases the first is the more common...Cases of the third class are fundamentally different. They are cases in which the terms of agreement are not intended to have, and therefore do not have, any binding effect of their own ... The parties may have so provided either because they have dealt only with major matters and contemplate that others will or may be regulated by provisions to be introduced into the formal document ... or simply because they wish to reserve to themselves a right to withdraw at any time until the formal document is signed.”

31. In the instant application, it is this courts considered view that the first case scenario demonstrated herein above applies.That is, where a contract is binding to the parties, once they perform the preliminary agreed terms whether the contemplated formal document comes into existence or not.Whether there is a dispute to be referred to arbitration;

32. The parties herein seem not to agree on the amount owing and due to the Applicant. The Applicant in its Supplementary Affidavit stated that the Fee Note No. 097/02 dated 13th January 2014 for Kshs.138, 583,395. 60 remains unsettled. On the other hand, the Respondent states that the invoice No. 097/20 was paid to the Applicant who acknowledged receipt of Kshs.10, 672,142. 70. It is the Court’s view that there is clearly a dispute between the parties and which dispute ought to be settled.

33. Moreover, the Respondent by its own words in its Supplementary Affidavit recommended that going by the terms of the memorandum Clause 1. 8 did not oust the jurisdiction of the court to resolve the dispute. From the averments this court finds that the Respondent does indeed acknowledge that there is a dispute that is in need of determination.Whether the matter should be referred to arbitration;

34. The above mentioned memorandum of agreement as is, contains an arbitration Clause at Clause 1. 8 and this court has made a finding hereinabove that the Applicant has proved that there is a dispute and the only action left for this court is to refer the dispute to arbitration in accordance with the agreement.FINDINGS AND DETERMINATION

35. For the forgoing reasons this court makes the following findings and determinations;(i)This court finds that the Originating Summons dated 16/04/2021 has merit and it is hereby allowed;(ii)The parties to appoint a sole arbitrator within fourteen (14) days who will hear and determine the dispute. In default this Court hereby directs the Chairman of the Chartered Institute of Arbitrators Kenya to appoint an Arbitrator to hear and determine the dispute between the Applicant and the Respondent in respect to the Contract for provision of consultancy services for the development of the new Imenti House in the Nairobi Central Business District.(ii)The matter be mentioned on 11/05/2022 for directions(iv)Each party to bear their own costs of this application;

Orders accordingly.DATED SIGNED AND DELIVERED ELECTRONICALLY AT NAIROBI THIS 11THDAY OF MARCH, 2022. HON. A. MSHILAJUDGEIn the presence of;Mr. Ndolo holding brief for M/s Otiende for the ApplicantNo appearance for the RespondentLucy-----------------------Court Assistant