[2022] KEHC 191 (KLR)

Alro Construction Company Limited v Human Needs Projects Kenya (Miscellaneous Application E164 & E074 of 2021 (Consolidated)) [2022] KEHC 191 (KLR) (Commercial and Tax) (11 March 2022) (Ruling)

Neutral citation: [2022] KEHC 191 (KLR)

Republic of Kenya

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

Miscellaneous Application E164 & E074 of 2021 (Consolidated)

A Mshila, J

March 11, 2022

Between

Alro Construction Company Limited

Applicant

and

Human Needs Projects Kenya

Respondent

Ruling

1. On 12th April 2021, the Court directed that the two files be consolidated and dealt with together. Therefore, the two applications in the respective files shall be considered as hereunder.

2. The first application is the Chamber Summons dated 8th March 2021 brought under the provisions of Section 36(1) of the Arbitration Act, Article 159(2) 165 (6) of the Constitution and Section 1A and 1B of the Civil Procedure Act. The application was supported by the grounds on the face of it and by the sworn Affidavit of Emmanuel Achayo who sought the following orders;a.The Final Award of the Sole Arbitrator, Festus M. Liluku, made issued and published on 2nd November 2020 be recognized as binding and thus be adopted as a judgment and Decree of the Court.b.The cost of this Application and expenses incidental to the enforcement and execution of the Final Award be borne by the Respondent.c.The Court to grant such further orders it deems fit and appropriate in the circumstances.

3. A dispute arose between the parties following allegations of poor workmanship from the Respondent against the Applicant and pursuant to clause 45. 0 of the Agreement between the parties, the dispute was referred to arbitration for determination.

4. The sole arbitrator, Mr. Festus M. Lituku heard the matter and delivered an award on 2nd November 2020 in favour of the Applicant under the following terms;a.The Claimant shall pay to the Respondent the sum of Kenya Shillings Five Million, Five Hundred and Twelve Thousand, Seven Hundred (Kshs.5, 512,700. 00) only.b.The total sum of Kenya Shillings Two Million, One Hundred and Three Thousand, Eight Hundred and One (Kshs.2, 103, 801. 00) only, being the cost of this reference, inclusive of Value Added Tax and the stenographers’ fees and costs, shall be borne by the Claimant. Any sum paid by the Respondent shall be reimbursed by the Claimant.c.The above sums shall be paid within 21 days from the publication of this Award, failing which they shall attract simple interest at the rate of 12% per annum until payment is made in full.d.The Claimant shall pay the Respondent its reasonable costs to be agreed between the parties, failing which an application shall be made to the arbitrator for taxation. (Annexed hereto on page 58 to 85 of the marked "EA2" is a copy of the Final Award made and published on 2nd November 2020).

5. 2nd February 2021 marked three months since publishing of the Arbitral Award on 2nd November 2020 this Court has jurisdiction to recognize and enforce the said award as an order of this court pursuant to Section 36 of the Arbitration Act 1995.

6. The adoption of the Final Award as a decree of the Court, subsequent enforcement and execution of the said Award will not prejudice the Respondent.

7. The Respondent in its response stated that in view of the entirety of the foregoing it opposed the Applicant’s application and believed that it is only fair and in the interests of justice that the award of the sole Arbitrator referred to above be set aside and that the prayers sought by the Respondent in its Miscellaneous Civil Application No. E074 of 2021, be granted.

8. The 2nd Application is a Chamber Summons dated 2nd February 2021 brought under Sections 10, 29(5), 35(2) (a) (iv) and 35(2) (b) (ii) of the Arbitration Act, Article 46(1) (a), and 48 of the Constitution of Kenya, Sections IA, 1B, 3,3A and 63 (e) of Civil Procedure Act, 2010, Order 9 Rule 9 of the Civil Procedure Rules. The Application was supported by the grounds on the face of it and the sworn Affidavit of Nzuki Waita who sought the following orders;a.There be a stay of execution of the Final Arbitral Award made and published by the Sole Arbitrator, Mr. Festus Mukunda Litiku on 2nd November, 2020 in the arbitration between Human Needs Project Kenya vs Alro Construction Company Limited, pending the hearing and determination of this Application.b.The Court to set aside in toto the Final Arbitral Award made and published by the Sole Arbitrator, Mr. Festus Mukunda Litiku on 2nd November 2020. c.The Court to issue such other orders as may be fair and just in the circumstances.

9. The Final Award dated and delivered on 2nd November, 2020 is premised on matters not contemplated by or not falling within the terms of the reference to arbitration or contains decisions on matters beyond the scope of the reference to arbitration.

10. Further, that the contents of the Final Award dated and delivered on 2nd November, 2020 demonstrate a flagrant disregard of the public policy of Kenya.

11. The Arbitrator entirely disregarded the flagrant Respondent's violation of the Applicant's contractual rights as well as its constitutional right to services of reasonable quality together with the right of the community of Kibera, the end consumer and beneficiary of the Project. Thus, the Final Award is manifestly oppressive and shall serve to unjustly enrich the Respondent from its own transgression.

12. The Respondent responded to this application and filed a Replying Affidavit dated 15th April 2021 and stated that Clause 45 of the Agreement & Conditions of Contract for Building Works 1999 Edition provides that the award arising from arbitration shall be final and binding upon the parties.

13. In addition, the Applicant has not met or demonstrated the provisions provided under clause 35(2) of the Arbitration Act for setting aside the award on grounds of public policy.

14. The parties were directed to canvass the two applications by filing and exchanging written submissions. Hereunder is a summary of the rival parties written submissions;

Applicant’s Case 15. The Applicant submitted that Section 35(2) of the Arbitration Act is drafted in a very clear and unequivocal way laying out the conditions that an Applicant seeking the setting aside of an arbitral award must establish; and accordingly nothing is left to conjecture. Indeed, in the case of Castle Investments Company Limited v Board of Governors - Our Lady of Mercy Girls Secondary school [2019] eKLR at paragraph 18, the court was faced with two Applications, seeking the setting aside and enforcement of an arbitral award just like in the instant case.

16. The Court in the above mentioned case noted that Section 35 (2) of the Act uses deliberately chosen words to leave no room for doubt that an arbitral award can only be set aside if the conditions specified therein are established. Therefore, an Applicant who fails to fit his Application into any of the aforesaid conditions cannot succeed in having an arbitral award set aside.

17. The same position that was taken in Midco Holdings Limited v Summit Textiles (EA) Limited [2014] eKLR, where the Court considered an Application for setting aside premised on the grounds that the Arbitrator imposed new terms upon the Defendant that were not agreed upon by the parties.

18. It was the Applicant’s position that the burden of adducing evidence under Section 35(2)(a) of the Arbitration Act lies squarely with the Respondent; being the party who wishes this Court to find that the Final Award falls out of the terms of reference of the Arbitration. In any event under section 107 of the Evidence Act settles the law on which party bears the burden of proof.

19. Further, the Applicant submitted that the Final Award determined a dispute arising out of the Respondent’s claims of poor workmanship which relates to the subject matter of the agreement between the parties and therefore falls under disputes that are to be referred to arbitration under clause 45. 0 of the Agreement between the parties. Accordingly, the Applicant urged the Court to find that the Final Award falls within the terms of the reference of the Arbitration and that the Arbitrator did not go beyond his jurisdiction.

20. The Respondent had contended that its constitutional and contractual right to services of reasonable quality was violated. However, a look at the agreement between the parties revealed that any defects noticed on the Town Centre were to be notified to the Respondent within a period of six (6) months from the date of handing over the construction site back to the owner. No such defects were notified.

21. The Applicant concluded by submitting that the Arbitrator did not conduct the proceedings in a manner inconsistent with the Constitution and that there was no abdication or even an iota of evidence evidencing the contrary.

Respondent’s Case 22. The Respondent submitted that the scope of the Arbitration agreement was one of a bilateral contract. It is clear from the provisions of the Contract that the Respondent was wholly responsible for carrying out and completing the Works in all respects in accordance with the Contract and in return the Applicant had the obligation to pay the Respondent the agreed price. Therefore, the question before the learned Arbitrator was whether the Respondent fulfilled its obligation under the contract to validate the Applicants obligation to pay the Respondent the agreed price.

23. The learned Arbitrator recognized the Project Architects' negligent conduct in failing to properly supervise the Respondent/contractor and consequently certifying incomplete or negligently constructed works. However, the Arbitrator erred in completely disregarding the fact that the Project Works were incomplete at the outset and that as such any failings on the part of the Project Architect could not serve to absolve the Respondent from its contractual obligations. Indeed, it was the Arbitrators own admission at Page 21, Paragraph 8. 2 of the Final Award where the Tribunal found that "indeed the Town Centre was unusable for a period of time".

24. It was the Respondent’s submission that the Court has the lawful permission and discretion to set aside the Award and is free to do so if the circumstances of the case justify it as long as no new grounds are introduced to impeach an arbitral award. As was the position in Synergy Credit Limited v Cape Holdings Limited [2020] eKLR.

25. Paragraph 4. 5 of the Award admits that the Respondent "did not address the issue" of making good all of the defects as notified by the Claimant, the Respondent believes that the learned Arbitrator misconstrued and misunderstood the content and relevance of evidence placed before the Tribunal, together with the video and photographic evidence placed before the Tribunal, leading to a contrived and manifestly irrational decision.

26. In light of the above, Respondent was therefore aggrieved by the violation of its constitutional right under Article 46 arising from defects in services provided; and the failure of not properly appreciating and considering that the purpose of the Town Centre was for the public being the end consumer of the services.

27. It was further submitted that the Arbitrator disregarded the principle that a party to a contract is not entitled to take advantage of its own wrong as against the other party. This was the principle set in Cheall v Association of Professional Executive Clerical and Computer Staff [1983] 2 AC 180 where the court cited Hooper v Lane 11859)6 HL stated that the principle is qualified in that: "...the rule only applies to the extent of undoing the advantage gained by the wrongdoer and not the extent of taking away a right previously possessed".

28. It was the Respondent’s submission that it had discharged the burden of proof required under Section 35(2) (a) (iv) of the Arbitration Act and urged the court to find that the Award was in conflict with the public policy of Kenya.

Issues for Determination 29. After considering both Applications, the Responses therein and the written submissions this court has framed the following issues for determination;a.Whether the Arbitral Award was against the public policy of Kenya;b.Whether the Arbitrator dealt with matters outside the reference to arbitration;c.Whether the Final Arbitral Award should be set aside or adopted as a judgment of the court;

Analysis 30. It is not in dispute that the parties herein participated in Arbitration proceedings pursuant to Clause 45. 1 of the Agreement & Conditions of Contract of Building works which provided for the settlement of disputes between the parties through arbitration. The Final Award was published on 2nd November 2020.

31. The 2nd application seeks to set aside an arbitral award, the court’s jurisdiction is circumscribed by Section 35 of the Arbitration Act which, at the part material to this application, provides as follows:35 (1)Recourse to the High Court against an arbitral award may be made only by an application for setting aside the award under subsections (2) and (3).(2)An arbitral award may be set aside by the High Court only if-(a)the party making the application furnishes proof-(i)that a party to the arbitration agreement was under some incapacity; or(ii)the arbitration agreement is not valid under the law to which the parties have subjected it or, failing any indication of that law, the laws of Kenya; or(iii)the party making the application was not given proper notice of the appointment of an arbitrator or of the arbitral proceedings or was otherwise unable to present his case; or(iv)the arbitral award deals with a dispute not contemplated by or not falling within the terms of the reference to arbitration or contains decisions on matters beyond the scope of the reference to arbitration, provided that if the decisions on matters referred to arbitration can be separated from those not so referred, only that part of the arbitral award which contains decisions on matters not referred to arbitration may be set aside; or(v)the composition of the arbitral tribunal or the arbitral procedure was not in accordance with the agreement of the parties, unless that agreement was in conflict with a provision of this Act from which the parties cannot derogate; or failing such agreement, was not in accordance with this Act; or(vi)the making of the award was induced or affected by fraud, bribery, undue influence or corruption.(b)the High Court finds that-(i)the subject-matter of the dispute is not capable of settlement by arbitration under the laws of Kenya; or(ii)the award is in conflict with the public policy of Kenya:Whether the Arbitral Award was against the public policy of Kenya;

32. This court has been called upon to set aside the Arbitral Award published on 2nd November 2020 on the grounds that it is against the public policy of Kenya. Public policy was addressed in the case of Kenya Shell Limited v Kobil Petroleum Limited [2006] eKLRand the Court stated that: -“although public policy is a most broad concept, incapable of precise definition…an award could be set aside under section 35(2)(b)(2) of the Arbitration Act as being inconsistent with the public policy of Kenya if it was shown that either it was:(i)Inconsistent with the Constitution or other laws of Kenya whether written or unwritten or(ii)Inimical to the national interest of Kenya, or(iii)Contrary to justice and morality”.

33. This was reiterated in the case of Continental Homes Ltd vs Suncoast Investments Ltd [2018] eKLR, as follows:“In order for this court to set aside the award for contravening public policy the Applicant must point at an illegality on the part of the arbitrator. The Applicant needs to show that the arbitration is so obnoxious to the tenets of justice that the only way to salvage the reputation of arbitration is to set aside the award. This court has no appellate jurisdiction over the arbitral award. It is therefore immaterial that this court would have arrived at a different conclusion from that reached by the arbitrator.”

34. The Applicant while seeking to set aside the Final Award argued that the same was against public policy because it is contrary to justice and morality. The Applicant was therefore aggrieved by the violation of its constitutional right under Article 46 and sought to be compensated for loss or injury arising from defects in services provided by the Respondent. The public at large would have been subjected to a public safety risk as a result of the substandard work occasioned by the Respondent.

35. It was the Applicant’s contention that the Arbitrator did acknowledge in the Award that the Respondent did not address the issue of making good all of the defects as notified by the Claimant. Further, that the Respondent’s breach to the point where the project was unusable was contrary to justice and public morals.

36. It is noted at Para. 8. 2 of the Final Award, the Arbitrator did acknowledge that the Town Centre was unusable for a period of time and went further to state that the Respondent was notified of the defects and he found at Para 8. 5 that the Respondent made good all of the defects.

37. In Continental Homes Ltd vs Suncoast Investments Ltd [2018] eKLR the court held;“In order for this court to set aside the award for contravening public policy the Applicant must point at an illegality on the part of the arbitrator. The Applicant needs to show that the arbitration is so obnoxious to the tenets of justice that the only way to salvage the reputation of arbitration is to set aside the award. This court has no appellate jurisdiction over the arbitral award. It is therefore immaterial that this court would have arrived at a different conclusion from that reached by the arbitrator.”

38. In this regard this Court finds nothing in the award that was ‘obnoxious to the tenets of justice’ and finds nothing that is immoral, legally untenable or unacceptable to Kenyan law and public policy on the rule of law.Whether the Arbitrator dealt with matters outside the reference to arbitration;

39. Secondly, it was the applicant’s contention that the Final Award was premised on matters not contemplated within the terms of the reference to arbitration.

40. In the case ofKenya Oil Company Limited & another v Kenya Pipeline Company [2014] eKLRthe Court of Appeal made reference to the English case of Geogas S. A v Trammo Gas Ltd(The “Baleares”) where Lord Justice Steyn had this to say:“The arbitrators are the masters of the facts. On an appeal the court must decide any question of law arising from an award on the basis of a full and unqualified acceptance of the findings of fact of the arbitrators. It is irrelevant whether the Court considers those findings of fact to be right or wrong. It also does not matter how obvious a mistake by the arbitrators on issues of fact might be, or what the scale of the financial consequences of the mistake of fact might be. That is, of course, an unsurprising position. After all, the very reason why parties conclude an arbitration agreement is because they do not wish to litigate in the courts. Parties who submit their disputes to arbitration bind themselves by agreement to honour the arbitrators’ award on the facts. The principle of party autonomy decrees that a court ought never to question the arbitrators’ findings of fact.”

41. The question posed is whether the Arbitrator dealt with matters outside the reference to arbitration? The rules applicable on the substance of a dispute is found under the provisions of Section 29 (5) of the Arbitration Act which provides as follows;“(5)In all cases, the arbitral tribunal shall decide in accordance with the terms of the particular contract and shall take into account the usages of the trade applicable to the particular transaction.”

42. The Arbitral Clause 45. 0 of the Agreement and Conditions of Contract for Building Works stated as follows:“45. 1In case any dispute or difference shall arise between the Employer or the Architect on his behalf and the Contractor, either during the progress or after the completion or abandonment of the Works, such dispute shall be notified in writing by either party to the other with a request to submit it to arbitration and to concur in the appointment of an arbitrator within thirty days of the notice. The dispute shall be referred to the arbitration and final decision of a person to be agreed between the parties. Failing agreement to concur in the appointment of an Arbitrator, the Arbitrator shall be appointed by the Chairman or Vice Chairman of the Architectural Association of Kenya, on the request of the applying party.

45. 2The arbitration may be on the construction of this contract or on any matter or thing of whatsoever nature arising thereunder or in connection therewith including any matter or thing left by this contract to the discretion of the Architect, or the withholding by the Architect of any certificate to which the Contractor may claim to be entitled or the measurement and valuation referred to in clause 34. 0 of these conditions, or the rights and liabilities of the parties subsequent to the termination of contract...”

43. The above mentioned Clause gives a wide discretion to the Arbitrator in determining issues and it is this Court’s considered view that the issues raised during the arbitration were well within the reference to arbitration.

44. Further, the Arbitrator arrived at his decision after hearing the testimony of witnesses and after considering the evidence tendered before him. Going by the Arbitration Clause above, the Applicant did not demonstrate that the Arbitrator did not deal with disputes or differences arising between the Employer or the Architect on his behalf and the Contractor, either during the progress or after the completion or abandonment of the Works.

45. The contract clearly gave the arbitrator jurisdiction to determine all the issues in dispute.

46. This court is satisfied that the Applicant’s assertion that the Final Award was in violation of public policy was not demonstrated nor has it been proved. The Applicant has equally failed to demonstrate how the arbitrator exercised jurisdiction beyond the scope of reference.

47. The upshot is that this court finds that the arbitrator was well within his scope of his authority and jurisdiction in the reference and did not go against the public policy.Whether the Final Arbitral Award should be set aside or adopted as a judgment of the court;

48. The 1st application sought to have the Final Award published on 2nd November 2020 be recognized as binding and thus be adopted as a judgment and Decree of the Court.

49. This court has satisfied itself that the Final Award was devoid of any in violation of public policy nor had been demonstrated how the arbitrator had exercised jurisdiction beyond the scope of reference.

50. Consequently, this Court confirms that the Applicant complied with Section 36 (3) of Arbitration Act by the presentation and attachment of both Final Award in original form and the Arbitration Agreement/Clause housed in the Agreement and Conditions of Contract for Building Works.

51. The only order which commends itself to this court is to make a finding that the application for setting aside the Final Award is wholly devoid of merits. The Final Award is hereby recognized and adopted as a judgment of the court.

Findings and Determination 52. For the fore-going reasons this court makes the following findings and determinations;i.This court finds that the arbitrator was well within the scope of his authority and jurisdiction in the reference and did not go against the public policy of Kenya.ii.The application to set aside the Final Award is found to be wholly devoid of merit and it is hereby dismissed;iii.The Final Award is hereby recognized and adopted as a judgment of the court.iv.Each party shall bear its own costs in the respective applications;v.The matter is hereby marked as closed.Orders Accordingly.

DATED, SIGNED AND DELIVERED ELECTRONICALLY AT NAIROBI THIS 11THDAY OF MARCH, 2022. HON. A. MSHILAJUDGEIn the presence of;Mathew Muoki & C. Kanjama for the RespondentsJaver for the ApplicantLucy -----------------------------Court Assistant