https://new.kenyalaw.org/akn/ke/judgment/kehc/2026/12833

**REPUBLIC OF KENYA** **IN THE HIGH COURT OF KENYA** **AT NAKURU** **COMMERCIAL SUIT NO. E014 OF 2025** **IDKO INTERNATIONAL COMPANY** **LIMITED …………………………………….. PLAINTIFF/APPLICANT** **VERSUS** **MINISTRY OF LANDS, PUBLIC WORKS, HOUSING AND URBAN** **DEVELOPMENT .................... 1ST DEFENDANT/RESPONDENT** **PRINCIPAL SECRETARY, STATE DEPARTMENT** **OF HOUSING AND URBAN** **DEVELOPMENT……………….… 2ND DEFENDANT/RESPONDENT** **OFFICE OF THE ATTORNEY** **GENERAL ............................. 3RD DEFENDANT/RESPONDENT** **AND** **SMEP MICROFINANCE BANK** **LIMITED ………………………………………... INTERESTED PARTY** **RULING** 1. Before this Court is a Notice of Preliminary Objection dated 28th October 2025 filed by the Defendants. By way of that Objection, the Defendants challenge this Court's jurisdiction to entertain the Plaintiff's suit and the Notice of Motion dated 14th October 2025. The Defendants contend that the contract forming the subject matter of this dispute, dated 24th May 2024, contains a valid and binding arbitration clause at Clause 205, and that consequently, the dispute ought to be referred to arbitration. It is the Defendants' case that this Court is divested of jurisdiction at first instance and that the Plaintiff has prematurely invoked the jurisdiction of this Court contrary to the express terms of the parties' agreement and the provisions of the Arbitration Act, 1995. 2. The Plaintiff opposes the Preliminary Objection in its entirety. The Plaintiff contends that the Objection is procedurally defective for failing to comply with Section 6(1) of the Arbitration Act, which requires a formal application for stay of proceedings. The Plaintiff further argues that the Defendants have acquiesced to this Court's jurisdiction by filing a Statement of Defence dated 28th October 2025, which constitutes a step in the proceedings. Additionally, the Plaintiff asserts that this Court retains jurisdiction under Section 7(1) of the Arbitration Act to grant interim measures of protection pending the commencement of arbitration. 3. The Interested Party, SMEP Microfinance Bank Limited, filed a Replying Affidavit sworn by Kepher Ayoo, the Branch Manager, on 5th January 2026, as well as submissions dated 8th December 2025. The Interested Party confirms that it issued a bank guarantee dated 25th March 2025 for Kshs. 14,169,866.90/- to secure performance of the contract. The Interested Party confirms that it received a letter dated 15th September 2025 from the Defendants recalling the guarantee on grounds that the Applicant had failed to perform its obligations. The Interested Party maintains that it is not privy to the underlying contract and its involvement is limited to the performance guarantee. The Interested Party also relies on the principle that a bank guarantee is an autonomous contract requiring strict compliance, as established in ***Eli Holdings Ltd v Kenya Commercial Bank [2020] eKLR***. 4. I have carefully considered the Preliminary Objection, the responses thereto, the rival submissions by all parties, the authorities cited and the applicable law. 5. The background of the dispute is that the Plaintiff and the Defendants entered into a contract dated 24th May 2024 for the construction of markets and supporting facilities at Kihingo, Kamara, and Elburgon within Nakuru County, at a cumulative cost of Kshs. 141,698,669.00/-.The contract, which is the subject matter of this dispute, contains an arbitration clause designated as Clause 205, which provides that any claim or dispute between the parties arising out of or in connection with the contract not settled amicably shall be finally settled by arbitration. 6. The Plaintiff provided a performance security bond equivalent to 10% of the contract sum, which it obtained from the Interested Party. The Interested Party issued a bank guarantee dated 25th March 2025 for Kshs. 14,169,866.90/- to secure performance of the contract, with the guarantee set to expire on 25th September 2025. Disputes arose between the parties in the course of performance of the contract. The Plaintiff raised two interim certificates of payment totalling Kshs. 22,980,364.92/-, out of which the Defendants paid only Kshs. 12,800,911.92/-, which was paid late, resulting in delays in the implementation of the project. 7. The Plaintiff requested an extension of time to complete the project, which the Defendants initially allowed. However, the Defendants subsequently, via a letter dated 17th September 2025, purported to terminate the contract. Furthermore, the Defendants, via a letter dated 15th September 2025, recalled the performance bond of Kshs. 14,169,866.90/- issued by the Interested Party. The Interested Party confirms receipt of the said letter in its Replying Affidavit. 8. Aggrieved by these actions, the Plaintiff filed the present suit and the Notice of Motion dated 14th October 2025, seeking interim orders to restrain the recall of the performance bond and the termination of the contract pending the commencement of arbitration proceedings and the determination of the dispute by an arbitrator. In response, the Defendants filed a Statement of Defence dated 28th October 2025 and a Preliminary Objection of even date, challenging this Court's jurisdiction on account of the arbitration clause in the contract. 9. The Preliminary Objection raises a single but fundamental issue: whether this Court has jurisdiction to entertain the Plaintiff's suit and Notice of Motion in light of the arbitration clause in the parties' contract. In determining this issue, the Court must consider three subsidiary questions: *(a) Whether the Preliminary Objection is procedurally competent;* *(b) Whether the Defendants have acquiesced to this Court's jurisdiction by filing a statement of defence; and* *(c) Whether this Court has jurisdiction under Section 7 of the Arbitration Act to grant interim measures of protection pending arbitration.* 10. It is trite law that a Preliminary Objection must consist of a pure point of law, pleaded or arising from the pleadings, which if determined in favour of the objector, will dispose of the suit. This principle was firmly established in the celebrated case of ***Mukisa Biscuits Manufacturing Company Limited v West End Distributors (1969) EA 696***, where Law, J.A. stated: *"So far as I am aware, a Preliminary Objection consists of a point of law which has been pleaded or which raises by clear implication out of pleadings, and which if argued as a preliminary point, will dispose of the suit. Examples are an objection to jurisdiction of the court, a plea of limitation or a submission that the parties are bound by the contract giving rise to the suit to refer the matter to arbitration."* 11. An objection to jurisdiction is undoubtedly a pure point of law. A court that lacks jurisdiction cannot entertain proceedings, and any determination on the merits would be a nullity. This principle is firmly anchored in the decision of the Supreme Court in ***Samuel Kamau Macharia & Another v Kenya Commercial Bank Limited & 2 Others [2012] eKLR***, where the Court held that a court's jurisdiction flows from the Constitution, statute, or both, and that a court cannot exercise jurisdiction that it does not possess. 12. Therefore, if the Defendants can demonstrate that this Court is divested of jurisdiction by virtue of the arbitration clause, the Preliminary Objection would be well-founded and would dispose of the suit at this preliminary stage. However, as will become apparent, the Defendants' Objection raises more than a mere point of law; it raises questions that require an examination of the parties' conduct, which this Court must consider. 13. The Plaintiff argues that the Preliminary Objection is fatally defective for failing to comply with Section 6(1) of the Arbitration Act. Section 6(1) provides as follows: 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 otherwise acknowledges the claim against which the stay of proceedings is sought, 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 matter agreed to be referred to arbitration." 14. The Plaintiff contends that the statutory mechanism for invoking the arbitration clause is a formal application for stay, not a Preliminary Objection. In support of this proposition, the Plaintiff relies on ***Total Security Surveillance Ltd v Oil Field Movers Ltd [2022] KEHC 12375 (KLR)***, where the High Court held: *"Section 10 of the Arbitration Act provides that the court can only intervene in matters of arbitration in accordance with the Act. The only way provided for a party to object to jurisdiction on account of an arbitration agreement is by filing an application for stay pending reference to arbitration under section 6: a preliminary objection is not provided for as a means to contest jurisdiction under the Arbitration Act."* 15. This Court has carefully considered this submission. While it is true that Section 6 provides for a formal application for stay, the Court is of the view that a Preliminary Objection challenging jurisdiction is not necessarily ousted by the existence of that statutory provision. The High Court in ***Muruthi & 3 others v Thiongo & another [2025] KEHC 3423 (KLR)*** held that a Preliminary Objection can be used to challenge jurisdiction based on an arbitration clause, provided it is raised as the first step in the proceedings. 16. The distinction lies in the timing and conduct of the party. If the party has taken steps in the proceedings, the Preliminary Objection may be procedurally infirm. However, a party is not precluded from raising a Preliminary Objection simply because there is a separate statutory procedure. The Court has inherent jurisdiction to determine whether it has jurisdiction to entertain a matter. 17. In the present case, the Preliminary Objection was filed on 28th October 2025, the same day as the Statement of Defence. The Court must therefore determine whether the Defendants' conduct by filing a Defence and a Preliminary Objection simultaneously amounts to taking a step in the proceedings or is consistent with a challenge to jurisdiction. This brings the Court to the second issue on whether the defendants have acquiesced to the Court's jurisdiction. 18. The Plaintiff argues that by filing a Statement of Defence dated 28th October 2025, the Defendants acquiesced to this Court's jurisdiction and are now estopped from challenging it. The Defendants contend that the Preliminary Objection was filed simultaneously with the Defence and that the Defence was filed as a protective measure while challenging jurisdiction. The Court of Appeal in ***Mt. Kenya University v Step Up Holding (K) Ltd [2018] eKLR*** addressed this very issue and held as follows: *"We have construed section 6 of the Arbitration Act on our own and considered it in light of the case law highlighted above. We adopt the position taken by the Court in the above pronouncements as in our view; they represent a correct interpretation of the provision. Considering the above in light of the findings of the trial Judge, it is our finding that the trial Judge correctly exercised his discretion and properly appreciated both the facts and the law and arrived at the correct conclusion on the matter. We reiterate that in order to succeed, the law obligated the appellant to file the application seeking reference to arbitration simultaneously with the entry of appearance and thereafter take no further procedural steps in the matter. The appellant herein entered appearance, and then responded to the respondent's application for injunction before filing the application seeking an order for reference to arbitration. Critically the appellant's response to the respondent's application for injunction amounted to the taking of a procedural step in the matter before the initiation of the reference process. We therefore find no error in the Judge's findings. They are accordingly affirmed*." 19. The High Court in ***Olive Hills Surgical Centre Limited v BOM NHIF [2025] KEHC 4328 (KLR)*** further pronounced: *"The defendant raised the issue of Arbitration after acknowledging the suit by filing a defence. Upon filing a defence the defendant ousted the arbitral process. This is because taking a step in the proceedings is acknowledging jurisdiction."* 20. The principle emerging from these authorities is clear and unequivocal: a party who wishes to challenge jurisdiction on account of an arbitration clause must do so at the earliest opportunity and must not take any steps in the proceedings that may be construed as an acknowledgment of the Court's jurisdiction. The filing of a defence is a step in the proceedings. The filing of a response to an application for injunction is a step in the proceedings. Any conduct that indicates participation in the proceedings on the merits is a step in the proceedings. 21. In the present case, the Defendants filed a statement of defence dated 28th October 2025. The defence addresses the merits of the Plaintiff's claim. It responds to the Plaintiff's allegations of breach of contract, delay in payment, and unlawful termination. This filing constitutes a step in the proceedings. The Preliminary Objection, though dated the same day, does not cure the fact that the Defendants had already taken a procedural step by filing the defence. The requirement under Section 6(1) is that a party must apply for a stay "not later than the time when that party enters appearance or otherwise acknowledges the claim." The defence is a substantive response to the Plaintiff's claim and constitutes participation in the proceedings on the merits. This Court finds that by filing a statement of defence, the Defendants have acquiesced to the Court's jurisdiction. The Defendants have taken a step in the proceedings and are therefore estopped from challenging this Court's jurisdiction on account of the arbitration clause. 22. The Plaintiff seeks interim measures under Section 7(1) of the Arbitration Act, which provides: *"It is not incompatible with an arbitration agreement for a party to request from the High Court, before or during arbitral proceedings, an interim measure of protection and for the High Court to grant that measure."* 23. The Defendants argue that the application is premature because no arbitration has been commenced. They rely on ***Safaricom Ltd v Ocean View Beach Hotel Ltd [2010] eKLR***, where the Court of Appeal held that the jurisdiction under Section 7 is supportive and not substantive, and ***Port Reitz Maternity v Bupa Kenya Ltd [2015] eKLR***, where the Court held that interim measures presuppose that arbitration is imminent. 24. The Plaintiff contends that Section 7(1) expressly allows for a request "before or during arbitral proceedings." The Plaintiff relies on ***Italbuild Imports Limited v A.I.C Kijabe Hospital & Imperial Bank Limited [2015] KEHC 8149 (KLR)***, where the High Court restrained the calling-up of a performance bond pending arbitration. The Plaintiff also relies on ***CMC Holdings Ltd & Another v Jaguar Land Rover Exports Limited [2013] eKLR***, where the Court held: *"The measures are intended to preserve assets or evidence which are likely to be wasted if conservatory orders are not issued. These orders are not automatic. The purpose of an interim measure of protection is to ensure that the subject matter will be in the same state as it was at the commencement or during the arbitral proceedings. The court must be satisfied that the subject matter of the arbitral proceedings will not be in the same state at the time the arbitral reference is concluded before it can grant an interim measure of protection."* 25. The Interested Party, through its Replying Affidavit, confirms the following: "The Interested Party issued a bank guarantee dated 25th March, 2025 in favor of the Applicant of Kshs. 14,169,866.90/- to secure performance of a contract." "On 15th September, 2025, the Interested Party received a letter recalling the said guarantee on grounds that the Applicant has failed to perform its obligation under the contract." 26. The Interested Party also relies on ***Eli Holdings Ltd v Kenya Commercial Bank [2020] eKLR*** for the proposition that: *"A bank guarantee is an autonomous contract that required strict compliance to its terms. The Bank has no obligation to question the performance or otherwise of the obligation of the parties in the underlying contract."* 27. This Court has carefully considered the rival arguments. The Court finds that Section 7(1) unequivocally confers jurisdiction upon the High Court to grant interim measures both before and during arbitral proceedings. This is consistent with the principle of party autonomy and the policy objective of arbitration, to provide a speedy and efficient dispute resolution mechanism without unnecessary court interference, while preserving the subject matter of the dispute. 28. However, the Court must be satisfied that arbitration is genuinely intended and imminent. In the present case, the Plaintiff's Notice of Motion seeks orders "pending the commencement of arbitration proceedings and determination of the dispute by an arbitrator." This framing acknowledges that arbitration is the intended final forum.This Court also notes the following facts. The performance bond of Kshs. 14,169,866.90/- has been recalled by the Defendants via a letter dated 15th September 2025. The Interested Party has acknowledged receipt of the recall letter and has indicated that the performance bond is an autonomous contract that requires strict compliance. In Italbuild Imports, the High Court restrained the calling-up of a performance bond pending arbitration, recognizing that the court can grant interim protection to preserve the subject matter of arbitration. 29. I am therefore satisfied that this court has jurisdiction under Section 7(1) of the Arbitration Act to grant interim measures of protection. This Court shall accordingly proceed to hear the Plaintiff's Notice of Motion on its merits. 30. For the reasons set out above, the Preliminary Objection dated 28th October 2025 is hereby dismissed with costs to the Applicants to be borne by the Defendants. The Plaintiff's Notice of Motion dated 14th October 2025 shall proceed for hearing on its merits. **Dated, signed and delivered at Nakuru this 13th day of August, 2026** **J. K. SERGON** **JUDGE** **In the presence of:** Rutoh C/A Watila Mogere holding brief for Moroka for Plaintiff Wairegi holding brief for Juma for Interested party Miss Nyambura for Attorney General