[2022] KEHC 16421 (KLR)

Kaps Limited v Tourism Finance Corporation (Miscellaneous Application E158 of 2022) [2022] KEHC 16421 (KLR) (Commercial and Tax) (9 December 2022) (Ruling)

Neutral citation: [2022] KEHC 16421 (KLR)

Republic of Kenya

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

Commercial and Tax

Miscellaneous Application E158 of 2022

DAS Majanja, J

December 9, 2022

Between

Kaps Limited

Applicant

and

Tourism Finance Corporation

Respondent

Ruling

1. In the notice of motion dated February 18, 2022 made under section 17 and 35 of the Arbitration Act, 1995 (“the Act”), the applicant (“KAPS’’) seeks to set aside the arbitral award by Hon Philemon Apiemi Morara dated June 25, 2021 and published on February 8, 2022 (“the award”). It is supported by the affidavit of its Deputy Managing Director and Legal Affairs Manager, Lawrence Odero Madialo, sworn on February 16, 2022. The respondent (“TFC’’) opposes the application through the replying affidavit of John Karia, its Director of Legal Services, sworn on May 6, 2022.

2. The facts of the case giving rise to the application are not in dispute. The parties entered into a licensing and management agreement dated May 8, 2017 and addendum to the agreement dated July 18, 2017 under which KAPS was required to remit a monthly fee of Kshs 1,185,580. 00. A dispute arose and the arbitral tribunal was appointed. It heard the matter and rendered the Award on terms that it had jurisdiction to resolve the dispute. It ordered KAPS to pay TFC Kshs 5,507,751. 00 being the outstanding amount owed with interest at 14 % from November 5, 2020 until payment in full together with costs.

3. KAPS has now moved this court to set aside the Award on the basis that the arbitral tribunal lacked jurisdiction to handle the matter and that the Award is against public policy. According to KAPS, the contracts which contained the arbitration clause were terminated by mutual consent and a new agreement formulated to settle the debt which did not have an arbitration clause. KAPS contends that since TFC agreed to collect part of the debt owed from the Ministry of Education directly, it was estopped from pursuing the claim before the arbitral tribunal hence the matter did not fall within its jurisdiction. KAPS argued that the dispute not only involves KAPS and TFC but also the Ministry of Education which was not party to the contract. KAPS therefore seeks to set aside the award on these grounds.

4. TFC admits the existence of the contracts and contends that the arbitration process ought to be final and binding to the parties and that the courts should not intervene unless provided by the Act. TFC states that KAPS has not furnished proof to set aside the award as required by section 35(2)(a) and (b) of the Act. It further contends that KAPS did not raise the issue of jurisdiction at the commencement of the arbitral process but at the submissions stage contrary to sections 17(2) and 5 of the Act.

5. As regards the arrangements with the Ministry of Education alleged by the KAPS, TFC responds that it did not enter into a new agreement. It states that what guided the agreement was the contractual relationship based on the agreement and on this basis KAPS has not met the grounds for setting aside an award and the application should be dismissed with costs.

6. In their written submissions, the parties reiterated the grounds of argument I have summarised above. The main issue for consideration is whether the court should set aside the award on the grounds advanced by the applicant. The applicant has invoked sections 17 and 35 of the Act. Both provisions deal with different aspects of the arbitral process. Section 17 deals with the issue of jurisdiction, how and when it can be raised and recourse to the High Court by a party aggrieved by the ruling of the arbitral tribunal on its own jurisdiction. On the other hand, section 35 provides an avenue for recourse to the High Court by a party dissatisfied by an award. I am mindful of the fact that arbitral awards are final and binding and this court should not intervene in order to protect the autonomy of the arbitration process (see Nyutu Agrovet Limited v Airtel Networks Kenya Limited; Chartered Institute of Arbitrators-Kenya Branch (Interested Party) [2019] eKLR). This position is supported by section 10 of the Act which provides that the court should not intervene with matters governed by the Act unless so provided.

7. The Act provides two avenues for recourse against arbitral awards; setting it aside under section 35 or lodging an appeal under section 39 of the Act. Section 17 of the Act, on the other hand, which deals with competence of arbitral tribunal to rule on its jurisdiction and it provides as follows:17(1) The arbitral tribunal may rule on its own jurisdiction, including ruling on any objections with respect to the existence or validity of the arbitration agreement, and for that purpose—(a)an arbitration clause which forms part of a contract shall be treated as an agreement independent of the other terms of the contract; and(b)a decision by the arbitral tribunal that the contract is null and void shall not itself invalidate the arbitration clause.(2)A plea that the arbitral tribunal does not have jurisdiction shall be raised not later than the submission of the statement of defence, however, a party is not precluded from raising such a plea because he has appointed, or participated in the appointment of, an arbitrator.(3)A plea that the arbitral tribunal is exceeding the scope of its authority shall be raised as soon as the matter alleged to be beyond the scope of its authority is raised during the arbitral proceedings.(4)The arbitral tribunal may, in either of the cases referred to in subsection (2) or (3) admit a later plea if it considers the delay justified.(5)The arbitral tribunal may rule on a plea referred to in subsections (2) and (3) either as a preliminary question or in an arbitration award on the merits(6)Where the arbitral tribunal rules as a preliminary question that it has jurisdiction, any party aggrieved by such ruling may apply to the High Court, within 30 days after having received notice of that ruling, to decide the matter.(7)The decision of the High Court shall be final and shall not be subject to appeal.(8)While an application under subsection (6) is pending before the High Court the parties may commence, continue and conclude arbitral proceedings, but no award in such proceedings shall take effect until the application is decided and such award shall be void if the application is successful.

9. KAPS relies on section 17 of the Act to submit that the Arbitral Tribunal lacked jurisdiction to adjudicate over the dispute to which TFC responds that the issue ought to have been raised at the earliest opportunity and not at the submissions stage. I agree with TFC that under section 17(2) of the Act, an objection to jurisdiction ought to be raised not later than the submission of the statement of defence. In this case, the plea of jurisdiction was raised in the submissions. It is important to note that under section 17(5) of the Act, it is only once the objection has been raised at the earliest opportunity, that the arbitral tribunal may elect to determine the plea of jurisdiction either immediately or in the award on merits. I do not read section 17(5) of the Act to give the applicant the right to elect when to raise to the objection, the election is reserved the arbitral tribunal in when to make the decision. Further, the arbitral tribunal may only consider the late plea if the delay is justified. I hold therefore that by failing to raise the plea of jurisdiction at the earliest opportunity for determination by the arbitral tribunal, the objection does not fall for consideration under section 17 of the Act.

10. In any case, the arbitral tribunal addressed this issue and came to the conclusion that the parties presented themselves to the arbitral tribunal, complied with all directions given, filed the pleadings, participated in the hearing and filed their submissions thus acceding to its jurisdiction. It added that the applicant did not make any attempt to demonstrate that the ground of objection was unknown to it or could not be known with reasonable diligence in the course of participating in the arbitration proceedings. In other words, the applicant was in fact estopped from raising any jurisdictional issue as it had, in effect, waived its right to object under section 5 of the Act. I therefore find and hold that the applicant’s application cannot survive consideration under section 17 of the Act.

11. The application can only be considered under section 35 of the Act. KAPS relies on the ground of public policy under section 35(2)(b)(ii) of the Act which states,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-(b)the High Court finds that—(i)-------------(ii)the award is in conflict with the public policy of Kenya.

12. Public policy as a ground for setting aside an arbitral award has received substantial judicial comment from our courts. In Christ for all Nations v Apollo Insurance Co Ltd [2002] EA 366, which was quoted with approval by the Court of Appeal in Kenya Shell Limited v Kobil Petroleum Limited NRB CA Civil Appl No 57 of 2006 [2006] eKLR, Ringera, J, (as he then was) elucidated the meaning of public policy under section 35 of the Act as follows:An award could be set aside under page 35(2) (b) (ii) of the Arbitration Act as being inconsistent with the public policy of Kenya if it is shown that it was either (a) inconsistent with the Constitution or to other laws of Kenya, whether written or unwritten or (b) Inimical to the national interest of Kenya or (c) contrary to justice or morality.

13. Public policy, as defined above, is a broad, infinite and malleable concept and when considering it, the salutary warning of Burrough J, in Richardson v Mellish [1824] 2 Bing 228 that, “Public policy is a very unruly horse, and when you get astride, you never know where it will carry you” must be kept in mind. It must be considered alongside the principle that parties who enter into an arbitration agreement expect a level of finality. Ringera J, in the Christ for All Nations Case (Supra) further stated that:[I]n my judgment this is a perfect case of a suitor who strongly believed the arbitrator was wrong in law and sought to overturn the award by invoking the most elastic of the grounds for doing so. He must be told clearly that an error of fact or law or mixed fact or law or of construction of a statute or contract on the part of an arbitrator cannot by any stretch of imagination be said to be inconsistent with the public policy of Kenya. On the contrary, the public policy of Kenya leans towards finality of arbitral awards and parties to an arbitration must learn to accept an award, warts and all, subject only to the right of challenge within the narrow confines of section 35 of the Arbitration Act.

14. A matter of public policy is wider than narrow contractual issues between the parties. It connotes something of public interest affecting the public and third parties. In Mall Developers Limited v Postal Corporation of KenyaML Misc No 26 of 2013 [2014] eKLR the court observed that:Public policy must have a connotation of national interest. It cannot mean fairness and justice as was submitted by the parties herein as it was only the claimant and the respondent who were individuals entitled to be affected by the decision of the arbitrator. They did not both demonstrate to this court how the decision by the arbitrator would negatively affect, impact or infringe the rights of third parties and thus offend public policy.

15. An applicant challenging an award on grounds of public policy must identify the public policy which the award allegedly breaches and then demonstrate which part of the award conflicts with that public policy. In this case, the dispute between the parties’ concerns non-payment of the monthly fees under the licence and management agreement. It relates to KAPS and TFC in their own capacities. There is nothing to show how the award contravenes the Constitution or any other law, how it is an issue of national interest or contrary to justice and morality. I find and hold that the award, in reality, resolved the debt owed by the applicant to the respondent and does not contravene public policy. The applicant’s application to set aside judgment is accordingly dismissed.

16. TFC has filed a chamber summons dated May 11, 2022 under section 36(1) of the Act seeking recognition and enforcement of the Award. It is supported by the affidavit of its advocate on record, Vivianne Wachanga, sworn on the same day. It is opposed by KAPS through the replying affidavit of Lawrence Odero Madialo sworn on June 10, 2022.

17. KAPS objects to the application on procedural and substantive grounds. It contends that the TFC ought to have filed its own application instead of intruding on the Respondent’s application. That TFC has not furnished the original award or certified copy of it and the original agreement or certified copy of it as required by section 36 of the Act. On the substantive grounds, KAPS urges the court to reject the application for enforcement under section 37 of the Act on the grounds that the arbitral tribunal lacked jurisdiction and that the award is against the public policy of Kenya.

18. On the substantive issue, I note that the grounds for refusal of recognition or enforcement are a mirror of the grounds set out under section 35 of the Act for setting aside an award. I have already found that the grounds for setting aside the award proferred by KAPS; that is the Arbitral Tribunal lacked jurisdiction and that the Award is contrary to public policy, have not been established hence there is no impediment to enforcement of the award on substantive grounds.

19. The procedural grounds are set out in section 36 of the Act as follows:36. Recognition and enforcement of awards1. A domestic arbitral award, shall be recognized as binding and, upon application in writing to the High Court, shall be enforced subject to this section and section 37. 2.An international arbitration award shall be recognised as binding and enforced in accordance to the provisions of the New York Convention or any other convention to which Kenya is signatory and relating to arbitral awards.3. Unless the High Court otherwise orders, the party relying on an arbitral award or applying for its enforcement must furnish—(a)the original arbitral award or a duly certified copy of it; and(b)the original arbitration agreement or a duly certified copy of it.4. If the arbitral award or arbitration agreement is not made in the English language, the party shall furnish a duly certified translation of it into the English language.37. The question for consideration is whether compliance with section 36(3) of the Act is mandatory as urged by the applicant. In Ndiritu Muchemi Michael and 2 Others v Ashbell[2018] eKLR the court considered the issue and held as follows:(21)…. the provisions of section 36 (3) of the Act make it mandatory that the original arbitral award or a duly certified copy of it must be furnished by the applicant making an application under the section. The respondent faults the application on the grounds that the original and/or certified copy of the Award has not been provided.(22)I have gone through the documents annexed to the affidavit sworn by Dr Ndiritu and I note that she states at paragraph 2 thereof that: “the arbitral awards were served upon the Applicants advocates on April 13, 2015. Annexed herein and marked “NMN 1” is a true copy of the said award.” That annexture is attached. The only clear thing is that the said annexed Award is not the “original” copy and is not certified. Yet the provisions are very clear, the copy that should be annexed to the application must be a “duly certified copy.” Similarly, section 36(3)(b) states that “in addition to provision of the original certified copy of the arbitral award, the original arbitration agreement or a duly certified copy thereof must be provided.” That has not been done herein.(23)In that regard, the applicants in their application dated September 29, 2016 have not fully complied with the mandatory provisions of order 36 (3) of the Arbitration Act. Therefore, there is no competent application before the court for consideration. The application is consequently struck out and all the prayers therein fall by the way. As regards the application dated December 2, 2016, the respondent argued that it is frivolous and a waste of court’s time. That no appeal can lie against the decision of the High Court. I note that these grounds do not fault the “competence” of the application. In that case, I consider the merits of the application thereof. (Emphasis mine)38. I agree with KAPS that TFC have not complied with the requirements of the Act as the copies furnished are photocopies of the agreement which have not been certified. But I do not think this is the end of the matter. Subsection 3 opens with the phrase, “unless the High Court otherwise orders”, which means that the court may dispense with the requirement for certification if there are good reasons to do so. The purpose of section 36 of the Act is to empower the court to enforce international awards hence the requirement for certification provides a basis for authenticity and an assurance to the court that the award is authentic.39. The award in this case is a domestic award that has been subject of an application to set aside. If there was no award, why would the KAPS apply to set it aside? KAPS did not suggest that the arbitration agreement and award, which are on record, were not authentic. Both parties proceeded on the basis that the there was a valid arbitration agreement and that the award was duly published. I hold that this is a case where the court may dispense with production of the certified copies as required in section 36 of the Act. I do not find any reason to refuse the Respondent’s application to recognize and enforce the award.40. For the reasons I have set out above, I dismiss the applicants application dated February 18, 2022 and allow the respondent’s application dated May 11, 2022 on the following terms:a.The arbitral award by Hon Philemon Apiemi Morara dated June 25, 2021 and published on February 8, 2022 be and is hereby recognised as judgment of this court and leave be and is hereby granted to the respondent to enforce the same as decree of this court.b.The applicant shall pay the respondents costs of both applications assessed at Kshs 80,000. 00 only.

DATED AND DELIVERED AT NAIROBI THIS 9TH DAY OF DECEMBER 2022. D. S. MAJANJAJUDGECourt Assistant: Mr M. OnyangoMr Amuga instructed by Amuga and Company Advocates for the Applicant.Mr Okeyo instructed by J. M. Njenga and Company Advocates for the Respondent.