[2022] KEHC 13336 (KLR)

Karago & Associates Architects Limited & 11 others v Kenya Hospital Association also referred to as the Nairobi Hospital (Miscellaneous Application E515 of 2021) [2022] KEHC 13336 (KLR) (Commercial and Tax) (16 September 2022) (Ruling)

Neutral citation: [2022] KEHC 13336 (KLR)

Republic of Kenya

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

Commercial and Tax

Miscellaneous Application E515 of 2021

A Mshila, J

September 16, 2022

Between

Karago & Associates Architects Limited

1st Applicant

Karkan Partership Ltd

2nd Applicant

Tardem & Stark Ltd

3rd Applicant

Civil Engineering Design (K) Ltd

4th Applicant

BKPMG Health Solutions PVT Ltd

5th Applicant

Maiteri & Associates

6th Applicant

Norkun Intakes Ltd

7th Applicant

Geomax Engineers

8th Applicant

Atkins (previously Howard Humphreys EA Ltd)

9th Applicant

Interconsult Engineers Ltd

10th Applicant

Karago Engineers Ltd

11th Applicant

Jelani Interior Designers

12th Applicant

and

Kenya Hospital Association also referred to as the Nairobi Hospital

Respondent

Ruling

1. The applicants filed a notice of motion dated July 2, 2021 brought under Rule 7 of the Arbitration Rules, 1997 and Section 35 of the Arbitration Act. The application was supported by the sworn affidavit of Joseph Karago and the Applicants sought for orders that;a.Pending the hearing and determination of this Application, there be a stay of execution of the Interim Award published by the Arbitral Tribunal constituted by the Hon Calvin Nyachoti, the sole arbitrator, on June 13, 2021, and as further amended on 2June 8, 2021, and/or any further proceedings in respect of the award.b.Pending the hearing and determination of this Application, there be a stay of the arbitral proceedings before the Arbitral Tribunal constituted by the Hon Calvin Nyachoti, the sole arbitrator.c.The Interim Award published by the Arbitral Tribunal on June 13, 2021, and as further amended on June 28, 2021, be set aside in its entirety or as the Court may deem fit.d.The Court to grant such other relief as it may deem fit and just.e.The costs of and incidental to this Application be provided for.

Applicants’ case 2. It was the Applicants’ case that the interim award dealt with a dispute not contemplated by or not falling within the terms of the reference to arbitration. This is because the tribunal had ordered parties to conduct a joint verification, take an inventory and re-measure all the works with respect to all the projects that the applicants undertook with the respondent, in order to determine the value of the construction works done by the different contractors executing those serial and independent projects. Whilst the dispute by the applicants is for determination of fees payable to them upon the termination of their services by the respondent and not on the value of the construction works executed by third parties, that would be the building contractors.

3. They further stated that the interim award seeks to re-write the contract between the parties, which action is in conflict with the public policy of Kenya. This is because despite parties having agreed, under the Model Service Agreement, on how to determine fees payable upon the termination of the applicants services, the tribunal is forcing parties to engage in a dispute resolution process that they did not agree to.

4. By the tribunal ordering a re-measurements and verification process in a Consultancy Agreement, it totally deviates from the usages of the trade practices applicable to the construction industry.

5. In their submissions, the applicants submitted on the issue of whether the Interim Award published on June 13, 2021, and as further clarified/amended on June 28, 2021 ("Interim Award"), offends the provisions of Section 35 of the Arbitration Act. It was also the applicants’ submission that the arbitral tribunal failed to decide the notice of motion application dated January 27, 2021, in accordance with the terms of the model service agreement.

6. Coincidentally, in the interim award, the arbitral tribunal concurs with the applicants herein that the re-measurement process is un-contractual having not been provided for in the model service agreement but goes ahead to grant the orders sought for in the notice of motion application dated January 27, 2021.

7. The applicants relied on the decision inKenya Agricultural and Livestock Research Organization (formerly Kenya Agricultural Research Institute) v Njama Ltd [2017] eKLR where the court stated as follows:“I so find because the arbitrator; 'expanded the margins and boundaries of the contract between the parties. He went on a journey beyond the realm of the contract... In so finding, I have borrowed the words of Kimondo J. in Airtel Networks Kenya Ltd (formerly known as Celtel Kenya Ltd) v Nyutu Agrovet Ltd, Misc. Cause No. 400 of 2011, at par 39. In conclusion I hold that the Arbitrator acted beyond his jurisdiction, when he failed to keep himself within the confines of the contract, as was expected of him when adjudicating the dispute. He flouted Section 29(5) of the Arbitration Act.”

8. The applicants further submitted that the interim award seeks to re-write the contract between the parties, which action is in conflict with the public policy in Kenya. This is because despite parties having agreed, under the Model Service Agreement, on how to determine fees payable upon termination of the applicants services (See: Clause 35 of the Model Service Level Agreement), the tribunal is forcing parties to engage in a dispute resolution process that they did not agree to.

9. Further the interim award orders parties to use a process that is not recognized in the construction industry to determine a dispute touching on the fees payable to the applicants. The Orders direct parties, to undertake the valuation of construction works process without involving the building contractors who undertook those works. This process goes against the provisions of Section 29 (5) of the Arbitration Act which provides that,“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.”

10. It was the applicant’ argument that the actions of the Hon. Arbitrator Calvin Nyachoti are clearly an attempt to re-write the contract between the parties and is therefore in conflict with the public policy in Kenya (See:Christ for all Nations v Apollo Insurance Co Ltd [2002] EA 366 and Rwama Farmers’ Co-operative Society Ltd v Thika Coffee Mills Ltd [2012] eKLR)

11. The applicants added that the interim award is impossible to implement and touches on the rights of third parties who are not party to the arbitral proceedings. The construction sites are in the possession of the respondent, and therefore, the applicants have nothing else to hand over.

12. It was also the applicants’ position that the clarification of the interim award creates further ambiguity and contradictions arising from the interim award. The arbitral tribunal acknowledged that it is not in a position to ascertain which projects/works/payments are disputed as parties are yet to file their pleadings yet proceeds to issue directions on the re-measurement of all projects undertaken by the applicants since the applicants signed the Model Service Agreement without considering whether or not the applicants have any dispute on all those projects, which would clothe him with jurisdiction over those contracts. The Arbitrator nevertheless decided without any basis that all the projects are in dispute.

13. In setting aside, the interim award by Hon. Arbitrator Calvin Nyachoti, the applicants asked the Court to bear in mind the decision of APA Insurance Co Ltd v Chrysanthus Barnabas Okemo [2005] eKLR, while considering an application to set aside an arbitral award under Section 35 of the Act the court rendered itself thus:“In looking at this issue, I must remind myself that it is not for me to re-evaluate the evidence, as if it were an appeal. This is certainly not an appeal from the decision by the arbitrator. My role is to ascertain if the applicant had made out a case to warrant the setting aside of the arbitral award.”

respondent’s case 14. In response to the applicants’ application, the respondent stated that as a preliminary issue, the applicant failed to disclose before the court that there was no jurisdictional challenge before the Arbitrator and that the application whose award the applicant seeks to set aside is an application for joint verification, taking of inventory and re-measurement of works. According to Section 17 of the Arbitration Act, 1995, the question of jurisdiction ought first to have been brought before the Arbitral Tribunal.

15. The principles elucidated above refer to the doctrine of Kompetenz Kompetenz which is a cardinal principle of arbitration law and practice. From the foregoing, it is apparent that the court lacks the requisite jurisdiction to determine the question on the scope of the Arbitrator's jurisdiction and for this reason alone, this ground for setting aside of the Award ought to fail. The applicant cannot be heard to raise jurisdictional questions for the first time at this stage and in this forum.

Issues For Determination 16. After considering the applicants’ and the respondent’s case the court has framed the following issues for determination;a.Whether the Interim Award dealt with issues not falling within the terms of the reference to arbitration.b.Whether the interim Award should be set aside for offending public policy.

AnalysisWhether the Interim Award dealt with issues not falling within the terms of the reference to arbitration; Whether the interim Award should be set aside for offending public policy;

17. It is trite law that the role of the Court in arbitration matters is only supervisory, and its jurisdiction may only be invoked in very specific situations as stipulated in the Act. Section 10 of the Arbitration Act provides: -“Except as provided in this Act, no Court shall intervene in matters governed by this Act”.

18. By this section, the jurisdiction of the Court is limited and restricted and may only be invoked in very clear circumstances specified under the Act. Further, Section 32A of the Arbitration Act provides: -“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 this Act”.

19. The parties herein referred their dispute to the arbitrator pursuant to and in accordance with the provisions of clause 44 of the particular conditions of the model service level agreement which contains the arbitration agreement.

20. The applicants’ case is that the Interim Award dealt with a dispute not contemplated by or not falling within the terms of the reference to arbitration. They argued that the tribunal had ordered parties to conduct a joint verification, take an inventory and re-measure all the works with respect to all the projects that the applicants undertook with the respondent, in order to determine the value of the construction works done by the different contractors executing those serial and independent projects.

21. In the applicants’ opinion the dispute by the applicants is for determination of fees payable to them upon the termination of their services by the respondent and not on the value of the construction works executed by third parties, being the building contractors. The Interim Award seeks to re-write the contract between the parties, which action is in conflict with the public policy of Kenya. Despite parties having agreed, under the Model Service Agreement, on how to determine fees payable upon the termination of the applicants services, the tribunal is forcing parties to engage in a dispute resolution process that they did not agree to.

22. The respondent on the other hand maintained that as a preliminary issue, the applicant failed to disclose before the court that there was no jurisdictional challenge before the Arbitrator and that the application whose award the applicant seeks to set aside is an application for joint verification, taking of inventory and re-measurement of works.

23. Section 35 of the Arbitration Act stipulates as follows on the subject of setting aside arbitral awards:“(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 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 law of Kenya; or(ii)the award is in conflict with the public policy of Kenya.(3)An application for setting aside the arbitral award may not be made after 3 months have elapsed from the date on which the party making that application had received the arbitral award, or if a request had been made under section 34 from the date on which that request had been disposed of by the arbitral award.(4)The High Court, when required to set aside an arbitral award, may, where appropriate and if so requested by a party suspend the proceedings to set aside the arbitral award for such period of time determined by it in order to give the arbitral tribunal an opportunity to resume the arbitral proceedings or to take such other action as in the opinion of the arbitral tribunal will eliminate the grounds for setting aside the arbitral award.”

24. Simply put, the applicants herein sought to have the arbitral award set aside the Arbitral award for reasons that;a.The award dealt with issues that were outside the scope of the arbitration agreement.b.The award was inimical to the precepts of public policy.

25. Black’s law Dictionary defines public Policy as follows:“Policy: The general principles by which a government is guided in its management of public affairs.Public policy: broadly, principles and standards regarded by the legislature or by the courts as being of fundamental concern to the state and the whole of society. Courts sometimes use the term to justify their decisions, as when declaring a contract void because it is “contrary to public policy”

26. In Glencore Grain Ltd v TSS Grain Millers Ltd[2002] 1 KLR 606, it was held:“A contract or arbitral award will be against the public policy of Kenya in my view if it is immoral or illegal or that it would violate in clear unacceptable manner basic legal and/or moral principles or values in the Kenyan Society. It has been held that the ward “illegal” here would hold a wider meaning than just “against the law”. It would include contracts or contractual acts or awards which would offend conceptions of our justice in such a manner that enforcement thereof would stand to be offensive.”

27. In Christ for all Nations vs Apollo Insurance Co Ltd. (2002) EA 366 Ringera J (as he then was) explained the scope of public policy as a ground for setting aside an arbitral award 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.”

28. InMall Developers Limited vs Postal Corporation of Kenya MLMisc. 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.”

29. It is therefore important when determining whether the Arbitrator in the instant case went beyond the matters under reference, to examine terms of the Agreement between the parties in relation to the dispute referred to arbitration.

30. It is not in dispute that the professional fees as set out in Appendix C1 of the Particular Conditions of the Mode Service Level Agreement provided;“The remuneration and payment of the Consortium for the performance of the duties described in this Agreement shall be 9. 0% of the total value of the construction works….”

31. The respondent in its submissions went on to state that the applicants’ fees is directly measured from the value of works as outlined in the Architects and Quantity Surveyors Act, cap 525 which governs the applicants’ profession under the fifth schedule on the conditions of engagement and scale of professional charges for quantity surveyors which provides;“B – Scale of ChargesB.1 The following shall be the charges to be made by a quantity surveyor….(iii)Generally -…… the fees shall be calculated upon a reasonable valuation of the work, based upon the original bills of quantities.”

32. The applicants highlighted clause 35 of the model service level agreement in opposition to the arbitrator’s directive to take an inventory and re-measure all works with respect to the projects that the applicants undertook with the respondent in order to determine the value of the construction works done by the different contractors executing those serial and independent projects. The said Clause 35 stipulates as follows:“The Consultant shall maintain up to date records which clearly identify relevant time and expense. Except where the Agreement provides for lump sum payments not later than twelve months after the completion or termination of the services, the Client can at notice of not less than 7 days require that a reputable firm of accountants nominated by him audit any amount claimed by the Consultant by attending during normal working hours at the office where the records are maintained.”

33. In rebuttal, the respondent argued that it challenged the certificates produced by the applicants and for this reason invited the applicants for a joint audit of works to ascertain and verify the extent of works undertaken in order to settle the actual fees due to the applicants. That it was for this reason that the arbitrator allowed the application by the respondent for re-measurement of works.

34. An excerpt of the impugned interim award reads as follows;“54. The findings of the audit reveal that there are alleged unaccounted payments/ overpayments to a tune of Kshs. 1. 171 Billion. The claimant however contends that the final certificates of payments and accounts as well as the joint inspection reports should be relied upon by the tribunal. There is evidence though that the respondent did not dispute the invoices raised or attend the joint inspection meetings.55. Having said so, it appears to me that the bone of contention in all these regards the value of work done (quantum meruit). What is the value of work done and who/ what determines it.58. Parties hold varied positions as to what is the value of works in the dispute. The respondent submits that the only way to certainly know what the claim is through re-verification/ re-measurement of works. The claimant however leaves it to the tribunal to determine the value now that a dispute already exists.59. Indeed, re-measurement process is not provided for under the Model Service Level Agreement, neither is it commissioned by JBC Contracts. In this case, it is solely a prayer by the respondent sought in the interim to enable the Tribunal appreciate the dispute in totality.60. The respondent has demonstrated genuine need for the works to be remeasured and handed over to a different consultant for completion even as the need for healthcare facilities increase in the face of the Covid -19 pandemic.61. In trying to find the best way forward, the Tribunal must determine what prejudice (if any) will the Claimant/ respondent suffer should the remeasurement exercise be ordered?62. In my view, I don't think any prejudice will be visited upon the Claimant/ respondent. The exercise shall break the impasse borne out of the Technical Audit Report, the Final accounts and the disputed Certificates.63. Additionally, the exercise will solve the puzzle that parties find themselves in regarding the contractual works, performance thereof and current value of works. That is not to say that the Tribunal is not alive to possible alteration or degradation of works performed and completed years back or the fact that the Claimant/ respondent and its sub— contractors left site and the site handed over to a new consultant.64. The Tribunal shall take cognizance of the same guided by the joint/ separate reports that shall be filed by parties emanating from the exercise. In the event that it does not, the Tribunal and parties alike shall be in a position to better ventilate their claims and narrow down issues for determination by the Tribunal.”

35. The import of the above is that, whereas the arbitrator acknowledged the provisions and terms of the parties’ agreement; there was an impasse borne out of the technical audit report, the final accounts and the disputed certificates, which audit reports were prepared in accordance with clause 35 of the model service level agreement.

36. It is the Court’s understanding that at Paragraphs 63 and 64 the Arbitrator stated that the exercise was meant to solve the puzzle the parties found themselves in and in the event the exercise does not solve the issue, “the Tribunal and parties alike shall be in a position to better ventilate their claims and narrow down issues for determination by the Tribunal.”

37. It is the Court’s considered view therefore that the Arbitrator’s directive is meant to make the issues for determination of the main dispute clearer and the Arbitrator is yet to fully determine the dispute at hand. It is therefore premature for the applicants to contend that the Interim Award does not fall within the terms of the reference to arbitration or that it is against public policy and it would be prudent for the applicants to allow the Arbitrator time to determine the dispute.

Findings and determination 38. For the foregoing reasons this court makes the following findings and determinations;i.The application is found to be unmerited and it is hereby dismissedii.The costs to abide the outcome of the Final Award.iii.The matter is referred back to Arbitration

Orders Accordingly.

DATED SIGNED AND DELIVERED AT NAIROBI THIS 16THDAY OF SEPTEMBER, 2022. HON. A. MSHILAJUDGEVirtually in the presence of: -Lucy: Court AssistantMr Davidson Makau: Advocate for the applicantJoy Anami holding brief for Dr Mutubwa: Advocate for the respondent