[2022] KEHC 16508 (KLR)

Kay Construction Limited v Kenya Rural Roads Authority (Miscellaneous Application E196 of 2022) [2022] KEHC 16508 (KLR) (Commercial and Tax) (9 December 2022) (Ruling)

Neutral citation: [2022] KEHC 16508 (KLR)

Republic of Kenya

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

Commercial and Tax

Miscellaneous Application E196 of 2022

DAS Majanja, J

December 9, 2022

Between

Kay Construction Limited

Applicant

and

Kenya Rural Roads Authority

Respondent

Ruling

1. The applicant has invoked section 35 of the Arbitration Act, 1995 (“the Act”) and filed the notice of motion dated March 1, 2022 seeking an order to set aside the Arbitral award published on December 30, 2021 (“the award”) and directing that the matter to be remitted back to the Arbitrator to deal with the question of interest and costs. The application is supported by the affidavit of the applicant’s director, Hasmita Patel, sworn on March 11, 2022. The respondent opposes it through the replying affidavit of Eng Jackson Magondu, its Director of Development, sworn on May 20, 2022.

2. By way of background, the parties herein entered into a contract for the construction of Kamagambo-Mogonga (D205/D204) roads on May 21, 2012. A dispute arose, the arbitration clause was invoked, the Arbitrator heard the matter and published the award on December 30, 2021 in favour of the applicant for the sum of Kshs 41,210,454. 00 but did not award interest and ordered each party to bear their own cost.

3. The applicant questioned the finding on the issue of interest and made a formal application to the Arbitrator under section 34 of the Arbitration Act on February 11, 2022 seeking clarification on the ambiguity on the issue of interest. The Arbitrator responded by the letter dated February 11, 2022 stating that there were no ambiguities in the award and that it was functus officio. It is for this reason that the applicant seeks relief from this court.

4. The applicant contends that the award offends public policy since interest as it was not awarded interest as a successful party is entitled to compensation for the money lost. It adds that the Arbitrator did not give reasons for failing to award interest but instead renounced its statutory duty by failing to review the award as requested. The applicant submits that the Arbitrator contravened of section 34(1)(b) of the Act and rules 130 and 131 of the Chartered Institute of Arbitrators (Kenyan Chapter) Arbitration Rules (“the Arbitration Rules”) which give the arbitrator jurisdiction to review awards to clarify or remove ambiguities.

5. The applicant further contends that by failing to give reasons for the award, the arbitrator contravened section 32(3) of the Act. It states that it is entitled to costs which follow the event in accordance with rule 123 of the Arbitration Rules which states that the costs of the arbitration shall in principle be borne by the unsuccessful party or parties. It states that it paid for the prosecution of the matter and the respondent’s portion of the arbitral fees but arbitral tribunal ordered parties to pay costs of Kshs 6,052,000. 00 on equal basis. It asserts that since it paid the costs, it ought to be compensated for the loss of the costs and the interest.

6. The respondent submits that the applicant has neither established the threshold for setting aside an arbitral award nor demonstrated how the award offends the public policy of Kenya. As regards the issue of interest, the respondent contends that the Arbitrator performed its obligations and there is no need for referring the matter back for arbitration or setting aside the award. It points out the award addressed the issue of interest by giving reasons and stating that interest would only be payable where the claims had been approved and certified which was not done in this case. The respondent further submits the Arbitrator held that interest would accrue at commercial rates if the sum of Kshs 41,210,454. 00 was not paid within 60 days.

7. On the issue of costs, the respondent points out that it was within the discretion of the Arbitral Tribunal that each party would bear their own costs. The respondent further states that it paid an initial deposit of Kshs 250,000. 00 for the arbitration and while it was in the process of paying of its portion of the fees, the applicant went ahead and paid the whole sum without reference to it. It states that it is in the process of reimbursing the applicant its portion of the fees.

8. The question for determination in this application is whether the court should set aside the award as provided for under section 35(2)(b)(ii) of the Act which states as follows:35. Application for setting aside arbitral award

(1)………………………(2)An arbitral award may be set aside by the High Court only if—(a)--------------------(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.

9. From the arguments I have set out above, the applicant seeks to set aside the award on the basis that it is in conflict with the public policy of Kenya for failing to award interest and costs. The parties are agreed on the general principle stated in Christ for All Nations v Apollo Insurance Co Ltd[2002] 2 E.A 366 where Ringera J., discussed public policy as a ground for setting aside award and held as follows:Public policy is a broad concept incapable of precise definition. An award can be set aside under section 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 any other law of Kenya whether written or unwritten, or (b) inimical to the national interest of Kenya, or (c) contrary to justice and morality.

10. An applicant challenging an award on the basis of public policy must identify the public policy breached and then demonstrate which part of the award conflicts with that public policy. Further, public policy does not provide a window for the court to exercise appellate jurisdiction and it must connote something greater than personal or contractual interests of the parties. In Mall Developers Limited v Postal Corporation of Kenya ML 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.

11. I have studied the award and i agree with the respondent that the Arbitral Tribunal dealt with the issue of costs and interest in the award. On the issue of costs, the applicant is correct to point out that under rule 123 of the Arbitration Rules the costs of the arbitration shall, in principle be borne by the successful party or parties. It goes further to provide that the arbitral tribunal may apportion each of such costs between the parties if it determines the apportionment is reasonable taking into account the circumstances of the case. I do not read rule 124 of the Arbitration Rules to provide that the arbitral tribunal must award costs. In this case, the Arbitrator at paragraph 139 of the award stated, “[139] Each party bear its own costs for the arbitration.’’

12. What the arbitral tribunal ought to do, is to give reasons why it has departed from the general reasons. I also accept the following view taken by Tuiyott J., in Obadia Muchori Gathingi and Another v Waki Clearing and Forwarding Agents Limited HC COMM Misc No 154 of 2014 [2016]eKLR that:(23)The provisions of section 32B of the Arbitration Act empower an Arbitrator to determine and apportion costs of arbitration. While costs ordinarily follow the event, it is matter of discretion of the Arbitrator. A discretion to be exercised judiciously. The only occasions, in my view, when the court may set aside an award of costs by an Arbitrator is when it falls within the matters set out in section 35 of the Arbitration Act. It must be demonstrated, for instance, that the Award on costs was induced, or affected by fraud, bribery, undue influence or corruption or is inimical to public policy.

13. The mere fact that the Arbitral Tribunal failed to outline reasons for failing to award costs or directing each party to bear its own costs, does not of itself give rise to a violation of the issue of public policy of Kenya. I therefore dismiss this ground.

14. Turning to the issue of interest, it is not in dispute that under rule 90(j) of the Arbitration Rules, the Arbitral Tribunal has jurisdiction, “To award simple and compound interest on any sum from and to any date, at such rates and with such rates as it decides to be appropriate.” This rule mirrors section 32C of the Act which permits an arbitral tribunal to award interest if the parties agree. I am satisfied that the Arbitral Tribunal dealt with interest on claims in the award and concluded as follows:(138)The Arbitral Tribunal considers that interest would only be paid where the claims had been approved and certified. These were neither approved nor certified and I concur with the conclusions of the respondent that interest is not payable.

15. What the applicant seeks is a review of the reasons for awarding costs and interest which I hold amounts to asking the court to consider the merits of the decision. To accede to this entreaty would result in this court exercising appellate jurisdiction. In Geo Chem Middle East v Kenya Bureau of Standards SCK Pet No 47 of 2019 [2020] eKLR, the Supreme Court of Kenya quoted with approval the holding of Ochieng J., in the High Court that:[I]t is not the function nor mandate of the High Court to re-evaluate such decisions of an arbitral tribunal, when the court was called upon to determine whether or not to set aside and award … if the court were to delve into the task of ascertaining the correctness of the decision of an arbitrator, the court would be sitting on an appeal over the decision in issue. In light of the public policy of Kenya, which loudly pronounces the intention of giving finality to arbitral awards, it would actually be against the said public policy to have the court sit on appeal over the decision of the arbitral tribunal.

16. In conclusion, I find that the applicant challenges the award on the basis of interest and costs of the arbitration. These issues do not involve do not involve third parties or raise issues of public interest contemplated in section 35 of the Act and are matter within the province of the arbitral tribunal to resolve. I therefore find and hold that the applicant has not met the threshold to warrant the setting aside the award.

17. The notice of motion dated March 1, 2022 lacks merit. It is dismissed with costs to the respondent. The costs are assessed at Kshs 40,000. 00

DATED AND DELIVERED AT NAIROBI THIS 9TH DAY OF DECEMBER 2022. D. S. MAJANJAJUDGECourt Assistant: Mr M. OnyangoDr Mutubwa with him Ms Muyoka instructed by Dr Mutubwa Law Advocates for the applicant.Ms Nyangasi instructed by J. M. Rapando, Advocate for the Respondent.