[2022] KEHC 12966 (KLR)

Kenya Reinsurance Corporation Ltd v RoadTraders (MSA) Corporation Ltd & another (Miscellaneous Application E621 of 2021) [2022] KEHC 12966 (KLR) (Commercial & Admiralty) (9 September 2022) (Ruling)

Neutral citation: [2022] KEHC 12966 (KLR)

Republic of Kenya

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

Commercial and Admiralty

Miscellaneous Application E621 of 2021

A Mabeya, J

September 9, 2022

Between

Kenya Reinsurance Corporation Ltd

Applicant

and

RoadTraders (MSA) Corporation Ltd

1st Respondent

APA insurance Ltd

2nd Respondent

Ruling

1. Before court is an Originating Summons dated August 11, 2021. The summons was brought under sections 7 and 17 (1) (2) and (6) of the Arbitration Act (“the Act”).

2. The summons sought orders that the court reviews and/or sets aside the ruling of August 10, 2021 by Hon E T Gaturu, arbitrator made arbitral proceedings between Roadtrainers (Mombasa) Limited vs APA Insurance Limited and Kenya Reinsurance Corporation Limited. That consequently, the court do find that tribunal lacks jurisdiction to entertain the arbitral proceedings as against the applicant on account of lack of an arbitration agreement or valid arbitration agreement between the applicant and 1st respondent.

3. The grounds of the summons were on its face and on the supporting affidavit of Robert Namunane sworn on August 11, 2021. The applicant’s case was that the 1st respondent filed an arbitral claim against the applicant and the 2nd respondent whereby Hon E T Gaturu was appointed the arbitrator.

4. The claim was founded on an arbitration clause contained in a private motor vehicle insurance policy signed between the 1st and 2nd respondents. It was thus contended that there was no arbitration agreement between the 1st respondent and the applicant on which the 1st respondent could rely upon to enjoin the applicant in the arbitral proceedings.

5. It was contended that the applicant filed its statement of defence together with a preliminary objection challenging the tribunal’s jurisdiction to entertain the claim against the applicant based on the above. However, on August 10, 2021 the tribunal made a preliminary finding that it had jurisdiction to entertain the claim against the applicant. The applicant was aggrieved thereby necessitating the present application.

6. The 2nd respondent filed its replying affidavit in support of the summons. The affidavit was sworn by Stephen Kihara Muchui on September 13, 2021.

7. The 1st respondent opposed the application vide the replying affidavit sworn by Yusuf Pasta on September 14, 2021. It contended that the 1st respondent brought the arbitral claim seeking refund of kshs 9,000,000/= paid in execution of a decree arising from HCCC no 20 of 2016 and kshs 19,999,995/= for loss of business earnings for failure by the applicant and 2nd respondent to jointly defend the suit.

8. It was contended that, an insurance contract was an exception to the general rule on privity of contract as a third party can sue on a contract made for its benefit. That the applicant is a National Bureau established under the Protocol on the Establishment of a Third-Party Motor Vehicle Insurance Scheme (COMESA).

9. That pursuant to clause 2. 7.1, the applicant issued a yellow card to the 2nd respondent which thereafter issued a yellow card to the 1st respondent on behalf of the applicant. It was thus contended that the yellow card is treated as a policy and it operates in a tripartite manner between the parties, and if there is a breach to it, all the three parties are correct parties in a claim.

10. That even though there was no direct contract between the 1st respondent and the applicant, the yellow card was issued for the benefit of the 1st respondent and it can therefore sue to enforce any legal benefit arising from the yellow card. That the yellow card is a secondary policy and is only valid if a primary policy exists. That since the primary policy in this case provides for arbitration as the means of dispute resolution between the parties thereto, the yellow card as a secondary policy cannot have a different dispute resolution mechanism from the one provided in the primary policy. That the applicant is thus a necessary party to the claim.

11. The applicant filed its submissions dated September 29, 2021.

12. The court has considered the affidavits and submissions before it. The main issue is whether the tribunal has jurisdiction to entertain the claim against the applicant.

13. The Constitution of Kenya 2010 implores courts to encourage alternative dispute resolution. Section 10 of the Act stipulates that except as provided in the Act, no court shall intervene in matters governed by the Act. Courts are therefore required not to interfere with arbitral proceedings except in terms of section 17 of the Act.

14. InNational Oil Corporation of Kenya Limited vs Prisko Petroleum Network Ltd [2014] eKLR, the court held: -“The statutory act of reserving the authority to determine objections to the arbitral tribunal, aims at paying due deference to and serving as a mark of recognition of arbitration as a recognized mechanism for Alternative dispute Resolution (ADR): by preventing the court from usurping the jurisdiction of the arbitral tribunal allowing the arbitral tribunal to exercise its jurisdiction without court interference. The basis of that approach draws from the doctrine of Kompetenz Kompentez which is replicated in most jurisdictions which have adopted the UNICITRAL Model Law on Arbitration. The Kenyan Arbitration Act follows after the UNICITRAL Model Law on Arbitration.”

15. The applicant is aggrieved by the decision made by the sole arbitrator regarding his jurisdiction to hear and determine the dispute. In Safaricom Limited vs Oceanview Beach Hotel Limited & 2 others[2010] eKLR, the court held that the Arbitration Act gives the arbitral tribunal powers to rule on its jurisdiction as well as to substantively determine the matter in dispute before it. The court observed: -“The section gives an arbitral tribunal the power to rule on its own jurisdiction and also to deal with the subject matter of the arbitration. It is not the function of a national court to rule on the jurisdiction of an arbitral tribunal except by way of an appeal under section 17(6) of the Arbitration Act as the commercial court in this matter purported to do.

16. In the instant case, the applicant raised a preliminary objection challenging the tribunal’s jurisdiction on the basis that there was no arbitral agreement between it and the 1st respondent. That the arbitral clause relied upon by the 1st respondent in bringing the claim was only between the respondents. That it did not mention or enjoin the applicant as a party to the arbitral clause, and any right seeking to be enforced by the 1st respondent could only be referred to a court of law and not to an arbitration process.

17. In West Mount Investments Limited v Tridev Builders Company Limited [2017] eKLR, the court held: -“In my view, for any application under section 17(6) of the Act the court is to consider four substantive issues. First, is whether there is a valid arbitration agreement. Secondly, is whether the arbitral tribunal is properly constituted and, thirdly, whether matters have been submitted to arbitration in accordance with the arbitration agreement. Finally, is whether the matters submitted to arbitration fall within the scope of the arbitration agreement.”

18. The first task is to thus consider whether there was a valid agreement between the parties. The 1st respondent brought the claim before the tribunal based on an arbitration clause contained in a motor vehicle insurance policy entered into between the 1st and 2nd respondents. It was attached as RN-3. Clause 9 provided for disputes between you and us, and continued to provide for mediation and arbitration as a means of dispute resolution, and further provided for appointment of an arbitrator. The You and Us referred to the 1st and 2nd respondents. There is no mention of the applicant in that clause or in any other clause.

19. The 1st respondent contended that though there was no direct agreement between the 1st respondent and the applicant, there existed a yellow card policy which had been issued by the applicant to the 2nd respondent, who in turn issued a yellow card to the 1st respondent, thus there existed a tripartite agreement. That the yellow card was a secondary policy to the primary policy between the 1st and 2nd respondents, thus the arbitration agreement therein also applied to the yellow card policy.

20. Arbitration agreements are built on consent of the contracting parties who agree to submit themselves to an arbitral process to resolve disputes between them. An arbitral agreement cannot be relied on to force a non-contracting party to submit to an arbitral party.

21. The copies of the yellow cards alluded to were not produced. If the intention of the parties were that the terms of the primary agreement or policy would apply to the secondary one, the yellow card, nothing would have been easier than to so expressly state.

22. It must be recalled that, there those parties who are very comfortable with the state machinery for dispute resolution. These would rarely subject themselves to the private mode of dispute resolution, which arbitration is. This is why, it is imperative that an arbitral agreement first exist before a party can be subjected to an arbitral process.

23. The question to be answered is; whether the 1st respondent can rely on an arbitral agreement to compel the applicant to the arbitral proceedings whereas it is not a party to the agreement, and consequently, whether the tribunal can entertain a claim against the applicant wherein it is not a party to the arbitration clause relied upon to bring the claim.

24. In Martin Njuguna Ngugi v Ahmed Noor Sheikh & another [2018] eKLR, it was held: -“Without further consideration of the parties’ respective positions on the broad issue in the present application, I do not think that the legal framework in the Arbitration Act, and indeed our prevailing jurisprudence, contemplates a scenario where a non-party to an arbitration agreement is to be compelled to submit to arbitration as a party to the arbitral proceedings. An arbitration agreement binds parties to the agreement, not non-parties. I would have exhaustively considered all the other aspects of the parties’ respective submissions had the applicants demonstrated that the parties to this suit are parties to the arbitration agreement and are bound by it. As stated, the 2nd defendant is not a party to the arbitration agreement and cannot be properly compelled to submit to the jurisdiction of an arbitral tribunal under the arbitration agreement. A referral order would, in the circumstances, not be available to compel the 2nd defendant to submit to an arbitral tribunal.”

25. It is not denied that the applicant is not a party to the arbitration agreement. There is no justification why the applicant should then be compelled to submit to the arbitral proceedings. Arbitral proceedings are founded upon mutual consent.

26. InScales And Software Limited v Web Commercial Systems Limited & another [2021] eKLR, it was held: -“I am in agreement with the plaintiff that the court will not enforce an arbitration clause against a third party. The basis of arbitration under the Act is consent of the parties. In the absence of consent, a third party cannot be compelled to submit to arbitration under the Act.”

27. In Eunice Soko Mlagui v Suresh Parmar and 4 Others [2017] eKLR, the Court of Appeal held that an arbitration clause could not bind third parties who were not party to the agreement. In that case, the court upheld the decision of the trial judge refusing to refer the matter to arbitration because the third parties, the auditors of the company, were not bound by the articles of association which only applied to members of the company.

28. Having found that the applicant is not a party to the arbitration agreement upon which the claim against it is brought by the 1st respondent, it cannot be said that there is a valid arbitral agreement between all the parties. Consequently, the arbitral tribunal lacks jurisdiction to entertain the claim brought against the applicant.

29. In light of the above, the originating summons dated August 11, 2021 is found to be merited and is allowed as prayed. The 1st respondent shall bear the costs of the application. The order made herein on October 19, 2021 barring the publication of the award is hereby set aside.It is so ordered.

DATED AND DELIVERED AT NAIROBI THIS 9TH DAY OF SEPTEMBER, 2022. A MABEYA, FCIArbJUDGE