[2022] KEHC 11708 (KLR)

Lavington Blu Limited v Africa Centre for Open Governance; Githinji (Interested Party) (Commercial Cause E037 of 2021) [2022] KEHC 11708 (KLR) (Commercial and Tax) (13 May 2022) (Ruling)

Neutral citation: [2022] KEHC 11708 (KLR)

Republic of Kenya

In the High Court at Nairobi (Milimani Law Courts)

Commercial and Tax

Commercial Cause E037 of 2021

DAS Majanja, J

May 13, 2022

Between

Lavington Blu Limited

Applicant

and

Africa Centre for Open Governance

Respondent

and

Jacqueline Oyuyo Githinji

Interested Party

Ruling

1. What is before the court is an application to set aside and arbitral award and to recognize and enforce the arbitral award. Before resolution of the application, factual background of the matter will suffice.

2. On July 1, 2016, the applicant and the respondent entered into a Tenancy Agreement (“the Agreement”) where the Applicant agreed to grant a lease to the respondent in respect of a house on Kabarsiran Avenue situated on LR No. 209/7765 Lavington, Nairobi (“the Property”). The respondent was required to pay an initial monthly rent of KES 290,000. 00 quarterly in advance on or before the 5th day of the month. At the beginning of the lease, the respondent was to pay the Applicant a security deposit equivalent to three months’ rent (“the security deposit”) which was to be refundable at the end of the term without any interest upon expiry of the term of the lease and upon handover of the premises and settlement of final accounts. The security deposit was also to act as security for the due performance of the agreement and the Applicant was entitled to apply the same to remedy any default of the Respondent.

3. On September 27, 2019, the respondent issued a three months’ termination notice and the lease was effectively terminated on December 31, 2019. After termination, the respondent declared a dispute claiming that the Applicant had failed to refund the security deposit of KES 1,151,970. 00 or to provide an itemized prompt, true fair and accurate account of application of any part of the security deposit towards restoration of the premises and to refund the balance to the Respondent.

4. Since disputes arising from the Agreement would be settled by arbitration, the parties agreed to refer the dispute to the Interested Party (“the Arbitrator”) for determination. Following the Arbitrator’s directions, the parties filed their respective pleadings. From the respondent’s statement of claim dated January 7, 2020, it sought a refund of the security deposit from the Applicant or in the alternative, the Applicant furnishes it with a true, fair and accurate account of funds utilized to undertake repairs relating to the Respondent’s obligation as a tenant (if any) and a refund of the balance to the Respondent.

5. The Applicant responded to the claim by filing a statement of defence and counterclaim dated January 22, 2021. While it accepted the tenancy, it stated that when the respondent vacated the Property upon termination of tenancy, the applicant found the premises to be in dire need of internal and external repairs that the respondent ought to have attended to before vacating the property. The applicant averred that the respondent failed in its obligation to leave the property in a tenantable condition and that the applicant conducted repair works on the property for the purposes of restoring it to marketable and tenantable conditions. The applicant claimed that it carried out repairs amounting to KES 918,496. 00 to restore the property and that in any case, therespondent had been in constant arrears from the first quarter of 2019, attracting a delay administration charge provided for in clause 4(1) of the Agreement. The Applicant claimed KES 657,199. 00 in rent arrears and collective delay administrative charges from the Respondent. That deducting the sums owed to the Applicant by the Respondent as rent arrears and administration charges from the security deposit, the Respondent now owed the Applicant the sum of KES 423,725. 00.

6. After considering the pleadings, the documentary and testimonial evidence presented by the parties and the submissions by the parties’ respective counsel published the award on August 26, 2021(“the Award”). The Arbitrator stated that the Respondent’s statement of issues dated April 20, 2020was adopted by the Applicant prior to the hearing where the issues to be determined were agreed as follows: Whether the respondent had a contractual duty to repair and restore both the internal and external areas of the Property before vacating the Property.

Whether the applicant was entitled/justified to utilise the Respondent’s security deposit to restore the Property to good and tenantable condition.

Whether the applicant rendered a prompt, fair and accurate account of the security deposit to the Respondent.

Whether there is any outstanding rent owed to the applicant by the respondent.

Whether any balance of the security deposit is due and owing to the respondent or to the applicant.

Whether the remedies sought by the parties are merited

Which party should bear costs of the arbitration.

7. The Arbitrator held that the respondent had a contractual duty to repair and restore the internal areas of the propertybefore vacating the premises, whilst the Applicant had a contractual duty to maintain the external areas of the Property. She further held that based on the evidence, the Applicant was not entitled/justified to utilise the respondent’s security deposit to restore the property to good and tenantable condition and that the applicant did not render a prompt, fair and accurate account of the security deposit to the respondent.

8. The arbitrator found that there was no evidence that the respondent had failed to remit rent to the applicant and indeed, the applicant allowed the respondent to exit the propertywithout asserting any rights as to rent payable upon determination of the lease. The Arbitrator held that the Respondent did not owe the Applicant any money and determined the remaining issues by holding that there was a balance of the security deposit due and owing to the Respondent. The Arbitrator allowed the Respondent’s Claim and dismissed the Applicant’s Counterclaim. The Arbitrator further held that the Respondent is entitled to costs of the Arbitration from the Applicant without interest which costs including the Arbitrator’s fees and disbursements in the matter, the fees arising from the expert witness report and costs of the arbitration.

9. The applicant seeks to set aside the award by the notice of motion dated October 8, 2021 made, inter alia, under 35(2)(b)(ii) and 35(3) of the Arbitration Act. The application is supported by grounds set out on its face and the supporting affidavit of the applicant’s director Neel Magon sworn on October 8, 2021. It is opposed by the respondent through the replying affidavit of its Executive Director, Gladwell Otieno, sworn on November 24, 2021. The Arbitrator has also filed her replying affidavit sworn on November 25, 2021.

10. In addition, the respondent has filed an application dated January 17, 2022seeking an order to recognize and enforce as a decree of this court, the Award. I directed that the applications be heard together. The parties filed written submissions in support of their respective positions which I have considered.

Analysis and Determination 11. From the parties’ pleadings and submissions, the main issue for determination is whether the Award ought to be set aside and if the answer is in the negative, whether it ought to be recognized and enforced as an order and decree of the court.

12. It is common ground that the court’s jurisdiction in determining whether an award should be set aside is circumscribed by section 35 of the Arbitration Act which provides, in part, 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)the party making the application furnishes proof—……………………….(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(b)the High Court finds that—(i)…………………(ii)the award is in conflict with the public policy of Kenya.

13. On the first ground that the Award was beyond the scope of reference, the Applicant complains the Arbitrator failed to consider the totality of the terms and the spirit of the Agreement between the parties and thus violated 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 usage of the trade applicable to the particular transaction.’’

14. The thrust of its case is that customs and precedents within Kenyan law regarding the type of tenancy in issue is that a landlord is entitled to offset the deposit held towards repairs where the tenant has failed to carry out repairs as demonstrated by several decisions including Kenya Commercial Bank Limited v Pickwell Properties LimitedCA Civil Appeal No. 165 of 2016 [2020] eKLR. The Applicant points out that from the evidence, the Respondent received a detailed report on the repairs to be carried out and which it consented to and which its expert assessed at KES. 509,570. 00.

15. In considering whether or not an arbitral award deals with matters not contemplated or falling within the terms of the reference to arbitration, the Court of Appeal in Synergy Credit Limited v Cape Holdings Limited NRB CA Civil Appeal No. 71 of 2016 [2020] eKLR observed as follows:In determining whether the arbitral tribunal has dealt with a dispute not contemplated or falling within the terms of the reference, or whether its award contains decisions on matters beyond the scope of the reference to arbitration, the arbitral clause or agreement is critical. Other relevant considerations, with-out in any way prescribing a closed catalogue, would include the subject matter, pleadings and submissions by the parties, as well as their conduct in the arbitration. Pleadings, however, must be considered with circumspection because, as the US Court of Appeals for the Ninth Circuit observed in Ministry of Defence of the Islamic Republic of Iran v. Gould, Inc. (supra), the real issue in such an inquiry is whether the award has exceeded the scope of the arbitration agreement, not whether it has exceeded the parties’ pleadings.

16. As this court expressed itself in Kenya Tea Development Agency Ltd & 7 others v Savings Tea Brokers Limited ML HC Misc. Application No. 129 of 2014 [2015] eKLR, the jurisdiction of the arbitrator is tethered by the arbitration agreement, reference and the law. In this case, the arbitration clause at Clause 7 of the Agreement states that, “Any difference or dispute concerning or arising out of this Agreement shall be determined by arbitration in accordance with the provisions of the Arbitration Act or any statutory or other modifications or re-enactment thereof for the time being in force”. It is thus clear that the clause covers any and all kind of disputes that concern or arise out of the tenancy. I did not hear the Applicant to claim that the Award did not touch on the subject of the tenancy.

17. As I have set out in the introductory part, the dispute between the parties arose from the Agreement the subject of which was the refund of the security deposit. The Applicant and the respondent acknowledged this fact when the dispute was declared and referred to the Arbitrator for determination. The parties advanced their respective positions on the dispute and as I have set out elsewhere and agreed on the issues for determination by the Arbitrator. The Arbitrator made a determination on each of the agreed listed issues based on the parties’ pleadings, submissions and evidence before her.

18. I therefore fail to see how it can be said that the Arbitrator made a determination outside the parties’ Agreement when both the dispute and the issues for determination were agreed upon and the matter determined as per the parties’ agreement. The applicant has hinged its case on section 29(5) of the Arbitration Act and cites dicta in the case of Wilko v Swan346 US 427 (1953) as authority for the proposition that the court may vacate an arbitration decision that is made in manifest disregard of the law. I hold that section 29(5) merely restates the basis of the arbitrator’s jurisdiction which is to determine the reference in accordance with the agreement. It does not take away the jurisdiction of the arbitral tribunal to decide the obligations of the parties based on the facts, evidence and interpretation of the terms of the agreement nor grant the court authority to substitute the decision of the arbitral tribunal with its own decision.

19. That the Arbitrator made an interpretation of the parties’ obligations under the Agreement that was not in favour of the applicant does not mean that she went outside the scope of the parties’ agreement. A reading of the Award shows that the Arbitrator laid out the salient terms of the Agreement, the parties’ submissions and evidence and as stated, the agreed issues for determination as presented by the parties themselves. She reviewed the facts and application of the law in some of the issues while highlighting the parties’ obligations under the Agreement. All this clearly demonstrates that the Award was made strictly within the strictures of the Agreement. I therefore reject the Applicant’s contention that anything in the Award was made outside of the parties’ Agreement.

20. The Applicant adds that by disregarding the law and failing to comply with section 29(5) of the Arbitration Act, the resulting Award is contrary to the public policy of Kenya leading to a miscarriage of justice. The parties cited the decision in Christ for All Nations v Apollo Insurance Co, Ltd [2002] 2 EA 366 where the learned judge explained the scope of public policy as a ground for setting aside an arbitral award as follows:I take the view that although public policy is a most broad concept incapable of precise definition, … an award will be set aside under section 35(2)(b)(ii) of the Arbitration Act as being inconsistent with the Public Policy of Kenya if it was shown that it was either (a) inconsistent with the constitution or other laws of Kenya, whether written or unwritten; or (b) inimical to the national interest of Kenya; or (c) contrary to justice and morality……”

21. But it is not every infraction of precedent or misinterpretation of law that falls within the scope of the public policy exception, the violation must be so grave as to invite the court’s interference. In Mall Developers Limited v Postal Corporation of KenyaML Misc No 26 of 2013 [2014] eKLR as cited by the applicant where it was 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.

22. I accept the Respondent’s position that the Applicant has not demonstrated how the Award is contrary to the public policy of Kenya. If anything, the Award demonstrates otherwise; both parties were given equal opportunities to present their respective cases and there is no evidence that the Arbitrator was biased in the manner of receiving the parties’ evidence and submissions or that she denied any party an opportunity to be heard. It cannot be said that the Award contravened Article 47 of the Constitution or was in breach of the rules of natural justice. The Award further shows that the Arbitrator took into account the authorities and provisions cited by the Applicant including provisions of the Landlord and Tenant (Shops, Hotels and Catering Establishments) Act (Chapter 301 of the Laws of Kenya) in arriving at her determination. I am thus unable to find that the Award was contrary to the public policy of Kenya. On this score I am content to reiterate what the learned judge stated in Christ for All Nations v Apollo Insurance Co, Ltd (Supra) 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.

23. My understanding of the applicant’s arguments is that they are similar to those made in support of its case before the Arbitrator. In essence, the applicant is making an attempt to re-open the dispute by urging this court to come to a different conclusion from that reached by the Arbitrator. It is now settled that an arbitral tribunal is the master of facts and it entitled to review the evidence and come to its own conclusion, whether wrong or right or whether the court would probably come to a different conclusion, section 35 of the Arbitration Act was never meant to elevate the court to sit as an appellate court in arbitration matters. I therefore find and hold that the Applicant has not met the threshold for setting aside the Award.

24. Having reached the conclusion that the application to set aside the Award lacks merit, I now turn to consider whether therespondent’s application dated January 17, 2022for recognition and enforcement of the award is merited. The fact of the award is not in dispute and the application has not been opposed on substantive and valid grounds. In other words, the applicant has not established any of the grounds upon which the court may refuse to recognize and enforce an award in section 37 of the Arbitration Act. I therefore do not find any reason why the application for recognition and enforcement should not be allowed.

Disposition 25. For the reasons I have set out above, I now make the following orders:(a)The applicant’s notice of motion dated October 8, 2021is dismissed.(b)The respondent’s chamber summons dated January 17, 2020is allowed on terms that the Award datedAugust 26, 2021made by Ms Jacqueline Oyuyo Githinji, the Sole Arbitrator, be and is hereby recognized and entered as a judgment of this court and that leave be and is hereby granted to the respondent to enforce the Award.(c)The applicant should bear the costs of both applications which are assessed at KES 50,000. 00 each to be paid to the respondent and the Arbitrator.

DATED AND DELIVERED AT NAIROBI THIS 13TH DAY OF MAY 2022. D. S. MAJANJAJUDGEMs Kioi instructed by Kioi and Company Advocates for the Applicant.Mr Nderitu instructed by Macharia Nderitu and Company Advocates for the Respondent.Mr Odhiambo instructed by Clifford Odhiambo and Company Advocates for the Interested Party/Arbitrator.