[2022] KEHC 10240 (KLR)

Muraya v Kinyanjui (Insolvency Petition E030 of 2020) [2022] KEHC 10240 (KLR) (Commercial and Tax) (14 June 2022) (Ruling)

Neutral citation: [2022] KEHC 10240 (KLR)

Republic of Kenya

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

Commercial and Tax

Insolvency Petition E030 of 2020

DAS Majanja, J

June 14, 2022

Between

Peter Kiarie Muraya

Debtor

and

William Kungu Kinyanjui

Creditor

Ruling

1. The matter was commenced by the Petitioner, as creditor, who in the petition dated 12th August 2020 claimed that the Debtor had failed to honour a Statutory Demand dated 28th February 2020 demanding KES 20,000,000. 00. The money demanded was on account of money had and received by the Debtor by virtue of an agreement dated 28th September 2017 entered into between the parties.

2. The application for consideration by the court is the Debtor’s Chamber Summons dated 21st March 2022 made under section 6(1) and (2) of the Arbitration Act, 1995. The Debtor seeks an order that the dispute between the parties be referred to arbitration pursuant to Clause V of the Agreement dated 28th September 2017 and Clause I of the Agreement of Sale dated 28th September 2017.

3. The application is supported by the Debtor’s affidavit sworn on 21st March 2022. It is opposed by the Petitioner through his replying affidavit sworn on 5th May 2022. The parties filed written submissions which their advocates highlighted briefly.

4. The Debtor relies on two agreements in support of its application. The first agreement dated 28th September 2017 under which the Petitioner agreed to lend the Debtor a soft loan of KES. 20,000,000. 00 upon execution of the agreement. The said sum would be repaid by the Debtor and transferred to the credit of the Petitioner to purchase a property in which the Debtor had an interest. The agreement provided at Clause v that, “Any dispute will be referred to mediation and/or arbitration.”

5. Under the Agreement of Sale dated 28th September 2017 between Muga Developers Limited and the Petitioner, the Petitioner entered into an agreement to purchase a leasehold interest in the form of a Villa No. SPG/03/P2/H105 situated on Hibiscus Court 7 Villas on Sub Plot no. 28223/33/J-2 in the Development on LR No. 28223/33 for KES. 27,500,000. 00 on terms thereunder. Under Clause I of the Agreement, “All claims and disputed whatsoever arising under the Agreement shall be referred to arbitration in accordance with the provisions of the Arbitration Act of Kenya (Act Number 4 of 1995) by a single arbitrator to be appointed by agreement between the parties or failing agreement within fourteen (14) days of the notification by either party to the other of the existence of a dispute or claim, to be appointed by the Chairman for the time being of the Chartered Institute of Arbitrators, Kenya Branch, Nairobi on the application of either part.”

6. The parties agree that both agreements relied on have arbitration clauses. The issue is whether the Debtor has satisfied with the condition for the grant of stay of proceedings under section 6 of the Arbitration Act which provides as follows:6 (1) A court before which proceedings are brought in a matter which is the subject of an arbitration agreement shall, if a party so applies not later than the time when that party enters appearance or otherwise acknowledges the claim against which the stay of proceedings is sought, stay the proceedings and refer the parties to arbitration unless it finds—(a)that the arbitration agreement is null and void, inoperative or incapable of being performed; or(b)that there is not in fact any dispute between the parties with regard to the matters agreed to be referred to arbitration.

7. Under section 6(1)(a) and (b) of the Arbitration Act, once a party has brought the application for stay of proceedings promptly, the court may decline to refer a matter to arbitration only when the arbitration agreement is null and void, inoperative or incapable of being performed; or there is not in fact any dispute between the parties with regard to the matters agreed to be referred to arbitration (see Niazsons (K) Ltd v China Road & Bridge Corporation Kenya NRB CA Civil Appeal No. 157 of 2000 [2001] eKLR, Mt Kenya University v Step Up Holding (K) Ltd [2018] eKLR).

8. Although the parties submitted extensively on whether the Debtor has met the conditions for stay of proceedings, the court is obliged to consider the preliminary issue whether there is a binding agreement for arbitration between the parties. The reason I say so is because the Sale Agreement is between Muga Developers Limited and the Petitioner. The Debtor therefore is not privy to the sale agreement and cannot enforce its terms including invoking the arbitration clause (see Chevron Kenya Limited v Tamoil Kenya Limited ML HCCC No. 155 of 2007 [2007] eKLR). The court therefore lacks jurisdiction to stay these proceedings on the basis of an agreement to which the Debtor is not party to.

9. The arbitration clause in the agreement between the Debtor and Petitioner states that, “Any dispute will be referred to mediation and/or arbitration.” This clause is ambiguous as to whether any dispute is to be referred to mediation or arbitration or whether mediation is a condition precedent to arbitration. A reading of the clause that arbitration is an option and it is left to the parties’ choice hence the court cannot impose in the parties either of the dispute resolution processes.

10. Further, even if the court were to refer the matter to arbitration, the clause would be inoperative as it does not provide for the mode of appointment of an arbitrator. Arbitration under the Arbitration Act is a consensual and party driven process where the parties are expected to provide for the appointment or mode of appointment of the arbitrator. The court cannot impose on the parties a particular arbitrator or a method of choosing the arbitrator (see Danki Ventures Limited v Sinopec International Petroleum Services Limited ML HCCC No. 158 of 2014 [2014] eKLR). Since the arbitration clause does not provide for appointment of an arbitrator or process for such appointment and the court cannot re-write the parties’ agreement by taking upon itself to appoint an arbitrator, the said clause is inoperative for purposes of section 6 of the Arbitration Act.

11. I am constrained to dismiss the Debtor’s Chamber Summons dated 21st March 2022 with costs to the Petitioner. The Debtor is directed to file its replying affidavit to the Petition within 7 days.

DATED AND DELIVERED AT NAIROBI THIS 14TH DAY OF JUNE 2022. D. S. MAJANJAJUDGECourt Assistant: Mr. M. Onyango.Mr Ouma instructed by Murgor and Murgor Advocates for the Debtor/Applicant.Mr Mbugua instructed by Mbugua and Mbugua Advocates for the Creditor/Respondent/Petitioner.