[2023] KEHC 24659 (KLR)

NCBA Bank Kenya PLC v Sino t/a Maywood Auctioneers & another (Miscellaneous Civil Application E580 of 2022) [2023] KEHC 24659 (KLR) (Commercial and Tax) (6 October 2023) (Ruling)

Neutral citation: [2023] KEHC 24659 (KLR)

Republic of Kenya

In the High Court at Nairobi (Milimani Commercial Courts)

Commercial and Tax

Miscellaneous Civil Application E580 of 2022

EC Mwita, J

October 6, 2023

Between

Ncba Bank Kenya Plc

Applicant

and

George Arunga Sino T/A Maywood Auctioneers

1st Respondent

Dr Wilfred Mutubwa

2nd Respondent

Ruling

1. The applicant filed an Originating Summons, (the application), seeking a declaration that the appointment of Dr. Wilfred Mutubwa, (the 2nd respondent) as arbitrator is not complete; that the 2nd respondent be ordered to cease acting in the dispute between the applicant and the 1st respondent as the arbitrator and that the parties do appoint a new arbitrator. In default, the President of the Law Society of Kenya appoint a new arbitrator.

2. The applicant’s case is that a dispute arose between the parties and the 2nd respondent was appointed the sole arbitrator pursuant to the service level agreement.

3. On 31st March 2022, parties attended a preliminary meeting and agreed on several preliminary issues save for the arbitrator’s terms of engagement. The 2nd respondent gave the applicant time to consider the terms. However, before the applicant could respond, the 2nd respondent issued orders for directions No.1 to the effect that parties had agreed on the terms of engagement.

4. The applicant raised concerns on the accuracy of those directions and its reservations with regard to the terms. The 2nd respondent, however, dismissed the applicant’s concerns.

5. The 1st respondent filed his statement of claim and despite the applicant’s objection to the filing of the documents, the 2nd respondent insisted that the applicant should comply and file a response to the claim.

6. The applicant informed the respondents of its decision not to proceed with the 2nd respondent’s appointment as the sole arbitrator as it disagreed with the 2nd respondent’s conduct.

7. The 2nd respondent called a meeting between the parties to discuss the issue but determined that his appointment was complete after accepting the appointment. The 2nd respondent took the view that the applicant had not filed an application under sections 13 and 14 of the Act for his determination and directed the applicant to file a response by 18th July 2022.

8. The applicant on its part took the position that the 2nd respondent’s appointment could only be complete once parties agreed on the terms of engagement given that the arbitral tribunal’s appointment was by agreement.

9. The applicant argued that since the 2nd respondent was the president of the Chartered Institute of Arbitrators and the sole arbitrator in the matter, it would not be appropriate for him to be the one to appoint another arbitrator if parties failed to agree on the arbitrator to appoint. The applicant urged that the President of Law Society of Kenya be the one to appoint another arbitrator in the event parties did not agree on one.

10. The applicant relied on section 15 (1) (a) of the Act to argue that the 2nd respondent ought to cease acting in the matter for failing to conduct the proceedings properly.

11. The applicant again relied on Housing Finance Co. Ltd v Njuguna (LLR No. 1176 (CCK) cited in Margaret Njeri Muiruri v Bank of Baroda (Kenya) Limited [2014] eKLR, that courts cannot be the fora where parties indulging in varying terms of their agreements will get sanction to enforce the varied contracts.

12. The applicant again placed reliance on Chania Gardens Limited v Gilbi Construction Company Ltd & another (Miscellaneous Cause No. 482 of 2014) [2015] eKLR, that a challenge seeking removal of arbitral tribunal must first be raised with before the tribunal.

13. Regarding the preliminary objections on the court’s jurisdiction, the applicant argued that the preliminary objections rest on contentious issues, disputable facts and contradictory points in contravention of well settled jurisprudential principles.

14. The applicant asserted that the principles governing exercise of the Court's jurisdiction, including section 14(3) of the Act, demand that the issues raised in the application be heard and determined by this Court, thus the preliminary objections are unfounded.

1st respondent’s response 15. The 1st respondent raised a preliminary objection on the jurisdiction of the court, arguing that the court lacks jurisdiction to hear the application as it offends section 14 (2) of the Act and the doctrine of exhaustion.

16. The 1st respondent’s case is that the dispute relates to unpaid auctioneer’s fees for service rendered to the applicant and parties’ obligations were a service level agreement which had a dispute resolution mechanism through arbitration. The applicant refused to honour its obligations which forced the 1st filing of bills of costs for taxation (Kisumu CMCC Misc. Application No. 23l of 2016). The applicant objected to the jurisdiction of the Court, citing the arbitration clause in the agreement. The Court upheld the objection and dismissed the case.

17. An appeal against the dismissal was allowed, the suit reinstated and the dispute referred to arbitration in line with the terms of the agreement.

18. The 1st respondent commenced the arbitral process and wrote to the applicant and the Chair of the Chartered Institute of Arbitrators requesting for appointment of an arbitrator. Despite service and issuance of several peremptory orders, the applicant did not participate in the arbitral process. The 1st respondent however proceeded with the arbitral proceedings.

19. The arbitrator decided to re-open the arbitral process to allow the applicant participate in the proceedings and started the arbitral proceedings de novo.

20. Dissatisfied with the arbitrator’s conduct the 1st respondent filed an application (Kisumu High Court Miscellaneous Application No. 196 of 2019), seeking removal of the arbitrator. The Court allowed the application, ordered the removal of the arbitrator and directed that the arbitration process begin de novo. The 1st respondent commenced the process of appointing another arbitrator.

21. On 23rd February 2022, the 1st respondent’s counsel sent a letter to the applicant’s counsel proposing the appointment of the 2nd respondent as the arbitrator. The applicant’s counsel agreed to the 2nd respondent’s appointment through letter dated 28th February 2022. By letter dated 8th March 2022, the 1st respondent’s counsel informed the 2nd respondent of the parties’ decision to appoint him as the sole arbitrator.

22. The 1st respondent relied on Mukisa Biscuit Manufacturing Co. Ltd v West End Distributors Ltd [1969] EA 696 urging that the preliminary objection be allowed.

23. The 1st respondent also argued that the challenge on the arbitrator’s appointment was not raised with the arbitral tribunal as required by law. Even after the applicant was given time to file a formal application under sections 13 and 14 of the Act, the applicant did not do so. The 1st respondent took the view, that this Court lacks jurisdiction under the doctrine of exhaustion.

24. The 1st respondent relied on William Odhiambo Ramogi & 3 others v Attorney General & 4 others; Muslims for Human Rights & 2 others (Interested Parties) (Mombasa High Court Constitutional Petition No. 159 of 2018 consolidated with Constitutional Petition No. 201 of 2019) [2020] eKLR on the point. The 1st respondent also cited Owners of the Motor Vessel “Lillian S” v Caltex Oil (Kenya) Ltd [1989] eKLR on jurisdiction.

25. The 1st respondent asserted that even if the Court had jurisdiction on the basis that the issue was informally raised before the arbitrator, the application would still be time-barred. This is because the application was not filed within 30 days after receiving the arbitral tribunal's decision rejecting the challenge to its appointment as required by section 14(3) of the Act.

26. The 1st respondent took the view, that the arbitrator’s appointment is finalized upon acceptance of appointment and not after parties agree on the terms of engagement. In this case, the arbitrator having been appointed by consent of the parties and the order for directions No. 1 which shows that the applicant did not raise any objection on the procedure for the arbitrator’s appointment, the appointment was complete.

27. The 1st respondent posited that the issues raised by the applicant do not meet the threshold for challenging the arbitrator’s appointment. The applicant’s intention is to delay and derail the arbitration process which has stalled since 2014.

2nd respondent’s response 28. The 2nd respondent also objected to the jurisdiction of the Court to entertain this application. The 2nd respondent arguing, just like the 1st respondent, that the application offends sections 13 and 14 of the Act.

29. The 2nd respondent further agreed with the 1st respondent that his appointment was complete as soon as he accepted the appointment. The 2nd respondent maintained that he acted fairly, lawfully and properly as the sole arbitrator.

30. The 2nd respondent convened the first preliminary meeting on 31st March, 2022 for setting terms of engagement and timelines for filing of pleadings. Thereafter, following an application by the applicant, he amended his hourly rates, through letter dated 11th April, 2022. Through letter dated 27th April, 2022, the applicant accepted the revised hourly rate and requested for a further scaling down of the adjournment costs and the initial deposit payable by parties. The arbitrator amended the terms of engagement to include the applicant's proposed terms, thus settling all questions to do with the terms.

31. The 1st respondent filed his statement of claim and supporting documents and the 2nd respondent directed the applicant to comply with the orders for directions on filings. Although both parties indicated that there would be no need to engage expert witnesses at the preliminary meeting, he gave them liberty to apply. Subsequently, the 2nd respondent allowed the 1st respondent’s application to call an expert witnesses.

32. The applicant was dissatisfied with that decision and by letter dated 19th May 2022 indicated that it would not proceed with the 2nd respondent as the arbitrator for allowing the 1st respondent to call an expert witness.

33. The 2nd respondent argued that according to the Chartered Institute of Arbitrators Arbitration Rules, 2020, the appointment of an arbitrator is completed on the arbitrator accepting the appointment. Terms of engagement are settled in subsequent meetings.

34. At the meeting of 27th May 2022, the applicant maintained that it would not participate in the proceedings, while the 1st respondent was ready to proceed. The 2nd respondent issued order for directions No. 2 on 8th June 2022 pursuant to section 20 of the Act that the applicant was at liberty to file its response to the claim and counter claim, if any, and include expert witness evidence. The 2nd respondent further indicated that the applicant had not filed an application as required under sections 13 and 14 of the Act and set a compliance conference for 6th September, 2022.

35. The 2nd respondent relied on Patrick Muturi v Kendidia Assurance Company Limited (Civil Suit No 114 of 1990) [2019] eKLR for the position that section 14 (3) of the Act is intended to prevent interference with the arbitration process.

36. Reliance was again placed on George Arunga Sinot t/a Maywood Auctioneers v NCBA (Formerly NIC Bank Limited) (Misc. Civil Application No. 196 of 2021) [2022] eKLR, that his appointment as the arbitrator was complete once he accepted the appointment.

37. The applicant further cited Magdalene M. Mjomba & 3 others v Information and Communications Technology Authority; Chairman Chartered Institute of Arbitrators (Interested Party) (Misc. Application No. E115 OF 2021) [2021] eKLR, that if his appointment was incomplete the application would be premature since the applicant did not exhaust mechanism for challenging the appointment.

38. The decision in Zadock Furnitures Limited and another v Central Bank of Kenya (Misc. Application No. 193 of 2014) [2015] eKLR, was relied on that the applicant had not met the threshold for removing the arbitrator.

Determination 39. This application seeks a declaration that the arbitral tribunal’s appointment was not complete; the arbitral tribunal do cease to act in the dispute and that parties be allowed to appoint another arbitrator. In default of agreement on the appointment, the President of the Law Society do appoint the arbitrator.

40. The applicant’s quest is based on the argument that it pulled out of the arbitral proceedings before terms of the arbitrator’s engagement had been agreed and, therefore, the appointment of the arbitral tribunal had not crystallized.

41. The respondents took the position that the application is not well founded because appointment of the arbitral tribunal was complete once it accepted the appointment. The respondents also posited that the applicant did not raise the issue as required by sections 13 and 14 of the Act. The 1st respondent argued, in particular, that even if the applicant had raised the issue, the application would still be time barred having been filed outside time.

Appointment 42. Section 12 (c) provides that in an arbitration with one arbitrator, the parties shall agree on the arbitrator to be appointed. In that regard, the arbitrator was appointed by consent of the parties, emphasizing the equal power of both parties in appointing the arbitrator. The appointment was accepted and a preliminary meeting convened for purposes of settling terms, including arbitrator’s remuneration. The fundamental question is when the appointment of the arbitral tribunal was complete.

43. The appointment of impartial and unbiased arbitral tribunal is the cornerstone of an arbitral process. To ensure fair resolution of disputes, the arbitrator requires the attribute of unwavering adherence to the principles of neutrality and impartiality.

44. To achieve the above objective, parties have an unequivocal right to appoint an arbitrator of their choice. Once appointed, the appointment is formally communicated to the arbitrator who has the option of accepting or declining the appointment. Once accepted, the appointment is complete. This is important for maintaining the neutrality of arbitral tribunal which is a fundamental aspect of the arbitral process.

45. This view, that the appointment is complete once the arbitral tribunal has accepted the appointment, finds favour in section 14 (1) of the Act. The section provides that parties may agree on the procedure for challenging the arbitrator. Absent of an agreement, “a party who intends to challenge an arbitrator shall, within 15 days after becoming aware of the composition of the arbitral tribunal…send a written statement of the reasons for the challenge to the arbitral tribunal…”

46. A reading of the section gives credence to the view that composition or appointment of an arbitral tribunal is complete once the arbitral tribunal accepts the appointment and is therefore composed. The legislature, in its wisdom, could not require a party who has an issue with the appointment or composition of the tribunal to take it up once he becomes aware of the arbitral tribunal’s appointment if there was no intention that the appointment or composition is complete once parties are notified of the appointment.

47. This court does not therefore agree with the applicant’s argument that the appointment of the arbitrator would remain incomplete, though accepted, because terms of engagement had not been agreed. Settling of terms of engagement, including the arbitral tribunal’s remuneration, is a procedural step that does not, in my view, affect the appointment of the arbitral tribunal. Once the arbitral tribunal accepts the appointment it can only thereafter be removed as provided for by law.

Removal of arbitral tribunal 48. The other issue is whether the applicant’s plea for removal of the arbitrator should be granted. The respondents opposed this quest arguing that this Court has no jurisdiction to entertain the application. According to the respondents, the applicant did not exhaust the procedure provided under sections 13 and 14 of the Act for challenging an arbitrator, thus the court should not deal with the application.

49. It is important to remind the parties that jurisdiction of a Court flows from the Constitution, statute or both. Limitation of the Court’s jurisdiction must, of necessity, flow from the source conferring jurisdiction. Limitation must also be express and not implied. A court must jealously guard its jurisdiction if it is to execute its mandate for which it was established.

50. The argument that this Court has no jurisdiction cannot be sustained. The Court has jurisdiction to deal with any matter presented before it unless expressly prohibited by law from doing so. Whether the Court will allow the application or decline to assume jurisdiction, is a different matter. In this respect, my reading of sections 13 and 14 does not yield the view expressed by the respondents that this Court has no jurisdiction to deal with the application.

51. Turning to the issue of removal, the applicant urged the Court to order the 2nd respondent to cease acting as the arbitrator. This was pegged on the first prayer asking the Court to declare that the appointment of the 2nd respondent as the arbitrator was not complete.

52. This Court having determined that the appointment of the 2nd respondent was complete once the appointment was accepted, the issue of ceasing to act as such arbitrator would not arise. The real issue, in my view, is whether the arbitrator should be removed.

53. The applicant relied on section 15 (1) (a) of the Act to argue that the 2nd respondent ought to cease acting in the matter for failing to conduct the proceedings properly. Both respondents contended that proceedings were properly conducted and, in any case, the applicant did not comply with the procedure under the Act.

54. Removal of an arbitrator is a serious matter. This is because the arbitrator is appointed by both parties and one party should not determine whether or not the arbitrator should continue with arbitral proceedings. That is why an arbitrator is appointed by agreement of the parties to guarantee impartiality, neutrality and independence in the arbitral process. This is because ndependence and impartiality of the arbitrator are the hallmarks of any arbitration proceedings.

55. In Jivraj v Hashwani [2011] UKSC 40, the Supreme Court of United Kingdom observed that:[41. ] The arbitrator is in critical respects independent of the parties. His functions and duties require him to rise above the partisan interests of the parties and not to act in, or so as to further, the particular interests of either party. He must determine how to resolve their competing interests. He is in no sense in a position of subordination to the parties; rather the contrary. He is in effect a “quasi-judicial adjudicator”:

56. The Court then stated:Once an arbitrator has been appointed, at any rate in the absence of agreement between them, the parties effectively have no control over him. Unless the parties agree, an arbitrator may only be removed in exceptional circumstances.

57. Section 13(3) of the Act provides that an arbitrator may be challenged only if circumstances exist that give rise to justifiable doubts as to his impartiality and independence, or if he does not possess qualifications agreed to by the parties, or if he is physically or mentally incapable of conducting the proceedings or there are justifiable doubts as to his capacity to do so.

58. Section 14 on the other hand provides for the procedure for challenging the arbitrator. Under subsection (2), a party wishing to challenge the arbitrator, should within 15 days after becoming aware of the composition of the arbitral tribunal or after becoming aware of any circumstances referred to in section 13(3), send a written statement of the reasons for the challenge to the arbitral tribunal. And unless the arbitrator who is being challenged withdraws from his office or the other party agrees to the challenge, the arbitral tribunal should decide on the challenge.

59. Subsection (3) requires that where a challenge is unsuccessful, the challenging party may, within 30 days after “being notified of the decision to reject the challenge”, apply to Court for determination of the issue.

60. The law is that a party who wishes to challenge the arbitrator do so within 15 days after becoming aware of the circumstances that would make the challenge possible, so that the arbitral tribunal can make a decision on the challenge.

61. The applicant did not tell the Court when it became aware of the circumstances necessitating a challenge and when it challenged the arbitral tribunal for purposes of timelines as required by statute. The applicant did not also disclose to Court if the arbitral tribunal made a decision on the issue and, if so, when.

62. The respondents argued that the procedure under section 14 was not exhausted, a fact the applicant did not dispute. If the procedure was exhausted, the applicant did not show that this application was filed within time for purposes of determination by this court.

63. Statutory timelines are not mere suggestions. They are meant to ensure compliance so that actions to be taken are promptly taken to facilitate quick resolution of disputes. This is even more critical in arbitral proceedings whose theme is quick and efficient resolution of arbitral disputes.

64. Section 10 of the Act places a caveat on the extent to which this Court can exercise its jurisdiction. In that respect, the section decrees that “Except as provided in this Act, no court shall intervene in matters governed by this Act.”

65. It was incumbent upon the applicant to show that it complied with section 14(2) and (3) of the Act; challenged the arbitral tribunal; lost the challenge and moved this court within the prescribed timeline. That having not been done, this Court must give homage the section 10 and decline to act except as provided in section 14.

66. In the circumstances, having considered the application and arguments by parties, the conclusion I come to, is that the application is for dismissal. Consequently, the application is declined and dismissed with coats.

DATED, SIGNED AND DELIVERED AT NAIROBI THIS 6TH DAY OF OCTOBER 2023E C MWITAJUDGE