[2022] KEHC 12917 (KLR)

Northwood Development Company Limited v Mohamed (Commercial Cause E050 of 2021 & E014 of 2022 (Consolidated)) [2022] KEHC 12917 (KLR) (Commercial and Tax) (14 September 2022) (Ruling)

Neutral citation: [2022] KEHC 12917 (KLR)

Republic of Kenya

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

Commercial and Tax

Commercial Cause E050 of 2021 & E014 of 2022 (Consolidated)

DAS Majanja, J

September 14, 2022

Between

Northwood Development Company Limited

Applicant

and

Shuaib Wali Mohamed

Respondent

Ruling

Introduction and Background 1. On July 25, 2011, the parties herein entered into a sale agreement (“the agreement”) where the applicant agreed to sell to the respondent a villa (Unit No 3) being developed on the property LR No 7336/44(Original Number 7336/15/2) known as Northwood Villas (“the Property”) at a purchase price of Kshs 49,500,000. 00. The agreement provided, inter alia, that the purchase price was to be paid in installments with the 1st installment of Kshs 1,000,000. 00 being paid to the applicant’s advocates for onward transmission to the applicant on or before the execution of the agreement and a 2nd installment of Kshs 8,500,000. 00 to be paid on or before June 29, 2011.

2. Between June 17, 2011 and July 28, 2011, the respondent remitted Kshs 9,500,000. 00 to the applicant as part of the purchase price. However, the respondent informed the applicant that he was unable to complete the sale due to the illness and death of his wife and as such, he sought a refund of Kshs 9,500,000. 00. In a letter dated March 9, 2018, the respondent formally demanded the said sum together with damages of Kshs 4,950,000. 00 in terms of clause 4. 5 of the agreement. The applicant responded to the respondent through the letter dated April 13, 2018 by stating that it was willing to refund the money paid less costs and damages incurred by the applicant including placing the Property at the risk of being auctioned by the applicant’s financier due to the respondent’s alleged breach of his obligations under the agreement.

3. As the parties could not agree on the issue, the dispute was referred to arbitration before Mr Anthony M Lubulellah as the sole arbitrator (“the Arbitrator”). After considering the parties’ pleadings and evidence produced, the Arbitrator published the award on August 19, 2021 (“the Award”). The Arbitrator summarized the issues arising for determination as follows: Whether the claim was defective, frivolous, vexatious and disclosed any cause of action against the applicant.

Whether the Arbitrator was non-suited as there was no arbitrable dispute between the parties.

Whether the applicant was under an obligation to issue a completion notice under clause 4. 1.1 of the agreement.

Whether the respondent was entitled to the reliefs sought and who was to bear the costs of the arbitration.

4. The Arbitrator held that having perused the applicant’s statement of defence, he did not find anything before him by way of evidence or legal submission to establish that the claim was defective, frivolous, vexatious and that it disclosed no cause of action against the applicant. The Arbitrator’s further determined that the dispute between the parties arose from a matter that was within the scope and definition of a dispute under clause 11. 2 of the agreement and that he had been appointed in accordance with the same provision. The Arbitrator therefore held that there existed a bonafide dispute between the parties and as the tribunal, he was competent to hear and determine the same.

5. On the issue whether the applicant was under an obligation to issue a completion notice under clause 4. 1.1 of the agreement, the Arbitrator stated that clause 4 of the agreement confirmed that the applicant had a discretion to give a 21 days’ completion notice to the respondent once in default. That in other words, the applicant was not obligated to issue a 21 days’ notice and that such notice could only be given when the applicant was ready, willing and able to complete the sale where time is of the essence in order to justify repudiation of the agreement. The Arbitrator found that as at the completion date, the applicant had neither provided the respondent with the completion documents nor had it demonstrated that it was ready, willing and able to do so on the completion date and that both the parties were not ready or able to complete the sale. According to the Arbitrator, both the parties were in default and that even though the 21 days’ notice was at the discretion of the applicant, without such a notice, the respondent was not entitled to rescind the agreement or to be entitled to claim the deposit to be forfeited as liquidated damages. That without that notice, the applicant was not entitled to enter into any agreement for the resale of the property with a third party or to claim any shortfall in price from the respondent.

6. The Arbitrator further observed that the applicant had not counter claimed for anything against the respondent and that the applicant for a very long period failed to deal with final issues of the agreement. That while that agreement remained alive, the applicant surreptitiously sold the property to a third party and only disclosed the details of that transaction while the arbitration was in progress. The Arbitrator stated that the applicant’s written correspondence with the respondent confirmed that the applicant had waived its right to argue that time was of the essence or that the respondent was in breach of the agreement.

7. For the above reasons, the Arbitrator held that there was no justification for the applicant to retain the sum of Kshs 9,500,000. 00 or any benefit accruing therefrom and thus held that the respondent was entitled to an award for refund of the sum of Kshs 9,500,000. 00. On interest, the Arbitrator held that in accordance with usual trade practices and usages, the respondent was entitled to fair compensation in terms of interest on its money, however, the agreement did not provide for such interest or the rate applicable. Thus, the Arbitrator’s discretion held that the respondent was entitled to simple interest at the court rate of 14 % per annum on the sum of Kshs 9,500,000. 00 with effect from September 29, 2011 until payment in full. The Arbitrator declined the prayer for exemplary damages on the ground that there was no justification for the award. On costs, the Arbitrator awarded the respondent costs which he taxed and certified at Kshs 730,800. 00. He also assessed his fees at Kshs 878,062. 00 and directed that the same be borne by the applicant and that in the event that the respondent shall have paid the fees as a precondition for collection of the award, then the applicant was to reimburse the same to the respondent.

8. It is this Award that has precipitated the filing of two applications for the court’s determination. The first is the applicant’s notice of motion dated November 17, 2021 made, inter alia, under section 35(2) and 35 (4) of the Arbitration Act, 1995 seeking to set aside the award. It is supported by the affidavits of the applicant’s director, Anthony Mbau, sworn on November 17, 2021 and June 9, 2022 respectively. It is opposed by the respondent through his replying affidavit sworn on February 7, 2022.

9. The second one is the respondent’s chamber summons dated February 7, 2022 made under sections 36 of the Arbitration Act, 1995 seeking recognition and enforcement of the award. It is supported by his affidavit sworn on the same date. The applicant has opposed the application through the notice of preliminary objection dated June 8, 2022 and the replying affidavit of Anthony Mbau sworn on June 9, 2022. The parties have also filed written submissions in support of their respective positions.

The Applicant’s Application 10. The thrust of the applicant’s application to set aside the award is that it was deprived of the opportunity to present its case in the course of the arbitration proceedings before the Arbitrator and that the award is inimical to the precepts of public policy including natural justice, fairness and equity. It further states that the arbitral procedure adopted by the Arbitrator was inconsistent with the agreement of the parties and that the award dealt with issues that were outside the scope of the arbitration agreement. For these reasons, the applicant urges the court to set aside the award ex debito justiciae.

11. The respondent denies that the applicant was denied an opportunity to present its case before the Arbitrator and has given a detailed chronology of the proceedings before the Arbitrator in support of this position. The respondent avers that the applicant’s averments are an afterthought borne out of rulings by the Arbitrator and the court which have not been favourable to the applicant during the course of the arbitral proceedings. The respondent states that it would be highly prejudicial to him to have this matter referred back to trial especially because the applicant appears to seek to align its desired amendments to counter the decisions made by both the Arbitrator and the court.

12. In addition, the respondent states that the applicant’s application was not only an afterthought but an intentional delay to deny him his constitutional right to an expeditious conclusion of the subject arbitration. That even though the applicant suggests bias and failure to conduct the arbitral proceedings properly, nothing stopped it from making an application under section 15(1)(a) and (2) for the termination of the Arbitrator’s mandate.

The Respondent’s Application 13. As stated, the respondent seeks to enforce the award and have it recognized as legally binding by the court. He avers that the applicant has to date failed or refused to settled the terms of the award and that he has been unduly and unreasonably denied the fruits of the award.

14. In response and in opposition to the respondent’s application, the applicant states that the award is untenable for recognition and enforcement by the court for the reasons that the respondent has not furnished certified copies of the agreement and the award, that the respondent was unable to present its defence in the arbitral proceedings, that the award is inimical to the precepts of public policy including natural justice, fairness and equity as the applicant was unable to present its case, that the arbitral procedure adopted by the Arbitrator was inconsistent with the agreement and that the award dealt with issues that were outside the scope of the arbitration agreement.

Analysis and Determination 15. From the parties’ pleadings and submissions, the main issues for determination are whether the award ought to be set aside or whether the same ought to be allowed and enforced and recognized as an order of this court.

16. The applicant’s application seeking to set aside the award is premised on the grounds that the procedure adopted by the Arbitrator was inconsistent with the agreement of the parties, that the Arbitrator went outside the scope of the arbitration agreement and that the award was made against public policy including natural justice, fairness and equity.

17. It is common ground that the court’s jurisdiction to set aside an arbitral award is circumscribed by section 35(2) of the Arbitration Act which provides 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—(i)that a party to the arbitration agreement was under some incapacity; or(ii)the arbitration agreement is not valid under the law to which the parties have subjected it or, failing any indication of that law, the laws of Kenya; or(iii)the party making the application was not given proper notice of the appointment of an arbitrator or of the arbitral proceedings or was otherwise unable to present his case; or(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(v)the composition of the arbitral tribunal or the arbitral procedure was not in accordance with the agreement of the parties, unless that agreement was in conflict with a provision of this Act from which the parties cannot derogate; or failing such agreement, was not in accordance with this Act; or(vi)the making of the award was induced or affected by fraud, bribery, undue influence or corruption;(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.(ii)the award is in conflict with the public policy of Kenya.

18. On the issue whether the procedure adopted by the Arbitrator was in line with the agreement, I note that from section 35(2)(a)(v) aforesaid, the court may set aside an award if the arbitral procedure was not in accordance with the agreement of the parties, unless that agreement was in conflict with a provision of this Act from which the parties cannot derogate or failing such agreement, was not in accordance with the Act. In this respect, the course of the proceedings has been highlighted by both parties and can also be gleaned from the Arbitrator’s findings in the award.

19. On 7th July 2020, the Arbitrator issued Order for Directions No 1 which he stated was a culmination of a consent by the parties. The order stated that the Arbitrator’s appointment had not been challenged, the parties’ advocates agreed that the Arbitrator may rule on his own substantive jurisdiction in accordance with the Arbitration Act which applied to the reference and that the issue of jurisdiction be raised within the reference and a determination thereon was to be made in accordance with section 17(5) of the Arbitration Act and rule 6(1) of the Arbitration Rules of the Chartered Institute of Arbitrators (Kenya Branch). It was further stated that the procedure shall be in accordance with the Arbitration Rules of the Chartered Institute of Arbitrators (Kenya Branch) and that strict rules of evidence were not apply to the arbitration but the Arbitrator stated that he was to determine issues on the basis of the weight and materiality of evidence adduced as required under the Arbitration Act. The Arbitrator directed that the parties were to file such witness statements as they may wish to rely upon together with their pleadings, that is, the statement of case and defence, which was to stand as evidence in chief at the hearing and that such witness statements were to refer to the relevant documents as filed by the parties respectively.

20. The Arbitrator also provided for a timetable for filing and exchange of pleadings; The respondent was to file and serve its statement of claim on the applicant on or before July 21, 2020, thereafter the applicant was to file and serve its statement of defence and counter-claim on the respondent within 14 days of service of the statement of claim, that is by August 4, 2020, the respondent was to file and serve a reply to the statement of defence and defence to the counter-claim on the applicant on or before August 11, 2020 and the applicant was at liberty to file its reply to the defence to the counter-claim within 7 days, that is by August 18, 2020. The Arbitrator directed that there was to be a further preliminary review on August 20, 2020 at 2. 30 pm for further directions which was to include the scheduling of hearing dates.

21. It is also common ground that during the course of the arbitral proceedings, the applicant challenged the Arbitrator’s jurisdiction and the competence of the respondent’s claim. On February 2, 2021, the Arbitrator dismissed the challenge and declined the applicant’s application to stay proceedings pending appeal to the court by the applicant. The Arbitrator then issued Order for Direction No 6 where he directed, “with the consent of the parties” that the arbitration was to proceed to full hearing on February 17, 2021, all witnesses were required to attend the Arbitrator for the hearing and the parties were to notify their respective witnesses and the stenographer was to attend and record all the proceedings.

22. By the letters dated 12th and 16th February 2021, the applicant wrote to the Arbitrator protesting that it had apparently not agreed to the said hearing date and that the date was imposed on it and was not convenient. The applicant stated that what was scheduled on February 2, 2021 was the said ruling and not taking of a hearing date. The respondent responded by stating that the hearing date of February 17, 2021 was taken by consent of the parties and in the presence of Mr Paul Wafula, advocate for the applicant, when the matter was last before the Arbitrator on February 2, 2021. The respondent stated that the excuse that the date was not convenient to the applicant did not arise as Mr Wafula did not indicate that the date was not convenient to the applicant.

23. In the award, the Arbitrator stated that on February 17, 2021, the respondent and his Advocate attended the hearing at the scheduled venue which was suggested by the applicant’s counsel but the stenographer did not attend having been instructed by the applicant’s Advocate’s copy of the letter of February 16, 2021 not to attend. Thus, neither the applicant nor its Advocates attended the hearing. The Arbitrator stated that after waiting and contacting the applicant’s advocates on telephone it became clear that neither the applicant nor its advocates were willing to attend the hearing even though the venue and the date were set by the consent of the parties. In any case the hearing, therefore, proceeded.

24. Section 20 of the Arbitration Act provides for the determination of rules of procedure as follows:1. Subject to the provisions of this Act, the parties are free to agree on the procedure to be followed by the arbitral tribunal in the conduct of the proceedings.2. Failing an agreement under subsection (1), the arbitral tribunal may conduct the arbitration in the manner it considers appropriate, having regard to the desirability of avoiding unnecessary delay or expense while at the same time affording the parties a fair and reasonable opportunity to present their cases.3. The power of the arbitral tribunal under subsection (2) includes the power to determine the admissibility, relevance, materiality and weight of any evidence and to determine at what point an argument or submission in respect of any matter has been fairly and adequately put or made.4. Every witness giving evidence and every person appearing before an arbitral tribunal shall have at least the same privileges and immunities as witnesses and advocates in proceedings before a court.5. The tribunal may direct that a party or witness shall be examined on oath or affirmation and may for that purpose administer or take the necessary oath or affirmation.

25. From the above provisions, it is clear that parties have the liberty to determine the conduct of arbitral proceedings but in the absence of such agreement, then the same is left to the Arbitrator’s discretion to determine the course of proceeding having regard to the necessity to afford the parties a fair and reasonable opportunity to present the case against the need to avoid unnecessary delay and expense to the parties.

26. I have gone through the proceedings as has been highlighted by the parties and the award and I find from the events of the arbitral proceedings, the directions taken on the course of proceedings were by consent of the parties. I do not find an instance where the Arbitrator conducted the proceedings in a manner that was inconsistent with the agreement of the parties. If anything, it is the applicant who tried to get round the parties’ agreement in the course of the proceedings by claiming that the hearing date was imposed on it without its consent. The applicant’s grievance is borne out of the fact that the Arbitrator declined to accommodate its request to reschedule the hearing and amend its statement of defence. My understanding of the applicant’s advocates letter dated February 12, 2021, is that Mr Wafula admits to have taken the hearing date without concurring and consulting with his client, the applicant. This failure to consult the client by his advocate cannot be blamed on the Arbitrator. The Arbitrator gave a hearing date that was determined with the consent of the parties where the said Mr Wafula was present and even suggested the venue for the hearing. The applicant also deliberately failed to attend the hearing of the matter even though it was aware of the hearing date.

27. On the issue of the Arbitrator declining to allow the applicant to amend its defence, it should be noted that under section 24(3) of the Arbitration Act, “Except as otherwise agreed by the parties, either party may amend or supplement his claim or defence during the course of the arbitral proceedings, unless the arbitral tribunal considers it inappropriate to allow the amendment or supplement having regard to the delay in making it.” This has the meaning that unless agreed by the parties, the arbitral tribunal has discretion to allow an amendment and it is not a matter of right.

28. For the above reasons, I reject the arguments put forward by the applicant and I find that the arbitral procedure adopted by the Arbitrator was not inconsistent with the agreement of the parties. I also find that the applicant was not deprived of the opportunity to present its case in the course of the arbitration proceedings before the Arbitrator. If anything, it was the applicant who declined to attend the hearing even after being presented with an opportunity to do so.

29. As to whether the award dealt with issues that were outside the scope of the arbitration agreement, the court is bound by the Court of Appeal’s decision inSynergy Credit Limited v Cape Holdings Limited NRB CA Civil Appeal No 71 of 2016 [2020] eKLR where it was 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.

30. The arbitration clause in the agreement, clause 11. 2 partly provided that “Any dispute arising out of or in connection with this agreement shall be referred to arbitration….”. It is common ground that the relationship between the parties is borne out of the agreement and that their dispute directly stemmed from the performance of the same. I have highlighted the issues raised by the Arbitrator for determination in the introductory part. These issues arose from the statement of claim and defence and dealt directly with the parties’ obligations under the agreement. Since the parties agreed to refer any disputes between them in connection with the agreement to arbitration and it has not been disputed that the dispute herein arose from the agreement, then it cannot be stated that the issues raised by the Arbitrator fell outside the scope of the arbitration agreement. This ground by the applicant fails.

31. The applicant complains that the award was contrary to public policy including natural justice, fairness and equity. I have already found that the applicant was given an opportunity to present its case but refused to do so. In any case, I find that the Arbitrator still considered its arguments in the award hence it cannot be argued that the Arbitrator was not fair to it. Thus, the issue of the award being against public policy for the reason that the applicant was not given a chance to be heard cannot hold.

32. In sum, I find that the applicant’s has not proved that any of the grounds for setting aside an award. Having reached the conclusion that the application to set aside the award lacks merit, I now turn to consider whether the respondent’s application for recognition and enforcement of the award is merited.

33. Under section 32(A) of the Arbitration Act, an arbitral award is final and binding upon the parties and no recourse is available against the award otherwise than in the manner provided by the Arbitration Act. The High Court, under section 36 of the Arbitration Act, has the power to recognise and enforce domestic arbitral awards and the court can only reject such an application on grounds set out under section 37 of the Arbitration Act.

34. In its opposition to the application, the applicant restates the grounds in its application to set aside the award and adds that the respondent has not furnished certified copies of the agreement and the award. Since I have already dismissed the grounds for setting aside the award, the grounds in opposition to the respondent’s application will suffer the same fate.

35. The fact that the parties entered into an agreement and an award was issued and the contents thereof are not disputed by the applicant, I find that certification alone is not a valid and substantive reason to refuse the application to recognize and enforce the award. I therefore allow the respondent’s application.

Disposition 36. For these reasons I have set out above, I now make the following orders:a.The applicant’s notice of motion dated November 17, 2021 is dismissed.b.The respondent’s chamber summons dated February 7, 2022 is allowed on terms that the award published on August 19, 2021 by Mr Anthony M Lubulellah, Sole Arbitrator, be and is hereby recognised and adopted as a judgment of this court and leave be granted to the respondent to enforce it as a decree of this court.c.The applicant shall bear the costs of both applications which I assess KES 60,000. 00

DATED AND DELIVERED AT NAIROBI THIS 14TH DAY OF SEPTEMBER 2022. D. S. MAJANJAJUDGECourt Assistant: Mr Michael OnyangoMr Wafula instructed by Walker Kontos Advocates for the applicant.Ms Ouma instructed by B. A. Ouma and Associates Advocates for the respondent.