[2025] KEHC 16707 (KLR)

Ongata Works Limited v Tatu City Limited (Commercial Arbitration Cause E038 of 2024) [2025] KEHC 16707 (KLR) (Commercial and Tax) (3 February 2025) (Ruling)

Neutral citation: [2025] KEHC 16707 (KLR)

Republic of Kenya

In the High Court at Nairobi (Milimani Commercial Courts)

Commercial and Tax

Commercial Arbitration Cause E038 of 2024

A Mabeya, J

February 3, 2025

Between

Ongata Works Limited

Applicant

and

Tatu City Limited

Respondent

Ruling

1. In an application dated 27/6/2024, the applicant applied to set aside an arbitral award made on 27/3/2024 at the International Court of Arbitration. Subsequently on 29/6/2024, the respondent filed a counter application for the recognition and enforcement of the said award. The court directed the applications to be heard together as the outcome of one has a bearing on the other.

Application dated 27/6/2024 2. The application was brought pursuant to section 35(2)(b)(ii) of the Arbitration Act (“the Act”). It sought the setting aside of the arbitral award published by the Sole arbitrator Hon. D. G.Willians on 27/3/2024 for a sum of Kshs 21,541,823. 40 plus interest. That the costs awarded of USD 842,152. 72 issued on even date be set aside.

3. In support of the application, the applicant relied on the grounds set out on the face of the motion and the supporting affidavit sworn by Wahome Wambugu on 27/6/2024. The applicant’s case was that the parties executed a contract for the construction of trunk roads TC101 and TC301 and the construction of Kijani infrastructure on property known as LR No 288671.

4. A dispute arose with respect to the payment and the respondent was awarded Kshs 21,541,823. 40 together with costs. The applicant contended that the Tribunal abdicated its role of a Judge of the dispute and delegated it to the respondent’s expert on whose opinion the Tribunal sorely relied on to award special damages.

5. That it is the Kenyan law that special damages should not only be pleaded but should be proved. The Tribunal disregarded this principle and failed to determine whether the respondent had proved the applicant’s liability and whether the applicant had actually suffered any damages.

6. That pursuant to section 35(3) of the Act, an arbitral award ought to be reasoned but the Tribunal just adopted the quantum produced by the respondent’s expert witness without having an interrogation of the claims.

7. It contended that the statements by the respondent’s expert witness were in contradiction of the documents produced in discovery by the respondent. Further, that the respondent’s expert witness did not rely on the final certificate which would have shed some light on whether costs were actually incurred.

8. It was further contended that the Tribunal failed to apply the principle in Kenyan law that, costs follow the event. It failed to determine which event the costs should follow thereby ended awarding costs that were fivefold of the awarded damages. That while the claim was for Kshs.521,496,930/27, the respondent was only awarded Kshs.21,541,823/40 yet the costs awarded were US$842,152/72. That the Tribunal failed to assess the costs in accordance with the Kenyan law and ended up awarding the respondent costs based on a private arrangement between client and advocate and expert witness.

9. In the premises, the applicant alleged that the said award violated the provisions of section 35(2)(b)(ii) of the Act, that is, it was contrary to established legal principles, was in conflict with the public policy of Kenya and that it failed to give effect to the parties’ intention as set out in the contract and terms of reference.

10. The application was opposed by the respondent vide a replying affidavit of JAMES MARUMI sworn on 20/9/2024. It was the respondent’s position that allowing the application as prayed would be tantamount to allowing an appeal on the decision of the arbitrator. It contended that the Tribunal substantively dealt with the issues raised by the applicant and considered the reasons for the termination of the work contract. Further, that the applicant did not prove that the award was unreasoned or that the Tribunal failed to adhere to the general rule that costs follow event.

11. With respect to public policy, the respondent stated that there was no demonstration that the award was against public policy. That there was no prove that the award was against the provisions of Article 50 of the Constitution on a fair hearing, the principles of natural justice and section 19A of the Arbitration Act on equality of parties. The respondent stated that the issue of costs was agreed upon by the parties as they submitted to the ICC rules.

12. The application was canvassed by way of written submissions which have been carefully considered. The applicant submitted that the expert witness Mr. Jain failed to adduce evidence in support of the claims before the Tribunal. That with respect to expert opinions, a court or tribunal should not be bound on it but ought to be rejected if it is not based on sound grounds.

13. That the Tribunal did not consider clause 14(c) of the contract by relegating the duty of the Tribunal to the respondent’s expert witness. On the issue of costs, counsel submitted that the amount of USD 842,152/72 was five times the value of the entire award made to the respondent who was only partially successful. That this award of costs was based on a private advocate–client relationship.

14. For the respondent, it was submitted that the application was made to delay the application on the enforcement of the award. That public policy challenges should be challenges that are fundamental to the Kenya legal and moral framework.

15. On costs, it was submitted that the Tribunal had considered the respondents’ award of special damages amounting to Kshs. 110,970,353. 03. That the Tribunal rightfully exercised its discretion to grant costs in favour of the respondent who prevailed in the arbitration. That the Act and the ICC rules gave the Tribunal the discretion to allocate costs. It was the respondent’s submission that the Court ought not to interfere with the final award in the absence of exceptional circumstances.

16. The application has been carefully considered, the response thereto and the submissions by Learned Counsel. The main issue for determination is whether the applicant has met the threshold for setting aside an arbitral award.

17. Section 35 of the Arbitration Act sets out the grounds for setting aside an award as follows: -“(1)Recourse to the High Court against an arbitral award may be made only by an application for setting aside the award under subsections (2) and (3).(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.”

18. The present application was brought pursuant to section 35(b)(ii)of the Act on the ground that it was against public policy. On what amounts to public policy, Ringera J held as follows in the case of Christ for All Nations Vs. Apollo insurance Company Limited [2002] EA 366: -“Public policy is a broad concept incapable of precise definition. An award can be set aside under Section 35 (2) (b) (ii) of the Arbitration Act as being inconsistent with the public policy of Kenya if it is shown that it was either (a) inconsistent with the Constitution or any other law of Kenya whether written or unwritten, or (b) inimical to the national interest of Kenya, or (c) contrary to justice and morality.”

19. Further, in Kenya Shell Limited vs Kobil Petroleum Limited [2006] eKLR, the Court of Appeal, addressed the effect of section 35 of the Arbitration Act, as follows:“An award could be set aside under section 35(2) (b) (ii) of the Arbitration Act as being inconsistent with the public policy of Kenya if it is shown that it was either (a) inconsistent with the Constitution or to other laws of Kenya, whether written or unwritten or (b) Inimical to the national interest of Kenya or (c) contrary to justice or morality.”

20. It is clear from the foregoing that, public policy is a fluid term. In the interpretation by courts, public policy will encompass; that which is inconsistent with the Constitution or Laws of Kenya, contrary to the national interest of Kenya or that which is contrary to justice or morality. The spirit of arbitration is to respect the parties’ autonomy and the principle of finality.

21. In the present case, the applicant contended that the Tribunal went against public policy of Kenya for failing to consider costs in accordance with Kenyan law and not giving a reasoned judgment. That the documents provided by the respondent demonstrated that the costs were not incurred as claimed. It was further contended that the arbitrator placed reliance on the opinion of the respondent’s expert witness who issued statements that were in contradiction of the documents produced in discovery by the respondent and failed to make its own determination.

22. In rebuttal, the respondent stated that the application was disguised as an appeal and there was no demonstration that the award was against the public policy of Kenya. According to the respondent, the Court should not re-litigate issues of fact.

23. Having considered the foregoing, the question to be determined is whether the determination by the arbitrator offends Kenyan public policy. I have considered the applicant’s contestations in its application and the main challenge is with respect to the arbitrator’s reliance on the respondent’s witnesses and how the arbitrator assessed the costs. By questioning the arbitrators finding on the claim, the applicant was attempting to raise issues of law which could only be raised in an appeal under section 39 of the Act.

24. The applicant’s challenge is on the award and treatment of witnesses and the claim is on the finding of mixed facts and law which would otherwise have been challenged on appeal properly filed under section 39 of the Act. It was not demonstrated that the Tribunal had abdicated its juristic duty and surrendered it to the respondent’s expert witness. The Court believes that what the Tribunal did was to rely on what it though was the best evidence in the circumstances. Parties who choose arbitration as a mode of dispute resolution must be aware that the Tribunal becomes the master in matters law and fact save where it goes outside the parameters of justice.

25. In view thereof, the challenge to that part of the award of Kshs.21,541,823. 40 amounts to an appeal against the decision of the Tribunal and is accordingly rejected.

26. With respect to the costs of the arbitration, the applicant contended that the Kenyan law is that costs follow event. But that the Tribunal was wrong in allowing the costs which were more than 5 times the value of the entire award. The arbitrator in considering the costs stated that the respondent was entitled to recover all reasonable costs incurred by it.

27. It is not in dispute that the law applicable to the arbitral proceedings was the Kenyan law and not otherwise. The general principle is that costs follow the event. That the costs are not supposed to stifle access to justice, in that regard, costs are not supposed to be punitive. That is why legal costs in Kenya are specifically legislated on in order to remain reasonable.

28. Section 32B(1) of the Act provides for costs of arbitration as follows: -“(1)Unless otherwise agreed by the parties, the costs and expenses of an arbitration, being the legal and other expenses of the parties, the fees and expenses of the arbitral tribunal and any other expenses related to the arbitration, shall be as determined and apportioned by the arbitral tribunal in its award under this section, or any additional award under section 34(5)”

29. The parties agreed to be governed by the ICC rules and rule 38(1) thereof provides that: -“The costs of the arbitration shall include the fees and expenses of the arbitrators and the ICC administrative expenses fixed by the Court, in accordance with the scale in force at the time of the commencement of the arbitration, as well as the fees and expenses of any experts appointed by the arbitral tribunal and the reasonable legal and other costs incurred by the parties for the arbitration.”

30. In the present case, the Tribunal awarded the respondent costs amounting to US$842,152/72. According to the tribunal, these included the costs of the Tribunal, the respondent’s expert’s fees and as well as the respondent’s legal fees and other costs.

31. Firstly, the expert’s fees that is permitted by the rule is the expert appointed by the Tribunal. The expert who appeared and testified was called by the respondent. The Tribunal justified the inclusion of this item on the basis that the rule did not exclude experts called by the parties. If that was the intention of the drafters of the rules, nothing would have been easier than to expressly state so. The Tribunal contravened Rule 38 of the ICC Rules.

32. Secondly, it must be recalled that costs including legal fees must be reasonable, sound and be based on the nature of the claim. It may be based on the quantum of the claim. However, the question is, will a litigant who makes a fictitious claim for Kshs. 1b well knowing that his claim is far less that figure and after trial succeeds to recover a paltry Kshs. 100,000/- be permitted to costs of say Kshs. 1m?

33. This Court does not think so. That would amount to unjust enrichment. Parties have to be held unto their bargain. One may be successful but the degree and level of success depends on the surrounding circumstances and the costs awardable should mirror that success.

34. In the present case, the respondent made a whopping claim for Kshs. 521,496,930. 27. After the trial, the Tribunal found in its favour for Kshs. 110,970,353. 03. After subjecting that amount to what was due to the applicant, the Tribunal found the amount awardable to be a paltry sum of Kshs. Kshs.21,541,823. 40. It is the said ‘victory’ or success for which the Tribunal awarded costs of USD842,152/72 (equivalent to Kshs.109,479,853/- at the exchange rate of US$1=Kshs.130).

35. It is this sum of equivalent to Kshs.109,479,853/- awarded for a claim or award of Kshs.21,541,823. 40 that the applicant complained of and stated that it was fivefold the amount of the award.

36. The Tribunal attempted to justify its opinion from a decision that was not based on the Kenyan law. Even so, the costs must be reasonable and just in the circumstances. Costs are at the discretion of the court, yet, they must follow the event. In the Halsbury’s Laws of England; 4th Edition (Re-issue), [2010], Vol.10. para 16,the learned authors observe that: -“The court has discretion as to whether costs are payable by one party to another, the amount of those costs, and when they are to be paid. Where costs are in the discretion of the court, a party has no right to costs unless and until the court awards them to him, and the court has an absolute and unfettered discretion to award or not to award them. This discretion must be exercised judicially; it must not be exercised arbitrarily but in accordance with reason and justice”

37. It is the public policy of Kenya that legal costs should be reasonable, should not be arbitrary, should be guided by reason and justice. By contravening rule 38(1) of ICC (and by extension section 32B of the Act and awarding astronomical costs, the Tribunal acted against the public policy Kenya since the rules were intended to guide and safeguard the procedure of arbitration.

38. Furthermore, the rule provides that the costs are to include reasonable legal and other costs incurred by the parties under arbitration. The definition of reasonable as set out by the Black Laws Dictionary 10th Ed is; just, rational, appropriate, ordinary, or usual in the circumstances. A charge of costs which is fivefold of an award in the view of this Court does not fall under the definition of reasonable. The costs of Kshs.109,479,853/- is in the view of this Court excessive, punitive and unreasonable weighed against the award of Kshs. 21,541,823. 40.

39. Accordingly, I find merit in the application and the same is allowed. The arbitral award as to costs is hereby set aside with costs.

Application dated 29/6/2024. 40. The application was brought under articles 159(2) of the Constitution of Kenya 2010, section 36 of the Arbitration Act 1995, rule 9 of the Arbitration rules 1997 and sections 1A, 1B and 3A of the Civil Procedure Act Order 46 rule 18 of the Civil Procedure rules 2010.

41. It sought the recognition and enforcement of the arbitral award published on 27/3/2024. It is supported by the grounds on the face of it and the affidavit sworn by JAMES MARUMI filed on even date.

42. In opposition to the application the applicant files grounds of opposition dated 22/8/2024. The applicant stated that the award was against the public policy of Kenya and did not comply with the provisions of section 36 of the Arbitration Act.

43. Having allowed the application for setting aside the arbitral award on costs, that part of the application for recognition and enforcement of the award on costs is hereby dismissed but the award of Kshs. 21,541,823. 40 is hereby allowed with costs.It is so ordered.

SIGNED AT NAIROBI THIS 3RD DAY OF FEBRUARY, 2025. A. MABEYA, FCI ArbJUDGEDATED AND DELIVERED AT NAIROBI THIS 6TH DAY OF FEBRUARY, 2025. F. GIKONYOJUDGE