[2022] KEHC 71 (KLR)

Triple Edge Limited v Unaitas Sacco Society Limited (Miscellaneous Application E579 of 2021) [2022] KEHC 71 (KLR) (Commercial and Tax) (4 February 2022) (Ruling)

Neutral citation number: [2022] KEHC 71 (KLR)

Republic of Kenya

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

Miscellaneous Application E579 of 2021

DAS Majanja, J

February 4, 2022

Between

Triple Edge Limited

Applicant

and

Unaitas Sacco Society Limited

Respondent

Ruling

1. The Applicant has moved the court, inter alia, under section 29 and 35 of the Arbitration Act, 1995 seeking an order that the Final Arbitral Award made and published on 6th May 2021 (“the Award’’) by Mr Collins Namachanja, Sole Arbitrator (“the Arbitrator”) be set aside. The application is supported by the supporting and supplementary affidavits of the Applicant’s Chief Executive, Victoria Gatwiri Anampiu, sworn on 5th August 2021 and 29th September 2021 respectively. It is opposed by the Respondent through the replying affidavit of its Chief Executive Officer, Martin Muhoho Kinuthia, sworn on 30th August 2021.

2. The Respondent has also filed an application dated 30th August 2021 under section 36(1) of the Arbitration Act, seeking recognition and enforcement of the Award. The application is supported by the affidavit of Martin Muhoho Kinuthia sworn on the same day. The application is opposed by the replying affidavit of Victoria Gatwiri Anampiu sworn on 30th September 2021.

3. I directed that both applications to be heard together. In that regard, both sides filed written submissions as the basis for the court’s determination of the applications.

4. The facts giving rise to the application are not in dispute and can be gleaned from depositions. The parties entered into a one year fixed term Marketing and Media Communication Agency Agreement dated 27th April 2017 (‘’the Agreement’’) supplemented by an addendum in June 2017 which was backdated to 2nd May 2017 and varied the commencement date and payment method.

5. In due course, a dispute arose under Agreement but as the parties failed to agree resolve the matter amicably, they appointed Mr Collins Namachanja as the sole Arbitrator to determine the reference on 29th January 2020. The Respondent filed a Statement of Claim dated 24th February 2020 and amended on 29th May 2020 while the Applicant filed a Statement of Defence and Counterclaim dated 16th March 2020 and later amended on 9th June 2020.

6. In short, the Applicant accused the Respondent of breach of the Agreement by, inter alia, failing to adhere to the commencement date, failing to pay it on time and in accordance with the Agreement and failing to adhere to the implementation timing plan. It therefore sought, amongst other reliefs, KES. 62,888,579. 00 as damages for breach of contract, in the alternative KES. 28,419,617. 79 as damages for breach of contract, damages for lost opportunity, interest and costs. In response, the Respondent denied the claim and avers that it adhered fully to the terms of the Agreement. In the Counterclaim, it claims a refund of KES. 13,683,252. 12 advance payment for the project that did not take off and an account of the said money.

7. The Arbitrator heard the matter and concluded that the Applicant was an independent contractor and that the Respondent was in breach of the Agreement. He dismissed all the Applicant’s claims but awarded KES. 7,881,074. 48 being part of the claim of KES. 28,419,617. 79. The Respondent succeeded to the extent that it was awarded KES. 5,802,177. 64. In conclusion, the Arbitrator ordered the Applicant to pay the Respondent KES. 5,802,177. 64 within 30 days together with interest thereon at 12% p.a. Each party was directed to should its own costs.

8. From the face of its application and the deposition, the Applicant complains that the Award deals with a dispute not contemplated by or not falling within the terms of the reference to arbitration and contains decisions on matters in controversy and beyond the scope of the reference to arbitration. In the deposition, the Applicant avers that the Arbitrator travelled outside the scope of the reference in finding that the Applicant owed the Respondent despite finding that the Respondent was the one in breach of the Agreement.

9. It states that to the extent that the Respondent was award KES. 5,802,177. 64 to be paid within 30 days of the Award, the Award is contrary to public policy in that it is contrary to section 29(v) of the Arbitration Act. It also accuses the Arbitrator of selectively applying basic principles of law in determining similar issues which are in conflict with the public policy of Kenya.

10. In the supporting deposition, the Applicant states that the Arbitrator was incompetent to deal with matters it could not solve for lack of expertise in the Media Agency Industry and that the Award was against public policy. It adds that the Arbitrator did not render justice on account of lacking knowledge of the Media Advertising Industry and its trade custom and usage.

11. In response to the merits of the application, the Respondent avers that the Arbitrator was appointed jointly by the parties by the letter dated 22nd January 2020 addressed to him and that the said Arbitrator was among the three possible names presented for selection. It therefore states that the Arbitrator cannot be challenged and that in any event the provisions for challenging the Arbitrator are contained at sections 13 and 14 of the Arbitration Act which have not been invoked.

12. The Respondent rejects the Applicant’s assertion that there is anything in the matter that requires reference to trade usage by the Arbitrator in resolving the dispute. In any case, the Respondent contends that the jurisdiction of the Arbitrator under the Agreement was to determine, “any dispute arising within the parties …. and all claims or matters in such dispute.’’ It urges that the Arbitration proceeded to determine all the issues presented in accordance with the facts, evidence and submissions hence there is no merit in the argument that the Arbitrator dealt with any issue not contemplated or falling within the terms of the reference to arbitration.

13. The Respondent denies that the Award is contrary to public policy. It contends that the Applicant has failed to demonstrate any circumstance that would tend to show that the Award is contrary to public policy in view of the Arbitrator’s consideration of the facts, evidence and his application of the law of contract as well as the manner in which claims in the nature of special damages are treated.

14. The Respondent explains that the Arbitrator found that Respondent was liable to the Applicant in the sum of KES. 7,881,074. 48 which was effectively offset against KES. 13,683,252. 12 paid to the Applicant by the Respondent in advance leading to KES. 5,802,177. 64 which the Arbitrator allowed. In the circumstances, the Respondent urges that there is no basis for the Applicant’s allegation that the Respondent is to benefit for breach of contract.

15. Although the Respondent has raised technical objections to the application, I shall deal with the substance of both applications in the interests of justice and in order to deal with the matter with finality. The court’s jurisdiction in determining whether an award should be set aside is circumscribed by section 35 of the Arbitration Act which, at the parts material to the Applicant’s case, 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—……………………….(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.

16. It is therefore incumbent on an applicant to demonstrate through facts and evidence that its case falls within the corners of the provisions it relies on. In this case, the Applicant raises two grounds; that the Arbitrator went beyond the scope of reference and that the Award is in conflict with the public policy of Kenya.

17. Apart from grounds for setting aside the Award, the Applicant seemed to suggest that the Arbitrator was incompetent as he was not well versed in the intricacies of the Media Agency Industry, its customs and trade usages. I agree with the Respondent that the Arbitrator was freely chosen by the parties and the court cannot intervene in that choice except in the manner provided by sections 13 and 14 of the Arbitration Act which the Applicant never invoked. Further, the parties had the opportunity to prescribe the qualifications of the arbitrator or choose an expert as part of the arbitration agreement but they did not do so. The court cannot intervene in this instance on the grounds suggested by the Applicant. I hold this allegation lacks merit.

18. 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] eKLRobserved 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. [Emphasis mine]

19. In this case, the arbitration agreement at Clause 12 states as follows:Any dispute arising within he parties hereto and all claims or matters in such dispute not otherwise mutually settled between the parties shall first be referred to arbitration by single arbitrator to be appointed by agreement between the parties …. [Emphasis mine]

20. As is apparent from the arbitration clause aforesaid, it is evident that the parties contemplated that the arbitrator so appointed would have jurisdiction to hear the widest scope of disputes under the Agreement. As I understand, the dispute between the Applicant and Respondent is about breach of the Agreement and I cannot find anything in the Award to suggest the Arbitrator exceeded the scope of the reference. The Award shows that the Arbitrator formulated and considered four issues from the issues forwarded to him by the parties. He set out to decide the nature of the relationship, whether the Respondent was in breach and whether the parties were entitled to the reliefs sought in their respective pleadings and the issue of costs. The Arbitrator digested all the evidence and submissions and issued the Award.

21. It is now settled that section 35 of the Arbitration Act does not open the door for this court to exercise appellate jurisdiction over arbitration matters. This position was explained by the Court of Appeal in Kenya Oil Company Limited & Another v Kenya Pipeline Company Limited NRB CA Civil Appeal No. 102 of 2012 [2014] eKLR where it cited with approval the following dicta by Steyn LJ., in Geogas S.A v Trammo Gas Ltd (The "Baleares") 1 Lloyds LR 215:The arbitrators are the masters of the facts. On an appeal the court must decide any question of law arising from an award on the basis of a full and unqualified acceptance of the findings of fact of the arbitrators. It is irrelevant whether the Court considers those findings of fact to be right or wrong. It also does not matter how obvious a mistake by the arbitrators on issues of fact might be, or what the scale of the financial consequences of the mistake of fact might be. That is, of course, an unsurprising position. After all, the very reason why parties conclude an arbitration agreement is because they do not wish to litigate in the courts. Parties who submit their disputes to arbitration bind themselves by agreement to honour the arbitrators’ award on the facts. The principle of party autonomy decrees that a court ought never to question the arbitrators’ findings of fact.

22. Turning to whether the Award is contrary to public policy, the oft cited decision of Ringera J., (as he was then) in Christ for All Nations v Apollo Insurance Co Ltd [2002] 2 EA 366 provides some guidance on the meaning and the scope of public policy as a ground for setting aside an arbitral award. The learned judge stated 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……”

23. Further, in same decision, the learned judge recognized that it is not every infraction of precedent or misinterpretation of law that falls within the scope of the public policy exception. He added 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.

24. I also hold that the public interest exception must not be applied so widely that it becomes the end all be all ground for setting aside arbitral award. The court in Mall Developers Limited v Postal Corporation of Kenya ML Misc. No. 26 of 2013 [2014] eKLR underlined this concern by stating 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. [Emphasis mine]

25. The Applicant is aggrieved that the Arbitrator found that the Applicant was an independent contractor as opposed to an agent in the ordinary sense of the word and the finding that the Respondent was in breach of the Agreement yet went ahead to punish the Applicant by awarding the Respondent damages does not make legal sense which conclusions violate the public policy of Kenya.

26. The relationship between the parties was a key issue for determination and whether the Arbitrator got it right or wrong does not, ipso facto, violate the public policy of Kenya. Further, an award is not contrary to public policy merely because the party who claims breach is not awarded damages. A cursory look at the Amended Statement of Claim and Amended Statement of Defence shows that while the Claimant sought KES. 62,888,579. 00 as damages for breach of contract and in the alternative KES. 28,419,617. 79 as damages for breach of contract, the Respondent counterclaimed KES. 13,683,252. 12. It was therefore not inconceivable that the extent of success or failure of the respective claims may leave the Applicant in a debit position as happened in this case where the amount awarded for the Applicant’s claim was less than the amount awarded to the Respondent in the counterclaim. This, in my view, is a question of the analysis of the facts and evidence and reaching a conclusion which is within the Arbitrator’s jurisdiction and does not infringe the public policy exception.

27. For the reasons I have set out above, I dismiss the Applicant’s application dated 5th August 2021. I now turn to the Respondent’s application dated 30th August 2021 seeking recognition and enforcement of the Award.

28. Section 32(A) of the Arbitration Act provides that 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. This court, under section 36 of the Arbitration Act, has the power to recognize and enforce domestic arbitral awards. In this respect, the applicant must meet the formal requirements as follows:36. Recognition and enforcement of awards(3)Unless the High Court otherwise orders, the party relying on an arbitral award or applying for its enforcement must furnish—(a)the original arbitral award or a duly certified copy of it; and(b)the original arbitration agreement or a duly certified copy of it.

29. Section 37 of the Arbitration Act sets out the substantive grounds upon which this court may decline to recognize or to enforce an arbitral award which are more or less similar to those that can convince the court to set aside the Award under section 35 which I have touched on in dealing with the Applicant’s application to set aside the Award. In essence, section 37 of the Arbitration Act prohibits a court from recognizing or enforcing an award if the conditions stated therein are shown to be present (see Castle Investments Company Limited v Board of Governors – Our Lady of Mercy Girls Secondary school NRB HC Misc.Application No. 780 of 2017 [2019] eKLR).

30. Having considered the substantive grounds raised by the Applicant for setting aside the Award in the application under section 35 of the Arbitration Act hence having dismissed it, the only issue for consideration is whether the Respondent has complied with the procedural requirements of section 36. Although the parties have not produced a certified copy of the Award and a certified copy of the Agreement containing the arbitration clause, these documents are not disputed and indeed formed the basis of both applications. Neither party is prejudiced by proceeding on the basis of these documents. In the circumstances, I do not see any reason to refuse the Respondent’s application and it is allowed.

31. The result of the findings and conclusions I have made is as follows:(a)The Applicant’s Chamber Summons dated 5th August 2021 be and is hereby dismissed.**(b)The Respondent’s Chamber Summons dated 30th August 2021 be and is hereby allowed on terms that the Final Arbitral Award dated 6th May 2021 issued by the arbitrator, Mr Collins Namachanja, be and is hereby recognized as a judgment of this court and leave be and is hereby granted to the Respondent to enforce the same as a decree of this court.**(c)The Applicant shall bear the costs of both applications which are assessed at KES. 100,000. 00 only.

DATED AND DELIVERED AT NAIROBI THIS 4TH DAY OF FEBRUARY 2022. D. S. MAJANJAJUDGECourt Assistant: Mr M. OnyangoMr Masika instructed by Masika and Koross Advocates for the Applicant.Mr Mutua instructed by Mutua Waweru and Company Advocates for the Respondent.