[2022] KEHC 16232 (KLR)

Tumaz & Tumaz Enterpriseds Limited v Kenya Kazi Services Limited (Commercial Case E021 of 2022) [2022] KEHC 16232 (KLR) (Commercial and Tax) (9 December 2022) (Ruling)

Neutral citation: [2022] KEHC 16232 (KLR)

Republic of Kenya

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

Commercial and Tax

Commercial Case E021 of 2022

EC Mwita, J

December 9, 2022

Between

Tumaz & Tumaz Enterpriseds Limited

Applicant

and

Kenya Kazi Services Limited

Respondent

Ruling

1. This ruling disposes of two applications dated March 3, 2022 for setting aside the arbitral award published on January 11, 2021 and March 24, 2022 for recognition and enforcement of the award, the first and second applications respectively.

2. The first application is brought under section 35 of the Arbitration Act (the Act), rules 7 and 11 of the Arbitration rules, (the rules), and sections 1, 1A and 3A of the Civil Procedure Act and Order 46 rules 13,14,15 and 16 of the Civil Procedure Rules.

3. The grounds on which the application is premised, as can be gleaned from the grounds on the face of the motion, supporting affidavit and written submissions, are that the award, proceedings and reasons for the award display lack of impartiality, fairness and demonstrate bias on the part of the arbitrator; the award is in conflict with public policy contrary to section 35(2)(b)(ii) of the Act, the award is imperfect in form and contains errors apparent on the face of the record.

4. The applicant also asserts that the award left matters referred for arbitration and determined others not referred for arbitration contrary to Order 46 of theCivil Procedure Rules.

5. The applicant again accuses the arbitrator of misconduct contrary to Order 46 rule 16(1)(a) of the Civil Procedure Rules as read with section 19 of the Arbitration Act and relies on Exclusive Estates Limited & another v Telkom Kenya Limited & another: Aftraco Limited (Interested Party/Applicant [2021] eKLR. The applicant further relies on Cochin Shipyard Limited v Apeeejay Shipping Limited SLP 2015) 15 SCC 522. 70 and Nyangau v Nyakwara [1985] eKLR on what constitutes misconduct of an arbitrator.

6. The arbitrator is also accused of failing to appreciate the effect of section 2(1) of the Evidence Act on arbitration proceedings, while the respondent is accused of fraudulently concealing matters that ought to have been disclosed and willfully mislead and deceived the arbitrator in violation of Order 46 rule 16(1)(a) of the Civil Procedure Rules. According to the applicant, the arbitrator failed to determine the real issue in controversy between the parties and neglected its evidence and material placed before him, rendering the award illegal and bad in law.

7. The applicant further relies on Castle Investments Company Limited v Board of Governors-Girls Secondary School[2019] eKLR citing Christ of All Nations v Apollo Insurance Company Limited [2002] 2 EA 366, to argue that the award is inconsistent with public policy. According to the applicant, a perusal of the award shows outright bias on the part of the arbitrator as he paid more attention to the evidence by the respondent while ignoring its evidence, including witness statement and bundle of documents adopted. It is the applicant’s case that the arbitrator was dishonest when he stated that no evidence was presented on its behalf.

8. This, the applicant argues, demonstrates that the arbitrator violated the right to fair hearing guaranteed under Article 50(1) of the Constitution. The applicant relies on Judicial Service Commission v Gladys Boss Shollei & another[2014] eKLR; Pinnacle Projects Limited v Presbyterian Church of East Africa Ngong Parish & another [2018] eKLR and Safaricom Limited v Josenga Company Limited & 4 others [2021] to argue that the right to hearing as a principle of natural justice cannot be limited or derogated from under Article 25 of theConstitution.

9. The applicant posits that to the extent that it was not granted a fair hearing, the award is inconsistent with public policy as it violates theconstitution and the law.

10. On the applicability of the Evidence Act in arbitral proceedings, the applicant relies onLalji Meghji Patel & Company Limited v Presbyterian Foundation [2021] eKLR, that rules of evidence Act do not apply in arbitration proceedings unless parties had agreed to be bound by it. The applicant takes the view that by applying strict rules of evidence despite section 2(1) of the Evidence Act, the arbitrator was not only guilty of misconduct, but also infringed the right to fair hearing and made an award that is in conflict with public policy.

11. The applicant argues, therefore, that the court can set aside an arbitral award on grounds of misconduct and relies on Rashid Moledina & Co (Mombasa Limited) & others v Hoima Ginners Limited [1967] EA 645 and Peter Wanyama v Kenya Breweries Limited[2017] eKLR.

Response 12. The respondent has opposed the application through a replying affidavit sworn by Magadalane Njoroge and written submissions. The respondent argues that the application is full of untruths and that the applicant has not disclosed that they misled the arbitrator in the proceedings of September 25, 2021.

13. The deponent also denies that the award contains errors on its face, displays bias or unfairness on the part of the arbitrator or that the award is in conflict with public policy. The respondent asserts that the applicant’s witness did not complete his testimony, was not cross examined and, therefore, the documents filed were of no evidential value. The respondent asserts that the applicant was given sufficient time to call a witness and the Arbitrator had even offered to sit on a Saturday and Sunday to accommodate the applicant’s witness but the applicant did not take up the opportunity.

14. The respondent maintains that arbitral proceedings were conducted in accordance with the Act which is the applicable law and not any other law. The respondent relies on Continental Homes Limited v Suncoast Investments Limited [2018] eKLR, for the argument that whoever desires to upset an arbitral award, travels a narrow and well defined path illuminated by section 35 of the Arbitration Act. An application to set aside an arbitral award that does not meet the conditions in section 35 will fail.

15. It is the respondent’s case that the impugned award is not inconsistent with public policy and relies on Christ of All Nations v Apollo Insurance Company Limited (2002) 2 EA 366.

16. According to the respondent, the applicant’s view that the award is inconsistent with public policy is based on the allegation that it encourages unjust enrichment because it had paid for the services rendered. The respondent however points out that the arbitrator made a finding of fact that work was done but there was no evidence of payment. For that reason, the award could not amount to unjust enrichment. The respondent cites the decision in Simba Villas Limited v Kenya Commercial Bank Staff Pension Fund Registered Trustees [2015] eKLR which castigated parties for often misapplying the decision in Christ of All Nations v Apollo Insurance Company Limited (supra) on the effect of finality of awards.

17. The respondent takes the position that public policy in this case leans toward payment for services rendered. According to the respondent, the applicant has not demonstrated that the arbitral award violates the constitution, other laws or is inimical to justice and morality. The respondent maintains that the applicant was accorded an opportunity to be heard in compliance with Article 50 of the constitution and places reliance on Equity Bank Limited v Adopt A Light [2014] eKLR.

18. The respondent also argues that the applicant has not proved bias, unfairness impartiality or misconduct on the part of the arbitrator to justify setting aside of the award. It is the respondent’s case that the applicant did not call evidence and should not use its failure to argue that the arbitrator was impartial or biased. Reliance is placed is on Mary Njeri Murigi v Peter Macharia & another[2016] eKLR, citingLinus Nganga Kiongo & 3 others v Kikuyu Town Council [2012] eKLR on the consequences of failing to call evidence.

19. The respondent again cites the decision in Murithi Wanjao t/a Wanjao & Wanjau Advocates v Samuel Mundati Gatabaki & another[2015] eKLR for the proposition that the applicant has not shown that the arbitrator conducted himself in a capricious, irrational or contrary to the terms of reference under the arbitration agreement.

Second application 20. Submitting in favour of the second application, (Chamber Summons dated March 24, 2022), the respondent argues that the applicant having failed to demonstrate wrong doing on the part of the arbitrator to justify interference with the award, the the application should be allowed and the award recognized for purposes of enforcement. The applicant did not file a response or submissions to this (second) application

Determination 21. As stated at the beginning of this ruling, there are two applications: for setting aside the arbitral award and for recognition and enforcement of that award. I will deal with the first application for the obvious reason that its determination will give the outcome of the second application.

First application 22. The applicant seeks to set aside the impugned arbitral award for the reason that it is inconsistent with public policy. This is so, the applicant argues, because the arbitrator violated its right to a fair hearing and contravened Order 46 of theCivil Procedure Rules. The applicant again argues that the arbitrator was impartial, biased and misconducted himself.

23. The respondent takes the opposite view, arguing that the arbitrator followed the Act, the only law applicable in arbitration proceedings, did not violate the constitution or the law, did not misconduct himself and was not biased. For that reason, the award is not inconsistent with public policy and should not be set aside.

24. I have considered the application, response, submissions and decisions relied on. The gravamen of the applicant’s case is that arbitral award is inconsistent with public policy. Secondary to this, is the applicant’s argument that arbitral proceedings were conducted contrary to Order 46 of theCivil Procedure Rules.

25. I should dispose of the issue of whether Arbitral proceedings arising from an agreement clause between parties, are subject any other law other than the Arbitration. The law is settled that only the arbitration Act applies to arbitral proceedings. All other laws, including the Civil Procedure Act and Rules made thereunder, do not apply to arbitral proceedings arising from the Arbitration Act. This is so because section 10 of the Act is clear that no court shall intervene in matters governed by the Act except as provided in the Act itself.

26. The above position was emphatically expressed by the Court of Appeal in Ann Mumbi v Victoria Njoki Gathara[2009] eKLR, that all the provisions including the Civil Procedure Act and rules do not apply to arbitral proceedings because section 10 of the Arbitration Act makes the Arbitration Act a complete code and Rule 11 of theArbitration Rules cannot override section 10 of the Arbitration Act.

27. The Court of Appeal expressed itself thus:The provisions of the Arbitration Act make it clear that it is a complete code except as regards the enforcement of the award/decree where Arbitration Rules 1997 apply the Civil Procedure Ruleswhere appropriate. In our view, Rule 11 of the Arbitration Rules 1997has not imported the Civil Procedure Rules hook line and sinker to regulate arbitrations under the Act. It is clear to us that no application of the Civil Procedure Ruleswould be regarded as appropriate if its effect would be to deny an award finality and speedy enforcement both of which are major objectives of arbitration.

28. It follows that the applicant’s argument that the arbitrator violated some provisions of the Civil Procedure Rules as to render the arbitral award inconsistent with public policy, bears no weight in an application to set aside an arbitral award.

Public policy 29. The applicant’s main argument is that the impugned award is in conflict with policy for the reason that the arbitrator violated its right to fair hearing. The respondent takes the opposite view, maintaining that the award did not violate theconstitution or the law and, therefore, is not inconsistent with public policy.

30. Section 35(2) (b)(ii) provides that an arbitral award may be set aside only if the court finds that the award is in conflict with the public policy of Kenya. The term public policy is not defined in the Act. The issue has, however, received judicial consideration in various cases.

31. In Renusagar Power Co Ltd v General Electric Co 1994 AIR 860, 1994 SCC Supl (1) 644, the Supreme Court of India held that the award passed by the arbitrator will be against the public policy if the award was in contravention of “Fundamental policy of Indian law, Interest of India and Justice and Morality.”

32. Similarly, in Haryana Tourism Limited v Kandhari Beverages LimitedSC/0033/2022, (11 Jan 2022), the same court again considered the issue and held that an award can be set aside only if it is against the public policy, that is, if the award is found to be contrary to, (a) fundamental policy of Indian Law; or (b) the interest of India; or (c) justice or morality; or (d) if it is patently illegal.

33. In the Kenyan case of Christ of All Nations v Apollo Insurance Company Limited (supra), while considering the import of section 35(2) (b) (ii) of the Arbitration Act of Kenya, the court stated that an award will be set aside as being inconsistent with the Public Policy of Kenya only if it was shown that it was either inconsistent with the constitution or other laws of Kenya, whether written or unwritten; or was inimical to the national interest of Kenya; or was contrary to justice and morality.

34. In that regard, an applicant seeking to set aside an arbitral award will only succeed on grounds that the arbitral is inconsistent with public policy, if it is shown that the award violates the tenets of the constitution or laws of Kenya; is contrary national interest or offends justice and morality of Kenya.

35. The applicant’s grievance, as I understand it, is that the arbitral award is inconsistent with public policy of Kenya because it violated the constitution and the law. It violated theconstitution because the applicant was not given a fair hearing and therefore its right to a fair hearing was violated as it was not allowed to call witness. Whether this was the case or not, can only be discerned from the record of arbitral proceedings.

36. I have read the record of arbitral proceedings to satisfy myself whether the applicant was given a fair hearing. The record shows that after the respondent closed its case, the applicant’s counsel requested for an adjournment and suggested 22nd and June 28, 2021 for hearing. Parties eventually agreed to proceed on 28th June. On that day, June 28, 2021, the matter did not proceed as the applicant’s witness was not available. The matter was adjourned to July 15, 2021 at 2pm when the matter proceeded after some delay. After sometime, the matter was adjourned due to a hitch with regard to the respondent’s documents which the witness did not have and could not, therefore, be cross examined.

37. The applicant’s counsel insisted that the witness could only be available in December which was opposed by the respondent’s counsel. The arbitrator agreed that December was far and, at that point, informed the applicant’s counsel that the applicant being a corporate entity and if it was difficult to have the witness continue, a replacement of that witness was an option. The matter was eventually adjourned to September 25, 2021.

38. Come that day, the applicant’s witness was again not available. The applicant’s application for adjournment was resisted by respondent’s counsel. The arbitrator upheld the objection and declined the request for further adjournment.

39. The record as highlighted above, demonstrates that the applicant was given an opportunity to call witnesses and have its day in court. The matter was adjourned a couple of times to accommodate the applicant’s witness but the witness did not attend to testify on the days allocated though the dates had been taken by consent of both counsel. It is therefore difficult to agree with the applicant that its right to fair hearing was violated.

40. The right to fair hearing in the context of this case, must be looked at from both sides: the applicant and respondent. The applicant’s right to call witness was observed as it was given an opportunity to call witnesses which it failed to exercise. The arbitrator was in charge of proceedings and had to control the conduct of parties before him and ensure that arbitral proceedings progressed to conclusion without unnecessary interruption. Where a party fails to call witnesses despite the opportunity accorded, he cannot turn around and allege that his right to a fair hearing had been violated and, therefore, the award emanating from the proceedings in inconsistent with public policy.

41. In Profilati Italia SrL v PaineWebber Inc (2001) 1 All ER (Comm) 1965, (2001) 1 Lloyd?s Rep 715, the court observed that where a party alleges that the way in which an award was procured was contrary to public policy, it will be necessary to satisfy the court that some form of reprehensible or unconscionable conduct on the part of the successful party contributed in a substantial way to an award being made. That has not been shown to have been the case here.

42. I must point out that the public policy clause in section 35(2)(b)(ii), allows for review of the arbitral award to a limited extent only. It is not an appellate procedure and its purpose is to review the compliance of the award with the fundamental principles of the legal system of Kenya so that its enforcement does not contradict the main principles of the constitution and the law. The court sitting on an application under section 35(2)(b)(ii) does not do a merit review of the arbitral award, and a claim that the award is inconsistent with public policy of Kenya must be demonstrated to be so but should not be a matter of conjecture.

43. The applicant again complains that the arbitrator was biased and misconducted himself as a ground for setting aside the arbitral award. According to the applicant, the arbitrator was forcing it to designate another witness to replace the witness who had been stood down, which was a sign of bias. The respondent maintains that this was not the case and that the arbitrator conducted the proceedings properly devoid of bias.

44. A claim of bias or misconduct on the part of an arbitrator is a question of fact that must be shown to have existed. I have again gone through the record of the arbitral proceedings but have not come across evidence of bias or misconduct on the part of the arbitrator. The argument by the applicant that the arbitrator was forcing it to replace a witness is not entirely correct. A perusal of the record, shows that it was counsel for the applicant who had expressed the difficulty the witness was having in attending proceedings. The arbitrator volunteered to sit on a Saturday and Sunday to accommodate the applicant’s witness and a suggestion was made that the applicant could think of replacing that witness.

45. Counsel for the applicant then sought to Know from the respondent’s counsel if he would object to replacing the witness, to which respondent’s counsel had no objection. When finally, the arbitrator declined to allow further adjournment and pointed out that there had been such an option to the applicant to replace the witness, the applicant could not take that be evidence of bias or misconduct on the part of the arbitrator.

46. Where a party wants the court to believe that an arbitral award was not procured in a fair manner, he must show that there exist grounds from which a reasonable person would think that there was a real likelihood that the arbitrator could not have fairly determined the dispute on the basis of the evidence and arguments adduced before him. (see Chania Gardens Limited v Gilbi Construction Company Limited & another(2015) eKLR).

47. It is the applicant’s further case that the arbitrator left matters referred to him undetermined and determined those that had not been referred to him for determination. Failure by an arbitrator to adjudicate the real dispute before him would amount to misconduct in the hearing of the matter, and would entitle an applicant to have the arbitral award set aside. (Josephat Murage Miano & Another v Samuel Mwangi Miano & Another [1997] eKLR).

48. The above position was emphasized in Nyang’au v Omosa Nyakwara [1986] KLR 712 thus:If an arbitrator for some reason which he thinks good declines to adjudicate upon the real issue before him, or rejects evidence which, if he had rightly appreciated it would have been seen by him to be vital, that is, within the meaning of the expression, ‘misconduct’ in the hearing of the matter which he has to decide, and misconduct which entitles the persons against whom the award is made to have it set aside.

49. It is, however, the duty of the person alleging misconduct to point out circumstances that truly demonstrate that the arbitrator acted in a manner that amounted to misconduct. In this regard, the applicant has not pointed out the matters that were referred to the arbitrator for determination but which the arbitrator did not determine, or those that were not referred to the arbitrator but which he ended up determining. That contention has not been sown demonstrated to have merit here.

50. On the argument that the arbitrator did not consider the applicant’s evidence, I have again read the arbitral award and it shows that the arbitrator highlighted what had transpired during the arbitral proceedings and captured the fact that the applicant’s witness was not availed for cross examination on the days he was scheduled to appear, which means the witness did not complete his testimony. The applicant did not also comply with Directions No 4, giving it an option to substitute the witness with one that would be available to testify on its behalf. I further note that the applicant did not file submissions despite directions given to both parties to do so.

51. Parties to the arbitral proceedings had agreed on how to proceed. Witnesses were to be called and cross examined. The applicant’s witness was not presented for cross examination so that the veracity of the applicant’s evidence could be tested in cross examination. The applicant having failed to present its witness for cross examination, cannot turn around and argue that the arbitrator failed to consider its inconclusive evidence. The policy of law is that arbitral proceedings should not be unduly prolonged. That is the more reason why parries opt for arbitration in case of a dispute rather than subject themselves to normal court processes that take fairly long, and that is exactly what parties did here.

52. In the impugned award, the arbitrator stated the case of the parties, the issues framed by him, including the applicant’s counterclaim, his findings on each issue and the amount finally awarded. For that reason, I find no merit in the argument that the arbitrator considered irrelevant matters that parties did not presented to him for determination or that he failed to consider those matters referred to him. I am unable to find fault with the arbitrator on this accusation.

53. I hasten to add that appraisal of evidence before the arbitrator by this court is not permissible as this court is not sitting on appeal over the arbitral proceedings. This is the view that was expressed by the Supreme Court of India in Ispat Engineering And Foundry v Steel Authority Of India Ltd. BS City, Bokaro Steel Authority of India Ltd, Laws (SC) 2001-7-58 (Decided on July 25, 2001) thus:[R[e-appraisal of evidence by the court is not permissible and as a matter of fact, exercise of power to re-appraise the evidence is unknown to a proceeding under section 30 of the Arbitration Act. In the event of there being no reason in the award, question of interference of the Court would not arise at all. In the event however, there are reasons, interference would still be not available unless of course, there exist a total perversity in the award or the judgment is based on a wrong proposition of law…The award of an Arbitrator is ordinarily final and conclusive unless a contra intention is disclosed in the agreement itself.

54. The Supreme Court of Poland in its judgment issued on June 15, 2021 (file No III CSKP 102/21), also observed that an application for setting aside an arbitral award does not serve the purpose of substantive review of the arbitral tribunal’s award by a court and a court may not, determine the merits of the dispute between the parties to the arbitration. If allowed, this would be contrary the nature of arbitration, render its existence pointless, and disregard the autonomy of the will of the parties who have submitted the resolution of their dispute to the jurisdiction of the arbitral tribunal, thereby foregoing the jurisdiction of the court.

55. In Ralliaram Union of lndia v AL Railiaram, [1964] 3 SCR 164, the court emphasized that, right or wrong, the decision of the arbitrator is binding excepting in the case of error of law on the face of it or in the event the award itself or in a document actually incorporated in it, there is found some legal proposition which stands out to be the basis of the award and which is erroneous. Civil courts cannot exercise apparent power over the decision of an arbitrator.

56. Further, in Jivrajbhai Ujamshi Sheth and others v Chintamanrao Balaji & others 1965 AIR 214, 1964 SCR (5) 480, the court laid down the principle that;it is not open to the court to speculate, where no reasons are given by the Arbitrator, as to what impelled the Arbitrator to arrive at his conclusion and it is not open to the court to attempt to assess the mental process by which the Arbitrator reached his conclusion where it is not disclosed by the terms of the award. Law thus seems to be well-settled on the score of exercise of jurisdiction of law courts as regards interference with an award of Arbitrator or Umpire as the case may be.

57. Applying the principles flowing from the decisions above, and having considered the totality of the matter as presented by parties before this court, and upon considering the law and the contextual facts of this case, there is no evidence on record to show that the arbitrator overstepped his jurisdiction or travelled beyond the agreement of the parties. For that reason, this court ought not entertain the application to set aside the award as passed by the chosen forum of the parties, the law being well settled on this score. This court therefore declines to misread and misapply the settled law to this application.

The second application 58. The second application (Chamber Summons dated March 24, 2022), seeks to have the arbitral award recognized for purposes of enforcement. It is argued that the applicant having not demonstrated wrong doing on the part of the arbitrator to justify interference with the award, the application should be allowed and the award recognized for purposes of enforcement.

59. No response was filed to this application thus leaving the application unopposed. In the circumstance, the application is for allowing.

Conclusion 60. Having considered the two applications, the response and submission, and upon perusing the record and decisions relied on, the conclusion I come to, is that the first application has no merit. On the other hand, since the determination of the second application was dependent on the outcome of the first application, and the first application having fallen by the wayside, the second application must succeed.

Disposal 61. The application dated March 3, 2022 for setting aside of the arbitral award is declined and dismissed with no order as to costs.

62. The application dated March 24, 2022 for recognition and adoption of the arbitral award dated January 11, 2022 together with the taxed costs is hereby allowed with costs.

DATED, SIGNED AND DELIVERED AT NAIROBI THIS 9TH DAY OF DECEMBER 2022E C MWITAJUDGE