[2022] KEHC 16646 (KLR)

Waweru & another v Waiyaki Way Developers Ltd & 2 others (Miscellaneous Civil Application E743 of 2021) [2022] KEHC 16646 (KLR) (Commercial and Tax) (8 December 2022) (Ruling)

Neutral citation: [2022] KEHC 16646 (KLR)

Republic of Kenya

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

Commercial and Tax

Miscellaneous Civil Application E743 of 2021

WA Okwany, J

December 8, 2022

In The Matter Of The Arbitration Act, 1995 In The Matter Of An Application Under Section 140) Of The Arbitration Act To Determine The Matter Of A Challenge Of The Arbitrator In The Matter Of An Arbitration

Between

Christopher Thiongo Waweru

1st Applicant

James Mwangi Kabugi

2nd Applicant

and

Waiyaki Way Developers Ltd

1st Respondent

Virji Meghji Patel

2nd Respondent

John Mugo Muthee (sole arbitrator) t/a NK Mugo & Co. Advocates

3rd Respondent

Ruling

1. For determination is the application dated October 5, 2021 wherein the applicant seeks the following orders:-1. Spent

2. That this Honourable Court be pleased to stay the Arbitral proceedings before the Sole Arbitrator, John Mugo Muthike Advocate pending the hearing and determination of this Application

3. That this Honourable Court be pleased to bar and remove the Sole Arbitrator, John Mugo Muthike Advocate from hearing and determining the dispute between the Applicants herein and the 1st and 2nd Respondents.

4. That this Honourable Court be pleased to remove and bar the Law Firm of NK Mugo & Co Advocates from being the appointing body of the Arbitrator to hear and determine the dispute between the Applicants herein and the 1st and 2nd Respondents.

5. That this Honourable Court be pleased to direct that the Arbitral proceedings herein do commence de novo before any Arbitrator other than John Mugo Muthike Advocate and that Parties should agree on the replacement Arbitrator within 30 days and in default, a substitute Arbitrator be appointed by the Chairman of the Chartered Institute of Arbitrators (K) on application by any Party.

6. That this Honourable Court be pleased to give such further Orders and/or Directions under Section 14(7) of the Arbitration Act 1995 as it deems fit.

7. That the costs of this Application be provided for.

2. The application is supported by the affidavit sworn by the 2nd applicant James Mwangi Kabugi and is based on the following grounds:-1. That a glaring textbook example of conflict of interest on the part of the Sole Arbitrator has arisen in the Arbitration proceedings between the Applicants and the 1st & 2nd Respondents following the appointment of John Mugo Muthike Advocate practicing in the name and style of NK Mugo & Co Advocates to hear and determine the dispute between the Parties.

2. That the original shareholders of Waiyaki Way Developers Limited, the I st Respondent herein initially were Muigai Phares Thumbi, Peter Karienye Maina Kanambo, Nicholas Kamanu Kamweru, Christopher Thiongo Waweru the 1st Applicant (as shareholder B) and James Mwangi Kibugi the 2nd Applicant herein (as Shareholder D) entered into Shareholders Agreement dated December 30, 2015 setting out the terms governing their relationship as Shareholders and the equity proportions was clearly set out in the said Agreement in respect of the 1st respondent company Waiyaki Way Developers Limited.

3. That the Applicants' contribution to the venture was the project land which they transferred to the 1st Respondent entitling them to shareholding in the Company.

4. That the Ist Respondent was incorporated through the firm of NK Mugo & Co Advocates and set up as a Special Purpose Vehicle to carry out a project of construction of residential apartments on the project land being Title No Dagoretti/Kangemi/2037 and thereafter sell the Apartments and share the profits and or allocate the Apartments to its Shareholders.

5. That the said Shareholders Agreement dated December 30, 2015 was prepared by the Law Firm of NK Mugo Co Advocates on the instructions of the 1st Respondent herein

6. That the structure of the shareholding was that the Applicants were not to participate in the project and were only to await profit distribution as set out in clause 5. 3 of the Shareholders Agreement dated December 30, 2015 with Shareholders B getting an allocation of 21 units comprising of 60% three bedroom apartments and 40% two bedroom apartments, Shareholders D getting an allocation of 15 units comprising of 60% three bedroom apartments and 40% two bedroom apartments, Shareholders E getting an allocation of 34 units comprising of 60% three bedroom apartments and 40% two bedroom apartments and there was no further payment or benefit to be made to shareholders B,D,E save that in the event the construction goes beyond 84 units shareholders B and D would be allocated 30% of the additional units.

7. That the Shareholder Peter Maina Kanambo transferred his shares in the 1st Respondent Company to one Virji Meghji Patel, the 2nd Respondent herein on February 6, 2017 and he was henceforth the Managing Director and shareholder of the 1st Respondent.

8. That the contract of transfer of shares and refund of money provided in Clause 6 that the contract shall not in any way affect the Shareholders Agreement in respect to the company in place and executed between the parties save that the exiting shareholder in the said Agreement shall be replaced by the incoming shareholder

9. that the construction of the Project is now complete and the developed apartments are 264 in number spread over blocks A to E on the suit property LR No Dagoretti/Kawangware/2037.

10. that the 2nd Respondent has contrary to the terms of the Shareholders Agreement declined to allocate the additional units to Shareholders B and D who are the Applicants herein thereby precipitating a dispute on the allocation of apartments to shareholders after a meeting of June 12, 2020 where the 1st and 2nd Respondent introduced a supplementary agreement which sought to amend the shareholders agreement of December 30, 2015 which dealt only with 21 and 15 apartments due to the 1st and 2nd Applicants and which upon signing would constitute a full and final settlement and also discharge the 1st Respondent and the Developers from any liability

11. that following the emergence of the dispute aforementioned, the Applicants/Shareholders herein moved this Honourable Court in a case numbered Misc Suit No E806 of 2020 against the 1st Respondent. 2nd Respondent herein Muigai Phares Thumbi. Waiyaki Way Developers Ltd and Waiyaki Ridge Gardens Ltd. and the Law firm of NK Mugo & Co Advocates as the 5th Respondent.

12. that the Applicants in Miscellaneous E806 of 2020 sought orders under section 7 of the Arbitration Act and specifically the following prayers;1. that this Honourable Court be pleased to certify this matter as extremely urgent and dispense with service in the first instance.2. that a conservatory order do issue restraining the Respondents whether by themselves, through their servants agents or otherwise from committing breach of the shareholders agreement dated December 30, 2015 and more specifically from transferring, alienating or in any way or manner disposing any interest in the Waiyaki Way Developers Ltd And Waiyaki Ridge Gardens Ltd. Pending Interparties hearing of the application3. that a conservatory order do issue restraining the Respondents whether by themselves, through their servants agents or otherwise from committing breach of the shareholders agreement dated December 30, 2015 and more specifically from transferring, alienating or in any way or manner disposing any interest in the Waiyaki Way Developers Ltd and Waiyaki Ridge Gardens Ltd pending the reference and determination of the Arbitration proceedings between the parties.4. that this Honourable Court be pleased to appoint either of the following nominees as a sole Arbitrator to determine the dispute between the Shareholders under the provisions of clause 53. 4 of the shareholders Agreement dated December 30, 2015. a.John Morris Ohaga FCIArbb.Allen Waiyaki Gichuki FCL4rbc.Dr. Kariuki Muigua FCIArb5. that the Court do make a finding that the Firm of NK Mugo & O Advocates or any advocates therein representing the said firm cannot be appointed arbitrators due to their partisan conduct and involvement in the breach of the provisions of the Shareholders Agreement dated December 30, 2015. 6.that the cost of this proceedings be paid by the Respondent.

13. that in the Case No Misc Suit No E806 of 2020 the Applicants herein sought an interim measure of protection by way of conservatory orders to restrain the 1st Respondent from transferring, alienating or in any way or manner disposing any interest in the project pending the reference and determination of the Arbitration proceedings between the parties.

14. that the 2nd Respondent in the said suit made reference to another Shareholders Agreement dated July 28, 2015 also drawn by the firm of NK Mugo & Co Advocates on the instructions of the 1st Respondent. The Respondent in his response was disputing that the binding shareholder’s agreement was binding was that of July 28, 2015 and not that of December 30, 2015.

15. that a dispute having have arisen as to which Shareholder Agreement is legal and binding and therefore it is not unfathomable or far-fetched to anticipate that the Advocates practicing as the Law Firm of NK Mugo & Co Advocates will be called upon to participate at the Arbitration before the Sole Arbitrator as a Potential Witnesses as the Advocates who drew the Shareholders Agreement participate at the Arbitration before the Sole Arbitrator as a Potential Witnesses as the Advocates who drew the Shareholders Agreement.

16. that the Court in Misc Suit Number E 806 of 2020 by a Ruling of Justice Majanja of November 26, 2020 declined to grant orders under Section 7 of the Arbitration Act stopping the sale of the apartments pending arbitration on the grounds that the company was indebted to KCB Bank Kenya to the tune of Kshs 1,080,000,000 and the delay in selling the units would cause untold consequences to the company.

17. that despite the sacred and hallowed status granted to the Law Firm of NK Mugo & Co Advocates in the Shareholders Agreements where the Parties had initially agreed and envisaged that the Law Firm of NK Mugo & Co Advocates would in the event of a dispute between the Parties appoint one of its Advocates to be the Sole Arbitrator to hear and determine the dispute, the Law Firm of NK Mugo & Co Advocates illegally abdicated its sacred role as Arbiter by picking a side in the dispute on behalf of a party to the Shareholders Agreement and descended into the dispute arena by acting as the Advocates on Record for the 1st and 2nd Respondents herein in the case ELC Suit No E216 of 2020 which is pending before the ELC Court Nairobi

18. that having already abdicated its sacred role as Arbiter and chosen a side in the dispute between the Parties, the Law Firm of NK Mugo & Co Advocates has subsequently relied on the Arbitration Clause in the Shareholders Agreements to appoint one of its two (2) Partners, one John Mugo Muthike Advocate and Partner at NK Mugo & Co Advocates as the Sole Arbitrator to ostensibly hear and determine the dispute between the Parties.

19. that the Sole Arbitrator Mr John Mugo Muthike Advocate who trades and carries on practice in the name and style of NK Mugo & Co Advocates upon receipt of his appointment, failed to formally disclose to both the appointing authority and to the parties in writing that his Law Firm NK Mugo & Co Advocates was appointed by a resolution passed by Waiyaki Way Developers Limited the 1st Respondent herein on July 12, 2019 to handle all legal issues regarding the project.

20. that the Sole Arbitrator Mr John Mugo Muthike Advocate who trades and carries on practice in the name and style of NK Mugo & Co Advocates upon receipt of his appointment, failed to formally disclose to the appointing authority and to the parties in the Arbitration in writing that his Law Firm NK Mugo & Co Advocates in Nairobi ELC. Suit E216 of 2020 was acting for the 1st Respondent and that the Law firm also took instructions from Mr Virji Meghji Patel who is the Managing Director of the 1st Respondent and prepared a Replying Affidavit sworn by Mr Virji Meghji Patel who is the 2nd Respondent in the dispute before him.

21. that in the Arbitration dispute there are two factions of Shareholders holding opposing positions arising out of the 2 Shareholders Agreements drawn by the Law Firm of NK Mugo & Co Advocates and because the Law Firm in the case Nairobi El-C. Suit E216 of 2020 was acting for the 1st Respondent and that the Law Firm also took instructions from Mr Virji Meghji Patel who is the Managing Director of the 1st Respondent and prepared a Replying Affidavit sworn by Mr Virji Meghji Patel who is the 2nd Respondent in the dispute before him, it is reasonably expected that the Arbitrator shall not rule against his Law Firm's clients the 1st and 2nd Respondents herein from whom he receives substantial business relating to the same subject matter of the dispute.

22. that the Sole Arbitrator Mr John Mugo Muthike Advocate, clearly took up the appointment to act as an Arbitrator in breach of Section 13 of the Arbitration Act, No 4 of 1995 and the Chartered Institute of Arbitrators Kenya Branch Arbitration Rules 2020 to the extent that he failed to formally disclose to the parties to the dispute.

23. that to further compound the issue, the Law Firm of NK Mugo & Co Advocates continues to act for gain for the 1 st Respondent in the conveyancing of the entire project in the preparation of the 264 Sale Agreements over all the Apartments erected in all that property known as Land Title No Dagoretti/Kangemi/2037 which is the subject matter of the Arbitration and it is crystal clear that the 1st Respondent which is a Party to the dispute before the Sole Arbitrator butters the Law Firm's bread and it is clear where the Law Firm's loyalty lies.

24. that during the preliminary moments in the Arbitration proceedings and while the Application for recusal of the Arbitrator was pending before the Arbitrator, the Arbitrator purported to issue an injunctive Order to stop the holding of an Annual General Meeting by the Shareholders of his Client, Waiyaki Way Developers Limited after the Shareholders lawfully requisitioned for an Annual General Meeting which novel and illegal interference in the running of a Limited Liability Company was beyond the scope of the reference to Arbitration

25. that the conduct of the Sole Arbitrator John Mugo Muthike Advocate, who trades and carries on practice in the name and style of NK Mugo & Co Advocates, in failing to disclose the above circumstances has led the Applicants to the irresistible conclusion that in view of the roles that the Law Firm of Sole Arbitrator plays in acting for the 1st Respondent and 2nd Respondents herein it is highly unlikely that in the dispute over the allocation of units as per Shareholders Agreements drawn by his Firm, will permit the Sole Arbitrator to be impartial and rule against his Clients if the evidence adduced warrants it.

26. that it is evident that the Sole Arbitrator John Mugo Muthike Advocate who is also a Partner trading as NK Mugo & Co Advocates is truly conflicted and the Applicants have justifiable doubts as to his competence, independence and impartiality

27. that consequently the Applicants made an application respectfully voicing their reasonable apprehension and belief that the Sole Arbitrator John Mugo Muthike Advocate could not by any stretch of the imagination be seen to be an impartial and independent Sole Arbitrator being a partner of NK Mugo & Co Advocates and invited the Arbitrator to recuse himself by reason of being conflicted but the Arbitrator declined the Application through his Ruling dated September 6, 2021 thus necessitating this Application

28. that the Respondent the Sole Arbitrator John Mugo Muthike Advocate in his Ruling dated September 6, 2021 declined to recuse himself as a Sole Arbitrator despite the undisputed evidence that there was Advocate/Client relationship between the 1st and 2nd Respondent and the firm of NK Mugo where the Arbitrator is partner receives profits and instead demonstrated exceptional haste to hear the dispute and directed that Directions on the way forward would issue within 14 days of the impugned Ruling.

29. that the Sole Arbitrator has already clearly descended into the arena of the dispute involving his Clients and this will undoubtedly blur his vision with regard to the controversy between the parties.

30. that in view of the above the Applicants have established factual circumstances that would have a bearing on the apprehension that the Tribunal is or might be seen to be partial.

31. that a hypothetical fair-minded and informed observer would view the fact that the Sole Arbitrator's Law Firm, NK Mugo & Co Advocates acts for the Respondents herein as against the Applicants on matters pending before this Honourable Court on the same subject matter, is also a party with the Applicants in another matter before this Honorable Court and further earns conveyancing fees in the same commercial transaction from one of the Parties to the dispute as bearing on the Tribunal's impartiality in the resolution of the dispute before it.

32. that it settled law that what matters is the impression which would be given to other people that even if the Sole Arbitrator was as impartial as could be, nevertheless, if right-minded persons would think that in the circumstances there was a real likelihood of bias on the Sole Arbitrator's part, then he should not sit and if he does sit, then his decision cannot stand.

33. that impartiality is a question of perception and it matters not that the Sole Arbitrator may conduct himself lawfully, but the fact that the Law Firm of NK Mugo & Co Advocates already abdicated its sacred role as Arbiter in the Agreements by picking a side in a related dispute and entering into the dispute arena in ELC Suit No E216 of 2020 as the Advocates on Record acting for the 1st Respondent herein on the instructions of the 2nd Respondent who is the Managing Director of the 1 st Respondent in the Arbitration on the same subject matter raises a justifiable cause for the Sole Arbitrator as a Partner in the Law Firm of NK Mugo & Co Advocates to recuse himself as justice must only be done but be seen to be done.

34. that it is the Applicants' contention that there is a subsisting Advocate-Client relationship between the Arbitrator who practices in the name and style of NK Mugo Co Advocates and the 1 st and 2nd Respondents and which offends the provisions of the General Standards Regarding Impartiality, Independence and Disclosure; International Bar Association Guidelines on Conflict of Interest in International Arbitration 2014, which requires an arbitrator to disclose facts and/or circumstances that may in the eyes of the parties give rise to doubts as to the Arbitrator's impartiality or independence.

35. that the Sole Arbitrator is truly guilty of material non-disclosure in breach of Section 13 of the Arbitration Act, No 4 of 1995 and the Chartered Institute of Arbitrators Kenya Branch Arbitration Rules 2020 which require him to formally disclose to the Parties to the dispute all circumstances likely to give rise to justifiable doubts as to his impartiality or independence and he has as a result misconducted himself.

36. that in view of the material non-disclosure by the Sole Arbitrator, there are, on the face of it, good grounds warranting his removal as an Arbitrator in this dispute.

37. that it would be in the interest of justice to stay all Arbitral proceedings before the Sole Arbitrator, John Mugo Muthike Advocate pending the hearing and determination of this Application for his removal.

38. that the parties have reason to believe that the 3rd Respondent sole Arbitrator John Mugo Muthike Advocate having not taken any course study in Arbitration nor handled any Arbitration matter previously is not seized of the requisite qualifications as an Arbitrator to appreciate that from the above circumstances that he is indeed conflicted as he has a personal interest in the outcome of the dispute, ergo cannot hear and determine the same.

39. that the Sole Arbitrator John Mugo Muthike Advocate does not possess the professional qualifications required by the Arbitration Agreement and as a result he has failed to appreciate the qualities and conduct expected of an Arbitrator and has subsequently by his conduct met all the conditions for the removal of an Arbitrator as captured on Page 57 & 58 of the Handbook of Arbitration Third Edition by Ronald Bernstein, John Tackaberry , Arthur L. Marriot and Derek Wood which conditions for the removal of an Arbitrator are inter aliai.Business Connection with a Party:- The Sole Arbitrator and his Law Firm are earning millions of Kenya Shillings in conveyancing fees from the 1 st Respondent for the preparation of Sale Agreements for the 264 Apartments at the heart of the dispute and further earn legal fees as the Respondent's appointed Advocates by resolution The Arbitrator failed to formally disclose this in writing or at all to both the Appointing Body and to the Parties.ii.Connection with the subject matter of the Arbitration: - The Sole Arbitrator and his Law Firm were involved in the incorporation of the 1st Respondent and also drew up the two Shareholder Agreements in dispute that also appointed his law firm to be both the Appointing body and the Arbitrator in any dispute between the Parties.iii.Prior Connection with a similar dispute: The Sole Arbitrator's Law Firm was appointed by the 1st Respondent by resolution to handle all the legal affairs of the Company and has previously represented the Company against its Shareholders in previous litigation over the same subject matter of the dispute in Arbitration before him.iv.Does not possess the qualifications required by the arbitration agreement; The Sole Arbitrator does not possess the requisite professional qualifications to hear and determine a dispute of this magnitude and complexity and is neither a certified Arbitrator nor has he ever sat as an Arbitrator in any other Arbitration proceedings previously.v.Circumstances exist that give rise to justifiable doubts as to his impartiality. that while glaring circumstances exist that would give rise to justifiable doubts as to his impartiality, the Sole Arbitrator failed to formally disclose in writing that he has a business relationship with one of the Parties in the dispute, or that he enjoys an Advocate-Client relationship with one of the Parties where he earns considerable legal fees for the conveyancing of the same Apartments subject of the same dispute or that his Law Firm has acted for some of the Parties to the dispute before him in litigation involving the same subject matter of the dispute.

40. that in view of the foregoing, the Applicants herein have lost faith in the impartiality, competence and independence of the Arbitral Tribunal comprising of the sole Arbitrator John Mugo Muthike Advocate and the continuation of proceedings before him would greatly prejudice the Applicants who stand to suffer irreparably if the orders sought are not granted.

41. that the 3rd Respondent the Sole Arbitrator John Mugo Muthike Advocate in his Ruling dated September 6, 2021 declined to recuse himself despite uncontroverted evidence that there exists an Advocate-Client relationship and instead demonstrated exceptional haste to hear the dispute and directed that Directions on the way forward would issue within 14 days of the impugned Ruling.

42. that it is trite law that litigation belongs to the Parties in the dispute and not to the Court or to the Arbitral Tribunal and Arbitral being final and the stakes being very high for the Applicants who are initial Land Owners pray that the Honourable Court does intervene and allow the prayers sought in this application

43. that the Sole Arbitrator's role is confined to performing the duty of an impartial arbiter which hallowed principle has been negated by the 3rd Respondent's insistence that he must hear and determine a dispute involving his instructing Client the 1st Respondent herein while the Sole Arbitrator is conflicted and has a personal interest in the dispute.

44. that the conduct of the 3rd Respondent herein complained of by the Applicants is repugnant to justice and if not reversed and stopped will result in self-evident injustice to the Applicants as an outcome and will further violate and taint the tenets of the practice of Arbitration and ADR iNKenya.

45. that Article 159 of the Constitution, The Arbitration Act, No 4 of 1995 and the Chartered Institute of Arbitrators Kenya Branch Arbitration Rules 2020 vest this Honourable Court with inherent power to prevent a miscarriage of justice and prevent the abuse of the process alternative dispute resolution mechanisms to ensure that the overriding objective is achieved and the ends of justice are met.

3. The Respondents opposed the application through the Replying Affidavit of the 2nd Respondent’s Managing Director Mr Virji Meghji PateL who states that the shareholders agreement provided that the firm of nK Mugo would appoint an arbitrator if any dispute arose between the parties. He avers that the said law firm appointed Mr John Mugo Muthike as the sole arbitrator to determine the dispute and that the present application seeks to rehash arguments already addressed in Miscellaneous Application E806 of 2020. He avers that the applicant is by dint of the provisions of Section 14 (2) of the Arbitration Act (the Act) statutorily estopped from challenging the arbitrator’s appointment as the reasons advanced by the applicant ought to have been within their knowledge before the appointment.

4. The 2nd Respondent states that the firm of NK Mugo & Co advocates was the proper appointing body as provided under the shareholders Agreement.

5. The application was canvassed by way written submissions which I have considered. The main issue for determination is whether the applicants have made out a case for the removal of the sole arbitrator. Section 13 of the Act sets out the circumstances under which parties can challenge an appointed arbitrator or arbitration tribunal. The said section stipulates as follows: -“An arbitrator may be challenged only if circumstances exist that give rise to justifiable doubts as to his impartiality and independence or if he does not possess qualifications agreed to by the parties.”Section 13(4) states“A party may challenge an arbitrator appointed by him, or in whose appointment that party has participated, only for reasons of which he becomes aware after the appointment”

6. In Chania Garden Ltd v Gilbi Construction Company Ltd & Another [2015] eKLR it was held: -“Perception of bias, as it the case here, without proof will not amount to misconduct for purposes of removal of the arbitrator. The comments complained of were not made without basis. The parties made elaborate submissions and submitted documents on the issues which he addressed in the ruling including the matters on the Quantity Surveyor. The content of paragraph 15 of the ruling is not a determination at all of the issue at hand. It was merely a necessary writing flowing from the issues and arguments presented by parties and they do not make the arbitrator incapable of acting impartially in the future in the subject of arbitration, which is payments due on the certificates No 12 and 13. The arbitrator is still capable of determining the real issues in controversy on, and he is possessed of necessary competence to appreciate the evidence which will be produced by the parties. There was nothing conclusive of the rights of the parties in the ruling which would amount to misconduct on the part of the Arbitrator in the sense of Mustil J’s formulation The facts presented do not meet the ultimate test as per the literary work by Steve Gatembu at page 54 of Arbitration Law and Practice in Kenya that;“The test whether a person is in position to act judicially and without any bias has been suggest to be: -“do there exist grounds from which a reasonable person would think that there was a real likelihood that the arbitrator could not or would not fairly determine…. (the dispute) ……on the basis of the evidence and arguments to be adduced before him”.

7. The applicants seeks the removal of John Mugo Muthike as the sole arbitrator in the dispute. The applicants also seek the removal of the law firm of N K Mugo & Co advocates from being the appointing body of the arbitration The applicants’ case is that despite his appointment as the sole arbitrator, the arbitrator’s law firm established an advocate client relationship with the respondents. It was the applicants’ case that the arbitrator did not disclose his relationship with the respondent prior to his appointment. It was also the applicants’ case that the sole arbitrator does not possess the necessary professional qualifications to hear the claim as he has not undertaken arbitration courses.

8. In a rejoinder, the respondent argued that the parties are bound by the terms of the shareholding agreement and that the court does not have the mandate to interfere with the contract between the parties. It was further stated that the applicant is statutorily estopped from challenging the arbitrator’s appointment as under Section 14 (2) of the Act, the reasons advanced by the applicant ought to have been within the knowledge of the applicant before the appointment.

9. I have perused the shareholder’s agreement and Clause 26. 2 provides that:-“any dispute arising out of or in connection with this agreement shall be referred to and finally settled by an arbitration under the arbitration Act 1995 and the rules made thereunder by one arbitrator appointed in accordance with the agreement of the parties failing which the parties herein agree that the law firm of NK Mugo & co Advocates shall appoint one of its advocates to be the sole arbitrator and its decision shall be final and binding. The place of arbitration shall be in Nairobi in the Republic aforesaid. The language of the arbitration proceedings shall be English”

10. The above clause indicates that the parties agreed that the law firm of NK Mugo & Co Advocates would appoint the arbitrator should a dispute arise between them. The issue of the impartiality and independence of the arbitrator has however arisen after it emerged that the law firm of NK Mugo Advocates also represents one of the parties to the dispute. The applicant is apprehensive that the arbitrator will not be impartial because he works in the same law firm that represents the respondent herein The respondent did not dispute appointing the firm of NK Mugo & co Advocates to represent them in the matter.

11. In Zadock Furnitures Limited and Another v Central Bank of Kenya HC Misc Application No 193 of 2014 [2015] eKLR it was held that:-“[30] The grounds for removal of arbitrator are set out in section 13(3) of the Arbitration Act, but the one which is relevant to this application is…only if circumstances exist that give rise to justifiable doubts as to his impartiality and independence... The words ‘’only if’’ and ‘’justifiable doubts’’ are important in a decision under section 13(3) of the Arbitration Act. And the arbitrator recognized that fact. The words suggest the test is stringent and objective in two respects: a) the Court must find that circumstances exist, and those circumstances are not merely believed to exist; and b) those circumstances are justifiable; this goes beyond saying that a party has lost confidence in the arbitrator’s impartiality into more cogent proof of actual bias or prejudice

12. In Justice Philip K Tunoi and Another v Judicial Service Commission and Another NRB CA Civil Appeal No 6 of 2016 [2016] eKLR, the Court of Appeal adopted the decision in Porter v Magill [2002] 1 All ER 465 where the court held that the test for apparent bias is:-“[W]hether the fair minded and informed observer, having considered the facts, would conclude that there was a real possibility that the tribunal was biased.” The same position was taken by the Supreme Court (per Ibrahim J.) in Jasbir Rai and 3 Others v Tarlochan Singh Raid and 4 Others SCOK Petition No 4 of 2012 [2013] eKLR that, “The Court has to address its mind to the question as to whether a reasonable and fair-minded man sitting in Court and knowing all the relevant facts would have a reasonable suspicion that a fair trial for the applicant was not possible. If the answer is in the affirmative, disqualification will be inevitable.”

13. Guided by the principles outlined in the foregoing cases, it is clear that the arbitrator’s representation of the 1st and 2nd respondents creates a clear case of conflict of interest. It is clear that in the eyes of any fair minded observer, the arbitrator would be considered to be biased. I find that the parties’ agreement notwithstanding, it was incumbent on the said law firm of NK Mugo advocates to decline any instructions to work for any of the parties to the dispute as the same would taint their role as arbitrators in the matter. It is my finding that, in the circumstances of this case, the arbitrator cannot be said to be impartial when they act for the 1st and 2nd respondent and receive financial benefit from their relationship.

14. In sum, I find that the applicant has made out a case for the disqualification of the arbitrator from handling the dispute. I find merit in the application and I therefore allow it in the following terms:- 1. The law firm of NK Mugo & Co Advocates is hereby disqualified from being the appointing body of the Arbitrator

2. A new arbitrator shall be appointed by the Chairman of the Chartered Institute of Arbitrators (K) on application by any of the parties.

3. The proceedings before the new arbitrator shall commence de novo.

DATED, SIGNED AND DELIVERED VIRTUALLY AT NAIROBI THIS 8THDAY OF DECEMBER 2022. W A OKWANYJUDGEIn the presence of: -Mr Wanyonyi for Tito for 2nd respondent.Ms Makori for the applicants.Mr Ondiek for 3rd respondent.Court Assistant- Sylvia