REPUBLIC OF KENYA
IN THE HIGH COURT OF KENYA AT KWALE
MISC. CIVIL APPLICATION NO. E007 OF 2024
(Coram: Andayi W. F., J.)
IN THE MATTER OF THE ARBITRATION ACT (CAP. 49) LAWS OF KENYA
AND
IN THE MATTER OF A DISPUTE BETWEEN THE COUNTY GOVERNMENT OF KWALE AND APEX VALUERS LIMITED ARISING FROM AN AGREEMENT DATED 19TH JUNE 2017
AND
IN THE MATTER OF AN APPLICATION TO SET ASIDE AN AWARD MADE AND PUBLISHED BY JACQUELINE WAIHENYA, CHARTERED ARBITRATOR ON THE 14TH MARCH 2024
BETWEEN
APEX VALUERS LIMITED……………………………………………APPLICANT
VERSUS
COUNTY GOVERNMENT OF KWALE …………………………RESPONDENT
RULING
1. Apex Valuers Ltd (hereinafter Apex) has filed an application dated 13/6/2024 seeking an order that the Amended Final Award made and published by Jacqueline Waihenya Chartered Arbitrator on 14/3/2024 in an arbitration between the County Government of Kwale, (hereinafter the County Government or CG) the respondent herein, as claimant in the arbitration and the applicant herein as respondent and arising from a service contract for the provision of valuation services dated 19th June 2017 between the respondent and the claimant be set aside.
2. The application is brought under section 35 of the Arbitration Act (Cap. 49) Laws of Kenya, Rule 7 of the Arbitration Rules, 1997, section 3 of the Civil Procedure Act (Cap. 21) Laws of Kenya, Order 48 Rule 4 of the Civil Procedure Rules, and all other enabling provisions of the law.
3. The grounds in support of the application as set out on the face of the application and expounded in the supporting affidavit sworn on 13/6/2024 and supplementary affidavit sworn on 23/9/2024 by Francis Ochieng Oketch the managing director of the applicant are as follows:
i. the arbitral award deals with a dispute not contemplated by or not falling within the terms of the reference to arbitration.
ii. the arbitral award contains decisions on matters beyond the scope of the arbitration.
iii. the arbitral award is in conflict with the public policy of Kenya as it contains decisions incapable of execution, which are in violation of the constitution and statutes, promotes and perpetuates illegalities and purports to reward a party who has violated the law.
4. The respondent opposed the application through a replying affidavit sworn on 8/8/2024 by Alex Onduko, the Chief Officer Finance and Economic Planning of the Respondent.
5. The application was disposed of by way of written submissions filed by learned counsels for both parties.
6. The background to this application is that on 19/6/2017, the applicant and the respondent entered into a contract for the applicant to prepare a draft valuation roll (DVR, 2017) for the County Government of Kwale, the respondent herein, for use by the respondent in its Land Rates department to be utilized for collection of land rates. The contract was for a sum of KShs 29,827,022/= and for a period of 12 months.
7. A dispute arose in the course of execution of the contract with each party claiming breach of contract by the other. They referred the dispute to arbitration as provided for under Clause 2.2 of the contract. The respondent filed a claim while the applicant filed a response to the claim and counterclaim. Each prayed for a declaration of breach of contract against the other as well as loss and damage and sought compensation.
8. Besides the declaration for breach of contract, the respondent also prayed for:
i. an order of restitution for refund of KShs 23,861,617.60 and
ii. general damages (sic) of KShs 1,920,000,000/= and
iii. in the ALTERNATIVE an order of specific performance against the applicant within a specified timeline (underlining mine for emphasis).
iv. Costs, interest and any other relief that the tribunal may deem fair and just to grant.
9. On its part the applicant filed a defence denying the respondent’s claim and made a counterclaim which besides the prayer for declaration of breach of contract also prayed for:
i. an order of restitution by payment of the balance of the contract sum of KShs 5,965,400.40.
ii. An order of specific damages of KShs 58,823,560/=,
iii. An order for payment of KShs one Billion.
iv. Upon payment of the above a variation for specific performance on terms to be agreed or directed by the arbitral tribunal (emphasis by underlying mine for emphasis).
v. Costs, interest and any other relief that the tribunal may deem fair and just to grant.
10. Upon taking evidence of the parties, the arbitraral tribunal identified issues which were not disputed by the parties and then the contested issues upon which she made determinations.
11. After the Final Award dated 14/8/2023 was issued to the parties on 15/2/2024, the County Government’s advocates noted that the date on which Apex Valuers was required to deliver the DVR, 2017 had since passed. In a letter dated 16/2/2024, they wrote to Apex Valuers’ advocates bringing the issue to their attention and indicating that they would wish to have the date amended together with other ensuing dates on which parties were expected to comply with the Final Award in line with Rule 130 of the Arbitration Rules, 2020. There were correspondences between the parties and the arbitral tribunal which resulted in the arbitral tribunal issuing an Amended Final Award on 14/3/2024. The amendments were mainly with respect to the timelines for the execution of the award and other minor issues as follows:
i. The date for Apex Valuers to deliver the DVR, 2017 (unimproved site value) was amended from 31/1/2024 to 30/4/2024.
ii. The date for Apex Valuers to have undertaken public participation was amended from 28/2/2024 to 28/5/2024.
iii. In default of performance the date for refund of the amounts already paid was amended from 1/4/2024 to 28/5/2024.
iv. Paragraph 26.4 of the Final Award was amended to change the word “parties” to “respondent” and the date from 1/4/2024 to 30/7/2024.
v. The date for payment of costs by Apex Valuers to County Government was amended from 1/4/2024 to 30/7/2024.
vi. The date when the post award interest would accrue was amended from 1/4/2024 to 30/7/2024.
12. There is no dispute that the correction of the errors was in line with section 34 of the Arbitration Act.
13. Learned counsels made elaborate submissions and citing authorities with learned counsel for Apex submitting in favour of setting aside and learned counsel for the County Government submitting against setting aside the arbitral award. I have given them due consideration. The issue for determination is whether or not the application herein meets the threshold for setting aside an arbitral award.
14. Sections 10 and 32A of the Arbitration Act provide for the extent and manner in which the High Court can intervene in arbitration proceedings as follows:
S. 10. Except as provided in this Act, no court shall intervene in matters governed by this Act.
S. 32A. Except as otherwise agreed by the parties, an arbitral award is final and binding upon the parties to it, and no recourse is available against the award otherwise than in the manner provided by this Act.
15. Section 35 of the Arbitration Act deals with applications for setting aside arbitral awards and provides that:
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. …
ii. …
iii. …
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. …
vi. …
b) the High Court finds that—
i. …
ii. the award is in conflict with the public policy of Kenya.
3) An application for setting aside the arbitral award may not be made after 3 months have elapsed from the date on which the party making that application had received the arbitral award, or if a request had been made under section 34 from the date on which that request had been disposed of by the arbitral award.
4) The High Court, when required to set aside an arbitral award, may, where appropriate and if so requested by a party suspend the proceedings to set aside the arbitral award for such period of time determined by it in order to give the arbitral tribunal an opportunity to resume the arbitral proceedings or to take such other action as in the opinion of the arbitral tribunal will eliminate the grounds for setting aside the arbitral award.
16. I will now set out and deal with each of the grounds challenging the award asking for it to be set aside. Considering the grounds upon which the application is based and the submissions by learned counsels, I am satisfied that all the issues raised in this application can be dealt with together and so I will proceed as such.
17. The issue for determination then is whether the arbitral award deals with a dispute not contemplated by or not falling within the terms of the reference to arbitration and/or contains decisions on matters beyond the scope of the arbitration and whether the arbitral award is in conflict with the public policy of Kenya as contended by Apex.
18. These issues call for a consideration of what the terms of reference to the arbitral tribunal were. But to begin with the arbitration clause in the contract, Clause 2.2, provided for dispute resolution as follows;
2.2. Dispute Resolution
Any dispute arising out of the contract which cannot be amicably settled between the parties shall be referred by either party to the arbitration. The decision of the arbitrator shall be final and binding upon the parties. Failing agreement to concur in the appointment of an arbitrator, the arbitrator shall be appointed by the Chairman of the Chartered Institute of Arbitrators, Kenya branch, on the request of the applying party. The arbitration shall, take place in Nairobi Kenya. (Emphasis by underlying mine).
19. There is no dispute that the parties were unable to settle their dispute amicably and thus the reference of the dispute to the arbitral tribunal as provided for under the clause on dispute resolution above.
20. The applicant herein has not explicitly set out what the terms of reference to the arbitral tribunal were either in the grounds in support of the application or the supporting affidavit. Learned counsel has however indicated in the submissions what I consider, according to Apex were the terms of reference as follows:
i. When a dispute ensued regarding the way parties were going about their obligations under the arbitration agreement, the matter went to arbitration in line with the dispute resolution mechanism provided for in Clause 2.2 of the agreement. The respondent pleaded that the applicant failed to deliver within the agreed period as a result of which it suffered losses as pleaded Paras 12 and 13 (page 20). As a result, the respondent asked the arbitrator to grant it the reliefs pleaded in the Amended Statement of Claim.
ii. In its response to the Claim (Page 26) the Applicant states that the collapse of the agreement was occasioned by failure to undertake mandatory fundamental statutory obligations set out in the Rating Act (Cap. 267) (“the RA”) and the Valuation for Rating Act (Cap. 266) (“the VRA”) that were necessary for the process to move forward lawfully and the failure by the respondent to make payment in line with the contract (emphasis by underlining mine) (see paragraph 13, 14, 15, 16 and 17 of the response at page 28-32). The claimant also counterclaimed for payment of the full contract price and special damages as stated in page 34.
21. Considering these two depositions, one can note that execution of the contract had stalled because. The County Government lay blame for the same on Apex for failing to complete the contract. Apex on its part lay blame on the County Government for two reasons failure to undertake mandatory fundamental statutory obligations set out in the Rating Act (Cap. 267) and the Valuation for Rating Act (Cap. 266) that were necessary for the process to move forward lawfully and the failure by the respondent to make payment in line with the contract.
22. Section 35(2) of the Act requires that it is the party making the application to furnish proof of the grounds for setting aside the award under section 35(2) of the Act.
23. In determining this application the court is guided by various fundamental principles, on which arbitration is anchored namely, principle of party autonomy, principle of arbitrability, principle of separability, principle of judicial nonintervention and doctrine/principle of kompetenz-kompetenz (see “Anchoring Commercial Arbitration on Fundamental Principles” in by Paul Obo Idornigie, PhD, FCIS, MCIArb, Barrister-at-Law and Solicitor, Senior Lecturer, Department of Company Law & Practice, Nigerian Law School, Abuja, Nigeria in The Arbitrator & Mediator April 2004) among others.
24. These principles are expressed in various decisions of the superior courts in Kenya many of them cited by learned counsels for the parties herein and which I have had chance to consider and be guided accordingly.
25. It is clear that according to Apex, the terms of reference should be as contained in the parties’ respective pleadings, which is correct. The arbitral tribunal considered this issue and found in its Final Award at paragraph 21.2 that the parties were invited to file an agreed List of Issues but this was not done. The arbitral tribunal first identified issues it determined as not disputed (Para. 20.2) then framed the issues for determination (Para. 21), analyzed them and then came to the findings as summarized below:
i. was the contract extended?
The arbitrator found that the Valuation Roll Agreement (the contract) was extended beyond the 12 months’ period by conduct of the parties.
ii. Was there a breach of contract, if so by whom?
Here the arbitrator divided the issue into four more sub-issues as follows:
i. whether there were any implied terms to the contract?
She found, agreeing with the applicant herein that there were none and the parties were bound by the written word.
ii. Whether the respondent herein breached mandatory statutory requirements?
The arbitrator found in agreement with the Apex Valuers that the County Government was in breach of mandatory statutory requirements but only to the extent where the Gazette Notices had not been published by 24/12/2020.
The learned arbitrator then paused a question by asking what steps Apex Valuers had taken in three years that had elapsed since the gazette notices were published?
iii. Whether the payment terms were breached by the County Government?
The learned arbitrator found that a total of KShs 23,861,617.60 had been paid by the County Government to Apex Valuers representing 80% of the contract price.
iv. Whether Apex Valuers breached the terms of the contract by delivering a draft valuation roll (DVR) without values.
The learned arbitrator found that Apex Valuers had described the document that they presented to the County Government and before the arbitrator as “incomplete draft valuation roll” and therefore that neither the provisions of section 6 of the Valuation for Rating Act nor the threshold deliverables/output set out in the Terms of Reference in the parties’ contract were met by Apex Valuers.
Consequently, there was a breach of contract by Apex Valuers.
iii. Which party is entitled to its claim and to what effect?
The learned arbitrator found that the County Government was entitled to a declaration that that the respondent was in breach of its obligations as per the parties’ contract.
iv. What is the applicable relief?
The learned arbitrator found that from the evidence presented Apex Valuers had estimated that it required 3-4 months to complete the DVR, 2017 and undertake the public participation in 30 days. Further that the County Government had acknowledged that they would pay the balance outstanding on the contract plus any inflation costs when Apex Valuers delivered the DVR. She therefore granted the following reliefs:
i. An order of specific performance that Apex Valuers shall deliver the DVR 2017 (unimproved site value) drawn in strict compliance with section 6 of the Valuation for Rating Act, on or before 31/1/2024.
ii. That the Apex Valuers would undertake the requisite public participation on or before 24/2/2024.
iii. Further that the County Government shall make payment to Apex Valuers of the balance of the purchase price of KShs 5,965,400.40 conditional upon receipt of the DVR
iv. a variation in the contract price of not more than 20% of the said contract price as per the provisions of section 139(4) of the Public Procurement and Asset Disposal Act upon the completion of the public participation.
v. The payments to be within 30 days of full compliance.
The learned arbitrator went further and held that should Apex Valuers fail, neglect and or refuse to produce and deliver the DVR, 2017 on or before 28/2/2024 the County Government shall be refunded the full amount of KShs 23,861,617.60.
v. Who should bear the costs of the reference and the award and if so how much?
Costs of the reference were awarded to the County Government with the Apex Valuers required to also pay costs of legal representation, the arbitrator’s fees and the expenses of the arbitral tribunal and award.
vi. Is interest payable and if so, for what period and how much?
The learned arbitrator awarded 12% simple interest post award interest against either party who defaulted in its obligations under the award.
26. Those were the findings by the arbitral tribunal that this court is called upon to set aside on the grounds of going outside the jurisdiction of the tribunal and being against the public policy of Kenya.
27. The issue then is whether any of the issues and findings set out above as determined by the arbitral tribunal is:
i. on a dispute not contemplated by or not falling within the terms of the reference to arbitration and/or containing decisions on matters beyond the scope of the arbitration and/or
ii. whether the arbitral award is in conflict with the public policy of Kenya by containing decisions incapable of execution, which are in violation of the constitution and statutes, promoting and perpetuating illegalities and purporting to reward a party who has violated the law?
28. Learned counsel for the applicant submitted on this issue that the arbitrator had no power or jurisdiction to deal with the matters relating to public procurement which can only be dealt with by the procuring entity and in a specific manner as provided for under the PPADA.
29. Learned counsel submits that the proviso to section 6 of the Valuation for Rating Act was not complied with because the County Government did not provide proof that exemption had been granted by the Cabinet Secretary as provided for under the section. Further, that sections 26 of the Rating Act and section 30 of the Valuation for Rating Act which mandatorily require that any notice required to be published under both statutes by the rating authority shall be published by advertisement once in the Gazette and in one or more newspapers circulating in the area of jurisdiction of the authority were not complied with except for the statutory gazettements which were run on 24/12/2020, two and a half years after the contract had lapsed. Pointedly, learned counsel submits that these issues were “recited in the Award at pages 268 and 269 of the Award” which according to me means the arbitral tribunal addressed itself to the issues. Learned counsel submits further that publication of the notices is part of the requirement for public participation that is a mandatory requirement under Articles 1(1), (2), (3), and 10 of the constitution.
30. Learned counsel then goes on to submit at length on how the arbitral tribunal dealt with the issue and why its findings are wrong and will lead to an illegality if executed as per the Final Award.
31. Learned counsel for the respondent submits that this court should uphold the finality of the arbitral proceedings as provided for under section 10 and section 32 of the Arbitration Act. In support of that submission, he has cited the cases of Synergy Industrial Credit Limited v Cape Holdings Limited [2019]eKLR, and Anne Mumbi Hinga v Victoria Njoki Gathara [2009] KECA 466 (KLR).
32. Learned counsel submitted on the grounds set forth by the applicant as the basis for setting aside the Final Award that the applicant had not demonstrated that the arbitral tribunal dealt with matters not related to the reference. He has cited the cases of Teejay Estates Limited v Vihar Construction Limited [2022] KEHC 121 (KLR), Mahican Investments Limited & 3 others v Giovanni Gaida & 80 others [2005] KEHC 1267 (KLR) and Continental Homes Limited v. Suncoast Investments Limited [2018] eKLR to support that submission.
33. On the ground of the arbitral award being against the public policy of Kenya, learned counsel submits that since the applicant introduces issues of breach of the constitution under this head, the same cannot be considered by this court by way of an application to set aside the Final Award as is the case herein. He cited the case of Nyutu Agrovet Limited v Airtel Networks Kenya Limited;Chartered Institute of Arbitrators-Kenya Branch [2019] KESC 11 (KLR) as decided by the Supreme Court in support of that submission.
34. Learned counsel for the County Government submitted at length on why they thought the applicant had misapprehended or misrepresenting to this court the award of the arbitral tribunal respecting the issue of public participation. He submits that the manner set forth by the applicant in its application is in fact not what the Final Award meant.
35. On its purport learned counsel for the County Government submits that in fact, it was Apex through its managing director that said it would undertake the public participation by way of complying with section 15 of the Rating Act and that it needed 30 days to do so and the arbitral tribunal allowed it that period. This gazette notice notifies the public of the coming into effect of new land rates and according to learned counsel, that was deemed by the arbitral tribunal as part of the public participation.
36. Learned counsel for Apex submits in the further submissions that upon considering the submissions by learned counsel for the CG, he found it difficult to put a hand on what the points for argument they were putting forward were. I have considered the further submissions and I note that in fact, in some respects, learned counsel introduces issues which had not been covered in the initial submissions or the submissions by the CG at all. For instance, on the issue of public participation, he has taken a different trajectory, even submitting that their problem with the Final Award was not that there was no public participation but that Apex cannot undertake such an exercise as it is not its responsibility. This court will deal with the contradictory stances in the analysis following.
37. Learned counsel for the respondent submits that the gravamen of the applicant’s complaint before the arbitral tribunal was that the County Government failed to conduct public participation for the exercise of preparing the DVR, 2017.
38. According to Apex, (as outlined in paragraph 20(ii) above) this is a statutory requirement which if not undertaken, the contract could not be completed and any purported completion thereof as directed by the arbitral tribunal in the Final Award would be illegal for breaching the law. But, at the same time, Apex is said to have delivered an incomplete DVR, 2017 which had no figures. Secondly, it is the contention by Apex that public participation could only be undertaken by the County Government and not Apex and as per the decision in the case of Republic v County Government of Kisumu Ex parte John Michael Obure Obure [2022] eKLR and the County Government had failed to do so (Refer to paragraphs 9, 10, 11 and 12 of the applicant’s submissions”).
39. It is apparent that the issue of the arbitral award perpetuating an illegality arises from the contention by Apex that in the course of execution of the contract, it required the CG to undertake certain statutorily mandated obligations, specifically with regard to public participation which the CG failed to undertake thereby rendering further execution of the contract impossible. The arbitral tribunal in fact dealt with this issue and in its Final Award found that indeed certain statutory requirements had to be complied with. That the CG had partially complied with the same by gazettement albeit late and that the remaining bit could be done by Apex but the CG to facilitate the same by payment of an extra sum and thus the decision by the arbitral tribunal that the contract sum be varied by 20%. Thus, the Final Award provided for how this should be done. However, Apex is not satisfied with the terms in which the award directs that the same be done. That, from my understanding of the submissions by learned counsel for Apex is the cause for alleging that the arbitral tribunal went outside its mandate and that it is directing it to perform an illegal contract.
40. The issue of what constitutes an illegal contract was extensively considered by the High Court, Mrima, J, in the case of Trans Mara Sugar Co Ltd & another v Ben Kangwaya Ayiemba & another [2020] eKLR where the case of Reynolds v Kinsey 1959 (4) SA 50 is cited and in which it was stated as follows: -
“…where the contract is not unlawful on its face and is capable of performance in a lawful way and the parties merely contemplate that it will be performed in a particular way which would be unlawful, the parties, through ignorance of the law, failing to appreciate that fact, the contract may be enforced on the ground that there was never a Fixed intention to do that which was later discovered to be lawful and that while the parties contemplated such unlawful act, they did not intend to do it. In other words, knowledge of the law is of evidential significance with respect to the parties intended mode of performance. It is important in this situation that at least the party seeking to enforce the contract can carry it out in a legal manner.”
41. The High Court, upon considering this and other decisions on the matter held that contracts which are illegal by performance are not outrightly unenforceable. It went on to say that a court must transcend the borders of the illegality in determining whether the rest of the contract may still be enforced. The considerations include the intent of the party seeking to enforce the contract, the centrality and gravity of the illegality, the nature of the illegality and public interest.
42. It is apparent that the contract between Apex and the CG of Kwale on the subject matter herein was not illegal at formation. The parties embarked on its performance and it was executed to a level of 80%. The arbitral tribunal agreed with Apex that there was non-compliance with the law by the CG on the issue of failure of public participation. The arbitral tribunal appreciated that moving forward, certain statutory requirements had to be complied with in order to meet the requirement for public participation. It then provided for in the Final Award how the same could be remedied without killing the contract altogether, seeing that it had been executed to a level of about 80%. If that would lead to any breach of the law of procurement as Apex contends herein, the same can easily be referred back to the arbitral tribunal to provide a way in which it will comply with the law and the Final Award executed. It does not call for the setting aside of the arbitral award.
43. Each of the parties having asked the relief of specific performance of the contract, it meant that it was willing to carry the contract forward to conclusion if certain terms were met, it meant that the contract was therefore capable of being salvaged by the arbitral tribunal. For me, that was indeed the fulcrum of the decision of the arbitral tribunal if the parties abided by the terms of the Final Award as amended. But Apex feels otherwise and therefore calls for the setting aside of the Final Arbitral Award.
44. I do not find that the issues dealt with by the arbitral tribunal were not contemplated by or not falling within the terms of the reference to arbitration or that the Final Award contains decisions on matters beyond the scope of the reference to arbitration. (See the case of Continental Homes Limited v. Suncoast Investments Limited [2018] eKLR.)
45. On the issue of breach of public policy, it boils down to does the arbitrator’s award breach the constitutional principle of public participation, the Rating Act and the Valuation for Rating Act and therefore against the public policy of Kenya? If Apex was to carry out the contract to conclusion as directed by the arbitrator, would it be in violation of any of these statutes and/or the constitution?
46. The applicant’s claim before the arbitral tribunal was that it had performed the contract up to a certain extent and from that point it could not move further due to breaches by the respondent namely failure of public participation and non-payment. It was never on the impossibility of performance of the whole contract on account of illegality. The illegality is claimed in the present application because of the findings of the arbitral tribunal in the Final Award. It is apparent that the applicant feels that the arbitral tribunal did not have a correct appreciation of the law. However, it is not in the province of this court considering an application under section 35 of the Arbitration Act to consider the validity of the arbitral tribunal’s award. Parties bound themselves in the contract under the Arbitration Clause that the decision of the arbitral tribunal shall be final and binding upon them.
47. The applicant submits that the contract did not use the words public participation anywhere in its terms meaning that public participation was not a term of the contract. Yet at the same time it pegged its response to claim and its application herein on the fact that public participation was not had and therefore this would make performance of the contract illegal. Apex never pleaded that the contract had to be terminated due to impossibility of performance for want of public participation in the manner contemplated by law or as was decided in the case of Republic v County Government of Kisumu Ex parte John Michael Obure Obure [2022] eKLR cited above. Its position was failure by the CG to do public participation by way of gazettement and publication in two daily newspapers. By pleading for the relief of specific performance it meant that that if this was complied with by the County Government, it would proceed to complete its performance of the contract. That is what necessitated the arbitral tribunal to come up with a variation of the contract in order to take into account the issues that had not been provided for or contemplated by the parties at formation of the contract. If there would be a breach of the Public Procurement and Asset Disposal Act (Cap. 412C)(PPAD) as submitted by Apex, the correct thing would be to ask the arbitral tribunal under section 34 of the Arbitration Act to correct the issue by providing that County government should take steps to ensure that the contract sum is varied by a proper margin but through the proper process as provided for under the PPADA so as to take into account matters that had not and could not have been contemplated by the parties at the time of execution of the contract. On who should undertake public participation, arbitral tribunal found that the County Government said it had given authority to Apex to do the same on its behalf. For Apex to say that is has no capacity or resources to do so but invoke an alleged breach of the law as a ground to set aside the Final Award is being evasive in order to avoid carrying out its obligation. In the case of Synergy Industrial Credit Limited v Cape Holdings Limited [2020] KECA 208 (KLR) the Court of Appeal considering the type of remedies an arbitral tribunal may grant held that, “… an arbitral tribunal has discretion to award remedies where its powers are not specifically limited.” The arbitral tribunal, going by the facts presented to it found that the correct party to carry out the public participation was Apex. That is a finding based on the facts presented to it and arising out of the contract which this court has no authority to overturn.
48. I am bound to follow this decision and find that in making its decision herein, the arbitral tribunal did not act without jurisdiction. Apex cannot be heard to say that it being called upon to undertake public participation was not one of the issues the subject of the terms of the reference and at the same hold that the reason why it never completed the contract on its part was because public participation was not had. The issue then would appear to be that it is not comfortable carrying out the public participation. However, having subjected itself to arbitration through the contract, it has to bear with the decision of the arbitral tribunal.
49. Arbitration proceedings are guided by principles of arbitration which as well espoused in the Act. Among them are party autonomy and finality of proceedings. These principles are espoused in the holding by the High Court in the case of Mahan Limited v Villa Care Limited [2019] KEHC 1341 (KLR) thus:
“This Court has considered the arguments made for and against the setting aside of the award. I have understood the Applicant to be arguing that the Arbitrator misconstrued the evidence and law before her. That is an argument that would typically be an argument made on an appeal.
The jurisdiction of a Court in a Section 35 application is one that is circumscribed. Parties to an Arbitral agreement elect to refer their disputes or differences to a particular mode of dispute resolution. They should not be permitted to resile from that arrangement by attempting to set aside an award simply because the outcome is not in their favour. A party seeking to benefit from Section 35 must demonstrate that the grounds set out under those provisions truly exist.
One of the grounds that is most abused is that an award is against public policy. A misunderstanding or misspeak of the law by an arbitrator, without more, does not make an award counter to public policy. To accept otherwise is to accept that an award can be challenged on public policy consideration every time an arbitrator misconstrues the law and evidence. It cannot be so because it would be to allow parties to challenge an arbitration award as though it was an appeal against the decision. No wonder a warning had been sounded that the public policy ground, if unguarded, could be an unruly horse (Christ For all Nations vs Apollo insurance company limited [2002] EA 366).
It may well be that the conclusion reached by the Arbitrator is not sustainable in law yet by clause 13.2 (Dispute Resolution and Arbitration Clause) the parties made a covenant to each another that the decision of the Arbitrator would be final and binding on them. It must have been within the contemplation of the parties that the Arbitrator may sometimes get it wrong but they happy to bind themselves to the risks involved in a final and binding clause and to live with the outcome absent the grounds in Section 35 of the Act.”
50. In this decision are found the principles of autonomy and finality of arbitral decisions which courts are enjoined to apply, among others, in determining any issue arising under the Arbitration Act. Learned counsel for Apex in his further submissions while considering how the principal of finality was espoused in the case of Synergy above, sought to distinguish the between the finality of referring the decision of the arbitral tribunal to the High Court on any of the issues provided for under the Act and making an appeal of the High Court decision to the Court of Appeal. For me, there is no much distinction to be made on those grounds as both of speak to reiterate the principle of finality of the arbitral tribunal’s decision.
51. In the present case, I find that the Final Award simply sought to have the contract entered by the parties proceed to conclusion and there was nothing illegal or against public policy in the decision of the arbitral tribunal that could not be remedied by the parties or the tribunal that would necessitate the setting aside of the Final Award.
52. I am satisfied and do find that in the present case the applicant’s contention that the arbitral tribunal dealt with a dispute not contemplated by or not falling within the terms of the reference to arbitration and contains decisions on matters beyond the scope of the arbitration and the arbitral award is in conflict with the public policy of Kenya containing decisions incapable of execution, which are in violation of the constitution and statutes, promoting and perpetuating illegalities and purporting to reward a party who has violated the law is not true.
53. The issue of who should pay costs is not one of the issues provided for under section 35 of the Arbitration Act and so this court will not delve into it. In this regard, I am guided by the Court of Appeal decision in the case of Synergy Industrial Credit Limited v Cape Holdings Limited [2020] KECA 208 (KLR) that:
“… the court is not obligated to set aside an arbitral award, although it is free to do so if the circumstances of the case justify it. Secondly, from the use of the phrase “only if” in section 35, the list of grounds provided therein on the basis of which an arbitral award may be set aside constitute an exhaustive and closed list. No new or additional grounds may be introduced to impeach an arbitral award. It is for that reason that the High Court reiterated in Transworld Safaris Ltd v. Eagle Aviation Ltd & 3 Others, HC Misc App. No 238 of 2003 that an applicant under section 35 of the Act must strictly bring himself within the terms of the provision.”
54. In the final analysis I find that this case is not suitable for setting aside of the award. Consequently, the notice of motion dated 13/6/2024 is therefore declined and dismissed with costs to the respondent.
Delivered, dated and signed at Kwale on the Virtual Platform, Teams this 22nd day of May 2025.
ANDAYI W. F.
JUDGE
In the presence of:
Ogolla (Ms) holding brief for Otieno for the Applicant.
N/A for the Respondent.
Ummu (Ms): Court Assistant.
ANDAYI W. F.
JUDGE
IN THE HIGH COURT OF KENYA AT KWALE
MISC. CIVIL APPLICATION NO. E007 OF 2024
(Coram: Andayi W. F., J.)
IN THE MATTER OF THE ARBITRATION ACT (CAP. 49) LAWS OF KENYA
AND
IN THE MATTER OF A DISPUTE BETWEEN THE COUNTY GOVERNMENT OF KWALE AND APEX VALUERS LIMITED ARISING FROM AN AGREEMENT DATED 19TH JUNE 2017
AND
IN THE MATTER OF AN APPLICATION TO SET ASIDE AN AWARD MADE AND PUBLISHED BY JACQUELINE WAIHENYA, CHARTERED ARBITRATOR ON THE 14TH MARCH 2024
BETWEEN
APEX VALUERS LIMITED……………………………………………APPLICANT
VERSUS
COUNTY GOVERNMENT OF KWALE …………………………RESPONDENT
RULING
1. Apex Valuers Ltd (hereinafter Apex) has filed an application dated 13/6/2024 seeking an order that the Amended Final Award made and published by Jacqueline Waihenya Chartered Arbitrator on 14/3/2024 in an arbitration between the County Government of Kwale, (hereinafter the County Government or CG) the respondent herein, as claimant in the arbitration and the applicant herein as respondent and arising from a service contract for the provision of valuation services dated 19th June 2017 between the respondent and the claimant be set aside.
2. The application is brought under section 35 of the Arbitration Act (Cap. 49) Laws of Kenya, Rule 7 of the Arbitration Rules, 1997, section 3 of the Civil Procedure Act (Cap. 21) Laws of Kenya, Order 48 Rule 4 of the Civil Procedure Rules, and all other enabling provisions of the law.
3. The grounds in support of the application as set out on the face of the application and expounded in the supporting affidavit sworn on 13/6/2024 and supplementary affidavit sworn on 23/9/2024 by Francis Ochieng Oketch the managing director of the applicant are as follows:
i. the arbitral award deals with a dispute not contemplated by or not falling within the terms of the reference to arbitration.
ii. the arbitral award contains decisions on matters beyond the scope of the arbitration.
iii. the arbitral award is in conflict with the public policy of Kenya as it contains decisions incapable of execution, which are in violation of the constitution and statutes, promotes and perpetuates illegalities and purports to reward a party who has violated the law.
4. The respondent opposed the application through a replying affidavit sworn on 8/8/2024 by Alex Onduko, the Chief Officer Finance and Economic Planning of the Respondent.
5. The application was disposed of by way of written submissions filed by learned counsels for both parties.
6. The background to this application is that on 19/6/2017, the applicant and the respondent entered into a contract for the applicant to prepare a draft valuation roll (DVR, 2017) for the County Government of Kwale, the respondent herein, for use by the respondent in its Land Rates department to be utilized for collection of land rates. The contract was for a sum of KShs 29,827,022/= and for a period of 12 months.
7. A dispute arose in the course of execution of the contract with each party claiming breach of contract by the other. They referred the dispute to arbitration as provided for under Clause 2.2 of the contract. The respondent filed a claim while the applicant filed a response to the claim and counterclaim. Each prayed for a declaration of breach of contract against the other as well as loss and damage and sought compensation.
8. Besides the declaration for breach of contract, the respondent also prayed for:
i. an order of restitution for refund of KShs 23,861,617.60 and
ii. general damages (sic) of KShs 1,920,000,000/= and
iii. in the ALTERNATIVE an order of specific performance against the applicant within a specified timeline (underlining mine for emphasis).
iv. Costs, interest and any other relief that the tribunal may deem fair and just to grant.
9. On its part the applicant filed a defence denying the respondent’s claim and made a counterclaim which besides the prayer for declaration of breach of contract also prayed for:
i. an order of restitution by payment of the balance of the contract sum of KShs 5,965,400.40.
ii. An order of specific damages of KShs 58,823,560/=,
iii. An order for payment of KShs one Billion.
iv. Upon payment of the above a variation for specific performance on terms to be agreed or directed by the arbitral tribunal (emphasis by underlying mine for emphasis).
v. Costs, interest and any other relief that the tribunal may deem fair and just to grant.
10. Upon taking evidence of the parties, the arbitraral tribunal identified issues which were not disputed by the parties and then the contested issues upon which she made determinations.
11. After the Final Award dated 14/8/2023 was issued to the parties on 15/2/2024, the County Government’s advocates noted that the date on which Apex Valuers was required to deliver the DVR, 2017 had since passed. In a letter dated 16/2/2024, they wrote to Apex Valuers’ advocates bringing the issue to their attention and indicating that they would wish to have the date amended together with other ensuing dates on which parties were expected to comply with the Final Award in line with Rule 130 of the Arbitration Rules, 2020. There were correspondences between the parties and the arbitral tribunal which resulted in the arbitral tribunal issuing an Amended Final Award on 14/3/2024. The amendments were mainly with respect to the timelines for the execution of the award and other minor issues as follows:
i. The date for Apex Valuers to deliver the DVR, 2017 (unimproved site value) was amended from 31/1/2024 to 30/4/2024.
ii. The date for Apex Valuers to have undertaken public participation was amended from 28/2/2024 to 28/5/2024.
iii. In default of performance the date for refund of the amounts already paid was amended from 1/4/2024 to 28/5/2024.
iv. Paragraph 26.4 of the Final Award was amended to change the word “parties” to “respondent” and the date from 1/4/2024 to 30/7/2024.
v. The date for payment of costs by Apex Valuers to County Government was amended from 1/4/2024 to 30/7/2024.
vi. The date when the post award interest would accrue was amended from 1/4/2024 to 30/7/2024.
12. There is no dispute that the correction of the errors was in line with section 34 of the Arbitration Act.
13. Learned counsels made elaborate submissions and citing authorities with learned counsel for Apex submitting in favour of setting aside and learned counsel for the County Government submitting against setting aside the arbitral award. I have given them due consideration. The issue for determination is whether or not the application herein meets the threshold for setting aside an arbitral award.
14. Sections 10 and 32A of the Arbitration Act provide for the extent and manner in which the High Court can intervene in arbitration proceedings as follows:
S. 10. Except as provided in this Act, no court shall intervene in matters governed by this Act.
S. 32A. Except as otherwise agreed by the parties, an arbitral award is final and binding upon the parties to it, and no recourse is available against the award otherwise than in the manner provided by this Act.
15. Section 35 of the Arbitration Act deals with applications for setting aside arbitral awards and provides that:
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. …
ii. …
iii. …
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. …
vi. …
b) the High Court finds that—
i. …
ii. the award is in conflict with the public policy of Kenya.
3) An application for setting aside the arbitral award may not be made after 3 months have elapsed from the date on which the party making that application had received the arbitral award, or if a request had been made under section 34 from the date on which that request had been disposed of by the arbitral award.
4) The High Court, when required to set aside an arbitral award, may, where appropriate and if so requested by a party suspend the proceedings to set aside the arbitral award for such period of time determined by it in order to give the arbitral tribunal an opportunity to resume the arbitral proceedings or to take such other action as in the opinion of the arbitral tribunal will eliminate the grounds for setting aside the arbitral award.
16. I will now set out and deal with each of the grounds challenging the award asking for it to be set aside. Considering the grounds upon which the application is based and the submissions by learned counsels, I am satisfied that all the issues raised in this application can be dealt with together and so I will proceed as such.
17. The issue for determination then is whether the arbitral award deals with a dispute not contemplated by or not falling within the terms of the reference to arbitration and/or contains decisions on matters beyond the scope of the arbitration and whether the arbitral award is in conflict with the public policy of Kenya as contended by Apex.
18. These issues call for a consideration of what the terms of reference to the arbitral tribunal were. But to begin with the arbitration clause in the contract, Clause 2.2, provided for dispute resolution as follows;
2.2. Dispute Resolution
Any dispute arising out of the contract which cannot be amicably settled between the parties shall be referred by either party to the arbitration. The decision of the arbitrator shall be final and binding upon the parties. Failing agreement to concur in the appointment of an arbitrator, the arbitrator shall be appointed by the Chairman of the Chartered Institute of Arbitrators, Kenya branch, on the request of the applying party. The arbitration shall, take place in Nairobi Kenya. (Emphasis by underlying mine).
19. There is no dispute that the parties were unable to settle their dispute amicably and thus the reference of the dispute to the arbitral tribunal as provided for under the clause on dispute resolution above.
20. The applicant herein has not explicitly set out what the terms of reference to the arbitral tribunal were either in the grounds in support of the application or the supporting affidavit. Learned counsel has however indicated in the submissions what I consider, according to Apex were the terms of reference as follows:
i. When a dispute ensued regarding the way parties were going about their obligations under the arbitration agreement, the matter went to arbitration in line with the dispute resolution mechanism provided for in Clause 2.2 of the agreement. The respondent pleaded that the applicant failed to deliver within the agreed period as a result of which it suffered losses as pleaded Paras 12 and 13 (page 20). As a result, the respondent asked the arbitrator to grant it the reliefs pleaded in the Amended Statement of Claim.
ii. In its response to the Claim (Page 26) the Applicant states that the collapse of the agreement was occasioned by failure to undertake mandatory fundamental statutory obligations set out in the Rating Act (Cap. 267) (“the RA”) and the Valuation for Rating Act (Cap. 266) (“the VRA”) that were necessary for the process to move forward lawfully and the failure by the respondent to make payment in line with the contract (emphasis by underlining mine) (see paragraph 13, 14, 15, 16 and 17 of the response at page 28-32). The claimant also counterclaimed for payment of the full contract price and special damages as stated in page 34.
21. Considering these two depositions, one can note that execution of the contract had stalled because. The County Government lay blame for the same on Apex for failing to complete the contract. Apex on its part lay blame on the County Government for two reasons failure to undertake mandatory fundamental statutory obligations set out in the Rating Act (Cap. 267) and the Valuation for Rating Act (Cap. 266) that were necessary for the process to move forward lawfully and the failure by the respondent to make payment in line with the contract.
22. Section 35(2) of the Act requires that it is the party making the application to furnish proof of the grounds for setting aside the award under section 35(2) of the Act.
23. In determining this application the court is guided by various fundamental principles, on which arbitration is anchored namely, principle of party autonomy, principle of arbitrability, principle of separability, principle of judicial nonintervention and doctrine/principle of kompetenz-kompetenz (see “Anchoring Commercial Arbitration on Fundamental Principles” in by Paul Obo Idornigie, PhD, FCIS, MCIArb, Barrister-at-Law and Solicitor, Senior Lecturer, Department of Company Law & Practice, Nigerian Law School, Abuja, Nigeria in The Arbitrator & Mediator April 2004) among others.
24. These principles are expressed in various decisions of the superior courts in Kenya many of them cited by learned counsels for the parties herein and which I have had chance to consider and be guided accordingly.
25. It is clear that according to Apex, the terms of reference should be as contained in the parties’ respective pleadings, which is correct. The arbitral tribunal considered this issue and found in its Final Award at paragraph 21.2 that the parties were invited to file an agreed List of Issues but this was not done. The arbitral tribunal first identified issues it determined as not disputed (Para. 20.2) then framed the issues for determination (Para. 21), analyzed them and then came to the findings as summarized below:
i. was the contract extended?
The arbitrator found that the Valuation Roll Agreement (the contract) was extended beyond the 12 months’ period by conduct of the parties.
ii. Was there a breach of contract, if so by whom?
Here the arbitrator divided the issue into four more sub-issues as follows:
i. whether there were any implied terms to the contract?
She found, agreeing with the applicant herein that there were none and the parties were bound by the written word.
ii. Whether the respondent herein breached mandatory statutory requirements?
The arbitrator found in agreement with the Apex Valuers that the County Government was in breach of mandatory statutory requirements but only to the extent where the Gazette Notices had not been published by 24/12/2020.
The learned arbitrator then paused a question by asking what steps Apex Valuers had taken in three years that had elapsed since the gazette notices were published?
iii. Whether the payment terms were breached by the County Government?
The learned arbitrator found that a total of KShs 23,861,617.60 had been paid by the County Government to Apex Valuers representing 80% of the contract price.
iv. Whether Apex Valuers breached the terms of the contract by delivering a draft valuation roll (DVR) without values.
The learned arbitrator found that Apex Valuers had described the document that they presented to the County Government and before the arbitrator as “incomplete draft valuation roll” and therefore that neither the provisions of section 6 of the Valuation for Rating Act nor the threshold deliverables/output set out in the Terms of Reference in the parties’ contract were met by Apex Valuers.
Consequently, there was a breach of contract by Apex Valuers.
iii. Which party is entitled to its claim and to what effect?
The learned arbitrator found that the County Government was entitled to a declaration that that the respondent was in breach of its obligations as per the parties’ contract.
iv. What is the applicable relief?
The learned arbitrator found that from the evidence presented Apex Valuers had estimated that it required 3-4 months to complete the DVR, 2017 and undertake the public participation in 30 days. Further that the County Government had acknowledged that they would pay the balance outstanding on the contract plus any inflation costs when Apex Valuers delivered the DVR. She therefore granted the following reliefs:
i. An order of specific performance that Apex Valuers shall deliver the DVR 2017 (unimproved site value) drawn in strict compliance with section 6 of the Valuation for Rating Act, on or before 31/1/2024.
ii. That the Apex Valuers would undertake the requisite public participation on or before 24/2/2024.
iii. Further that the County Government shall make payment to Apex Valuers of the balance of the purchase price of KShs 5,965,400.40 conditional upon receipt of the DVR
iv. a variation in the contract price of not more than 20% of the said contract price as per the provisions of section 139(4) of the Public Procurement and Asset Disposal Act upon the completion of the public participation.
v. The payments to be within 30 days of full compliance.
The learned arbitrator went further and held that should Apex Valuers fail, neglect and or refuse to produce and deliver the DVR, 2017 on or before 28/2/2024 the County Government shall be refunded the full amount of KShs 23,861,617.60.
v. Who should bear the costs of the reference and the award and if so how much?
Costs of the reference were awarded to the County Government with the Apex Valuers required to also pay costs of legal representation, the arbitrator’s fees and the expenses of the arbitral tribunal and award.
vi. Is interest payable and if so, for what period and how much?
The learned arbitrator awarded 12% simple interest post award interest against either party who defaulted in its obligations under the award.
26. Those were the findings by the arbitral tribunal that this court is called upon to set aside on the grounds of going outside the jurisdiction of the tribunal and being against the public policy of Kenya.
27. The issue then is whether any of the issues and findings set out above as determined by the arbitral tribunal is:
i. on a dispute not contemplated by or not falling within the terms of the reference to arbitration and/or containing decisions on matters beyond the scope of the arbitration and/or
ii. whether the arbitral award is in conflict with the public policy of Kenya by containing decisions incapable of execution, which are in violation of the constitution and statutes, promoting and perpetuating illegalities and purporting to reward a party who has violated the law?
28. Learned counsel for the applicant submitted on this issue that the arbitrator had no power or jurisdiction to deal with the matters relating to public procurement which can only be dealt with by the procuring entity and in a specific manner as provided for under the PPADA.
29. Learned counsel submits that the proviso to section 6 of the Valuation for Rating Act was not complied with because the County Government did not provide proof that exemption had been granted by the Cabinet Secretary as provided for under the section. Further, that sections 26 of the Rating Act and section 30 of the Valuation for Rating Act which mandatorily require that any notice required to be published under both statutes by the rating authority shall be published by advertisement once in the Gazette and in one or more newspapers circulating in the area of jurisdiction of the authority were not complied with except for the statutory gazettements which were run on 24/12/2020, two and a half years after the contract had lapsed. Pointedly, learned counsel submits that these issues were “recited in the Award at pages 268 and 269 of the Award” which according to me means the arbitral tribunal addressed itself to the issues. Learned counsel submits further that publication of the notices is part of the requirement for public participation that is a mandatory requirement under Articles 1(1), (2), (3), and 10 of the constitution.
30. Learned counsel then goes on to submit at length on how the arbitral tribunal dealt with the issue and why its findings are wrong and will lead to an illegality if executed as per the Final Award.
31. Learned counsel for the respondent submits that this court should uphold the finality of the arbitral proceedings as provided for under section 10 and section 32 of the Arbitration Act. In support of that submission, he has cited the cases of Synergy Industrial Credit Limited v Cape Holdings Limited [2019]eKLR, and Anne Mumbi Hinga v Victoria Njoki Gathara [2009] KECA 466 (KLR).
32. Learned counsel submitted on the grounds set forth by the applicant as the basis for setting aside the Final Award that the applicant had not demonstrated that the arbitral tribunal dealt with matters not related to the reference. He has cited the cases of Teejay Estates Limited v Vihar Construction Limited [2022] KEHC 121 (KLR), Mahican Investments Limited & 3 others v Giovanni Gaida & 80 others [2005] KEHC 1267 (KLR) and Continental Homes Limited v. Suncoast Investments Limited [2018] eKLR to support that submission.
33. On the ground of the arbitral award being against the public policy of Kenya, learned counsel submits that since the applicant introduces issues of breach of the constitution under this head, the same cannot be considered by this court by way of an application to set aside the Final Award as is the case herein. He cited the case of Nyutu Agrovet Limited v Airtel Networks Kenya Limited;Chartered Institute of Arbitrators-Kenya Branch [2019] KESC 11 (KLR) as decided by the Supreme Court in support of that submission.
34. Learned counsel for the County Government submitted at length on why they thought the applicant had misapprehended or misrepresenting to this court the award of the arbitral tribunal respecting the issue of public participation. He submits that the manner set forth by the applicant in its application is in fact not what the Final Award meant.
35. On its purport learned counsel for the County Government submits that in fact, it was Apex through its managing director that said it would undertake the public participation by way of complying with section 15 of the Rating Act and that it needed 30 days to do so and the arbitral tribunal allowed it that period. This gazette notice notifies the public of the coming into effect of new land rates and according to learned counsel, that was deemed by the arbitral tribunal as part of the public participation.
36. Learned counsel for Apex submits in the further submissions that upon considering the submissions by learned counsel for the CG, he found it difficult to put a hand on what the points for argument they were putting forward were. I have considered the further submissions and I note that in fact, in some respects, learned counsel introduces issues which had not been covered in the initial submissions or the submissions by the CG at all. For instance, on the issue of public participation, he has taken a different trajectory, even submitting that their problem with the Final Award was not that there was no public participation but that Apex cannot undertake such an exercise as it is not its responsibility. This court will deal with the contradictory stances in the analysis following.
37. Learned counsel for the respondent submits that the gravamen of the applicant’s complaint before the arbitral tribunal was that the County Government failed to conduct public participation for the exercise of preparing the DVR, 2017.
38. According to Apex, (as outlined in paragraph 20(ii) above) this is a statutory requirement which if not undertaken, the contract could not be completed and any purported completion thereof as directed by the arbitral tribunal in the Final Award would be illegal for breaching the law. But, at the same time, Apex is said to have delivered an incomplete DVR, 2017 which had no figures. Secondly, it is the contention by Apex that public participation could only be undertaken by the County Government and not Apex and as per the decision in the case of Republic v County Government of Kisumu Ex parte John Michael Obure Obure [2022] eKLR and the County Government had failed to do so (Refer to paragraphs 9, 10, 11 and 12 of the applicant’s submissions”).
39. It is apparent that the issue of the arbitral award perpetuating an illegality arises from the contention by Apex that in the course of execution of the contract, it required the CG to undertake certain statutorily mandated obligations, specifically with regard to public participation which the CG failed to undertake thereby rendering further execution of the contract impossible. The arbitral tribunal in fact dealt with this issue and in its Final Award found that indeed certain statutory requirements had to be complied with. That the CG had partially complied with the same by gazettement albeit late and that the remaining bit could be done by Apex but the CG to facilitate the same by payment of an extra sum and thus the decision by the arbitral tribunal that the contract sum be varied by 20%. Thus, the Final Award provided for how this should be done. However, Apex is not satisfied with the terms in which the award directs that the same be done. That, from my understanding of the submissions by learned counsel for Apex is the cause for alleging that the arbitral tribunal went outside its mandate and that it is directing it to perform an illegal contract.
40. The issue of what constitutes an illegal contract was extensively considered by the High Court, Mrima, J, in the case of Trans Mara Sugar Co Ltd & another v Ben Kangwaya Ayiemba & another [2020] eKLR where the case of Reynolds v Kinsey 1959 (4) SA 50 is cited and in which it was stated as follows: -
“…where the contract is not unlawful on its face and is capable of performance in a lawful way and the parties merely contemplate that it will be performed in a particular way which would be unlawful, the parties, through ignorance of the law, failing to appreciate that fact, the contract may be enforced on the ground that there was never a Fixed intention to do that which was later discovered to be lawful and that while the parties contemplated such unlawful act, they did not intend to do it. In other words, knowledge of the law is of evidential significance with respect to the parties intended mode of performance. It is important in this situation that at least the party seeking to enforce the contract can carry it out in a legal manner.”
41. The High Court, upon considering this and other decisions on the matter held that contracts which are illegal by performance are not outrightly unenforceable. It went on to say that a court must transcend the borders of the illegality in determining whether the rest of the contract may still be enforced. The considerations include the intent of the party seeking to enforce the contract, the centrality and gravity of the illegality, the nature of the illegality and public interest.
42. It is apparent that the contract between Apex and the CG of Kwale on the subject matter herein was not illegal at formation. The parties embarked on its performance and it was executed to a level of 80%. The arbitral tribunal agreed with Apex that there was non-compliance with the law by the CG on the issue of failure of public participation. The arbitral tribunal appreciated that moving forward, certain statutory requirements had to be complied with in order to meet the requirement for public participation. It then provided for in the Final Award how the same could be remedied without killing the contract altogether, seeing that it had been executed to a level of about 80%. If that would lead to any breach of the law of procurement as Apex contends herein, the same can easily be referred back to the arbitral tribunal to provide a way in which it will comply with the law and the Final Award executed. It does not call for the setting aside of the arbitral award.
43. Each of the parties having asked the relief of specific performance of the contract, it meant that it was willing to carry the contract forward to conclusion if certain terms were met, it meant that the contract was therefore capable of being salvaged by the arbitral tribunal. For me, that was indeed the fulcrum of the decision of the arbitral tribunal if the parties abided by the terms of the Final Award as amended. But Apex feels otherwise and therefore calls for the setting aside of the Final Arbitral Award.
44. I do not find that the issues dealt with by the arbitral tribunal were not contemplated by or not falling within the terms of the reference to arbitration or that the Final Award contains decisions on matters beyond the scope of the reference to arbitration. (See the case of Continental Homes Limited v. Suncoast Investments Limited [2018] eKLR.)
45. On the issue of breach of public policy, it boils down to does the arbitrator’s award breach the constitutional principle of public participation, the Rating Act and the Valuation for Rating Act and therefore against the public policy of Kenya? If Apex was to carry out the contract to conclusion as directed by the arbitrator, would it be in violation of any of these statutes and/or the constitution?
46. The applicant’s claim before the arbitral tribunal was that it had performed the contract up to a certain extent and from that point it could not move further due to breaches by the respondent namely failure of public participation and non-payment. It was never on the impossibility of performance of the whole contract on account of illegality. The illegality is claimed in the present application because of the findings of the arbitral tribunal in the Final Award. It is apparent that the applicant feels that the arbitral tribunal did not have a correct appreciation of the law. However, it is not in the province of this court considering an application under section 35 of the Arbitration Act to consider the validity of the arbitral tribunal’s award. Parties bound themselves in the contract under the Arbitration Clause that the decision of the arbitral tribunal shall be final and binding upon them.
47. The applicant submits that the contract did not use the words public participation anywhere in its terms meaning that public participation was not a term of the contract. Yet at the same time it pegged its response to claim and its application herein on the fact that public participation was not had and therefore this would make performance of the contract illegal. Apex never pleaded that the contract had to be terminated due to impossibility of performance for want of public participation in the manner contemplated by law or as was decided in the case of Republic v County Government of Kisumu Ex parte John Michael Obure Obure [2022] eKLR cited above. Its position was failure by the CG to do public participation by way of gazettement and publication in two daily newspapers. By pleading for the relief of specific performance it meant that that if this was complied with by the County Government, it would proceed to complete its performance of the contract. That is what necessitated the arbitral tribunal to come up with a variation of the contract in order to take into account the issues that had not been provided for or contemplated by the parties at formation of the contract. If there would be a breach of the Public Procurement and Asset Disposal Act (Cap. 412C)(PPAD) as submitted by Apex, the correct thing would be to ask the arbitral tribunal under section 34 of the Arbitration Act to correct the issue by providing that County government should take steps to ensure that the contract sum is varied by a proper margin but through the proper process as provided for under the PPADA so as to take into account matters that had not and could not have been contemplated by the parties at the time of execution of the contract. On who should undertake public participation, arbitral tribunal found that the County Government said it had given authority to Apex to do the same on its behalf. For Apex to say that is has no capacity or resources to do so but invoke an alleged breach of the law as a ground to set aside the Final Award is being evasive in order to avoid carrying out its obligation. In the case of Synergy Industrial Credit Limited v Cape Holdings Limited [2020] KECA 208 (KLR) the Court of Appeal considering the type of remedies an arbitral tribunal may grant held that, “… an arbitral tribunal has discretion to award remedies where its powers are not specifically limited.” The arbitral tribunal, going by the facts presented to it found that the correct party to carry out the public participation was Apex. That is a finding based on the facts presented to it and arising out of the contract which this court has no authority to overturn.
48. I am bound to follow this decision and find that in making its decision herein, the arbitral tribunal did not act without jurisdiction. Apex cannot be heard to say that it being called upon to undertake public participation was not one of the issues the subject of the terms of the reference and at the same hold that the reason why it never completed the contract on its part was because public participation was not had. The issue then would appear to be that it is not comfortable carrying out the public participation. However, having subjected itself to arbitration through the contract, it has to bear with the decision of the arbitral tribunal.
49. Arbitration proceedings are guided by principles of arbitration which as well espoused in the Act. Among them are party autonomy and finality of proceedings. These principles are espoused in the holding by the High Court in the case of Mahan Limited v Villa Care Limited [2019] KEHC 1341 (KLR) thus:
“This Court has considered the arguments made for and against the setting aside of the award. I have understood the Applicant to be arguing that the Arbitrator misconstrued the evidence and law before her. That is an argument that would typically be an argument made on an appeal.
The jurisdiction of a Court in a Section 35 application is one that is circumscribed. Parties to an Arbitral agreement elect to refer their disputes or differences to a particular mode of dispute resolution. They should not be permitted to resile from that arrangement by attempting to set aside an award simply because the outcome is not in their favour. A party seeking to benefit from Section 35 must demonstrate that the grounds set out under those provisions truly exist.
One of the grounds that is most abused is that an award is against public policy. A misunderstanding or misspeak of the law by an arbitrator, without more, does not make an award counter to public policy. To accept otherwise is to accept that an award can be challenged on public policy consideration every time an arbitrator misconstrues the law and evidence. It cannot be so because it would be to allow parties to challenge an arbitration award as though it was an appeal against the decision. No wonder a warning had been sounded that the public policy ground, if unguarded, could be an unruly horse (Christ For all Nations vs Apollo insurance company limited [2002] EA 366).
It may well be that the conclusion reached by the Arbitrator is not sustainable in law yet by clause 13.2 (Dispute Resolution and Arbitration Clause) the parties made a covenant to each another that the decision of the Arbitrator would be final and binding on them. It must have been within the contemplation of the parties that the Arbitrator may sometimes get it wrong but they happy to bind themselves to the risks involved in a final and binding clause and to live with the outcome absent the grounds in Section 35 of the Act.”
50. In this decision are found the principles of autonomy and finality of arbitral decisions which courts are enjoined to apply, among others, in determining any issue arising under the Arbitration Act. Learned counsel for Apex in his further submissions while considering how the principal of finality was espoused in the case of Synergy above, sought to distinguish the between the finality of referring the decision of the arbitral tribunal to the High Court on any of the issues provided for under the Act and making an appeal of the High Court decision to the Court of Appeal. For me, there is no much distinction to be made on those grounds as both of speak to reiterate the principle of finality of the arbitral tribunal’s decision.
51. In the present case, I find that the Final Award simply sought to have the contract entered by the parties proceed to conclusion and there was nothing illegal or against public policy in the decision of the arbitral tribunal that could not be remedied by the parties or the tribunal that would necessitate the setting aside of the Final Award.
52. I am satisfied and do find that in the present case the applicant’s contention that the arbitral tribunal dealt with a dispute not contemplated by or not falling within the terms of the reference to arbitration and contains decisions on matters beyond the scope of the arbitration and the arbitral award is in conflict with the public policy of Kenya containing decisions incapable of execution, which are in violation of the constitution and statutes, promoting and perpetuating illegalities and purporting to reward a party who has violated the law is not true.
53. The issue of who should pay costs is not one of the issues provided for under section 35 of the Arbitration Act and so this court will not delve into it. In this regard, I am guided by the Court of Appeal decision in the case of Synergy Industrial Credit Limited v Cape Holdings Limited [2020] KECA 208 (KLR) that:
“… the court is not obligated to set aside an arbitral award, although it is free to do so if the circumstances of the case justify it. Secondly, from the use of the phrase “only if” in section 35, the list of grounds provided therein on the basis of which an arbitral award may be set aside constitute an exhaustive and closed list. No new or additional grounds may be introduced to impeach an arbitral award. It is for that reason that the High Court reiterated in Transworld Safaris Ltd v. Eagle Aviation Ltd & 3 Others, HC Misc App. No 238 of 2003 that an applicant under section 35 of the Act must strictly bring himself within the terms of the provision.”
54. In the final analysis I find that this case is not suitable for setting aside of the award. Consequently, the notice of motion dated 13/6/2024 is therefore declined and dismissed with costs to the respondent.
Delivered, dated and signed at Kwale on the Virtual Platform, Teams this 22nd day of May 2025.
ANDAYI W. F.
JUDGE
In the presence of:
Ogolla (Ms) holding brief for Otieno for the Applicant.
N/A for the Respondent.
Ummu (Ms): Court Assistant.
ANDAYI W. F.
JUDGE