Introduction and Background
1. On 16.10.2019 and 04.12.2019 the parties entered into agreements (“the Agreements”) where the Respondent engaged the Applicant to supply and install aluminum and glass works on the Respondent’s proposed residential development at Runda Mac County Villas at an agreed cost of Kshs. 6,500,000.00. The Respondent was further engaged as a contractor to provide gypsum installation and professional services for a contractual fee of Kshs. 1,776,190.00 (“the Project’).
2. Over the course of the works on the Project, the Respondent was dissatisfied with the Applicant’s workmanship and declared a dispute. By his letter dated 20.04.2022, he sought appointment of an arbitrator from the Chartered Institute of Arbitrators Kenya Branch (“the Institute”) stating that he claimed Kshs. 1,771,504.90 from the Applicant. On 25.05.2022, the Institute appointed an arbitrator (“the Arbitrator”) to resolve the dispute. After hearing the dispute in the absence of the Applicant, the Arbitrator the award on 14.02.2023 (“the Award”).
3. In the Award, the Arbitrator determined whether the Applicant had breached the terms of the Agreements and whether the Respondent was entitled to the reliefs sought in its Statement of Claim. The Arbitrator found that the Applicant was in breach of the Agreements by failing to complete the works within the time agreed. As a consequence, the Applicant was directed to pay the Respondent Kshs. 1,150,000.00 special damages for breach of contract, interest thereon at the rate of 12% per annum from 05.10.2022 until payment in full, costs of the Respondent and of the arbitration.
4. The Applicant has now filed the Originating Summons dated 19.04.2023 under sections 35 of the Arbitration Act, 1995 seeking to set aside the Award and that the dispute be referred for fresh arbitration to be conducted in accordance with the initial agreement between the parties. It is supported by the grounds on its face and the supporting affidavit of Risley Nelson Kavu, the Applicant’s Director, sworn on 19.04.2023. The Respondent opposes the application through his replying affidavit sworn on 08.05.2023. The parties have written submissions in support of their respective arguments.
The Application
5. The Applicant’s case is that it performed and completed its part of the Agreements diligently, accounted for all the payments made to it and gave a report on the status of the construction. That upon completion of the work, the Respondent sent the Applicant’s deponent a message and asked him to visit the site and do an assessment report which he did and that the Applicant responded to him on findings through an email dated 21.05.2020. The Applicant contends that the Respondent never spoke to its director or any member of the Applicant’s team again after that, so it presumed that it had completed the project in accordance with the Agreements.
6. The Applicant avers that on 05.07.2022, its director was served with a notice from the firm of Chege Kariuki & Associates asking him to attend a preliminary meeting before the Arbitrator on 12.07.2022 at 2.30pm. Mr Kavu claims that he did not know what the meeting was all about so he instructed his advocate to join him in attending the virtual meeting so that they can establish what the issue was from the proceedings. They found out that the meeting concerned arbitration proceedings in respect of a dispute between the parties. The Applicant avers that it has never been served with any demand letter informing it of the alleged dispute, intention to have the dispute referred to arbitration or informed on the issue of choosing an arbitrator.
7. The Applicant states that its advocate wrote to both the arbitrator and the Respondent’s advocates raising the issue of not being informed of the dispute before appointment of the Arbitrator and that the procedure in the Agreement had not been followed. That the Arbitrator did not respond to its letter or address the same issue at any point during the proceedings but that the Respondent’s advocates responded and stated that the Respondent was not interested in having a discussion outside the arbitration proceeding.
8. The Applicant states that upon failure to address the issue by the Arbitrator, the Applicant opted not to participate in the arbitration proceedings since its concerns had been ignored. The Applicant accepts that it received the Award on 20.03.2023 but that it is aggrieved by it and prays for relief from this court.
The Respondent’s Reply
9. The Respondent opposes the application and denies the Applicant’s contention that it discharged its obligations as alleged or at all or that the last progress report received was the one dated 06.03.2020. The Respondent depones that his efforts to communicate to the Applicant were unsuccessful whereupon he instructed his advocates to demand Kshs. 1,771,504.90 from the Applicant. When the Applicant failed to respond, he wrote a letter to the Institute requesting appointment of an arbitrator.
10. The Respondent accuses the Applicant of trying to introduce new evidence that it failed to present before the Arbitral Tribunal. The Respondent points out the purported report sent after the site visit and exhibited by the Applicant was sent by Jay Gaithuma to the Director of the Applicant company to his address and was not addressed to the Respondent to his own address.
11. The Respondent states that on 12.07.2022, the Applicant’s director accompanied by its advocates attended the arbitration meeting where the Arbitrator issued various directions which each party undertook to adhere to. The Respondent further states that indeed, the Applicant’s advocate wrote a letter to his advocates dated 26.07.2022 indicating that they would not participate in the Arbitral proceedings unless negotiations fails. The Respondent further avers that despite the Applicant and their counsel being properly served with the hearing notices and directions by the Arbitrator, they failed to respond to the Respondent’s claim and file any documents to support the claims they are now raising in this application.
12. The Respondent contend that the Applicant is not entitled to the relief sought as it failed to establish any grounds for the court to intervene in the Award.
Analysis and Determination
13. The court’s jurisdiction to set aside an arbitral award is set out in section 35(2) of the Arbitration Act which, at the part material to this application, provides as follows:
35. Application for setting aside arbitral award
(1)……………
(2) An arbitral award may be set aside by the High Court only if—
(a) the party making the application furnishes proof—
(i) …………………….; or
(ii) the party making the application was not given proper notice of the appointment of an arbitrator or of the arbitral proceedings or was otherwise unable to present his case; or
(iii) ……………………….; or
(iv) the composition of the arbitral tribunal or the arbitral procedure was not in accordance with the agreement of the parties, unless that agreement was in conflict with a provision of this Act from which the parties cannot derogate; or failing such agreement, was not in accordance with this Act;
…………….
14. The Applicant’s case is that it was not given proper notice of the appointment of the Arbitrator or of the arbitral proceedings and was thus unable to present his case and that the composition of the arbitral tribunal was not in accordance with the agreement of the parties.
15. The manner in which the parties were to settle their disputes and the procedure of appointing an arbitrator was provided for by Clause 17 of the Agreements as follows:
Arbitration and Dispute Resolution
17.1 The Parties agree that they will make every effort to resolve the disputes between them in an amicable and informal manner. However, in the even that this is not possible, the dispute shall be referred for arbitration upon which the Parties shall agree on the arbitrator
17.2 If the Parties fail to agree on the arbitrator Fourteen (14) they shall refer the matter to the Chairman of the Chartered Institute of Arbitrators, Kenya Branch upon the written request of either party, in accordance with the provisions of the Arbitration Act 1995 (or any other succeeding legislation). The appointment of the arbitrator shall be final and binding on the Parties.
17.3 The Parties further agree that all disputes, differences or questions between them with respect to any matter or thing arising out of or relating to the Agreement except and in so far as may be otherwise provided in the Agreement shall be referred to one arbitrator. Arbitration shall take place in Nairobi, in the Republic of Kenya. The decision of the arbitrator shall be final and binding on the Parties and may be made an order of a court of competent jurisdiction.
17.4 Notwithstanding the foregoing, a Party is entitled to seek preliminary injunctive relief or in or conservatory measures from any court of competent jurisdiction pending the final decision or award of the arbitrator.
17.5 It is further agreed between the Parties that, during the pendency of any arbitration, dispute resolution and this Agreement, the Parties shall continue with the Services in accordance with the provisions of this Agreement.
16. Under the provisions aforesaid, the parties agreed that in case of a dispute, attempts would be made to amicably and informally settle the same and if this is unsuccessful, then the parties would resort to arbitration where the parties could agree on an arbitrator and if not, either party would refer the matter of appointment of an arbitrator to the Institute and that the appointment of the arbitrator shall be final and binding on the parties.
17. There is sufficient evidence to show that there was in fact a dispute regarding the workmanship on the Project. The Applicant’s email dated 21.05.2020, which was apparently not sent to the Respondent’s address, confirms that the Applicant was aware that the Respondent was not satisfied with the Project works. On his part, the Respondent in his demand letter dated 03.09.2021, sought a refund of the sum of Kshs. 1,771,504.90 failure to which he would institute legal proceedings against the Applicant.
18. Although there appears to have been unsuccessful attempts to try and resolve the dispute as per Clause 17.1, it is apparent that the parties did not agree to the appointment of an arbitrator. The Respondent invoked Clause 17.2 by writing to the Chair of the Institute who appointed the Arbitrator.
19. Once the Arbitrator was appointed, the Applicant was free to contest the jurisdiction of the Arbitral Tribunal by invoking section 17 of the Arbitration Act as a preliminary issue and if dissatisfied by the Arbitrator’s decision, then to apply to this court to hear and determine the matter. As I understand, in the letter to the Arbitrator dated 26.07.2022, the Applicant was putting forth the argument that resolution of the dispute amicably was a condition precedent to the arbitration and that it was not consulted on the choice of the arbitrator.
20. A record of the proceedings before the Arbitral Tribunal on 12.07.2022 indicates that the Applicant and its Advocates attended the meeting and did not raise any objection to the jurisdiction of the arbitrator. What it shows is that as per the Arbitrator’s “Order for Directions No. 2” under item no. 1 both parties confirmed that, “they have no jurisdictional challenge to the Arbitrator’s appointment, and that they do not intend to file any preliminary applications.” The Arbitrator, with the concurrence of the parties, proceeded to give directions on the exchange of pleadings, discovery of documents and for ancillary matters. As regards the hearing, the Arbitrator noted at para. 20 of the Award that, “The Tribunal is satisfied that the Respondent was duly served and was aware of the hearing date, hearing of the claim proceeded on 28th October 2022, but they did not attend the hearing or engage any further in the arbitration proceedings.”
21. Issues of jurisdiction need to be resolved from the outset and at earliest possible opportunity by the arbitral tribunal. The statutory act of reserving the authority to determine objections to the arbitral tribunal aims at paying due deference to and serving as a mark of recognition of arbitration as a recognized mechanism for Alternative Dispute Resolution (ADR) by preventing the Court from usurping the jurisdiction of the arbitral tribunal and allowing the arbitral tribunal to exercise its jurisdiction without court interference. (see National Oil Corporation of Kenya Limited v Prisko Petroleum Network Limited ML Misc. Civil Case No. 27 of 2014 [2014] eKLR).
22. This is not a case where the Applicant was not aware of the fact that an Arbitrator had been appointed. It was aware that the Respondent had exercised its right to request the appointing the authority to make an appointment and that the appointment had been made. When the Applicant appeared before the Arbitral Tribunal, it did not object to the appointment or composition of the Arbitral Tribunal. In fact, it made it clear, on record, that it would not raise any preliminary applications on jurisdiction. In such a case therefore, the Applicant is deemed to have waived such an objection in accordance with section 5 of the Arbitration Act which provides as follows:
5. Waiver of the right to object
A party who knows that any provisions of this Act from which the parties may derogate or any requirement under the arbitration agreement has not been complied with and yet proceeds with the arbitration without stating his objection to such non-compliance without undue delay or, if a time limit is prescribed, within such period of time, is deemed to have waived the right to object.
23. In the circumstances, I find and hold that the Applicant cannot at this stage assail the appointment and jurisdiction of the Arbitrator when it failed to raise the same earlier as required by the Arbitration Act. I also hold that the Applicant had an opportunity to present its case and the failure and or refusal to participate in the proceedings was purely voluntary. In the letter dated 26.07.2022 addressed to the Arbitrator, but not copied to the Respondent or his advocate, the Applicant’s advocate was categorical that, “In the circumstances, our client instructed us to inform you that he will not be taking part in the arbitration proceedings yet until negotiations fails between the parties as stipulated in the contract. We shall reach out to the claimant’s advocate to establish the dispute and agree on the way forward. We can always come back for arbitration if the parties are unable to settle the issue amicably.” The Applicant’s refusal to participate in the proceedings cannot be laid at the feet of the Arbitrator. It must now shoulder the burden of its default.
Disposition
24. The Applicant’s application dated 19.04.2023 lacks merit. It is dismissed with costs to the Respondent. The costs are assessed at Kshs. 90,000.00.
DATED and DELIVERED at NAIROBI this 17th day of AUGUST 2023
D. S. MAJANJA
JUDGE
1. On 16.10.2019 and 04.12.2019 the parties entered into agreements (“the Agreements”) where the Respondent engaged the Applicant to supply and install aluminum and glass works on the Respondent’s proposed residential development at Runda Mac County Villas at an agreed cost of Kshs. 6,500,000.00. The Respondent was further engaged as a contractor to provide gypsum installation and professional services for a contractual fee of Kshs. 1,776,190.00 (“the Project’).
2. Over the course of the works on the Project, the Respondent was dissatisfied with the Applicant’s workmanship and declared a dispute. By his letter dated 20.04.2022, he sought appointment of an arbitrator from the Chartered Institute of Arbitrators Kenya Branch (“the Institute”) stating that he claimed Kshs. 1,771,504.90 from the Applicant. On 25.05.2022, the Institute appointed an arbitrator (“the Arbitrator”) to resolve the dispute. After hearing the dispute in the absence of the Applicant, the Arbitrator the award on 14.02.2023 (“the Award”).
3. In the Award, the Arbitrator determined whether the Applicant had breached the terms of the Agreements and whether the Respondent was entitled to the reliefs sought in its Statement of Claim. The Arbitrator found that the Applicant was in breach of the Agreements by failing to complete the works within the time agreed. As a consequence, the Applicant was directed to pay the Respondent Kshs. 1,150,000.00 special damages for breach of contract, interest thereon at the rate of 12% per annum from 05.10.2022 until payment in full, costs of the Respondent and of the arbitration.
4. The Applicant has now filed the Originating Summons dated 19.04.2023 under sections 35 of the Arbitration Act, 1995 seeking to set aside the Award and that the dispute be referred for fresh arbitration to be conducted in accordance with the initial agreement between the parties. It is supported by the grounds on its face and the supporting affidavit of Risley Nelson Kavu, the Applicant’s Director, sworn on 19.04.2023. The Respondent opposes the application through his replying affidavit sworn on 08.05.2023. The parties have written submissions in support of their respective arguments.
The Application
5. The Applicant’s case is that it performed and completed its part of the Agreements diligently, accounted for all the payments made to it and gave a report on the status of the construction. That upon completion of the work, the Respondent sent the Applicant’s deponent a message and asked him to visit the site and do an assessment report which he did and that the Applicant responded to him on findings through an email dated 21.05.2020. The Applicant contends that the Respondent never spoke to its director or any member of the Applicant’s team again after that, so it presumed that it had completed the project in accordance with the Agreements.
6. The Applicant avers that on 05.07.2022, its director was served with a notice from the firm of Chege Kariuki & Associates asking him to attend a preliminary meeting before the Arbitrator on 12.07.2022 at 2.30pm. Mr Kavu claims that he did not know what the meeting was all about so he instructed his advocate to join him in attending the virtual meeting so that they can establish what the issue was from the proceedings. They found out that the meeting concerned arbitration proceedings in respect of a dispute between the parties. The Applicant avers that it has never been served with any demand letter informing it of the alleged dispute, intention to have the dispute referred to arbitration or informed on the issue of choosing an arbitrator.
7. The Applicant states that its advocate wrote to both the arbitrator and the Respondent’s advocates raising the issue of not being informed of the dispute before appointment of the Arbitrator and that the procedure in the Agreement had not been followed. That the Arbitrator did not respond to its letter or address the same issue at any point during the proceedings but that the Respondent’s advocates responded and stated that the Respondent was not interested in having a discussion outside the arbitration proceeding.
8. The Applicant states that upon failure to address the issue by the Arbitrator, the Applicant opted not to participate in the arbitration proceedings since its concerns had been ignored. The Applicant accepts that it received the Award on 20.03.2023 but that it is aggrieved by it and prays for relief from this court.
The Respondent’s Reply
9. The Respondent opposes the application and denies the Applicant’s contention that it discharged its obligations as alleged or at all or that the last progress report received was the one dated 06.03.2020. The Respondent depones that his efforts to communicate to the Applicant were unsuccessful whereupon he instructed his advocates to demand Kshs. 1,771,504.90 from the Applicant. When the Applicant failed to respond, he wrote a letter to the Institute requesting appointment of an arbitrator.
10. The Respondent accuses the Applicant of trying to introduce new evidence that it failed to present before the Arbitral Tribunal. The Respondent points out the purported report sent after the site visit and exhibited by the Applicant was sent by Jay Gaithuma to the Director of the Applicant company to his address and was not addressed to the Respondent to his own address.
11. The Respondent states that on 12.07.2022, the Applicant’s director accompanied by its advocates attended the arbitration meeting where the Arbitrator issued various directions which each party undertook to adhere to. The Respondent further states that indeed, the Applicant’s advocate wrote a letter to his advocates dated 26.07.2022 indicating that they would not participate in the Arbitral proceedings unless negotiations fails. The Respondent further avers that despite the Applicant and their counsel being properly served with the hearing notices and directions by the Arbitrator, they failed to respond to the Respondent’s claim and file any documents to support the claims they are now raising in this application.
12. The Respondent contend that the Applicant is not entitled to the relief sought as it failed to establish any grounds for the court to intervene in the Award.
Analysis and Determination
13. The court’s jurisdiction to set aside an arbitral award is set out in section 35(2) of the Arbitration Act which, at the part material to this application, provides as follows:
35. Application for setting aside arbitral award
(1)……………
(2) An arbitral award may be set aside by the High Court only if—
(a) the party making the application furnishes proof—
(i) …………………….; or
(ii) the party making the application was not given proper notice of the appointment of an arbitrator or of the arbitral proceedings or was otherwise unable to present his case; or
(iii) ……………………….; or
(iv) the composition of the arbitral tribunal or the arbitral procedure was not in accordance with the agreement of the parties, unless that agreement was in conflict with a provision of this Act from which the parties cannot derogate; or failing such agreement, was not in accordance with this Act;
…………….
14. The Applicant’s case is that it was not given proper notice of the appointment of the Arbitrator or of the arbitral proceedings and was thus unable to present his case and that the composition of the arbitral tribunal was not in accordance with the agreement of the parties.
15. The manner in which the parties were to settle their disputes and the procedure of appointing an arbitrator was provided for by Clause 17 of the Agreements as follows:
Arbitration and Dispute Resolution
17.1 The Parties agree that they will make every effort to resolve the disputes between them in an amicable and informal manner. However, in the even that this is not possible, the dispute shall be referred for arbitration upon which the Parties shall agree on the arbitrator
17.2 If the Parties fail to agree on the arbitrator Fourteen (14) they shall refer the matter to the Chairman of the Chartered Institute of Arbitrators, Kenya Branch upon the written request of either party, in accordance with the provisions of the Arbitration Act 1995 (or any other succeeding legislation). The appointment of the arbitrator shall be final and binding on the Parties.
17.3 The Parties further agree that all disputes, differences or questions between them with respect to any matter or thing arising out of or relating to the Agreement except and in so far as may be otherwise provided in the Agreement shall be referred to one arbitrator. Arbitration shall take place in Nairobi, in the Republic of Kenya. The decision of the arbitrator shall be final and binding on the Parties and may be made an order of a court of competent jurisdiction.
17.4 Notwithstanding the foregoing, a Party is entitled to seek preliminary injunctive relief or in or conservatory measures from any court of competent jurisdiction pending the final decision or award of the arbitrator.
17.5 It is further agreed between the Parties that, during the pendency of any arbitration, dispute resolution and this Agreement, the Parties shall continue with the Services in accordance with the provisions of this Agreement.
16. Under the provisions aforesaid, the parties agreed that in case of a dispute, attempts would be made to amicably and informally settle the same and if this is unsuccessful, then the parties would resort to arbitration where the parties could agree on an arbitrator and if not, either party would refer the matter of appointment of an arbitrator to the Institute and that the appointment of the arbitrator shall be final and binding on the parties.
17. There is sufficient evidence to show that there was in fact a dispute regarding the workmanship on the Project. The Applicant’s email dated 21.05.2020, which was apparently not sent to the Respondent’s address, confirms that the Applicant was aware that the Respondent was not satisfied with the Project works. On his part, the Respondent in his demand letter dated 03.09.2021, sought a refund of the sum of Kshs. 1,771,504.90 failure to which he would institute legal proceedings against the Applicant.
18. Although there appears to have been unsuccessful attempts to try and resolve the dispute as per Clause 17.1, it is apparent that the parties did not agree to the appointment of an arbitrator. The Respondent invoked Clause 17.2 by writing to the Chair of the Institute who appointed the Arbitrator.
19. Once the Arbitrator was appointed, the Applicant was free to contest the jurisdiction of the Arbitral Tribunal by invoking section 17 of the Arbitration Act as a preliminary issue and if dissatisfied by the Arbitrator’s decision, then to apply to this court to hear and determine the matter. As I understand, in the letter to the Arbitrator dated 26.07.2022, the Applicant was putting forth the argument that resolution of the dispute amicably was a condition precedent to the arbitration and that it was not consulted on the choice of the arbitrator.
20. A record of the proceedings before the Arbitral Tribunal on 12.07.2022 indicates that the Applicant and its Advocates attended the meeting and did not raise any objection to the jurisdiction of the arbitrator. What it shows is that as per the Arbitrator’s “Order for Directions No. 2” under item no. 1 both parties confirmed that, “they have no jurisdictional challenge to the Arbitrator’s appointment, and that they do not intend to file any preliminary applications.” The Arbitrator, with the concurrence of the parties, proceeded to give directions on the exchange of pleadings, discovery of documents and for ancillary matters. As regards the hearing, the Arbitrator noted at para. 20 of the Award that, “The Tribunal is satisfied that the Respondent was duly served and was aware of the hearing date, hearing of the claim proceeded on 28th October 2022, but they did not attend the hearing or engage any further in the arbitration proceedings.”
21. Issues of jurisdiction need to be resolved from the outset and at earliest possible opportunity by the arbitral tribunal. The statutory act of reserving the authority to determine objections to the arbitral tribunal aims at paying due deference to and serving as a mark of recognition of arbitration as a recognized mechanism for Alternative Dispute Resolution (ADR) by preventing the Court from usurping the jurisdiction of the arbitral tribunal and allowing the arbitral tribunal to exercise its jurisdiction without court interference. (see National Oil Corporation of Kenya Limited v Prisko Petroleum Network Limited ML Misc. Civil Case No. 27 of 2014 [2014] eKLR).
22. This is not a case where the Applicant was not aware of the fact that an Arbitrator had been appointed. It was aware that the Respondent had exercised its right to request the appointing the authority to make an appointment and that the appointment had been made. When the Applicant appeared before the Arbitral Tribunal, it did not object to the appointment or composition of the Arbitral Tribunal. In fact, it made it clear, on record, that it would not raise any preliminary applications on jurisdiction. In such a case therefore, the Applicant is deemed to have waived such an objection in accordance with section 5 of the Arbitration Act which provides as follows:
5. Waiver of the right to object
A party who knows that any provisions of this Act from which the parties may derogate or any requirement under the arbitration agreement has not been complied with and yet proceeds with the arbitration without stating his objection to such non-compliance without undue delay or, if a time limit is prescribed, within such period of time, is deemed to have waived the right to object.
23. In the circumstances, I find and hold that the Applicant cannot at this stage assail the appointment and jurisdiction of the Arbitrator when it failed to raise the same earlier as required by the Arbitration Act. I also hold that the Applicant had an opportunity to present its case and the failure and or refusal to participate in the proceedings was purely voluntary. In the letter dated 26.07.2022 addressed to the Arbitrator, but not copied to the Respondent or his advocate, the Applicant’s advocate was categorical that, “In the circumstances, our client instructed us to inform you that he will not be taking part in the arbitration proceedings yet until negotiations fails between the parties as stipulated in the contract. We shall reach out to the claimant’s advocate to establish the dispute and agree on the way forward. We can always come back for arbitration if the parties are unable to settle the issue amicably.” The Applicant’s refusal to participate in the proceedings cannot be laid at the feet of the Arbitrator. It must now shoulder the burden of its default.
Disposition
24. The Applicant’s application dated 19.04.2023 lacks merit. It is dismissed with costs to the Respondent. The costs are assessed at Kshs. 90,000.00.
DATED and DELIVERED at NAIROBI this 17th day of AUGUST 2023
D. S. MAJANJA
JUDGE