A. BACKGROUND.
1. A brief history of this matter is that a dispute pitting the parties herein was pursuant to an arbitration clause in the parties’ contract dated 3rd April, 2017 referred to arbitration, whereby the Applicant herein was the Respondent, while the Respondent herein was the Claimant.
2. The parties presented their respective cases before the sole arbitrator Mr. Calvin Nyachoti, FCArb, Chartered Arbitrator who, on 15th February, 2024, rendered his final award, concluding as follows:
335. For the reasons given above, I now AWARD and DIRECT that the Respondent’s Counterclaim is dismissed and the Claimant has on a balance of probabilities proven its case against the Respondent and is entitled to:
a. Ksh.119,106,549/- being the balance of the contractual sum that the Respondent failed to pay.
b. Special damages of Ksh.170,000/-.
c. Costs of this arbitration.
B. THE APPLICANT’S APPLICATION DATED 9TH JULY, 2023.
3. Following the delivery of the award, the Applicant filed the notice of motion dated 9th July, 2023, presented under Section 35 of the Arbitration Act, 1995 and Rule 7 of the Arbitration Rules, 1997, Section 3A of the Civil Procedure Act and all other enabling provisions of the law, which seeking the following orders:
1. THAT pending the hearing and determination of this application, this court be pleased to stay any recognition and/or enforcement of the arbitral award dated 17th April, 2023.
2. THAT this Honourable Court be pleased to set aside the arbitral award dated 17th April, 2023 issued by Mr. Calvin Nyachoti C.Arb in so far as the same seeks to dispense with the rules of evidence in finding that the Respondent provided a performance bond and proceeding to award the balance of the contractual sum.
3. THAT this Honourable Court be pleased to grant any further orders as it may deem appropriate in the circumstances including remitting the said award dated 17th April, 2023 for corrective action on the impugned portion of the award as purports to dismiss the counterclaim dated 22nd June, 2022.
4. THAT the costs of this application and the incidental expenses thereto be provided for.
4. The grounds upon which the Applicant’s motion is premised are that the sole arbitrator, Mr. Calvin Nyachoti FCIArb, delivered an arbitral award dated 17th April, 2023 determining the dispute between the parties. The Applicant contends that, in arriving at the impugned award, the Arbitrator acted contrary to public policy and the principles of natural justice in several respects.
5. The Applicant contends that the Arbitrator failed or refused to uphold the sanctity of the contractual terms and conditions agreed between the parties, thereby defeating the Applicant’s legitimate expectation that the contracts would be strictly enforced in accordance with their terms. It is further contended that the Arbitrator disregarded the applicable rules of natural justice, including the statutory principles governing the burden of proof under the Evidence Act.
6. The Applicant further alleges that the Arbitrator exhibited bias and partiality in the manner in which he evaluated the evidence tendered by the parties, ultimately reaching a conclusion in favour of the Respondent without sufficient evidentiary basis. It is also alleged that the Arbitrator disregarded the Applicant’s counterclaim and thereby failed to accord the Applicant a fair and impartial hearing.
7. The Applicant therefore maintains that the Award dated 17th April, 2023 is contrary to the public policy of Kenya and constitutes an affront to the administration of justice, having been rendered without due regard to the rules of natural justice and the applicable statutory provisions. In particular, the Applicant challenges the Arbitrator’s determination concerning the Performance Bond, contending that the finding was made without sufficient evidence and without properly addressing the alleged evidentiary deficiencies relating to that issue.
8. On that basis, the Applicant seeks to have the arbitral award set aside to the extent that it found that Clause 5 of Contract No. CGK/CIT/ERP/2016-2017, relating to the installation of the ERP and the Performance Bond, had been complied with.
C. THE AFFIDAVIT IN SUPPORT OF THE APPLICANT’S MOTION.
9. The application is supported by the affidavit of Edris Nicholas Omondi, sworn on 9th July, 2023 in which the deponent states that he is the Applicant’s County Attorney and is duly authorized and competent to swear the affidavit.
10. He explains that the Applicant is a devolved unit of the Government of Kenya, established under the Constitution and governed by the County Governments Act and other applicable laws, and is mandated to provide services to the residents of Kisumu County.
11. He further states that, in the discharge of its mandate, the Applicant is empowered to enter into contracts and partnerships with public or private entities, subject to the law and the rule of law.
12. The deponent states that on or about 3rd April, 2017, the Applicant’s former administration entered into Contract No. CGK/CIT/ERP/2016-2017 for the Installation of an ERP system with the Respondent following a public procurement process. He has annexed a copy of the said Contract marked “CGK-1”.
13. He states that Clause 5 of the Contract expressly required the Respondent to furnish a performance security equivalent to 5% of the contractual amount, valid for a period exceeding 30 days after expiry of the validity of the order and in the form prescribed under the procurement law.
14. The deponent states that the Applicant subsequently halted operations under the Contract upon discovering alleged contractual breaches and flaws in the procurement process undertaken by its former administration in awarding the tender.
15. He states that the Respondent consequently declared a dispute and unilaterally appointed Mr. Calvin Nyachoti FCIArb as the sole arbitrator. The Applicant, in an effort to expedite the resolution of the dispute, agreed to the appointment and participated in the arbitral proceedings.
16. The deponent states that the Respondent filed its Memorandum of Claim, pleadings and written submissions before the Arbitrator, which documents he has annexed as “CGK-2”. He explains that the Respondent’s claim principally sought payment of the alleged balance of the contractual sum together with special damages. In response, the Applicant filed its Statement of Defence and Counterclaim, together with its pleadings and written submissions, copies of which are annexed as “CGK-3”.
17. The deponent further states that, from the pleadings and the Arbitrator’s communication to the parties, the principal issues identified for determination were whether there was a valid contract between the parties, including the questions of illegality, irregularity, fraud and collusion and their consequences, and whether there had been a breach of the Contract and, if so, by which party. A copy of the Arbitrator’s communication setting out the issues for determination is annexed as “CGK-4”.
18. The deponent states that the Arbitrator subsequently delivered a Final Award dated 17th April, 2023, a copy of which is annexed as “CGK-5”. He states that, by the Award, the Arbitrator dismissed the Applicant’s counterclaim and awarded the Respondent Ksh.119,106,549/- being the balance of the contractual sum, Ksh.170,000/- as special damages and the costs of the arbitration proceedings.
19. The deponent particularly takes issue with the Arbitrator’s finding at paragraph 256 of the Final Award that the Respondent had provided the performance security required under Clause 5 of the Contract and had, consequently, not breached the Contract. He contends that this finding was made without any supporting evidence on record.
20. He notes that, although at paragraph 255 of the Award the Arbitrator found that a tender security of 0.5% had been provided during the procurement process, and that a performance security of 5% was required following notification of the award, the Arbitrator did not identify any evidence demonstrating that the Respondent subsequently furnished the required performance security.
21. The deponent states that the Applicant had specifically pleaded that the Respondent breached the Contract by failing or refusing to provide the performance bond. He contends that, despite the Applicant raising the issue, the Respondent failed to produce a copy of the alleged performance bond in rebuttal.
22. According to the deponent, it would have been logical for the Respondent, as the party allegedly required to furnish the bond and as the holder of the relevant bank account, to produce documentary evidence of the performance security rather than requiring the Applicant to produce a document that was not within its possession or control.
23. The deponent maintains that the issue of the performance bond was a substantive and material issue because it went to the root of the Contract. He contends that the Arbitrator nevertheless treated the issue casually and dismissively and made a finding that the performance security had been provided without identifying the evidence upon which that finding was based.
24. He consequently alleges that the Arbitrator was biased in his treatment and evaluation of the evidence and failed to exercise the requisite impartiality and neutrality in determining the issue.
25. The deponent further states that the Arbitrator failed to give adequate consideration to the Applicant’s allegations concerning flaws in the procurement process undertaken by the former administration. He contends that the Arbitrator proceeded to issue the Award without fully satisfying himself that the Respondent had complied with all the contractual conditions, including the requirement to provide the performance security.
26. In his view, the resulting Award amounted to an unjust enrichment of the Respondent at the expense of public funds and was therefore contrary to public policy.
27. The deponent further contends that the Arbitrator failed to appreciate that the performance bond was a fundamental contractual requirement and that the burden of proving its provision lay upon the Respondent. He alleges that, in the absence of the performance bond from the record and in light of the Respondent’s failure to produce it, the Arbitrator had no proper evidentiary basis for concluding that the contractual requirement had been satisfied.
28. The deponent maintains that the Arbitrator thereby disregarded the applicable principles under the Evidence Act relating to the burden of proof and shifted the evidential burden improperly to the Applicant.
29. The deponent states that it was contrary to public policy for the Arbitrator to find, without cogent evidence, that the Respondent had provided the performance security required under Clause 5 of the Contract, particularly in circumstances where the Applicant had raised concerns regarding possible fraud and irregularities in the procurement process.
30. He further contends that the Arbitrator’s approach undermined the sanctity of contracts entered into through public procurement and diluted the requirement that parties comply with express contractual terms and conditions.
31. The deponent further states that the dismissal of the Applicant’s counterclaim, founded in part upon the impugned finding concerning the performance bond, resulted in unjust enrichment of the Respondent and an unsubstantiated loss of public funds.
32. He maintains that once the Applicant had specifically raised the issue of non-provision of the performance bond and the Respondent failed to produce the document, the Arbitrator had no legal basis to presume or find that the performance bond had been provided.
33. The deponent consequently contends that the Award dated 17th April, 2023 is in conflict with the public policy of Kenya and offends the rules of natural justice. He therefore urges the Court to set aside the Award, at least to the extent that it purports to find that the Respondent complied with Clause 5 of Contract No. CGK/CIT/ERP/2016-2017 by providing the requisite performance bond, notwithstanding the alleged absence of any such bond or other cogent evidence of its provision on the arbitral record.
D. THE AFFIDAVIT IN REPLY TO THE APPLICANT’S MOTION.
34. In resisting the Applicant’s motion, the Respondent filed a replying affidavit sworn on 8th August, 2023 by Tobias Otieno, in which he has deposed that he is the Respondent’s Chief Executive Officer, is conversant with the facts giving rise to the proceedings and the arbitral proceedings before Mr. Calvin Nyachoti, FCIArb, and is duly authorized to swear the affidavit.
35. He states that he has read and understood the Applicant’s motion dated 9th July, 2023 and the supporting affidavit of Edris Nicholas Omondi, and contends that the application is, in substance, an appeal disguised as an application to set aside the arbitral award.
36. The deponent states that the dispute arose from the Applicant’s alleged refusal, neglect or failure to pay the Respondent in full for services rendered under Tender No. CGK/CIT/ERP/2016-2017/1. He states that pursuant to an agreement dated 3rd April, 2017, the parties entered into a supply agreement under which the Respondent was to supply, install, configure, test and commission an Integrated Enterprise Resource Planning System for the Applicant at a contractual sum of Ksh.165,346,516/-. A copy of the agreement is annexed as “TO-1”.
37. The deponent states that the Respondent performed its obligations under the Contract through the stipulated five milestones and that the Applicant paid for the first milestone, equivalent to 20% of the contractual sum.
38. He alleges that the Applicant subsequently breached the Contract by failing to fulfil its payment obligations, leaving an outstanding contractual balance of Ksh.135,641,701/-. He states that the parties thereafter engaged in good faith negotiations aimed at resolving the outstanding payment and avoiding unnecessary delay and expense, but the negotiations did not result in payment of the outstanding sum.
39. The deponent states that the Respondent consequently declared a dispute by a letter dated 27th September, 2021 addressed to the Applicant through its advocates, Messrs. Otwal & Manwa Associates Advocates. He states that the letter was received by the Applicant on 29th September, 2021 but elicited no response. A copy of the letter is annexed as “TO-2”.
40. The deponent further states that, after further efforts to secure the Applicant’s participation in the appointment of an arbitrator, the Respondent’s advocates issued a further letter dated 27th October, 2021 giving the Applicant 14 days within which to respond or agree to the proposed arbitrator, failing which the Respondent would proceed with the appointment of a sole arbitrator in accordance with the Contract. The said letter is annexed as “TO-3”.
41. The deponent states that, owing to the Applicant’s failure to participate in the appointment process, the dispute was referred to arbitration on 17th November, 2021 and Mr. Calvin Nyachoti, FCIArb, was appointed as the sole arbitrator. A copy of the letter referring the dispute to arbitration and confirming the appointment is annexed as “TO-4”.
42. He contends that the Applicant, having failed to participate in the appointment of the Arbitrator, cannot subsequently challenge the manner of his appointment. He further states that the prescribed procedure was followed and that the Applicant did not object to the Arbitrator’s appointment after its confirmation.
43. The deponent states that the Applicant was entitled under Section 5 of the Arbitration Act to raise any objection to the Arbitrator’s appointment at the earliest opportunity but failed to do so. He further states that, in recognition of the Arbitrator’s jurisdiction, representatives of the parties executed an Agreement on the Arbitrator’s Appointment and Terms of Engagement, a copy of which is annexed as “TO-5”.
44. He therefore maintains that the Applicant submitted to the jurisdiction of the Tribunal and cannot now challenge the appointment or jurisdiction of the Arbitrator.
45. The deponent further states that the Applicant was duly notified of the preliminary proceedings before the Arbitrator and participated in them. He has annexed the Arbitrator’s Order for Directions No. 1 as “TO-6” and Order for Directions No. 2 as “TO-7”.
46. The deponent states that the parties attended the preliminary meeting and agreed upon preliminary issues for determination. He therefore disputes any suggestion that the Applicant was denied an opportunity to participate in or present its case before the Tribunal.
47. The deponent states that the arbitral proceedings were duly conducted and culminated in a Final Award dated 17th April, 2023. He states that the Arbitrator subsequently communicated to the parties by email dated 18th April, 2023 that the Award had been published and was ready for collection. A copy of the email correspondence is annexed as “TO-8”. He has further annexed a certified copy of the Final Arbitral Award dated 17th April 2023 as “TO-9”.
48. The deponent states that, by the Final Award, the Arbitrator dismissed the Applicant’s counterclaim and found that the Respondent had proved its case on a balance of probabilities. The Respondent was awarded Ksh.119,106,549/- being the balance of the contractual sum, Ksh.170,000/- as special damages and the costs of the arbitration. He states that the Award was in the Respondent’s favour and that, notwithstanding demand and notice, the Applicant had not complied with its terms.
49. The deponent contends that the Arbitrator did not determine matters falling outside the reference and acted within the scope of his mandate. He states, on the advice of counsel, that an arbitral tribunal has the authority to interpret contractual documents and ought to be accorded sufficient latitude to give effect to the contractual terms without rewriting the agreement. He therefore disputes the Applicant’s contention that the Arbitrator acted contrary to the Contract or exceeded his jurisdiction.
50. In response to the Applicant’s allegations that the Award was contrary to public policy, the deponent states that an arbitral award may only be set aside on public policy grounds in limited circumstances, such as where the award is shown to be arbitrary or capricious.
51. He contends that the Applicant has not demonstrated any such circumstance and maintains that, if anything, it would be contrary to public policy to permit a party that had failed to honour its contractual obligations to benefit from its own breach at the expense of a party that had performed its obligations and invoked arbitration to protect its contractual rights.
52. The deponent further states that, as a matter of contractual principle, a party who suffers loss as a result of breach of contract ought, so far as monetary compensation can achieve it, to be placed in the position it would have occupied had the contract been performed.
53. He therefore contends that, given the passage of time since the Contract was entered into, the Respondent ought to be adequately compensated in accordance with the Award so as to place it in substantially the position it would have occupied had the Contract been duly performed.
54. The deponent characterizes the present application as frivolous, vexatious and an abuse of the arbitral and judicial process, contending that it is essentially an appeal disguised as an application to set aside the Award.
55. He states that the Applicant has not adduced any evidence demonstrating bias or partiality on the part of the Arbitrator and has instead relied on unsubstantiated allegations and what he describes as misrepresentations of fact.
56. The deponent further contends that the Applicant’s purpose in bringing the application is to delay the enforcement of the Award and prevent the Respondent from enjoying the fruits of the arbitral process. He states that the application is a dilatory tactic and a last attempt to frustrate the determination of the dispute. He maintains that the Applicant has failed to establish any of the grounds contemplated under Section 35 of the Arbitration Act for setting aside the Award.
57. The deponent states that public policy in Kenya favours the finality of arbitral awards and that parties who voluntarily submit their disputes to arbitration are expected to accept the resulting award, subject only to the limited statutory grounds upon which an award may be challenged under Section 35 of the Arbitration Act.
58. He therefore contends that the Applicant cannot use the present application to invite the Court to re-evaluate the merits of the dispute or substitute its own view for that of the Arbitrator.
59. With regard to the allegations of bias and denial of a fair hearing, the deponent states that the parties were treated equally throughout the arbitral proceedings in accordance with Section 19 of the Arbitration Act.
60. He maintains that each party was afforded a fair and reasonable opportunity to present its case and respond to the case of its opponent. He therefore denies that there was any indication of bias in the conduct of the proceedings or in the manner in which the Arbitrator dealt with the parties.
61. The deponent further states that the Arbitrator complied with the statutory obligation to act fairly and impartially, to afford each party a reasonable opportunity to present its case and to deal with that of its opponent, and to adopt procedures suitable to the circumstances of the dispute while avoiding unnecessary delay and expense.
62. He maintains that the Applicant has not identified any particular incident in the arbitral proceedings demonstrating partiality, unequal treatment or denial of an opportunity to be heard.
63. The deponent consequently contends that the allegations of bias contained in the application are unsupported by evidence and amount to mere assertions. He states that the proceedings were conducted judiciously and that, if the Applicant had evidence demonstrating otherwise, it ought to have placed such evidence before the Court rather than relying on allegations.
64. He therefore maintains that the application does not satisfy the statutory threshold under Section 35 of the Arbitration Act and improperly seeks to challenge matters falling within the province of the arbitral tribunal.
65. Finally, the deponent states that the allegations contained in the Applicant’s grounds of application and supporting affidavit concerning bias, partiality and improper conduct by the Arbitrator are made in bad faith and constitute an abuse of the Court process intended to harass the Respondent and delay enforcement of the Award.
66. He consequently urges the Court to find that the Applicant has failed to establish any lawful basis for setting aside the Final Arbitral Award dated 17th April, 2023 and to dismiss the application.
E. THE RESPONDENT’S SUMMONS DATED 10TH AUGUST, 2023.
67. On its part, the Respondent filed the chamber summons dated 10th August, 2023 brought under Article 159(2) of the Constitution of Kenya, 2010, Section 36 of the Arbitration Act, 1995, Rule 9 of the Arbitration Rules, 1997, Section 1A & 1B and 59 of the Civil Procedure Act Cap 21 Laws of Kenya and all other enabling provisions of the law, in which the following orders were sought:
1. THAT this Honourable Court be pleased to order that the final arbitral award dated 17th April, 2023 issued by Mr. Calvin Nyachoti, FCIArb and filed herein be recognized, deemed as filed as a record of this Honourable Court and be adopted as a judgment of this Honourable Court.
2. THAT this Honourable Court be pleased to grant leave to the Applicant to enforce the final arbitral award dated 17th April, 2023 issued by Mr. Calvin Nyachoti, FCIArb and that a decree be extracted in terms of the said final arbitral award.
3. THAT this Honourable Court be pleased to grant any other order it deems fit and just to achieve the enforcement of the Final arbitral award dated 17th April, 2023.
4. THAT the costs of this application be provided for.
68. The Respondent bases its application on the grounds that on 3rd April, 2017, the parties entered into a Supply Agreement, Tender No. CGK/CIT/ERP/2016-2017/1, under which the Applicant agreed to supply, install, configure, test and commission an Integrated Enterprise Resource Planning System for the Respondent at a contract price of Ksh.165,346,516/-.
69. The Respondent performed its obligations under the contract in five milestones, and the Applicant paid the first milestone, being 20% of the contractual sum. The Applicant subsequently failed to pay the balance of the contractual sum, which the Respondent contended amounted to Ksh.135,641,701/-.
70. The Respondent further states that the dispute arising from the alleged breach was referred to arbitration before Mr. Calvin Nyachoti, FCIArb, who was appointed pursuant to the terms of the agreement and the Arbitration Act.
71. Upon hearing the dispute, the Arbitrator rendered a Final Award dated 17th April, 2023, dismissing the Applicant’s counterclaim and finding that the Respondent had proved its claim on a balance of probabilities.
72. The Respondent contends that the Arbitrator consequently awarded the it Ksh.119,106,549/- as the balance of the contractual sum, Ksh.170,000/- as special damages, together with the costs of the arbitration.
73. It is the Respondent’s case that notwithstanding demand and notice, the Applicant has not complied with the terms of the Final Award. The Respondent therefore seeks the adoption and enforcement of the Award as a judgement and decree of this Honourable Court, contending that it cannot otherwise proceed to enforce the Award against the Applicant.
74. Finally, the Respondent contends that the continued withholding of the decretal sum is adversely affecting the its business operations and capital base, occasioning it substantial losses and placing its business at risk of closure. It is therefore urged that, in the interests of justice, the orders sought in the application be granted expeditiously, as no prejudice would be occasioned to the Appellant, and that this Honourable Court has the requisite jurisdiction to grant the orders sought.
F. THE AFFIDAVIT IN SUPPORT OF THE RESPONDENT’S SUMMONS.
75. The Respondent’s application is supported by the affidavit of sworn on 10th August, 2023 by Tobias Otieno, in which the said deponent contends that on 3rd April, 2017, the Applicant and the Respondent entered into a Supply Agreement, Tender No. CGK/CIT/ERP/2016-2017/1, under which the Applicant undertook to supply, install and configure, test and commission an Integrated Enterprise Resource Planning System for the County Government of Kisumu at a contract price of Ksh.165,346,516/-. He has annexed a copy of the Agreement dated 3rd April, 2017, marked “TO-1”.
76. He further states that the Applicant performed its contractual obligations in five milestones, with the Respondent paying the first milestone, equivalent to 20% of the contractual sum.
77. It is deponed that following the Applicant’s performance of its contractual obligations, the Respondent breached the Agreement by failing to pay the balance of the contractual sum, which stated to be Ksh.135,641,701/-.
78. The deponent states that, as a consequence, the Applicant commenced the arbitral process by a letter dated 27th September, 2021, through its advocates, Messrs. Otwal & Manwa Associate Advocates, notifying the Respondent of the dispute in accordance with the contract. The letter was received by the Respondent on the same date but elicited no response. A copy of the letter is annexed and marked “TO-2”.
79. The deponent further states that, after pursuing the matter and in an effort to avoid unnecessary delay, the Applicant’s advocates wrote to the Respondent on 27th October, 2021, giving it fourteen days within which to respond to or agree to the Applicant’s proposal for the appointment of an arbitrator.
80. The Respondent was notified that, in default of a response or participation in the appointment process, the Applicant would proceed to appoint its proposed arbitrator as the sole arbitrator in accordance with the contract. A copy of the letter dated 27th October, 2021 is annexed and marked “TO-3”.
81. According to the deponent, the Respondent failed to appoint or participate in the appointment of a sole arbitrator within the stipulated period, whereupon the dispute was referred to arbitration and Mr. Calvin Nyachoti, FCIArb, was appointed as the sole arbitrator on 17th November, 2021. A copy of the letter communicating the appointment is annexed and marked “TO-4”.
82. The deponent further states that, thereafter, and in recognition of the jurisdiction of the Arbitral Tribunal, the parties, through their respective representatives, executed an Agreement on the Arbitrator’s Appointment and Terms of Engagement. A copy thereof is annexed and marked “TO-5”.
83. The deponent states that the dispute was subsequently heard and determined by the sole Arbitrator. He deposes that, by an email dated 18th April, 2023, the Arbitrator notified the parties that the Final Arbitral Award had been published and was ready for collection. A copy of the said email correspondence is annexed and marked “TO-6”.
84. It is further deponed that the Arbitrator rendered the Final Award dated 17th April, 2023, dismissing the Respondent’s counterclaim and finding that the Applicant had proved its claim on a balance of probabilities.
85. The Arbitrator consequently awarded the Applicant Ksh.119,106,549/- being the unpaid balance of the contractual sum, Ksh.170,000/- as special damages, together with t
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1. A brief history of this matter is that a dispute pitting the parties herein was pursuant to an arbitration clause in the parties’ contract dated 3rd April, 2017 referred to arbitration, whereby the Applicant herein was the Respondent, while the Respondent herein was the Claimant.
2. The parties presented their respective cases before the sole arbitrator Mr. Calvin Nyachoti, FCArb, Chartered Arbitrator who, on 15th February, 2024, rendered his final award, concluding as follows:
335. For the reasons given above, I now AWARD and DIRECT that the Respondent’s Counterclaim is dismissed and the Claimant has on a balance of probabilities proven its case against the Respondent and is entitled to:
a. Ksh.119,106,549/- being the balance of the contractual sum that the Respondent failed to pay.
b. Special damages of Ksh.170,000/-.
c. Costs of this arbitration.
B. THE APPLICANT’S APPLICATION DATED 9TH JULY, 2023.
3. Following the delivery of the award, the Applicant filed the notice of motion dated 9th July, 2023, presented under Section 35 of the Arbitration Act, 1995 and Rule 7 of the Arbitration Rules, 1997, Section 3A of the Civil Procedure Act and all other enabling provisions of the law, which seeking the following orders:
1. THAT pending the hearing and determination of this application, this court be pleased to stay any recognition and/or enforcement of the arbitral award dated 17th April, 2023.
2. THAT this Honourable Court be pleased to set aside the arbitral award dated 17th April, 2023 issued by Mr. Calvin Nyachoti C.Arb in so far as the same seeks to dispense with the rules of evidence in finding that the Respondent provided a performance bond and proceeding to award the balance of the contractual sum.
3. THAT this Honourable Court be pleased to grant any further orders as it may deem appropriate in the circumstances including remitting the said award dated 17th April, 2023 for corrective action on the impugned portion of the award as purports to dismiss the counterclaim dated 22nd June, 2022.
4. THAT the costs of this application and the incidental expenses thereto be provided for.
4. The grounds upon which the Applicant’s motion is premised are that the sole arbitrator, Mr. Calvin Nyachoti FCIArb, delivered an arbitral award dated 17th April, 2023 determining the dispute between the parties. The Applicant contends that, in arriving at the impugned award, the Arbitrator acted contrary to public policy and the principles of natural justice in several respects.
5. The Applicant contends that the Arbitrator failed or refused to uphold the sanctity of the contractual terms and conditions agreed between the parties, thereby defeating the Applicant’s legitimate expectation that the contracts would be strictly enforced in accordance with their terms. It is further contended that the Arbitrator disregarded the applicable rules of natural justice, including the statutory principles governing the burden of proof under the Evidence Act.
6. The Applicant further alleges that the Arbitrator exhibited bias and partiality in the manner in which he evaluated the evidence tendered by the parties, ultimately reaching a conclusion in favour of the Respondent without sufficient evidentiary basis. It is also alleged that the Arbitrator disregarded the Applicant’s counterclaim and thereby failed to accord the Applicant a fair and impartial hearing.
7. The Applicant therefore maintains that the Award dated 17th April, 2023 is contrary to the public policy of Kenya and constitutes an affront to the administration of justice, having been rendered without due regard to the rules of natural justice and the applicable statutory provisions. In particular, the Applicant challenges the Arbitrator’s determination concerning the Performance Bond, contending that the finding was made without sufficient evidence and without properly addressing the alleged evidentiary deficiencies relating to that issue.
8. On that basis, the Applicant seeks to have the arbitral award set aside to the extent that it found that Clause 5 of Contract No. CGK/CIT/ERP/2016-2017, relating to the installation of the ERP and the Performance Bond, had been complied with.
C. THE AFFIDAVIT IN SUPPORT OF THE APPLICANT’S MOTION.
9. The application is supported by the affidavit of Edris Nicholas Omondi, sworn on 9th July, 2023 in which the deponent states that he is the Applicant’s County Attorney and is duly authorized and competent to swear the affidavit.
10. He explains that the Applicant is a devolved unit of the Government of Kenya, established under the Constitution and governed by the County Governments Act and other applicable laws, and is mandated to provide services to the residents of Kisumu County.
11. He further states that, in the discharge of its mandate, the Applicant is empowered to enter into contracts and partnerships with public or private entities, subject to the law and the rule of law.
12. The deponent states that on or about 3rd April, 2017, the Applicant’s former administration entered into Contract No. CGK/CIT/ERP/2016-2017 for the Installation of an ERP system with the Respondent following a public procurement process. He has annexed a copy of the said Contract marked “CGK-1”.
13. He states that Clause 5 of the Contract expressly required the Respondent to furnish a performance security equivalent to 5% of the contractual amount, valid for a period exceeding 30 days after expiry of the validity of the order and in the form prescribed under the procurement law.
14. The deponent states that the Applicant subsequently halted operations under the Contract upon discovering alleged contractual breaches and flaws in the procurement process undertaken by its former administration in awarding the tender.
15. He states that the Respondent consequently declared a dispute and unilaterally appointed Mr. Calvin Nyachoti FCIArb as the sole arbitrator. The Applicant, in an effort to expedite the resolution of the dispute, agreed to the appointment and participated in the arbitral proceedings.
16. The deponent states that the Respondent filed its Memorandum of Claim, pleadings and written submissions before the Arbitrator, which documents he has annexed as “CGK-2”. He explains that the Respondent’s claim principally sought payment of the alleged balance of the contractual sum together with special damages. In response, the Applicant filed its Statement of Defence and Counterclaim, together with its pleadings and written submissions, copies of which are annexed as “CGK-3”.
17. The deponent further states that, from the pleadings and the Arbitrator’s communication to the parties, the principal issues identified for determination were whether there was a valid contract between the parties, including the questions of illegality, irregularity, fraud and collusion and their consequences, and whether there had been a breach of the Contract and, if so, by which party. A copy of the Arbitrator’s communication setting out the issues for determination is annexed as “CGK-4”.
18. The deponent states that the Arbitrator subsequently delivered a Final Award dated 17th April, 2023, a copy of which is annexed as “CGK-5”. He states that, by the Award, the Arbitrator dismissed the Applicant’s counterclaim and awarded the Respondent Ksh.119,106,549/- being the balance of the contractual sum, Ksh.170,000/- as special damages and the costs of the arbitration proceedings.
19. The deponent particularly takes issue with the Arbitrator’s finding at paragraph 256 of the Final Award that the Respondent had provided the performance security required under Clause 5 of the Contract and had, consequently, not breached the Contract. He contends that this finding was made without any supporting evidence on record.
20. He notes that, although at paragraph 255 of the Award the Arbitrator found that a tender security of 0.5% had been provided during the procurement process, and that a performance security of 5% was required following notification of the award, the Arbitrator did not identify any evidence demonstrating that the Respondent subsequently furnished the required performance security.
21. The deponent states that the Applicant had specifically pleaded that the Respondent breached the Contract by failing or refusing to provide the performance bond. He contends that, despite the Applicant raising the issue, the Respondent failed to produce a copy of the alleged performance bond in rebuttal.
22. According to the deponent, it would have been logical for the Respondent, as the party allegedly required to furnish the bond and as the holder of the relevant bank account, to produce documentary evidence of the performance security rather than requiring the Applicant to produce a document that was not within its possession or control.
23. The deponent maintains that the issue of the performance bond was a substantive and material issue because it went to the root of the Contract. He contends that the Arbitrator nevertheless treated the issue casually and dismissively and made a finding that the performance security had been provided without identifying the evidence upon which that finding was based.
24. He consequently alleges that the Arbitrator was biased in his treatment and evaluation of the evidence and failed to exercise the requisite impartiality and neutrality in determining the issue.
25. The deponent further states that the Arbitrator failed to give adequate consideration to the Applicant’s allegations concerning flaws in the procurement process undertaken by the former administration. He contends that the Arbitrator proceeded to issue the Award without fully satisfying himself that the Respondent had complied with all the contractual conditions, including the requirement to provide the performance security.
26. In his view, the resulting Award amounted to an unjust enrichment of the Respondent at the expense of public funds and was therefore contrary to public policy.
27. The deponent further contends that the Arbitrator failed to appreciate that the performance bond was a fundamental contractual requirement and that the burden of proving its provision lay upon the Respondent. He alleges that, in the absence of the performance bond from the record and in light of the Respondent’s failure to produce it, the Arbitrator had no proper evidentiary basis for concluding that the contractual requirement had been satisfied.
28. The deponent maintains that the Arbitrator thereby disregarded the applicable principles under the Evidence Act relating to the burden of proof and shifted the evidential burden improperly to the Applicant.
29. The deponent states that it was contrary to public policy for the Arbitrator to find, without cogent evidence, that the Respondent had provided the performance security required under Clause 5 of the Contract, particularly in circumstances where the Applicant had raised concerns regarding possible fraud and irregularities in the procurement process.
30. He further contends that the Arbitrator’s approach undermined the sanctity of contracts entered into through public procurement and diluted the requirement that parties comply with express contractual terms and conditions.
31. The deponent further states that the dismissal of the Applicant’s counterclaim, founded in part upon the impugned finding concerning the performance bond, resulted in unjust enrichment of the Respondent and an unsubstantiated loss of public funds.
32. He maintains that once the Applicant had specifically raised the issue of non-provision of the performance bond and the Respondent failed to produce the document, the Arbitrator had no legal basis to presume or find that the performance bond had been provided.
33. The deponent consequently contends that the Award dated 17th April, 2023 is in conflict with the public policy of Kenya and offends the rules of natural justice. He therefore urges the Court to set aside the Award, at least to the extent that it purports to find that the Respondent complied with Clause 5 of Contract No. CGK/CIT/ERP/2016-2017 by providing the requisite performance bond, notwithstanding the alleged absence of any such bond or other cogent evidence of its provision on the arbitral record.
D. THE AFFIDAVIT IN REPLY TO THE APPLICANT’S MOTION.
34. In resisting the Applicant’s motion, the Respondent filed a replying affidavit sworn on 8th August, 2023 by Tobias Otieno, in which he has deposed that he is the Respondent’s Chief Executive Officer, is conversant with the facts giving rise to the proceedings and the arbitral proceedings before Mr. Calvin Nyachoti, FCIArb, and is duly authorized to swear the affidavit.
35. He states that he has read and understood the Applicant’s motion dated 9th July, 2023 and the supporting affidavit of Edris Nicholas Omondi, and contends that the application is, in substance, an appeal disguised as an application to set aside the arbitral award.
36. The deponent states that the dispute arose from the Applicant’s alleged refusal, neglect or failure to pay the Respondent in full for services rendered under Tender No. CGK/CIT/ERP/2016-2017/1. He states that pursuant to an agreement dated 3rd April, 2017, the parties entered into a supply agreement under which the Respondent was to supply, install, configure, test and commission an Integrated Enterprise Resource Planning System for the Applicant at a contractual sum of Ksh.165,346,516/-. A copy of the agreement is annexed as “TO-1”.
37. The deponent states that the Respondent performed its obligations under the Contract through the stipulated five milestones and that the Applicant paid for the first milestone, equivalent to 20% of the contractual sum.
38. He alleges that the Applicant subsequently breached the Contract by failing to fulfil its payment obligations, leaving an outstanding contractual balance of Ksh.135,641,701/-. He states that the parties thereafter engaged in good faith negotiations aimed at resolving the outstanding payment and avoiding unnecessary delay and expense, but the negotiations did not result in payment of the outstanding sum.
39. The deponent states that the Respondent consequently declared a dispute by a letter dated 27th September, 2021 addressed to the Applicant through its advocates, Messrs. Otwal & Manwa Associates Advocates. He states that the letter was received by the Applicant on 29th September, 2021 but elicited no response. A copy of the letter is annexed as “TO-2”.
40. The deponent further states that, after further efforts to secure the Applicant’s participation in the appointment of an arbitrator, the Respondent’s advocates issued a further letter dated 27th October, 2021 giving the Applicant 14 days within which to respond or agree to the proposed arbitrator, failing which the Respondent would proceed with the appointment of a sole arbitrator in accordance with the Contract. The said letter is annexed as “TO-3”.
41. The deponent states that, owing to the Applicant’s failure to participate in the appointment process, the dispute was referred to arbitration on 17th November, 2021 and Mr. Calvin Nyachoti, FCIArb, was appointed as the sole arbitrator. A copy of the letter referring the dispute to arbitration and confirming the appointment is annexed as “TO-4”.
42. He contends that the Applicant, having failed to participate in the appointment of the Arbitrator, cannot subsequently challenge the manner of his appointment. He further states that the prescribed procedure was followed and that the Applicant did not object to the Arbitrator’s appointment after its confirmation.
43. The deponent states that the Applicant was entitled under Section 5 of the Arbitration Act to raise any objection to the Arbitrator’s appointment at the earliest opportunity but failed to do so. He further states that, in recognition of the Arbitrator’s jurisdiction, representatives of the parties executed an Agreement on the Arbitrator’s Appointment and Terms of Engagement, a copy of which is annexed as “TO-5”.
44. He therefore maintains that the Applicant submitted to the jurisdiction of the Tribunal and cannot now challenge the appointment or jurisdiction of the Arbitrator.
45. The deponent further states that the Applicant was duly notified of the preliminary proceedings before the Arbitrator and participated in them. He has annexed the Arbitrator’s Order for Directions No. 1 as “TO-6” and Order for Directions No. 2 as “TO-7”.
46. The deponent states that the parties attended the preliminary meeting and agreed upon preliminary issues for determination. He therefore disputes any suggestion that the Applicant was denied an opportunity to participate in or present its case before the Tribunal.
47. The deponent states that the arbitral proceedings were duly conducted and culminated in a Final Award dated 17th April, 2023. He states that the Arbitrator subsequently communicated to the parties by email dated 18th April, 2023 that the Award had been published and was ready for collection. A copy of the email correspondence is annexed as “TO-8”. He has further annexed a certified copy of the Final Arbitral Award dated 17th April 2023 as “TO-9”.
48. The deponent states that, by the Final Award, the Arbitrator dismissed the Applicant’s counterclaim and found that the Respondent had proved its case on a balance of probabilities. The Respondent was awarded Ksh.119,106,549/- being the balance of the contractual sum, Ksh.170,000/- as special damages and the costs of the arbitration. He states that the Award was in the Respondent’s favour and that, notwithstanding demand and notice, the Applicant had not complied with its terms.
49. The deponent contends that the Arbitrator did not determine matters falling outside the reference and acted within the scope of his mandate. He states, on the advice of counsel, that an arbitral tribunal has the authority to interpret contractual documents and ought to be accorded sufficient latitude to give effect to the contractual terms without rewriting the agreement. He therefore disputes the Applicant’s contention that the Arbitrator acted contrary to the Contract or exceeded his jurisdiction.
50. In response to the Applicant’s allegations that the Award was contrary to public policy, the deponent states that an arbitral award may only be set aside on public policy grounds in limited circumstances, such as where the award is shown to be arbitrary or capricious.
51. He contends that the Applicant has not demonstrated any such circumstance and maintains that, if anything, it would be contrary to public policy to permit a party that had failed to honour its contractual obligations to benefit from its own breach at the expense of a party that had performed its obligations and invoked arbitration to protect its contractual rights.
52. The deponent further states that, as a matter of contractual principle, a party who suffers loss as a result of breach of contract ought, so far as monetary compensation can achieve it, to be placed in the position it would have occupied had the contract been performed.
53. He therefore contends that, given the passage of time since the Contract was entered into, the Respondent ought to be adequately compensated in accordance with the Award so as to place it in substantially the position it would have occupied had the Contract been duly performed.
54. The deponent characterizes the present application as frivolous, vexatious and an abuse of the arbitral and judicial process, contending that it is essentially an appeal disguised as an application to set aside the Award.
55. He states that the Applicant has not adduced any evidence demonstrating bias or partiality on the part of the Arbitrator and has instead relied on unsubstantiated allegations and what he describes as misrepresentations of fact.
56. The deponent further contends that the Applicant’s purpose in bringing the application is to delay the enforcement of the Award and prevent the Respondent from enjoying the fruits of the arbitral process. He states that the application is a dilatory tactic and a last attempt to frustrate the determination of the dispute. He maintains that the Applicant has failed to establish any of the grounds contemplated under Section 35 of the Arbitration Act for setting aside the Award.
57. The deponent states that public policy in Kenya favours the finality of arbitral awards and that parties who voluntarily submit their disputes to arbitration are expected to accept the resulting award, subject only to the limited statutory grounds upon which an award may be challenged under Section 35 of the Arbitration Act.
58. He therefore contends that the Applicant cannot use the present application to invite the Court to re-evaluate the merits of the dispute or substitute its own view for that of the Arbitrator.
59. With regard to the allegations of bias and denial of a fair hearing, the deponent states that the parties were treated equally throughout the arbitral proceedings in accordance with Section 19 of the Arbitration Act.
60. He maintains that each party was afforded a fair and reasonable opportunity to present its case and respond to the case of its opponent. He therefore denies that there was any indication of bias in the conduct of the proceedings or in the manner in which the Arbitrator dealt with the parties.
61. The deponent further states that the Arbitrator complied with the statutory obligation to act fairly and impartially, to afford each party a reasonable opportunity to present its case and to deal with that of its opponent, and to adopt procedures suitable to the circumstances of the dispute while avoiding unnecessary delay and expense.
62. He maintains that the Applicant has not identified any particular incident in the arbitral proceedings demonstrating partiality, unequal treatment or denial of an opportunity to be heard.
63. The deponent consequently contends that the allegations of bias contained in the application are unsupported by evidence and amount to mere assertions. He states that the proceedings were conducted judiciously and that, if the Applicant had evidence demonstrating otherwise, it ought to have placed such evidence before the Court rather than relying on allegations.
64. He therefore maintains that the application does not satisfy the statutory threshold under Section 35 of the Arbitration Act and improperly seeks to challenge matters falling within the province of the arbitral tribunal.
65. Finally, the deponent states that the allegations contained in the Applicant’s grounds of application and supporting affidavit concerning bias, partiality and improper conduct by the Arbitrator are made in bad faith and constitute an abuse of the Court process intended to harass the Respondent and delay enforcement of the Award.
66. He consequently urges the Court to find that the Applicant has failed to establish any lawful basis for setting aside the Final Arbitral Award dated 17th April, 2023 and to dismiss the application.
E. THE RESPONDENT’S SUMMONS DATED 10TH AUGUST, 2023.
67. On its part, the Respondent filed the chamber summons dated 10th August, 2023 brought under Article 159(2) of the Constitution of Kenya, 2010, Section 36 of the Arbitration Act, 1995, Rule 9 of the Arbitration Rules, 1997, Section 1A & 1B and 59 of the Civil Procedure Act Cap 21 Laws of Kenya and all other enabling provisions of the law, in which the following orders were sought:
1. THAT this Honourable Court be pleased to order that the final arbitral award dated 17th April, 2023 issued by Mr. Calvin Nyachoti, FCIArb and filed herein be recognized, deemed as filed as a record of this Honourable Court and be adopted as a judgment of this Honourable Court.
2. THAT this Honourable Court be pleased to grant leave to the Applicant to enforce the final arbitral award dated 17th April, 2023 issued by Mr. Calvin Nyachoti, FCIArb and that a decree be extracted in terms of the said final arbitral award.
3. THAT this Honourable Court be pleased to grant any other order it deems fit and just to achieve the enforcement of the Final arbitral award dated 17th April, 2023.
4. THAT the costs of this application be provided for.
68. The Respondent bases its application on the grounds that on 3rd April, 2017, the parties entered into a Supply Agreement, Tender No. CGK/CIT/ERP/2016-2017/1, under which the Applicant agreed to supply, install, configure, test and commission an Integrated Enterprise Resource Planning System for the Respondent at a contract price of Ksh.165,346,516/-.
69. The Respondent performed its obligations under the contract in five milestones, and the Applicant paid the first milestone, being 20% of the contractual sum. The Applicant subsequently failed to pay the balance of the contractual sum, which the Respondent contended amounted to Ksh.135,641,701/-.
70. The Respondent further states that the dispute arising from the alleged breach was referred to arbitration before Mr. Calvin Nyachoti, FCIArb, who was appointed pursuant to the terms of the agreement and the Arbitration Act.
71. Upon hearing the dispute, the Arbitrator rendered a Final Award dated 17th April, 2023, dismissing the Applicant’s counterclaim and finding that the Respondent had proved its claim on a balance of probabilities.
72. The Respondent contends that the Arbitrator consequently awarded the it Ksh.119,106,549/- as the balance of the contractual sum, Ksh.170,000/- as special damages, together with the costs of the arbitration.
73. It is the Respondent’s case that notwithstanding demand and notice, the Applicant has not complied with the terms of the Final Award. The Respondent therefore seeks the adoption and enforcement of the Award as a judgement and decree of this Honourable Court, contending that it cannot otherwise proceed to enforce the Award against the Applicant.
74. Finally, the Respondent contends that the continued withholding of the decretal sum is adversely affecting the its business operations and capital base, occasioning it substantial losses and placing its business at risk of closure. It is therefore urged that, in the interests of justice, the orders sought in the application be granted expeditiously, as no prejudice would be occasioned to the Appellant, and that this Honourable Court has the requisite jurisdiction to grant the orders sought.
F. THE AFFIDAVIT IN SUPPORT OF THE RESPONDENT’S SUMMONS.
75. The Respondent’s application is supported by the affidavit of sworn on 10th August, 2023 by Tobias Otieno, in which the said deponent contends that on 3rd April, 2017, the Applicant and the Respondent entered into a Supply Agreement, Tender No. CGK/CIT/ERP/2016-2017/1, under which the Applicant undertook to supply, install and configure, test and commission an Integrated Enterprise Resource Planning System for the County Government of Kisumu at a contract price of Ksh.165,346,516/-. He has annexed a copy of the Agreement dated 3rd April, 2017, marked “TO-1”.
76. He further states that the Applicant performed its contractual obligations in five milestones, with the Respondent paying the first milestone, equivalent to 20% of the contractual sum.
77. It is deponed that following the Applicant’s performance of its contractual obligations, the Respondent breached the Agreement by failing to pay the balance of the contractual sum, which stated to be Ksh.135,641,701/-.
78. The deponent states that, as a consequence, the Applicant commenced the arbitral process by a letter dated 27th September, 2021, through its advocates, Messrs. Otwal & Manwa Associate Advocates, notifying the Respondent of the dispute in accordance with the contract. The letter was received by the Respondent on the same date but elicited no response. A copy of the letter is annexed and marked “TO-2”.
79. The deponent further states that, after pursuing the matter and in an effort to avoid unnecessary delay, the Applicant’s advocates wrote to the Respondent on 27th October, 2021, giving it fourteen days within which to respond to or agree to the Applicant’s proposal for the appointment of an arbitrator.
80. The Respondent was notified that, in default of a response or participation in the appointment process, the Applicant would proceed to appoint its proposed arbitrator as the sole arbitrator in accordance with the contract. A copy of the letter dated 27th October, 2021 is annexed and marked “TO-3”.
81. According to the deponent, the Respondent failed to appoint or participate in the appointment of a sole arbitrator within the stipulated period, whereupon the dispute was referred to arbitration and Mr. Calvin Nyachoti, FCIArb, was appointed as the sole arbitrator on 17th November, 2021. A copy of the letter communicating the appointment is annexed and marked “TO-4”.
82. The deponent further states that, thereafter, and in recognition of the jurisdiction of the Arbitral Tribunal, the parties, through their respective representatives, executed an Agreement on the Arbitrator’s Appointment and Terms of Engagement. A copy thereof is annexed and marked “TO-5”.
83. The deponent states that the dispute was subsequently heard and determined by the sole Arbitrator. He deposes that, by an email dated 18th April, 2023, the Arbitrator notified the parties that the Final Arbitral Award had been published and was ready for collection. A copy of the said email correspondence is annexed and marked “TO-6”.
84. It is further deponed that the Arbitrator rendered the Final Award dated 17th April, 2023, dismissing the Respondent’s counterclaim and finding that the Applicant had proved its claim on a balance of probabilities.
85. The Arbitrator consequently awarded the Applicant Ksh.119,106,549/- being the unpaid balance of the contractual sum, Ksh.170,000/- as special damages, together with t
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