Background and Introduction
1. The respondent instituted a suit in the subordinate court by way of a plaint dated 6th July 2020, seeking the sum of Kshs. 12,654,824/= as at 30th June 2020, together with interest at the rate of 15% per annum until payment in full, general damages, and costs. The suit was premised on an alleged breach of an investment agreement between the parties. In response, the appellants filed an application dated 16th July 2020 seeking a stay of proceedings pending the referral of the matter to arbitration.
2. In a ruling delivered on 24th July 2020 (the impugned ruling), the Honourable Magistrate dismissed the appellants’ application for referral of the dispute to arbitration and declined to stay or set aside the ex parte orders issued on 10th July 2020, which required the appellants to deposit a sum of Kshs. 12,654,824/= as security pending the hearing and determination of the suit. That ruling is the subject of the present appeal, which has been brought by way of a Memorandum of Appeal dated 27th July 2020.
3. The respondent has raised a preliminary objection, contending that the appeal is incompetent and ought to be struck out on the ground that the complete application that was dismissed by the trial court, including its annexures as well as the reply and the annexures thereto have been omitted from the Record of Appeal. I agree, in principle, with the respondent on the importance of providing a complete and accurate record for the proper determination of an appeal.
4. However, upon perusal of the Record of Appeal filed on 26th May 2025, I find that the application dated 16th July 2020, together with the supporting affidavit sworn by Patricia Njeri Wanyama, the replying affidavit sworn by Kirimi David on 20th July 2020, the attachments including the impugned ruling, are all duly included in the record. Accordingly, I find no merit in the objection and shall proceed to determine the appeal on its merits.
5. I must however note that in view of the ongoing liquidation of the 2nd appellant, the Official Receiver elected not to participate in these proceedings. The appeal therefore proceeded with the 1st appellant only.
6. The appellant contends that the trial court erred in failing to recognize the existence of a binding arbitration agreement arising from its dealings with the respondent. It relies on the Contribution Agreement dated 19th January 2016 and the Partnership Agreement dated 15th August 2016. Both of these agreements, according to the appellant, contain arbitration clauses and were expressly incorporated into the respondent’s signed rollover and withdrawal instructions.
7. The appellant maintains that Clause 16 of the 2014 Partnership Agreement establishes a binding dispute resolution mechanism, binding on the respondent in his capacity as a partner.
8. The appellant argues that the Learned Magistrate misdirected himself by declaring the Contribution Agreement invalid solely due to lack of execution by the appellant and failed to appreciate that Section 6 of the Arbitration Act mandates a stay of proceedings where a valid arbitration agreement exists. Citing Section 4(4) of the Act, the appellant submits that an arbitration agreement may be deemed valid even where not signed by all parties, particularly where its terms are incorporated by reference.
9. The appellant faults the trial court for failing to interpret the relevant contractual documents holistically and for disregarding the doctrine of interrelated contracts. It asserts that the standard-form nature of the Partnership Agreement renders it binding on all investors, including the respondent, and that partial execution of the Contribution Agreement does not negate its enforceability.
10. Additionally, the appellant challenges the ex parte orders issued by the trial court, contending that they were obtained through material non-disclosure. Specifically, the respondent failed to disclose the existence of the two agreements, thereby violating the duty of candour in ex parte proceedings. As a result, the appellant was subjected to prejudicial orders, including the order to deposit Kshs. 12,654,824/= without the benefit of a hearing, in contravention of the Constitution.
11. In light of the foregoing, the appellant submits that the trial court’s ruling violates both the Arbitration Act and the Constitution, and urges this Court to allow the appeal.
12. The respondent on the other hand contends that references to other agreements within the Roll-Over Instructions do not incorporate arbitration clauses by implication, as the requirements of Section 4(4) of the Arbitration Act have not been satisfied. They emphasize the doctrine of privity of contract, stating that arbitration clauses cannot be enforced against non-signatories.
13. It is further argued that the appellant is approbating and reprobating by selectively relying on multiple agreements in a contradictory manner. Even if the arbitration clauses were considered, the respondent maintains that the appellant has not demonstrated the respondent’s agreement thereto.
14. Lastly, the respondent asserts that the appellant admitted to owing the amount claimed and is merely using this appeal as a tactic to delay execution. The respondent urges this Court to uphold the trial court’s ruling, dismiss the appeal with costs, and allow execution to proceed in the interest of justice and respect for party autonomy.
Analysis and Determination
15. The appeal was canvassed by way of written submissions, which I have duly considered together with the Record of Appeal, the legal authorities cited, and the applicable law. The central issue for determination is whether the Learned Magistrate erred in dismissing the appellant’s application for a stay of proceedings pending referral to arbitration, in view of the alleged existence of a binding arbitration agreement between the parties.
16. I have reviewed the impugned ruling. There is no doubt that the rationale for the decision of the Learned Magistrate in dismissing the appellant’s application is as captured at paragraph 11 that:
“Annexure PNW1 which the defendants seek to rely on was never signed by the defendants and does not therefore bind the plaintiffs or make them party to the initial partnership agreement referred to therein…the contract governing the parties’ relationship is the roll over instructions and contract signed by the plaintiffs on 28th October 2019. This contract does not have any arbitration clause.”
17. There is no dispute that the application before the trial court was brought under Section 6 of the Arbitration Act, which empowers a court to stay legal proceedings where an arbitration agreement exists between the parties. I am equally alive to the fact that the jurisdiction of this Court to interfere in arbitration matters is limited by Section 10 of the Arbitration Act, which reinforces the principle of party autonomy. This principle is further underpinned by Article 159(2)(c) of the Constitution, which obliges courts to promote alternative dispute resolution mechanisms.
18. The legal threshold for granting a stay of proceedings under Section 6 of the Act is now well-settled. The applicant must demonstrate the existence of a valid arbitration agreement, that the proceedings relate to a matter covered by the agreement, and that the application for stay was made timeously before taking any steps in the proceedings.
19. In the present case, the appellant relied on the Contribution Agreement dated 19th January 2016, which, although duly executed by the respondent, remains unexecuted by the appellant. It contains provisions relating to roll-over of investments at Clauses J and K. Clause A of that agreement further references the Partnership Agreement dated 26th September 2014, which contains an arbitration clause at Clause 16.
20. However, upon a careful examination of the Partnership Agreement, it is evident that the respondent is neither named as a party nor referenced in any part of the agreement. The document bears the hallmarks of a generic, standard-form contract intended for general use but lacking any express or implied contractual linkage to the respondent. There is no indication, on the face of the agreement or otherwise, that the respondent participated in its negotiation, was privy to its terms, or expressly accepted them.
21. In the circumstances, I agree with the trial court that the Roll-Over and Withdrawal Form signed by the respondent on 28th October 2019 is what governs the respondent’s investment. Clause 4 of that form ambiguously refers to the "Partnership Agreement dated 15th August 2016" and the "partner’s previous investment agreement." However, it does not incorporate any arbitration clause expressly or with sufficient clarity.
22. Section 4(4) of the Arbitration Act is instructive. It provides in part that:
“The reference in a contract to a document containing an arbitration clause shall constitute an arbitration agreement if the contract is in writing and the reference is such as to make that arbitration clause part of the contract.”
23. The legal effect of this provision is that for an arbitration clause contained in a separate document to be validly incorporated into the principal contract, the reference to that document must be clear, express, and unequivocal. Mere general or ambiguous references are legally insufficient to import the arbitration clause. The incorporation must be done with precision, leaving no doubt that the parties intended the arbitration provision to become part of their binding agreement.
24. This principle was emphatically reaffirmed in National Hospital Insurance Fund V Peter Scott (Sole Arbitrator) & Another, [2018] eKLR, where the court underscored the consensual nature of arbitration. The court held that no party can be compelled to submit to arbitration unless there is a demonstrable meeting of the minds that clearly evidences agreement to that mode of dispute resolution. The decision affirms the foundational doctrine that arbitration is a creature of consent and that the courts will not enforce arbitration clauses through indirect, implied, or obscure references.
25. The court held that:
“When Parliament says ‘document signed by the parties’ it intends a document signed by both the parties. The other categories … contemplate that such documents would be arbitration agreements in writing only when they are exchanged between the parties … The exchange signifies an active assent by both parties and a demonstrable meeting of minds.”
26. In the present appeal, no such clear and unequivocal incorporation of the arbitration clause has been established. The Contribution and Partnership Agreements were not executed by all parties, and no mutual exchange or express incorporation within the Roll-Over Form satisfies the threshold under Section 4(4).
27. The trial court therefore cannot be faulted for finding that no binding arbitration agreement existed between the parties. Mere reference to earlier agreements, without explicit incorporation of the arbitration clause, does not satisfy the statutory requirements. The trial magistrate correctly exercised judicial discretion within the confines of the law.
Disposition
28. In the result, I find no merit in the appeal. The same is hereby dismissed with costs to the respondent.
DATED, SIGNED AND DELIVERED IN NAIROBI
THIS 4TH DAY OF JULY 2025.
F. MUGAMBI
JUDGE
1. The respondent instituted a suit in the subordinate court by way of a plaint dated 6th July 2020, seeking the sum of Kshs. 12,654,824/= as at 30th June 2020, together with interest at the rate of 15% per annum until payment in full, general damages, and costs. The suit was premised on an alleged breach of an investment agreement between the parties. In response, the appellants filed an application dated 16th July 2020 seeking a stay of proceedings pending the referral of the matter to arbitration.
2. In a ruling delivered on 24th July 2020 (the impugned ruling), the Honourable Magistrate dismissed the appellants’ application for referral of the dispute to arbitration and declined to stay or set aside the ex parte orders issued on 10th July 2020, which required the appellants to deposit a sum of Kshs. 12,654,824/= as security pending the hearing and determination of the suit. That ruling is the subject of the present appeal, which has been brought by way of a Memorandum of Appeal dated 27th July 2020.
3. The respondent has raised a preliminary objection, contending that the appeal is incompetent and ought to be struck out on the ground that the complete application that was dismissed by the trial court, including its annexures as well as the reply and the annexures thereto have been omitted from the Record of Appeal. I agree, in principle, with the respondent on the importance of providing a complete and accurate record for the proper determination of an appeal.
4. However, upon perusal of the Record of Appeal filed on 26th May 2025, I find that the application dated 16th July 2020, together with the supporting affidavit sworn by Patricia Njeri Wanyama, the replying affidavit sworn by Kirimi David on 20th July 2020, the attachments including the impugned ruling, are all duly included in the record. Accordingly, I find no merit in the objection and shall proceed to determine the appeal on its merits.
5. I must however note that in view of the ongoing liquidation of the 2nd appellant, the Official Receiver elected not to participate in these proceedings. The appeal therefore proceeded with the 1st appellant only.
6. The appellant contends that the trial court erred in failing to recognize the existence of a binding arbitration agreement arising from its dealings with the respondent. It relies on the Contribution Agreement dated 19th January 2016 and the Partnership Agreement dated 15th August 2016. Both of these agreements, according to the appellant, contain arbitration clauses and were expressly incorporated into the respondent’s signed rollover and withdrawal instructions.
7. The appellant maintains that Clause 16 of the 2014 Partnership Agreement establishes a binding dispute resolution mechanism, binding on the respondent in his capacity as a partner.
8. The appellant argues that the Learned Magistrate misdirected himself by declaring the Contribution Agreement invalid solely due to lack of execution by the appellant and failed to appreciate that Section 6 of the Arbitration Act mandates a stay of proceedings where a valid arbitration agreement exists. Citing Section 4(4) of the Act, the appellant submits that an arbitration agreement may be deemed valid even where not signed by all parties, particularly where its terms are incorporated by reference.
9. The appellant faults the trial court for failing to interpret the relevant contractual documents holistically and for disregarding the doctrine of interrelated contracts. It asserts that the standard-form nature of the Partnership Agreement renders it binding on all investors, including the respondent, and that partial execution of the Contribution Agreement does not negate its enforceability.
10. Additionally, the appellant challenges the ex parte orders issued by the trial court, contending that they were obtained through material non-disclosure. Specifically, the respondent failed to disclose the existence of the two agreements, thereby violating the duty of candour in ex parte proceedings. As a result, the appellant was subjected to prejudicial orders, including the order to deposit Kshs. 12,654,824/= without the benefit of a hearing, in contravention of the Constitution.
11. In light of the foregoing, the appellant submits that the trial court’s ruling violates both the Arbitration Act and the Constitution, and urges this Court to allow the appeal.
12. The respondent on the other hand contends that references to other agreements within the Roll-Over Instructions do not incorporate arbitration clauses by implication, as the requirements of Section 4(4) of the Arbitration Act have not been satisfied. They emphasize the doctrine of privity of contract, stating that arbitration clauses cannot be enforced against non-signatories.
13. It is further argued that the appellant is approbating and reprobating by selectively relying on multiple agreements in a contradictory manner. Even if the arbitration clauses were considered, the respondent maintains that the appellant has not demonstrated the respondent’s agreement thereto.
14. Lastly, the respondent asserts that the appellant admitted to owing the amount claimed and is merely using this appeal as a tactic to delay execution. The respondent urges this Court to uphold the trial court’s ruling, dismiss the appeal with costs, and allow execution to proceed in the interest of justice and respect for party autonomy.
Analysis and Determination
15. The appeal was canvassed by way of written submissions, which I have duly considered together with the Record of Appeal, the legal authorities cited, and the applicable law. The central issue for determination is whether the Learned Magistrate erred in dismissing the appellant’s application for a stay of proceedings pending referral to arbitration, in view of the alleged existence of a binding arbitration agreement between the parties.
16. I have reviewed the impugned ruling. There is no doubt that the rationale for the decision of the Learned Magistrate in dismissing the appellant’s application is as captured at paragraph 11 that:
“Annexure PNW1 which the defendants seek to rely on was never signed by the defendants and does not therefore bind the plaintiffs or make them party to the initial partnership agreement referred to therein…the contract governing the parties’ relationship is the roll over instructions and contract signed by the plaintiffs on 28th October 2019. This contract does not have any arbitration clause.”
17. There is no dispute that the application before the trial court was brought under Section 6 of the Arbitration Act, which empowers a court to stay legal proceedings where an arbitration agreement exists between the parties. I am equally alive to the fact that the jurisdiction of this Court to interfere in arbitration matters is limited by Section 10 of the Arbitration Act, which reinforces the principle of party autonomy. This principle is further underpinned by Article 159(2)(c) of the Constitution, which obliges courts to promote alternative dispute resolution mechanisms.
18. The legal threshold for granting a stay of proceedings under Section 6 of the Act is now well-settled. The applicant must demonstrate the existence of a valid arbitration agreement, that the proceedings relate to a matter covered by the agreement, and that the application for stay was made timeously before taking any steps in the proceedings.
19. In the present case, the appellant relied on the Contribution Agreement dated 19th January 2016, which, although duly executed by the respondent, remains unexecuted by the appellant. It contains provisions relating to roll-over of investments at Clauses J and K. Clause A of that agreement further references the Partnership Agreement dated 26th September 2014, which contains an arbitration clause at Clause 16.
20. However, upon a careful examination of the Partnership Agreement, it is evident that the respondent is neither named as a party nor referenced in any part of the agreement. The document bears the hallmarks of a generic, standard-form contract intended for general use but lacking any express or implied contractual linkage to the respondent. There is no indication, on the face of the agreement or otherwise, that the respondent participated in its negotiation, was privy to its terms, or expressly accepted them.
21. In the circumstances, I agree with the trial court that the Roll-Over and Withdrawal Form signed by the respondent on 28th October 2019 is what governs the respondent’s investment. Clause 4 of that form ambiguously refers to the "Partnership Agreement dated 15th August 2016" and the "partner’s previous investment agreement." However, it does not incorporate any arbitration clause expressly or with sufficient clarity.
22. Section 4(4) of the Arbitration Act is instructive. It provides in part that:
“The reference in a contract to a document containing an arbitration clause shall constitute an arbitration agreement if the contract is in writing and the reference is such as to make that arbitration clause part of the contract.”
23. The legal effect of this provision is that for an arbitration clause contained in a separate document to be validly incorporated into the principal contract, the reference to that document must be clear, express, and unequivocal. Mere general or ambiguous references are legally insufficient to import the arbitration clause. The incorporation must be done with precision, leaving no doubt that the parties intended the arbitration provision to become part of their binding agreement.
24. This principle was emphatically reaffirmed in National Hospital Insurance Fund V Peter Scott (Sole Arbitrator) & Another, [2018] eKLR, where the court underscored the consensual nature of arbitration. The court held that no party can be compelled to submit to arbitration unless there is a demonstrable meeting of the minds that clearly evidences agreement to that mode of dispute resolution. The decision affirms the foundational doctrine that arbitration is a creature of consent and that the courts will not enforce arbitration clauses through indirect, implied, or obscure references.
25. The court held that:
“When Parliament says ‘document signed by the parties’ it intends a document signed by both the parties. The other categories … contemplate that such documents would be arbitration agreements in writing only when they are exchanged between the parties … The exchange signifies an active assent by both parties and a demonstrable meeting of minds.”
26. In the present appeal, no such clear and unequivocal incorporation of the arbitration clause has been established. The Contribution and Partnership Agreements were not executed by all parties, and no mutual exchange or express incorporation within the Roll-Over Form satisfies the threshold under Section 4(4).
27. The trial court therefore cannot be faulted for finding that no binding arbitration agreement existed between the parties. Mere reference to earlier agreements, without explicit incorporation of the arbitration clause, does not satisfy the statutory requirements. The trial magistrate correctly exercised judicial discretion within the confines of the law.
Disposition
28. In the result, I find no merit in the appeal. The same is hereby dismissed with costs to the respondent.
DATED, SIGNED AND DELIVERED IN NAIROBI
THIS 4TH DAY OF JULY 2025.
F. MUGAMBI
JUDGE