Introduction and Background
1. On 14.10.2022, the (“Arbitrator or Arbitral Tribunal”) published an award allowing the Respondent’s (“Metrofile”) claim and dismissing the Applicant’s (“EABL”) counterclaim (“the Award”).
2. Both parties have now filed applications in respect of the Award. By its application dated 13.01.2023, EABL seeks to set aside the Award by invoking section 35 (2)(a) (iv), (b) (ii) and (3) of the Arbitration Act, 1995. It is supported by the grounds on its face and the supporting affidavit of Karen Mate-Gitonga, EABL’s Corporate & Operations Counsel, sworn on 13.01.2023. Metrofile opposes this application through the replying affidavit of its Managing Director, James Jalang’o sworn on 31.01.2023.
3. Metrofile’s application for recognition and enforcement of the Award is dated 31.01.2023 and is made under section 36(1) of the Arbitration Act. It is supported by the grounds on its face and the supporting affidavit of James Jalang’o sworn on 31.01.2023. It is opposed by EABL through the replying affidavit of Karen Mate-Gitonga sworn on 24.03.2023. The parties have also filed written submissions in support of their respective arguments.
4. In order to contextualize the applications, a brief background of the dispute leading up to the Award is necessary. The parties entered into an agreement for the Supply of Records and Management Services dated 06.07.2016. (“the Agreement”) under which Metrofile agreed to provide EABL certain services specified in the Agreement including storing material stipulated in the inventory list supplied by EABL, retrieval, delivery and collection, archiving, indexing and racking stored material, stored material destruction and or disposal and digitalizing stored material. On its part, Metrofile was expected to maintain a full inventory of the stored material under the Agreement including some highly private and confidential records. The stored material included financial information and records, employment contracts and records, banking information and records, contracts, production and distribution records, procurement records and AGM, Board and shareholding management records.
5. The Agreement was for a term of three years commencing on 06.07.2016 expiring on 06.07.2019. By a letter dated 11.04.2019, EABL informed Metrofile of the imminent expiry of the Agreement. On 23.04.2018, Metrofile acknowledged the letter but failed to express interest in an extension. On 10.06.2019, EABL informed Metrofile that it would not be renewing the Agreement. It requested Metrofile to provide the stored material in a deliverable state for collection on the expiry date and in that regard forwarded an exit management plan for Metrofile to sign off in order to secure the timely release of the stored material before the expiry of the Agreement.
6. At a meeting held on 18.06.2019, Metrofile indicated that according to its estimation, the reasonable time for the exit management would be eight months within which it would return the stored material. It furnished EABL with, ‘Work Plan –EABL permanent withdrawal’ and ‘EABL Permanent Withdrawal Process Map 1’. EABL rejected the plan by Metrofile as the proposed eight months was too long and would amount to renewal of the Agreement.
7. At the expiry of the Agreement, Metrofile held 8,106 boxes of material. In order to release the boxes, Metrofile demanded the following costs: Kshs. 4,053,0000.00 being Permanent Box Withdrawal Costs, Kshs. 10,933,125.00 for File Retrieval costs and monthly storage charges amounting to Kshs. 1,215,900.00 accruing post expiry date standing amounting to Kshs. 30,501,021.25 exclusive of interest as at April 2020.
8. On 26.06.2019, Metrofile forwarded its proforma invoice for the costs and it further informed EABL that it would it issue a tax invoice to enable it pay for the same. However, EABL rejected the demanded costs and stated that no withdrawal costs were due at all. This led to a declaration of a dispute and since efforts to amicably resolve the said dispute failed, the same was referred to arbitration before the Arbitrator which was heard and determined and thereafter the Award published.
Analysis and Determination
9. I propose to first deal with EABL’s application to set aside the Award as this will determine if at all Metrofile’s application to enforce the Award will be considered.
10. The court’s jurisdiction to set aside an arbitral award is delimited by section 35(2) of the Arbitration Act which 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) that a party to the arbitration agreement was under some incapacity; or
(ii) the arbitration agreement is not valid under the law to which the parties have subjected it or, failing any indication of that law, the laws of Kenya; or
(iii) 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
(iv) the arbitral award deals with a dispute not contemplated by or not falling within the terms of the reference to arbitration or contains decisions on matters beyond the scope of the reference to arbitration, provided that if the decisions on matters referred to arbitration can be separated from those not so referred, only that part of the arbitral award which contains decisions on matters not referred to arbitration may be set aside; or
(v) 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; or
(vi) the making of the award was induced or affected by fraud, bribery, undue influence or corruption;
(b) the High Court finds that—
(i) the subject-matter of the dispute is not capable of settlement by arbitration under the law of Kenya; or
(ii) the award is in conflict with the public policy of Kenya.
11. EABL states that the Arbitrator, in determining the dispute, was bound by the provisions of the Agreement in view of clause 24.2.3 thereto and that in rendering the Award, he ignored the provisions of section 29(5) of the Arbitration Act which required him to determine the dispute in accordance with the terms of the Agreement. EABL avers that it had settled all the outstanding invoices related to the services rendered by Metrofile by the effective date of termination of the Agreement and that accordingly, Metrofile was not entitled to hold any lien over EABL’s stored material in view of the express provisions of clause 12.3(b) of the Agreement. That upon execution of the Agreement, parties were to develop an Exit Management Plan (EMP) which would detail all exit activities to be carried out in order to provide an orderly and smooth transition of the provision of the services or any element of the service, provide an orderly and smooth cessation of the services, transfer the records to the new service provider in which event the parties would agree on the allocation of costs and responsibilities and that in respect of the stored material, to ascertain the volume of the stored material as at the time of exit which would be reconciled and signed off by the parties.
12. EABL contends that in terms of clause 12.3(b) of the Agreement, on termination, Metrofile was obligated to make available the stored materials in a deliverable state for collection by EABL and that the parties did not contemplate the levying of retrieval charges per file on termination of the Agreement by effluxion of time or at all in view of clauses 12.2 and 12.3 of the Agreement as well as clause 5 of the Schedule 5 to the Agreement.
13. EABL urges that it is a settled principle of law that a court of law or an arbitral tribunal cannot rewrite a contract between parties and that parties to a contract are bound by the terms of their contract, unless coercion, fraud or undue influence are pleaded and proved. EABL states that the Arbitrator in finding that Metrofile was entitled to hold lien over the stored material and levy charges on account of retrieval of files after termination of the Agreement by effluxion of time, re-wrote the Agreement between the parties in conflict with the public policy of Kenya as provided for in section 35(2)(b)(ii) of the Arbitration Act. In addition, EABL states that the Award is in conflict with the public policy of Kenya as it ignored the established principle of law that a party has a duty to mitigate its losses consequent on a breach of contract.
14. EABL further avers that the Award dealt with a dispute not contemplated by or not falling within the terms of reference to arbitration or contained decisions on matters beyond the scope of the reference to arbitration.
15. In response to the application, Metrofile submits that the court cannot, in exercise of its powers under the Arbitration Act, interfere with an arbitrator’s interpretation of the law and/or interpretation of a contract. That, the court’s jurisdiction to set aside an award under section 35 of the Arbitration Act is different from that of an appeal under section 39 of the Act and the two should not be confused. It urges that unless an applicant seeking to set aside relies on the grounds set out in section 35 of the Act, the court cannot find merit in such an application.
16. In resolving an application to set aside an arbitral award, the court does not sit as an appellant court. This position was explained by the Court of Appeal in Kenya Oil Company Limited & another v Kenya Pipeline Company NRB CA Civil Appeal No. 102 of 2012 [2014]eKLR which accepted the position that the arbitrator is the master of facts and cited with approval the decision in Geogas S. A. v Trammo Gas Ltd (“the Baleares”) [1993] 1 Lloyds LR 215 as follows;
[40] The court in that case was dealing with an appeal under section 1 of the English Arbitration Act, 1979. It is necessary to quote at length the words of Lord Justice Steyn, who, while addressing the limits of the jurisdiction of the court hearing an appeal under that Act, had this to say:
The arbitrators are the masters of the facts. On an appeal the court must decide any question of law arising from an award on the basis of a full and unqualified acceptance of the findings of fact of the arbitrators. It is irrelevant whether the court considers those findings of fact to be right or wrong. It also does not matter how obvious a mistake by the arbitrators on issues of fact might be, or what the scale of the financial consequences of the mistake of fact might be. That is, of course, an unsurprising position. After all, the very reason why parties conclude an arbitration agreement is because they do not wish to litigate in the courts. Parties who submit their disputes to arbitration bind themselves by agreement to honour the arbitrators’ award on the facts. The principle of party autonomy decrees that a court ought never to question the arbitrators’ findings of fact......
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[41] ---------- Lord Justice Steyn went on to emphasize the need for the court to be constantly vigilant to ensure that attempts to question or qualify the arbitrator’s finding of fact, or to dress up questions of fact as questions of law, are carefully identified and firmly discouraged.
17. The court therefore rejects any invitation by the Applicant to interrogate the Arbitrator’s factual findings and interpretation of the Agreement, unless it is proved that these findings are inconsistent with section 35(2) of the Arbitration Act. EABL’s application will thus be limited to the grounds for setting aside an award under the Arbitration Act which are that the Award is in conflict with the public policy of Kenya and that it dealt with a dispute not contemplated by or not falling within the terms of reference to arbitration or contained decisions on matters beyond the scope of the reference to arbitration.
18. EABL has stated that the Arbitrator, in finding that Metrofile was entitled to hold lien over the stored material and levy charges on account of retrieval of files after termination of the Agreement by effluxion of time, re-wrote the Agreement between the parties in conflict with the public policy of Kenya and that the Award ignored the established principle of law that a party has a duty to mitigate its losses consequent on a breach of contract. That a court cannot re-write a contract between the parties is a fundamental principle which was affirmed by the Court of Appeal in National Bank of Kenya Ltd v Pipeplastic Samkolit (K) Ltd & another NBI CA Civil Appeal No. 35 of 1999 [2001] eKLR, “A Court of law cannot re-write a contract between the parties. The parties are bound by the terms of their contract, unless coercion, fraud or undue influence are pleaded and proved. There was not the remotest suggestion of coercion, fraud or undue influence in regard to the terms of the charge.”
19. The Arbitrator considered the issue whether the right of lien exercised by Metrofile over the Stored Material was lawful and whether there were any outstanding invoices for services rendered as at 06.07.2019 in the Award. EABL had argued that Metrofile was under a duty to mitigate further accrual of storage charges and that it was unconscionable to claim the storage charges on an ongoing basis.
20. The Arbitrator stated that having held that both the permanent box retrieval fee and the file retrieval fees are payable, the logical conclusion was that the storage fees for the same must also be payable to Metrofile for the reason that Metrofile had no choice but to continue storing the storage material until such time as the various processes under the Agreement had been complied with, and its costs had been met. The Arbitrator agreed with EABL’s submission on the issue of mitigation of damages that parties have a duty to mitigate damages but noted that EABL did not advances any proposals on the appropriate course of action. That from a practical perspective, the only way to stop the storage charges from running would entail removing the Stored Material from its storage facility which would have entailed breach of the mutual verification process envisioned pursuant to Clause 12 of the Agreement which EABL had already expressed itself as a key term of the Agreement.
21. The Arbitrator also considered EABL’s submission that it made an offer to pay for the undisputed permanent box retrieval fee on 10.06.2020 and stated that the offer, if accepted, would have reduced the accruing cost of storage over the years. However, the Arbitrator was satisfied with Metrofile’s reason for refusal on the grounds that the offer was in full and final settlement without payment of the file retrieval fees. The Arbitrator was therefore persuaded that Metrofile had no choice but to continue storing the stored material until the parties had resolved how to withdraw the same based on a joint and verified process.
22. From the analysis and conclusions by the Arbitrator I have set out above, it is clear that the Arbitral Tribunal dealt with breach of contract and the consequences thereof. The Arbitrator accepted that Metrofile had the right to exercise its right of lien over the stored material until the process and costs of withdrawal was settled. As I understand, a lien is a remedial right provided for by law and generally depends on “the fundamental principle that one party to a mutual contract cannot enforce performance of its obligations in his own favour without giving or tendering performance of the obligations incumbent upon himself” (see John D Hope & Co. v Glendinning [1911]AC 419, 431). From the Award, the Arbitrator considered the provisions of the Agreement and the facts of the case and came to the conclusion that Metrofile could not be accused of not mitigating its losses when there were outstanding issues unresolved by the parties and that the solution offered by EABL was insufficient and did not address the entire issue of the withdrawal costs.
23. I therefore do not see how this court can conclude the Award violates the public policy of Kenya when the Arbitrator considered the consequences and reliefs consequent upon effluxion of the Agreement. Ringera J., in Christ for All Nations v Apollo Insurance Co Ltd [2002] 2 EA 366 explained the nature of public policy in relation to arbitral awards as follows:
I take the view that although public policy is a most broad concept incapable of precise definition, … an award will be set aside under section 35(2) (b) (ii) of the Arbitration Act as being inconsistent with the Public Policy of Kenya if it was shown that it was either (a) inconsistent with the constitution or other laws of Kenya, whether written or unwritten; or (b) inimical to the national interest of Kenya; or (c) contrary to justice and morality……
24. The court in Mall Developers Limited v Postal Corporation of Kenya ML Misc. No. 26 of 2013 [2014] eKLR further explained the nature of public policy contemplated in order to defear an arbitral award. It stated as follows:
Public policy must have a connotation of national interest. It cannot mean fairness and justice as was submitted by the parties herein as it was only the Claimant and the Respondent who were individuals entitled to be affected by the decision of the Arbitrator. They did not both demonstrate to this court how the decision by the Arbitrator would negatively affect, impact or infringe the rights of third parties and thus offend public policy
25. What is clear in this case it that the Arbitral Tribunal resolved the dispute grounded on the Agreement and addressed the consequences of termination of the agreement. It does not implicate any issues of public policy in the sense that the matter was grounded on interpretation and application of the contract without any effect on any third parties or the public at large. This ground by EABL fails.
26. As to whether the Award deals with a dispute not contemplated by and falling beyond the scope of the reference to arbitration, the Court of Appeal in Synergy Credit Limited v Cape Holdings Limited NRB CA Civil Appeal No. 71 of 2016 [2020] eKLR observed as follows:
In determining whether the arbitral tribunal has dealt with a dispute not contemplated or falling within the terms of the reference, or whether its award contains decisions on matters beyond the scope of the reference to arbitration, the arbitral clause or agreement is critical. Other relevant considerations, with-out in any way prescribing a closed catalogue, would include the subject matter, pleadings and submissions by the parties, as well as their conduct in the arbitration. Pleadings, however, must be considered with circumspection because, as the US Court of Appeals for the Ninth Circuit observed in Ministry of Defence of the Islamic Republic of Iran v. Gould, Inc. (supra), the real issue in such an inquiry is whether the award has exceeded the scope of the arbitration agreement, not whether it has exceeded the parties’ pleadings.
27. The arbitration clause in the Agreement at Clause 24.2 provides in part that “Any dispute ……arising out or relating to this agreement including its interpretation, performance, breach of or termination…….shall be resolved exclusively by arbitration…….” The wording of this Clause is wide and does not seem to restrict any dispute or difference that may arise between the parties concerning the Agreement. It is common ground that the dispute was in respect of the interpretation, performance, breach of and termination of the Agreement. The parties also filed a joint statement of issues dated 05.05.2021 for the Arbitrator’s determination. The Arbitrator listed the issues, analysed and determined each one of them. Since the dispute was in respect of the Agreement and the parties agreed on the issues to be determined, the EABL cannot argue that the Arbitrator dealt with a dispute not contemplated by and falling beyond the scope of the reference to arbitration. This ground also fails.
28. Having concluded that the EABL’s application for setting aside lacks merit, the court can now determine Metrofile’s application to recognize and enforce the Award. Under section 32(A) of the Arbitration Act, an arbitral award is final and binding upon the parties and no recourse is available against the award otherwise than in the manner provided by the Arbitration Act. The High Court, under section 36 of the Arbitration Act, has the power to recognise and enforce domestic arbitral awards in the following terms:
36 (1) A domestic arbitral award, shall be recognized as binding and, upon application in writing to the High Court, shall be enforced subject to this section and section 37
(2) …
(3) Unless the High Court otherwise orders, the party relying on an arbitral award or applying for its enforcement must furnish
(a) the original arbitral award or a duly certified copy of it; and
(b) the original arbitration agreement or a duly certified copy of it.
(4) ……
(5) ……
29. Section 37 of the Arbitration Act sets out the grounds upon which this court can decline to recognize or to enforce an arbitral award which grounds mirror those in section 35 for setting aside an award. Since I have already determined that EABL’s application to set aside the Award lacks merit and its opposition to Metrofile’s application is premised on similar grounds, I do not find any other valid reason upon which the court may refuse to recognize and enforce the Award. The contents of the Arbitration Agreement and Award are common to the parties and thus, the conditions precedent for enforcing the Award have been met.
Disposition
30. For the reasons I have set out above, I make the following dispositive orders:
(a) The Applicant’s application dated 13.10.2023 is dismissed.
(b) The Respondent’s application dated 31.01.2023 is allowed on terms that the Final Award published on 14.10.2022 be and is hereby recognized and adopted as a Judgment of the Court and leave is granted to the Respondent to enforce it as such.
(c) The Applicant shall pay costs of both applications assessed at Kshs. 120,000.00 only.
DATED and DELIVERED at NAIROBI this 17th day of AUGUST 2023
D. S. MAJANJA
JUDGE