Background and Introduction
1. The plaintiff initiated this suit against the defendants through a plaint dated 4th October 2022, arising from alleged breach of an Investment Agreement entered into with the 2nd defendant. She seeks judgment for the sum of Kshs. 14,553,000/=, together with damages for breach of contract, interest and costs. The 1st defendant (CIP) entered appearance and raised a Preliminary Objection (PO) dated 9th February 2023.
2. The PO is premised on two main grounds. First, CIP contends that this Court lacks jurisdiction by virtue of Section 7(1)(a) of the Magistrates’ Courts Act, 2015. In its view, because the value of the suit falls specifically within the pecuniary limits of the Senior Principal Magistrates Courts, the High Court has no jurisdiction to entertain it.
3. Second, CIP asserts that the dispute ought to be referred to arbitration pursuant to Clause 28 of the General Terms and Conditions of the Investment Agreement and Section 6 of the Arbitration Act (No. 4 of 1995). On this limb, CIP argues that the existence of a binding arbitration agreement divests the Court of jurisdiction to proceed with the matter. Consequently, it prays that the suit be struck out or stayed on account of these objections.
4. The plaintiff opposes the PO and confirms that the claim before court amounts to Kshs 14,553,000/= but continues to accrue interest. She argues that in any case, the High Court’s jurisdiction is unlimited as conferred by the Constitution, and is not ousted by the Magistrates’ Courts Act. Further, the plaintiff maintains that while an arbitration clause exists, CIP has not properly invoked the arbitral process in accordance with the law. She contends that the failure by CIP to formally apply for a stay of proceedings under Section 6 of the Arbitration Act means this Court is properly seized of the dispute.
Analysis and Determination
5. Both parties filed submissions on the PO, which this Court has duly considered together with the respective pleadings and authorities. The main issue for determination is whether the PO dated 9th February 2023 is merited. As defined in the classic case of Mukisa Biscuit Manufacturing Co. Ltd v West End Distributors Ltd [1969] EA 696, a PO is one that raises a pure point of law, is argued on the basis that no facts are in dispute, and which, if upheld, is capable of disposing of the suit.
6. Jurisdiction is a point of law of paramount importance. Indeed, it is trite (as pronounced in Owners of the Motor Vessel “Lillian S” v Caltex Oil (Kenya) Ltd [1989] KLR 1) that jurisdiction is everything: if a court finds it has no jurisdiction, it must immediately down its tools and take no further step.
7. On the first limb of the PO, Section 7(1)(a) of the Magistrates’ Courts Act provides that a Chief Magistrate’s Court shall have jurisdiction in civil disputes where the value of the subject matter does not exceed a specified monetary limit (currently Kshs. 20,000,000/=). Similarly, a Senior Principal Magistrate may handle claims up to Kshs. 15,000,000/=. There is no dispute that the plaintiff’s claim of Kshs. 14,553,000/= falls well within the pecuniary limit of at least a Senior Principal Magistrate. Indeed, Section 11 of the Civil Procedure Act directs that “every suit shall be instituted in the court of the lowest grade competent to try it.”
8. The plaintiff invokes Article 165(3)(a) of the Constitution which confers upon the High Court unlimited original jurisdiction in civil and criminal matters, except where that jurisdiction is limited by the Constitution itself or by valid legislation enacted pursuant thereto. It is common ground that no provision in the Magistrates’ Courts Act explicitly divests the High Court of jurisdiction over claims falling below the magistracy’s pecuniary limits.
9. In the words of Nyarangi, JA in the Lillian S case, jurisdiction of a court is granted by the law and if no limit is imposed, the court’s jurisdiction is said to be unlimited. Here, the High Court’s jurisdiction is constitutionally unlimited for civil claims, and the Magistrates’ Courts Act imposes no express ouster. It merely concurrently empowers the lower courts to hear matters up to a certain value.
10. I therefore agree entirely with the finding in the case of Interactive Gaming & Lotteries Limited v Safaricom Limited (Commercial Civil Case E684 of 2021) [2021] KEHC 335 (KLR) (Commercial and Tax) (3 December 2021) (Ruling) where Majanja J (as he then was) observed that;
“I too take the position that section 11 of the Civil Procedure Act which provides that a suit shall be instituted in the court of the lowest grade to try it does not take away the jurisdiction of the High Court to try any case within its jurisdiction. The provision is intended to ensure that scarce court resources are utilized optimally by ensuring that suits are filed in the court with appropriate jurisdiction.
Moreover, section 11 cannot be read in isolation as section 18(1)(a) of the Civil Procedure Act provides that the High Court, on application of the parties or on its own motion may, “(a) transfer any suit, appeal or other proceeding pending before it for trial or disposal to any court subordinate to it and competent to try or dispose of the same”. Thus, if the suit has not been filed in the court of the lowest grade to try, the High Court may transfer the suit to any subordinate court competent to try it.” (emphasis added)
11. The High Court is a court of equal first instance jurisdiction, but as a matter of prudent case management and hierarchy, it will not lightly entertain suits that fall squarely within a subordinate court’s jurisdiction. To do otherwise would undermine the clear legislative intent to distribute workload and bring justice closer to the people. In this respect, CIPs objection raises a legitimate concern: that the suit was filed in a forum higher than necessary. However, the critical question is the appropriate remedy or consequence. Does such a filing deprive this Court of jurisdiction, or is it a procedural irregularity that can be rectified?
12. I take the view that such a suit is not void ab initio for lack of jurisdiction; rather, the court seized of the matter may exercise its discretion to transfer the suit to the appropriate forum. The High Court’s supervisory mandate over subordinate courts is recognized in law. Section 18(1) of the Civil Procedure Act expressly empowers the High Court to withdraw any suit or proceeding pending in a court subordinate to it and transfer the same to itself or to another subordinate court competent to hear it.
13. I therefore do not agree that the PO warrants striking out the suit. The just course is to order a transfer of the suit to the Magistrates’ Court, rather than to uphold the objection as a final bar. To that extent, the Defendant’s preliminary objection on the ground of Section 7(1)(a) of the Magistrates’ Courts Act fails.
14. The second limb of the objection is that the dispute should be referred to arbitration pursuant to Clause 28 of the parties’ agreement. There is no doubt that an arbitration agreement exists binding the parties. While it has not been produced before this court, both parties have alluded to it. The policy of the law, reflected in Article 159(2)(c) of the Constitution and Section 3 of the Arbitration Act, strongly favors upholding alternative dispute resolution mechanisms like arbitration. The manner in which a court gives effect to an arbitration clause is strictly regulated by the Arbitration Act. Section 6 of the Act lays out the procedure for a party to apply for a stay of court proceedings in favor of arbitration.
15. In other words, an arbitration clause per se does not automatically divest the court of jurisdiction. It gives the defending party a sword and shield and the right to seek a stay of the suit but that right must be exercised in accordance with the statutory framework. If the party does not invoke the clause in the proper manner and within the stipulated time, the court is at liberty to proceed with the suit.
16. CIP did not file a formal application for stay of proceedings under Section 6. Instead, it raised the issue by way of a preliminary objection. The Court of Appeal and this Court have consistently held that a party seeking refuge in an arbitration clause must follow the procedure set by the Arbitration Act, and a mere pleading or PO will not suffice.
17. In Agip (K) Ltd v Kibutu(1981) eKLR the Court of Appeal stated as follows;
“A strange feature of this appeal is that there has never been an application by the defendant for the suit to be stayed . . .But such an application must be made “before delivering any pleadings or taking any other steps in the proceedings . . .The only way in which an application for stay can be made is by notice of motion supported by affidavit, it cannot be disguised as a point of law contained in a pleading or taking other steps in the pleadings.” (emphasis added)
18. Additionally, in the case of CM & A Logistics Limited v Upland Premium Diaries and Foods Limited (Civil Appeal E295 of 2022) [2022] KEHC 14428 (KLR) (Civ) (21 October 2022) (Judgment) Majanja, J. emphatically stated that;
“The filing of a notice of preliminary objection is not a substitute for an application for stay of proceedings pending reference to arbitration under the Arbitration Act.”
19. In light of the above authorities, CIPs approach of raising the issue of referral to arbitration through a PO runs afoul of Section 6(1) of the Arbitration Act and as such the second limb of the PO also fails.
Disposition
20. Accordingly, the Preliminary Objection dated 9th February 2023 is dismissed in its entirety. Pursuant to the powers conferred upon this Court under Section 18 of the Civil Procedure Act, I direct that this suit be transferred to the Chief Magistrate’s Court at Nairobi for hearing and final determination as if originally filed therein. There shall be no order as to costs.
DATED, SIGNED AND DELIVERED IN MOMBASA
THIS 16TH DAY OF APRIL 2025
F. MUGAMBI
JUDGE