A. Case background:
1. Vide a chambers dated 13.5.2021 the Appellants ought orders of referral of suit to arbitration and stay of proceedings in Kisumu CMCC No. E160 of 2021: Amar Hardware Limited -vs- Tumaz & Tumaz Enterprise Limited & 3 others pending the outcome of the arbitration proceedings. The said application was heard and determined against the Appellants who felt aggrieved with the said ruling of the trial court and thus this appeal.
B. Appeal:
2. The Appellants were aggrieved by the said ruling and thus lodged appeal herein, which they premise on the following grounds:
1) THAT Learned Magistrate, in declining to grant stay of proceedings pending referral to arbitration failed to resonate the legal principle that Arbitration issues are essentially contractual matters and it is a matter of public interests and judicial policy, that parties in dispute should be accorded widest opportunity for seeking solutions outside the restrictive procedure of judicial process.
2) The Learned Magistrate misdirected himself on the provisions of Section 6 and Section 10 of the Arbitration Act 1995 in holding that the Appellants had not denied the Respondent’s claim notwithstanding that the chamber summons is a preliminary objection brought by the Appellants prior to the substantive hearing of the suit, therefore the merits of the suit are not in contention at this stage.
3) The Learned Magistrate erred in law and in fact in rendering the decision to the effect that the Respondent’s dispute does not fall within clause 17.1 of the Local Purchase Order (L.P.O) for the reason that the Appellants have (sic) not disputed the facts in the plaint notwithstanding the fact that the Appellants are not allowed to take any steps in these proceedings other that the steps allowed in Section 6 of the Arbitration Act 1995.
4) The Honourable Magistrate misapprehended and misguided himself on interpretation of Section 6(1) of the Arbitration Act No. 4 of 1995 in not finding that the Appellants had not brought the application for stay of proceedings before and/or during the filing of Memorandum of Appearance, their right to bring the application would have been lost.
5) The Learned Magistrate failed to appreciate that the filing of a Statement of Defence by the Respondents would in itself have ousted the Arbitration Clause.
6) The Learned Magistrate erred in law and in fact by failing to appreciate that:
a. Whether or not there is a dispute was an issue to be determined by the Arbitrator;
b. Whether or not the goods were delivered to the appellants is an issue to be determined by the Arbitrator;
c. Whether or not there were cheques issued which were dishonoured on presentation is an issue to be determined by the Arbitrator;
d. Whether or not there was part payment was an issue to be determined by the Arbitrator;
e. The filing of this case in court is itself a dispute.
7. The Learned Magistrate erred in law and in fact in failing to appreciate the judicial authorities cited and to consider that there were substantial issues of law raised by the Appellants.
8. The Learned Magistrate grossly erred and misdirected himself by failing to note the fraud committed by the Respondent in manipulating the LPO to defraud the Appellants.
9. The Learned Magistrate grossly erred and misdirected himself by failing to note that the Respondent’s non-disclosure of material facts in essence does not permit them to rely on the said L.P.O.
10. Learned Magistrate erred in law and in fact by ignoring the fact that the Respondent did not substantiate its allegations and/or tender any tangible evidence or at all to support its case.
11. The Learned Magistrate misdirected himself in placing so much reliance and weight on the Respondent’s case whilst ignoring the Appellant’s case altogether.
12. The Ruling delivered by the Learned Magistrate is devoid of any points for consideration by the court, points for determination and reasons for the said decision in contravention to mandatory requirements of Order 21 rule 4 of the Civil Procedure Rules, 2010.
13. The Learned Judge erred in law and fact in failing to take into consideration the Appellants’ submissions as he deliberately failed to render herself on the same while the said submissions had filed and served upon the Respondents.
14. The Learned Magistrate erred in law and in fact in disregarding the contents of the Local Purchase Order (L.P.O).
15. The Learned Magistrate erred by wholly misapprehending the nature of the proceedings before him and thereby arrived at an erroneous decision.
16. The Learned Magistrate erred and was wrong in dismissing the Appellants Chamber Summons against the weight of evidence.
17. The Learned Magistrate acted unreasonably and unfairly by delivering a Ruling that is bad in law and contrary to public policy.
3. This appeal was canvassed by way of written submissions. The parties rival submissions have been duly considered.
C. Analysis and Determination:
4. This court being a first appellate court is enjoined to re-evaluate, re-analyze and re-scrutinize the evidence adduced before the trial court in an exercise akin to a retrial and then make its own conclusion while taking into account the fact that it did not see her hear the witnesses (see Sele -vs- Associated Motor Boats Ltd …).
5. I have perused the record of appeal, the supplementary record of appeal and I have considered the rival submissions of parties and the issues that emerge for determination are:-
a) Whether there existed a valid contract for sale of goods between the parties.
b) If the answer is in the affirmative, whether the arbitration clause is binding upon the respondent and therefore the proceedings in the trial court ought to be stayed pending reference of the matter to arbitration.
6. The genesis of the suit in the trial court was non-payment of monies by the Appellants to the Respondent pursuant to supplies made to them at their request vide Local Purchase Orders dated 7th, 14th and 21st December 2016 and 14th January 2017. Whereas the total value of the goods supplied was Kshs.7,624,534.15 it is pleaded that the Appellant made part payment of Kshs.1,194,760 and left a balance of Kshs.6,429,774.15 unpaid.
7. The Appellants entered appearance in the suit and thereafter filed an application that led to the impugned ruling herein. It is the Appellants’ position that Clause 17.1 was binding on all parties and that the court was not the proper forum of choice of the parties in the event of a dispute, as that clause prescribed for arbitration. The Respondent maintained then and now that it did not sign the Local Purchase Order and it is thus not bound by the terms of Clause 17.1 of the Local Purchase Order.
8. Clause 17.1 of the Local Purchase Orders provides that:
“On the event of any dispute, controversy or a claim arising out of or relating to this L.P.O., the complaining party shall notify the other party in writing thereof within 60 days of such notice, both parties shall meet at an agreed location to attempt to resolve the dispute in good faith. Should the dispute not be resolved with 60 days after such meeting, the complaining party shall seek remedies exclusively through arbitration administered under the Arbitration Act of Kenya, 1995. The number arbitrators shall be one. The place of arbitration shall be in Nairobi, Kenya. Kenyan law shall apply. The prevailing party shall have the right to collect from the other party its reasonable costs and necessary disbursements and attorney’s fees incurred in enforcing this Agreement.”
9. The trial court made the following finding:
“……The LPO agreement which the present application is based on was signed by one Mwale alone. It would appear the Plaintiff herein was not involved. It is stated to be an agreement.
It is clear from the evidence herein that goods were ordered by the Defendant (sic) supplies were made, invoices were raised, cheques some of which were dishonoured by the bank, part payment was made through (sic). None of the above is being raised by the Defendants. This in my view does not constitute a dispute in heights (sic) of Clause 17.1 of the agreement. The same cannot be activated in this matter….. This application in my view lacks merit let this matter be heard and determined by the court. The agreement is not implementable. I proceed to dismiss it with costs.
10. The relationship between the appellants and the respondent is one of contract. The question that the trial court ought to have answered is whether there existed a valid contract between the parties. Whereas the trial court made a correct finding that goods were ordered by one party, were duly supplied by the other party and part payment was done, it proceeded to rule that the agreement was not implementable and that the appellants’ application lacked merit.
11. The provisions of Order 21 rule 4 of the Civil procedure Act demands that a judgment in defended cases to contain a concise statement of the case, the points for determination, the decision thereon and the reasons therefor. The trial court has not assigned any reasons for its decision that the contact between the parties as contained in the local purchase order is unenforceable.
12. The L.P.O was an offer from the appellants which called for acceptance from the respondent. It contained terms and conditions of the contract. Upon receipt of the offer the respondent had a duty to read the terms and conditions thereof and to either accept with or without amendments. Respondent acted on the L.P.O and delivered goods to the Appellants pursuant thereto. At no time did the Respondent write to the Appellants to seek an amendment of Clause 17.1 of the L.P.O. Whereas the L.P.O was unilaterally signed by a director of the appellants, the respondent acquiesced to its terms and conditions by its conduct. Once the Respondent performed its part of the agreement, its conduct constituted acceptance of the L.P.O and it became bound by the terms and conditions thereof, clause 17.1 inclusive. I find that clause 17.1 did not constitute an unfair term of the contract and thus there existed a valid contract between the parties that was enforceable and the same was not voidable due to it’s unilateral execution. The Respondent cannot find refuge in the provisions of Section 14(2) of the Arbitration Act, which require one’s signature on an arbitration agreement. The conduct of the Respondent estops it from pleading ignorance of clause 17.1 of the L.P.O.
13. The Supreme Court of India rendered itself on the issue of instances where a non-signatory to an arbitration clause is bound in the case of ONGC Vs Discovery Enterprise (2022) Civil Appeal No2042 of 2022 and held that the court ought to consider a number of factors such as the parties mutual intent, the relationship of the non- signatory to the signatory, the commonality of subject matter, composite transaction and the performance of contract.
14. In the Indian case of Mikesh Corporation Vs Picotee Exports & another the Bombay High Court of Judicature in Civil appeal 777 of 2003 held that proof of delivery and acceptances of invoices, letter and telegrams will lead to a finding of existence of contract and parties thereto would be bound to the arbitration clause contained in the such communication.
15. Premised upon the above analysis I do find that the trial court erred when it ruled that the agreement between the parties was not implementable. Surprisingly the same court is keen on hearing the substantive suit notwithstanding it’s said ruling on enforceability of the said contract.
16. In the case of Nyutu Agrovert Limited vs Airtel Networks Kenya Limited Petition No 12 of 2016, the Supreme Court held that judicial intervention can be countenanced in exceptional cases where parties’ dealings are subject to an arbitration clause. This court is bound by the Nyutu decision pursuant to the provisions of article 163 (7) of the Constitution of Kenya 2010 which provides thus:
“ All courts, other than the Supreme Court are bound by the decisions of the Supreme Court.”
17. The enactment of Arbitration Act No 4 of 1995 was informed by the need to aligned Kenyan arbitration law to UNCITRAL Model Law. Section 10 of the Act provides that:
“Except as provided in this Act, no court shall intervene in matters governed by this Act.”
18. Article 159 (2) (c) of the Constitution of Kenya 2010 entrenches the need for courts to promote alternative forms of dispute resolution including reconciliation, mediation, arbitration and traditional dispute resolution mechanism.
19. Whereas the trial court ruled that no real dispute exists between the parties to warrant a reference to arbitration, I do find that the trial court had no jurisdiction to hear the matter and it thus erred in assuming non- existent jurisdiction. See Owners of Motor Vessel Lilian S Vs Caltex Oil (Kenya) ltd (1989) EKLR.
D. Conclusion
20. On the balance I do find that for reasons afore stated, this appeal is meritorious and I thus allow it and I make the following orders :-
a) The proceedings of Kisumu CMCC No. 160 of 2021: Amar Hardware Limited Vs Tumaz and Tumaz Enterprise Limited & 3 Others be and are hereby stayed and the matter be referred to arbitration pursuant to the provisions of Clause 17.1 of the Local Purchase Order.
It is hereby so ordered.
Delivered, signed and dated at Kisumu this 20th day of March 2024.