Acme Apartments Limited v Deepak Krishna t/a Team 2 Architects & Bashir H Hajee t/a Harold R Fenwick & Associates [2017] KEHC 977 (KLR)

Full Case Text

REPUBLIC OF KENYA

IN THE HIGH COURT OF KENYA AT NAIROBI

COMMERCIAL & TAX DIVISION

CIVIL SUIT NO. 127 OF 2017

ACME APARTMENTS LIMITED.........................................................................PLAINTIFF

VERSUS

DEEPAK KRISHNA T/A TEAM 2 ARCHITECTS....................................1ST DEFENDANT

BASHIR H. HAJEE T/A HAROLD R. FENWICK & ASSOCIATES......2ND DEFENDANT

RULING

1. This is a Chamber Summons dated 25th April, 2017 and brought under the Provisions of Section 6(1) and (2) of The Arbitration Act 1995 (The Act), and Rules 2 and 8 of The Arbitration Rules 1997. In it the Defendant is seeking :-

1. Spent

2. THAT pending inter partes hearing hereof, this Honourable Court be pleased to stay the proceedings herein.

3. THAT upon inter partes hearing, this Honourable Court be pleased to stay the entire proceedings and to refer this dispute for hearing and determination by way of arbitration.

4. THAT the costs of this Application be borne by the Plaintiff

2. The dispute sought to be referred to Arbitration was presented by Acme Apartments Limited (The Plaintiff or “ACME”) through a Plaint dated 22nd March 2017 and filed on 24th March 2017. The 1st Defendant is an Architect practicing under the name of Team 2 Architects (Team 2) and The 2nd Defendant is a Quantity Surveyor practicing in the name and style of HAROLD R. FENWICK & ASSOCIATES(FENWICK).

3. Desirous of developing Apartments at Riverside Nairobi, Acme, by a letter dated 5th December 2011 duly appointed Team 2 as the Project Architect. The appointment authorized the Project Architect to appoint other Consultants to facilitate the execution of the Project. Pursuant to this authority, Fenwick was appointed as the Quantity Surveyor.

4. It is the case for ACME that Team 2 advised it out of its intention to source the Contractor by way of a competitive bid and recommended appointment of Sayani Brothers & Company (k) Limited (Sayani or Contractor) as the Project Contractor. As a result of that single sourcing, it is alleged by ACME, the Contract sum of Khs.431,529,942. 50 was reached against its own initial estimates of Khs.370,955,007. 20. Nonetheless, on 8th October 2012, ACME and the Contractor executed the Agreement and conditions of Contract for Building works (The Building Contract). This Contract features time and time again in this decision.

5. ACME avers that in breach of the express provisions of clauses 30. 3 and 30. 14 of the Building Contract that all changes/variations with a financial implication would first be approved by it before execution, various changes and variations were made to the Project without the required sanction. Those are listed in paragraph 9 of the Plaint. In addition, it is averred, the Contractor did not complete the Project on the completion dated of 30th October 2013 and there was a delay of 36 weeks. This delay is said to have caused ACME a loss of Khs.165,000/= per month being rental payment for alternative accommodation of its Directors.

6. ACME contends that against an express condition of the Contract, Fenwick issued a late final Account and final Valuation Certificate dated 7th December 2015 for the sum of Khs.551,341,764. 36 from the original Contract sum of Khs. 431,529,942. 50 representing an increase of Kshs.119,811,82. 86. Unhappy with this Certificate, and noting some discrepancies, ACME commissioned the audit of the entire project by a group of Consultants. These were Daniel Muhoro Kagacha (Quality Surveyor), Vector Africa Limited (Structural & Civil Engineers) and Paton International Limited (Consulting Building Services Engineers).

7. It is contended that the Audit Report revealed and confirmed gross negligence and misperformance of Team 2 and Fenwick which resulted in a loss of Khs.153,033,464 being overstated costs. ACME further avers that it failed in its attempt to persuade the two Consultants to recall its final Account and Certificate.

8. ACME’s case is that Team 2 and Fenwick colluded with the Contractor to fraudulently exaggerate and make erroneous final Accounts and overlook valid claims due to ACME and poor workmanship or misperformance of the Contractor.

9. It is averred by ACME that, based on the impugned Final Account/Certificate, the Contractor has sued it in High Court Commercial Case No.322 of 2016 (hereafter suit No.322 of 2016) for the sum of Khs.128,122,937. 26 together with costs and interest thereon at 17% p.a annum from 11th June 2016 until payment in full and is likely to obtain judgment unless the said Certificate is recalled/suspended pending re-measurement and verification of works.

10. Ultimately ACME seeks the following orders:-

a) An order for joint re-measurement and verification of the project against the Final Account/Certificate No.16 dated 6th February 2016 and for accounts to be taken.

b) An order to recall the Final Account/Certificate No.16 for rectification to accord with the report of Daniel Muhoro Kagacha dated 1st March 2017.

c) General damages for professional negligence, fraud and breach of contract.

d) Special damages of Kshs.154,033,464/= being the difference between the Plaintiff’s final Account and the Defendant’s Final Account).

e) An order that the Defendants reimburse the Plaintiff the professional fees of 3% of the Contract price payable to the various consultants for the audit of the Project.

f) Kshs.128,122,937. 26 plus costs and interest thereon or any other amount that may be found due to the Contractor in High Court Commercial Case No.322 of 2016.

g) Costs and interest thereon at the rate of 17% per annum.

11. The thrust of the Consultants argument is that the nature of the entire dispute is grounded on the provisions of the Building Contract which contains an Arbitration clause. Reference is made to clauses 45. 1 and 45. 2 of the Contract which reads:-

45. 1 “In case any dispute or difference shall arise between the Employer or the Architect on his behalf and the Contractor, either during the progress or after the completion or abandonment of the Works, such dispute shall be notified in writing by either part to the other with a request to submit it to arbitration and to concur in the appointment of an Arbitrator within thirty days of the notice. The dispute shall be referred to the arbitration and final decision of a person to be agreed between the parties. Failing agreement to concur in the appointment of an Arbitrator, the Arbitrator shall be appointed by the Chairman or Vice Chairman of the Architectural Association of Kenya, on the request of the applying party.

45. 2 The arbitration may be on the construction of this contract or on any matter or thing of whatsoever nature arising thereunder or in connection therewith, including any matter or thing left by this contract to the discretion of the Architect, or the withholding by the Architect of any certificate to which the Contractor may claim to be entitled or the measurement and valuation referred to in clause 34. 0 of these conditions, or the rights and liabilities of the parties subsequent to the termination of contract”.

12. In addition and apart from the Contract, the Consultants contend that the relationship between the parties is governed by the Architects and Quality Surveyors Act (Cap 525 Laws of Kenya) which provides that disputes of this nature are to be determined by Arbitration. The Consultants seek to rely on Clause A.7 of the 4th Schedule of the By-laws to the Architects and Quantity Surveys Act (cap 525).

13. At any rate, the Consultants assert, the dispute is technical in nature and it would be more suitable if it were handled by a qualified Architect or Quality Surveyor well familiar with the terms of the Trade.

14. ACME does not share this view and argues that:

a) Having already entered appearance, the Consultants have submitted themselves to the jurisdiction of this Court and are estopped from making the Application now before Court.

b) There is no valid Arbitration Agreement between the Consultants and itself.

c) ACME’s suit relates to the fraud, negligence and breach of statutory duty which is not technical and can be competently heard and determined by this Court.

d) Arbitration will unnecessarily escalate costs of this straight forward matter.

15. The following issues present themselves for this Court’s consideration and determination.

a) Are the Consultants estopped from making the Application before Court?

b) If not, is the dispute for reference either under the terms of the Contract or the provisions of The Architects and Quality Surveyors Act.

16. The timing of the Application has attracted a controversy. When served with the Summons herein, the Consultants entered appearance through their Advocates by way of a document intituled a “Memorandum of Appearance under Protest”. That document is dated 12th April 2017 and filed in Court on the same day. A fortnight or so later, on 25th April, 2017, the Consultants present this Application which they declare is under the auspices of Section 6(1) and (2) of The Arbitration Act.

17. Now, Sections 6(1) and (2) of The Arbitration Act Provides:-

(1) A court before which proceedings are brought in a matter which is the subject of an arbitration agreement shall, if a party so applies not later than the time when that party enters appearance or otherwise acknowledges the claim against which the stay of proceedings is sought, stay the proceedings and refer the parties to arbitration unless it finds—

(a) that the arbitration agreement is null and void, inoperative or incapable of being performed; or

(b) that there is not in fact any dispute between the parties with regard to the matters agreed to be referred to arbitration.

(2) Proceedings before the court shall not be continued after an application under subsection (1) has been made and the matter remains undetermined.

18. The argument by ACME that an application of this nature should be brought latest at the time a party enters appearance is no doubt correct. Many Court decisions affirm this position (See for example Vihar Construction Company Ltd vs. Uhani Limited [2015]eKLR and, Trishcon Construction Company Ltd Vs. Lev Investments Ltd [2013] eKLR). A party that wishes to seek a stay and referral order ought to move the Court for stay simultaneously with Entry of Appearance.

19. The Consultants acknowledge the difficulty they find themselves and argue this Court to find that the requirements of Section 6(1) of The Act are merely procedural and should not be invoked in such a manner as to defeat substantive justice. The almost overworked provisions of Article 159 of The Constitution are cited. These are;-

(1) Judicial authority is derived from the people and vests in, and shall be exercised by, the courts and tribunals established by or under this Constitution.

(2) In exercising judicial authority, the courts and tribunals shall be guided by the following principles—

(a) justice shall be done to all, irrespective of status;

(b) justice shall not be delayed;

(c) alternative forms of dispute resolution including reconciliation, mediation, arbitration and traditional dispute resolution mechanisms shall be promoted, subject to clause (3);

(d) justice shall be administered without undue regard to procedural technicalities; and

(e) the purpose and principles of this Constitution shall be protected and promoted.

(3) Traditional dispute resolution mechanisms shall not be used in a way that—

(a) contravenes the Bill of Rights;

(b) is repugnant to justice and morality or results in outcomes that are repugnant to justice or morality; or

20. But these Provisions may not be merely procedural technicalities given that the wording of the Provisions has a history and has evolved over time.

21. Section 6(1) of the Repealed Arbitration Act 1968 (cap 49 of The Laws of Kenya0 read as follows:-

6(1) A court before which proceedings are brought in a matter which is the subject of an arbitration agreement shall, if a party so applies not later than the time when that party enters appearance or otherwise acknowledges the claim against which the stay of proceedings is sought, stay the proceedings and refer the parties to arbitration unless it finds—

(a) that the arbitration agreement is null and void, inoperative or incapable of being performed; or

(b) that there is not in fact any dispute between the parties with regard to the matters agreed to be referred to arbitration.

The Courts interpreted the Section to mean that a party could file an application for Stay of Proceedings after entering appearance but before filling any Pleadings. In Corporate Insurance Company vs. Loise Wanjiru Wachira [1996] eKLR, the Court of Appeal, considering the effect of Section 6(1) of The Repealed Statute, held that a party only lost its right to make an application for Stay after filing a Defence.

22. The Arbitration Act 1995 repealed the Arbitration Act 1968. At the time it came into effect its Section 6(1) read thus:-

“A court before which proceedings are brought in a matter which is the subject of an arbitration agreement shall, if a party so applies not later than the time when that party enters appearance or otherwise acknowledges the claim against which the stay of proceedings is sought, stay the proceedings and refer the parties to arbitration unless it finds—

(a) that the arbitration agreement is null and void, inoperative or incapable of being performed; or

(b) that there is not in fact any dispute between the parties with regard to the matters agreed to be referred to arbitration.

The change in the Law was discussed in Charles Njogu Lofty vs. Bedouin Enterprises Ltd [2005] eKLR where the Court of Appeal upheld the following finding of Githinji J. (as he then was),

“Section 6(1) of The Arbitration Act, Cap 49 (now repealed) allowed Applications for Stay of Proceedings to be made at any time after the Applicant has entered appearance. Section 6(1) of The Arbitration Act, 1995, has changed the Law as it does not permit an application for Stay of Proceedings to be made after entering an appearance”.

23. The current version of Section 6(1) was introduced by Section 5 of Act No.11 of 2009. The words “or files any pleading or takes any other step in the proceedings”, were replaced with the words “or otherwise acknowledges the claim against which the stay of proceedings is sought”. The effect of the Amendment is that the law now does not permit an application for Stay of Proceedings to be made after entering of an appearance or an acknowledgement of the claim.

24. The history of Section 6(1), in my view, underscores that the object of the provision is to ensure that applications for Stay are made at the earliest stage of Proceedings. Over time, Parliament has contracted the stage at which such an application can be made. Given this departure from the past, the Court is unable to hold that this provision is merely a procedural technicality. The Court must know, at the earliest opportunity, whether or not a party has waived its right to insist on Arbitration.

25. Still, the Consultants ask the Court to overlook their misfeasance for two reasons. First that their intention not to submit to the jurisdiction of this Court was overtly declared because they entered appearance under protest and secondly that the Application came only 2 weeks after the entry of Appearance. Having met the object of Section 6(1) of the Act, it may seem just and logical to excuse the misstep of the Consultants but this Court is not certain that it can do so given, as shown earlier, that Parliament clearly departed from the previous provision.

26. Yet the Consultant’s Application would still fail even if considered on merit.

27. The Building Contract which contains the Arbitration clause is an Agreement between ACME and the Contractor. Whilst the roles of the Architect and Quantity Surveyors are defined in that Agreement, the two are not parties to the Building Contract. As rightly conceded by the parties, the Consultants were employed and appointed by ACME.

28. Clause 45 of the Building Contract is on settlement of disputes. Clause 45. 1 provides as follows:-

“In case any dispute or difference shall arise between the Employer or the Architect on his behalf and the Contractor, either during the progress or after the completion or abandonment of the Works, such dispute shall be notified in writing by either part to the other with a request to submit it to arbitration and to concur in the appointment of an Arbitrator within thirty days of the notice. The dispute shall be referred to the arbitration and final decision of a person to be agreed between the parties. Failing agreement to concur in the appointment of an Arbitrator, the Arbitrator shall be appointed by the Chairman or Vice Chairman of the Architectural Association of Kenya, on the request of the applying party”.

29. Clearly, the disputes or differences to be referred to Arbitration are those that arise between ACME and his Architect on the one hand and the Contractors on the other. ACME and the Architect are taken to be on one side. To be observed as well is that this sub clause makes no mention of the Quantity Surveyor.

30. That the Arbitration Clause is in respect to disputes or differences arising between ACME or his Architect on the one hand and the Contractor on the other, should not be surprising because the Contract is between ACME and the Contractor. It is not a Contract between ACME and the Architect or ACME and the Quantity Surveyor. Indeed the Consultants are not parties or signatories thereto. In essence no Arbitration Agreement between the Consultants and ACME can be inferred or read from the provisions of the Building Act.

31. But that is not all that the Consultants are saying. They argue that quite apart from the Building contract there is statutory provision requiring the dispute herein to be referred to Arbitration.

32. Team 2 and Fenwick are Architects and Quantity Surveyors respectively. Their engagement with ACME was in their professional capacities. In its preamble, the Architects and Quantity Surveyors Act (Cap 525) declares that it is an Act of Parliament to provide for registration of Architects and Quantity Surveyors. But it obviously does more than this. Under Section 4, A Board of Registration of Architects and Quantity Surveyors is established. The Board is empowered by Section 5 to make by-laws for purposes, inter alia,

(d) for the administration, investment and expenditure of the property and funds of the Board from whatsoever source and for whatsoever purposes received;

(e) for a definition of unprofessional conduct and for determining the mode of inquiry into and the method of dealing with such conduct and the penalties which may be imposed upon any member found guilty of such conduct;

(f) for the scale of fees to be charged by architects and quantity surveyors for professional advice, services rendered, and work done;

Pursuant to these powers in Section 54, the Board has made the Architects and Quantity Surveyors By-Laws (hereinafter called the By-Laws). The Consultants referred Court to By-Laws 38. But there would also be By-Law 39. Both are similarly worded. By-law 38 is as follows:-

‘Subject to the provisions of the Act and of these By-Laws, the conditions of Engagement and the scale of Professional charges shall be those contained in the fourth schedule to these By-Laws from time to time amended or reproduced by the Board”.

By-law 38 is in respect to Architects, while By-Law 39 is for Quantity Surveyors whose conditions and charges are found in the fifth schedule.

33. There is no doubt that the dispute herein is a dispute in respect to engagement of the Consultants in their Professional capacities and the conditions of engagement set out in the 4th and 5th schedules may have a bearing on the matter. Because of this, the Consultants request for this matter to be referred to Arbitration under clause A.7 of The 4th schedule which reads:-

(a) Where any difference or dispute arising out of the conditions of engagement and scale of professional fees and charges cannot be determined in accordance with paragraph A.6, it shall be referred to the arbitration by a person to be agreed between the parties or falling the agreement, within fourteen days after either party has given the other a written request to concur in the appointment of an arbitrator, to a person to be nominated at the request of either party by the president of the East African Institute of Architects”

34. This Court has considered this argument and finds that clause A.7 cannot be read in isolation and without regard to clause A.5 and A.6 which precede it.

A.5 provides:-(a) Any question arising out of the Conditions of Engagement and Scale of Professional Fees and Charges may be referred by architect or client to the Board for advice at any time, provided always that any difference or dispute between them shall be determined in accordance with paragraph (a) of clause A.6 or clause A.7 of this Schedule.

A.6 provides: (a) Any difference or dispute may by agreement between the parties be referred to the Board for an opinion provided always that such an opinion is sought on a joint statement of undisputed facts and the parties undertake to accept it as final.

35. In the event of any question arising out of the conditions of engagement and scale of fees and charges the first port of call is a referral to the Board for advice by either the Architect or client (A.5). However if the questions escalate to a difference or dispute then they shall be determined in accordance with clause A.6 or A.7.

36. Under clause A.6 any difference or dispute may be referred to the Board for an opinion. But there are three conditions to this referral. The reference must be by agreement of the parties. The opinion sought is on a joint statement of undisputed facts and lastly the parties undertake to accept it as final. In the matter before Court there is no agreement by the parties that this Dispute Resolution Mechanism be activated.

37. That has a clear implication as to whether A.7 on Arbitration can be triggered. This is because that Arbitration mechanism can be invoked or commenced only where any difference or dispute cannot be determined in accordance with paragraph (a) of clause A6 (See the provisions of clause A.6 reproduced in paragraph 34 of this Decision). As there is no agreement to actuate a reference under clauses A.6, a Referral to Arbitration cannot be reached.

38. The upshot is that the Chamber Summons of 25th April, 2017 faces insurmountable difficulties and cannot succeed. The Summons is dismissed with costs.

Dated, Signed and Delivered in Court at Nairobi this 1st Day of December, 2017.

F. TUIYOTT

JUDGE

PRESENT;

Isindu ………………….............................................for the Plaintiff

Ronald holding brief for Nungo …… for the 1st & 2nd Defendants

Alex ……………………………….......…………………. Court clerk