China Home-In Investment (K) Ltd v W. J. J. Kenya Construction Co Ltd; Mutunga (Interested Party) [2023] KEHC 26371 (KLR)

China Home-In Investment (K) Ltd v W. J. J. Kenya Construction Co Ltd; Mutunga (Interested Party) (Civil Suit E115 of 2022) [2023] KEHC 26371 (KLR) (Commercial and Tax) (8 December 2023) (Ruling)

Neutral citation: [2023] KEHC 26371 (KLR)

Republic of Kenya

In the High Court at Nairobi (Milimani Commercial Courts Commercial and Tax Division)

Commercial and Tax

Civil Suit E115 of 2022

FG Mugambi, J

December 8, 2023

Between

China Home-In Investment (K) Ltd

Applicant

and

W. J. J. Kenya Construction Co Ltd

Respondent

and

Julius Muthui Mutunga

Interested Party

Ruling

1. The genesis of the dispute between the parties is the Agreement and Conditions of Contract for Building Works dated 1st December 2017, entered into by the parties. A dispute arose between them with regard to the discharge of their obligations as per the said agreement. A sole arbitrator was appointed and this culminated to the Originating Summons dated 4th April 2022. It is brought under sections 7, 14(3) and 17(6) of the Arbitration Act, rule 2 of the Arbitration Rules 1997 and Article 50 (1) of the Constitution of Kenya.

2. The application is supported by the annexed affidavit and further affidavit both sworn by CAI QINGZHU together with written submissions dated 30th June 2023.

3. In summary the applicant prays for orders that there be a stay of further proceedings pending before the sole arbitrator, that the court finds that the appointment of the sole arbitrator was contrary to the arbitration clause and therefore the arbitrator lacks jurisdiction to hear and determine the dispute, that the arbitrator be removed and a new arbitrator appointed to hear the dispute and lastly, for costs.

4. The applicant argues that the arbitrator having been appointed in a manner contrary to Clause 45. 1, 45. 3 and 45. 5 of the agreement dated 1st December 2017 lacks jurisdiction and should not proceed to hear the dispute. According to the applicant, parties were bound by the contract terms which expressly required a 90 days’ notice to be given to either party of the existence of a dispute and the request to submit the dispute to arbitration. The applicant takes issue with the respondent for proceeding to single-handedly appoint the arbitrator.

5. Consequently, Counsel for the applicant submits that the failure of the parties to adhere to the appointment of the arbitrator could lead to setting aside of the arbitral award as per section 35(2)(a)(v) of the Arbitration Act. Counsel states that if an act is illegal or invalid the consequent acts based on that impugned act are void and cannot stand. In this respect Counsel submits the failure by the respondent to adhere to the agreement nullifies the appointment of the arbitrator and urges the court to grant the orders sought in the application.

6. The applicant also blames the arbitrator for being impartial by allowing an application to amend pleadings way after directions were taken, on 16th June 2021. As a result of these, the applicant confirms having lost total confidence in the arbitrator and is apprehensive that the arbitrator will continue holding private meetings with the respondent with the aim of influencing the final award.

7. The application is opposed by way of a replying affidavit sworn on 16th September 2022 by JIANG DAIFU, the respondent’s Project Manager. The respondent also filed written submissions dated 30th June 2023.

8. In opposition to the application, the respondent insists that apprehension by the applicant alongside the alleged grounds for bias do not constitute a reasonable basis for recusal under section 5 of the Arbitration Act. The respondent’s position is that the applicants waived their rights to challenge the jurisdiction and appointment of the arbitrator and should therefore stop forum shopping having previously submitted to the appointment of the arbitrator. The respondent further argues that the application was time-barred as per sections 12(4) and 17 of the Arbitration Act.

9. The respondent denies the allegations of bias terming them as baseless and unsubstantiated. The respondent invites the Court to consider the history of the matter whereby the applicant had filed several applications seeking the removal of the arbitrator whenever the arbitrator declined to issue directions in their favour. The respondent cited the case of Chania Gardens Limited V Gilbi Construction Company Limited & Anor, (2015) eKLR where the court held that:“It is not enough to merely state that the arbitrator is incapable of acting impartially in the arbitration. Cogent evidence is required to prove misconduct, and invariably, the specific instances or matters constituting the misconduct must be tabled before the court. This will show the distinction between misconduct and mere perception.”

Analysis 10. I have carefully considered the pleadings, evidence and submissions presented by each party in support of their positions. Two issues arise for determination and these are whether the arbitrator was regularly appointed, giving him the jurisdiction to determine the dispute and whether the applicant’s allegation of bias meets the threshold for removal of the arbitrator.Whether the arbitrator was regularly appointed, giving him the jurisdiction to hear and determine the dispute between the parties.

11. Before I can get into the substance of the application, I wish to emphasize that the law is very clear on the limited role of the Court in arbitration proceedings. This is for good reason. Section 10 of the Arbitration Act provides that:“except as provided in the Act, no court shall intervene with matters governed by the Act.”

12. There is a plethora of authorities buttressing the fact that the role of the Court where arbitration proceedings are concerned is only to facilitate the process which parties have agreed to and not to re write the contract between parties. This was held for instance in Pius Kimaiyo Langat V Co-operative Bank of Kenya Ltd, [2017] eKLR.

13. It is not in dispute that the parties herein entered into an agreement dated 1st December 2017. The said agreement provided for arbitration of disputes between the parties in the following terms:Clause 45. 1“In the event of a dispute arising from the contract, the dispute shall be notified in writing by either party to the other with a request to submit it to arbitration and to concur in the appointment of an arbitrator within 30 days of the notice… the failure to agree or concur on the appointment of an arbitrator, the arbitrator shall be appointed by the Chairman or Vice Chairman of the Architectural Association of Kenya.”Clause 45. 3“No arbitration proceedings shall be commenced on any dispute or difference where notice of a dispute or a difference has not been given by the applying party within 90 days of the occurrence or discovery of the matter or issue giving rise to the dispute.”Clause 45. 5“In any event no arbitration shall commence earlier than 90 days after the service of the notice of a dispute or difference.”

14. The respondent does not appear to be disputing the fact that the appointment of the arbitrator was irregular. Instead, the respondent invokes the doctrine of estoppel and argues that the applicant is estopped from turning back on its consent of the sole arbitrator and proceeding with the arbitration process.

15. It is undisputed that the appointment of the arbitrator was made by the President of the Architectural Association of Kenya as evidenced by a letter dated 29th June 2020. It is also undisputed that the sole arbitrator confirmed his appointment to the parties and thereafter scheduled a preliminary meeting. Despite the objection that is now being filed by the applicant, it is clear that both parties attended the preliminary meeting which was held on 20th July 2020.

16. It has not been denied that at this meeting the parties endorsed the terms and conditions of conducting the arbitral proceedings. Neither party raised an objection to the jurisdiction of the arbitrator. In fact, the parties endorsed the jurisdiction of the arbitrator and thereafter the matter was set down for directions.

17. Besides this formal acknowledgement of the arbitrator’s jurisdiction, it is also clear that the applicant participated in the hearing and even called its witness. It is only later, midway through its case, that the applicant raised a preliminary objection. I note that the arbitrator heard the preliminary objection on merit and in a ruling dated 17th March 2022 held that he was conferred with the jurisdiction to hear and determine the dispute at hand.

18. The Halsbury’s Laws of England (Vol 16(2)) at paragraph 1017-1020 confirms that a provision in a deed may be disregarded where there is a clear intention by the parties to the deed to disregard the same. The respondent is therefore right to invoke the doctrine of equitable estoppel owing to the conduct of the applicant. The conduct of the applicant was voluntary and unequivocal and one that would have led any reasonable person, as it did the respondent, to presume that the parties had consented to the appointment of the arbitrator.

19. Paragraph 1058 of the Halsbury’s Laws of England (Vol 16(2)) provides as follows:“Parties to a litigation who have continued the proceedings with the knowledge of an irregularity which they might have availed themselves are estopped from afterwards setting it up…such a party cannot take advantage of an error to which he has himself contributed.”

20. The applicant argues that it is not possible to argue estoppel on the question of jurisdiction which goes to the root of the proceedings. In my view since the question of jurisdiction in arbitral proceedings is determined by the agreement of the parties, I hold the opinion that estoppel may apply to vary an agreement made by parties. What in my view would be excluded is where jurisdiction is conferred by statute. In such a case, estoppel cannot enlarge or remove the jurisdiction of a Tribunal.

21. Section 5 of the Arbitration Act confirms this position and provides as follows:“A party who knows that any provision of this Act from which the parties may derogate or any requirement under the arbitration agreement has not been complied with and yet proceeds with the arbitration without stating his objection to such non-compliance without undue delay or, if a time limit is prescribed, within such period of time, is deemed to have waived the right to object.”

22. Section 17(2)(6) of the Act in turn provides for the timelines within which an objection on the jurisdiction of a Tribunal ought to be raised before the arbitral tribunal. It requires that:“A plea that the arbitral tribunal does not have jurisdiction shall be raised not later than the submission of the statement of defence, however, a party is not precluded from raising such a plea because he has appointed, or participated in the appointment of, an arbitrator.”

23. Not only did the applicant fail to raise its objection within the time stipulated, they chose to wait until the proceedings were underway and even participated in the proceedings and then decided midway to raise their objection and provided no reason for this inordinate delay. In any case, by signing to accept the jurisdiction of the arbitrator, both parties signified their consent to proceed with the said arbitrator.

24. As has been correctly pointed out in National Bank of Kenya Ltd V Pipeplastic SamKolit (K) Ltd & Anor, [2000] eKLR 112:“A court of law cannot rewrite 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…”

25. This prayer must therefore fail.

Whether the applicant’s allegation of bias meets the threshold for removal of the arbitrator. 26. The second issue relates to the claim of bias on the arbitrator. Section 13(3) of the Act which provides for the circumstances where the arbitrator may be challenged on this ground provides as follows:“An arbitrator may be challenged only if circumstances exist that give rise to justifiable doubts as to his impartiality and independence, or if he does not possess qualifications agreed to by the parties or if he is physically or mentally incapable of conducting the proceedings or there are justifiable doubts as to his capacity to do so.”

27. Stemming from this, in Zadock Furniture System Limited & Maridadi Building Construction Limited V Central Bank of Kenya (2015) eLKR the court held as follows:“The test for bias or prejudice must be that there is real danger that the arbitrator is biased, and in deciding whether bias has been established, the Court personifies the reasonable man and considers all the material before it to determine whether any reasonable person looking at what the arbitrator has done, will have the impression in the circumstances of the case, that there was real likelihood of bias.”

28. An assertion of bias must be proved by the party alleging the existence of such bias. It is not sufficient to simply insinuate that an arbitrator is biased and cast aspersions. The main ground for the removal of the arbitrator in this case is that he allowed an ex-parte application for the amendment of pleadings by the respondent. I note that the parties acquiesced to the decision. The applicant also accuses the arbitrator of having an ill intended motive and also of bidding for the respondent.

29. These allegations have not been proved. The allegation that the arbitrator has held and will continue to hold ex-parte meetings with the respondent is not substantiated either. In the absence of any evidence to the contrary, I am not convinced that the arbitrator’s enthusiasm to proceed with the arbitration has any ill intended motive but to have an expeditious resolution of the dispute.

30. I have also taken note of the findings by the arbitrator on this issue. I am again reminded that the Court may only intervene in the proceedings in very limited circumstances where such intervention is warranted. I am not convinced that the applicant has demonstrated the allegation of bias and impartiality of the arbitrator to the required threshold.

Determination 31. In conclusion the Originating Summons dated 4th April 2022 lacks merit. The same is hereby dismissed with costs.

DATED, SIGNED AND DELIVERED IN NAIROBITHIS 8TH DAY OF DECEMBER 2023. F. MUGAMBIJUDGE