County Government of Nyeri v Eustace Gakui Gitonga [2018] KEHC 5386 (KLR)

REPUBLIC OF KENYA

IN THE HIGH COURT OF KENYA AT NYERI

CIVIL CASE NUMBER 4 OF 2018 (O.S)

IN THE MATTER OF THE ARBITRATION ACT NUMBER 4 OF 1995

BETWEEN

COUNTY GOVERNMENT OF NYERI...................................APPLICANT

VERSUS

EUSTACE GAKUI GITONGA............................................RESPONDENT

RULING

The application before me is the chamber summons dated the 22nd day of February 2018 and filed on 1st March 2018 brought under section 17(6) of the Arbitration Act number 4 of 1995 and sections 1A, 1B, 3, 3A and 63 (e) of the civil procedure act, rule 3(2) of the arbitration rules 1997 and all other enabling provisions of the law. It accompanies the originating summons dated 22nd February 2018.

It seeks the following orders;

1. That this honourable court be pleased to stay the arbitral proceedings pending before Eng. Runji Ngware the arbitrator in a dispute between the applicant and the respondent until this application is heard and determined

2. That this honourable court be pleased to stay the arbitral proceedings pending before Eng. Runji Ngware the arbitrator in a dispute between the applicant and the respondent until the applicants originating summons application dated 22 February 2018 is heard and determined

3. That the costs of this application be provided for.

The application is supported by the affidavit of Gachichio Wachira the applicant’s county secretary sworn on 22 February 2018.

and on the grounds that;

a. On 2nd January 2018 the arbitrator in a dispute delivered a preliminary award involving the applicant and respondent to the effect that he had jurisdiction over the dispute

b. The applicant was aggrieved by the aforesaid preliminary award and has made an originating summons application to this court for determination of whether the administrator had the jurisdiction to entertain the claim

c. The applicants originating summons application raises triable issues with a high possibility of success

d. The arbitral proceedings are ongoing before the arbitrator who has already made an order for submission of a reorganised statement of the case by the respondent and thereafter a defence and counterclaim (if any) by the applicant

e. The determination of this court on the applicants originating summons application will have a direct consequence to the arbitral proceedings and /or award as they shall be void if the applicants originating summons application is successful,

f. If the orders of stay here in not granted the arbitration proceedings and /or award will be rendered a mere academic exercise and loss of resources of the applicant should the applicant’s originating summons application before this court succeed,

g. If the orders of stay here in are not granted there is likelihood that the applicant would be forced to participate in a process which ought to be voluntary and consensual,

h. This application has been filed expeditiously,

i. Itis in the interest of justice that orders sought in this application be granted.

In his supporting affidavit the applicant’s county secretary reiterates the grounds on the face of the application and depones further that the applicants originating summons application raises triable issues with a high chances of success in that;

a. no agreement in writing containing an arbitration clause or even a separate arbitration agreement was signed between the applicant and the respondent

b. the exchange of letters and other communications between the applicant and the respondent do not in any way or at all provide a record of an arbitration agreement

c. no reference has been made as to existence of an arbitration agreement in the statement of claim filed by the respondent and responses made by the applicant

d. not contract has been concluded between the applicant and the respondent which contract makes reference to a document containing an arbitration clause

e. subsequently no arbitration agreement conforming to section 4 of the Arbitration Act 1995 existed to confer jurisdiction upon the arbitrator.

The respondent filed a replying affidavit sworn on the 12th April 2018 opposing the application on the ground that through clause 7. 2of the standard terms and conditions provided by the applicant with the respondent the applicant chose the arbitration method. That clause 7. 2 states

“any dispute between the parties as to the matters arising pursuant to this contract that cannot be settled amicably within 30 days after receipt by one party of the other party’s request for such amicable settlement, may be referred to arbitration by either party to arbitration and final decision of a person to be agreed between the parties. Failing agreement to concur in the appointment of an arbitrator, arbitrator shall be appointed by the chairman of the chartered Institute of arbitrators, Kenya branch, at the request of the applying party”

According to the respondent, a dispute arose between the respondent and the applicant in the course of execution of a contract for the construction of a cultural museum within Nyeri township. The parties failed to arrive at an amicable settlement leading to the appointment of the arbitrator. That before commencement of the hearing, the applicant raised the issue of jurisdiction of the arbitrator on the grounds that there was no contract between the parties to meet the requirements of section 4 of the Arbitration Act 1995. That the arbitrator rendered a ruling on the issue on 2nd January 2018 after hearing both parties and found that he had the requisite jurisdiction to hear and determine the dispute and that there was a valid contract in writing between the parties.

That both parties were duly notified of the partial award, and that under s. 17 (6) of the Arbitration Act this application ought to have been filed within 30 days of the arbitrator’s ruling. This application was filed out of time on 2nd March 2018 without the leave of court or an order extending time for filing the same. That it is the respondent’s view that the application seeking stay of the arbitral proceedings is incompetent and misconceived and ought to be dismissed as well calculated move on the part of the applicant to delay and derail the hearing and determination dispute.

Further that the applicant has not demonstrated what prejudice it is likely to suffer if the dispute is heard and determined. In addition, that he was under legal advice that under section 17 (8) of the Arbitration Act that the arbitral proceedings may continue to be concluded save that an award may not take effect until an application under section 17 (6) is heard and determined.

Parties argued the application through the legal counsel. Mr. Macharia for the applicant and Mr. Muthigani for the respondent.

Arguments for the applicant

Counsel began by asking the question whether this court can grant leave to file an application under section 17 (6) of the Arbitration Act.

He argued that this court has granted leave out of the 30 days stipulated under that provision of the law. He admitted that the applicant was late by 2 weeks in filing this application and urged the court to find that mistake of counsel should not be visited on the applicant. He relied on the case of Kamau Njendu t/a Gitutho Associates vs. consolidated bank of Kenya [2014] eKLRsubmitting that in that case Justice Mary Kasango allowed an appeal where the applicant had delayed for 3 months.

On the question whether the arbitral proceedings should be stayed

He argued that the courts have developed principles similar to those for granting the injunctive orders; that is; whether the applicant has a prima facie case with probability of success, the inadequacy of damages, and the balance of convenience. To support his position, he referred the court to the case of Sterling Civil Engineering Ltd Vs TMAN Construction Group Africa [2012] eKLR, Eldoret Municipal Council Versus Rural Housing Estates [2002] eKLR

The applicant contends that there was no arbitration agreement between the parties to give jurisdiction to the arbitrator, which issue was raised as a preliminary objection before the arbitrator and which the arbitrator ruled against. He invited the court to consider the preliminary award by the arbitrator. That the submission that the proposal did not constitute an offer and in any case there was no acceptance.

It is submitted that this court has determined issue with regard to the jurisdiction of an arbitrator. He referred the court to the case N.H.I.F versus Peter Scotts and another [2017] eKLR;that huge expenses were being expended in these proceedings and the applicants would incur expenses that can be avoided at this stage. That the balance of convenience tilts in the maintenance of the status quo pending the hearing and determination of the originating summons.

With regard to the provisions of section 17(8) of the Arbitration Act he submitted that the it was not coached in mandatory terms and the court could still issue an injunction especially where a party had sought the setting aside of the award.

Arguments for the respondent.

That there is no competent application for stay or application under section 17 of the Arbitration Act before the court. This is because the time for filing the application started running on 2nd January 2018 the applicant had 30 days. The application was filed on 2 March 2018. The application was filed without leave. That the applicant was required to seek leave to file the Originating Summons and the application for stay. No leave was granted and there is no extension of time and therefore both the OS and the chamber summons ought to be struck out as incompetent and improperly before the court.

That the arbitrator in his well-reasoned ruling of 2nd of January 2018 an award and found that he had jurisdiction. The award is detailed. He found there is a valid contract, offer and acceptance vide the letter of 26 May 2014 when the respondent accepted the contract. That the conditions at clause 7. 2 of the standard contract quoted by the respondent was imposed by the applicant.

That the arbitrator is empowered under section 17 to determine whether he has jurisdiction that is what the arbitrator did. That under section 17 (8) the law allows the proceedings of the arbitrator go on what is bad is the taking effect of the award into account.

That the court should allow the arbitration process to continue without bogging down the ADR process which is recognised under article 159 of the Constitution. That the respondent would be prejudiced because he’s wronged and owed money by the applicant who only seeks to delay the matter further.

Applicant’s rejoinder

With regard to the issue of incompetence of the application counsel submitted that this court had inherent jurisdiction under sections 3A, 63(E) of the CPA, and the case of Kamau Njendu.

That the court could not at this stage, determine the merits or otherwise of the O.S as to whether the administrator had jurisdiction not no contract was exhibited as required by section 85 of the repealed PPDA.

Analysis and Determination

I have read and considered very carefully the arbitrator’s ruling of 2nd January 2018. It is not in dispute that the O.S seeking the setting aside of the arbitral award was filed out of time. It is also not disputed that there is no prayer for extension of time to file the O.S in this Chamber summons. On the face of the O.S the applicant herein concedes being out of time and its first prayer seeks leave to file the OS out of time. Hence, that part will be dealt with at the appropriate time.

With regard to the chamber summons, it simply seeks stay of the arbitral proceedings pending the hearing and determination of the OS.

It has been argued that Section 17 (6) of the Arbitration Act which provides that “Where the arbitral tribunal rules as a preliminary question that it has jurisdiction, any party aggrieved by such ruling may apply to the High Court, within 30 days after having received notice of that ruling, to decide the matter”bars the applicant from filing this chamber summons two week after the deadline without leave or extension of time. That is conceded. But I doubt that in the light of sections 1A, 1B and 3A, of the CPA it would be tenable to argue that the application for stay is incompetent because the main application is delayed for two weeks. My view is that the issue of delay ought to be determined during the hearing of that application, the OS, and especially because there is a prayer in there seeking leave and the extension of time.

I cannot let go out of sight that the real issue to be determined in the long term is whether there is an arbitration agreement between the parties to give the arbitrator the jurisdiction to proceed with the arbitration.

If it is found that the arbitrator has no jurisdiction, then any award granted by the arbitrator will be set aside. Without belaboring the issue, jurisdiction is everything. Without it a court/tribunal or in this case, the arbitrator’s award will ultimately be null and void. The parties will have expended costs that could have been avoided and on the part of the applicant, public funds.

In search for what other Judges in a similar situation have said, I found that Mabeya J in INVESCO ASSURANCE COMPANY LIMITED v CHARLES MUTURI MWANGI [2012] eKLRput in writing what I was wondering as I considered the arbitrator’s award, the rival submissions, affidavits and authorities cited herein. In the words of the learned judge;

… my concern is, what will be the effect of those proceedings and the position of the parties if the Originating Summons ultimately succeeds and it is found that the arbitrator did not have jurisdiction to entertain those proceedings as presented? Won’t they be set aside? Where will the parties be left? What of the costs and expenses that would have been incurred in the meantime? The Applicant through its Counsel complained that it will be paying the arbitrator every time it will appear before him, it will also incur legal costs. My take of it is that if those proceedings proceed as scheduled and then they are finally overturned, the parties would have incurred unnecessary costs which can be avoided. The prejudice to be suffered will be irreversible as the costs incurred would not be recoverable, and even if they are recovered, they would have been incurred in an exercise in futility.

Hence regardless of the provisions of s. 17 (8) which states that “While an application under subsection (6) is pending before the High Court the parties may commence, continue and conclude arbitral proceedings, but no award in such proceedings shall take effect until the application is decided and such award shall be void if the application is successful”, my view is that there would be more prejudice suffered both ways if the arbitrator is allowed to continue with the arbitration proceedings while his jurisdiction is under scrutiny, and his final award, at the risk of being declared a nullity.

It is only fair that there be a stay of the arbitration proceedings pending the hearing and determination of the O.S.

The stay will be for 90 days during which period the parties herein will endeavor to prosecute the O.S to its finality.

Costs in the cause.

Dated, delivered and signed at Nyeri this 21st May of 2018

Mumbua T. Matheka

Judge

In the presence of:

Court Assistant: Atelu

Counsel for applicant: Mr. Macharia was here and left

Counsel for respondent: Mr. Muthigani