HP Insurance Brokers Limited v Cannon Assurance Limited [2017] KEHC 82 (KLR)

REPUBLIC OF KENYA

IN THE HIGH COURT OF KENYA

AT NAIROBI

COMMERICIAL AND ADMIRALTY DIVISION

MILIMANI HIGH COURT

CIVIL CASE NO 470 OF 2016

HP INSURANCE BROKERS LIMITED.........PLAINTIFF/APPLICANT

VERSUS

CANNON ASSURANCE LIMITED..........DEFENDANT/RESPONDENT

RULING

1. Kenya Power and Lighting Company Limited (KPLC) is enjoying certain Insurance Policies issued by Cannon Assurance Limited (Cannon).  These policies were brokered by H.P Insurance Brokers Ltd (The Brokers).

2.  A complaint by the Brokers is that on 15th November, 2016, Cannon wrote to them threatening to double the rates with immediate effect or cancel the Policies entered with KPLC.  The Brokers think this to be draconian and arbitrary and which will make it breach its brokerage obligation to KPLC. So as to protect itself, the Broker brings this suit and seeks the following prayers:-

a) This Honourable Court be pleased to issue a permanent injunction restraining the Defendant whether by itself, its agents or employees or howsoever otherwise from amending, varying the terms, cancelling, revoking or in any way interfering with the said policy entered into as between the defendant herein and Kenya Power.

b) This Honourable Court be pleased to issue an order of injunction restraining the Defendant whether by themselves, their agents, employees or howsoever otherwise from inducing a breach of the said contract whether through the threatened review of premium rates and/or cancellation of the said policy issued in favour of Kenya Power by the Defendant.

c) That this Honourable Court be pleased to issue a mandatory injunction compelling the respondent to perform all its obligations under the said policy entered into between the Defendant herein and Kenya Power.

d) General damages for inducing a breach of contract as well as for misrepresentation.

e) Interest on (d) above at Court’s rate

f) Costs of this suit.

g) Any other relief that the Honourable Court may deem just and fair in the circumstances.

3.  Cannon entered Appearance to these proceedings through the firm of Kaplan and Stratton who on 24th November 2016 filed a Chamber summons seeking the following prayers:-

1. THAT pending the hearing and determination of this Application, the suit and the proceedings herein be stayed.

2. THAT the dispute between the Plaintiff and the Defendant herein be referred to Arbitration in accordance with clause 9 of the Commercial Vehicle Insurance Policy.

3. THAT the costs of the suit and of the Application herein be borne by the Plaintiff in any event.

4.  Section 6 of The Arbitration Act provides 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.

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

(3) If the court declines to stay legal proceedings, any provision of the arbitration agreement to the effect that an award is a condition precedent to the bringing of legal proceedings in respect of any matter is of no effect in relation to those proceedings.

5.  The position of Cannon is that the terms of the Commercial Vehicle Insurance Policy provides that any dispute on any matter relating to the policy between the parties which is not resolved by a single mediator within 30 days shall be referred to Arbitration.  This is under clause 9 which reads:-

“If any dispute arises between you and us on any matter relating to this policy such dispute will be referred to:

(a) A single mediator to be agreed between you and us within thirty (30)days of the dispute arising and the mediation process to be finalized not later than thirty (30) days thereafter or

(b) A single arbitrator agreed between us, to be appointed within thirty (30) days of the dispute arising. If we cannot agree, either party will refer the dispute to the Chairman of the Chartered Institute or Arbitrators (Kenya Branch) whose decision will be binding on you and us.  The arbitral award will be final. If the dispute is not referred to the arbitration process within twelve (120 months we will assume you have abandoned the claim”.

6. The Brokers do not agree and assert that there exists no agreement between the parties to refer the matter to arbitration

7. The crux of the argument by Cannon is that the Broker comes to court expressly as an agent of KPLC and is therefore bound by the actions and words of the Principal including the policies in issue.

8. The scope of the enquiry to be undertaken under Sections 6(1) (b) of the Arbitration Act has been the subject of past decisions of this Court and the Court of Appeal. In UAP PROVINCIAL INSUARANCE COMPANY LTD VS. MICHAEL JOHN BECKETT (2013) eKLR, cited by the Lawyers for Cannon, the Court of Appeal observed:-

“It is clear from this provision that the enquiry that the Court undertakes and is required to undertake under section 6(1)(b) of the Arbitration Act is to ascertain whether there is a dispute between the parties and if so, whether such dispute is with regard to matters agreed to be referred to arbitration. In other words, if as a result of that enquiry the Court comes to the conclusion that there is indeed a dispute and that such dispute is one that is within the scope of the arbitration agreement, then the Court refers the dispute to arbitration as the agreed forum for resolution of that dispute”.

9. The position by the Brokers expounded as follows.

10. Through tender No. KPI/9AA2/RT/46-CA.CS/15-16, KPLC advertised for provision of Insurance Brokerage services for the period 1st May, 2016 to 30th June 2017.  Using quotations given by the Defendant, the Plaintiff participated in the said tender and won it. Subsequently a Contract dated 30th June 2016 was entered between KPLC and the Brokers.  Pursuant to that Contract, the Cannon issued various policies to KPLC.

11. The Broker concedes that it acted as an agent of KPLC in so far as the provision of the brokerage Insurance services were concerned.  But it submits that it comes to Court not as agent of KPLC but rather to protect its rights. It explains that the threatened cancellation of the Insurance policies exposes the Plaintiff to possible violation of its Contract with KPLC. In addition that it would lead to a serious loss of profit as it would affect its reputation and standing as an Insurance Broker. Again the Broker seeks General damages against Cannon for inducing it to breach its contract with KPLC.

12. In essence the Broker asserts that it has a distinct and separate cause of action unconnected with its agency position.

13. The Broker pleaded reliance on the decision in Hedley Byrne vs. Heller & Partners ltd (1964) AC 465 HL.  There, the House of Lords ruled that a claim for pure economic loss could arise where the following four conditions were met:-

(a) A fiduciary relationship of trust & confidence arises/exists between the parties;

(b) The party preparing the advice/information has voluntarily assumed the risk;

(c)  There has been reliance on the advice/information by the other party: and

(d) Such reliance was reasonable in the circumstances.

14. As I understand it, the Broker asserts that it entered into a Brokerage Contract with KPLC on the basis that the premium rates given to it by Cannon would not change for the entire period of the Contract.  Any adverse change in the price would therefore imperil the Contract between it and KPLC.  This, as I understand it, would then be a loss that is personal to the Broker notwithstanding that it may also be a loss to KPLC.  If the Broker were able to sustain this cause of action then I would have to agree with its Counsel that it is not a cause that arises from its agency relationship with KPLC.

15. This Court takes a similar view in respect to the allegation that the threatened review of premium rates and/or cancellation of the said policy could induce a breach of its Contract with KPLC.  This is a form of Economic Tort and is not based on any contractual relationship between a Plaintiff and a Defendant.  This tort is expressly pleaded by the Plaintiff. It is a Tort that arises when a party’s willful interference or conduct results in the breach of an existing Contract and has the following eight elements:-

(i) There must have been a valid and subsisting Contract between the Plaintiff and a third party.

(ii) The third party must have breached its Contract with the Plaintiff.

(iii) The Defendant act must have caused the breach.

(iv) The Defendant must have been aware of the Contract.

(v) The Defendant must have known it was inducing a breach of Contract.

(vi) The Defendant must have intended to procure a breach of Contract in that the breach was a desired end in itself or a means to an end.

(vii) The plaintiff must establish it suffered damage as a result of the breach.

(viii) If these elements are satisfied, the Defendant is entitled to raise the defense of justification.

(See the Canadian case of SAR PETROLEUM VS. PEACE HIHS TRUST COMPANY (2010)N BCA 22).

The argument by the Broker is that should Cannon be permitted to breach its Contract with KPLC then it will induce of a breach of  Contract between it and KPLC with the consequence of a loss to it.  This cause of action, again, is not one that belongs to KPLC but to the Broker. It is therefore one that falls outside the agency relationship with KPLC.

16. That said, there is an intimate connection between the Brokers cause of action and the Insurance Policy/ies entered between KPLC and Cannon.  The terms of the Policy/ies is at the very heart of this dispute. As an essential to the Brokers cause of action is that there has been threat of breach or actual breach of the terms thereof.  And it is conceded and common ground that, in respect to those Policy/ies, the Broker is an agent of KPLC.  Whilst this Court has found that the Broker pleads a cause of auction outside the agency, the very foundation of its action is the Contract or Contracts between KPLC and Cannon.

17. In the Policy or Policies, KPLC and Cannon have unequivocally provided for reference of disputes arising therefrom to a single mediator in the first instance and thereafter to arbitration by a single Arbitrator. That was the purport of clause 9 of the Policy.  Cannon, by the Motion before Court, wants to take that root.  This Court takes the view that notwithstanding that the Broker is pressing an independent cause of action it should first submit to the Dispute Resolution mechanism that its principal had chosen in the Contract that will be under active discussion in the dispute.

18. This view of the Court is informed by the provisions of Article 159(2) of the Constitution which is an edict to Courts and Tribunals to promote alternative forms of dispute resolution which includes reconciliation, mediation and arbitration. I also bear in mind the Provisions of Section 59c (1) of The Civil Procedure Rules Act which provides:-

“A suit may be referred to any other method of dispute resolution where the parties agree or the Court considers the case suitable for such referral”. (My emphasis)

I am persuaded that what the principal had elected as a preferred Dispute Resolution Mechanism between it and Cannon is a suitable mechanism for the resolution of this dispute, in which the pivotal issue is the contract between the principal and Cannon, and the threatened or actual breach thereof.

19. The first port of call for the resolution of the dispute is Mediation.  Mediation offers an opportunity for a cost-effective and speedy avenue for the resolution of this dispute.  Both parties are involved in Business and Mediation will avoid distraction that may come with ongoing litigation.  In addition the parties herein may be interested in retaining a business relationship even after this dispute.  This is a matter that is suitable for mediation and I would therefore refer this Dispute to the Court annexed Mediation failing which the Court will hear and determine the matter. Nevertheless, the referral of this matter to Mediation does not bar either party from moving this Court for Protective relief.

20. To the extent set out above the Chamber Summons dated 24th September 2016 is allowed.  Costs in the cause.

Dated, Signed and Delivered in Court at Nairobi this 11thDay ofOctober, 2017.

F. TUIYOTT

JUDGE

PRESENT;

Alombo for Munyaa for Plaintiff

Jele for Defendant

Alex - Court clerk