Kamimi Company (1976) Limited v Soil Merchants Kenya Limited [2022] KEHC 9792 (KLR)

Kamimi Company (1976) Limited v Soil Merchants Kenya Limited (Civil Miscellaneous Application E277 of 2021) [2022] KEHC 9792 (KLR) (Commercial and Tax) (5 May 2022) (Ruling)

Neutral citation: [2022] KEHC 9792 (KLR)

Republic of Kenya

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

Commercial and Tax

Civil Miscellaneous Application E277 of 2021

WA Okwany, J

May 5, 2022

Between

Kamimi Company (1976) Limited

Applicant

and

Soil Merchants Kenya Limited

Respondent

Ruling

Introduction 1. Through an agreement dated September 29, 2017the applicant herein, Kamimi Company (1976) Limited, agreed to sell property known as L.R. No, Donyo Sabuk Komarock Block 1/8664 to the respondent. It was an express term of the contract that any disputes between the parties over the said agreement would be referred to arbitration. A dispute arose and the same was referred for arbitration. The arbitrator published an award in favour of the respondent, Soil Merchants Kenya, thereby giving rise to the two applications that are the subject of this ruling.

2. Through the first application dated April 16, 2021, the applicant herein seeks orders to set aside the arbitral award and in the second application dated May 28, 2021, the respondents seeks orders to strike out the first application.

Respondents Application dated May 28, 2021 3. The application is brought under of Section 35(3) of the Arbitration Act, is supported by the affidavit of the respondent’s Director Mr. George Gacheru Mungai and is based on the grounds that:1)The Chamber Summons dated April 16, 2021is filed out of time in contravention of the mandatory provisions of Section 35(3) of the Arbitration Act.2)The Chamber summons dated April 16, 2021is scheduled for mention on June 2, 2021. 3)That the final Award was made on December 11, 2020and the Hon. Arbitrator on December 11, 2020notified the parties of the date and that that a duly signed hard copy of the final award can be collected on the same date December 11, 2020. 4)That on December 11, 2020 the Hon Arbitrator communicated fees to be paid before collection of the award.5)That three (3) months from December 11, 2020had lapsed when the Chamber Summons was filled.6. It is an abuse of court process.

4. The applicant opposed the applicant through the replying affidavit sworn by its advocate, Ms. Purissima Wambugu who states that the applicant settled its part of the arbitrator’s fees byJanuary 8, 2021but was not supplied with a copy of the arbitral award in good time despite several follow-ups. She avers that the parties received the arbitral award on January 22, 2021and that the respondent’s claim that the first application was filed out of time is misconceived.

Application dated April 16, 2021 5. The applicant, Kamimi Company (1976) Limited, seeks the following orders: -1)Spent.2)Spent.3)That this Honourable Court be pleased to set aside the Final Award made and published by the Sole Arbitrator, Mr. Rajinder Billing on December 17, 2020to the extent that it orders the Applicant herein to pay to the Respondent the sum of Kshs. 8,000,000. 00 being a refund of the deposit on the purchase price with interest as set out at Paragraph 335, 374 and 376 thereof.4)That this Honourable Court be pleased to set aside the Final Award made and published by the Sole Arbitrator, Mr. Rajinder Billing on December 17, 2020 to the extent that it orders the Applicant herein to refund the interest earned on the deposit on the purchase price (Account Interest) with interest as set out at Paragraph 338, 375 and 376 thereof.5)That the Honourable Court be pleased to issue such other orders as may be fair and just in the circumstances.6)That the costs of this Application be borne by the Respondent.

6. The application is supported by the affidavit of applicant’s Director Ms. Elizabeth Waiyaki and is premised on the following grounds: -1. That on September 29, 2017, the Applicant (as Vendor) and the Respondent (as Purchaser) entered into an Agreement for the Sale of the property registered as Title Number Donyo Sabuk Koma Rock Block 1/8664 for the consideration of the sum of Kshs. 80,000,000. 00. 2.That as provided in the Agreement for Sale at clause 4. 1.1, the Respondent paid the sum of Kshs. 8,000,000. 00, being 10% of the agreed purchase price, to the Applicant as the deposit on the Purchase Price as per the Agreement for Sale.3. That in accordance with clause 4. 1.2 of the Agreement for Sale, the balance of the purchase price would be payable upon the Applicant’s delivery of the completion documents itemized at clause 5. 3 of the Agreement.4. That the terms of the Agreement for Sale on completion were subsequently varied by mutual agreement between the parties as set out in the 1st and 2nd Addendums to the Agreement for Sale, dated February 23, 2018and August 6, 2018respectively, to wit:a)the 1st Addendum served to extend the Completion Date from the initial 120 days after the date of the Agreement for Sale to 7 months after the date of the Agreement for Sale; andb)The 2nd Addendum further amended the Completion Date to set it at 60 days after August 6, 2018. This was, however, subject to the Applicant’s procurement of a Certificate of Confirmation of Grant in respect of the estate of the late Fredrick Munyua Waiyaki (who served as the majority shareholder of Momux Investments Limited which company in turn served as the majority shareholder in the Applicant Company or, in the alternative, a Court Order authorizing the sale of the property as set out in the Agreement for Sale.5. That a dispute arose between the parties as to whether the Applicant had satisfied its obligations as set out in the 2nd Addendum. In particular, the Respondent disputed the conformity of the completion documents supplied to it with the requirements set out in the provisions of the 2nd Addendum, and it is this dispute that principally gave rise to the arbitral proceedings and the Final Award giving rise to this Application.6. That upon hearing the parties on the issues placed before him for consideration, and upon affording the parties the opportunity to argue their positions on the issues set out before him, on January 22, 2021the Arbitrator delivered his Final Award dated December 17, 2020to the parties.7. That the Arbitrator in his Final Award inter alia found that the Applicant (as Respondent in the arbitral proceedings) complied with the requirements of Clause 5. 1.2 of the 2nd Addendum and the Claimant (Respondent herein) should have validated the completion documents issued by the Respondent on October 17, 2018. (See Paragraph 319 of the Final Award). The Arbitrator also declined to award the Claimant (Respondent herein) with the remedy of specific performance owing to the fact that it had failed to demonstrate that it was willing and ready to pay out the balance of the purchase price. (See Paragraph 322 and 323 of the Final Award)8. That having found that:a)the Applicant had complied with the terms of the 2nd Addendum (See Paragraph 319 of the Final Award);b)the Respondent should have validated the completion documents sent to it by the Applicant (See Paragraph 319 of the Final Award); andc)the Applicant’s termination of the Agreement for the Respondent’s breach was valid (See Paragraph 300 as read with 307 of the Final Award); there was no course open to the Arbitrator other than to affirm and apply the terms of the Agreement for Sale.9. That instead, the Arbitrator proceeded to direct that the Applicant refund the deposit on the purchase price with interest, together with the interest accruing on the deposit held in the Vendor’s Advocates account, under the purported guise of a ‘practicable solution beneficial to both parties’ and arriving at ‘a fair and equitable’ determination. (See Paragraph 334, 335 and 338 of the Final Award)10. That the net effect of this direction was to reward the Respondent for its breach of the Agreement for Sale through undue refusal to complete, by unjustly enriching the Respondent at the Applicant’s expense despite having made a finding that the Applicant had satisfied its end of the bargain (See paragraph 316 - 319 of the Final Award).11. That the Arbitrator’s mandate, flowing from the issues framed by the parties, did not require the Arbitrator to address himself on the deposit or the account interest accrued on it in any manner whatsoever. Accordingly, the Arbitrator exceeded his mandate by making an order without the confines of the issues presented to him or highlighted by him for determination, which order ran afoul of the clear provisions of the parties’ contract.12. That notwithstanding the foregoing, the Respondent did not seek the remedy of a return of its deposit in the statement of claim and this issue was not among the abridged issues highlighted by the Arbitrator for determination in the Final Award (See paragraph 254 of the Final Award)13. That, in any event, clause 15. 2.2 of the Sale Agreement unequivocally provides that the consequence flowing from the Respondent’s failure to complete the transaction is the forfeiture of its deposit, together with the account interest thereon, to the Applicant’s benefit. The impugned provisions of the Arbitrator’s final award are in manifest contravention of these terms of the Agreement for Sale.14. That, owing to the provisions of the Agreement for Sale highlighted in the foregoing, it is apparent that no rational construction of the terms of the Agreement for Sale could support the provisions of the Final Award in question.15. That the Applicant also believes that the Final Award in this regard is legally unsound, was issued in excess of the arbitrator’s mandate and that the portion of the Final Award in issue flies in the face of Kenyan public policy for the following reasons:a)By granting a relief that was not sought by either party, the arbitrator denied the parties the opportunity to interrogate, consider or deal with the issue of the fate of the deposit and the account interest through submission, testimony or tendering of evidence. The grant of this relief was to the detriment of the Applicant in so far as it was inimical to the basic tenets of substantive justice by denying the Applicant its right to fair hearing as enshrined in Article 50 of the Constitution of Kenya, 2010 and the right to a fair and reasonable opportunity to present its case as provided at Section 19 of the Arbitration Act;b)By granting a relief purportedly based on considerations of justice and fairness at the expense of the unequivocal terms of the Agreement between the parties, without notice to either party and whose grant was therefore not authorized by the parties as is required under Section 29(4) of the Arbitration Act, the Arbitrator acted in breach of the unequivocal provisions of Section 29(4) of the Arbitration Act;c)By granting a relief which was so overtly and unabashedly contrary to the express terms of the Agreement for Sale at Clause 15. 2.2, the arbitrator acted in patent breach of the rule set out at Section 29(5) of the Arbitration Act, which requires the arbitrator to issue their award in accordance with the terms of the contract in issue; andd)In so far as the Final Award requires the Applicant to refund the deposit and account interest despite the provisions of the Sale Agreement otherwise, the Arbitrator purported to rewrite the parties contract in contravention of the quintessential contract law principle against rewriting of contracts based on extrinsic evidence. In doing so the Arbitrator effectively substituted his own notions of practicability, fairness and justice for the unequivocal provisions of the parties’ Agreement.16. That the principle of finality of arbitral awards is not absolute and must be balanced with this Honourable Court’s duty to shield parties from miscarriages of justice arising from unfair and unprocedural conduct of arbitral proceedings.17. That it is for this reason that the Applicant seeks this Honourable Court’s intervention through setting aside the portion of the Final Award requiring the Applicant to refund the deposit on the purchase price with interest and pay the account interest on the deposit to the Respondent.18. That this Honourable Court has the jurisdiction to issue the orders sought.19. That it is therefore in the interests of justice and equity that the prayers sought herein are granted.

7. The respondent opposed the application through the replying affidavit of its Director Mr. George Gacheru Mungai who states that the application is couched as an appeal and is therefore incompetent. He further avers that the issue of deposit cannot be separated from the sale transaction as it was provided for in the agreement.

8. I have considered the two applications and the submissions made by the parties’ respective advocates. The first issue for determination is whether the respondent has made out a case for striking out the chamber summons dated April 16, 2021.

9. The respondent argued that the application dated April 16, 2021 was filed out of time thus offending the mandatory provisions of Section 35(3) of the Arbitration Act. According to the respondent, time started to run on December 17, 2020 when the arbitrator made the award available for collection. Reference was made to the decision in Dinesh Construction Limited & another vs Aircon Electra Services (Nairobi) limited [2021] eKLR where it was held that: -“It not in dispute that the Arbitrator notified the parties that the Award was ready for collection on July 1, 2020, hence time begun to run from this date meaning that the Applicant ought to have filed the application to set aside by September 30, 2020. Counsel for the Applicant suggested that by stating that, “Before I publish this Award” in the letter dated July 1, 2020, the Award was in fact not ready. I reject this suggestion. Had the parties paid the fee demanded by the Arbitrator, the Award would have been released to them on the same day. I do not think that anything turns on the language used by the Arbitrator particularly given that the issue here is the meaning of “delivery” under section 35(3) of the Arbitration Act which is different for publish.”

10. The applicant’s case, on the other hand, was that time started to run on January 20, 2021 when the parties received the award. According to the applicant, the letter dated December 3, 2021 only served as a notification that the award was ready for collection.

11. Section 35(3) of the Act stipulates as follows regarding the timelines for filing an application to set aside an award: -“An application for setting aside the arbitral award may not be made after 3 months have elapsed from the date on which the party making that application had received the arbitral award, or if a request had been made under Section 34 from the date on which that request had been disposed of by the arbitral award.”

12. Section 32(5) of the Act states that: -“Subject to section 32B after the arbitral award is made, a signed copy shall be delivered to each party.”

13. In Ann Mumbi Hinga vs Victoria Njoki GatharaNRB CA Civil Appeal No. 8 of 2009 [2009] eKLR the Court of Appeal held that: -“Section 35 of the Arbitration Act bars any challenge even for a valid reason after 3 months from the date of delivery of the award.” Resolution of the preliminary objection hinges on the meaning of “received” used in section 35(3) of the Act given that the natural and ordinary meaning of receive as defined in the Oxford Concise English Dictionary means, “be given, presented with, take delivery of …” all of which imply actual obtaining of the award.”

14. I have perused the letters dated December 3, 2020, December 17, 2020 and January 20, 2021 which the parties relied upon in their arguments over the timelines. Through the letter dated December 17, 2020, the arbitrator informed the parties that the award was ready and would be delivered to them upon payment of arbitration fees whereas the in letter dated January 20, 2021 the arbitrator released the arbitral award to the parties after receipt of payment of the arbitrators fees.

15. From the correspondence from the arbitrator, it is apparent that time started to run on the date the arbitrator informed the parties that the award was ready for their collection. I am guided by the decision in Mahinder Singh Channa vs. Nelson Muguku & AnotherML HC Misc. Application No. 108 of 2006 [2007] eKLR where the court observed that: -“Publication is something which is complete when the arbitrator becomes functus officio but so far as the time for moving under the statute is concerned, it is the notice that matters. It is wholly untenable that the time would not begin to run for a wholly indefinite period if neither side takes up the award. There it would lie in the offices of the arbitrator for months or even years and when finally taken up, the party would be able to say, the period has only just started to run and the fact that he could have had his award by walking round the corner at any moment from the date upon which he received notice of its availability cannot be held against him. Such a construction of the rule appears to be entirely unreasonable. It has never been applied and there is no reason to hold that it applies now … As the parties in this matter were aware that the award was published and this information was supplied to the applicant after it made an inquiry as to the effective date of publication of the award, the letter stating that the award had been issued cannot change the earlier factual and legal position. Any other interpretation or holding would result in dilatory tactics that would defeat the arbitral process denying it of the virtues associated with it such as speed and cost effectiveness…”

16. In Dewdrop Enterprises Ltd v Harree Construction Ltd [2009] eKLR the court held that: -“Whereas it is true that Arbitrator notified the parties that award was ready for publication as early as November 2007, it was evident that Arbitrator did not publish or avail copies of the said award to the parties on account of failure by the parties herein to pay the outstanding balance of the Arbitrator’s fees. The Arbitrator withheld publication of the said award till August 11, 2008. I therefore hold that the date of publication of the said award was August 11, 2008. The applicant stated that it received the award on August 15, 2008. Taking either dates as the date on which the award was published, under Section 35(3) of the Act, the applicant was required to file the application to set aside the arbitral award before this court required to file the application to set aside the arbitral award before this court by either November 11, 2009 or November 15, 2008. The present application was filed on September 23, 2008. The application was therefore presented to court within the period provided under the Arbitration Act 1995. I find no merit with the respondent’s objection in this regard.”

17. In the present case, a perusal of the award shows that it was published on December 17, 2020. I therefore find that time started to run on December 17, 2020 in which case, the application ought to have been filed within 90 days from the date of the publication. It is however apparent that the application dated April 16, 2021 was not filed within the statutory period of 90 days and therefore offends the provisions of section 35(3) of the arbitration Act.

18. In conclusion, I find that he application dated May 28, 2021 has merit and I therefore allow with the result that the application dated April 16, 2021 is struck out with costs.

DATED, SIGNED AND DELIVERED VIRTUALLY AT NAIROBI THIS 5THDAY OF MAY 2022. W. A. OKWANYJUDGEIn the presence of: -Ms Kimani for the Applicant.Ms Mbabu for Respondent.Court Assistant- Sylvia