Karen Blixen Coffee Garden & Cottages Limited v Tamarind Management Limited [2017] KEELC 2172 (KLR)

REPUBLIC OF KENYA

IN THE ENVIRONMENT AND LAND COURT

AT NAIROBI

ELC CIVIL SUIT NO. 679 OF 2016

(Consolidated with Nairobi ELC Civil Suit No. 517 of 2014 and

Nairobi ELC Civil Suit No. 519 of 2014)

KAREN BLIXEN COFFEE GARDEN & COTTAGES LIMITED.......PLAINTIFF

=VERSUS=

TAMARIND MANAGEMENT LIMITED..........................................DEFENDANT

R U L I N G

Introduction

1. The above three suits were consolidated on 12/7/2016 pursuant to an order made by Gitumbi J in Nairobi ELC 679 of 2016.  The Lead File is Nairobi ELC 679 of 2016.  They relate to four parcels of land; Land Reference Numbers 10126/2, 10126/3, 10126/4 and 10126/5, situated in Karen, Nairobi City County (hereinafter referred to as the “suit properties”).  The three suits arise from a sub-lease in respect of the four parcels of land dated 3/12/2012 (hereinafter referred to as “the sub-lease”) between Karen Blixen Coffee Garden & Cottages Limited (hereinafter referred to as “the lessor”) and Tamarind Management Limited (hereinafter referred to as “the lessee”).  The lessee (Tamarind Management Limited) runs hotel and catering business on the suit properties.

2. Nairobi ELC Case No. 517 of 2014 was initiated by the lessee against the lessor on 20/4/2014, primarily seeking interim protective measures within the framework of Section 7 of the Arbitration Act, pending disposal of arbitration proceedings initiated by the lessee.  Nairobi ELC Case No. 519 of 2014 was initiated by the lessor against the lessee seeking, interalia, a declaration that the lessee is in breach of the sub-lease dated 3/12/2012.  The lessor also seeks an order restraining the lessee against making structural alterations to the suit properties.  The lessor further seeks a mandatory injunction compelling the lessee to give vacant possession of the suit properties to the lessor.  Further, the lessor seeks punitive and aggravated damages against the lessee.  Lastly, Nairobi ELC Case No. 679 of 2016 was initiated by the lessor against the lessee on 22/6/2016.  Through it, the lessor seeks an order restraining the lessee against interfering with the lessor’s right to possession of the suit properties.  The lessor also seeks general damages for breach of contract. At the time the three suits were filed, the term of the material sub-lease was still running and the lessee had possession of the said properties.  The sublease contained a framework for its renewal for a further term of 6 years.

3. There is no record of any statement of defence filed in any of the three suits.  The plaints in all the three suits were accompanied with applications brought under certificate of urgency, seeking various interlocutory orders.  None of the applications had been determined by the time the consolidated file was allocated to me in April 2017.

4. On 12/7/2016, Gitumbi J made directional orders consolidating Nairobi ELC Case Numbers 679 of 2016, 519 of 2014; and 517 of 2014.  ELC No. 679/2016 was selected as the Lead File.  The honourable judge further noted that there were four pending applications and directed that the lessee’s Notice of Motion Application dated 29/6/2016, filed in ELC 679 of 2016, would be disposed first because it would determine whether or not to refer the material disputes to arbitration.  This Ruling relates to that particular Notice of Motion by the lessee, Tamarind Management Limited, seeking stay of proceedings, referral of the disputes to arbitration and interim protective measures.

Application

5. The application under consideration seeks the following specific orders:-

2. The proceedings herein be stayed pending the determination of the proceedings referred to arbitration;

3. Pending the determination of the proceedings referred to arbitration, the Respondent be restrained, whether by itself, its employees, servants and/or agents or assignees and/or any person acting under it or on its behalf or otherwise howsoever from:

a. entering, occupying, auditing, property invoicing, interfering with the Applicant’s peaceful occupation, alienating or disposing of the whole or any part of all those properties known as Land Reference Numbers 10126/2, 10126/3, 10126/4 and 10126/5 together with the buildings and structures erected thereon (“the said property”);

b. terminating the sub-lease dated 3 December 2012 between it and the Applicant.

IN THE ALTERNATIVE that the status quo presently prevailing between the parties do continue pending the determination of the proceedings referred to arbitration.

6. In my view, because the three suits arise from the sub-lease dated 3/12/2012 and are consolidated, the Application filed in the lead file affects all the three consolidated suits.  Indeed, the subject matters and the parties are the same.

Applicant’s Case

7. The Applicant’s case in the application is that there has arisen a dispute concerning the applicant’s entitlement to a renewal of the sub-lease under Clause 9 of the sub-lease.  The applicant contends that whereas it is entitled to a renewal, the respondent has declined to grant it the renewal, contending, first, that the applicant did not give its notice of intention to renew the sub-lease within the time-frame stipulated in the sub-lease, and second, because the applicant has in the past been in breach of the terms of the sub-lease.  The applicant contends that under Clause 18 of the sub-lease, the dispute resolution forum available to the parties is an arbitral tribunal constituted within the framework of the arbitration agreement.  The applicant further contends that, as soon as the dispute arose, it invoked Clause 18 of the sub-lease and commenced arbitration proceedings.  The applicant asserts that the appointing authority has already appointed an arbitral tribunal to hear and determine the dispute.  The appointed arbitrator is Mr Collins Adipo. The applicant further contends that because the dispute relates to the applicant’s entitlement to a renewal of the lease within the framework of the renewal clause, there should be interim protective measures within the framework of Section 7 of the Arbitration Act.  Lastly, the applicant’s case is that, whether or not the applicant has forfeited its entitlement to exercise the option to renew the lease is an issue to be determined by the arbitrator.

Respondent’s Case

8. The respondent’s case is that there is no dispute to be referred to arbitration. It contends that the sub-lease is clear on the timelines within which the lessee was required to give a notice intimating its intention to seek a renewal of the sub-lease.  In its view, the applicant lost the opportunity to seek a renewal, and there is therefore, no dispute to warrant arbitration proceedings.  Secondly, the respondent contends that arbitration as a dispute resolution forum is optional under Clause 18 of the sublease and as such, the applicant is not entitled to an order referring these matters to arbitration.  Third, the respondent contends that there is no arbitral dispute to warrant stay of proceedings in the present suit.

Determination

9. Before I pronounce myself on the key questions in the present application, I would like to make one important observation on the issue of jurisdiction of this court.  Both counsel did not submit on this issue. The application under consideration revolves around Sections 6 and 7 of the Arbitration Act.  The Act was enacted before the promulgation of the Constitution of Kenya 2010 and the enactment of the Environment & Land Court Act.  In the pre-2010 constitutional framework, the court contemplated under Sections 6 and 7 of the Arbitration Act was the high court.  The Constitution of Kenya 2010 redesigned and reconstructed the Judiciary of Kenya.  Jurisdiction over disputes relating to the environment and the use and occupation of and title to land is now vested in the environment and land court of Kenya.  Under Article 165(5) of the Constitution of Kenya 2010, the high court is divested of jurisdiction in respect of matters reserved for the environment and land court of Kenya. Under Section 33 of the Sixth Schedule to the Constitution of Kenya 2010, this court is the legal successor institution to the pre 2010 high court of Kenya in all matters relating to the environment and the use and occupation of and title to land. On account of the foregoing constitutional and legal framework, I am satisfied that this court has jurisdiction to entertain the present application.

10. Both counsel made insightful submissions and cited numerous case law in support of their rival positions. I have carefully considered the cited authorities. I have also carefully applied my mind to the prevailing constitutional and statutory framework on arbitration in Kenya.  Similarly, I have examined the tenor and import of the applicable international legal framework and local and comparative international jurisprudence on the questions which this Ruling seeks to answer.

11. The present Application raises the following four broad questions to be answered:

a. Whether there is a dispute to warrant the invocation of the arbitration clause.

a. Whether the plaintiff/respondent is bound to submit to the arbitration proceedings initiated by the applicant.

c. Whether the proceedings herein should be stayed pending arbitration.

d. Whether, in the circumstances of this case, interim protective measures should be granted to the applicant within the legal framework in Section 7 of the Arbitration Act.

12. The Constitution of Kenya 2010 at Article 159 recongizes arbitration as one of the alternative forms of dispute resolution. Second, promotion of arbitration is one of the principles that guide Kenyan courts when exercising judicial authority.  Third, under Article 2(5) of the Constitution of Kenya 2010, the general rules of international law form part of the law of Kenya.  Fourth, under Article 2(6) of the Constitution of Kenya 2010, any treaty or convention ratified by Kenya forms part of the law of Kenya.

13. Kenya ratified the United Nations Commission on International Trade Law (UNCITRAL Model Law) which obligates courts to uphold the principle of party autonomy in resolving commercial disputes.  The essence of the principle of party autonomy is that, where parties to a contract have consensually and in unequivocal terms provided for the forum through which to resolve their disputes, the courts are obligated to give effect to that choice of dispute resolution forum. The Court of Appeal in Nyutu Agrovet Ltd Vs Airtel Networks Limited (2015) eKLR reaffirmed the supremacy of the principle of party autonomy in the resolution of commercial disputes in the following words:-

“Our Section 10 is based on the United Nations Model Law on arbitration and all countries who have ratified it recognize and enforce the autonomy of the arbitral process. Courts of law can only intervene in the specific areas stipulated in the Act and in most cases that intervention is usually supportive and not obstructive or usurpation oriented.  If the Kenyan courts refused to recognize this autonomy, we would become a pariah state and would be isolated internationally.”

14. The present application revolves around Clause 18. 3 of the sub-lease dated 3/12/2012. The clause provides as follows:-

“Save as herein otherwise specifically provided, any dispute, claim, controversy or disagreement between the parties as to matters arising under or pursuant to this lease as aforesaid which cannot be settled amicably within fifteen (15) days after receipt by one party of the other party’s request for such amicable settlement may be submitted by either party to arbitration in accordance with the provisions of Clause 18. 3 to 18. 10 (both inclusive)”.

I have, for reasons to emerge in the subsequent paragraphs of this Ruling, underlined certain words in the above clause. Clause 18 is what, in arbitration law, is called arbitration agreement.

15. The applicant (lessee) urges the court to stay the present proceedings and refer the dispute to arbitration.  The respondent opposes the application. The application is brought under Sections 6 and 7 of the Arbitration Act. Section 6 of the Arbitration Act provides as follow:

“Stay of legal proceedings

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.”

Section 7 of the Arbitration Act provides as follows:-

“Interim measures by court

2. It is not incompatible with an arbitration agreement for a party to request from the High Court, before or during arbitral proceedings, an interim measure of protection and for the High Court to grant that measure.

2. Where a party applies to the High Court for an injunction or other interim order and the arbitral tribunal has already ruled on any matter relevant to the application, the High Court shall treat the ruling or any finding of fact made in the course of the ruling as conclusive for the purposes of the application.”

I have underlined the word “shall” in Section 6 of the Arbitration Act to denote the obligatory nature of the framework. This obligatory nature of the legal framework is, in my view, in tandem with the philosophy underpinning the principle of party autonomy in determining the choice of dispute resolution forum in commercial disputes.

16. There is common ground that the material sub-lease contains an arbitration agreement.  What is contested is whether or not there is a dispute as contemplated in Clause 18(3) of the arbitration agreement.  Both the Concise Oxford English Dictionary [12th Edition] and Merriam Webster [online] Dictionary define dispute (noun) as a “disagreement or argument”.  Black’s Law Dictionary (9th Edition) defines “dispute” as “a conflict or controversy”.

17. In answering the question as to whether or not there is a dispute between the parties, one would ask: is there a disagreement/conflict/controversy between the parties in the three suits, arising from the material sub-lease?  I have carefully examined the statements of claim in the three suits.  In my view, the subject of Nairobi ELC 679/2016 and ELC 519/2016 both lodged by the plaintiff/respondent (lessor), are disputes within the meaning of Clause 18(3) of the sub-lease. The reason why the lessor seeks court intervention is that there are disagreements between parties to the sub-lease on the matters giving rise to the two suits.  If there were no disagreements, there would be no need for the respondent (lessor) to seek court intervention. Indeed, civil courts of law hear and determine disputes between litigants; they do not sit to hear and determine undisputed matters.  I do not agree with the contention that there is no dispute. Disagreement on whether or not, in the present circumstances, the applicant has forfeited its entitlement to a renewal of the sub-lease is a dispute to be resolved in the manner consensually agreed by the parties.

18. It is noteworthy that in their own wisdom, parties to the sub-lease opted for a broad scope of matters that are to be resolved through arbitration.  These matters were consensually identified as “any dispute, claim, controversy or disagreement between the parties as to matters arising under or pursuant to this lease”. In my view, “dispute” in Section 6(1) (b) of the Arbitration Act should be given the above broad meaning that the parties contemplated when they consensually drafted the arbitration agreement and identified arbitrable matters stipulated in Clause 18. 3 of the sub-lease.  The Lessor’s claim for injunction and damages, contained in ELC 679 of 2016, in my view, falls within the matters contemplated in the arbitration clause.  Similarly, the claim made by the lessor in the plaint dated 30/4/2014 in Nairobi ELC 519 of 2014 falls within the matters contemplated in the arbitration clause. In the same vein, a disagreement on whether or not the lessee has lost its entitlement to a renewal of the sub-lease under Clause 9 similarly falls within the broad scope of matters contemplated under Clause 18. 3 of the sub-lease.

19. The second question to be answered is whether the plaintiff is obliged to submit to the arbitration proceedings initiated by the applicant.  In opposing the present application, the respondent contends that arbitration as a dispute resolution forum is optional under Article 18. 3. The respondent argues that  the word “may” as used in Clause 18. 3 of the arbitration agreement is permissive and does not impose a mandatory obligation on the respondent to submit to the arbitration process initiated by the applicant.  My interpretation of Clause 18. 3 is that, it gives either party the discretion to elect to submit any arisen “dispute, claim, controversy or disagreement”to arbitration.  Once a party exercises that discretion and elects to initiate arbitration proceedings under Clause 18. 3 the responding party has no option but to submit itself to the jurisdiction of the arbitral tribunal.  The discretion to elect is available only to the party initiating arbitration proceedings. Once the claimant elects the arbitration forum, the responding party is obliged to accept the reference and submit to the jurisdiction of the arbitral tribunal within the framework set out in Clause 18.  In the present matters, arbitration proceedings were initiated by the lessor/applicant, Tamarind Management Limited. The lessor is obliged to submit to the arbitral tribunal established within the framework of Clause 18.  Failure to do so would constitute a default and the default is to be dealt with in accordance with the arbitration rules set out in the arbitration agreement.

20. The third question to be answered in this Ruling is whether to stay the present court proceedings pending arbitration. The Court of Appeal [Madan JA] in Esmailji Vs Mistry Shamji Lalji & Co (1980) eKLRlaid down the following guiding approach to be considered when faced with an application for stay pending arbitration:

“……..before the court will exercise its discretion and make an order staying the proceedings the applicant must satisfy the court not only he is, but also that he was at the commencement of the proceedings ready and willing to do everything necessary for the proper conduct of the arbitration.”

21. In Niazsons (K) Ltd Vs China Road & Bridges Corporation (Kenya) (200) eKLR, the Court of Appeal [Bosire JA] laid down the following guiding criteria to be applied before stay is granted.

“The court will then be obliged to consider three basic aspects. First, whether the applicant has taken any step in the proceedings other than the steps allowed by the said section.  Second, whether there are any legal impediments on the validity, operation or performance of the arbitration agreement.  Third, whether the suit indeed concerns a matter agreed to be referred”.

22. I have carefully analysed the annextures attached to the applicant’s affidavit, running from page 10 to page 33.  They are indicative that the applicant has been ready and willing to do everything necessary to facilitate proper conduct of the arbitration.  Apart from contending that there is no dispute to warrant arbitration, the respondent has not presented evidence of any impediment, statutory or otherwise, which would make the arbitration agreement invalid or inoperative.  It would defeat the purpose of arbitration if, having found that the matters in the three suits are subjects of arbitration, I refer the matters to arbitration and at the same time allow parallel proceedings to continue in this court.  I would therefore allow stay of these proceedings.

23. The last question to be answered is whether, in the circumstances, the applicant should be granted interim protection measures within the framework of Section 7 of the Arbitration Act.

24. In Safaricom Limited Vs Oceanic Beach Hotel Limited & 2 Others (2010) eKLR the Court of Appeal (Waki J) outlined the following approach to be applied when determining an application for interim measures of protection under Section 7 of the Arbitration Act:

“An interim measure of protection such as that sought in the matter before us is supposed to be issued by the court under Section 7 in support of the arbitral process not because it satisfies the civil procedure requirements for grant of an injunction……….. Under our system of the law on arbitration the essentials which the court must take into account before issuing the interim measures of protection are:-

1. the existence of an arbitration agreement

2. whether the subject matter of arbitration is under threat

3. in the special circumstances which is the appropriate measure of protection after an assessment of merits of the application

4. for what period must the measure be given especially if requested for before the commencement of the arbitration so as to avoid encroaching on the tribunal’s decision making power as intended by the parties”

25. The applicant seeks an interim injunction.  In the alternative, the applicant has asked for a status quo order.  I am alive to the fact that delving into the merits of any aspect of the dispute while considering this limb of the application could entail making a pronouncement on questions that fall within the jurisdiction of the arbitrator and could be prejudicial to either party.  I would refrain from delving deep into the merits of the parties positions on the disputes.  I nonetheless note that the sublease was to lapse by the effluxion of time sometime in 2016.  The lessee contends that he is entitled to a renewal of the sub-lease.  The lessor contends that the lessee lost the entitlement to a renewal. I have already stated that this is one of the issues to be determined by the arbitral tribunal. The three suits were commenced when the term of the sub-lease was still running.  The existing status quo order was made when the sub-lease was still running and has been subsequently extended from time to time pending the disposal of the present application. In my view, if the status quo is not maintained and ultimately the arbitral tribunal finds in favour of the lessee on the issue of renewal of the lease the findings of the arbitral tribunal would have been rendered nugatory because the subject matter of the arbitration may no longer be available.  The balance of convenience therefore favours maintenance of the existing status quo pending conclusion of arbitration.

Disposal

26. In light of the foregoing, I do make the following orders in disposing the Notice of Motion dated 29/6/2016, filed by Tamarind Management Limited in Nairobi ELC 679 of 2017, which is consolidated with Nairobi ELC 517 of 2014 and Nairobi ELC 519 of 2014.

a. All the disputes, claims, controversies and disagreements in Nairobi ELC Case No. 679 of 2016, Nairobi ELC Case No. 517 of 2014 and Nairobi ELC Case No. 519 of 2014 are hereby referred to arbitration within the framework of Clause 18. 3 of the sub lease dated 3/12/2012 between the parties in the three suits.

b. The court proceedings in Nairobi ELC Case No. 679 of 2016 consolidated with Nairobi ELC Case No. 517 of 2014 and Nairobi ELC Case No. 519 of 2014 are stayed pending the determination, through arbitration of all the disputes, claims, controversies and disagreements in the three consolidated suits.

c. The status quo presently prevailing between the parties shall be maintained pending the determination of the matters referred to arbitration.

d. There shall be no order as to costs of the Application.

Lastly, I thank both counsel, Mr. Wilfred Nyamu for the Respondent and Ms Kananu Mutea for the applicant, for their co-operation and insightful submissions.

Dated, signed and delivered at Nairobi on this 28th  day of July 2017.

B  M  EBOSO

JUDGE

In the presence of:-

……..………….……......….Advocate for the Plaintiff

….….………………………..Advocate for the Defendant

……...……………………….Court clerk