Lavington Shopping Complex Limited v Axis Real Estate Ltd & another [2022] KEHC 14578 (KLR) | Arbitrator Removal | Esheria

Lavington Shopping Complex Limited v Axis Real Estate Ltd & another [2022] KEHC 14578 (KLR)

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Lavington Shopping Complex Limited v Axis Real Estate Ltd & another (Miscellaneous Application E642 of 2021) [2022] KEHC 14578 (KLR) (Commercial and Tax) (13 October 2022) (Ruling)

Neutral citation: [2022] KEHC 14578 (KLR)

Republic of Kenya

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

Commercial and Tax

Miscellaneous Application E642 of 2021

WA Okwany, J

October 13, 2022

Between

Lavington Shopping Complex Limited

Applicant

and

Axis Real Estate Ltd

1st Respondent

Securkenya Group Ltd

2nd Respondent

Ruling

Introduction 1. The 2nd Respondent herein referred a dispute against the Applicant and the 1st Respondent to the Arbitral Tribunal for a Claim of KES. 8,892,739. 49 arising from a Guarding Service Contract dated 1st July, 2016. On 26/01/2021, the Tribunal issued an Order for Directions No. 3 setting out the timeline for the parties to file their pleadings. Accordingly, the 2nd Respondent filed and served its Statement of Claim dated 8/02/2021 and the 1st Respondent filed its Response to the Statement on 22/02/2021.

2. It is alleged that the Applicant initially refused to participate in the arbitral proceedings on the basis that it was not privy to the Guarding Service Contract. The Applicant however successfully applied to be enjoined in the proceedings whereupon it filed its Statement of Defence and Counterclaim that was premised upon a Property Management Agreement between it and the 1st Respondent.

3. In the course of the Arbitral proceedings, a disagreement arose between the parties over whether the two claims, founded on different contracts, ought to be merged and heard together or whether they ought to be heard separately.

4. Through Order for Directions No. 16, the Tribunal outlined the issues arising out of the foregoing dispute and directed the parties to submit their comments thereto not later than 30/07/2021. Whereas the Respondents submitted their comments before the tribunal, the applicant did not submit any comments nor did it seek any extension of time for compliance.

5. the 2nd respondent raised an oral jurisdictional challenge on the basis that it was not party to the property management agreement between the Applicant and the 1st Respondent but later withdrew the challenge after which directions were issued that the disputes be determined as Dispute 1 (between the 2nd Respondent and the Applicant) and Dispute 2 (between the Applicant and 1st Respondent). The Arbitrator sought for additional costs on the basis of the two disputes. The said directions gave rise to the application that is the subject of this ruling.

Application 6. This ruling is in respect to the application dated 23rd August 2021 wherein the applicant seeks the following orders: -i.Spentii.That this Honourable Court be pleased to grant orders for the discharge and/or removal of the Arbitrator in the Arbitration proceedings between Securkenya Group Ltd vs Lavington Shopping Complex Ltd and Axis Real Estate Ltdiii.That the Honourable Court be pleased to order termination of the mandate of the Arbitrator and/or substitution of an Arbitrator.

7. The Application is supported by the Affidavit of the applicant’s advocate Ms Nancy Kangethe Ikinu and is premised on the main grounds that: -a.that the Arbitrator has failed to conduct the proceedings properly.b.that the Arbitrator has consistently made orders without granting the parties an opportunity to be heard and or a fair hearing.c.that the Tribunal has failed to consider the matters raised by the parties are intertwined and has unilaterally separated them as Dispute 1 and Dispute 2 and proceeded to demand exorbitant costs on account of determination of each of the Dispute while witnesses, documents and the process of hearing are the same.d.that the Applicant is being condemned to pay costs on account of raising a defence and notice of claim and the Tribunal did not disclose it was to charge separate fees if a claim was raised by the Applicant.e.that the Tribunal has chosen to split the matters so as to raise costs which are unreasonable, expensive as such the Applicant stands to incur heavy costs for hearing the matter by way of Arbitration where parties are the same, witnesses the same documents and evidence is the same.f.that the Tribunal has proceeded to unilaterally prepare issues for the parties and make decision on them without hearing the parties.g.that the Applicant raised an objection to the fees payable and the Tribunal unilaterally drafted issues from the objection raised without seeking the same from the parties in the first instance and proceeded to set timelines to respond to the issues without making any reference to the parties.h.that the Tribunal has sat as a judge of its own cause in regard to its fees and procedure.i.that the Tribunal has set a date for hearing on 14th September 2021 without due regard to the convenience of the Applicant.j.that the Tribunal has proceeded to fix a hearing date before all documents, witness statements, reply to defence and counterclaim are submitted and before pleadings close.k.that if the hearing proceeds on improper procedure, without agreement on fees disputes and procedure is determined then the Applicant is likely to be prejudiced without having the opportunity to be heard.l.that the tribunal has in writing shown its bias and prejudice towards the 2nd Respondent in its orders for directions.m.that as a result of the Tribunal’s conduct above, the Applicant seeks for the removal of the Arbitrator as he is in breach of the Chartered Institute of Arbitrators of Professional and Ethical Conduct for Members 2009 for failing to disclose beforehand and explain to the parties to the dispute resolution process the basis upon which fees and expenses shall be calculated and charged as well as its failure to conduct the proceedings properly.

8. The 1st Respondent did not participate in these proceedings and indicated that it did not wish to take any position on the matter.

9. The arbitrator was not enjoined in this matter but the applicant however indicated that it served him with the application. In this regard, the applicant filed an Affidavit of Service dated 23rd December 2021.

10. The 2nd respondent opposed the application through the Replying Affidavit sworn by Mr. Muhuyu Mwaniki Advocate and the Preliminary Objection dated 30th September, 2021 wherein it lists the following grounds: -i.The application contravenes the mandatory provisions of Rules 2 and 3 of the Arbitration Rules, 1997 which require that such proceedings be commenced by way of Chamber Summons in a suit.ii.The application is incompetent, fatally defective, otherwise an abuse of Court process contrary to the law for the reason that the Applicant's application is not founded on a fresh Suit/Plaint.iii.The application is unlawful, incompetent, fatally defective, otherwise an abuse of process and contrary to the law for the reason that it contravenes mandatory provisions of Section 14(2) of the Arbitration Act.iv.The application is non-compliant with the mandatory provisions of Section 14 (4) of Arbitration Act.

11. The 2nd respondent’s case was that it opposed the Tribunal's assumption of jurisdiction over the Property Management Agreement between the Applicant and the 1st Respondent and the Notice of Claim arising from the said Property Management Agreement on the basis that it expanded the Arbitrator's jurisdiction and convoluted the claim before the Arbitrator beyond what was presented in the 2nd Respondent's Statement of Claim.

12. The 2nd Respondent contended that the expansion of jurisdiction had the effect of increasing the number of hours that would have to be expended in the hearing and determination of its Claim as well as the costs to its detriment. The 2nd Respondent's maintained that it was not a party to the Property Management Agreement between Applicant and the 1st Respondent and that the introduction of the Applicant's Notice of Claim expanded the pecuniary jurisdiction of the Arbitrator as the Applicant sought an award of Kshs. 66,149,245. 00 compared to its claim of Kshs. 8,892,739. 49.

13. The 2nd respondent also noted that besides increasing the costs of resolving the dispute, the inclusion of the Applicant’s claim would delay its case which was already pending the issuance of a hearing date.

14. The 2nd respondent also took issue with the Applicant’s failure to enjoin the arbitrator in these proceedings so as to allow him an opportunity to respond to the allegations impugning his decisions and proceedings.

15. The 2nd respondent argued that the Applicant has not established any facts constituting bias or likelihood of bias on the part of the Arbitrator and/or any reasonable apprehension to impugn the arbitral proceedings. It adds that the Applicant' allegations are unjustified, in bad taste and are made without any reasonable cause.

16. The 2nd respondent stated that the instant application is an attempt to forum shop for an Arbitrator who will, agree with the Applicant’s quest to consolidate the two separate claims thus burdening the 2nd Respondent with the cost of hearing its Kshs. 66,149,245. 00 unduly.

17. It was further the applicant’s case that the instant Application is premature, an afterthought, incompetent and filed out of statutory timelines and that this Court lacks jurisdiction to entertain the application for the reason that:-a.The Applicant ought to have first raised the challenge herein before the Tribunal in line with Section 14(2) and (3) of the Arbitration Act before approaching this Court.b.The application runs afoul the express and mandatory provisions of Section 14(2) of the Arbitration Act as the application was filed on 31st August, 2021 yet the Applicant became of aware of the alleged bias on 12th August, 2021.

18. Parties canvassed the application by way of written submissions which I have considered. The main issues for determination are as follows:a.Whether the 2nd respondent’s preliminary objection regarding the competence of the application is merited.b.Whether the Applicant has established the grounds for the removal of the Arbitrator.

19. I will consider the preliminary objection first as its determination will have an impact on whether the court should consider the second issue of whether the grounds for removal of the arbitrator have been established.

Preliminary Objection 20. What amounts to a preliminary objection was discussed in the oft cited case of Mukisa Biscuits vs West End Manufacturing as follows: -“The first matter related to the increasing practice of raising points, which should be argued in the normal manner, quite improperly by way of preliminary objection. A preliminary objection is in the nature of what used to be a demurrer. It raises a pure point of law which is argued on the assumption that all facts pleaded by the other side are correct. It cannot be raised if any fact has to be ascertained or if what is sought is the exercise of judicial discretion. The improper raising of points by way of preliminary objection does nothing but unnecessarily increase costs and, on occasion confuse issues. This improper practice should stop.”

21. The 2nd Respondent submitted that the Application is premature, an afterthought and fatally and incurably defective for the reason that it contravenes the mandatory provisions of Rules 2 and 3 of the Arbitration Rules, 1997 (hereinafter “the Rules”) which require that such proceedings be commenced by way of Summons in a Suit. According to the 2nd respondent, the application is fatally defective as there is no substantive suit as all that the applicant filed is a miscellaneous application. For this argument, the applicant cited the Court of Appeal decision inScope Telematics International Sales Limited v Stoic Company Limited & another [2017] eKLRwherein it was held thus:-“The Judge in his determination held that the fact that the application was not anchored on a suit did not render it fatal so as to deny the 1st respondent the right to seek an interim relief. The Judge was of the view that in some instances a party could be allowed to file a miscellaneous application without the basis of a suit where such a party was not seeking to enforce any rights or obligations and where there was no action being enforced or tried like in the present case. The Judge relied on the case ofJoseph Kibowen Chemjor vs William C. Kisera [2013] eKLR where it was held that in some instances, the court would be asked to exercise its discretion on procedural issues, for example, when a party was seeking leave to institute quit out of time or leave to commence judicial review proceedings. In our view, that authority was inapplicable and clearly distinguishable in the circumstances of this case since it dealt with the filling of a miscellaneous applications, which is a form of initiating a suit that is permitted by the Civil Procedure Act, and the rules made there-under, more so where no procedure is provided. In the present case, a procedure is provided for, which is that the application be mounted upon a suit."It went on to add thus:-"It must be borne in mind that the substantive provision that the {{^}} 1st respondent invoked was Section 7 of the Act. The 1st respondent was seeking an interim measure of protection pending arbitration. The procedure applicable in such circumstances is clearly spelt out by Rule 2 of the Arbitration Rules, 1997. Suffice it to say, that the rule is couched in mandatory terms. Our jurisprudence reflects the position that where there is a clear procedure for the redress of any particular grievance prescribed by the Constitution or Statute, that procedure should be strictly followed (See Speaker of National Assembly vs. Njenga Karume [2008] 1 KLR425). The 1st respondent did not proffer any reason or excuse for its failure to premise its application upon a suit as was required by the rules. It however sought to rely on Article 159 of theConstitution for the proposition that justice is to be administered without undue regard to technicalities. That Article also provides that alternative forms of dispute resolution mechanisms like arbitration should be promoted by the courts. There are however many decided cases to the effect that Article 159 of the Constitution should not be seen as a panacea to cure all manner of indiscretions relating to procedure (See Nicholas Kiptoo Arap Korir Salat vs IEBC & 6 Others [2010] eKLR."Finally the Court of Appeal held that:-"The manner of initiating a suit cannot be termed as a mere case of technicality. It is the basis of jurisdiction. Obviously, in overlooking a statutory imperative and the above authorities, the learned Judge cannot be said to have exercised his discretion properly. There can be no other interpretation of Rule 2. The application should have been anchored on a suit. It was not about what prejudice the appellant or and 2nd respondent would suffer or what purpose the suit would have served. Discretion cannot be used to override a mandatory statutory provision. For these reasons, we are in agreement with the submissions of the appellant that the application was fatally and incurably defective."

22. In a rejoinder, the applicant submitted that Contrary to the claim that the Application contravenes the provisions of Rule 2 and Rule 3 (1) of the Arbitration Rules, the Application is premised on section 13 and 14 of the Arbitration Act which is silent on the nature of Application. The 2nd respondent added that should the court find that the application is not in the proper form the court should exercise its discretion to determine the substantive grounds of the application on merit as the same has a probability of success and that the 2nd Respondent has not demonstrated the prejudice that it would suffer if the Application is held to be valid. For this argument the applicant cited the decision inQad Software South Africa (Pty) Limited vs Rift Valley Railways Investments (Pty) Limited [2013] eKLRwhere court noted that the Constitution of Kenya at Article 159 (2) (d) thereof changed the whole essence of technicalities during litigation as it provides that "...justice shall be administered without undue regard to procedural technicalities...

23. A perusal of the application shows it is anchored under among others Section 7 and 15 of the Arbitration Act.Rules 2 and 3 of the Arbitration Rules provide that: -2. Applications under sections 6 and 7 of the Act shall be made by summons in the suit.(1)Applications under sections 12, 15 17, 18, 28 and 39 of the Act shall be made by originating summons made returnable for a fixed date before a Judge in chambers and shall be served on all parties at least fourteen days before the return date.(2)Any other application arising from an application made under subrule (1) shall be made by summons in the same cause and shall be served on all parties at least seven days before the hearing date."

24. A simple reading of the above provisions reveals that that the applicant herein was required to approach this court either by way of summons in a suit under Rule 2 or by originating summons under Rule 3(1) of the Arbitration Rules.

25. Guided by the decision by the Court of Appeal in the above cited case ofScope Telematics International Sales Limited (supra), I find that law is settled that the lapse in procedure by the applicant, in the circumstances of this case, is fatal and not curable.

26. Several courts, when faced with similar cases, have taken note of the fact that while strict compliance with the procedure provided for under Rules 2 and 3 of the Arbitration Rules may appear to be limiting and may require to be looked into, they are still bound by the decision of the Court of Appeal until such a time that the same shall be overturned by the said court. (See Civicon Limited vs Fuji Electric Co Limited & Another [20201 eKLR).

27. For the above reasons, I find that the 2nd respondent’s preliminary objection is merited and I therefore strike out the application dated 23rd August 2021 with costs to the respondents.

DATED, SIGNED AND DELIVERED VIRTUALLY AT NAIROBI THIS 13THDAY OF OCTOBER 2022. W. A. OKWANYJUDGEIn the presence of: -Ms Ngare for the applicant.Mr. Ngugi for Kabaiko for 1st Respondent.Mr. Muhuyu for 2nd Respondent.Court Assistant- Sylvia