National Hospital Insurance Fund Board v Jomec Limited [2023] KEHC 24878 (KLR)

National Hospital Insurance Fund Board v Jomec Limited (Miscellaneous Application E622 of 2022) [2023] KEHC 24878 (KLR) (Commercial and Tax) (6 November 2023) (Ruling)

Neutral citation: [2023] KEHC 24878 (KLR)

Republic of Kenya

In the High Court at Nairobi (Milimani Commercial Courts)

Commercial and Tax

Miscellaneous Application E622 of 2022

JWW Mong'are, J

November 6, 2023

Between

National Hospital Insurance Fund Board

Applicant

and

Jomec Limited

Respondent

Ruling

1. On August 31, 2022 the Applicant, the National Hospital Insurance Fund Board (hereinafter referred to as “the NHIF”), moved to court by a Notice of Motion Application filed under section 35 of the Arbitration Act, the Arbitration Rules, the Constitution of Kenya and Under order 51 rule 1 of the Civil Procedure Rules seeking the following orders:-1. Spent2. Spent3. That this Honourable Court be pleased to set aside the Arbitral Award published by the sole arbitrator, Mr. James Muruthi Kihara, served upon the Applicant on 31st May 2022. 4.That costs of the Application be provided for.

2. The Application was supported by the grounds set on its face and the supporting affidavit of Janet Boit, the acting Corporation Secretary of the Applicant. Upon being served with the application, the Respondent filed grounds of opposition dated 15th September 2022 and a Replying affidavit sworn by John Michael Njenga Mututho, the Managing Director of the Respondent.

3. During the period before this application was determined the Respondent, Jomec Limited (hereinafter referred to as “JOMEC”), on 2nd May 2023 similarly moved the court by a Notice of Motion Application filed under section 36 of the Arbitration Act, rules 4(1) & (2), rule 9 and 11 of the Arbitration Rules, section 1A, 1B and 3A of the Civil Procedure Act, seeking the following orders:-1. Spent2. Spent3. That the Arbitral Award by the Sole Arbitrator, Mr. James Muruthi Kihara dated 3rd March 2022 including the award on costs dated 4th October 2022 be and is hereby recognized as binding and adopted as a judgment of this court.

4. That the rate of 14% from 19th February 2019 as ordered by the sole arbitrator, Mr. James Muruthi Kihara be applied on the principal award of 3rd March 2022.

5. That interest rate of 14% from 4th October 2022 as ordered by the sole arbitrator, Mr. James Muruthi Kihara be applied on the award of costs from of 4th October 2022.

4. The application is supported by the grounds set on its face and the supporting affidavit of John Michael Njenga Mututho, the Managing Director of Jomec. Upon being served with the application by Jomec, the Applicant, NHIF informed the court that it would rely on its own application for setting aside the award filed on 31st August 2022.

5. Jomec was through Legal Notice Number 96 of 2017 gazetted to offer medical and specialized rehabilitative care and treatment in drug and substance abuse patients by NHIF to NHIF beneficiaries. Subsequently, the parties entered into five (5) separate contracts for these services. Under the said contracts, Jomec would treat the patient and bill NHIF on a rolling basis and NHIF was expected to settle the invoices as per the terms of the said contracts. Over time, NHIF declined to settle some claims and in 2019 a dispute arose and the same was referred to arbitration in line with provisions of the contracts thereto. Both parties voluntarily submitted themselves to arbitration in accordance with the terms of the contracts.

6. The arbitration proceeded and by consent of the parties, an independent expert was engaged to examine the receipts and invoices and analyze the same and summarize for purposes of the proceedings. Both parties agreed on the terms of engagement of the expert and each party paid its share of the expert’s fees. Upon conclusion of the exercise, the report was produced and handed over to the sole arbitrator who proceeded to make a determination of the claim in favour of Jomec as follows:-i.The claimant is awarded Kshs. 182,056,000. 00/-.ii.The Claimant is awarded interest at the rate of 14% from 19th February 2019 until payment in full.iii.Costs to be apportioned after submissions on the same.

Analysis and Determination 7. I have considered the pleadings filed by the parties in this matter and the written and oral submissions made subsequent thereto before me. I note that It is common ground that parties entered into five (5) separate contracts for provision of various medical interventions to the beneficiaries of the NHIF Fund and that various claims were settled along the way. However, both parties agree that arising from the said contracts, some disputes arose and in line with Clause 2. 24 of the said contracts this matter was referred to arbitration.

8. I note from the outset that there is no dispute to the existence of an arbitration clause in this matter. I further note that both parties submitted themselves voluntarily to the arbitration process in line with Clause 2. 24 the contracts. To my mind, for enforcement of an arbitral award(s), the operative sections is sections 36 and 37 of the Arbitration Act. Under section 32(A) of the Act an Arbitral Award is final and binding upon the parties and no recourse is available against the award otherwise than in the manner provided by the Act. The High Court under section 36 has the power to recognize and enforce domestic arbitral award on the following terms:-“S.36(1)A domestic arbitral award, shall be recognized as binding and, upon application in writing to the High Court, shall be enforced subject to this section and section 37(2)…(3)Unless the High Court otherwise orders, the party relying on an arbitral award or applying for its enforcement must furnish(a)the original arbitral award or a duly certified copy of it; and(b)the original arbitration agreement or a duly certified copy of it.(4)……(5)……

13. Section 37 of the Act, on the other hand, provides for grounds upon which the High Court may decline to recognize and/or enforce and arbitral award at the request of the party against whom it is to be enforced. It provides as follows;S. 37. The recognition or enforcement of an arbitral award, irrespective of the state in which it was made, may be refused only—(a)At the request of the party against whom it is invoked, if that party furnishes the High Court proof that;(i)a party to the arbitration agreement was under some in capacity; or(ii)The arbitration agreement is not valid under the law to which the parties have subjected it or, failing any indication of that law, under the law of the state where the arbitral award was made;(iii)The party against whom the arbitral award is invoked was not given proper notice of the appointment of an arbitrator or of the arbitral proceedings or was otherwise unable to present his case; or(iv)The arbitral award deals with a dispute not contemplated by or not falling within the terms of the reference to arbitration, or it contains decisions on matters beyond the scope of the reference to arbitration, provided that if the decision on matters referred to arbitration can be separated from those not so referred, that part of the arbitral award which contains decisions on matters referred to arbitration may be recognized and enforced; or(v)The composition of the arbitral tribunal or the arbitral procedure was not in accordance with the agreement of the parties or, failing any agreement by the parties, was not in accordance with the law of the state where the arbitration took place; or(vi)The arbitral award has not yet become binding on the parties or has been set aside or suspended by a court of the state in which or under the law of which, that arbitral award was made; or(vii)The making of the arbitral awards was induced or affected by fraud, bribery, corruption or undue influence;(b)If the High Court finds that;(i)The subject matter of the dispute is not capable of settlement by arbitration under the law of Kenya or(ii)The recognition or enforcement of the arbitral award would be contrary to the public policy of Kenya. [Emphasis mine]

14. I am satisfied therefore that the Applicant has met the pre-condition for enforcement of the award as it has provided that certified copies of the Contracts which contain the arbitration clause and a certified copy of the arbitral award(s). Since the Applicant has established a case for recognition and enforcement of the Final Award, the burden is on the Respondent to demonstrate that the court should not recognise the award based on the circumstances set out in Section 37 of the Act.

15. In their application filed on 31st May 2022, NHIF urges the court to find that the award by the Arbitrator is against public policy in that it goes against the tenets of the NHIFAct, the statute that establishes and sets out the operations of the NHIF Board. NHIF further argues that the arbitral tribunal in its determination failed to consider that the contractual relationship created by the 5 contracts was subservient to the NHIFAct which mandated the NHIF Board to investigate and inspect claims presented to it by its service providers before approving payments to the same.

16. In its grounds supporting the said application, NHIF objected to the engagement by the arbitral tribunal of CPA Joseph Ndambiri Mugo to synthesis the voluminous documents in support of the claims in the contract and make an audit report which the arbitrator relied upon in making its findings on the amount owed to JOMEC by NHIF. NHIF argued that the said reliance on the Audit Report was contrary to the NHIFAct and the Regulations made thereunder, which provide clear guidelines of who the beneficiaries are and how and when they should benefit from the Fund. NHIF therefore urged the court to find the award as issued by the Arbitrator could not be enforced or adopted in Kenya as the same was contra-statute and was against the express provisions of the law as well as the contracts between the parties.

17. The response to this application by Jomec was by way of a replying affidavit sworn by John Michael Njenga Mututho sworn on 15th September 2022. Jomec argued that the application was frivolous, vague, speculative, misconceived and an abuse of the court process. Jomec further argued that despite NHIF arguing that the award was contra-statute, the NHIF did not cite any specific provisions of the NHIFAct that was contravened by the award or the arbitrator in making of the Award. That its attempt to reject the audit report by James Ndambiri Mugo was in itself an afterthought since NHIF participated in the setting out of the Terms of Reference of the Auditor and actively participated in the audit exercise. In preparation of the Audit report, NHIF participation included availing the documents for examination which included payment invoices and bank statements, contracts and arbitration pleadings to the accountant. At no particular time during the arbitral proceedings did the NHIF take any issue or raise an objection in how the accountant conducted himself and even voluntarily paid its share of the accountant’s fees of Kshs.100,000. 00/-, allowing the admission into the arbitral proceedings of the audit report by the Arbitrator. JOMEC urged the court to find that this application by the NHIF was an afterthought and an attempt to derail the arbitral process and dismiss the same.

18. On 2nd May 2023 during the pendency of this application, JOMEC moved the court to recognize and enforce the final award issued on 3rd March 2022 and the award on costs issued on 4th October 2022. I have considered the rival positions taken by the parties in the application for setting aside filed on 31st August 2022. The issue that the NHIF sought to rely on, in urging the court to set aside the award was that it went against the provisions of the NHIFAct which gives the NHIF Board powers to determine claims that are payable and those that are not. This, they argue, goes against the laws of Kenya and the court should find that the award is against public policy.

19. The term public policy has not been defined in the Arbitration Act. The Unicitral Model Law under Article V(2)(b) of the New York Convention provides that recognition and enforcement of an award “may also be refused” if “recognition and enforcement of the award would be contrary to public policy”. The New York Convention has also not offered a definition of what public policy entails. However, the International Law Association (“ILA”) adopted a resolution in April 2002 on the interpretation of public policy, stating that [t]he expression“international public policy” is used in these Recommendations to designate the body of principles and rules recognized by a State, which, by their nature, may bar the recognition or enforcement of an arbitral award rendered in the context of international commercial arbitration when recognition or enforcement of said award would entail their violation on account either of the procedure pursuant to which it was rendered (procedural international public policy) or of its contents (substantive international public policy).”

20. In Kenya, courts have attempted to define what may constitute public policy in respect to arbitral awards. Retired Justice Ringera in Christ for All Nations v. Apollo Insurance Company Limited, summed up ‘public policy’ as follows” That public policy is a most broad concept incapable of precise definition’, and he likened it to ‘an unruly horse’ that ‘once one got astride of it you never know where it will carry you’. The Court was of the view that an award that is inconsistent with the public policy of Kenya is one that is inconsistent with the Constitution or other laws of Kenya, inimical to the national interests of Kenya (including interests of national defence, security, good diplomatic relations with friendly nations and the economic prosperity of Kenya), and contrary to justice and morality (including corruption, fraud or an award founded on a contract that is contrary to public morals).

21. I have considered this issue in light of the above observation by the Hon. Justice Ringera(RTD) and I note that what is disputed by the Respondent is matter that falls within the purview of the arbitrator. I note that the same was properly adjudicated and the arbitrator, as was expected of him, made a determination on the issue. To my mind, a matter cannot be deemed to be against public policy if one side of a dispute has been declared unsuccessful. It must be something that stands against the agreed tenets of written law or the constitution. As the learned Judge stated:“In order for this court to set aside the award for contravening public policy, the Applicant must point at an illegality on the part of the arbitrator. The Applicant needs to show that the arbitration is so obnoxious to the tenets of justice that the only way to salvage the reputation of arbitration is to set aside the award. This court has no appellate jurisdiction over the arbitral award. It is therefore immaterial that this court would have arrived at a different conclusion from that reached by the arbitrator.”

22. Again in Glencore Grain Ltd versus TSS Grain Millers Ltd. [2002] 1 KLR 606, the Court considered public policy as:-“A contract or arbitral award will be against the public policy of Kenya in my view if it is immoral or illegal or that it would violate in clear unacceptable manner basic legal and/or moral principles or values in the Kenyan society. It has been held that the word “illegal” here would hold a wider meaning than just “against the law”. It would include contracts or contractual acts or awards which would offend conceptions of our justice in such a manner that enforcement thereof would stand to be offensive.”In the matter before me, I find that nothing has been demonstrated that would amount to a violation of the Constitution or even the NHIFAct as argued.

23. As with every litigation, there will always be losers and winners. The issues raised stated above were issues that if properly raised within the arbitration process, could have been properly determined by the Arbitrator. The Respondent had opportunity in my view, to have the same addressed since he was fully engaged in the arbitration process and willingly participated in the arbitral proceedings from the beginning to the end, regularly paying its shares of the Arbitrator’s fees until the Final Award was issued.

24. Both parties were ably represented in the bargain; both had legal capacity; both accepted the appointment of the Arbitrator; both willingly participated in the arbitral proceedings and both exercised their rights to be heard, without restraint or hindrance. I am therefore persuaded that the final award as issued by Mr. James Muruthi Kihara, served upon the Applicant on 3rd March 2022 is neither contra-statute as argued nor does it offend public policy as alleged by the applicant. I find therefore that the application filed by NHIF on 31st August 2022 is without merit and I will dismiss the same. This therefore leaves the application filed by Jomec on 2nd May 2023 seeking to recognize and enforce the final award issued on 3rd March 2022 and the Award on costs issued 4th October 2022 as a judgment and decree of this court. Having dismissed the application filed by NHIF seeking to set aside the said award, I find that the said application meets the tenets of the Arbitration Act under Section 36 and I shall allow it.

25. Costs follow the event. Jomec limited have been successful in challenging the application filed by NHIF to set aside the Arbitral Award. Costs of the application dated 31st August 2022 are awarded to JOMEC, the Respondent in the said application. Each party will however meet their costs of the Application of 2nd May 2023 filed by JOMEC.

DATED, SIGNED AND DELIVERED VIRTUALLY AT NAIROBI THIS 6TH DAY OF NOVEMBER 2023………………………………..J. W. W. MONG’AREJUDGEIn the Presence of:-Mr. Walubengo Waningilo for the NHIF.Mr. Wachira & Mr. Busiega for the Jomec.Amos - Court Assistant