National Oil Corporation v Tinfra Engineering Limited [2022] KEHC 9864 (KLR)

National Oil Corporation v Tinfra Engineering Limited (Commercial Appeal 001 of 2020) [2022] KEHC 9864 (KLR) (Commercial and Tax) (14 July 2022) (Ruling)

Neutral citation: [2022] KEHC 9864 (KLR)

Republic of Kenya

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

Commercial and Tax

Commercial Appeal 001 of 2020

DAS Majanja, J

July 14, 2022

Between

National Oil Corporation

Appellant

and

Tinfra Engineering Limited

Respondent

(An Appeal from the arbitral award and decision of the Mr. Collins Namachanja, Sole Arbitrator, dated the 14th November 2019 in the matter of arbitration between Tinfra Engineering Limited And National Oil Corporation)

Ruling

1. This ruling is in respect to the Preliminary Objection dated 26th February 2020 lodged by the Respondent on the basis that this court lacks jurisdiction to entertain this appeal by virtue of the provisions of the Arbitration Act (“the Act”).

2. In order to resolve the Preliminary Objection, a brief summary of the facts is necessary. The Respondent (“Tinfra”) entered into a contract dated 1st September 2014 (“the Contract”) with the Appellant (“National Oil”) following a successful tender process for provision of Interior Design Fit out works. National Oil terminated the contract prompting Tinfra to initiate legal proceedings against it in Nairobi HCCC No. 425 of 2016. By consent of the parties, the court referred the matter to arbitration. Consequently, Mr Collins Namachanja (“the Arbitrator’’) was appointed as the Arbitrator on 4th May 2017 to handle the matter.

3. The Arbitrator heard the parties and delivered the award on 14th November 2019 (‘the Award’’) where he ordered National Oil to pay Tinfra KES 32,608,820. 11 within 30 days of the date of the Award failing which interest thereon would accrue at 12% per annum until payment in full. The Arbitrator also made orders for costs.

4. National Oil, being aggrieved by the Award, filed a Memorandum of Appeal dated 15th January 2020 seeking orders that the Appeal be allowed and Award be set aside and/or varied and substituted with an order dismissing Tinfra’s claim against it with costs.

5. Tinfra has filed a Notice of Preliminary Objection dated 26th February 2020, seeking to strike out the Appeal, which now forms the basis of this ruling, on the grounds summarized, as follows:(i)That the Court lacks jurisdiction to hear and determine the matter by reason of section 32A of the Act as the Award is final and binding on the parties.(ii)That the Court lacks jurisdiction in view of sections 10 and 39 of the Act as the arbitration agreement did not provide for an appeal against the arbitral award.(iii)Consequently, the Appeal is contrary to the provisions of the Act and the agreement of the parties.(iv)The appeal is therefore defective, frivolous, vexatious and an abuse of the court process.

6. In urging the court to allow the preliminary objection, Tinfra submits that under sections 10 and 32A of the Act, arbitration awards are final and binding and that court cannot intervene in matters of arbitration unless authorized by the Act. It cites the decision of the Supreme Court in Nyutu Agrovet Limited v Airtel Networks Kenya Limited; Chartered Institute of Arbitrators-Kenya Branch (Interested Party) SCK Pet No. 12 of 2016 [2019] eKLR. Tinfra contends that the only recourse against an award is under section 35 of the Act where the aggrieved party may apply to High Court to set it aside on the basis of the grounds stated therein. While it argues that appeal is based on section 39 of the Act, it submits that there is no agreement reserving the matter for appeal.

7. Tinfra points out that the Memorandum of Appeal filed by National Oil is premised on section 29(1) and (5) of the Act which states that the Arbitral Tribunal should decide a dispute based on the rules of law decided by the parties and the terms of the contract. It therefore argues that this section does not provide a ground for setting aside an award. It submits that the Appeal deals with the merits of the matter without demonstrating how the Arbitral tribunal erred in accordance to the rules chosen by the parties and the contract. It argues that the appeal pleads both facts and law and urges the court not to consider the merits of the award.

8. Tinfra urges the court to allow the preliminary objection and hold that it does not have jurisdiction over the appeal as National Oil has failed to apply the provisions of section 35(2) appropriately.

9. National Oil opposes the preliminary objection on four grounds. First, that while an arbitral award is final and binding, it is not immune to court process as aggrieved parties have a recourse to appeal. Second, that though the parties in the agreement had not expressly provided for an appeal, the right to appeal under section 39 of the Act was invoked and reserved at the commencement of the proceedings. It cites Synergy Industrial Credit Limited v Cape Holdings Limited SCK Pet No. 2 of 2017 [2019]eKLR where the court held that parties may by consent in the arbitral agreement or at commencement of the arbitration proceedings provide for an appeal. It further citesOsano Associates Limited v ICT Authority HC COMM No. 23 of 2019 [2020] eKLR and Kenyatta International Convention Centre v Congress Rental South Africa NRB CA Civil Appl. No. 231 of 2018 [2020] eKLR on reservation of the right of appeal.

10. Third, National Oil submits that reference to section 29(1) and (5) in its appeal is a typographical error and the same ought to read section 39(1) and (5) of the Act. It urged the court to invoke Article 159 of the Constitution and disregard the technicality and determine the appeal on its merits. Fourth, it submits that the appeal has satisfied the criteria for setting aside an arbitral award under section 39 of the Act which it invoked at the preliminary meeting with the arbitrator. In conclusion it maintains that the court has jurisdiction to determine the appeal.

11. In resolving the issue whether there is a right of appeal against an award, I think it is important appreciate the context of the matter in light of the Supreme Court decision in Nyutu Agrovet Limited v Airtel Networks Kenya Limited; Chartered Institute of Arbitrators-Kenya Branch (Interested Party) (Supra) where the court emphasized the consensual nature of arbitration and desire to exclude court intervention from interfering with the process of arbitration. It observed as follows:(52)We note in the above context that, the Arbitration Act, was introduced into our legal system to provide a quicker way of settling disputes which is distinct from the Court process. The Act was also formulated in line with internationally accepted principles and specifically the Model Law. With regard to the reason why some provisions of the Act speak to the finality of High Court decisions, the Hansard of the National Assembly during the debate on the Arbitration Act indicates that, “the time limits and the finality of the High Court decision on some procedural matters [was] to ensure that neither party frustrates the arbitration process [thus] giving arbitration advantage over the usual judicial process.” It was also reiterated that the limitation of the extent of the Courts’ interference was to ensure an, “expeditious and efficient way of handling commercial disputes.”(53)Similarly, the Model Law also advocates for “limiting and clearly defining Court involvement” in arbitration. This reasoning is informed by the fact that “parties to an arbitration agreement make a conscious decision to exclude court jurisdiction and prefer the finality and expediency of the arbitral process.” Thus, arbitration was intended as an alternative way of solving disputes in a manner that is expeditious, efficient and devoid of procedural technicalities. Indeed, our Constitution in Article 159(2)(c) acknowledges the place of arbitration in dispute settlement and urges all Courts to promote it. However, the arbitration process is not absolutely immune from the Court process, hence the present conundrum.

12. In order to preserve the autonomy of the parties to decide the manner of dispute resolution and to limit interference by the court with the arbitral process, section 10 of the Act provides that the courts should not intervene with matters governed by the Act except where it is otherwise provided in the Act. In regard to arbitral awards, the same position is emphasized in section 32A of the Act which states that, “Except as otherwise agreed by the parties, an arbitral award is final and binding upon the parties to it, and no recourse is available against the award otherwise than in the manner provided by this Act.”

13. The Act only provides for two avenues for recourse against an arbitral award; setting it aside under section 35 of the Act or lodging an appeal under section 39 of the Act. In filing this appeal, the National Oil has invoked the provisions of section 39 which provides:39. Questions of law arising in domestic arbitration(1)Where in the case of a domestic arbitration, the parties have agreed that—(a)an application by any party may be made to a court to determine any question of law arising in the course of the arbitration; or(b)an appeal by any party may be made to a court on any question of law arising out of the award, such application or appeal, as the case may be, may be made to the High Court.(2)On an application or appeal being made to it under subsection (1) the High Court shall—(a)determine the question of law arising;(b)confirm, vary or set aside the arbitral award or remit the matter to the arbitral tribunal for re-consideration or, where another arbitral tribunal has been appointed, to that arbitral tribunal for consideration.(3)Notwithstanding sections 10 and 35 an appeal shall lie to the Court of Appeal against a decision of the High Court under subsection (2)—(a)if the parties have so agreed that an appeal shall lie prior to the delivery of the arbitral award; or(b)the Court of Appeal, being of the opinion that a point of law of general importance is involved the determination of which will substantially affect the rights of one or more of the parties, grants leave to appeal, and on such appeal the Court of Appeal may exercise any of the powers which the High Court could have exercised under subsection (2).(4)An application or appeal under this section shall be made within the time limit and in the manner prescribed by the Rules of Court applicable, as the case may be, in the High Court or the Court of Appeal.(5)When an arbitral award has been varied on appeal under this section, the award so varied shall have effect as if it were the award of the arbitral tribunal concerned.

14. The right to move the court under section 39 aforesaid is contingent upon agreement by the parties. In Albatross Aviation Limited & another v Phoenix of East Africa Assurance Company Limited H COMM No. 1 of 2018 [2018] eKLR, the court affirmed that section 39 of the Act grants to the High Court jurisdiction to hear and determine appeals filed against arbitral awards on questions of law provided that the parties have agreed to this remedy. Such an agreement may be in the arbitration agreement or at the commencement of the arbitration proceedings as was held by the Supreme Court in Synergy Industrial Credit Limited v Cape Holdings Limited (Supra) that:[140]The appellant made heavy weather of Section 39 of the Arbitration Act. It is indeed true that, the said Section allows interventions by the courts on points of law arising in domestic arbitrations. But that intervention is permitted if, and only if, the parties, by consent, provide for it in their arbitral agreement or at commencement of the arbitration proceedings.

15. It is not in dispute that the arbitration clause in the Contract does not reserve the right to appeal but at the preliminary meeting held on 20th June 2017 before the Arbitrator the parties agreed that, “The Respondent reserves the right of appeal under section 39 of the Arbitration Act, 1995. ” The Directions given by the Arbitrator at the preliminary meeting are the terms and conditions that applied in determining the dispute which the parties were bound to follow in respect to the arbitration process. Since the parties reserved the right to appeal, this appeal is properly before this court. In KPMG East Africa Association and Another v Richard Boro Ndungu ML HCCA No. E007 of 2019 [2021] eKLR, the court held that notwithstanding that the parties had not agreed on a right of appeal in the arbitration clause, the arbitrator’s directions reserving the right were sufficient to support the right of recourse to the court by way of an appeal under section 39 of the Act.

16. In conclusion, I find and hold the parties reserved the right of appeal under the section 39 of the Act under the directions issued by the Arbitrator. I dismiss the preliminary objection with costs to the Appellant.

17. As the parties have filed submissions on the appeal, the judgment is now reserved.

DATED AND DELIVERED AT NAIROBI THIS 14TH DAY OF JULY 2022. D. S. MAJANJAJUDGECourt Assistant: Mr Michael OnyangoMs Muthee instructed by Muriu, Mungai and Company Advocates for the Appellant.Mr Odongo instructed by Garane and Somane Advocates for the Respondent.