Patel Kaltanji Premji & Company v Farm Engineering Industries Ltd [2021] KEHC 9450 (KLR)

REPUBLIC OF KENYA

IN THE HIGH COURT OF KENYA AT NAIROBI

MILIMANI COMMERCIAL & TAX DIVISION

MISC. APPL. NO. 270 OF 2018 & 349 of 2018 (CONSOLIDATED)

IN THE MATTER OF ENFORCEMENT OF AN ARBITRATION AWARD

BETWEEN

PATEL KALTANJI PREMJI & COMPANY....................................APPLICANT

AND

FARM ENGINEERING INDUSTRIES LTD................................RESPONDENT

RULING

By a Chamber Summons application dated 11th June 2018 and filed in court on 13th June 2018, pursuant to section 36 (1) of the Arbitration Act No. 4 of 1995 & Rules 6, 9 and 11 of the Arbitration rules 1997, the applicant sought orders;

a) That the arbitral award dated 19th February 2018 and issued by Mr. Charles J. Mwaura, Arbitrator and filed in this court be adopted and recognized by this court.

b) That leave be granted to the applicant to enforce the arbitral award dated 19th February 2018 as a decree of this Court inclusive of the sum of Ksh.552,500/- paid by the Applicant in satisfaction of the Respondent’s Arbitrator’s fees when the Respondent refused to make good its apportionment on legal fees.

c) The court directs that the costs of this application be borne by the Respondent.

The Application was based on grounds;

a) The Arbitrator delivered the Arbitral Award on 19th February 2018 awarding the Applicant a sum of Ksh.10,113,903 with interest at the rate of 14 ½ percent per annum.

b) The Applicant now seeks to enforce the Arbitral Award as a decree of this Court and further recover the sum of Ksh.552,520/- which amount was the Respondents apportionment towards the arbitrator’s fees.

In the supporting affidavit of Patel Kalyanji Premji the Applicant herein also trading as Patel Kalyanji Premji & Company. He averred that the Applicant and the Respondent signed an agreement for building works for the erection and completion of 4 Godowns, Conservancy Tank, Transformer switch and generator room on L.R. No. 25192/1 along Mombasa Road for the sum of Ksh.39,600,000/- phase one. Marked PKP-2 is a copy of the said agreement.

The Applicant averred that it was also awarded another contract dated 3rd February 2012 for the total sum of Ksh.100,000,000/- in phase two. Marked PKP-3 is a copy of the said contract.

A dispute arose, wherein the Respondent refused to make good the Applicant’s part of the bargain and the dispute was referred to the arbitration in accordance with Clause 45. 1 of the Agreement & Conditions of Contract for Building Works (1999Ed.)– published by the Joint Council of Kenya. Marked PKP-4 is a copy of the said Agreement.

Mr. Charles J. Mwaura was appointed by the President of the Architectural Association of Kenya on the 19th February 2016 to be the sole Arbitrator and both Respondent and the Applicant participated in the arbitral proceedings fully and admitted to the jurisdiction of the arbitral tribunal. Marked PKP-5 is a copy of the said letter of appointment.

The Applicant stated that on 19th February 2018 the Hon. Arbitrator notified all the parties that the Arbitrators Award was ready for collection and on payment of the sum of Ksh.1,105,000/- being the arbitrators legal fees. Marked PKP-6 is a copy of the said letter dated 19th February 2018.

The Applicant stated that on 21st March 2018 it paid Ksh.552,500/- to the arbitrator as its apportionment. Marked PKP-7 is a copy of the said forwarding letter dated 21st March 2018 and a copy of the cheque.

The Applicant waited upon the Respondent to make its payment to the Arbitrator so that the award could be released to both parties, albeit that did not happen. The Applicant also paid the Respondent portion of Ksh.552,500/-, obtained the Arbitrator’s award and through its Advocates on record forwarded the same to the Respondents advocates on the 7th of May 2018. Marked PKP-8 is a copy of the said letter dated 7th May 2018.

The award issued on 10th February 2018 awarded the Applicant the sum of Ksh.10,113,903/- with interest of 14 ½ per annum.

REPLYING AFFIDAVIT

The application is opposed vide an affidavit filed in court on 25th September 2018, sworn by Swarnjit Bhurji Director of the Respondent, and stated that the Arbitral Award deals with a dispute not contemplated by or falling within the terms of the reference to Arbitration and contains decisions on matters beyond the scope of the reference to Arbitration.

Further that, the Arbitrator had no jurisdiction to deal with the matters referenced for arbitration as there was no cause of action that necessitated arbitration there being no notice given to the Respondent of a dispute or difference within 90 days of occurrence or discovery of the matter or issue giving rise to the dispute as provided for under Clause 45. 3 of the Agreement and Conditions of Contract for Building Works as adopted into the contract through clause 2 of the executed specification for proposed for downs, showroom and flats by the parties herein and dated 26th November 2010 and another dated 6th February 2012.

The Respondent stated that Certificate No. 7 dated 22nd November 2011 for Ksh.500,000/- was due on 5th December 2011, 14 days after it was issued, Certificate number 19 dated 5th March 2015 of Ksh.4,500,000/- was due on 19th March 2015, 14 days after it was issued as provided for by the Agreement and Conditions of Contract for Building Works. Therefore, the dispute is time barred as no dispute arose within the stipulated 90 days period after the expiry of the 14 days period aforesaid. Marked SB-4 is Certificate number 7 dated 22nd November 2011 and certificate number 19 dated 5th March 2015.

The Respondent stated that the subject matter of the dispute is not capable of settlement by arbitration under the Laws of Kenya as the condition precedent for reference to arbitration under the arbitral agreement aforesaid was not satisfied. Therefore, the said arbitral award cannot be enforced whatsoever.

The Respondent stated that there was no certificate of practical completion issued by the Applicant and the decision by the Arbitrator in paragraph 26. 0 of the Award that final account by the Architect is conclusive evidence that works were properly done and completed in accordance to the terms of the contract is repugnant to the public policy in construction industry.

APPLICANT’S SUBMISSIONS

The Applicant in its submission relied on Section 36(1) of the Arbitration Act No. 4 of 1995 which provides;

“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”

It was the Applicants submission that, Section 37 of the Act, provides grounds for refusal of recognition or enforcement. The Act requires a party relying on the said section to file an application and furnish the court with proof of any of the grounds. The Respondent has not filed any application in court seeking refusal of recognition or enforcement of the Arbitral Award within the provisions of Section 37 of the Arbitration Act. A notice of motion application under Section 35 of the Arbitration Act did not see the light of the day because it was filed against the clear provisions of Section 35 (3) of the Arbitration Act.

Moreover, the Applicant sought inclusion of the sum of Kenya Shillings 552, 500/- paid to the Arbitrator in settlement of the Respondent’s portion of the Arbitrators fees. The Respondent refused to settle the Arbitrator’s fees and it was until the Applicant paid that, the Arbitral Award was released to the Applicant. Exhibit PKP-8 on the Applicants Supporting Affidavit is a letter dated 7th May 2018 from the Applicants advocates to the Respondent’s advocates demanding for payment as follows;

a) Ksh.10,113,903/= - Award

b) Ksh.552,500/=    - The Respondent apportionment paid to the Arbitrator as fees.

c) Ksh.122,209/=     - Accrued interest to date

d) Ksh.10,788,612 /= -Total sum now outstanding

In the case of Lalji Meghji Patel & Co. Limited vs Nature Green Holdings Limited [2017]eKLR. the Court stated;

“There are no grounds to vitiate the arbitral award as provided for under section 37 of the Arbitration Act. The objector Donald has not demonstrated that any of the grounds under section 37 do exist to persuade this court to refuse to recognize and enforce the arbitral award.”

In the case of Tanzania National Roads Agency vs Kudan Sigh Construction Limited Misc. Civil Application No. 171 of 2012 the Court held inter alia that:

“Recognition and enforcement of arbitral awards both domestic and foreign is automatic under the provisions of section 36 of the Arbitration Act. The conditions set under section 37 of the Act have not been met to warrant this court not to recognize and enforce the award.”

In the case of Kay Construction Co. Ltd vs Attorney General [2015]eKLR, Hon. Justice Ogollaruled;

“In view of the foregoing, this Court is of the view that the Respondent has not provided sufficient reasons to warrant this court to refuse to recognize and enforce the award dated 22nd February 2011.

In the upshot, I hereby allow the Applicant’s Chamber Summons dated 13th October 2014 and filed in Court on 14th October 2014 as prayed with costs in the cause.”

On costs the Applicant relied on the case of NBI HCCC NO. 191 of 2008 Orix Oil Limited vs Paul Kabeu [2014]eKLR, where the court stated;

“…costs follow the event, and the plaintiff being the successful party should ordinarily be awarded costs unless its conduct is such that it would be denied the costs or the successful issue was not attracting costs. None of these deviant factors are present in this case and the court would still have awarded costs to the Plaintiff, which I do.”

RESPONDENT’S SUBMISSIONS

The Respondent submitted that enforcement of an arbitral award is not automatic, it is subject to provisions of Section 37 of the Arbitration Act.

The Respondent submitted that the Applicant disregarded the proper arbitral procedure as provided in the agreement and the arbitral proceedings were in contravention of the agreement between the parties and as such, the Applicant’s Application ought to be dismissed and the arbitral award set aside.

Clause 45. 1 of the Agreement provided that: -

“In case any dispute or differences shall arise between the Employer or the Architect on his behalf and the Contractor, either during the progress or after the completion or abandonment of the works, such dispute shall be notified in writing by either party to the other with request to submit it to arbitration and to concur in the appointment of an Arbitrator within thirty days of the notice…”

Further, at Clause 45. 3 of the Agreement provided that: -

“provided that no arbitration proceedings shall be commenced on any dispute or difference where notice of a dispute or difference has not been given by the applying party within ninety days of the occurrence or discovery of the matter or issue giving rise to the dispute.”

Clause 45. 7 of the Agreement further provided that: -

“All other matters in dispute shall only be referred to arbitration after the practical completion or alleged practical completion of the works, or abandonment of the works, or termination of alleged termination of the contract, unless the Employer and the Contractor agree otherwise in writing.”

Therefore, there being no certificate of practical completion and the Applicant alleging that the work was duly completed, the subject matter of the arbitral proceedings was not capable of settlement by arbitration under the Laws of Kenya thus the arbitral award cannot be enforced whatsoever since the condition precedent for reference to arbitration under the arbitral Agreement aforesaid was not satisfied.

The Respondent submitted that the Applicant further disregarded the provisions of the Agreement sent a request for the appointment of an Arbitrator to the Architectural Association of Kenya prior to invoking any attempt to have the alleged dispute resolved amicably without the involvement of a third party as clearly stipulated under Clause 45. 4 of the Agreement, which states as follows;

“notwithstanding the issue of a notice as stated above, the Arbitration of such a dispute or difference shall not commence unless an attempt has in the first instance been made by the parties to settle such dispute or difference amicably without the assistance of third parties.”

It is evident that the Applicant maliciously disregarded the provisions of the Agreement a result of which it’s now desirous to enforce.

It was Respondent’s submission that parties are bound by their contract unless in cases of fraud, coercion or undue influence and the court has no business in re-writing the contractual terms. This was well captured in National Bank of Kenya Limited vs Pinaplastic Samkolit (K) Limited & Another (2001)eKLR, where the Court of Appeal succinctly put as follows;

“A court of law cannot re-write a contract between the parties. The parties are bound by the terms of their contract, unless coercion, fraud or undue influence are pleaded and proved. There was not the remotest suggestion of coercion, fraud or undue influence in regard to the terms of the charge.”

As was stated by Shah JA in the case of Fina Bank Limited vs Spares & Industries Limited (Civil Appeal No. 51 of 2000) (unreported:

“It is clear beyond peradventure that save for those special cases where equity might be prepared to relieve a party from a bad bargain, it is ordinarily no part of equity’s function to allow a party to escape from a bad bargain.”

It is imprudent, the arbitral award is contrary to public policy in the construction industry. The construction is governed by the Agreement which articulates the general conditions of contract for building works. Therefore, enforcing an award that was arrived at through disregard of the Agreement will be aiding an illegality.

DETERMINATION

The Court considered pleadings and submissions and the issue for determination is whether to recognize and enforce the Final Arbitral Award published on 19th February 2018 or not.

a) Section 36(3) of the Arbitration Act provides: -

"(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.”

The Applicant has complied with conditions set out in Section 36(3) of the Arbitration Act and furnished the court with the certified copies of the Final award dated 19th February 2018 and the Standard Form of Agreement and Condition of Contract for Building Works published by the Joint Building Council of Kenya that contains the original Arbitration agreement.

b) What is the effect of the ruling on the preliminary objection?

The application dated 6th August 2018 to set aside the Arbitral Award under Section 35 of Arbitration Act was dismissed under Section 35 (3) Arbitration Act vide Ruling on Preliminary Objection delivered on 27th September 2019.

One of the grounds upon which the Court may refuse recognition or enforcement of an Arbitral Award is where an application for the setting aside or suspension of an Arbitral Award has been made.

There is no provision in the Arbitration Act for extension of time, set out in Section 35(3) of the Arbitration Act therefore strict compliance with the timeline of 3 months is imperative, and comports well with the principle of finality in arbitration.

In the instant application for recognition and enforcement, the Respondent relied on Section 37 of Arbitration Act that provides;

(1)  The recognition or enforcement of an arbitral award, irrespective of the state in which it was made, may be refused only;

…………………………………………………………………………...

(a)    (iii) the party against whom the arbitral award is invoked was not given proper notice of the appointment of an arbitrator or of arbitral proceedings

………………………………………………………………………

(v) the composition of the arbitral tribunal or arbitral procedure was not in accordance with agreement of the parties or failing any agreement by parties, was not in accordance with the law of the state where arbitration took place

c) Whether the enforcement of the arbitral award should be set aside?

i)  Jurisdiction

The Respondent submitted that the Applicant disregarded the proper arbitral procedure in the agreement and the arbitral proceedings were in contravention of the agreement and the Arbitral award ought to be set aside. The provisions are provided as submitted, clause 45. 1, 45. 3, 45. 4 and 45. 7 of the Agreement and Conditions of Contract for Building Works.

The Respondent submitted that under Clause 45. 3 of the Agreement, the Applicant ought to have commenced arbitration proceedings within 90 days after the alleged dispute occurred on 5th December 2015 and 19th March 2015 for Certificate Numbers 7 & 19 respectively.

The Applicant referred the matter for arbitration before issuing a notice of the dispute within the stipulated 90days as agreed by parties. The Arbitrator lacked requisite jurisdiction to deal with the matter as there was no cause of action necessitating arbitration.

The Court has considered the impugned Clause of the Agreement that binds the Parties to the Contract. If no notice was issued, then the issue ought to have been raised at the onset of Arbitration proceedings. This court cannot receive or consider evidence not presented before the Arbitral Tribunal.

The Respondent ought to have challenged the issue on jurisdiction of the Arbitrator by raising it as a preliminary issue during the Arbitration proceedings as provided by Section 17 of the Arbitration Act. The Respondent’s participation in the arbitral proceedings without raising the issue of jurisdiction whether arbitral proceedings were premature as condition s precedent had not been complied with under the contract and/or whether there was a dispute for arbitration. The Arbitrator’s Ruling if any party was aggrieved would have been subject to an appeal in the High Court.

The Final Arbitral Award page 1-2 Clause 9. 0 confirms 1st meeting of 21st March 2016, both parties were present and represented by respective Legal Counsel. Page 4 Clause 14. 0, 2nd meeting was held on 7th June 2016 both Counsel were present and did not raise or question the Arbitrator’s appointment.

Since the question of jurisdiction was not raised during arbitration proceedings, the Respondent is deemed to have waived its right under Section 5 of Arbitration Act. The issue of jurisdiction having not been raised yet both parties participated in the arbitration proceedings, amounted to the parties submitting to the Arbitrator’s jurisdiction.  It ought to have been raised as soon as it was alleged during the arbitral proceedings in accordance with Section 17(2) (5) (6) Arbitration Act which provides that:

(2) A plea that the arbitral tribunal does not have jurisdiction shall be raised not later than the submission of the statement of defence, however, a party is not precluded from raising such a plea because he has appointed, or participated in the appointment of, an arbitrator

(5) The arbitral tribunal may rule on a plea referred to in subsections (2) and (3) either as a preliminary question or in an arbitration award on the merits.

(6) Where the arbitral tribunal rules as a preliminary question that it has jurisdiction, any party aggrieved by such ruling may apply to the High Court, within 30 days after having received notice of that ruling, to decide the matter

Hon. Gikonyo J. in Justus Nyang’aya v Ivory Consult Limited [2015] eKLR held:

“I have said this before and I will repeat it here, unless it is shown that the Arbitrator veered off the path cut out for him by the law as his jurisdiction; Courts of law should hesitate to interfere with the award on ground of jurisdiction which is raised for the first time before the National court. The issue of jurisdiction should be raised at earliest time possible before the arbitral tribunal and should be followed through by an appeal under Section 17 of the Arbitration Act, if a party feels so strongly about it. In all other cases, the national court should develop great deprecation against claims of lack of jurisdiction of the arbitrator being raised before them except in accordance with Section 17(6) of the Arbitration Act.”

The Respondent   objects to the Arbitration proceedings and Final Arbitral award on the basis that the Respondent filed to comply with conditions precedent set out in Clauses 45. 1.3. 4 & 7 of Agreement and Conditions of Contract for Building Works.The Respondent submitted that the Arbitrator lacked jurisdiction to deal with the matters referenced for arbitration as there was no cause of action that necessitated arbitration there being no notice given to the Respondent of a dispute or difference within 90 days of occurrence or discovery of the matter or issue giving rise to the dispute contrary to Clause 45. 3 of the Agreement.

The Final Award of 19th February 2018 at Pg 2 Clause 9. 0 confirms that pursuant to the Arbitrator’s letter to the parties to attend the Preliminary meeting on 21st March 2016, the parties were represented at the meeting by their respective advocates, the advocates on record.

At the Preliminary meeting, proof of existence of an Arbitral Clause in the Agreement was confirmed. Both parties admitted to the existence of a dispute which they indicated the dispute arose from works carried out by the Claimant and whose payment was in contention for various reasons.

At the 2nd meeting held on 7th June 2016 as shown at page 4 of Final Award Clause 14. 0, the Claimant presented the Statement of Claim and the Respondent’s Statement of Defence and Counterclaim was presented on 23rd May 2017. The Arbitrator encouraged parties to resolve their dispute amicably. On 3rd meeting of 28th August 2016 Respondent’s Counsel indicated they were to meet Claimant’s Counsel on 24th August 2016 with the aim of agreeing on the uncontested issues and at the same time give an offer for their consideration. On 27th September 2016 Respondent’s Counsel stated they did not reach amicable settlement.

The Respondent herein was part of and present during Arbitration proceedings, at no point was the issue of jurisdiction of the Arbitrator to arbitrate the matter was raised; either because the conditions precedent to arbitration were not complied with or that there was no dispute before the Arbitrator. The parties were allowed to amicably settle the dispute. To the contrary, the Claimant presented the dispute and Respondent the Counterclaim. Since the issue of jurisdiction was not raised during arbitration proceedings yet the Respondent participated in the Arbitration proceedings, this Court cannot delve into the issue of jurisdiction at this stage. From the foregoing, the argument by the Respondent on that front fails and is hereby rejected.

b) Public policy

The Respondent has alleged that the award is contrary to public policy. On the claim by the Respondent that the Arbitral award is against public policy its construed to mean that the same is inconsistent with the Constitution or any Kenyan Law or contrary to justice and morality. It is upon the party alleging the claim that should tender proof of such a claim as was considered in the case of

In the case of Christ for All Nations vs Apollo Insurance Co. Ltd (2002) EA 366;the court defined public policy as;

“although public policy is a most broad concept incapable of precise definition….. an award could be set aside under section 35 (2) (b) (ii) of the Arbitration Act as being inconsistent with the public policy of Kenya if it was shown that either it was:

a) Inconsistent with the constitution or other laws of Kenya, whether written or unwritten or

b) Inimical to the national interest of Kenya or

c) Contrary to justice and morality.”

The Respondent alleged that the arbitral award is contrary to public policy in the construction industry. The Construction Industry is governed by the standard Form Agreement which articulates the general conditions for building works. Therefore, enforcing an award that was arrived at through disregard of the Agreement will be aiding an illegality.

The terms of the Agreement and Conditions of Contract for Building Worksbind the contracting parties who execute the Agreement. If either of the parties fails to comply with either of its terms then that party is found liable for the Claimant’s claim. Similarly, in the instant case, if either party failed to comply with any of the provisions of the Agreement then the same ought to be raised before the parties’ choice of forum in dispute resolution which is arbitration. As earlier indicated these allegations are raised for the 1st time in Court whose role is limited under the Arbitration Act at this stage to exercise jurisdiction under Sections 35- 39 of Arbitration Act.The issue of jurisdiction ought to have been raised in arbitration proceedings. See Justus Nyang’aya v Ivory Consult Limited [2015] eKLR

Supra.

The above analysis clearly shows that the Respondent has failed to demonstrate that the award herein is contrary to the public policy of Kenya. This Court has not found that the subject matter of the dispute is not capable of settlement by arbitration under Laws of Kenya nor that the recognition or enforcement of the Arbitral award would be contrary to public policy of Kenya as envisaged under Section 37 (1) (b) of Arbitration Act.

The Arbitration Agreement provided for notice of dispute to be provided within 30 days and agreement of appointment of Arbitrator. The Final Award shows the parties participated in the Arbitration proceedings and were allowed to resolve the dispute amicably. Clause 45. 7 of the Agreement does not envisage Certificate of Practical Completion only but also alleged Practical Completion of works.

On the issue of reimbursement of Arbitration Fees paid to the Arbitrator on behalf of the Respondent, the Applicant furnished this Court with receipt marked PKP -5 & 6 of total of Ksh 1,205,000/- each party was to pay Ksh 552,500/- and the Applicant paid the total fees for both parties to the Arbitrator.

This was pursuant to the Arbitrator notification to parties on 19th February 2018 that the Arbitrator’s award was ready for collection upon payment of Ksh 1,105,000/- to be apportioned into Ksh 552,500 each. The letter is marked PKP-2

The Respondent made no reference or comment to this issue and it remains uncontroverted and ought to be paid.

DISPOSITION

1. The application of 13th June 2018 seeking to have the arbitral award dated 19th February 2018 issued by Mr Charles J. Mwaura, Arbitrator adopted and filed in this Court is hereby adopted recognized and is to be enforced by this Court.

2. The Applicant complied with Section 36 (3) of Arbitration Act

3. The Respondent failed to furnish proof that the Arbitral Award was/is contrary to Section 37 of Arbitration Act.

4. The Respondent shall reimburse the Applicant Ksh 552,500/- part of Arbitrator’s Fees the Applicant paid on Respondent’s behalf and obtained the Final Award.

DELIVERED DATED & SIGNED IN OPEN COURT ON 26TH JANUARY 2021. (VIRTUAL CONFERENCE)

M.W. MUIGAI

JUDGE

IN THE PRESENCE OF;

MS TARUS  H/B KIBET FOR APPLICANT

MS KIRUNDI H/B GITONGA FOR RESPONDENT

MS KIRUNDI:We pray for stay of execution of 30 days and typed proceedings.

Court: Stay of execution is granted for 30 days. Leave to appeal granted and the Respondent shall be provided with certified typed proceedings and Ruling of the court upon payment of requisite fees.

M.W. MUIGAI

JUDGE