South Eastern Kenya University v Geokarma Construction Ltd [2022] KEHC 2457 (KLR)

REPUBLIC OF KENYA

IN TH HIGH COURT OF KENYA

AT KITUI

HIGH COURT CIVIL APPEAL NO. 32 OF 2019

SOUTH EASTERN KENYA UNIVERSITY.....APPELLANT

-VERSUS-

GEOKARMA CONSTRUCTION LTD..........RESPONDENT

Being an appeal from the decision of the Chief Magistrate’s Court in Civil Case No. 411 of 2018 at Kitui.

J U D G E M E N T

1. This appeal is interlocutory in nature and it arose from a ruling of Hon. S. Mbungi – Chief Magistrate in Kitui Chief Magistrate’s Court Civil Case No. 411 of 2018. The ruling itself arose from an application made by the appellant herein who had sought the following orders at the trial court namely: -

i. That the matter be referred to arbitration.

ii. That there be a stay of further proceedings in the suit to abide by the arbitral award.

iii. That the costs of this application be proved.

2. The trial court entertained the application and proceeded to dismiss it stating that the appellant had not proved existence of a dispute between the parties and that the appellant was in breach of clause 38 of the contract between it and the respondent.

3. The appellant felt aggrieved by the said ruling and lodged this appeal raising the following grounds namely;

a. The Learned Magistrate erred in fact and law by holding that the Defendant bore a burden of prove and that it had not proved existence of a dispute.

b. The Learned Magistrate erred in fact and law by holding that Section 6 of the Arbitration Act was not applicable in the circumstances of the case.

c. The Learned Magistrate erred in fact and law in holding that the Appellant was in breach of clause 38 of the agreement between the parties.

4. The appellant through its written submissions made through Counsel and dated 11th August 2021 contends that the trial court fell into error when it held that Section 6 of the Arbitration Actwas not applicable to their case. According to the appellant there was a dispute and the mere fact that he had filed a defence to the respondent’s claim showed that there was a dispute.

The appellant further submits that the Respondent failed to invoke the dispute resolution mechanism by stating that it was going to file a suit against the Appellant in its demand letter. It submits that parties had agreed to resolve disputes relating to their contract vide arbitration and it was up to the court to respect the wish of the parties.

5. The Appellant has also highlighted the case ofYes Housing Co-operative Society Ltd v Kenneth Onsare Maina (2020) eKLR  Kenya Pipeline Company Limited v Datalogix Limited (2007) eKLRand Dock Workers Union Limited v Messina Kenya Limited (2019) eKLR. The courts handling the matters discussed in their decisions the importance of respecting the wishes of contracting parties in situations where parties outline their preferred means of dispute resolution.

6. The Appellant further contends that the trial court erred in failing to address itself on whether the arbitration clause was valid and whether the dispute between them was one covered under the said clause. He has relied on the case of  Niazsons (K) Ltd vs China Road & Bridge Corporation Kenya (2001) eKLR

7. It has also relied on the cases ofTmax Building & General Contractors Limited vs Machakos County Government (2017) eKLR and TM AM Construction (Africa) v Attorney General (2001) eKLRin support of the submission that the Appellant had failed to establish that there was in-deed a dispute between the parties which could be subjected to arbitration.

8. The Respondent has opposed this appeal through written submissions dated 6th October 2021 made through learned counsel M/s Owuor Nyahanga & Associates Advocates. The respondent contests the appellant’s position that there was a dispute between them which would need to be referred to arbitration. It submits that the burden was on the appellant to prove that there was an existence of a dispute and has relied on the case ofUAP Provincial Insurance Company Ltd versus Michael John Beckett [2013] eKLRin support of contention that dispute was not established.

9. The Respondent further contends that the contract between the parties calls for resolution of any disputes through other alternative means such as reconciliation, mediation and adjudication before resulting to arbitration. It submits that referral of the subject matter to arbitration would be in breach of the construction contract.

10. This court has considered this appeal and the response made. The only issue emerging in this appeal is whether there was a dispute between the parties herein by dint of Section 6(1) of the Arbitration Actand if so whether the trial court should have referred the same to arbitration.

11. I will briefly go back to the dispute between the respondent and the appellant as placed before the trial court. There is general consensus between the parties in this appeal that the issue between them revolved around a contract titled ‘‘proposed construction and completion of Sports Facilities and Related Civil/Earth Works in South Eastern Kenya University Main Campus.’’ Dated 23rd January 2013. The respondent alleged breach of contract in its plaint dated 28th November, 2018 and sought judgement against the appellant. The subject matter of the suit was the said contract. The appellant in response filed an application through a Notice of Motion dated 9th January, 2019 sought to have the matter referred to arbitration for determination pursuant to Section 6 of the Arbitration Act. The trial court as observed above dismissed the bid by the appellant finding that the appellant had not established existence of a dispute to be referred for arbitration. The trial court further found that clause 38 of the contract provided alternative dispute resolution before arbitration clause could be invoked.

12. The provisions of Section 6 of Arbitration Act is therefore at the centre of this appeal. The section provides: -

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. 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.

13. The interpretation of the above provision shows that a party seeking stay of proceedings in matters relating to an arbitration agreement has to make the application at the same time of entering appearance or otherwise acknowledges the claim against which the claim is made. A court will grant a stay in proceedings unless it finds that the arbitration agreement is null, inoperative or incapable of being enforced or that there is in-fact no dispute between the parties for referral to arbitration.

14. Issuance of orders of stay is therefore not automatic. There is an obligation on the party seeking the orders to promptly move the court to considerations before a stays of proceedings is made.

15. On the first limb, the Appellant herein entered appearance on 17th December 2018 and filed its application dated 9th January 2019 on 10th January 2019. There was a delay. The application was not made promptly.

16. The Court of Appeal in Mt. Kenya University v Step Up Holding (K) Ltd [2018] eKLRinterpreted application of the above provision as follows;

“…We have construed section 6 of the Arbitration Act on our own and considered it in light of the case law highlighted above. We adopt the position taken by the Court in the above pronouncements as in our view; they represent a correct interpretation of the provision. Considering the above in light of the findings of the trial Judge, it is our finding that the trial Judge correctly exercised his discretion and properly appreciated both the facts and the law and arrived at the correct conclusion on the matter. We reiterate that in order to succeed, the law obligated the appellant to file the application seeking reference to arbitration simultaneously with the entry of appearance and thereafter take no further procedural steps in the matter…”

17. In Adrec Limited versus Nation Media Group Limited [2017] eKLR,the court added that:

“Any party who wishes to take advantage of the arbitration clause in a contract should either at the time of entering appearance or before the entry of appearance make the application for reference to arbitration”

18. In this instance, it is quite evident that the appellant failed to file its application together with the Entry of Appearance. There was some delay notwithstanding the fact that time does not usually ran from 21st December to 13th January the following year going by the provisions of Order 50 Rule 4 of the Civil Procedure Rules. The appellant should have filed its application by 21st December 2018.

19. The trial court also held that the appellant was required to prove existence of a dispute to invoke Section 6 of Arbitration Act. The trial court was required to investigate from the pleadings placed before it and determine whether it was lawful to refer the matter for arbitration. The court could decline only if it found the contract between the parties to be void, illegal or incapable of being enforced or if there was no dispute capable of being referred to arbitration.

20. The evidence placed before the trial court shows that the Respondent herein, sent a demand letter to the appellant on 24th July 2018. The appellant responded to the demand by sending a holding response dated 21st September 2018, stating that the advocates was seeking instructions. The appellant did not accept or deny liability at stage but it is important to rule that the demand basically revolved around payments. The Respondents alleged in its claim that it had raised payment certificates which were yet to be settled by the appellant. The parties herein were parties to the contract signed between them and in that contract they anticipated a process to follow in the event of a dispute under clause 37 & 38 of the contract.

21. In my view nonpayment of dues payable to the Respondent can only amount to a dispute if payments are denied or where the other party alleges non fulfilment of a condition or obligation under the contract. Clause 38. 1 of the contract makes reference to arbitration of any dispute or a difference which arises between the parties. The Respondent as observed above raised demand letter dated 24th July, 2018 pointing out some payment certificates were due for payments.

The appellant through its advocates wrote a letter dated 21. 09. 2018 acknowledging receipt of demand letter but apart from stating that it was awaiting instructions from the respondent they were non-committal on admission of liability or rebuttal.

22. The Respondent then filed suit on 4. 12. 2018. The appellant as observed filed its memorandum of appearance on 17th December 2018 and only filed the application for arbitration on 10th January, 2019. There was some delay whichever way looks at it but what is significant is that the appellant made no attempt to give any explanation to explain the delay.

23. The requirements under Section 6(1) of the Arbitration Act that requires an application to be referred for arbitration to be made promptly was aimed at curing some mischief in my view was to prevent parties abusing the process of arbitration as a ploy to cause unnecessary delay to dispensation of justice. In this matter the appellant has given no reasons for the delay. In the case of Mt. Kenya University versus Step Up Holding(K) Ltd supramade reference to the case of Niazsons (K) Ltd vs China Road & Bridge Corporation Kenya (2001) KLR 12;

“All that an applicant for a stay of proceedings under section 6 (1) of the Arbitration Act of 1995 is obliged to do is to bring his application promptly. The court will then be obligated to consider the threshold things:

a. Whether the applicant has taken any step in the proceedings other than the steps allowed by the section;

b. Whether there are any legal impediments on the validity, operation or performance of the arbitration agreement; and

c. Whether the suit intended concerned a matter agreed to be referred to arbitration”

24. The second and the most important issue here is whether going per the pleadings filed in the lower court or even at this appellate stage, there was a dispute capable of being referred to arbitration. To put it in a better perspective, does the appellant deny being indebted to the respondent? Has it shown in any way that it disputes the figures the respondent claims it owes it?

The answers to this question are in the negative. In Timase Building & General Contractors Ltd versus Machakos County Government [2017] eKLR the court made the following observations which I find relevant to the issue at hand here;

‘‘As regards the second issue a perusal of the contents of the Replying Affidavit of the Respondent and annexures shows that indeed the Respondent had already performed the works and had been issued with payment Certificates and was only awaiting settlement of its dues.  Since the Respondent has shown that it had carried out its part of the bargain and is now awaiting payment, I find there is no dispute between the parties.  In fact, the Applicant had already signed and issued out payment Certificates to the Respondent thereby implying that the Applicant had been satisfied with the Respondent’s performance.  There is no evidence that the Applicant renounced the payment certificates or recalled them for cancellation.  Indeed, videClause 37(3)the Applicant was under obligation to issue a notice of 90 days to the Respondent upon discovering that there were issues raising a dispute.  The Applicant has carefully avoided this Clause and only dwelt onClause 37(1)of the agreement.  I am therefore convinced that the present suit is purely for the enforcement of the settlement as the Respondent is merely pursuing its right to payment after being issued with the payment Certificates by the Applicant.  Hence it is my considered view that there is no dispute between the parties capable of being referred to arbitration.  It is now clear that the Applicant’s Application is intended to delay the Respondent from realizing the fruits of its labour.  In any event this court will ensure that each party will be given their day in court to ventilate their issues.’’

25. In this instance, the respondent claims that the appellant was under obligation to pay the Respondent being the contractor the amount due. The appellant has not denied that fact. It did not take issue with the amount demanded either due to quality of work or any other excuse for not paying up. It is therefore difficult to fathom what the appellant contends that there existed a dispute on the amount owed. In my view the trial court was correct to find that there existed no dispute capable of being referred to arbitration. Where a dispute exists, a trial court is required to frame up the dispute and refer it to arbitration for resolution but in this instance what is there really to be referred to arbitration? There is none. So despite the existence of arbitration clause in the contract, there was no dispute to be referred there.

26. It is also important to make it clear that Alternative Dispute Resolution (ADR) Mechanism involves mediation, reconciliation or adjudication and clause 38. 1 of the contract between the appellant and Respondent should be viewed from that content. The appellant was required to explore Alternative Dispute Resolution before invoking the arbitration clause. The trial court was therefore spot on to find that the appellant was in breach of the said clause.

In sum, this court for the reasons aforesaid finds no merit in this appeal. The same is dismissed with costs to the Respondent.

DATED, SIGNED AND DELIVERED AT KITUI THIS 10TH DAY OF FEBRUARY, 2022

HON. JUSTICE R. K. LIMO

JUDGE