Technoservice Ltd v Nokia Corporation [2023] KEHC 24258 (KLR) | Arbitration Agreements | Esheria

Technoservice Ltd v Nokia Corporation [2023] KEHC 24258 (KLR)

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Technoservice Ltd v Nokia Corporation (Arbitration Cause E103 of 2020) [2023] KEHC 24258 (KLR) (Commercial and Tax) (23 October 2023) (Ruling)

Neutral citation: [2023] KEHC 24258 (KLR)

Republic of Kenya

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

Commercial and Tax

Arbitration Cause E103 of 2020

FG Mugambi, J

October 23, 2023

Between

Technoservice Ltd

Plaintiff

and

Nokia Corporation

Defendant

Ruling

1. The applicant and the respondent entered into a Frame Repair Service (FRS) Agreement dated 5th August 2009 for the provision of after-sales services to the applicant's customers in Kenya on non-exclusive basis. Parties also signed a Nokia Original Accessory Partner (NOAP) Agreement dated 26th January 2012 by which the respondent was appointed non-exclusive distributor of Nokia Original Accessories in Kenya.

2. By way of clauses 22. 2 and 22. 3 of the FRS Agreement and clauses 25. 2 and 25. 3 of the NOAP Agreement, the parties agreed that any dispute, controversy, or claim arising out of or in connection with the respective agreements would be settled through arbitration in accordance with the rules of arbitration of the International Court of Arbitration of the International Chamber of Commerce (the ICC).

3. A dispute arose between the parties and the respondent initiated arbitration proceedings at the ICC on 26th March 2018. The dispute was not determined. The applicant submits that the claims were deemed as withdrawn in February 2020 apparently on account of failure to pay its (the respondent’s) share of the advance on costs to cover the costs and fees of the arbitral tribunal and the ICC.

4. The respondent then sued the applicant vide a plaint dated 16th April 2020 and amended on 10th November 2020 for breach of the agreements. The applicant entered appearance and contemporaneously filed the Chamber Summons application dated 25th September 2020 brought under section 6 of the Arbitration Act, I995, rule 2 of the Arbitration Rules, I997, Order 2, rule I5 (I)(d) of the Civil Procedure Rules; section IA, IB & 3A of the Civil Procedure Act, Cap 21 of the Laws of Kenya and Article I59 (I) (c) of the Constitution of Kenya.

5. The application seeks to stay the present proceedings and have the dispute between the parties referred to arbitration. In the alternative the applicant seeks to have the plaint dated 16th April 2020 struck out.

6. Subsequently other applications were filed by the respondent, to wit the application of 27th June 2022 seeking to strike out the application of 25th September 2020 and the application of 24th February 2023 for consolidation of this matter with E535 of 2020. Ruling on these applications was reserved for 29th September 2023.

7. Before the ruling was delivered, the respondent again filed another application dated 23rd June 2023 seeking to further amend its plaint. This court gave directions on 17th of July 2023 on what was fast becoming a floodgate of applications, to the effect that the court would first deal with the applications that had been reserved for ruling.

8. Dissatisfied with the decision, the respondent sought and was granted leave to appeal and subsequently filed another application dated 7th August 2023 to arrest the rulings scheduled for 29th September 2023 and seeking to stay the proceedings of this Honourable Court. A ruling on the said application was issued on 18th September 2023, where the Court declined to stay the present proceedings before the Court. The scheduled rulings were then rescheduled to allow the court decide on them.

The application of 25th September 2020 9. From the myriad of applications now before the Court, I am of the considered opinion that the application dated 25th September 2020 ought to be determined on priority basis not just because it was filed first but because it goes to the root of the jurisdiction of this court to hear the dispute before it. Having looked at the application and the replying affidavit in opposition to the application as well as attendant rival submissions, I have framed the following two issues for determination:i.Whether the application of 25th September 2020 ought to be struck out for being incurably defective;ii.Whether these proceedings ought to be stayed and the dispute referred to arbitration;

Whether the application of 25th September 2020 ought to be struck out for being incurably defective: 10. The respondent argues that the supporting affidavit to the application sworn by Aaapo Saarikivi was fatally defectiveas it has not been properly notarized, attested, and legalized as required by the provisions of Section 88 of the Evidence Act. It was also unclear on where it was sworn, whetherin Helsinki or Espooand as such fell short of the requirements of section 5 of the Oaths and Statutory Declaration Act. Finally, the respondent argued that the content of the affidavit amounted to hearsay as the said Aapo Saarikivi was not an officer nor an employee of the applicant but external counsel.

11. In response to the averments, the applicant states that the affidavit is admissible in Kenya by virtue of section 88 of the Evidence Act, that judicial and official notice ought to be taken of the seal and signature affixed on the affidavit, having been so done by a person having such authority to administer an oath in a place out of England as provided under section 3(2) of the English Commissioners for Oaths Act.

12. The applicant also points to rules 32. 17 and 32. 20 of the English Civil Procedure Rules which provide that“a notarial act or instrument may be received in evidence without further proof as duly authenticated in accordance with the requirements of law unless the contrary is proved”. Finally, the applicant submitted that there was no legal requirement thatth September 2020 had been lodged in court. the authority issued to the deponent of the supporting affidavit be filed but that in any case, a letter of authority dated 24 for the purpose of English Courts,

13. The Oaths and Statutory Declarations Act, Cap 15 Laws of Kenya provides for the administering of oaths and taking of statutory declarations. Section 5 thereof provides that every commissioner for oaths before whom any oath or affidavit is taken or made under this Act shall state truly in the jurat or attestation at what place and on what date the oath or affidavit is taken or made.

14. There is obviously some contradiction as to the place where the oath was taken, although it is judicial notice that the City of Espoo boarders Helsinki, both of which are in Finland. While this may affect the admissibility under section 88 of the Evidence Act, I do not think that this is such a serious irregularity to prejudice the respondents in any way.

15. The courts have held time and again that the principle which guides the Court in the administration of justice when adjudicating on any dispute is that unless there are grave reasons, as much as possible, disputes should be heard on their own merit. Errors should not necessarily dissuade a litigant from the pursuits of his right.

16. Fortunately, this view is well supported by the interdict under article 159 of the Constitution. I therefore concur with the observation of the Court in Dominion Farm Limited V African Nature Stream & Another, Kisumu HCCC No. 21 of 2006 that:“Whereas the rules of procedure are not made in vain and are not to be ignored, often times the Courts will encounter inadvertent transgressions or unintentional or ill-advised omissions through defective, disorderly and incompetent use of procedure but which if strictly observed may give rise to substantial injustice and in such circumstances, the exercise of the discretion of the Court comes into play to salvage the situation for the ends of justice.”

17. The parties have also referred to Ringera, J (as he then was) in the case of Microsoft Corporation V Mitsumi Computer Garage Ltd & Another, Nairobi (Milimani) HCCC No. 810 of 2001 [2001] KLR 470; [2001] 2 EA 460. The reasoning by the Judge is sound, to the effect that:“Rules of procedure are handmaidens and not mistresses of justice and should not be elevated to a fetish as theirs is to facilitate the administration of justice in a fair orderly and predictable manner, not fetter or choke it and where it is evident that the respondent has attempted to comply with the rule requiring verification of a plaint but he has fallen short of the prescribed standards, it would be to elevate form and procedure to a fetish to strike out the suit. Deviations from or lapses in form or procedure, which do not go to the jurisdiction of the Court or prejudice the adverse party in any fundamental respect, ought not be treated as nullifying the legal instruments thus affected and the Court should rise to its higher calling to do justice by saving the proceedings in issue.”

18. I have looked at the impugned affidavit. Even if the same was defective for want of form, it is my considered view that this is an innocuous irregularity which is not prejudicial to anyone and in the interests of justice I am inclined to allow it and I shall proceed to determine the application on merit.

Whether the proceedings ought to be stayed and the dispute referred to arbitration: 19. Arbitration as a dispute resolution mechanism is based on autonomy of parties, which means that it is a consensual process in which the source of the arbitrator’s jurisdiction is the arbitration agreement between the parties. This idea of party autonomy is well laid out in the UNCITRAL Model Law on International Commercial Arbitration as well as the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the New York Convention).

20. Not only has Kenya ratified the New York Convention (in 1989), our Arbitration Act also borrows heavily from the UNCITRAL Model Law on International Commercial Arbitration and then of course, there is the Constitutional dictate under article 159 of the Constitution which calls for courts to promote ADR.

21. So central is the idea of party autonomy in the Arbitration Act that the law provides for a very limited avenue where the court may intervene in matters that are before arbitration. Section 10 of the Act provides that except as provided in the Act, no court shall intervene in matters governed by the Act. The provision goes a long way towards enhancing predictability of arbitration proceedings because parties know what to expect as far as court intervention is concerned.

22. It is an essential pre-requisite of the arbitration law in Kenya that parties to a contract can demand to resort to arbitration so long as there is an arbitration agreement between them and other requirements under section 6 of the Arbitration Act are met. Section 6 of the Act provides as follows:“Stay of proceedings(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)If the court declines to stay legal proceedings, any provision of the arbitration 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.”

23. In Niazsons (K) Ltd V China Road & Bridge Corporation Kenya, [2001] eKLR the Court of Appeal in furtherance to section 6 of the Act elaborated on the factors that the court will consider in determining an application under this provision. These are:i.Whether the applicant has taken any step in the proceeding other than the steps allowed by section 6 of the Act;ii.Whether there are any legal impediments on the validity, operation, or performance of the arbitration agreement; andiii.Whether the suit indeed concerns a matter agreed to be referred.

24. From this legal background and judicial pronouncements that I have referred to, the court is required to first determine whether the applicant has taken any steps in the proceedings other than the steps allowed under section 6 of the Act. By taking any action towards the proceedings the applicant would be taken to have waived the right to proceed with arbitration. Fortunately, this is a fact which is not controverted. The applicant entered appearance and filed the present application and no further steps have been taken, leaving no doubt on the applicant’s intention to have the dispute resolved through arbitration.

25. Secondly, the court must inquire as to whether there are any legal impediments on the validity, operation, or performance of the arbitration agreements. I note that the arbitration clauses in the two agreements are not disputed. The respondent attacks the clauses on grounds that the ICC arbitration process is inoperable, that the arbitration clauses are either incomplete, unclear, defective and therefore unenforceable in law. For the avoidance of doubt, the arbitration clauses in the two agreements read as follows:Clause 22. 2 of the Frame Repair Service Agreement:“Any dispute, controversy or claim arising out of or in connection with this Agreement, or the breach, termination or invalidity thereof shall be finally settled by arbitration by three arbitrators in accordance with the Rules of the International Chamber of Commerce. The language used in arbitration, including the language of the proceedings, the language of the decision, and the reasons supporting it shall be in English. The arbitration shall be conducted in Helsinki, Finland.”Clause 22. 3 of the Frame Repair Service Agreement:“The Parties agree to recognize the decision of the arbitrators as final, binding and executable. The arbitration shall be the sole and exclusive remedy of the Parties to the dispute regarding claims or counterclaims presented to the arbitrators.”Clause 25. 2 of the Nokia Original Accessory Partner Agreement:“All disputes arising out of or in connection with this Agreement with the exception of Article 19 shall be settled under the Rules of Arbitration of the International Chamber of Commerce by three (3) arbitrators appointed in accordance with the said Rules. The Arbitration shall be held in the city of [add city] [add country]. The language used in arbitration including the language of the proceedings, the language of the decision, and the reasons supporting it shall be English.”Clause 25. 3 of the Nokia Original Accessory Partner Agreement:“The Parties agree to recognize the decision of the arbitrators as final binding and executable. The arbitration shall be the sole and exclusive remedy of the Parties to the dispute regarding claims or counterclaims presented to the arbitrators.”

26. These arbitration clauses in my view are quite elaborate. They capture various details of the parties’ intentions including the appointment of the arbitration tribunal, the language of the arbitration, the laws applicable and even the seat of the arbitration, at least for the FRS Agreement. The specificity with which the clauses are drafted leaves no doubt about the negotiations that may have informed the agreement between the parties and therefore an expression of their intentions. I see no defect or ambiguity in the clauses.

27. The issues raised by the respondent in attacking the clauses in this application are not novel. This court has already pronounced itself in a number of the issues that the respondent avers, having raised them again in High Court Commercial Case No. E093 of 2020 Technoservice Limited V Nokia Corporation & 3 Others, [2021] eKLR (Mativo, J). I am aware that this Court overruled an identical objection to a stay application filed by the applicant.

28. In this instance, the respondent takes issue with the administration of the arbitration by the ICC which it labels as biased, corrupted, prohibitively expensive, slow and unconstitutional in its rules, structure, ranks and processes. No evidence has been tabled to substantiate these assertions and as such I will treat them as casting aspersions and say no more on this.

29. The respondent also avers that the provision for the arbitration to be conducted in accordance with the Rules of the ICC is inoperative as the rules are non-existent. This again is quite a misnomer because in its very own submissions the respondent actually refers extensively to the said rules.

30. In response to the argument that the arbitration clauses are wanting for not identifying the arbitration institution and the place of arbitration, (see Clause 25 of the NOAP), I am of the opinion that these are not sufficient grounds to render the arbitration clauses unenforceable or inoperative. I say so noting the large latitude that the rules place on flexibility of the proceedings. The thread running through the ICC rules as discernible from article 22 is the need to remove impediments that may hinder the expeditious disposal of the dispute and party control of the process.

31. Article 22, provides that in the conduct of arbitral proceedings:“The arbitral tribunal and the parties shall make every effort to conduct the arbitration in an expeditious and cost-effective manner, having regard to the complexity and value of the dispute.”

32. Where parties fail to provide for the seat of the proceedings, article 18(1) of the ICC rules steps in. It provides that:“The place of the arbitration shall be fixed by the Court, unless agreed upon by the parties.”

33. Likewise, the failure to provide for the arbitral institution is also not fatal to the proceedings. The Halsbury’s Laws of England, Vol 5 at para 1212 provides that the seat of the arbitration may be determined either by the parties to the agreement, or as a fallback position, by the arbitral tribunal or by the arbitral Institution that has authority to do so on behalf of the parties.

34. In the same vein, the Supreme Court of India in BGS SGS Soma JV V NHPC Ltd held that in the context of international arbitration, the choice of a supranational body of rules to govern the arbitration (for example, the ICC Rules) would further indicate that the chosen venue is actually the seat of arbitration.

35. The respondent avers that it would suffer great prejudice and breach of its constitutional rights should the matter be referred back to arbitration under the ICC. The respondent avers that the ICC is conflicted as against it on account of live litigation cases in Kenya and abroad where the respondent and the ICC are adversaries. The respondent also avers that the applicant is a paying member of the ICC and Nokia officials sit in high ranking committees and positions at ICC.

36. The allegations by the respondent are not substantiated. They were not raised for determination before the Tribunal when the first arbitration was filed in ICC Arbitration Case No. 23513/FS. They were also not raised previously in E093 of 2020 where as I have said, the court considered a similar application relating to the very same arbitration clauses. In the absence of any other explanation, it would appear to me to be another attempt by the respondent at circumventing the arbitration clause that parties agreed to and that the respondent signed up to.

37. The parties have alluded to the ICC as a leading international dispute resolution organization. The fact that the ICC maintains diverse panels of arbitrators means that parties would be at liberty to appear before a different panel and are not beholden to any particular panel. In any case, article 14 of the rules provides for the procedure of challenging an arbitrator(s). A question of bias or fraud against any of the arbitrators is one that must be determined by the arbitration tribunal before this Court can be called upon to adjudicate over it.

38. In Civil Appeal No. 10 of 2015- Geoffrey Muthinja & another V Samuel Muguna Henry and 1756 Others, [2015] eKLR the court held that where a dispute resolution mechanism exists based on the clear language of the arbitration clause, this ought to be exhausted before the jurisdiction of the courts is invoked. According to the court, which sentiments I wholly concur with, “Courts ought to be the fora of last resort and not the first port of call…” Fundamentally therefore, the respondent should have had the allegation heard and determined by the arbitration tribunal according to the rules and procedures set out.

39. Finally, the respondent avers that the agreements were standard form contracts unilaterally prepared and imposed on the respondent by the applicant. The Court extensively analyzed this argument in relation to the same arbitration clauses and the same parties in HCCC No. E093 of 2020. The Court reached the conclusion that the respondent had not demonstrated that any parts of the clause were unfair, unjust and unreasonable. Further, there was nothing to suggest the existence of an imbalance of bargaining power between the parties. I find no reason whatsoever to disturb the well-reasoned determination by Mativo, J on the matter, going by the sentiments that I have already expressed on the detail with which the clauses have been drafted.

40. The upshot of this is that there are no tenable reasons that would make the arbitration clauses inoperative or unenforceable. In HCCC No. E093 of 2020 the Court held that where the arbitration clauses clearly demonstrated the parties’ intentions to arbitrate, and where the test for inoperability and incapability of performance of the arbitration clauses were not met, then an invitation to declare the arbitration clauses inoperative and void was legally infirm. It is therefore my finding that the arbitration agreements are valid and capable of resolving the dispute between the parties.

41. The final test for consideration is whether the dispute concerns a matter agreed to be referred to arbitration. I have looked at the draft further amended plaint and I note that the remedies set out in the same are capable of being dealt with and determined in the arbitration. I find the reasoning in Civil Appeal No. 55 of 2006, East African Power Management Limited V Westmont Power (Kenya) Limited to be a sound position.

42. It was held in that case that the Court should confer the widest possible jurisdiction in construction of arbitration agreements in determining the nature of claims, difference, and disputes in relation to the subject matter of the contract in which they are included.

43. In fact, the expression of the agreement between the parties is very clear and leaves no doubt as to the width and breadth of what would be addressed in the proceedings, which is any dispute, controversy or claim arising out of or in connection with this agreement, or the breach, termination or invalidity thereof. I have already said enough on the prayers in the draft amended plaint save to add that the parties also envisaged that the issues of invalidity of the agreement (emphasis), which has been raised by the respondent, should be resolved by arbitration and not before the Court.

Determination 44. The upshot of this is that I find that the application has met all the requirements under section 6 of the Arbitration Act. Accordingly, I allow the application dated 25th September 2020 with the consequence that these proceedings are hereby stayed pending the referral of the dispute to arbitration for hearing and determination. Each party shall bear its own costs.

DATED, SIGNED AND DELIVERED IN NAIROBI THIS 23RD DAY OF OCTOBER 2023. F. MUGAMBIJUDGE