Uneeco Paper Products v Steven Oundo (Sole Arbitrator) & another [2022] KEHC 12332 (KLR)

Uneeco Paper Products v Steven Oundo (Sole Arbitrator) & another (Civil Case E024 of 2022) [2022] KEHC 12332 (KLR) (Civ) (14 June 2022) (Ruling)

Neutral citation: [2022] KEHC 12332 (KLR)

Republic of Kenya

In the High Court at Nairobi (Milimani Law Courts)

Civil

Civil Case E024 of 2022

DO Chepkwony, J

June 14, 2022

Between

Uneeco Paper Products

Plaintiff

and

Steven Oundo (Sole Arbitrator)

1st Defendant

Econobuild Limited

2nd Defendant

Ruling

1. Before court are two applications filed by both the Plaintiff and the Defendants. The Plaintiff/Applicant moved this court by way of a Notice of Motion dated 3rd February, 2022 under Article 35(1)(b) of the Constitution, Rules 13 and 23 of the Constitution of Kenya (Protection of Rights and Fundamental Freedoms) Practice and Procedures Rules, 2013. The application seeks for the following orders that; -a)Spent;b)A stay of Arbitration proceedings be issued restraining the 1st and 2nd Respondents herein form proceeding or otherwise continuing with any proceedings between the Applicant herein and the 2nd Respondent pending the hearing and determination of this application.c)This Honourable court be pleased to stay the orders dated 4th December, 2021 and 17th December, 2021 issued by the Arbitrator in Arbitration proceedings be reviewed.d)This Honourable Court be pleased to stay appointment of the Sole Arbitrator the 1st Respondent herein by the Architectural Association of Kenya.e)Costs of this application be provided for.

2. The application is supported by the affidavit of Shabbar Jagani and based on the following grounds;1. The ongoing Arbitration proceedings are illegal, bad in law, frivolous, vexatious and otherwise an abuse of the Legal process.

2. On 4th June 2020, a contract was entered by the Applicant (as employer) and the Respondent (as the Contractor).

3. The contract was for “Renovations of Godowns and associated amenities, ancillary buildings complete with services and associated site work” at the property Land reference No.209/4214. This forms the basis of the dispute.

4. The Arbitration proceedings that were initiated by the 2nd Respondent against the Applicant are premature and against the legal process. The Applicant issued a notice at first instance citing unexplored contractual remedies to settle any dispute before any Arbitration proceedings could be initiated.

5. The jurisdiction of the Sole Arbitrator has been disputed vide preliminary objection raised by the Applicant on 17th November, 2021. Despite the preliminary objection, the Sole Arbitrator proceeded to issue ultra vires orders that are pre-emptive of continuation of the Arbitration.

6. The said Arbitration proceedings are in breach of the terms and agreements contained in the contract. Unless this application and prayers are granted, the Applicant will suffer great injustice, financial loss, colossal and irreparable loss and damage, thereby rendering this matter nugatory.

3. The 2nd application was filed by the Defendant by way of a Notice of Motion dated 24th March, 2022 seeking for the Orders that;1. This application be certified as urgent and accordingly directions be issued with respect to transfer, hearing and determination of the application/suit in the commercial and tax division as appropriate.

2. The proceedings herein be stayed on account of ongoing arbitration proceedings between the parties herein.

3. In the alternative the plaint herein be struck out with costs.

4. The said application is supported by the annexed affidavit of Sawan Shah and premised on the following grounds;i.That there is infact an arbitral tribunal convened and pending arbitration proceedings between the Plaintiff and the 2nd Defendant.ii.The court has no jurisdiction to intervene in a matter that is subject to arbitration except in such manner as provided under the Arbitration Act, 1995. There is no jurisdiction for the court to stay appointment of an arbitrator.iii.An arbitral tribunal has under the general principles of kompetenz kompetenz the mandate to rule on any objection pertaining to its jurisdiction by dint of Section 17 of the Arbitration Act, 1995. iv.The Plaint is an abuse of the court process as it seeks to invoke the Court’s jurisdiction in a manner unknown at law and initiate parallel proceedings.v.That all matters relating to arbitration are by dint of practice note of 1997 deemed commercial matters for determination by the Commercial & Tax Division of the High court and not Ccivil division.

Response by the Plaintiff 5. In response to the application dated 24th March, 2022, the Plaintiff filed a Replying Affidavit sworn on 14th April, 2022, stating that this matter is rightly before this Court since there is a breach of contract by the 2nd Defendant and also pursuant to Article 159(2)(c) of the Constitution of Kenya, Section 5 and 59(c) of the Civil Procedure Act, Order 46 Rule 20(1) of the Civil Procedure Rules.

6. He deposed that that the agreement between the Plaintiff and 2nd defendant has conditions that Arbitration proceedings can only be instituted after the parties try to solve disputes amongst themselves.

7. He averred that the 2nd Defendant has frustrated efforts by the Plaintiff who has been trying to enforce Article 45. 4 of their agreement, by ignoring invitations by the Plaintiff to discussions. He went on to state that the 2nd Defendant is in breach of Article 45. 4 on parties attempting to solve disputes without assistance of third parties.

8. The Plaintiff deposed that it did opposed the appointment of the Arbitrator that was done as a breach of the agreement and that the Arbitration proceedings were initiated pre-maturely.

9. On 28th March, 2022 when this matter came up for interpartes hearing of the Plaintiff’s/Applicant’s application dated 3rd February, 2022, Counsel for the Defendant/Respondent indicated to the court that he had filed another application dated 24th March, 2022 which application raises jurisdictional issue based on Section 6 of the Arbitration Act on account of the pendency of the Arbitral proceedings. The Plaintiff/ Applicant on the other hand argued that what was before court for hearing was the Applicant’s application dated 3rd February, 2022 which is not opposed as the defendant/Respondent has not filed any response.

10. This court in giving directions stated that the application dated 24th March, 2022 is more of a response to the application dated 3rd February, 2022 and directed parties to canvass both applications simultaneously by way of written submissions.

Submissions 11. The Plaintiff’s submissions are dated 12th April, 2022 while the 2nd Respondent’s submissions are dated 11th April, 2022.

Legal, Analysis and Determination 12. Upon considering, both applications dated 3rd February, 2022 and 24th March, 2022. I have read through the affidavits in support and response, the written submissions filed by both parties as well as the cited authorities. I find the issues which arise for determination before this Honourable Court being as follows;a.Whether the Plaintiff has made out a case to warrant the grant of the orders of stay of arbitration proceedings.b.Whether this court has the requisite jurisdiction to entertain this matter.

Legal Analysis Whether the Plaintiff has made out a case to warrant the grant of the orders of stay of arbitration proceedings. 13. In resolving this issue, this court is guided by the provisions of Section 6(1) of the Arbitration Act, 1995 which provides that: -“(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 files any pleadings or takes any other step in the proceedings, 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; orb.that there is not in fact any dispute between the parties with regard to the matters agreed to be referred to arbitration.”

14. The said provision is couched in mandatory terms however it has some limitations if it shown that the arbitration agreement is null and void, if in operative or incapable of being performed and where there is not infact any dispute between the parties with regard to matters agreed to be referred to arbitration. Therefore, it is clear from the law that where a party alleges these matters and they are proved, the court will not stay the proceedings and refer the matter to arbitration.

15. In the instant case, I have read through the contract entered into by the parties on 4th June, 2020 and the arbitration Clause 45. 0 of the agreement reads as follows: -45. 0 Settlement of Disputes54. 1In case any dispute or difference 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 a request to submit it to arbitration and to concur in the appointment of an Arbitrator within 30 days of the notice. The dispute shall be referred to the arbitration and final decision of a person to be agreed upon between the parties. Failing agreement to concur in the appointment of an Arbitrator, the Arbitrator shall be appointed by the Chairman or Vice chairman of The Architectural Association of Kenya on the request of the applying party.45. 2 …………………………………………………45. 3 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.45. 4 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 with or without the assistance of third parties.45. 5 In any event, no arbitration shall commence earlier than ninety days after the service of the notice of a dispute or difference.

16. From this Clause of the agreement, it is clear from the wording thereof that the intention was to submit to the jurisdiction of arbitration tribunal in case of any dispute thus oust the jurisdiction of this Honourable Court.

17. The Constitution of Kenya under Article 159(2)(c) recognizes alternative modes of re solving disputes. It states that;“In exercising Judicial authority courts and Tribunals shall be guided by the following principles -“alternative forms of dispute resolution including reconciliation, mediation, arbitration and traditional dispute resolution mechanisms shall be promoted.”

18. It must be noted that staying of arbitration proceedings where the parties have a valid arbitration agreement is not something this court can exercise. The parties having consensually agreed to have an arbitration clause in their agreement only meant ousting the jurisdiction of this Court. It is clear that the order of staying the arbitration proceedings is not available for the Plaintiff in the instant suit.

Whether this court has the requisite jurisdiction to entertain this matter 19. In determining the first issue, it has clearly come out that the courts have no jurisdiction to entertain matters which are subject of arbitration unless specifically provided for in the Arbitration Act. Section 10 of the Act provides that;“Except as provided in this Act, no court shall intervene in matters governed by this Act”.

20. Jurisdiction of a court emanates from either the Constitution or a Statute and no court can confer jurisdiction on itself. This was the position stipulated in the case of Samuel Kamau Macharia &another –vs- Kenya Commercial Bank & 2others(2014) eKLR;“A court’s jurisdiction flows from either the Constitution or legislation or both. Thus, a court of law can only exercise jurisdiction as conferred by the Constitution or other written law.it cannot arrogate to itself jurisdiction exceeding that which is conferred upon it by law.”

21. The provision of Article 159(2)(c) of the Constitution envisioned a situation that where parties to an agreement or contract consensually agree on arbitration as their mode of dispute resolution, the courts are obliged to give effect to their intent as per the agreement.

22. Parties having agreed to subject their disputes to Arbitration, it would therefore not be proper for this court to entertain this matter. Clause 45 of the agreement is clear on the mode of dispute resolution for any dispute that would arise as between the parties herein. The Arbitration Act provides for mechanism of challenging any award issued by the Arbitrator.

23. In Conclusion, I find that the Plaintiff has failed to prove its case to warrant the grant of the orders sought. The Respondent on the other hand has demonstrated that this is a matter for arbitration. I therefore make the following orders: -1. The Plaintiff’s application dated 3rd February 2022 lacks merits and is dismissed.2. The Defendant’s application dated 24th March 2022 is allowed in terms of prayer 2. 3.I make no orders as to Costs.

RULING DELIVERED VIRTUALLY, DATED AND SIGNED IN NAIROBI THIS 14TH DAY OF JUNE 2022. D. O. CHEPKWONYJUDGEIn the presence of:Mr. Morgan Lubumbo for ApplicantMr. Echesa Counsel for 2nd DefendantCourt Assistant - Kevin