Vakkep Building Contractors Ltd v Trustees of Central Bank of Kenya Pension Fund [2015] KEHC 8339 (KLR)

REPUBLIC OF KENYA

IN THE HIGH COURT OF KENYA AT NAIROBI

COMMERCIAL AND ADMIRALTY DIVISION

CIVIL SUIT NO. 101 OF 2014

VAKKEP BUILDING CONTRACTORS LTD……...………………………….APPLICANT

- VERSUS -

TRUSTEES OF CENTRAL BANK OF KENYA PENSION FUND……….RESPONDENT

RULING

1. The Respondent, TRUSTEES OF CENTRAL BANK OF KENYA PENSION FUND, had awarded to the Applicant,VAKKEP BUILDING CONTRACTORS LIMITED, the contract for the construction and erection of an office block known asTIMAU PLAZA which is located in Hurlingham, Nairobi.

2. The Applicant accused the Respondent of failing to make payments in accordance with various certificates.  However, the Respondent denied those allegations, giving rise to a dispute between the parties.

3. It is common ground between the parties that when any dispute arose either during the progress or after the completion or the abandonment of the works, the dispute would be referred to arbitration.  In tandem with that provision in the contract, the parties referred the dispute to arbitration.

4. The sole arbitrator was Mr.FESTUS MUKUNDA LITIKU.  He made his Arbitral Award on 28th April 2015.

5. On 26th May 2015, the Applicant filed an application in this court, requesting that the Arbitral Award be enforced as a Decree of this court.

6. In the Award, the Arbitrator had held that the Respondent should pay to the Applicant Kshs. 98,475,030. 30.  The Respondent was also ordered to pay Kshs. 2,514,218. 00 in respect to the Arbitrator’s Fees and the costs of the arbitration.

7. The Arbitral Award declared that the Respondent had 21 days from the date of its publication, to pay both the principal sum together with the costs.  In the event that the money was not paid within 21 days, the Arbitrator ordered that the outstanding sums would attract simple interest at the rate of 18% per annum, until payment in full.

8. Finally, the Respondent was ordered to pay the costs of the arbitration.  The quantum of such costs was to be agreed upon by the parties.  However, if the parties failed to agree on the quantum of the costs, the Arbitrator would carry out the process of taxation.

9. It was those terms of the Arbitral Award which the Applicant would like to enforce, as a Decree of the court.

10. However, the Respondent’s position is the very opposite to that of the Applicant.

11. As far as the Respondent was concerned, the Arbitral Award had to be set aside by this court.

12. The first reason advanced by the Respondent, for the setting aside of the award, was that the sole arbitrator had acted beyond the terms of the reference, by making a decision on matters which had not been pleaded before him.

13. That submission emanates from the fact that whilst the Applicant had lodged a claim for Kshs. 70,883,721. 55, the Arbitrator awarded it Kshs. 98,475. 030. 30.

14. It was the contention of the Respondent that the case it was confronted with, and the one that it responded to was the claim for Kshs. 70,883,721. 55.

15. Not only did the Respondent answer to that claim through its pleadings, it also led evidence to answer to that claim.

16. Thereafter, when the Applicant was putting forward final submissions, it tabulated a claim for Kshs. 171,483,139. 23.

17. In the face of the “new claim”, the Respondent invited the Arbitrator to disregard it, but the Arbitrator is said to have ignored the Respondent’s plea.

18. Furthermore, the Arbitrator is accused of adopting in his award, a total of 18 particulars of the Applicant’s claim, whereas the statement of claim contained only 6 particulars.

19. The original 6 particulars were set out in the statement of claim as follows:

ITEM PARTICULARS AMOUNT IN KSHS.

1. Wrongful deduction on final certificate 4,114,285. 00

2. Interest on retention 1,604,916. 00

3. Interest on certificates 1,526,296. 73

4. Price Increases 14,721,528. 00

5. Payment to Mehta Electricals Limited 2,427,229. 00

6. Loss of Expenses 46,489,466. 82

TOTAL 70,883,721. 55

20. Over and above those 6 particulars, the Arbitrator is said to have included determinations in respect to the following additional issues;

Additional recurring preliminaries;

Finance charges on retention;

Additional site overheads;

Delay period of 36 weeks from the contract date of completion to the actual date of practical completion;

Costs of fluctuations;

Outstanding payment to the contractor;

Head office overheads;

Profit of a 10%;

Additional labour costs;

Release of 2nd moiety on retention;

Interest for a period running from 19th September, 2006 to the 28th April 2015;

10% Overheads and profit; and

16% V.A.T.

21. As those constituted new heads of claims which were not in the original computation provided by the Applicant, it was the Respondent’s contention that the determination by the Arbitrator was in respect of a “new claim”.

22. To make matters worse, the Arbitrator is said to have ignored the Respondent’s submissions which asked him to limit his decision to the original claim.

23. The Respondent’s view was that the Arbitrator failed to make any finding on the question regarding the extent of his jurisdiction.

24. As a consequence, whereas the Applicant’s claim was for Kshs. 70,883,721. 55, the Arbitrator awarded Kshs. 98, 475,030. 30.

25. That award is said to have been picked up by the Arbitrator from the Applicant’s final submissions, even though those submissions quantified the Applicant’s claim at Kshs. 171,483,139. 23.

26. By giving consideration to the Applicant’s submissions, in which the claim was for Kshs. 171,483,139. 23, and thereafter awarding Kshs. 98,475,030. 30 to the Applicant, the Arbitrator is said to have acted in the excess of his jurisdiction.

27. As far as the Respondent was concerned, there was only one way that the Applicant could have revised its original claim of Kshs. 70,883,721. 55; that would have been through an amendment of the claim.

28. In this case, the Respondent described the enhanced award by the Arbitrator as un-explained.  Therefore, to the extent that the award was un-explained, the Respondent urged the court to hold that the Arbitrator was guilty of misconduct, because he did not adjudicate on the real issue which was in dispute.

29. On its part, the Applicant submitted that there was nothing put down in writing by the parties, to spell out the matters which the Arbitrator was expected to determine.  The Applicant’s view was that the Arbitrator was therefore expected to determine the “entirety of the dispute” as could be discerned from the documents placed before him.

30. The applicant submitted that pleadings would be the documents relied upon before the Arbitrator.  Those would, in the applicant’s view, include documents filed, affidavits and the Statement of Issues.

31. This court notes that whereas the applicant purported to rely on the case of MAHICAN INVESTMENT LTD & 3 OTHERS Vs GIDVANI GOUDI & 80 OTHERS, MISC. CIVIL APPLICATION No. 792 of 2004 to support its understanding of the definition of “pleadings”, I found no such an amplification in that case.

32. Ransley J. made the following point in that case;

2“Whether the decision of the arbitrator went outside the reference depends on what issues the parties raised in their pleadings”.

33. That is obviously the correct position in law. The learned Judge went further to say;

“In order to succeed the applicant must show beyond doubt that the arbitrator has gone on a frolic of his or her own to deal with matters not related to the subject matter of the dispute”.

34. In this case, the parties had signed an Arbitration Agreement.  In that Agreement, Clause 45 dealt with the issue regarding the Settlement of Disputes.

35. Essentially, the parties were in agreement that in the event that any dispute or difference arose between them either during the progress or after the completion or the abandonment of the works, the dispute would be resolved through arbitration.

36. Pursuant to Clause 45. 2;

“The arbitration may be on the construction of this contract or on any matter or thing of whatsoever nature arising thereunder or in connection therewith, including any matter or thing left by this contract to the discretion of the Architect, or the withholding by the Architect of any certificate to which the Contractor may claim to be entitled or the measurement and valuation referred to in clause 34. 0 of these conditions, or the rights and liabilities of the parties subsequent to the termination of contract”.

37. Of course, as the Applicant said, that clause is very wide indeed. That means that if any dispute, differences or issues arose within the scope spelt out above, the arbitrator would have authority to adjudicate over it.

38. Being clothed with authority, gives to the arbitrator the mandate to adjudicate over the matters falling within the wide range spelt out.

39. It is the equivalent of the jurisdiction given to a court of law.  When a court has jurisdiction, it has authority to hear and determine matters falling within its jurisdiction. However, it would not imply that in every case which is present before the court there would be issues covering the wide jurisdiction of the court.

40. In similar vein, when a matter was placed before an arbitrator, he would ordinarily be vested with the general power and authority to handle it, if it fell within the scope of Clause 41.  However, the issues in each case would actually be determined from the claim and the response.

When a claim is made, but it is not denied, then no issue arises.

42. Secondly, a party may present a whole contract in his bundle of documents, but that would not necessarily mean that his claims arose from each and every facet of that document.  The party would, in his claim, specify the part or parts of the document from which his claim arose.  If the party against whom the claim was made denied the claim, then only would an issue arise.

43. I therefore find that the Applicant was wrong to have submitted that the Arbitrator had jurisdiction to determine anything and everything which arose from the documents that the parties had placed before him.  The scope of the reference was limited by the issues arising from the pleadings.

44. In the case of SHEIKH Vs. SHEIKH & OTHERS [1991] LLR 2219 (CAK)the Court of Appeal expressed itself thus;

“As a general rule, therefore, a plaintiff is not entitled to reliefs which he has not specified in his statement of claim.  Pleadings play a very pivotal role in litigation.  As is stated in Bullen and Leake (12th Ed) at page 3 under the rubric ‘Nature of pleadings;

‘The system of pleadings operates to define and delimit with clarity and precision the real matters in controversy between the parties, upon which they can prepare and present their respective cases and upon which the Court will be called upon to adjudicate between them”

45. I believe that that pronouncement underscores the place of pleadings.  They define and delimit with clarity and precision, the real matters in controversy.  And the Court or any other arbitral tribunal would only be called upon to make a determination on the real matters in controversy.

46. In the case of NAIROBI CITY COUNCIL Vs THABITI ENTERPRISES LTD [1995-98] 2 E.A 231, at page 249, the Court of Appeal said;

“It is now settled law that the only way to raise issues for determination by the Court is through pleadings and it is only then that a claimant will be allowed to proceed to prove them”.

47. In this case, the Applicant’s claim was for a total of Kshs. 70,883,721. 95.  That sum was said to be inclusive of Interest on Retention and Interest on Certificates.

48. In the claim, the Applicant did not specify the date from when its claim for further interest commenced.  However, considering that the claim had already embodied 2 claims for interest, that must necessarily mean that any claim for interest prior to the lodging of the statement of claim, was incorporated into the claim.

49. The statement of claim was filed on 23rd October 2012.  Therefore, any claim for further interest could only be for the period from 23rd October 2012.

50. In this instance, the arbitrator awarded interest from 19th September 2006 to 28th April 2015.  By so doing, the arbitrator awarded interest which had not been claimed.  As the interest was not claimed, the respondent had no reason to oppose it.  In the event, there was no issue that arose in relation to interest payable between 19th September 2006 and 23rd October 2012.

51. Therefore, when the arbitrator awarded interest that had not been claimed by the Applicant he acted in excess of his jurisdiction.

52. By so holding, I am fully alive to the provision of Section 32 (c) of the Arbitration Act, which gives an arbitrator power to award interest.  In effect, the arbitrator had the requisite authority to award interest.  However, when exercising that authority he was obliged to bear in mind the claim actually put forward by the claimant.  And because the claimant had already calculated interest for the period preceding 23rd October 2012, the arbitrator went beyond the limits of the claim by awarding interest from 19th September 2006.

53. In CAPTAIN HARRY GANDY Vs CAS PAR AIR CHARTERS LIMITED [1956] Vol. XXII EACA 139 Sinclair Vice President quoted the following words of Scrutton L.J in POLLAND Vs MORRIS [1930] 1 K.B 682;

“Cases must be decided on the issues on the record and if it is desired to raise other issues they must be placed on the record by amendment…”

54. Pleadings disclose the case of each party, thus enabling the other party to know the nature and extent of the claim or defence it was facing.

55. And by placing their respective cases before the court or arbitral tribunal, the parties expect a decision on the matters which they had put forward.  They do not expect decisions on anything other than on the cases they each put forward in their pleadings.

56. In the case of KENYA COMMERCIAL BANK LTD Vs OSEBE [1982] LLR 66, the Court of Appeal observed;

“Moreover, strange results would follow if a Judge were free to determine issues not properly before him”.

57. In this case, the Applicant lodged a claim for Kshs. 70,883,721. 55, but was eventually awarded Kshs. 98,475,030. 30.  That is a strange result.

58. But the Respondent insists that the award did not arise from a “new case”.  According to the Respondent, there had simply been a “mere recalculation”, which increased the original claim from Kshs. 70,883,721. 55 to Kshs. 177,488,139. 23, by the time when the Respondent was making its final submissions.

59. To my mind, the variation is so huge as to literally constitute an absolute change.  It would be wrong to describe such a massive variation as being attributable to “mere recalculation”.

60. A party who specifies a claim may amend his pleading, if necessary, to reflect the changes which take place subsequent to the institution of his claim.

61. However, if a claim was in the nature of compensation whose quantum would only be determinable at the time when the case was being determined, the claimant should, in his claim, reserve its position in very clear language.  For instance if there was a claim for medical expenses which would continue to be incurred even after the case was filed, the claimant would indicate the amount already incurred, PLUS a further amount to be incurred after suit was filed.  In respect to such further expenses, the pleading would suggest the probable rate per day or per month for every respective period.

62. If the court found the defendant liable to compensate the claimant for the medical expenses, the judgement would then have 3 components, as follows;

Claim for the sums spent until the suit was instituted; and

Claim from the date after the suit was instituted until the date of judgement; and

Claim for the period subsequent to the date of judgement.

63. When a party only lodges a claim in respect to a date in the past, it would be wrong for the court to then award him compensation for the period after the suit was filed or the period after the judgement was delivered.

64. It would be wrong to do so because such a decision would have gone beyond the scope of the claim which had been placed before the court or the arbitral tribunal.

65. A party may, in principle, be entitled to make many claims.  He may even have all material evidence to prove such claims.  However, the party may be “too blind to see the trees from the forest”.  In the process, he may only specify a few of the claims.

66. Even though the evidence may be placed before the court, it would not be function of the said court to grant reliefs which the party had not sought.

67. In this case, the claim was calculated in advance and the claimant did not, in the statement of claim, seek to recover more reliefs than had already been quantified.  Therefore, when the Arbitrator awarded reliefs which had not been claimed, he acted in excess of his jurisdiction and mandate.

68. The respondent reasoned that the rules of pleadings require brief statements of facts without stating the evidence.  That is absolutely correct.

69. However, it is equally true that the party is bound by his pleadings. Therefore, he is expected to lead evidence to proof the assertions made in the pleadings.  If he chooses to provide much more evidence than is required to prove his assertions, that ought not to lead the court or the arbitral tribunal to grant more reliefs.

70. Having come to the conclusion that the arbitrator acted in excess of his jurisdiction, should that lead me to set aside the whole award?

71. In EVANGELICAL MISSION FOR AFRICA & ANOTHER Vs KIMANI GACHUHI AND ANOTHER, HIGH COURT MISC. APPL. No. 479 of 2014, Ogola, J. set aside the whole arbitral award on account of its failure to satisfy the public policy consideration.  The foundation of the decision by the learned Judge was that the decision of the arbitrator was, on the face of it, so devoid of justice and it could not be explained in any rational manner.

72. In my considered opinion, those words could not be applicable to the case before me.

73. In the case of GITONGA WARUGONGO Vs TOTAL KENYA LIMITED CIVIL APEAL No. 113 of 1998, the Court of Appeal set aside the portion of the award which the arbitrator granted, yet he had not been asked to determine.  In reaching that conclusion, the learned Judges of Appeal expressed themselves thus;

“We have said that that determination is separate and severable from the issue he was asked to determine”.

74. Both parties quoted from that authority; and to my mind that is significant.

75. In the case of RWAMA FARMERS CO-OPERATIVE SOCIETY LIMITED Vs THIKA COFFEE MILLS LIMITED [2012] eKLR, Mabeya J. noted that whilst the terms “contrary to public policy” and “against public policy” may not have precise meanings;

“…they connote that which is injurious to the public, offensive, has an element of illegality, that which is unacceptable and that which violates the basic norms of society”.

76. The arbitral award before me has some shortcomings.  However, I find that it is neither contrary to public policy nor against public policy.

77. I therefore hold that justice will be done if the court separates the decisions which were made in excess of jurisdiction, but retains the rest of the award.

78. The item described as “Release of 2nd moiety of retention” was never included in the pleadings.  Therefore, the sum of Kshs. 7,523,043. 00 must be deducted from the award.

79. Secondly, the interest should only have been calculated from 23rd October 2012 to 28th April 2015, when the award was made.  That therefore means that the period of time over which interest was calculable was 918 days, as opposed to 3,296 days.

80. Having deducted the 2nd moiety of retention from the sub-total sum of Kshs. 25,280,909. 12; and the replacing the deducted amount with the sum of Kshs. 1,604,916/- which was the interest claimed on the retention, the new sub-total is Kshs. 19,362,782. 12.

81. To that sum we then add the sum of Kshs. 4,114,255/- which the respondent had deducted earlier.  The new figure becomes Kshs. 23,395,164. 12, instead of the arbitrator’s sum of Kshs. 29,395,164. 12 [under the Item No. 8. 12. 10].

82. Interest is then calculated at 18% for 918 days, which gives a figure of Kshs. 10,649,184. 04.

83. The final sums then work out as follows;

1)  Kshs.      23,395,164. 12

Add 2) Kshs.      10,649,184. 04

Add 3) Kshs.        7,717,478. 87

Add 4) Kshs.       13,382,762. 18

TOTAL Kshs. 55,344,589. 84

84. Accordingly, the Arbitral Award is upheld, but for the lesser sum of Kshs. 55,344,589. 84.

85. As each part is partially successful, I order that each of them meets their respective costs of the applications.

DATED, SIGNED and DELIVERED at NAIROBI this26th dayof October2015.

FRED A. OCHIENG

JUDGE

Ruling read in open court in the presence of

Mr. K’bahati for the Applicant.

Wanga for the Respondent

Collins Odhiambo – Court clerk