REPUBLIC OF KENYA

IN THE HIGH COURT OF KENYA

AT KITUI

CIVIL SUIT NO. 2 OF 2019

RENE INDUSTRIES LIMITED....................PLAINTIFF/RESPONDENT

VERSUS

COUNTY GOVERNMENT OF KITUI.........DEFENDANT/APPLICANT

R U L I N G

1. Rene Industries Limited (Plaintiff)/Respondent) filed a suit against the County Government of Kitui (Applicant/Defendant) seeking payment of a liquidated sum of Kshs. 165,089,386/=, interest thereon and general damages for breach of contract.

2. At the same time, the Respondent filed a Notice of Motion seeking entry of Judgment against the Applicant in the sum of Kshs. 61,397,292/= that was alleged to have been admitted by the Applicant.

3. The Defendant on its part entered appearance and raised a Preliminary Objection on grounds that:

• The application is misconceived and an abuse of the Court process.
• There is no legally valid contract between the Plaintiff/Applicant and the Defendant/Respondent.
• The evaluation and processing of Tender CGoKTI/398/2016-2017 violated the provisions of Article 227(1) of the Constitution of Kenya making the entire process invalid ab initio.
• The ensuing contract from the tendering process was unconstitutional ab initio as it offends Article 227(1) of the Constitution of Kenya, 2010.
• The parties to the agreement had no capacity to enter into such an agreement ab initio for want of constitutional propriety.
• Assuming there existed a contract, under Article 37 of the Standard Tender Document for Procurement Works, the parties are bound by the terms which gives parties the right in the first instance, to declare a dispute and refer the matter to an arbitrator.
• The Applicant has benefited from fraudulent and corrupt practices contrary to Section 1 Article 7 of the Standard Tender Document Procurement Works.
• The termination letter dated 18^th December, 2018 was legal.  It communicated the illegality and unconstitutionality of the contract and the award process hence its invalidity.
• The granting of prayers sought in the application would amount to the Applicant benefiting from a corrupt dealing contrary to public policy.
• The Court has jurisdiction to determine the constitutionality of the alleged contract.  However, where parties are bound to go to arbitration in the first instance, the Court should down its tools.
• The application and the Notice of Motion is therefore vexatious, frivolous, offends public policy and is an abuse of the Court process.

4.  It is urged by the Applicant that the Respondent was unlawfully awarded the tender such that the contract dated May 11, 2017 amounting to Kshs. 242,782,652.50/= was a product of a flawed procurement process, a deal that was against public policy and unconstitutional for failing to comply with the threshold established in Article 227 of the Constitution.  And it was for that reason that the current County Executive terminated the contract on the 18^th December, 2018. 

5. The Applicant urged the Court not to enforce the illegal contract.

6. Further, it is argued that assuming that a contract exists, according to the circular issued by PPOA, the Public Procurement Code of Ethics for procuring entities and the Standard Tender Document for Procurement of Works (Building and Associated Civil Engineering Works, the manner and method for dispute resolution is first, a resort to the Arbitration Process.

7. That Clause 37 of the Standard Tender Document for Procurement Works signed by the parties binds them to refer any dispute that may arise to arbitration.  That the Respondent, if aggrieved should have declared the dispute in writing to the other party and endeavoured to settle the dispute through arbitration.

8. Regarding termination of the contract, it is argued that termination is provided for and the employer clearly communicated the message of illegality and unconstitutionality of the tender process, it was therefore proper and in keeping with the public policy to terminate the contract.

9. On the question of jurisdiction, it is contended that this Court has jurisdiction to determine the constitutionality of the alleged contract.  That even if the Court were to order the parties to go to the arbitration process, the matter would still end up back into the Court. 

10. In the premises, this Court has been asked to dismiss both the application by the Respondent where it seeks Judgment to be entered on admission in the sum of Kshs. 61,397,292/= and the substantive suit.

11. In reply, the Respondent (Plaintiff) argued that the Preliminary Objection raises matters of fact that can only be determined through the evaluation of facts through full hearing or affidavit evidence.  That the Applicant who has benefited from the construction works is estopped from challenging the subject contract.  That the Applicant (Respondent) is trying to selectively apply some clauses of the contract especially an arbitration clause in the contract to stop the proceedings herein.

12. It is argued further that a party seeking to apply an arbitration clause to proceedings must comply with Section 6(1) of the Arbitration Act and such matters cannot be determined through a Preliminary Objection.

13. That the Applicant (Defendant) having taken steps in the proceedings has forfeited the right to rely on the arbitral clause.

14. And that by conduct the Applicant has waived the right to question and/or challenge the jurisdiction of the Court which calls for dismissal of the Preliminary Objection.

15. I have considered rival submissions of both parties alongside authorities cited.

16. In the celebrated case of Mukisa Biscuits vs. West End Distributors (1969) it was held that:

“So far as I am aware, a preliminary objection consists of a point of law which has been pleaded, or which arises by clear implication out of pleadings, and which if argued as a preliminary point may dispose of the suit. Examples are an objection to the jurisdiction of the court, or a plea of limitation, or a submission that the parties are bound by the contract giving rise to the suit to refer the dispute to arbitration.”

17. In the case of Pontrilas Investments Limited vs. Central Bank of Kenya & Another, Reference No. 8 of 2017 the Court stated that: a question of both law and fact, the latter requiring evidential proof and where evidential proof is required it could not rightly be the subject of a Preliminary Objection … a question of evidence cannot be conclusively disposed of as a preliminary point of law.

18. It is not in dispute that the contract entered into by the parties herein had an arbitral clause.  Therefore, any dispute that arose between them was to be resolved through arbitration.  A dispute did arise between parties herein after the Respondent (Defendant) terminated the contract which behooved either party to notify the other requesting it to submit to arbitration within time specified in Article 37 of the Standard Tender Document for Procurement of Works.  The Respondent(Plaintiff) disregarded the arbitral clause in the contract and instituted the suit herein.  This having been the case Section 6 of the Arbitration Act of 1995 came into operation.  That provision of the law states as follows:

“(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.”

19. In the cited case of Lofty vs. Bedouin Enterprises LTD EA LR (2005) 2 EA the Court stated as follows:

“In my view, section 6(1) of the Arbitration Act of 1995 which the court is construing means that any application for stay of proceedings cannot be made after the applicant has entered appearance or after the applicant has filed pleadings or after the applicant has taken any other step in the proceedings, so the latest permissible time for making an application for stay of proceedings is the time of that the applicant enters appearance. It seems that the object of Section 6(1) of the Arbitration Act of 1995, was inter alia, to ensure that applications for stay of proceedings are made at the earliest state of the proceedings ... Section 6(1) has changed the law as it does not permit an application for stay of proceedings to be made after entering an appearance ...

We respectfully agree with these views, so that even if the conditions set out in paragraphs (a) and (b) of Section 6 (1) are satisfied the Court would still be entitled to reject an application for stay of proceedings and referral thereof to Arbitration, if the application to do so is not made at the time of entering an appearance or if no appearance is entered, at the time of filing any pleadings or at the time of taking any step in the proceedings.”

20. This is a case where the Applicant(Defendant) failed to move the Court pursuant to the law but chose to file a Preliminary Objection.  He has not sought stay of proceedings but would want the suit dismissed.  This means that he has no intention of challenging the suit herein pursuant to what is provided in Section 6(1) of the Arbitration Act.

21. It is urged by the Respondent (Plaintiff) that by taking a step in the matter (filing of a Memorandum of Appearance) the Defendant has submitted to the jurisdiction of this Court therefore he is estopped from challenging the same.  The Applicant (Defendant) argues that this Court is seized of jurisdiction to determine the constitutionality of the alleged contract.  That even if the Court were to order the parties to go back to administration process, the matter would still end up back into the instant Court.  And in particular for purposes of interpretation of Article 227 of the Constitution as red with the Public Procurement Act, 2015 and the Arbitration Act, 2012 with respect to the tender No. CGOK KTI/398/2016-1017.

22. In the case of the Owners of Motor Vessel ‘Lillian S’ vs. Caltex Oil (Kenya) LTD (1989) KLR 1 the Court of Appeal stated thus:

“…Jurisdiction is everything. Without it, a court has no power to make one more step. Where a court has no jurisdiction, there would be no basis for a continuation of proceedings pending other evidence. A court of law downs tools in respect of the matter before it the moment it holds the opinion that it is without jurisdiction.”

23. The authority bestowed upon the Court to decide the instant matter is imposed by statute.  Proceedings having been instituted in this Court, if an application had been filed seeking stay of proceedings, I would have endeavoured to satisfy myself if the arbitration agreement is null and void, inoperative or incapable of being performed or if indeed there is a dispute between the parties with regard to matters that they agreed to refer to arbitration.

24. The Court may at an opportune time determine issues after an arbitral award has been made.  The Court may decline to enforce the award if it turns out to be contrary to the public policy.  These would be issues of facts that cannot be addressed by a Preliminary Objection. And, by extension the conduct of the Respondent (Plaintiff) who approached this Court knowing very well of the existence of the arbitral clause that existed between the parties that they were to submit to, would be called into question.

25. From the foregoing, I find the Preliminary Objection raised incompetent which I dismiss with costs to the Respondent.

26. It is so ordered.

Dated, Signed and Delivered at Kitui this 4^th day of December, 2019.

L. N. MUTENDE

JUDGE