Superior courts could not cede their mandate of interpreting the Constitution to arbitrators.
The instant matter emanated from commercial agreements between the appellant and the 1st and 2nd respondents concerning the distribution of the 1st respondent’s products. The 1st respondent sought to repossess the distribution territories of Baba Dogo, Dandora 1 and II, and Kariobangi North that had been previously granted to the 1st appellant in the year 2000 and declined to refund goodwill paid by the appellant, on the ground that the amounts were non-refundable. The 1st respondent further appointed other distributors to that distribution territory. In reaction to the 1st respondent’s measures, the appellant chose to pursue the constitutional path by instituting the petition before the High Court. The appellant alleged that following the coming into force of the Competition Act in 2011, the relationship between it and the Diageo respondents was re-ordered as it was no longer permissible for the appellant as an independent distributor to commit exclusively to serve the Diageo respondents. The appellant therefore moved to challenge not just the contract but more so the conduct of the Diageo respondents which the appellant stated, stifled the appellant’s enjoyment of the benefits of the new legal environment as protected by the Constitution that had just come in place.
Secondly, in the year 2012, distributors came together and registered a new association by the name of Beverage Distributors of Kenya (BDK). That was to bring together beverage distributors from across the country to address matters of common interest in the beverage industry. According to the appellant, the Diageo respondents violently resisted engaging BDK and insisted on dealing with BDK members individually. The appellant pleaded that that was a clear effort to prevent the appellant from benefitting from the gains resulting from the adopting of a common strategy. As a result, the appellant alleged that that was a term of a contract that was contrary to the values enshrined in the Constitution.
That was the basis of the decisions of the High Court and Court of Appeal which were diametrically opposed in their outcomes. The issue at the High Court was whether the court had jurisdiction to determine the matter considering the arbitration clause in the contract, the High Court ruled that it had jurisdiction considering that the petition raised constitutional issues and considering that there were third parties enjoined in the suit who were not privy to the suit. The High Court also issued conservatory orders. The Court of Appeal on the other hand held that the High Court did not have jurisdiction and overturned the High Court’s decision. The Court of Appeal not only overturned the ruling of the High Court, but also granted relief in favour of the respondent and adverse to the appellant, while at the same time denying the High Court jurisdiction over the dispute between the parties.
Aggrieved the appellant filed the instant suit; among the grievances by the appellant on the decision of the Court of Appeal was that court’s failure to determine the pending applications. On the application by 1st and 2nd respondents for stay pending appeal under rule 5(2)(b) of the Court of Appeal Rules, the Court of Appeal had directed that parties maintain the status quo. Then there were three other applications. The first one was an application by the appellant to cite the 1st and 2nd respondents for contempt of court of the status quo orders. The second application was by the 1st respondent to adduce additional evidence while the third one was for joinder of the Chartered Institute of Arbitrators. None of these three applications was ever heard as applications nor determined in the eventual judgment.
- Whether the instant appeal raised a question of constitutional interpretation or application to warrant determination at the Supreme Court.
- What was the distinction between an appeal emanating from an interlocutory ruling such as a decision emanating from an application under rule 5(2)(b) of the Court of Appeal Rules and an appeal from a conservatory order?
- Whether the Supreme Court had the jurisdiction to determine appeals emanating from the Court of Appeal that arose from conservatory orders.
- Whether article 163(4) of the Constitution conferred upon the Supreme Court the jurisdiction to entertain an application challenging the exercise of discretion by the Court of Appeal under rule (5)(2)(b) of the C -----------ourt of Appeal rules of 2010.
- Whether applications for contempt of court were to be determined on a priority basis like preliminary objections.
- Whether the Court of Appeal erred in its refusal to decide a pending application on contempt of court
- What principles should courts apply in determining the status quo in interlocutory applications?
- The jurisdiction of the court stemmed from the Constitution itself, and also from Statute. While it was for the litigant to choose which jurisdiction to invoke, once that decision was made, they had to meet the set threshold. The appellant invoked article 163(4)(a) of the Constitution; however the issue of certification under article 163(4)(b) did not arise. The litigant coming before the Supreme Court had the duty of categorizing his or her case, so as to beckon the specific constitutional opening under which the matter fell. The court could not exercise concurrent jurisdiction simultaneously.
- The test was whether the appeal raised a question of constitutional interpretation or application and whether such a constitutional issue had been canvassed in the superior courts below leading to the instant appeal. In order to establish that fact, the court needed to ask itself the following questions:
- What was the question in issue at the High Court and the Court of Appeal?
- Did the superior courts below dispose of the matter after interpreting or applying the Constitution?
- Did the instant appeal raise a question of constitutional interpretation or application which was the subject of judicial determination at the High Court and the Court of Appeal?
- While the petition was yet to be heard on the merits, it was evident that whatever determination that would be made by the court eventually, a decision would have to be made one way or the other in relation to the said quoted provision of the Constitution. That decision would involve testing the evidence and arguments leading the court to either agreeing or disagreeing with the appellant. That decision inevitably involved interpreting and/or applying the Constitution in the matter before court, in line with the first test.
- Article 165(3)(b) of the Constitution clothed the High Court with jurisdiction to determine the question of whether a right or fundamental freedom in the Bill of Rights had been denied, violated, infringed, or threatened. In determining whether it had jurisdiction, the High Court established that the matter raised constitutional issues and questions that were not appropriate for arbitration.
- The High Court’s jurisdiction was challenged on account that the dispute was of a commercial and not constitutional nature. The court interpreted or applied constitutional provisions. Despite it being a ruling on grant of conservatory orders, the test was whether any interpretation or application of the Constitution could be readily identified from the pleadings and from the court decision. Looking at the ruling, the High Court was no doubt being asked to directly determine whether the matter involved constitutional questions or was merely a dispute arising out of a purely commercial agreement. On that invitation, the High Court stated:“My view is that the petition as drawn reveals that there did and do exist commercial agreements between the parties. For stated consideration certain proprietary rights are alleged to have been acquired and the same rights are also alleged to be taken away. Relevant articles of the Constitution have been identified and stated. The question for the court at the hearing of the petition will be whether what has been identified as constituting proprietary interest is ‘property’ within the provisions of article 40 and whether the same has been arbitrarily expropriated or whether the expropriation is, if at all, justified. That is the core question in this Petition and it is purely a question of constitutional interpretation and determination, in my view. This court has the requisite remit in my view.”This finding by the High Court appreciated that there existed a constitutional question arising out of article 40 of the Constitution in so far as it related to the dispute at hand.
- The last test was the rationale for the Court of Appeal’s decision and its resultant effect on the infringement of rights. That included a challenge on the preferred forum as directed by the Court of Appeal in the use of a private arbitrator to determine the arising constitutional question and the attendant recourse by third parties in that particular forum as well as the principles for grant of conservatory relief. The test was satisfied.
- The Supreme Court would not ordinarily entertain an appeal from a ruling emanating from the Court of Appeal’s exercise of its since the substantive appeal at the Court of Appeal would still be pending. For a party to be granted leave to appeal to the Supreme Court, there had to be a clear demonstration that such a question of law, whether explicit or implicit, had arisen in the lower tiers of courts, and had been the subject- matter of judicial determination. The Supreme Court had not been conceived as just another layer in the appellate - court structure. Not all decisions of the Court of Appeal were subject to appeal before the Supreme Court. The discretionary pronouncements appurtenant to the appellate court’s mandate fell outside the set of questions appealable to the Supreme Court. Such discretionary decisions, which originated directly from the appellate court, were by no means the occasion to turn this court into a first appellate court, as that would stand in conflict with the terms of the Constitution.
- Unlike the High Court which had express supervisory jurisdiction over the subordinate courts, the Supreme Court did not enjoy similar powers over other superior courts. That was notwithstanding the apex nature that the court was placed under the Constitution and the decisions being binding under the doctrine of stare decisis.
- Conservatory orders’ bore a more decided public law connotation: for those were orders to facilitate ordered functioning within public agencies, as well as to uphold adjudicatory authority of the court, in the public interest. Conservatory orders, therefore, were not, unlike interlocutory injunctions, linked to such private-party issues as the prospects of irreparable harm occurring during the pendency of a case; or high probability of success’ in the applicant’s case for orders of stay. Conservatory orders consequently, were not to be granted on the inherent merit of the case, bearing in mind the public interest, the constitutional values, and the proportionate magnitudes, and priority levels attributable to the relevant causes. Conservatory orders were not ordinary civil law remedies but were remedies provided for under the Constitution. Article 23 (3) of the Constitution empowered the court to, inter alia, grant conservatory orders. In the course of issuing the ruling, the court made certain pronouncements touching on the interpretation and application of the Constitution, which had found their way to the Supreme Court.
- The dispute was prosecuted through litigation and the surrounding issues determine whether indeed it qualified to be considered as a constitutional question or not. It was readily determinable for some of them and almost improbable to distinguish constitutional and other underlying issues in others. It was best left to the court on a case to case basis upon critically evaluating the facts, evidence and arguments before it. There would be a level of factual contestations that would inform the court’s determination even at an interim stage to determine whether or not the court should exercise its discretion in favour of the applicant seeking conservatory orders.
- The Supreme Court had the requisite jurisdiction to hear and dispose of this matter and none of the preliminary objections was merited and consequently all of them were dismissed. The court could only uphold objections that claimed that the matter did not involve interpretation of the Constitution once the superior courts below had conclusively expressed themselves on the merits, the parties being entitled to and having taken up the appellate mechanisms. Both objections were unmerited and were dismissed.
- Every litigant before court was entitled to a decision. The Court of Appeal fell into error by not making any determination on the application for contempt, both when the same was live before it and in the judgment that disposed of the matter with finality.
- Whereas the issue before us may not have been articulated at the Court of Appeal, the inherent jurisdiction of the court to right jurisdictional wrongs committed by the superior courts in executing their constitutional mandates would necessitate that this court should assume jurisdiction and interrogate those alleged wrongs. The Supreme Court was clothed with inherent powers which it may invoke, if circumstances so demanded, to do justice. The Constitution from which the court derived their legitimacy decrees that courts had to do justice to all.
- Contempt proceedings were a matter of public interest more so where allegations were made that one party was misusing the same to get at another without due process. Contempt proceedings may lead to imprisonment and therefore, where allegations of breach of the right to fair hearing are raised, the court ought to lend an ear to the complaining party.
- The appeal was premature as the Court of Appeal was yet to determine the dispute with finality. It was not for the court to direct how the appellate court would have dealt with the matters before it. That was a matter properly before that court which court knew or ought to have known how to deal with all issues placed before it for determination.
- Just like a preliminary objection, issues of contempt of court were to be prioritised and determined in limine as soon as it arose. Authority of the courts over a matter is an ongoing process that should be safeguarded during and after the court process. The effect of taking court processes and in particular court orders lightly even in the face of the court was that it was likely to encourage descend into anarchy and loss of confidence in the court process.
- It was an unfortunate misdirection that the appellate court, in the wake of such a contempt of court application, deliberately ignored the same and shelved it as a side show. Such an omission did not find any place for explanation in the judgment. The Court of Appeal erred in its refusal to decide on the pending applications either in a ruling or indeed in the judgment.
- Notwithstanding the underlying commercial transaction between the parties, there was no basis for the Court of Appeal to resolve the dispute based on contracts which were neither the subject matter of the appellant’s case nor the High Court ruling. In making the orders, the Court of Appeal completely changed the landscape of the dispute. First, it deprived the appellant of its recourse since the distribution territories subject to the dispute were no longer available to the appellant but were instead granted to third parties. Secondly, the third parties were not privy to or expected to be bound by the said commercial agreement and third, the decision inversely created obligations and rights of the parties, with the interim relief resulting to a finality of the rights of the parties.
- In granting the conservatory orders, the High Court retained control over the dispute as it was seized of the case and all parties were before it without any recourse to arbitration. In total contrast, the Court of Appeal, in overturning the conservatory orders and issuing further interim relief while referring the matter to the arbitrator, thereby divested itself of control over the case as the parties were deprived the liberty to proceed with the litigation. No further recourse by the parties on the interim orders was available to them before the High Court as it was equally bound by the decision of the Court of Appeal. The Court of Appeal had on its part ceded its potential intervention in the matter to the arbitrator.
- The jurisdiction of the arbitrator was limited by the appointing document and largely operates with the consent, cooperation and participation of the parties before it. Breaches, violations and infringements of the Constitution did not fall within the jurisdiction of arbitrators and such breaches could not be the basis of setting aside arbitral awards.
- There were parties in the instant matter who were not privy to the commercial transactions upon which arbitration would accrue. For instance, while the dispute was initially between the appellant and the 1st and 2nd respondents, other parties had since been added to the suit through the pleadings filed. The 3rd respondent was purported to have taken over distribution of the 1st and 2nd respondents’ products within the appellant’s distribution area; the 4th respondent was the holding company controlling the operations of the 1st and 2nd respondents; the 5th respondent is the 1st, 2nd, and 4th respondents’ controlling entity of these entities and their operations; the 6th and 7th respondents were distributors of the 1st and 2nd respondents.
- The mandate of an arbitrator largely proceeded on the basis of the agreement by parties, and was mainly tasked with the resolution of a dispute as set out in the governing agreement. Where the dispute, however, transcended the commercial dispute, well into the constitutional sphere, every person was free to access courts.
- There was no tension between arbitration and enforcement of constitutional rights as distinct dispute resolution mechanisms. A court of law could not turn a blind eye to alleged constitutional breaches in order to invoke the principle of party autonomy that bound parties to their agreements. That in itself did not mean that any person who set out to petition the court alleging violation of fundamental rights and freedoms under the Bill of Rights had to succeed, as cases were determined on their merits.
- The Court of Appeal, by overturning the ruling by the High Court, fell into error in more than one respect. That was by failing to appreciate and uphold that the dispute before the court related to breach of constitutional rights. In issuing the relief countermanding that made by the High Court and by referring the matter to the arbitrator, and making a full and final determination on matters still pending before the High Court, the Court of Appeal fell into further error. The Supreme Court corrected those errors by overturning the Court of Appeal decision in its entirety. Arbitration had to remain an option open to any party within their understanding of their contract. There was no bar to any of them invoking any arbitral clause to assert their rights under the said contract. The filing of proceedings under the Constitution could not per se be a bar.
- The substantive petition before the High Court was yet to be determined since the year 2016 when the appellant first approached court. As the dispute was still live at the High Court, it was only proper that the High Court be allowed to proceed to hear the matter on its merits.
- The Court of Appeal erred in not making any determination on the applications pending before it. The applications could be disposed of in two ways; the first option was for the court to assume jurisdiction and deal with the applications on merit within the judgment. The other option was to remit the applications back to the Court of Appeal which was seized of them for disposal.
- The Court of Appeal already having rendered itself in its judgment, as pertains to the instant matter, the court was functus officio. The Court of Appeal was aware of the pending applications, yet did not find a place to decide on the same in its final decision. There was no entry window upon which that court could entertain any matter, considering that the nature of the pending applications required that they be handled in the course of the proceedings, prior to the final judgment.
- The second option of seizing the jurisdiction was permitted under section 21(1)(a) of the Supreme Court Act 2011 which provided that on appeal in proceedings heard in any court or tribunal, the Supreme Court could make any order, or grant any relief, that could have been made or granted by that court or tribunal. Moreover, no purpose would be served by reopening the entire judgment of the Court of Appeal on the limited but crucial issues of contempt of court proceedings, application for joinder of a party and application for adducing more evidence in view of the instant court’s finding on the fate of the Court of Appeal judgment. The inherent jurisdiction of the Supreme Court point to the need to exercise such jurisdiction to remedy any apparent wrongs arising from the decision of the Court of Appeal. Article 159(2)(b) of the Constitution implored the courts to ensure that in exercising judicial authority, they were guided by the principle that justice should not be delayed. The instant matter having started in 2016, needed to have closure as quickly as possible, including the disposal of the applications that were undetermined by the Court of Appeal.
- The contempt proceedings arose out of the Court of Appeal’s orders on an application made for stay pending appeal under rule 5(2)(b) of the Court of Appeal Rules. Such an application had to be most expeditiously dealt with as soon as it arose. The approach taken by the Court of Appeal was to subordinate the application to the main hearing as parties were instead directed to engage their energies towards the substantive appeal.
- It was desirous that the status quo be ascertained as it was only upon such ascertainment that it would be possible to discern whether any contempt occurred as urged or not.
- Courts should be careful when issuing conservatory and other interim relief to parties. While it was well intended to preserve the substratum of the case by way of status quo orders, sight should never be lost of the fact that parties appearing before courts for such urgent relief were always at the height of their contest. If indeed the courts had to use the term status quo, it was only practical that the same be accompanied by the descriptive particulars of the exact position that the court seeks to preserve. That would avoid situations like the instant case where each party was left to its own perception as to what the court meant. That ultimately eroded the very essence of court intervention and subjected the court to undesirable controversy regarding compliance with the said order.
- An order to maintain the status quo could mean anything, everything and nothing. Unless it was clearly spelt out in precise and unambiguous terms what the status at a particular point in time was, it was a recipe for frustration and embarrassment for the court to simply order, without more, that the status quo be maintained. Such vague and imprecise orders served only to embolden individuals so-minded to do that which was intended to be prohibited or injuncted secure that they could escape because status quo was never spelt out clearly. The Court of Appeal status quo fit in the foregoing crucible of unclarity.
- The order of the court made on August 11, 2016 appreciated the existence of certain facts that the parties were not in agreement as to what the prevailing position was and that the parties were still trading, as they had done over a period of time.
- Status quo could only mean the position as obtaining at the High Court. The proceedings before the Court of Appeal only ensued as a result of the decision by the High Court made on June 29, 2016. The application was grounded on the position that had been argued before the High Court calling for referral of the matter to arbitration pursuant to clause 15. 2 of the agreement dated June 3, 2016. No evidence had been presented to demonstrate that it was brought to the Court of Appeal’s attention that the situation had changed either at the time of filing the application or at the time the order of August 11, 2016 was made by the Court of Appeal. It was the very basis of the High Court proceedings that the respondents sought to refer the matter to the arbitrator under the situation that was prevailing at the time, the merits of which were still pending before the High Court. The reason the respondents moved to the Court of Appeal under rule 5(2)(b) of the Court of Appeal Rules was to prevent the execution and implementation of the decision of the High Court.
- The issues raised were to be resolved in the substance of the appeal and that no direct orders sought were granted as to affect the orders of the High Court in place as at August 11, 2016. It was for that reason that the appeal was fast tracked for determination. The position then obtaining was as in the High Court orders of June 29, 2016, preserving the dealings of the parties as at February 2, 2006.
- The rationale by the High Court in basing its decision as at February 2, 2006 was that the appellant had paid goodwill to the 1st respondent in the sum of Kshs 27,300,000/= on that day which must had accrued some rights over a distribution route. The High Court had initially granted ex parte orders on June 14, 2016 which the 1st and 2nd respondents on the one hand and the 3rd respondents on the other hand had unsuccessfully tried to vary. That could only mean that the appellant, by the conservatory orders issued had its routes stated in the petition and the application for conservatory orders being Namanga, Bissil, Kajiado, Kitengela, Athi River, Industrial Area, South B, Nairobi West, Kenyatta, Langata, Rongai, Kiserian, Magadi, Upperhill, Ngong Road, Hurlingham, Kawangware, Satelitte, Dagoretti, UDV A, UDV B, and UDV C, protected.
- The Supreme Court could not, by the instant judgment, conclusively determine the merits of the case by the appellants that was otherwise pending before the trial court. However the court could deduce and establish from the declaration by the superior courts below that there existed continuing business arrangement with the 1st and 2nd respondents as at February 2, 2006 which the High Court preserved. The status quo orders by the Court of Appeal did not vary this position by the High Court and that explained why the appellant moved the Court of Appeal for contempt proceedings against the 1st and 2nd respondents.
- It was ingenious for the respondents to turnaround and raise expiry of contract that was never the subject of the court proceedings and determination. Even if that were to be the case, it was absurd that the 1st, 4th and 5th respondents would on one hand invoke the expiry of the contract to justify noncompliance with the court orders while at the same time relying on the same ‘expired’ contract to refer the matter to the arbitrator. One could not simultaneously simply approbate and reprobate. Moreover, the order of the Court of Appeal affirmed that as at August 11, 2016, when the contract relied upon by the respondents had ostensibly expired, the parties were still trading. That was the trading arrangement that both superior courts below preserved during the pendency of the hearing.
- There was breach of the status quo orders. That was manifest in the 1st and 2nd respondents’ attempt to terminate the contract with the respondent or otherwise interfere with the said routes as revealed in the position on record taken by the said respondents. The routes allocated under the two-month agreement were: Hurlingham, Industrial Area, Kenyatta, Langata, Nairobi West, South B and Upper Hill. In the letter dated August 5, 2016 the 1st and 2nd respondents’ advocates requested for evidence from the appellant of distribution routes as at February 2, 2006 was mischievous in view of their long-standing partnership. That by extension amounted to contempt of court on the part of the 1st and 2nd respondents and prompted the applications to court by the appellant. Such contempt was not to go unpunished.
- The Supreme Court had under section 28(4) of the Supreme Court Act the same powers and authority as those of the High Court to punish for contempt of court. The Supreme Court could also, under section 22 of the Supreme Court Act, remit proceedings that began in a court or tribunal to any court that had jurisdiction to deal with the matter. The dispute was live before the High Court. The application for contempt was promptly filed by the appellant both at the High Court and at the Court of Appeal once the appellant noticed that the respondents had altered the obtaining status.
- The High Court was directed to, on the basis of the finding on contempt, issue suitable punishment for contempt of court on priority basis as it dealt with the petition pending before it on its merits. There was a pending application before the High Court for contempt arising out of the status quo. The respondents could only appear at that point before the High Court to purge the contempt before they could be allowed audience before the court.
- The orders of June 29, 2016 made by the High Court were fully restored to enable the court resume the hearing on merit of the amended petition pending before it. The High Court was also to proceed to assess the suitable punishment arising out of the contempt application dated August 23, 2016 by the appellant pending before it.