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|Case Number:||Civil Appeal 43 of 1981|
|Parties:||Agip (K) Ltd v Kibutu|
|Date Delivered:||21 Dec 1981|
|Court:||Court of Appeal at Nairobi|
|Judge(s):||Eric John Ewen Law, Alfred Henry Simpson, Kenneth D Potter|
|Citation:||Agip (K) Ltd v Kibutu  eKLR|
|Advocates:||Mr AA Lakha for Appellant Mr Kirundi for Respondent|
|Advocates:||Mr AA Lakha for Appellant Mr Kirundi for Respondent|
Agip (K) Ltd v Kibutu
Court of Appeal, at Nairobi December 21, 1981
Law, Potter JJA & Simpson Ag JA
Civil Appeal No 43 of 1981
Arbitration - contract containing arbitration clause - suit for breach filed in court - no application for stay of proceedings filed as required under Section 6(1) of the Arbitration Act - matter ordered to be referred to arbitration without the mandatory stay order - format of application for stay of proceedings - whether application can be made through pleadings - conditions to be satisfied before application can be granted.
Jurisdiction - does the existence of an arbitration clause affect the jurisdiction of the court to entertain a suit - does the filing of a defence invoke the jurisdiction of the court - can one after filing defence deny the jurisdiction of the court.
Injunction - application for - dismissal of application without hearing the merits.
Remand - case remitted for retrial.
The appellant and respondent had entered into an Operator Agreement Contract to lease a petrol station. A dispute arose relating to construction on the petrol station. The appellant alleged that the respondent had breached the agreement. The agreement contained an Arbitration clause. The respondent filed a suit in the High Court. The appellant filed a defence arguing that the matter should be referred to arbitration but made a counter claim in the same defence.
The trial Judge held that clause 14 of the agreement required the dispute to be referred to arbitration in the preliminary issue in the defence of the respondent/defendant. The judge further held that the respondent/defendant had correctly raised the preliminary issue but had counter claimed in the alternative should the preliminary objection not succeed. The Judge then proceeded to dismiss the application for the temporary injunction without hearing the merits of the case. The appellant/plaintiff appealed on the grounds that; The learned judge erred in finding that the case should be referred to arbitration; the judge erred in making a ruling on the preliminary issue raised by consent of the parties for determination of the court before hearing the main application for the issue of a temporary injunction; the judge misunderstood the decision in Maluki v Oriental Fire and General Insurance  EA 162 and finally that the judge erred in dismissing the application for a temporary injunction without giving the parties an opportunity to be heard.
1. An order for stay of proceedings is an essential prerequisite before a matter can be referred to arbitration as set out in Section 6 (1) (b) of the Arbitration Act Cap 49. The application for stay must be made before any step is taken in the suit.
2. An application for stay of proceedings pending the enforcement of the Arbitration clause should be made by way of Notice of Motion supported by an affidavit and cannot be disguised as a point of law in a pleading.
3. An order for stay of proceedings cannot be implied from the pleadings or in a ruling, the judge must clearly make such an order and before order can be granted, the applicant must satisfy the court that he will assist in all that is necessary for the proper conduct of the arbitration. Therefore even if the defence could be said to be an application the “applicant” had not satisfied the court accordingly.
4. The defence and counterclaim in this case constituted a step taken and invoked the jurisdiction of the court, after which it was no longer open for the defendant to apply for stay.
5. Where the trial judge dismisses an application for a temporary injunction without hearing the merits and demerits of a case, the appellate court has no choice but to remit the matter to the high court for retrial.
6. The plaintiffs application for the temporary injunction be remitted to the High Court to be heard and determined by another judge and all formal orders be set aside.
1. Maluki v Oriental Fire and General Insurance  EA 162
2. Purshottam v Keshavlal (21 EACA) 111
3. Kenya Oil Co Ltd v Rajwani & Rajwani (C App No 50 of 1977) (unreported)
1. Arbitration Act (Cap 49) Section 6(1) & (b)
2. Arbitration Act Section 6(1)(a)
Mr AA Lakha for Appellant
Mr Kirundi for Respondent
|History Advocates:||Both Parties Represented|
|Case Outcome:||Appeal Allowed.|
|Disclaimer:||The information contained in the above segment is not part of the judicial opinion delivered by the Court. The metadata has been prepared by Kenya Law as a guide in understanding the subject of the judicial opinion. Kenya Law makes no warranties as to the comprehensiveness or accuracy of the information|
IN THE COURT OF APPEAL
( Coram: Law, Potter JJA & Simpson Ag JA )
CIVIL APPEAL NO. 43 OF 1981
On May 1, 1980, the appellant Agip (Kenya) Ltd who was the plaintiff in the court below and to whom for convenience we shall hereinafter refer as “the plaintiff” entered into an agreement with the respondent/ defendant (hereinafter referred to as “the defendant”) whereby the defendant was permitted as a licensee to enter and operate the plaintiff’s petrol filling and service station on Park Road, Nairobi. Alleging failure on the part of the defendant to comply with the terms of the agreement, the plaintiff terminated it with effect from April 1, 1981. The defendant having failed to deliver up possession the plaintiff sued him in Civil Suit No 1121 of 1981 for possession, mesne profits, general damages for loss of goodwill and an injunction restraining the defendant his servants or agents from carrying on business in the premises. In paragraph 6 of his defence and counterclaim claiming damages for negligence and breaches of the agreement by the plaintiff the defendant states that he will crave leave of the court
“to refer to clause 14 of the Operator Agreement that this suit is improper before this Court as it has not been referred to an arbitrator.”
No reference to this paragraph is made by the plaintiff in its reply and defence to counterclaim. Clause 14 of the Operator Agreement reads as follows:
“14. Any dispute or difference between the parties hereto touching the construction meaning or effect of any matter arising therefrom shall be referred to the arbitration of two persons one to be appointed by each party to the reference and an umpire to be appointed by the arbitrators in writing before entering upon the reference and any such arbitration shall be subject to the enactments governing arbitrations in Kenya.”
On July 10, 1981, the plaintiff applied by chamber summons for a temporary injunction restraining the defendant from carrying on business in the premises pending the hearing and determination of the suit. According to the brief record of the proceedings counsel for the plaintiff pointed out that the defendant had failed to apply for a stay of proceedings. In reply the defendant’s counsel referred to paragraph 6 of the defence. There is no record of any submissions on the merits of the application and in his Ruling the learned judge noted that the parties had agreed that before hearing the merits of the application he should determine whether or not the suit should be referred forthwith to arbitration without granting a temporary injunction.
For the plaintiff it was argued that because the defendant had put in a counterclaim he had waived his right to go to arbitration. The plaintiff’s advocate relied on the decision of the East African Court of Appeal in Maluki v Oriental Fire and General Insurance  EA 162 which the learned judge held was not applicable because whereas in that case there had been an application for a stay of proceedings in the present case there had been no such application.
The judge held that clause 14 of the Operator Agreement required all disputes between the parties to be referred to arbitration, that the defendant had raised clause 14 as a preliminary issue in his defence and it was clear that what he was saying was that the dispute should go to arbitration but that if he was wrong in that then he had a counterclaim on the merits. The judge then proceeded without hearing further submissions to dismiss the application for a temporary injunction. It is against this ruling that the plaintiff now appeals on the following four grounds:
1. The learned judge erred in finding that this dispute be referred to arbitration because:
a) there was no application before the Court for stay of proceedings pending arbitration,
b) by filing a defence and counterclaim in the suit, the defendant was disqualified from relying on and/or waived the operation of the arbitration clause in the agreement under dispute.
2. The learned judge erred in failing to make a ruling on his finding on the preliminary issue raised by consent of the parties for determination by the court before the hearing of the main application for the issue of a temporary injunction.
3. The learned judge misread, misunderstood, and misapplied the decision in Maluki v Oriental Fire & General Insurance  EA 1962.
4. The learned judge erred in dismissing the application for a temporary injunction without giving the parties the opportunity to address the Court on the merits and demerits of the said application.
Mr AA Lakha for the plaintiff, the appellant in this appeal, submitted before us that the only issue before the learned judge was whether the dispute should be referred to arbitration, but the judge did not decide this issue. What he did do was to dismiss the plaintiff’s application for a temporary injunction, which was not an issue before him. As the judge said in his ruling —
“The parties have agreed that I should determine this matter (meaning whether the dispute should be referred to arbitration) before hearing the merits of this application for the temporary injunction.”
He never heard any argument on those merits, and we have no doubt that his dismissal of the plaintiff’s application, which was not in issue before him, and as to which he heard no argument, was wrong. The appeal must succeed in this respect.
As regards the appeal against the dispute being referred to arbitration, the learned judge made no such order, nor did he order the suit to be stayed, which is by Section 6(1)(b) of the Arbitration Act (Cap 49) an essential prerequisite before a matter can be referred to arbitration in accordance with an agreement to that effect. Mr Kirundi for the defendant, the respondent in this appeal, submitted that it must be implied from the general tenor of his ruling, that the learned judge did make such an order. We do not see how such an implication can possibly be justified. The formal order drawn up in this case merely says
“That the plaintiff’s application be and is hereby dismissed.”
Nothing is said about staying the suit, or referring the dispute to arbitration. There is no room for implying the making of any such orders.
A strange feature of this appeal is that there has never been an application by the defendant for the suit to be stayed. The existence of an arbitration clause in the agreement between the parties was referred to in the defence as a point of law affecting the court’s jurisdiction to entertain the suit, and appears to have been treated by consent of the parties as equivalent to an application for a stay under Section 6(1) of the Arbitration Act. But such an application must be made “before delivering any pleadings or taking any other steps in the proceedings”. To make the existence of an arbitration agreement a ground of defence is, as was said by Sir Newham Worley Ag P in Purshottam v Keshavlal (21 EACA) 111 “selfdestructive”, because it involves the delivery of a pleading before the application for a stay is heard. The only way in which an application for stay to enforce an arbitration clause in an agreement can be made is by notice of motion supported by affidavit; it cannot be disguised as a point of law contained in a pleading. As the application must be made before any step is taken in the suit, it cannot be incorporated in a pleading, delivery of which constitutes a step in the proceedings. In the instant case, not only was a defence delivered, but it included a counterclaim, which is a crosssuit, and which invokes the court’s jurisdiction to deal with the dispute. Furthermore, there is no affidavit by the defendant on record to the effect that he is, and was at the commencement of the proceedings, ready and willing to do everything necessary for the proper conduct of the arbitration. The court must be satisfied as to this, and unless so satisfied the application to stay must be dismissed. As to this, see Halsbury’s Laws of England, 4th Ed, Vol II, paragraph 564, and the judgment of Madan JA in Kenya Oil Co Ltd v Rajwani and Rajwani (Civil Appeal No 50 of 1977, unreported). There is no holding in this case by the judge that he was so satisfied. Assuming that the learned judge did treat the point of law raised in paragraph 6 of the defence as being an application for a stay, we consider that it should have been dismissed under paragraphs (a) and (b) of Section 6(1) of the Arbitration Act for two reasons -
1. because the application to stay was not made before delivering a pleading, and
2. because there was no material before the judge to satisfy him that the defendant was at the time the proceedings were commenced and still remained ready and willing to do all things necessary to the proper conduct of the arbitration.
For these reasons, we are of the opinion that this appeal must be allowed, with costs, and we so order. It was not open, and is not now open, to the defendant to apply for the suit to be stayed, as he has taken a step in the proceedings by delivering a defence and counterclaim before making any such application. The plaintiff’s application for a temporary injunction was prematurely dismissed, as it was not an issue before the court and no argument on its merits was heard. We set aside the ruling and formal order, the subject of this appeal, and direct that the plaintiff’s application dated June 11, 1981, for a temporary injunction, be remitted to the High Court to be heard and determined by another judge. The costs of the abortive hearing in the High Court will be in the discretion of the judge who hears and determines the application dated June 11, 1981.
Dated and Delivered at Nairobi this 21st day of December 1981.
JUDGE OF APPEAL
JUDGE OF APPEAL
AG.JUDGE OF APPEAL
I certify that this is a true copy
of the original.