Weekly Newsletter 002/2019

Weekly Newsletter 001/2019



Kenya Law

Weekly Newsletter


An arbitral award would be set aside on grounds of absence of a contractual right to commence arbitration proceedings and irregular appointment of arbitrators.
Dhanjal Investment Limited v Kenindia Assurance Company Limited
Petition of Appeal 7 of 2016
Supreme Court of Kenya at Nairobi
D K Maraga, CJ & P, P M Mwilu, DCJ & VP, M K Ibrahim, S C Wanjala & I Lenaola, SCJJ
November 20, 2018
Reported by Beryl A Ikamari
Download the Decision
 
Arbitration-interpretation of an arbitration clause-commencement of arbitration proceedings-apcpointment of an arbitrator-where an arbitrator was appointed unilaterally by an insured without the involvement of the insurer, in manner not contemplated by an insurance policy, to determine an insurance dispute and arbitration proceedings were undertaken without the participation of the insurer-whether an arbitral award arising from such proceedings would be set aside.
Contract Law-freedom of contract-terms of a contract-unambiguous terms of a contract-where an insurance policy allowed for institution of arbitration proceedings by the insurer but not the insured when there was a disclaimer of liability -whether a term that the insured could appoint an arbitrator without the involvement of the insurer could be read into such a policy.
 
Brief facts:
The appellant was insured by the respondent under a public liability insurance policy. While the policy was in effect, the appellant's customers, who were tourists, were attacked and deprived of their property. The appellant informed the respondent of the incident. 9 of the tourists instituted court proceedings against the appellant at the United Kingdom seeking compensation. The appellant wrote to the respondents asking them to take up defence in the suit and to indemnify the appellant under the policy. The respondent did not reply to the letter and that prompted the appellant to lodge a formal complaint with the Commissioner of Insurance.
Later, the respondent informed the appellant that the policy's jurisdictional clause did not allow the respondent to participate in proceedings instituted outside Kenya. The appellants were then found liable to pay the tourists Kshs. 379,317.37 and Shs.450,000 in liability and costs, for which the appellant sought indemnification from the respondent. The respondent did not indemnify the appellant.
Under the insurance policy, the respondent had a right to refer any dispute on its liability to arbitration but the appellant did not have a corresponding right. The policy also provided for a 12 months limitation period within which such a dispute would have to be referred to arbitration and after the expiry of that period the claim would be deemed to be abandoned and not recoverable.
In a manner not contemplated by the policy and three days before the limitation period lapsed, the appellant appointed an arbitrator pursuant to section 11(2) of the Arbitration Act 1995. After the appointment, arbitration proceedings went on without the respondent's participation and an arbitral award was published on December 8, 2008. The respondent instituted High Court proceedings to set aside the award. The High Court dismissed the suit and found that the policy allowed the respondent to refer a dispute to arbitration and that under clause 11 of the policy, there was a natural residual opening for the appellant to refer the dispute to arbitration. The High Court made a determination that the notice of the appointment of an arbitrator was sufficient notwithstanding the respondent's silence.
On appeal, the Court of Appeal made a finding that clause 11 which provided for the limitation period for purposes of referring disputes under the policy to arbitration, did not create a natural residual opening for the appellant to appoint an arbitrator. The Court of Appeal explained that under the principle of freedom of contract, courts should not re-write the terms of a contract and stated that there was no basis for the appointment of a sole arbitrator as sections 11(2) and 12(2) of the Arbitration Act 1995 were inapplicable. The appellants filed an appeal at the Supreme Court wherein they sought orders to set aside the Court of Appeal's decision and to enforce the arbitral award.
 
Issues:
  1. Whether insurance companies had the right in public insurance policies to set a 12-month limitation period relating to institution of arbitration proceedings for any claims arising and not made within that period and the nature of the remedy available to the insured as a result of that limitation, if the insurance companies chose not to commence arbitration proceedings.
  2. Whether the arbitration clauses in the insurance policy could be construed as terms that impliedly gave the insured a right to appoint an arbitrator or to commence arbitration proceedings.
  3. Whether the insurance policy permitted the insured to institute court proceedings where the insurer elected not to refer a disclaimer of liability dispute to arbitration.
  4. What would amount to a disclaimer of liability under the insurance policy?
  5. Whether it was possible under the insurance policy for the insured to appoint an arbitrator without involving the insurer.
Held:
  1. A concise reading of clause 10 and 11 of the policy led to the inevitable conclusion that clause 10 gave the respondent the sole right to initiate arbitration proceedings. Clause 11 provided for the limitation period. The limitation period was applicable where there was a disclaimer of liability by the respondent and the disclaimer had not been referred to arbitration within 12 months.
  2. The letter of July 31, 2007 in which the respondent declined to defend the court proceedings in the United Kingdom, while stating that the jurisdiction clause did not allow them to participate in legal proceedings outside Kenya, was not a disclaimer of liability. It was a response to a request by the appellant in which no specific claim under the policy was made.
  3. Three days before the expiry of the limitation period, the appellant appointed an arbitrator, without giving notice to the respondent. Under clause 12 of the policy, there were two dispute resolution mechanisms and they were arbitration and litigation. Given that under clause 10, it was only the respondent that could refer a dispute to arbitration, all other disputes, including disputes relating to the respondent's liability under the policy, would end in litigation before a competent court.
  4. The appellant did not explain why it did not exercise the option of litigation as it was open and available to it. Under the policy, reference to arbitration appeared to be an exception which was only applicable to an instance of disclaimer.
  5. If the appellant enjoyed similar rights as those of the respondent to refer a matter to arbitration, it would also have appointed an arbitrator in accordance with the terms of clause 10. Specifically, it would have named an arbitrator while inviting the respondent to do the same.
  6. Courts could not re-write parties' contracts. The policy document was not ambiguous and it gave the respondent the sole right to refer disclaimer of liability disputes to an arbitrator. The contra preferentem rule was not applicable to the circumstances and the respondent's invocation of arbitration under the policy was an error.
  7. The appellant did not have a right to refer the matter to arbitration and even if it had that right, there was a procedure applicable to the appointment of an arbitrator under the policy and the appellant did not follow that procedure. Therefore the appointment of the arbitrator was erroneous.
  8. Section 11(2) of the Arbitration Act 1995 provided that there would be one arbitrator, where parties who were free to determine the number of arbitrators failed to make that determination. That section would only be applicable where the respondent had been invited to participate in the arbitration process and to propose an arbitrator and where there was a failure to make such proposals the appellant would be at liberty to appoint the arbitrator. Sections 12(2) and 12(4) of the Arbitration Act 1995 were inapplicable to the present dispute as those provisions would only have applied if the parties had agreed upon a procedure of appointing the arbitrator.
  9. Section 14 of the Arbitration Act 1995 provided for the procedure for challenging arbitration proceedings and should be read together with section 13 which provided for the grounds for the challenge. Such grounds related to the impartiality, independence and qualifications of the arbitrator. The respondent did not indicate that it had such grievances against the arbitrator and those provisions were therefore inapplicable to the circumstances.
  10. Section 17 dealt with the competence of the arbitral tribunal and empowered the arbitrator to rule on his own jurisdiction including ruling on any objections with respect to the existence or validity of the arbitration agreement. The arbitral award only gleamed over the issue. Given that the appellant had no right to refer a dispute to arbitration under the policy and clause 11 of the policy did not provide for a residual right to institute such proceedings, the arbitration proceedings were irregular under the policy and the Arbitration Act 1995.
  11. In the Court of Appeal decision there was no reference to the notice of grounds affirming the decision of the High Court. In failing to specifically address the grounds, the Court of Appeal rendered them undetermined. Despite the Court of Appeal’s failure to make such determinations, the Supreme Court could consider the merit of the grounds of affirmation because the notice of grounds of affirmation was part of the material available to the Court of Appeal for consideration in arriving at its decision.
  12. The grounds of affirmation largely related to the respondent's conduct in the arbitral process, the applicability of section 12 of the Arbitration Act 1995 and the respondent's right to have the arbitral award set aside. The right of access to justice allowed every person to determine when and how to approach the courts and therefore, the appellant could not make such determinations for the respondent.
  13. The issues raised in the grounds of affirmation were dealt with during submissions. It was apparent that the Appellant's grounds of affirmation were without merit because the arbitration proceedings were a nullity and the respondent's conduct was therefore of no consequence.
Appeal dismissed.
Kenya Law
Case Updates Issue 002/2019
Case Summaries

JURISDICTION Extent of the Supreme Court’s appellate jurisdiction under article 163(4)(a) of the Constitution.

Bia Tosha Distributors Limited v Kenya Breweries Limited & 6 others
Application No 10 of 2017
Supreme Court of Kenya at Nairobi
D K Maraga, CJ & P, P M Mwilu, DCJ & VP, SC Wanjala, J B Ojwang, Njoki Ndungu, SCJJ
December 11, 2018
Reported by Beryl A Ikamari

Download the Decision

Jurisdiction-jurisdiction of the Supreme Court-appellate jurisdiction of the Supreme Court-matters of constitutional interpretation and application-the scope and extent of the exercise of the Supreme Court's jurisdiction under article 163(4)(a) of the Constitution-Constitution of Kenya 2010, article 163(4)(a).
Jurisdiction-jurisdiction of the Supreme Court-appellate jurisdiction of the Supreme Court-matters of constitutional interpretation and application-whether an issue of constitutional interpretation and application, capable of being determined at the Supreme Court, could arise from a ruling that determined an interlocutory application.
Jurisdiction-jurisdiction of the Supreme Court-appellate jurisdiction of the Supreme Court-matters of constitutional interpretation and application-substantive determination of disputed issues-whether a procedural direction issued by the Court of Appeal was a form of an order capable of being challenged by invoking the Supreme Court's jurisdiction under article 163(4)(a) of the Constitution.

Brief facts:
Under a strict distribution agreement, the applicant was the supplier of the 1st and 2nd respondents' liquor products. The respondents took up distribution in some of the areas covered by the agreement without compensating the applicant for good will and that prompted the filing of a constitutional petition at the High Court by the applicant. Within the petition, an application for conservatory orders was determined. The conservatory orders were granted on grounds that the applicant had on a prima facie basis established that its proprietary rights were being violated and the orders could be granted under article 23(3) of the Constitution.
The respondents went to the Court of Appeal to challenge the High Court's jurisdiction to issue the conservatory orders. They applied for a stay of execution pending the hearing and determination of the appeal. The Court of Appeal ordered for status quo to be maintained pending the hearing and determination of the appeal. The applicant made a further application relating to contempt of court as related to the orders to maintain status quo against the respondents. Pursuant to an order of the Court of Appeal, made on May 30, 2017 the matter was to proceed to the substantive hearing without a hearing and determination on the pending applications for contempt. The applicant made a Supreme Court application for stay of proceedings relating to the ruling of the Court of Appeal.
The respondents raised a preliminary objection stating that the Supreme Court lacked jurisdiction to entertain the matter under article 163(4)(a) of the Constitution. The respondents explained that the matter was not a constitutional issue that was the subject of proceedings from the Courts below. They stated that the issues raised in the Supreme Court petition had not be canvassed in any court and were matters of procedural directions within the power and supervision of the Court of Appeal.

Issues:

  1. When would the Supreme Court exercise its appellate jurisdiction under article 163(4)(a) of the Constitution?
  2. Whether the Supreme Court's jurisdiction under article 163(4)(a) of the Constitution could be invoked where the subject matter of the appeal arose from a ruling relating to an interlocutory application.
  3. Whether a procedural direction of the Court of Appeal was an order which could be challenged by invoking the Supreme Court's jurisdiction under article 163(4)(a) of the Constitution. Read More..

Held :

  1. A High Court interlocutory application determination could properly lay a foundation for an appeal before the Supreme Court. However, that determination would have to relate to constitutional issues canvassed before the High Court and it would have to be appealed against and to properly rise through the Court of Appeal before coming to the Supreme Court.
  2. The application before the Supreme Court did not relate to issues canvassed at the High Court and the Court of Appeal. The issues arising at the High Court were different from the issues arising at the Supreme Court.
  3. Under article 163(4)(a) of the Constitution, an appeal from the Court of Appeal to the Supreme Court would lie as of right in any case involving the interpretation or application of the Constitution. There was no judgment or substantive determination of a constitutional question by the Court of Appeal, which had been canvassed and determined at the High Court, and there was no judgment from the Court of Appeal relating to such a question.
  4. The Court of Appeal was yet to exercise its appellate jurisdiction, including jurisdiction relating to contempt of court, and there was no substantive decision from which the applicant could file an appeal.
  5. The making of procedural directions by the Court of Appeal, did not entail the interpretation or application of the Constitution and it was not a pronouncement or declaration of the Court. It was a mere procedural direction that would assist in efficient case management.

Preliminary objection upheld and application dismissed.

CRIMINAL PROCEDURE Closure of the prosecution case is an option available to the Court where a prosecution counsel fails to attend proceedings.

Republic v John Wambua Munyao & 3 others
Criminal Revision No 215 of 2018
High Court at Machakos
G V Odunga, J
December 21, 2018
Reported by Beryl A Ikamari

Download the Decision

Criminal Procedure-close of the prosecution case-where the prosecution case was closed by a magistrate's court due to a failure by the prosecution counsel to attend proceedings-whether the Magistrate's Court had jurisdiction to close the prosecution case in the absence of the prosecution counsel.

Brief Facts:
The applicant sought revision of orders of the Chief Magistrate's Court whose effect was to close the prosecutions case due a failure by the prosecution counsel to attend court. It was explained that on the hearing date, the prosecution counsel was unwell and had instructed another counsel to hold her brief but that counsel got busy and she failed to hold brief.
The applicant contended that a properly constituted court required the judicial officer, the accused person and the prosecution counsel and the orders in question could not be issued in the absence of the prosecution counsel. Therefore, the applicant concluded that the Magistrate's Court acted erroneously in closing the prosecution case in the absence of a prosecution counsel. The applicant added that the decision denied the prosecution the chance to adduce evidence and also denied the victims a right to be heard as part of the right to a fair trial. The applicant also alleged that the decision to close the prosecution case was based on bias and anger related to an earlier encounter between the Magistrate's Court and the prosecution counsel.

Issue:

  1. Whether the Chief Magistrate's Court had jurisdiction to close the prosecution case in the absence of the prosecution counsel.
  2. What was the difference between revision and an appeal and when would it be appropriate to file an appeal instead of an application for revision? Read More...

Held:

  1. The application was said to be brought under section 349 of the Criminal Procedure Code. That was erroneous. The correct legal provision ought to have been section 362 of the Criminal Procedure Code. However, it was not a serious omission although counsel ought to ensure that the correct legal provision was cited.
  2. Generally, under the Criminal Procedure Code, the prosecution was required to adduce evidence in support of the charge and to make submissions before a ruling on a case to answer could be made. In a criminal trial, the victim and complainant had a compelling interest in knowing the trial's outcome and such concerns could not be answered by the fact that the prosecution did not attend proceedings.
  3. The High Court's powers of revision under section 362 of the Criminal Procedure Code had the purpose of enabling the High Court to satisfy itself as to the correctness, legality or propriety of any finding, sentence or order recorded or passed, and as to the regularity of any proceedings of any subordinate court. If out of anger, a subordinate court made a wanting decision the High Court would step in and correct it.
  4. An issue about the merits of a decision or about the wrongful exercise of discretion, which did not call into question the decision's legality, correctness or propriety, would be an issue for which the remedy was an appeal. The High Court's revisionary jurisdiction should not be a substitute for an appeal and should only be invoked where there were glaring omissions or commissions. A party should not argue an appeal under the guise of revision. Except where orders prejudiced an accused person, the decision on whether or not to hear parties was discretionary.
  5. There was no evidence that the reasons for the prosecution counsel's absence were brought to the Court's attention before it commenced its sittings. Under those circumstances, there were various options available to the Court. The Court could adjourn the hearing or it could acquit the accused person. The exercise of discretion within that scope would not amount to incorrectness, illegality or impropriety which could be redressed by invoking the High Court revisionary jurisdiction. The Magistrate's Court was entitled to proceed with the matter in the way that it did.

Application dismissed.

CIVIL PRACTICE AND PROCEDURE The Supreme Court will not grant a stay of execution where a notice of appeal was filed but the appeal at the Supreme Court was not instituted within the stipulated period.

James Mbatia Thuo & another v Kenya Railways Corporation & another
Civil Application 10 of 2017
Supreme Court of Kenya at Nairobi
P M Mwilu, DCJ & VP, M K Ibrahim, S C Wanjala, S N Ndungu & I Lenaola, SCJJ
November 8, 2018
Reported by Beryl A Ikamari

Download the Decision

Civil Practice and Procedure-appeals-stay of execution-stay of execution sought at the Supreme Court against a Court of Appeal decision-where a notice of appeal was duly served and filed at the Supreme Court but the appeal was not lodged within the required period-whether under the circumstances, the Supreme Court could grant a stay of execution-Supreme Court Act, No 7 of 2011, section 11; Supreme Court Rules 2012, rules 4A (2), 33(1) & 53.

Brief facts:
An application was made for a review of the decision of the Registrar of the Supreme Court where a stay of execution of the judgment of the Court of Appeal dated December 18, 2015 was declined. The application seeking orders of stay was dated May 17, 2017. In declining to grant the orders, the Registrar of the Supreme Court stated that the right of appeal had lapsed and that the applicants had not sought certification that the matter involved questions of general public importance.
The applicants explained that the notice of appeal was filed and served on the respondents on December 23, 2015 but there was a delay in filing the record of appeal as a typed copy of the Court of Appeal proceedings had not been availed despite the making of an application on January 7, 2016. The applicants said that the application was urgent as one of them was facing eviction after being asked to deliver vacant possession of premises by May 31, 2017.
In response, the respondents stated that the applicants had not complied with legal requirements on seeking certification that the intended appeal raised issues of general public importance and filing the petition of appeal and record of appeal within 30 days of the date of filing the notice of appeal. 

Issue:

  1. Whether the Supreme Court had jurisdiction to grant a stay of execution after the filing of a notice of appeal without the institution of the appeal at the Supreme Court within the stipulated period.Read More..

Held:

  1. Section 11(1) of the Supreme Court Act, 2011 and rule 4A (2) of the Supreme Court Rules, 2012, provided for the power of the Supreme Court to review the decisions of the Registrar of the Supreme Court. In reviewing such a decision the Supreme Court had the power to confirm, modify or reverse it and the review decision would be final.
  2. At the time the applicants lodged their application for a stay of execution, they had not filed an appeal at the Supreme Court and the time allowed for the filing of that appeal had lapsed. Additionally, the applicants had not made an application for extension of time within which to file their appeal as provided for under rule 53 of the Supreme Court Rules, 2012.
  3. The applicants did not offer reasons to explain why they had not applied for extension of time to file the appeal. Such an application would have enabled them to file their appeal and it would have provided legal grounding for the application for stay which was rejected. In the absence of an appeal, or an application for extension of time, accompanied by a memorandum of appeal, the rejected application had no legal basis.

Application dismissed.

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The Kenya Law Team

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