Is Arbitration In Kenya a Precursor To Litigation? A Look At The Nyutu Agrovet Ltd vs Airtel Networks Kenya Ltd Decisions: From The High Court To The Supreme Court

In the recent past there have been appreciable development in Kenya’s judicial system touching on arbitration  and  the powers of the Courts post arbitration award. These developments are likely to have far reaching effects on the businesses which hitherto preferred arbitration as a dispute settlement  mechanism and  which would readily insert arbitration clauses in  their agreements. The motivation has traditionally been  the perception that arbitration is  not time consuming, is efficient and is done in the privacy [and comfort] of the parties, who in most cases,  have a  say on  the choice of the arbitrator(s).  The therefore arbitration is better that litigation.

In a recent Supreme Court decision, the Court made far reaching findings  regarding section 35 of Kenya Arbitration Act. This section had allowed a party to involved in arbitration to apply to the High Court to set aside an arbitration award, but it was silent on  whether the High Court’s decision in this regard was appealable.

Synopsis of the  [Supreme Court]  Decision

The High Court  Decision

The High  Court[ Nairobi High Court Misc. 400 of 2011- Airtel Networks Kenya Ltd vs Nyutu Agrovet Ltd],  set aside an Arbitration award under section 35 of  the Arbitration on the grounds that the Arbitrator had gone outside the terms of reference to arbitration. (HC decision; http://kenyalaw.org/caselaw/cases/view/78092)

The Court of Appeal Decision

This decision led to an  appeal to the Court of Appeal [Nairobi Civil Appeal No. 61 of 2012– Nyutu Agrovet Ltd vs Airtel Networks Kenya Ltd ]. However before the appeal could be heard on merit it was challenged by the Respondent[ Airtel] on the basis that no appeal could lie from the decision  of the High Court  made under section 35 of the Arbitration Act. It is worth noting that the said section is indeed silent on  whether  a party can prefer an appeal.

In its ruling , the Court of Appeal struck out the entire record of  appeal citing lack of jurisdiction to hear the appeal. The effect that appeal was thus struck out with the Court of Appeal holding that the Court’s intervention in arbitration proceedings should be limited. The  Court  held that  no right of appeal lies from the decision of the High Court to the Court of Appeal; that such an appeal can only lie if the parties had a prior agreement before to delivery of the award  or if the Court of Appeal expressly grants leave to appeal; and that the principal of finality of arbitral awards as enshrined in the UNCITRAL model law that has been adopted by many nations must be respected.( http://kenyalaw.org/caselaw/cases/view/106473/)

The Supreme Court Decision

This case has recently found itself  before the Supreme Court[[SC Petition Number 12 of 2016 Nyutu Agrovet Ltd vs Airtel Networks Kenya  Ltd] om appeal where again the sticking point was whether section 35 of the Kenya’s Arbitration Act  expected the High Court’s decision ( setting aside /upholding an arbitration award) can be challenged at the Court of Appeal.The appex court was therefore called upon to give its [ final] say on this matter.

In its  decision, the Kenya’s Supreme Court (by majority) held that the Court of Appeal has jurisdiction to entertain appeals from the High Court regarding setting aside of arbitration awards. Accordingly the Court has now directed that the initial appeal from the High Court [which was challenging the setting of the Arbitration award] be heard by the Court of Appeal on merit.

The judges  also held that the High Court needs to adjudicate application for leave to appeal such decisions with a view of weeding our frivolous attempts. It is instructive that the majority of the Supreme Court judges  indeed agreed with the arguments proferred by the Kenya’s Chartered Institute of Arbitrators which had preferred limited judicial intervention in arbitration proceedings. The Institute[ as an Interested Paryt at the Supreme Court hearing] had argued that that the only instance that an appeal my lie from the High Court to the Court of Appeal on   a finding made under section 35 should be when the High Court steps outside the   section[35] and thus  making a decision so grave so manifestly wrong and completely closing the door justice to either of the parties.

And yes, there was a dissenting opinion by Justice Maraga , who  In his dissenting Opinion, noted that “Most parties especially those engaged in commercial transactions desire expeditious and absolute determinations of their disputes to enable them move on with their businesses. They require a final and enforceable outcome” (http://kenyalaw.org/caselaw/cases/view/186050/).

Is the  Supreme Court Decision Good, or Bad for Arbitration?

Does the decision firmly put arbitration disputes within the control of the Judicial system thus negating the concept of ” finality of arbitration decisions? .There will of course various opinions on these issues. The net effect of the decision is that the Court seems to have opened up section 35 of the Arbitration Act. And this should be welcome , if looked at from the point of miscarriages of justice. There have been many a dispute before the High Court where   Parties have been forced to contend  the  ‘final’ High Court findings, however manifestly unsound. The limited window of challenging the High Court’s findings at the Court of Appeal therefore a progressive jurisprudence.

Ofcourse there is the argument such as the one held by Maraga CJ [ in his dissenting opinion] that this opening up  can impact negatively in the finality of arbitration proceedings. However, this argument many not necessarily be true. Commercial entities will readily embrace arbitration  if they know that unsound decisions  of the High Court, especially those made under section 35  of the Arbitration, are appealable. This will also lead to a unique jurisprudence in Arbitration. The finding therefore does not necessarily make arbitration a precursor to litigation.This clarity could actually be a plus as commercial entities will henceforth know how the available post- arbitration litigation channels. Will this make entities shy away for Arbitration clauses? Very unlikely.