Professional Documents
Culture Documents
Firstly that the arbitrator or the tribunal must be and must be seen to
be disinterested and unbiased.
Secondly, every party must be given a fair opportunity to present his ca
se and to answer the case of his opponent.
1
The arbitrator has an obligation to conduct the reference impartially in
both actions and words and to decide each issue put before him fairly an
d impartially. And whatever the provocation, each decision must be made
impartially. There is therefore an overriding duty to work fairly and di
spassionately even if one of the parties, for example, provokes the arbi
trator by making the wildest of accusations.
The arbitrator should also take pains not to associate with one party of
his representative more than with the other. He should, for example, nev
er have lunch with one party during a hearing or in the course of the re
ference in the absence of the other party. He should also try to avoid e
ven casual conversation with one side in the absence of the other. For h
is confidence in his own probity may not be shared by a party who does n
ot know him.
Each party must also be given a fair opportunity to present their case a
nd to know the opposing case and to meet the opposing case.
Under Section 21 the parties have the right to agree on the venue, faili
ng which section 21 (b) intervenes.
Section 25 provides that the arbitral tribunal must hold oral hearings u
nless the parties have agreed that no hearing shall be held. For the sa
me reason an arbitrator should not receive oral evidence or arguments fr
om one party in the absence of the other. Neither should the arbitrator
receive any document from one party without ensuring that the other part
y receives a copy. It is important to make it clear to the parties that
all correspondence with the arbitrator must be copied to the other party.
This should be in the agenda of the preliminary meeting.
Other provisions in the Arbitration Act that you may want to look at:
2
Section 29: obligation on the part of the tribunal to decide the dispute
in accordance with the rules agreed upon by the parties
What happens when an arbitrator uses his knowledge and experience to det
ermine the matter? Should the parties have right to influence the judg
e’s mind? That is where the arbitrator is empowered by the parties to u
se his own expertise, he should grant the parties an opportunity to comm
ent on his views and so on.
Section 35 deals with the setting aside of an award. If a party was not
afforded an opportunity to be heard, notice not served, appointment of a
rbitrator, etc.
Go through the Arbitration Act in your own time and see what sections
have a bearing on natural justice.
ALTERNATIVE DISPUTE RESOLUTION LECTURE 2 FEBRUARY 2004
3
The statute that deals with arbitration in Kenya is the Arbitration Act
(1995) Act No. 4 of 1995 Cap 49 Laws of Kenya. This statute commenced o
n the 2nd of January 1996 by virtue of Legal Notice No. 394 of 1995. Th
is date is important because prior to this statute we had an Arbitration
Act that was based on different legal principles for instance under the
repealed or previous Acts, the courts had a wider role in Arbitration th
an they do under the current Act. Parties to Arbitration under the prev
ious statute had recourse to the High Court more than they do under the
current Act. For instance under the old Arbitration Act a party could c
hallenge an award of an arbitrator on the grounds that the arbitrator ha
s misbehaved in the course of arbitration. Misbehaviour on the part of
an arbitrator suggested that it was a ground on which the award could be
challenged which is not the case under the current law. Some cases may
suggest that one might have recourse to the High Court when it is not so.
Under the current Act the situations where one can go to court to comp
lain after arbitration are limited.
4
Effectively what those two parties have done is to select certain type d
isputes that would arise under that agreement and decide that they are t
he only two that would go to arbitration if they arose. Parties are at
liberty to select certain disputes and agree that those should go to arb
itration while others may remain for determination by the courts.
The formal requirements under the Arbitration Act are set out under Sect
ion 4 of the Arbitration Act and the first thing the statute provides fo
r is that an arbitration agreement may be in the form of an arbitration
clause in a contract or it may be in the form of a separate agreement al
l together. So for example in a contract between the government and a b
uilding road contractor, the contract will set out what the works are an
d the instructions from the engineer and one of the clauses in that agre
ement may simply be the clause that says any or all the disputes arising
from this contract shall be referred to Arbitration. That is one option.
5
Section 4 (4) … the reference in a contract to a document containin
g an arbitration clause shall constitute an arbitration agreement if the
record is in writing and the reference is to make that arbitration claus
e part of the contract. This is talking of incorporation of an arbitrati
on agreement by reference.
In practice not both parties to an agreement are as keen to have the dis
pute resolved. The disputants are usually at different positions. So i
f you have a clause that facilitates a bbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbb
bbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbprotraction of the proces
s then the Respondent will capitalise on it since he is not interested i
n having the matter resolved. It is thus advisable that a basic arbitra
tion agreement or clause should provide some essential details. For if
an arbitration clause simply provides that disputes to be settled by arb
itration questions would arise as to how the arbitrator is to be appoint
ed, what qualifications the arbitrator should have, where the arbitratio
n should take place, how many arbitrators, what substantive law is to ap
ply to that contract, what procedural law is to apply to that contract e
tc.
Is there a distinction between the law governing the contract and the la
w governing the arbitration?
There is a distinction between the law governing the contract and the la
w governing arbitration. For instance if a contract stipulates that in
case of a dispute the substantive law to apply will be Kenyan law, then
any other arbitration law will apply. It is important if one is to avoi
d conflict in basic matters that the arbitration clause should be as cle
ar in these matters as possible.
Section 11 of the Arbitration Act provides that the parties are free to
determine the number of Arbitrators and section 11(2) failing a determin
ation by the parties on the number of arbitrators, the number shall be o
ne. The nature of the dispute should dictate how many arbitrators to go
for.
2. METHOD OF APPOINTMENT
6
A lot of time can be spent and wasted between parties on this question o
nce a dispute has arisen. The default position is that if the parties do
not agree on the method of appointing then they can apply to the court t
o appoint Section 12 of the Arbitration Act. There is a drawback in doi
ng that, firstly time is of the essence and you will lose so much time l
ike a few months. Then there is the question of the costs to be paid to
court over the process. So if the procedure for appointment had already
been provided for in the arbitration clause one can avoid the delay and
the cost. Parties will choose an institution if they are not agreeable
on an arbitrator, they can approach another institution i.e. the charter
ed institute of arbitrators to appoint. They can for example decide if
there is a dispute as to method the chairman of LSK becomes the appointi
ng authority.
4. TIME FRAMES
Time frames are matters that should be spelt out in the Arbitration Agre
ement for the following:
the time limit for the giving of the notice of claim
the time limit for giving of notice to appoint an arbitrator;
and the time limit for the commencement of arbitration.
Time frames give certainty in any industry and a time frame within which
the parties should agree is essential.
5. REMUNERATION:
Parties may decide how the arbitration costs are to be shared, whether t
he loser in the dispute bears the cost or both parties provide for the c
osts.
Section 12 of the Arbitration Act provides that parties are free to agre
e on procedure of appointment and failing such agreement where parties h
ave provided for 3 arbitrators the presumption is that each party shall
appoint one arbitrator each and the third one is to be appointed by thos
e two.
7
In arbitrations where provision is made for one arbitrator then the part
ies should agree on the person to be appointed failing which an applicat
ion is then to be made to the High Court.
It also provides for what is to happen if one of the parties does not co
mply.
WHAT HAPPENS WHERE PARTIES HAVE AGREED THAT DISPUTES WILL GO TO ARBITRAT
ION BUT ONE PARTY RENEGES AND FILES A SUIT IN COURT?
Arbitration
Negotiation - meet and sit down and try and arrive at a conflict resolut
ion without help of a third party
Mediation - facilitated negotiation there is a neutral third party who a
ssists the parties in dispute resolution.
8
Alternative Dispute Resolution refers to processes for resolving dispute
s other than litigation. The distinction between the various types of d
ispute resolution processes, they can be arranged from the perspective o
f the level of control the disputants have over the process the more for
mal they get the less control the parties have.
Dispute Prevention
Negotiation
Mediation;
Hybrid between mediation and arbitration (Medarb)
Hybrid between arbitration and mediation (Arbmed)
Arbitration
Litigation or the trial itself.
There are other mechanisms or processes that exist; there are many trial
s and early neutral evaluations. As we examine these processes the foll
owing features emerge
a. The more formal the process, the higher the level of involvement b
y a third party in the process. Parties do not have a say in the process
itself but they are bound by rules of procedure which they have to follo
w so compared to other processes like arbitration the element of party p
articipation in arbitration is higher because the parties are at liberty
to decide which rules of procedure to apply or the venue etc.
b. As you approach the more formal processes like litigation, the pro
cess is increasingly formal from the dress that the parties wear, i.e. w
igs an gowns in litigation or judicial process, manner of address, refer
ences to magistrates and Judges as my lord and your honour, the requirem
ent as to pleadings and the format that they have to meet etc,
c. The more formal the process, the more the danger or likelihood of
potentially damaging the relationship between the disputants. The decis
ion that is reached after the result of a trial is an imposed decision a
nd carries consequences for not complying with it. Secondly the parties
have not voluntarily submitted to that process. For example in a matrimo
nial dispute where a husband is forced to pay alimony to the wife, that
kind of decision cannot endear the parties to each other, the more forma
l it is the likelihood of destroying the relationships.
d. Arguably the more the formal the processes the more expensive it i
s, arguably because arbitration can be expensive as well, getting the di
sputes through the process is very expensive in terms of court fees, law
yers fees etc.
9
e. The process of litigation tends to take longer. From commencement
to the stage of the dispute resolution the amount of time taken is a lot
longer. Rules of procedure in litigation are rigid and they tend to mak
e a case to last longer than it should. There is also the backlog and
the volume of work that the judiciary have to go through, it’s a lot.
f. Finally the more formal the structure is, the higher the focus on
the disputants’ rights as opposed to their interests. The distinction
between interests and rights is that interests of parties are usually in
having a continuous relationship and when parties litigate their interes
ts are destroyed by virtue of enforcing their legal rights.
Dispute Prevention
NEGOTIATION
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Cooperative negotiators are more interested in developing a relationship
based on trust and cooperation they are therefore more prepared to make
concessions on substantive issues in order to preserve that relationship.
Disadvantages
11
ADVANTAGES
DISADVANTAGES
A good deal may be lost or the opportunity for a good deal may be lost b
ecause the negotiator by the end of the process may feel that they give
more than they should have;
There is the possibility of manipulation by the other party.
The negotiator may be taken advantage of by the other party;
The party may want to get out of the deal later so he may feel sorry and
try to get out of the deal.
In the case of a professional negotiator, a cooperative negotiator may n
ot get a very good name e.g. compromises too much which may not be good
for business.
12
MEDIATION:
However, the mediator with the assistance of the parties will control th
e process and he will with the consent of the parties set and enforce th
e ground rules for the mediation process. If in the dispute the two exa
mples that we have looked at we now bring in a third party as the mediat
or, he will probably get an overview from both parties as to what their
contentions are. He will then agree with the parties that each party wi
ll be given an opportunity to state their case, they could also agree th
at when one party is stating their case, the other party shall not inter
rupt. The role of the mediator is not to impose his own solutions and n
ot to even suggest solutions but that the solutions should be suggested
and agreed upon by the parties themselves.
Story telling - the disputants communicate with the mediator to tell the
ir story. The mediator then assures them that he has heard the story by
re stating what each party has told you and letting them state whether t
hose are the facts as they have stated them. You re narrate the story.
You may then ask them to suggest the way forward and both parties can st
ate how they want to proceed. Lay down the rules.
The mediator should not descend to the arena but should let the disputan
ts decide how to conduct the negotiations.
OMBUDSMAN
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An ombudsman is a person who investigates complaints and attempts to ass
ist the disputants to reach a decision. Usually this is an independent
officer of the government or a public or quasi-public body. An ombudsma
n can be classified as an alternative dispute resolution.
REMUNERATION OF AN ARBITRATOR
AWARD
POWERS
The arbitration agreement may confer powers on the arbitral tribunal exp
ressly for instance if the arbitration agreement itself stipulates expre
ssly that the tribunal or the arbitrator will have power to give an inte
rim or provisional relief. If the arbitration agreement provides that t
he Arbitration Act will apply then the extensive powers given under that
Act again will be available to the Arbitrator.
The powers are stemming from the Agreement of the parties. The parties
are the ones conferring the powers on the arbitrator through the arbitra
tion agreement i.e. powers to determine procedure, powers to determine t
he venue, power to give the award, power to rule on jurisdiction.
To a large extent the rules summarises the powers found in the Arbitrati
on Act but the overriding principle is that the tribunal has those power
s conferred on it by the parties.
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REMUNERATION OF THE ARBITRATOR
The parties, tribunals or institutions should look for and encourage the
use of fee structures that encourage speed and efficiency.
EXPRESS AGREEMENT
15
THE LIEN
The practice of requiring payment before issue of the award may reduce t
he enthusiasm of a party for a dispute about fees, which are anyway like
ly to be one of the smaller bills that the arbitration will generate. W
hile there is a mechanism for dealing with this problem, it involves a t
rip to court and thus yet further fees.
The 1996 Act has now addressed Under S. 28, the express contractual posi
tion (which is the most usual arrangement) is preserved. Absent of an a
greement, the parties are jointly and severally liable for “such reason
able fees and expenses (if any) as are appropriate in the circumstances.
The concept of such reasonable fees and expenses as are appropriate in t
he circumstances is picked up when it comes to payment of the costs of t
he arbitration. Section 64 defines the costs(for purposes of payment as
between the parties) as including only such reasonable fees and expenses
of the arbitrators as are appropriate in the circumstances. Thus what t
he arbitrators can recover from the parties, in a situation where there
was no express agreement between the parties and the arbitrators, should
match exactly what is recoverable between the parties when the final wor
d on costs is known.
Where there is an agreement between the arbitrators and the parties, the
inevitability of a match is lost. If the difference proves to be substa
ntial, with the contractual rates at the high end, an arbitrator may fin
d difficulty in obtaining payment, if he has not been paid in advance.
THE AWARD
16
The other formal requirement is that the award should have a date and th
e place where the award is made. The date is important as there is a t
ime limit within which any party can apply to have a suit set aside Sect
ion 35. The place is also significance where there is an application
for setting aside. An award under this section may be set aside if the
Arbitration Agreement is not valid under the law to which the parties ha
ve subjected it. Section 35 (II) a.
The award must make it clear that due process was observed so there woul
d perhaps be a recital to that award that will recite the agreement to a
rbitrate, it would state or refer to the document under which the tribun
al was constituted, it would allude to the fact whether a hearing was co
nducted, and if no hearing was conducted whether it was by the agreement
of the parties. It would perhaps briefly state what the facts are, the
issues in contention, the tribunal’s findings on those issues with the
reasons and a summary of the award itself.
What must be established is that the party or all the parties were affor
ded the opportunity to present their case, they have notice of the heari
ng etc.
John Adero v. Ulinzi Sacco H.C.C. 1879 of 1999 Milimani Commercial Court
This ruling raises the question that if the High Court finds under Secti
on 35 that an award should be set aside, what follows? It invalidates t
he agreement of the parties.
If the award deals with a matter which was not in contemplation by not f
alling within the terms of the reference to arbitration.
17
HFCK V. Gitutho Associates & Another Civil App. 76 of 2000
In this case the Plaintiff applied to set aside an award under S. 35 (2)
(a) (ii) on the basis that jurisdiction was exceeded, but on the facts o
f this case the Judge Justice Mbaluto dismissed the Application of the P
laintiff’s action and said
“that having carefully considered the evidence and the law applicable t
o the matter, I cannot see any justification for claiming that the award
dealt with a dispute not contemplated by or not falling within the terms
of the reference to arbitration nor for that matter can I see any basis
for finding that the decisions of the Arbitrator are on matters beyond t
he scope of the reference. He proceeded to dismiss the application.
Express Kenya Limited v. Peter Titus Kanyago Civil App. 963 0f 2002
Ringera J. as he was then known arrived at the conclusion that the arbit
rator had exceeded or gone outside the scope of the reference and set as
ide part of the award.
The High Court may set aside an award if the High Court finds that the
award is in conflict with public policy of Kenya
Christ for All Nations v. Appollo Insurance Civil Case 499 of 1999
Justice Ringera after reciting Section 35 (2) (b) went on to say as foll
ows
“As far as I know the above provision has not received judicial interpr
etation in our courts. He then goes to India and is guided by an Indian
decision in the case of Renu Saghar Power Co. v. General Electric where
the Indian Supreme Court identified 3 patterns of the operation of the d
octrine of public policy. In the field of enforcement and recognition o
f foreign arbitral awards. Those 3 patterns he says are
That an award will not be given effect if it is contrary to the fundamen
tal policy of the Indian Law i.e. if the award involves a violation of t
he Indian Laws on non-compliance with a court’s order;
If the enforcement of the award would be contrary to the interests of In
dia and
If the award would be contrary to justice and morality.
18
He adopts these principles and then says
“I am persuaded by the logic of the Supreme Court of India and I take t
he view that although public policy is a most broad concept incapable of
precise definition or that as the common law judges used to say, it is a
n unruly horse. An award could be set aside under Section 35 (2) (b) of
the Arbitration Act as being inconsistent with public policy of Kenya if
it was shown that it was either
Inconsistent with the constitution or other laws of Kenya whether writte
n or unwritten;
Inimical to the national interests of Kenya,
Contrary to Justice or morality.
Incapacity - ie. If the party entered into an agreement when they were i
nsane, minors.
Time frame within which the application must be made - the award may no
t be made 3 months have elapsed from the date on which the party making
that application had received the arbitral award or if a request had bee
n made4 under section 36 from the date on which that request had been di
sposed of by the arbitral award.
19
Justice Onyango Otieno in the case of
APV Hall Equitorial Ltd V. Mistri Jagva Pagbat Civil App 39 1999 Miliman
i
Section 36b
Case law
20
It is important that one is clear in terms of how they want to structure
an arbitration agreement.
In this case the insured vehicle was stolen a claim was made on the insu
rance company which repudiated liability on the 9th August 1994. There
was an attempt to appoint an arbitrator in April of 1995 which did not m
aterialise. An application was then made to the Court under Section 12
of the Arbitration Act for the Court to appoint an Arbitrator. That app
lication was dismissed by the Court as being premature and finally, no a
rbitrator was ever appointed and the insured then decided to go to court
to try and pursue its claim there and that was well after the 12 months
had lapsed.
The court essentially upheld the argument that parties under an arbitrat
ion agreement are at liberty to contract a shorter limitation period tha
n that which is prescribed under the limitation of actions Act. The oth
er important point that the court makes is that the Plaintiff had not co
mplied with the Agreement as set out in the arbitration clause as to how
or as to the manner of appointing an arbitrator. According to the High
Court, the Arbitration Agreement provided 4 steps for the appointment or
for the constitution of the Tribunal.
Once the insurance company repudiated liability the parties were then to
agree or attempt to agree on a single arbitrator;
If a single arbitrator was not agreed upon, either party could give a 30
days notice to the other side for the appointment of own arbitrator and
to require the other party to appoint its own arbitrator;
The important points that emerge from this decision are that
21
the drafting of the arbitration clause is a very important task
once parties have agreed on a process of appointment including time lim
its the courts will honour that agreement and
a party may easily protract the process of commencing arbitration and ag
ain an advocate can avoid some of these consequences in provided a well
considered properly worded arbitration agreement.
Section 11 (2) provides that where the Arbitration Agreement does not st
ipulate the number of arbitrators, the presumption is that one arbitrato
r is intended and indeed in practice the provision for a single arbitrat
or is the norm.
By the time the parties are seeking arbitration, there are already diffe
rences and therefore it is difficult for them to sit down and agree on o
ne arbitrator where the clause provides for one arbitrator. It would be
helpful to provide that the parties go to the Chartered Institute of Arb
itrators in case of dispute.
One of the problems that is involved or arises in constituting the tribu
nal in a sole arbitrator scenario is
(i) After the dispute has arisen, the task of agreeing on an arbitrato
r becomes difficult because in the atmosphere of difference the parties
are hardly in a position to agree on many things; this is a difficulty.
(ii) Section 12 then says that if the parties fail to agree they make
an application to court and when this happens the court will disregard t
he proposed arbitrators and even if the proposed arbitrators were expert
s in that certain field, the court will decide and name other arbitrator
s.
(iii) Where a dispute has arisen and your client asks you to propose nam
es for the persons to put forward as likely arbitrators, how is one to d
o this? It is safer to approach the chartered institute for them to as
sume that responsibility lest you name an arbitrator and the client lose
s and continues to blame you for your choice of arbitrator. Firstly the
parties may not have the reservoir of information with regard to who sho
uld be nominated as suitable arbitrators. An institution may be better
placed to do that and secondly the parties’ advisers are usually reluct
ant to suggest names. What procedure would one employ to come up with
one name? you could agree to pick lots, elimination method with a crit
eria i.e. must be an architect, Q.S etc. Section 12 (3) permits you to
agree on a procedure.
22
All these disputes can be avoided by substantially suggesting a name in
advance as by nominating the arbitrator in advance e.g. should disputes
arise they should referred to arbitration by Mr. Onyango.
What test do you apply when dealing with a question of whether an arbitr
ator is biased or not biased. That is suggested by Justice Ackner in
“Elissar” case that in answering that question the test should be
23
“Do there exist grounds from which a reasonable person would feel that
there was a real likelihood that the arbitrator could not or would not f
airly determine the issue on the basis of the evidence and arguments to
be adduced before him. It seems to me that that is the satisfactory way
of expressing the objective test. To suggest that the mere lack of conf
idence which no reasonable person would in the relevant circumstances ex
perience should be a basis for removal of an arbitrator seems to be quit
e unacceptable.”
The test here is one of a reasonable person and the existence of a real
likelihood of bias. Mere lack of confidence is not sufficient.
Actual Bias;
Implied Bias;
Conduct that would have justified removal of an arbitrator.
Section 13 and 14 of the Arbitration Act are relevant provisions in this
regard. Section 14 specifically deals with the challenge procedure wher
e the impartiality of independence of an arbitrator arises. Section 14
(1) says that parties are free to agree on procedure and 14(2) says that
if they don’t agree on procedure a party intending to challenge an arbi
trator send a written statement of reasons for the challenge within 15 d
ays after becoming aware of the composition of the Tribunal and if the
arbitrator who has been challenged does not withdraw, then the Tribunal
is required to make a decision on that challenge.
You write to the arbitrator requesting him to withdraw to the office for
the following reasons.
Section 14 (3) provides for the procedure if the challenge is not succes
sful. The competent authority has been gazetted under Legal Notice No.
64 of 2001. in other words if you ask the tribunal to make a decision o
n the challenge and they say they don’t consider that there are grounds
for them to remove themselves, then one can go to court.
Mustill says there are 3 material situations in which the High Court has
power to remove an arbitrator under Section 23 of the Arbitration Act 19
50. (It is important to note that this decision was based on that Secti
on)
24
Where it is proved that the Arbitrator suffers from what may be called a
ctual bias, then he may be removed; and what the complaining party nee
ds to satisfy the court is that the arbitrator is predisposed to favour
one party or conversely to act unfavourably towards him for reasons pecu
liar to that party. He then says that prove of actual bias entails prov
e that the arbitrator is in fact incapable of approaching the issues wit
h the impartiality required.
Where the High Court may remove an arbitrator is where the relationship
between the arbitrator and the parties or between the arbitrator and the
subject matter of the dispute is such as to create an evident risk that
the arbitrator has been or will in future be incapable of acting imparti
ally. In this case prove of actual bias is not necessary. The concern
here is the manifest risk of partiality. This is what is referred to as
imputed bias.
How do you move the court under Section 14 (3)? Look it up.
Is it open for a party to submit to an arbitrator and say that you are n
ot constituted? These grounds can be raised and an objection brought un
der Section 17.
Where the law says that we can separate the agreement from the main cont
ract that sets out the rights and obligations. Even though one may argu
e that substantive contract is void the tribunal is competent to arbitra
te in that decision
17. (1) The arbitral tribunal may rule on its own jurisdiction, incl
uding ruling on any objections with respect to the existence or validity
of the arbitration agreement, and for that purpose-
25
A decision by the arbitral tribunal that the contract is null and void s
hall not itself invalidate the arbitration clause.
Where one of the parties says that the agreement is void for whatever re
ason and argues that the agreemebbbbbbbbbbbbbbbbbnt is void, if the agre
ement is taken up and the arbitration agreement is a clause within that
agreement, is the arbitration itself void?
The arbitrator has power to rule on this particular point, so what happe
ns if the arbitrator rules that the agreement is void.
ADR Lecture 5
March 11, 2004
The concern of Section 6 is that if you have two parties who have entere
d into an agreement that contains an arbitration agreement clause and on
e party ignores the arbitration clause and files in court, what is open
to the other party if the party would like the dispute to be referred to
arbitration. This is what Section 6 is dealing with.
26
That the existence of an Arbitration Clause or Arbitration Agreement in
a contract is not an impediment to resolving disputes in court if neithe
r party objects which means that parties can still ignore the arbitratio
n clause and file the proceedings in court. However, if one of the part
ies to the Arbitration Agreement goes to court but the other party wishe
s to enforce the Arbitration Agreement, then it is for that latter party
to seek an order from court under Section 6 of the Arbitration Act 1995
staying the court proceedings and if the order is granted it leaves the
initiator of the court proceedings with no option but to follow the prov
isions of the Arbitration Agreement if he wishes the dispute to be resol
ved. Under Section 6 a party wishing to enforce the Arbitration Agreeme
nt in a situation where the other party has initiated court proceedings
must apply to court not later than the time when that party enters appea
rance or files any pleadings or takes any other step in the proceedings.
That is to say that the application for stay under S. 6 must be made at
the correct time. The correct time
Section 6 (1) it appears that once summons to appear are served on the d
efendant, if the defendant wishes to enforce the agreement, he must not
later than the time he enters appearance file for stay. Section 6 appea
rs to suggest that this option is open but we shall look at case law tha
t says if you file a defence you have lost your right. Another judge sa
ys that even after you file your defence you can still go to arbitration.
We shall find which view is correct.
Once the application for stay under Section 6 is made at the correct tim
e, whatever the correct time might be, the court’s obligation under Sec
tion 6 is clear. It must stay the court proceedings and refer the parti
es to Arbitration. There are however 2 provisos
The court shall not stay the proceedings if the Arbitration Agreement is
null and void; if for instance it is inconsistent with the law i.e. if i
t is illegal.
The Arbitration Agreement is inoperative or incapable of being performed;
The second part of Section 6 is to the effect that the court shall not s
tay proceedings if there is not in fact a dispute between the parties wi
th regard to the matters that are agreed to be referred to arbitration.
27
This provision is generally referred to as the Scott v. Avery clause fol
lowing a very old English case which recognised and gave effect to such
a provision in an arbitration agreement. In other words the English cou
rts have for a long time recognised that where parties contract to refer
disputes to arbitration effect will be given by the courts to such a con
tractual provision.
How do you move the court for a stay of proceedings as per Section 6 of
the Arbitration Act.
Rule 2 of the Arbitration Rules 1997 being the rules made by the Chief J
ustice under Section 40 of the Arbitration Act provides that an Applicat
ion under Section 6 shall be made by summons in the Suit. In some insta
nces judges have said that if you move the court using a wrong procedure,
you may lose your right to relief so that where the rules say you shoul
d move the court by summons and you do it by notice of motion, you may b
e thrown out of court. But one might add that there are conflicting dec
isions on that point.
REPUBLIC OF KENYA
IN THE HIGH COURT OF KENYA AT NAIROBI
CIVIL CASE NO. 210 OF 2004
X …………………………………………………………………………………….
PLAINTIFF
Y …………………………………………………………………………………….
DEFENDANT
SUMMONS
28
(Under Section 6 of the Arbitration Act and Rule 2
of the Arbitration Rules 1997)
29
Kairu & McCourt Advocates
ADVOCATES FOR THE DEFENDANT
If any party served does not appear at the time and place
Order L imposes that the summons should have a notice at the bottom
In this case, the Plaintiff instituted suit against the Attorney General
on the 21st February of 2001. The Attorney General entered appearance o
n the 15th March 2001. On the 25th April 2001 the Attorney General then
made an Application under Section 6 of the Arbitration Act and Rules 2 o
f the Arbitration Rules 1997 seeking orders that the suit be stayed and
that the Dispute be referred to Arbitration. The Application for stay u
nder Section 6 of the Arbitration Act having therefore been filed on the
25th April 2001 was 41 days after the Memorandum of Appearance.
30
That there was in fact no dispute within the meaning of Section 6 (1)
(b) to refer the matter to Arbitration.
On the question of time Justice Mbaluto cited a passage from the Court o
f Appeal decision of Corporate Insurance Company v. Loise Wanjiru Wachir
a Civil Appeal NO. 151 of 1995. the decision was based on an arbitratio
n clause before the enactment of the current Act
“In the present case, the Appellant did more than just enter an
appearance. It delivered a defence which is of course a pleading. T
he Appellant made no Application for Stay of Proceedings. The Appellan
t was a party to an Arbitration Agreement within the meaning of Section
6 of the Act. Arbitration Clause in this case are known as Scott v. Av
ery Arbitration Clauses named after a leading case decided by the House
of Lords in 1856 in which their efficacy was considered and have long b
een accepted as valid. These clauses do more than provide that dispute
s shall refer to Arbitration. They also stipulate that the award of an
Arbitration is to be a condition precedent to the enforcement of any ri
ghts under the Contract so that a party has no cause of action in respe
ct of a claim falling within the Arbitration Clause unless and until a
favourable award has been obtained. In the present case, if the Appell
ant wished to take the benefit of the clause it was obliged to apply fo
r a Stay after entering appearance and before delivering any pleading.
By filing a defence the Appellant lost its right to rely on the claus
e.”
Justice Mbaluto applied that passage to the case in TM and held that the
attorney General had lost the right to rely on the Arbitration Clause be
cause if the AG was to rely on it, he was obliged to make the applicatio
n under Section 6 not later than when he entered appearance. In other w
ords if you file a Memorandum of Appearance today and you do not file fo
r an application for stay, tomorrow is too late.
On the question of whether there was a dispute or not, it had been argue
d for the Plaintiff that the Attorney General was in fact making an appl
ication under Section 6 of the Arbitration Act as a delaying tactic beca
use it was submitted that there was not in fact a dispute about the clai
m.
Justice Mbaluto cited another passage from the case of London and Northw
estern Joint Railway v. JH Bilington Limited (1899) A.C. 79
A and B are business partners. In the year 2000 A and B entered into an
agreement where A would lease a fleet of vehicles to B. A had the oblig
ation to maintain and repair those vehicles at B’s cost. During the le
ase arrangement, A would introduce customers to B for which a commission
was payable. In the year 2002 the parties entered into a formal agreeme
nt under which B agreed to purchase outright from A the fleet of vehicle
s. That agreement provided for payment of the purchase price by instalm
ents. It also provided that should B default in the repayment of those
instalments, A could repossess the vehicles. A claims that B defaulted
in those instalments and as a result exercised his right to repossess th
e vehicles and indeed repossessed them. B on his part claims that the p
urchase price has been paid, there has been no default and A has no busi
ness repossessing the vehicles. The purchase agreement of 2002 provides
for Arbitration and so B has invoked the Arbitration Clause, has referre
d the matter to Arbitration seeking two orders
1. A declaration that repossession by A is wrongful;
2. An order directing A to give possession of those vehicles to B.
The Arbitration Clause in the 2002 purchase agreement provides any dispu
tes or differences arising from or relating to this agreement shall be r
eferred to Arbitration.
The question is does the Arbitrator have power, jurisdiction with respec
t to the counterclaim?
The Arbitrator has said he has no power to rule on the matters of a coun
ter claim.
Tropical Food Products International v. The PTA Bank H.C.C. NO. 1534 OF
2001 MILIMANI H C NAIROBI \MWELA J.
32
“the court would wish to comment on Section 6 of the Arbitration
Act. He then reproduces Section 6 and sums his position as follows
“accordingly, this court is not of the view that a party is limit
ed as to when it can apply to go to arbitration in a matter subject of a
n arbitration agreement. He hinges that view on Section 6 (2) Notwithst
anding that an application has been brought under (1) and the matter is
pending before the court arbitral proceedings may be commenced or contin
ued and an arbitral award may be made.
“That this provision says that 6 (2) that it does not matter that
an Application has been brought under Section 6 (1) and a suit is pendin
g before the court. Arbitral proceedings can still be brought and an aw
ard made.”
Under Rule 2 you make application by summons but Mbaluto J. where an obj
ection was taken as to form, in another case where similar objection was
said that application did not conform with rule 2 he ruled that it could
be overruled.
“Any dispute arising between the parties and all claims or matters in s
uch disputes not otherwise mutually settled between the parties shall be
referred to arbitration by single arbitrator to be appointed by agreemen
t between the parties or in default of such agreement within 14 days of
the notification of such dispute by either party to the other upon appli
cation by either party to the chairman for the time being of the Kenya B
ranch of the Chartered Institute of Arbitrators. Every award made under
this clause shall be subject to and in accordance with the provisions of
the arbitration Act 1995 or other Act or Acts for the time being in forc
e in Kenya in relation to arbitration. To the extent permissible by law
the determination of the arbitrator shall be final and binding upon the
parties.
Arbitration proceedings shall take place in Nairobi Kenya. The law whic
h is to apply to the contract and under which the contract is construed
is Kenyan law. The law governing the procedure and administration of an
y arbitration instituted pursuant to this clause is Kenyan law.
33
The parties are free to agree on a procedure of appointing the arbitrato
r or arbitrators and failing such agreement-
(a) in an arbitration with three arbitrators, each party shall appoint
one arbitrator and the two arbitrators so appointed shall appoint the th
ird arbitrator;
(b) in an arbitration with one arbitrator, the parties shall agree on
the person to be appointed.
If-
(c) in the case of three arbitrators, a party fails to appoint the arb
itrator within 30 days of receipt of a request to do so from the other p
arty or if the two arbitrators fail to agree on the third arbitrator wit
hin 30 days of their appointment; or
(d) In case of one arbitrator, the parties fail to agree on the arbitr
ator;
This clause does not say who will appoint the umpire if there is disagre
ement.
Chief Justice published rules under Legal Notice 58 to the effect that t
he application will be by way of Originating Summons and will be served
upon the parties within 14 days.
The above clause makes a distinction between the law of contract and the
law of governing procedure and arbitration. The substantive rights unde
r the contract will be adjudicated based on substantive law of Switzerla
nd while the procedural law is that of Kenya. In this situation of an e
mployee in Kenya with employer in Switzerland, it means that one may uti
lise the Arbitration Act in matters of appointing the Arbitrator but in
terms of the substantive law the Swiss law shall apply.
34
The following clause is extracted from an oil operator’s licence compan
y between an oil company and a petrol station owner. “if any dispute o
r difference shall arise between the parties hereto touching on their re
spective rights, duties or liabilities under this agreement, the same sh
all be referred for determination to and shall be determined by an advoc
ate of the High Court of Kenya, to be agreed upon by the parties within
30 days of sending of a written notice to the other by the party seeking
the determination of the matter in dispute. In default of agreement suc
h advocate shall be nominated by the chairman for the time being of the
Law Society of Kenya. If either party is not satisfied with the decisio
n of such advocate, an objection must be filed within 10 days of the dat
e of the decision and copies thereof forwarded to both the Advocate and
the other party and within a further 30 days from the date of the object
ion the objecting party shall file proceedings in the High Court of Keny
a. Provided that if the objection is not made or proceedings are not fi
led as aforesaid within the stipulated period the decision of the Advoca
te shall be final and binding on both parties.
One of the problems with this clause is with the language because firstl
y is the advocate who is appointed under this clause to determine the cl
aim as an arbitrator? The other question is, if that advocate is to det
ermine the dispute as an arbitrator under the arbitration act, what type
of objections can either of the party take as against the advocate’s de
termination? That question is to be considered in the context of Sectio
n 35, 36, 37 and 39 of the Arbitration Act. Under the Arbitration Act th
ere are limited grounds under which you can challenge an arbitration agr
eement this is an illustration of how not to draft an arbitration clause
because it will raise many problems. The language is important i.e. the
first line of the clause, is it possible that there will be other types
of disputes that could arise under the agreement that are not resolvable
by arbitration. You want finality in the dispute resolution process and
you do not want the loser to go on challenging the decision.
35
The use of language or phrases is important from the perspective of cove
ring the types of disputes that you want referred. Expression or words
like ‘arising out of’ or words like ‘claims’ or ‘differences’ or
‘disputes’ or words used in connection with or in relation to or in re
spect of or ‘with regard to’ may pose problems of interpretation with
regard to the qbuestion of the scope of the matters that parties have ag
reed to refer. It is a danger that a person drafting an arbitration agr
eement should be alive to or should guard against. For instance under S
ection 35 of the Arbitration Act an arbitral award may be set aside if i
t deals with a dispute not contemplated by the parties or not falling wi
thin the terms of the reference. It is also important to note that an a
rbitrator or an arbitral tribunal has so much power as the parties confe
r. In other words the jurisdiction of an Arbitrator or of an arbitral t
ribunal is defined in the context of what the arbitration agreement or t
he arbitration clause mandates.
The courts will make the prima facie assumption that the parties intende
d all disputes relating to a particular transaction to be resolved by th
e same tribunal.
It will be assumed that unless the words of an arbitration clause are cl
early intended to limit the arbitrator’s powers then it will be taken t
hat the parties intended that the arbitrator should have all the powers
which will be exercisable by a court.
Words of a broad import used in an arbitration clause for example words
such as in connection with this agreement should be given their natural
meaning in the context in which they are found.
Clause 1
Is the Agreement that contains the Arbitration Agreement valid? The Arb
itral tribunal has powers to determine any question
Where one of the parties says that the agreement is void for whatever re
ason and argues that the agreement is void, if the agreement is taken up
and the arbitration agreement is a clause within that agreement, is the
arbitration itself void?
The arbitrator has power to rule on this particular point, so what happe
ns if the arbitrator rules that the agreement is void.
Kompetenz Kompetenz
37
The related doctrine of Kompetenz Kompetenz, namely the ability of the t
ribunal to decide upon its own jurisdiction has the effect of statutoril
y conferring on the putative tribunal a limited jurisdiction - namely th
e jurisdiction to determine whether it, the tribunal, has a jurisdiction
under the arrangements that the parties have made. The resultant procee
dings are no less an arbitration than they would have been had they aris
en under an express agreement, whether or not the resultant decision is
in favour of a party determined jurisdiction or against it. The award i
n which the position is declared binds the parties; it may also make an
order for costs, which can be enforced in the usual way. Accordingly, t
he tribunal, the arbitration and the award will be subject to the provis
ions of the Act in the usual way.
(2) Any such ruling may be challenged by any available arbitral proces
s of appeal or review or in accordance with the provisions of this Part.
l
The proposition that at least for some purposes the arbitration clause m
ay be treated as severable or separable or autonomous has become orthodo
x doctrine. In the case of Bremer Vulkan Schiffbau und Maschinenfabrik
v. South India Shipping Corporation Ltd [1981] AC 909, 980 Lord Diplock
said without further explanation:
39
Lord Scarman also said that “an arbitration clause in a contract was
“in strict analysis, a separate contract, ancillary to the main contrac
t.
The rules of the arbitral institution will set out the provisions in det
ail and outline the powers of the arbitrator.
If one opts to adopt the rules of the chartered institute into an agreem
ent then the arbitration clause should provide the following:
The advantage of that clause is that one avoids setting out in the arbit
ration clause or the essentials that need to be incorporated. Instead o
f a lengthy arbitration clause the mere reference to the Chartered Insti
tute addresses all the essentials that need to be included in the Agreem
ent.
40
International Court of Arbitration of the International Chamber of Comme
rce (ICC) International Court of Arbitration - this was established in 1
923 and deals with disputes relating to International Trade and it has r
ules of arbitration that one can adopt. It is important that one is cau
tious about the fees structure one is committing to before adopting this.
For instance if a reference is to be adjudicated on the basis of these
rules there will be the arbitrators fees which are pegged to the value o
f the subject matter and other fees.
The International Centre for Settlement of Investment Disputes (ICSID) T
his was established by the convention on the settlement of disputes betw
een the States and Nationals of other States and was signed in Washingto
n in 1965. It provides facilities for conciliation and Arbitration of i
nvestment disputes between contracting parties and Nationals of other St
ates.
The Permanent Court of Arbitration established by the Hague conventions.
American Arbitration Association (AAA) - this is the principal arbitral
institution in the USA.
Hong Kong International Arbitration International Centre
All these institutions basically discharge the following functions
They are involved in the promotion of arbitration in general. They do t
his by holding seminars, publish newsletters and basically spread the go
spel of arbitration.
They administer arbitrations: like they can appoint arbitrators at the
request of the parties, they ensure strict observance of the rules of ar
bitration, they make arbitration.
Publication of Arbitration Rules
Training of Arbitrators - Award writing calls for skills and these insti
tutions should give guidelines on award writing that is both independent
and objective, principles of natural justice.
They provide a forum for research and information and publication of per
iodicals and so on.
Order for Directions is something to the effect that you document the pr
oceedings of the day and put them in writing and state the following for
example
Claimant will submit to the arbitrator and to the other party a statemen
t of claim or points of claim or a summary of the claim by a certain dat
e.
The second direction will be the Respondent to submit its points of defe
nce to the arbitrator and to serve on the claimant by a certain date.
Each party to prepare and submit to the other a bundle of documents for
use at the hearing on or before 15th April.
Arbitrators fees are agreed at KShs. 10,000 an hour, each party to pay a
n initial deposit to the Arbitrator of Kenya Shillings 20,000/- before
…
At the onset you need a direction stating that the arbitrator will not r
elease the award unless and until all arbitrator’s fees are paid.
At the meeting you should address how costs will be handled i.e the cost
of arbitration including the arbitrators fees and expenses shall be born
e by the unsuccessful party. Costs shall follow the events.
To safeguard against one party writing to you while the other party does
not know, you direct that all communication with the arbitrator must be
disclosed and copied to the other party.
The hearing of the reference will take place on the 1 st June commencing
at 10.00 a.m until 5 pm at the Professional Centre or whatever venue is
agreed upon. You are then supposed to date the Order the Date you met o
r the date when all this was agreed and send it to both parties.
41
There is a statutory obligation when you are approached to be an arbitra
tor to make full disclosure of any circumstances that may give rise to j
ustifiable doubts as to your impartiality or independence.
Section 13 - when a person is approached in connection with his possible
appointment as an arbitrator, he shall disclose any circumstances likely
to give rise to justifiable doubts as to his impartiality or independenc
e.
(2) from the time of his appointment and throughout the proceedings the
arbitrator shall without delay disclose any such circumstances to the pa
rties unless the parties have already been informed of them by him.
Some advantages of choosing the rules of an arbitral institution:
one of the advantages of incorporating institutional rules is that the r
eference to an arbitral institution as the appointing authority will ens
ure that an arbitrator is appointed without the need to refer the matter
of appointment to court under Section 12 of the Arbitration Act for exam
ple.
The adoption of the rules of that institution will ensure that the proce
edings are conducted in a relatively predictable fashion.
The powers and jurisdiction of the Arbitrator are defined and this avoid
s a situation where the arbitrator has to seek the express agreement of
the parties on sticky points at a later stage.
If an institution provides for administration of the reference then the
parties are able to utilise those resources.
Separability and Jurisdiction:
42