Global Development

Introduction

Kenya has adopted the UNCITRAL Model Laww, with some variations, as the Arbitration Act, No. 4 of 1995 (‘Arbitration Act’). The grounds for setting aside an arbitral award are contained in Section 35 of the Arbitration Act, which identifies the High Court of Kenya (‘High Court’) as the competent court for such applications. Section 35 is silent on whether parties have a right of appeal on set-aside decisions of the High Court. The Court of Appeal of Kenya (‘Court of Appeal’) has issued conflicting decisions on whether an appeal is available. The position remained unsettled until 2019, when the Supreme Court of Kenya (‘Supreme Court’) issued its decisions in Nyutu Agrovet Ltd v. Airtel Networks Kenya Limited (‘Nyutu v. Airtel’)¹ and Synergy Industrial Credit Limited v. Cape Holdings Limited (‘Synergy v. Cape Holdings’).²

Background to Supreme Court cases

The petitioners to the Supreme Court in both cases relied on Article 164(3) of the Constitution of Kenya 2010 (‘Constitution’), which states that the Court of Appeal has jurisdiction to hear appeals from the High Court.

First Petition

The first petition arose out of a dispute between Nyutu Agrovet Limited (‘Nyutu’) and Airtel Networks Kenya Limited (‘Airtel’). Nyutu and Airtel had entered into a distribution agreement for mobile handsets, according to which Nyutu distributed handsets on behalf of Airtel. The parties appointed a sole arbitrator who issued an award in favour of Nyutu on 17 February 2011. Airtel applied to the High Court to set aside the award under Section 35 of the Arbitration Act. In a decision dated 1 December 2011, the High Court set aside the award in its entirety on the grounds that the arbitrator went beyond his mandate.³

Nyutu applied to the High Court for leave to appeal the decision. Airtel objected to the application for leave on the ground that there did not exist a right of appeal for High Court decisions under Section 35 of the Arbitration Act. The High Court granted leave and noted that it would be a matter for the appellate court to decide if an appeal was allowed.⁴ On 6 March 2015, the Court of Appeal held that the decision of the High Court was final and no appeal could be sustained with the appellate court.⁵

Nyutu appealed to the Supreme Court and argued that:⁶

• The Court of Appeal had jurisdiction to hear all appeals from the High Court, as conferred by Article 164(3) of the Constitution.
• There was no express denial of the right of appeal in Section 35, which would have existed had Parliament intended it.
• Finality of arbitration related to the award itself, and not to the civil processes instituted by an aggrieved party.⁷

Airtel argued, to the contrary, that:

• No right of appeal existed against a decision of the High Court because the ‘purpose and spirit’ of the Arbitration Act was to remove or limit the jurisdiction of the Courts except where explicitly stated in the Act – such as in Section 39, which permitted appeals on limited grounds in domestic arbitration.
• The jurisdiction granted to the Court of Appeal by Article 164(3) of the Constitution was not equivalent to a right to appeal. Such a right to appeal, where it existed, should precede jurisdiction.⁸

The Chartered Institute of Arbitrators – Kenya Branch (‘CIArb-Kenya’) intervened as an interested party. It concurred with Nyutu’s position that in the absence of an express provision prohibiting the right of appeal in Section 35, such appeals should be allowed. Otherwise, an interpretation of Section 35 that favoured prohibiting appeals would protect High Court judgments as opposed to arbitral awards where the High Court had wrongly set aside an award. This would be inimical to established principles and practice of arbitration. Further, CIArb-Kenya observed that there was an increasing number of arbitral awards being set aside in the High Court on the basis of non-conformity with the Constitution. If appeals were barred under Section 35, the High Court would become the first and only forum where constitutional arguments were made, which would not be in the interests of protecting the sanctity and finality of arbitral awards.

A balance should be struck, CIArb-Kenya submitted, between finality of arbitral awards with limited court interventions and constitutional principles of correcting grave errors by the High Court. This balance could be achieved by providing limited appeals requiring leave to appeal.⁹

Second Petition

The second petition arose out of a dispute between Synergy Industrial Credit Limited (‘Synergy’) and Cape Holdings Limited (‘Cape Holdings’). Synergy and Cape Holdings had entered agreements for the purchase of office buildings and parking spaces. The dispute was decided by a sole arbitrator who issued an award in favour of Synergy (the buyer) dated 30 January 2015.¹⁰

Cape Holdings applied to the High Court to set aside the award under Section 35 of the Arbitration Act and Synergy filed an application to the same court to enforce the Award. In a decision dated 11 March 2016, the High Court set aside the award in its entirety and dismissed Synergy’s application for enforcement. As in Nyutu v. Airtel, the High Court found that in the award the arbitrator went beyond its mandate.¹¹

Synergy filed an appeal to the Court of Appeal. Like Airtel, Cape Holdings objected on the grounds that there was no right of appeal from a decision of the High Court. In a ruling dated 20 December 2016, the Court of Appeal ruled in favour of Cape Holdings. Consistent with its decision in Nyutu v. Airtel, the Court held that there was no right of appeal from High Court decisions under Section 35.¹²

On 27 February 2018, Synergy filed a petition with the Supreme Court. It argued that:

• In the absence of an express prohibition of an appeal in Section 35, the Court of Appeal should have interpreted the provision in a way that did not limit the right of appeal granted by Article 164(3) of the Constitution, and that contrary to other provisions in the Arbitration Act, Section 35 did not limit the right of appeal to the Court of Appeal.¹³
• If Article 10 of the Arbitration Act had been intended to displace the Court of Appeal on arbitration matters it would have contained an express provision stating that the High Court decisions were final.¹⁴
• If an appeal was not allowed in this case, Synergy would be left without a legal remedy because the High Court, contrary to arbitral practice, had delved into the merits of the dispute and replaced the arbitrator’s findings with its own.¹⁵

Cape Holdings argued, to the contrary, that:

• Arbitration law was created to deter Courts’ intervention in arbitral proceedings and that the spirit of arbitration was further promoted by Article 159(2)(c) of the Constitution, which enjoins all Courts to promote arbitration as a form of alternative dispute resolution.
• Section 35 did not contemplate appeals from decisions of the High Court, which could be contrasted with Section 39, which specifically granted the Court of Appeal jurisdiction to hear appeals. Whenever the Arbitration Act envisaged court intervention, it provided for it, had Parliament intended to confer the Court of Appeal with jurisdiction to hear appeals under Section 35, it would have stated so.
• Once parties had subjected themselves to the Arbitration Act, they could not claim entitlement to a constitutional claim under Article 164(3).

Supreme Court decisions¹⁶

A majority of the Supreme Court ruled that while Section 35 of the Arbitration Act was silent on the matter, it contained a right of appeal of High Court decisions on limited grounds after leave to appeal. The Supreme Court did not specify the grounds for appeal or when the Court leave to appeal should be sought.

In its analysis the Supreme Court observed that the Court of Appeal had issued conflicting decisions on the interpretation of Section 35.¹⁷ It also noted that Section 10 of the Arbitration Act, which was based on Article 5 of the Model Law, and served to limit court interventions except as provided for in the Arbitration Act, was enacted to ensure predictability and certainty in arbitration proceedings.¹⁸

The Supreme Court remarked that the UNCITRAL Model Law did not necessarily bar appeals.¹⁹ It reviewed comparative jurisprudence from England, Canada, and Singapore and noted that appeals of first instance decisions on setting aside were permitted on limited grounds in England and Canada after granting the leave to appeal.²⁰ In Singapore, where the arbitration law was also silent on appeals as in Kenya, appeals were also allowed.²¹

The Supreme Court emphasised that any interpretation of Section 35 should balance the objectives of arbitration and the need for Courts to carry out their roles as the custodians of justice. Therefore, promoting the core tenets of arbitration – expeditious and efficient ways of delivering justice – should not be at the expense of real and substantive justice.²²

In Nyutu v. Agrovet, the Supreme Court went on to say that while it acknowledged the need to shield arbitral proceedings from unnecessary court intervention, there may be legitimate reasons for trying to appeal High Court decisions.²³ For example, an unfair determination by the High Court should not be absolutely immune from appellate review.²⁴ Similarly, in Synergy v. Cape Holdings, the Supreme Court said that in the interest of safeguarding the integrity of justice, and in the absence of an express bar, the Court of Appeal should have residual jurisdiction, but only in exceptional and limited circumstances.²⁵

In Nyutu v. Agrovet, the Supreme Court concluded that an appeal may be avalaible from the High Court to the Court of Appeal:

[Where the High Court], ‘in setting aside an arbitral award has stepped outside the grounds set out in the said Section and thereby made a decision so grave, so manifestly wrong and which has completely closed the door of justice to either of the parties. This circumscribed and narrow jurisdiction should also be so sparingly exercised that only in the clearest cases should the Court of Appeal assume jurisdiction.²⁶

The Supreme Court clarified the parameters of appeal in Synergy v. Cape Holdings, and concluded that:

[A]n intended appellant must demonstrate (or must be contending) that in arriving at its decision, the High Court went beyond the grounds set out in Section 35 of the Act for interfering with an Arbitral Award.²⁷

The Supreme Court was mindful that the residual jurisdiction of the Court of Appeal should not open the floodgates of appellate review.²⁸ It cautioned that when deciding whether to assume jurisdiction, the Court of Appeal should consider whether the High Court had overturned an award other than on the grounds set out in Section 35 of the Arbitration Act. Further, that it was expected that the Court of Appeal would ‘jealously guard the purpose and essence of arbitration under Article 159(3)(d) so that floodgates are not opened for all and sundry to access the appellate mechanism’.²⁹

In both cases, the former Chief Justice and President of the Supreme Court, David Maraga, wrote dissenting opinions. Relying on the historical development of arbitration legislation, his main point of disagreement with the majority was that implying a right of appeal in Section 35, ignored the legislators’ objective of guaranteeing the principle of finality of arbitral proceedings.³⁰

Concluding remarks

These Supreme Court decisions are important because they settle a long-standing inconsistency in the Court of Appeal’s interpretation of Section 35’s silence on appeals to High Court decisions. The decisions are also important because they clarify that parties cannot go beyond the grounds in Section 35 when they apply to the High Court to set aside awards. A corollary of this is that High Court judges cannot go beyond the grounds in Section 35 in granting set-aside applications, as has too often been the practice.

As noted by the Supreme Court, there are some concerns about the floodgates of appeals and interminable proceedings. This concern may be overstated. The final position on the length of proceedings can only be determined once the Court of Appeal has had an opportunity to establish its practice on Section 35 appeals. Also, it may be that the legislator will amend Article 35 of the Arbitration Act. Such an amendment providing clear guidance to the Court of Appeal on this matter would be welcome.

Finally, it is worth noting that throughout these decisions, the Supreme Court demonstrated its understanding and support of the arbitration process. It also made clear that it understood the reasons that parties choose arbitration, and the rationale for limited court interventions. These statements could be interpreted as reflecting a pro-arbitration stance by the Supreme Court.

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