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Challenge of an Arbitrator, Kompetenz-Kompetenz doctrine, and arbitrator’s right to arbitral costs: A recent determination by the High Court of Kenya By Victoria Kigen*

2 Sep 2021 9:56 AM | Anonymous member (Administrator)

The Commercial and Tax Division of the High Court of Kenya (“Court”) has recently pronounced itself in the case of Kenya Medical Women’s Association v. Registered Trustees Gertrude’s Gardens; Paul Ngotho, Arbitrator (Interested Party)[2], regarding the termination of an Arbitrator’s mandate due to lack of impartiality and independence and exceeding the scope of his jurisdiction in his mandate.

 Significantly, the law was clarified, to a certain extent, in three key areas:

  1. Whether the High Court’s appellate jurisdiction on an application challenging the mandate of an arbitrator should only be invoked after the said application, in the first instance, has been made before and determined by an arbitral tribunal pursuant to Section  13(3) and 14(2) and (3) of the Arbitration Act[3].

  2. Whether an arbitrator’s recommendation for parties to engage in mediation or other ADR processes in an arbitration reference exceeds the scope of his jurisdiction under the Kenyan law.

  3. Whether withholding of a ruling by an arbitrator at his own discretion for purposes of securing costs for arbitration is permissible under the Kenyan law.

Facts

On or about May 2012, the applicant, Kenya Medical Women Association (“KMWA/applicant'') and the respondent, Registered Trustees Gertrude’s Gardens (“Gertrude Gardens/respondent”), entered into a formal lease agreement.

A dispute regarding the payment of rent arrears arose between the parties. The applicant sought to have auctioneers auction the respondent’s property. The respondent sought an injunction to stop the injunction process and further sought to have the dispute referred to arbitration pursuant to Clause 3 (F) of the lease agreement.

The court referred the matter to arbitration and Mr. Paul Gathu Ngotho was appointed as arbitrator by the Institution of Surveyors of Kenya (ISK) in 2017 who were the designated appointing authority in the lease agreement between the parties.

The arbitration process commenced on 22nd June 2018 and the arbitrator issued Order for Directions No. 3 following a preliminary meeting held on 23rd May 2018. The Order for Directions No. 3, and particularly paragraph E, which was in contention, ordered that:

“The parties having attempted negotiations previously, are agreeable in principle to mediation, even though that is not a contractual requirement, in order to save time and costs. The parties may seek mediation independently or seek the Tribunal’s help in the appointment of a mediator. While mediation is voluntary, the Tribunal will consider a party’s refusal or failure to cooperative in the apportionment of costs regardless of the outcome in these proceedings

It is  the above paragraph E in the Order for Directions No. 3 that led to the present contention as to whether: the directions for mediation were mandatory and within the jurisdiction of the arbitrator; the arbitrator’s statement of  “…party’s refusal or failure to cooperative in the apportionment of costs regardless of the outcome in these proceedings” meant that the Tribunal would make an unfavorable order for costs against any party refusing mediation, if so, whether this sanction was within his jurisdiction;  and there was justifiable doubt to the Arbitrator’s impartiality and independence, in the arbitration proceedings.

The applicant, aggrieved by Order for Directions No.3, filed an application to the tribunal for the recusal of the arbitrator. The tribunal required a further deposit of Kshs. 840,000 from the parties and Kshs. 140,000 from the applicant, and interest respectively for his services. The applicant, in protest of the demand, requested the tribunal to deliver the ruling on its application for recusal which the tribunal declined. The applicant contended that the tribunal thereafter withheld the writing of the interlocutory ruling conditional on payment of additional costs without legal justification (i.e., statutory provision, legal precedent or rules governing arbitration). The applicant argues that the imposition of costs overrode statutory objectives requiring affordable resolution of arbitration disputes.

The applicant then sought to invoke the principle of party autonomy to choose their preferred arbitrator, and have the court terminate Mr. Ngotho’s mandate in the arbitration.

In opposition to the applicant’s application, the respondent sought the court’s order that the tribunal’s direction in promoting alternative forms of dispute resolution mechanism, pursuant to Order for Directions no. 3 was in line with the guiding principle set out in Article 159 (1) (c) of the Constitution of Kenya 2010. Also, that the applicants had not advanced justifiable grounds for the disqualification and recusal of the arbitrator from presiding over the arbitral proceedings.

The Court’s Judgment

The Court dismissed the application with costs to the respondent.

The Court observed that, “…an application challenging the mandate of an arbitrator should, in the first instance, be made before a tribunal... before the same can be handled by the High Court in its appellate jurisdiction” pursuant to Section 13(3) and 14 (2) and (3) of the Arbitration Act[4] which reads as follows:

Section 13(3): -

(3) An arbitrator may be challenged only if circumstances exist that give rise to justifiable doubts as to his impartiality and independence, or if he does not possess qualifications agreed to by the parties or if he is physically or mentally incapable of conducting the proceedings or there are justifiable doubts as to his capacity to do so.

Section 14(2) and (3): -

(2) Failing an agreement under subsection (1), a party who intends to challenge an arbitrator shall, within 15 days after becoming aware of the composition of the arbitral tribunal or after becoming aware of any circumstances referred to in section 13(3), send a written statement of the reasons for the challenge to the arbitral tribunal, and unless the arbitrator who is being challenged withdraws from his office or the other party agrees to the challenge, the arbitral tribunal shall decide on the challenge.

(3) If a challenge under agreed procedure or under subsection (2) is unsuccessful, the challenging party may, within 30 days after being notified of the decision to reject the challenge, apply to the High Court to determine the matter.

The Court held that by the facts presented before it that the tribunal had not made its determination as to the application for recusal, it was clear that the application was premature, and that the applicant had not followed the correct path in invoking the court’s appellate jurisdiction.

As for the Order for Directions No. 3E, the court found that it was not made in favor of any specific party but was a mere attempt by the arbitrator to “prevail upon the parties” to consider mediation as mode of dispute resolution. This, to the court’s mind, did not mean that the arbitrator portrayed bias or that there was any illegality in referring the dispute to mediation. The court premised its thinking to Article 159 (2) of the Constitution of Kenya 2010 which stipulates as follows: -

(2) In exercising judicial authority, the courts and tribunals shall be guided by the following principles— (a) justice shall be done to all, irrespective of status.

(b) justice shall not be delayed.

(c) alternative forms of dispute resolution including reconciliation, 96 Constitution of Kenya, 2010 mediation, arbitration and traditional dispute resolution mechanisms shall be promoted, subject to clause (3).

(d) justice shall be administered without undue regard to procedural technicalities; and (e) the purpose and principles of this Constitution shall be protected and promoted.”

The Courts found that the Constitution of Kenya encourages Courts and Tribunals (i.e., Arbitral Tribunals), in exercising their judicial authority to be guided by the principles of alternative dispute resolution. Thus, the dispute’s referral to arbitration did not preclude the arbitrator from recommending mediation if he deemed it appropriate. The court further finds that the arbitrator in his Order for Directions 3E noted that the mediation is voluntary save that refusal or failure to cooperate in the process would be factored in the apportionment of cost of the arbitration. Therefore, the court concluded that the arbitrator was not biased since he had not made any findings on the substantive disputes before him.

The court did not delve deeply on withholding of a ruling until the arbitrator’s fees are settled, but found that, if the allegations were true, then the court’s decision should be served upon the arbitrator for his attention with the court’s position being that he should conclude the arbitral proceedings in the shortest time and proceed to pursue his fees through the proper channels that are provided for under the Kenyan law. 

Analysis

High Court’s jurisdiction on an application challenging the mandate of an arbitrator

An important takeaway of this case is likely to be the court’s treatment of the question, ‘when is an application challenging the mandate of an arbitrator ripe for the court’s jurisdiction?’. The court reaffirmed the decision in Chania Gardens Limited vs Gilbi Construction Company Ltd & Another [5] that: -

“…The first port of call to challenge the jurisdiction of an Arbitrator is the Arbitral tribunal in line with the principle that is commonly referred to in arbitration parlance in the German phrase, Kompetenz-Kompetenz. Therefore, the jurisdiction of this court on matters of challenge of an Arbitrator is not original in nature...Under Section 14 of the Arbitration Act, 1995 a challenge on an Arbitrator seeking his removal must first be heard by the Arbitrator.”

The court was unequivocal that an application challenging the mandate of an arbitrator should be made to the arbitral tribunal in the first instance and that the court’s jurisdiction is appellate and not original in nature. Further, it is not sufficient that an application for challenge has been filed before an arbitrator, the arbitrator must also decide the application on the merits for the appellate jurisdiction to be invoked.

This is yet another clear indication that the Kenyan courts are friendly towards arbitration and recognize the kompetenz-kompetenz doctrine where an arbitral tribunal has the power and authority to determine its own jurisdiction. By virtue of this decision, Kenyan arbitral tribunals may now be incentivized to expressly pursue their original jurisdiction in determining a challenge on its jurisdiction and acknowledge judiciary’s incontrovertible support.

Arbitrator’s power to recommend Mediation or any other ADR processes

In relation to the court’s observations that the mere fact that a dispute is referred to arbitration does not preclude an arbitrator from recommending mediation if he deems it appropriate, is a bold affirmation and recognition of the essence of Arbitration and all other forms of Alternative Dispute Resolution (ADR) mechanisms. In particular, the court noted that so long as an arbitrator recognizes party autonomy in making such recommendations and there is no evidence of bias, lack of independence or impartiality, then they are Constitutional.

The court, alive to the provision of Article 159 (2) of the Constitution of Kenya, 2010, validates the need for courts and tribunals (arbitral tribunals included) to be guided by the principles of alternative dispute resolution in making their decisions.

Certainly, the court acknowledged that the tribunal's discretion on mediation should not be found to be oppressive or favoring one party. A finding of bias and unfairness to the parties would be the only way such an Order for Direction by an arbitral tribunal may be found to be unconstitutional.

An arbitrator’s withholding of Ruling in order to secure costs

The third observation we make concerns the payment of arbitration costs by the parties. The court in its finding stated that, “…if the allegations are true”, then (i.e., refusal to render a ruling) the arbitrator should conclude the arbitration process within the shortest time possible and pursue his fees through “the proper channels” as provided for under the law.

Unlike the express provision in Section 32B (3) of the Arbitration Act which permits an arbitral tribunal to withhold the delivery of award to the parties until full payment of fees and expenses, there is no similar provision for withholding of a ruling in determination of interlocutory matters. It appears that the Court may have had in mind Section 32B (3) as the only proper mechanism under the Act for exercising lien for fees.

_____________________ 

* Ms. Victoria Kigen is a Case Counsel at the Nairobi Centre for International Arbitration and an Advocate of the High Court of Kenya. She holds an LL.B. from the Catholic University of Eastern Africa(CUEA), (Class of 2012), and a graduate of University of Miami School of Law, White & Case International Arbitration LL.M. (Class of 2017).

[2] Kenya Medical Women’s Association v Registered Trustees Gertrude’s Gardens; Paul Ngotho, Arbitrator(Interested Party) [2021] eKLR

[3] Arbitration Act, No. 4 of 1995 (Revised 2012), Laws of Kenya.

[4] Id.

[5] Chania Gardens Limited vs Gilbi Construction Company Ltd & Another [2015] eKLR





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