Rift Valley Textiles Ltd v Cotton Distributors Incorporated [1980] KECA 30 (KLR)
The bottom line
#Kenya's Court of Appeal confirmed that broad arbitration clauses force even fraud and misrepresentation claims out of court and into arbitration.
What this practically means
#Executive summary
#Questions the Court framed
#The issues the Court set itself to decide, in its own words.
- 1.Whether there was a valid arbitration agreement, i.e. whether the arbitration clause fell within Rule 200(2) of the Liverpool Cotton Association Rules and whether the contracts required the Association's official stamp under By-Law 126
- 2.Whether Switzerland was shown to be a party to the protocol set out in the First Schedule to the Arbitration Act
- 3.Whether Section 6(2) of the Arbitration Act (the mandatory stay) applied, i.e. whether the contract constituted 'a reference to arbitration' absent an actual submission of an existing dispute
- 4.Whether the claim for damages for negligent misrepresentation (the suit in the first case and the set-off in the second) touched or arose out of the contracts so as to fall within the arbitration clause
- 5.Whether the pleaded set-off constituted a 'commencement of proceedings' within Section 6 of the Arbitration Act
Key legal issues
#Validity of the arbitration agreement
The contracts contained a valid arbitration clause under Rule 200(2) of the Liverpool Cotton Association Rules, and were valid without the Association's official stamp as no stamp duty was due under By-Law 126
The contracts referred to the Liverpool Cotton Association and to settlement of disputes by arbitration, which are 'words to a similar effect' to 'Liverpool Arbitration', bringing them within Rule 200(2). By-Law 126 required the official stamp only where stamp duty was due, and no stamp duty was payable on cotton not imported into the United Kingdom.
Meaning of 'a reference to arbitration' in Section 6(2) of the Arbitration Act
Section 6(2) applies to an agreement to refer future disputes as well as an actual reference of an existing dispute, making the stay mandatory
Reading 'reference to arbitration' as requiring an actual submission would unduly narrow the provision; the interpretation accords with clause 1 of the Protocol which Section 6(2) implements, following Scarman J in The Merak. Consequently the court was bound to stay the proceedings.
Scope of the arbitration clause as regards claims in tort for negligent misrepresentation
The claim for damages for negligent misrepresentation touched and arose out of the contracts and fell within the arbitration clause, despite being laid in tort
Distinguishing Turnock v Sartoris, Printing Machinery v Linotype and Union of India v EB Aaby's Rederi, which all concerned disputes from fresh agreements subsequent to the original contract, the court held that the misrepresentation claim arose from the contractual relationship and was the type of dispute the parties intended to refer to the Association, given the very wide scope of the clause.
Nature of the pleaded set-off in the second suit
The set-off was in the nature of a cross-suit or counter-claim and its pleading amounted to a commencement of proceedings within Section 6 of the Arbitration Act
Because the 'claim' pleaded in the set-off would have to be adjudicated and would fall away if no negligent misrepresentation were established, it was in substance a counter-claim. Under Order VIII rule 2 of the Civil Procedure Rules it had the same effect as a cross-suit, so the mandatory stay applied to it.
Proof that Switzerland is a party to the Protocol in the First Schedule to the Act
Switzerland's status as a party to the Protocol was sufficiently proved by the additional evidence ('Certificat de Costume') allowed on appeal, and in any event by reference to Halsbury's Laws of England
The court allowed additional evidence at the hearing of the consolidated appeals to prove the fact; absent evidence to the contrary, Halsbury's listing of both Switzerland and Kenya among contracting states adopting the Protocol sufficed, as Scriven J had found.
Legal principles established
#- Where a contract contains an agreement that disputes shall be arbitrated, that agreement is itself a reference to arbitration for the purposes of the mandatory stay under Section 6(2) of the Arbitration Act
- A claim in tort for negligent misrepresentation that arises out of a contractual relationship falls within a wide arbitration clause covering any difference touching or arising out of the contract
- A pleaded set-off which requires independent adjudication of the claim is in the nature of a counter-claim and its pleading is a commencement of proceedings within Section 6 of the Arbitration Act
Court orders
#- 1.Dismissal of Civil Appeal No 14 of 1980 against the order of Wilkinson-Guillemard J staying the appellant's suit in High Court Civil Case No 2273 of 1979
- 2.Dismissal of Civil Appeal No 15 of 1980 against the order of Scriven J staying the set-off in High Court Civil Case No 3936 of 1979
- 3.Both appeals dismissed with costs to the respondent
- 4.The respondent is not allowed any costs it may have incurred by its application to adduce additional evidence (the 'Certificat de Costume')
The bench
#One judgment of the whole court — no separate or dissenting opinions.
- On appeal from
- High Court of Kenya
- High Court Civil Case No 2273 of 1979 (CA 14/80) and High Court Civil Case No 3936 of 1979 (CA 15/80)
- Jurisdiction invoked
- First appellate jurisdiction of the Court of Appeal over appeals from the High Court against orders staying proceedings under Section 6 of the Arbitration Act (Cap 49)
- Consolidated with
- Civil Appeal No 15 of 1980
Relief refused
#Appellant's challenge to the validity of the arbitration clause under Rule 200(2) and By-Law 126
The contracts' reference to the Liverpool Cotton Association and settlement of disputes by arbitration were 'words to a similar effect' to 'Liverpool Arbitration'; the official stamp was required only where stamp duty was due, which it was not for cotton imported into Kenya
Appellant's contention that Section 6(2) of the Arbitration Act did not apply because there had been no actual reference to arbitration
A contract containing an agreement to arbitrate is itself a reference to arbitration; 'a reference to arbitration' covers both existing and future disputes
Appellant's reliance on Turnock v Sartoris, Printing Machinery v Linotype and Union of India v EB Aaby's Rederi to exclude the tort claim from the arbitration clause
Those cases concerned fresh agreements subsequent to the original contract; the misrepresentation claim here arose out of the contractual relationship and fell within the wide arbitration clause
Costs
Both appeals dismissed with costs to the respondent, except that the respondent is not allowed any costs incurred by its application to adduce additional evidence.
Quotable passages
#Verbatim from the judgment, each located to the page it appears on in the official PDF — so these can be cited and checked directly.
In my opinion “a reference to arbitration” in Section 6 (2) means both an actual reference of an existing dispute and an Agreement to refer future disputes.
I find myself in full agreement with Scriven J, that in these circumstances, the set-off, by reason of Order VIII rule 2 of the Civil Procedure Rules, has the same effect as a cross-suit, and the pleading of it is therefore a commencement of proceedings within the meaning of Section 6 of the Arbitration Act.
Surely the question as to whether cotton was infested with honeydew, and if so whether it was misrepresented as being free from honeydew, is a question which touches or arises from the contracts under which the cotton was supplied, and is a question within the scope of the arbitration clause.
I would accordingly dismiss both these appeals, with costs, except that I would not allow the respondent any costs it may have incurred by its application to adduce additional evidence.
Key timeline
#Practical implications
#Frequently asked questions
#Cite this brief
#Cite this brief
Caselaw, "Rift Valley Textiles Ltd v Cotton Distributors Incorporated [1980] KECA 30 (KLR)", Case Analysis (1980). Civil Appeals Nos 14 and 15 of 1980 (consolidated). Source: https://new.kenyalaw.org/akn/ke/judgment/keca/1980/30/eng@1980-12-01
Suggested citation format for research notes or client memos. Always verify the original judgment before relying on any point.