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Court of AppealPartially Allowed· [1994] KECA 78 (KLR)

Kenindia Assurance Co Ltd v Patric Muturi [1994] KECA 78 (KLR)

Court of Appeal
31 May 1994
JGJ. M. GachuhiRKR. O. KwachAAA. M. Akiwumi
3,396 words in judgment
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The bottom line

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The Court of Appeal voided a KSh 4.25 million insurance judgment because the insured sued before completing arbitration, as their policy required.

What this practically means

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Executive summary

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The respondent insured his Toyota Hilux pick-up with the appellant for a maximum sum of Shs 350,000. The policy contained an 'all differences' clause (clause 9) referring all disputes to two arbitrators and making the making of an award a condition precedent to any right of action against the insurer. After the vehicle was damaged, the respondent sued for loss of use; by consent the suit was stayed under section 6 of the Arbitration Act so that the dispute could go to arbitration. Arbitration proceedings broke down, and on an informal application by the respondent, Oguk, J listed the suit for hearing without making any order setting aside the consent stay. Kuloba, J overruled the appellant's preliminary objections, heard the suit without a defence having been filed, and awarded the respondent general damages of Shs 2,000,000 plus special damages of Shs 2,256,000, far exceeding the insured sum. Allowing the appeal, the Court of Appeal held that a consent order may only be set aside by consent or on grounds such as fraud or collusion, following Brooke Bond Liebig (T) Ltd v Mallya; that Oguk, J's order did not set aside the stay; and that without a completed arbitration no cause of action accrued to the respondent. The hearing before Kuloba, J was a nullity. The appeal was allowed, the deposited decretal sum and interest released to the appellant, and costs of the appeal awarded to the appellant.

Key legal issues

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01

Effect of the consent order staying proceedings under section 6 of the Arbitration Act

Holding

The consent stay remained in force; Oguk, J's order fixing a hearing date did not set it aside, and the subsequent hearing before Kuloba, J was null and void.

Reasoning

The stay was obtained by consent under section 6 of the Arbitration Act before the appellant filed a defence. Clause 9 of the policy made an award a condition precedent to any right of action. The application before Oguk, J was informal and only for a hearing date; setting aside the stay was neither applied for nor pronounced upon. A true consent order can only be set aside by consent or on grounds such as fraud or collusion, none of which were shown.

p. 4
02

The condition precedent effect of the 'all differences' arbitration clause

Holding

The making of an arbitration award under clause 9 was a condition precedent to any right of action against the insurer; no cause of action accrued to the respondent absent a completed arbitration.

Reasoning

Clause 9 provided that the making of an award shall be a condition precedent to any right of action against the company. The stay had been ordered precisely so the dispute could go to arbitration. Only fraudulent and deliberate frustration of the arbitration by the insurer could displace this, which was not established on the facts; indeed the respondent's advocates bore some blame for the arbitration's breakdown.

p. 3
03

Whether Kuloba, J erred in treating the arbitration clause as an improper ouster of the court's jurisdiction

Holding

Kuloba, J's reasoning that jurisdiction could not be ousted by an 'unguardedly phrased arbitration clause' was wholly untenable; the parties were bound to arbitrate under the agreed clause.

Reasoning

The court rejected the judge's reliance on unequal bargaining power, noting there is little room for bargaining over motor vehicle insurance policies which are in common form. The parties had agreed to arbitration and had obtained a consent stay under section 6; the proper course where an arbitrator refused to act would have been an application under sections 9 or 12 of the Arbitration Act, not an informal fixing of a hearing date.

p. 5

Legal principles established

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  • A consent judgment or consent order may only be set aside for fraud, collusion or any reason which would enable the court to set aside an agreement, and otherwise only by consent of the parties.
  • Where an insurance policy provides that the making of an arbitration award is a condition precedent to any right of action against the insurer, the insured cannot sue the insurer unless the arbitration is first carried out, save where the insurer fraudulently and deliberately frustrates the arbitration.
  • A substantive order of stay of proceedings made by consent cannot be set aside by a side wind within an informal application for the fixing of a hearing date when setting aside the stay was not specifically in issue.

Court orders

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  1. 1.The appeal against the judgment of Kuloba, J is allowed
  2. 2.The decretal sum deposited by the appellant pursuant to the ruling of the court dated 16th July 1993 in Kenindia Assurance Company Limited v Patric Muturi Civil Application No NAI 107 of 1993 (44/93 UR), together with the interest earned, shall forthwith be released to the appellant
  3. 3.The appellant shall have its costs of the appeal
On appeal from
High Court
Jurisdiction invoked
First appellate jurisdiction over the High Court (the judgment does not cite a specific constitutional or statutory provision)

Key timeline

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Practical implications

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Frequently asked questions

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Cite this brief

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Cite this brief

Caselaw, "Kenindia Assurance Co Ltd v Patric Muturi [1994] KECA 78 (KLR)", Case Analysis (1994). . Source: https://new.kenyalaw.org/akn/ke/judgment/keca/1994/78/eng@1994-05-31

Suggested citation format for research notes or client memos. Always verify the original judgment before relying on any point.