INTER-CONTINENTAL HOTELS CORPORATION v MUKAWA (HOTELS) HOLDINGS LIMITED [1997] KECA 408 (KLR)
The bottom line
#Kenya's Court of Appeal ruled that a party crying fraud just to dodge an agreed arbitration must actually prove it, or the arbitration stands.
What this practically means
#Executive summary
#Questions the Court framed
#The issues the Court set itself to decide, in its own words.
- 1.Whether the learned trial Judge exercised his discretion under section 25(2) of the Arbitration Act Cap 49 on wrong principles
- 2.Whether the trial Judge failed to take account of the fact that the party alleging fraud was the party applying to have the arbitration clause cancelled, while the party against whom the allegations were made wished to enforce the agreement to arbitrate
- 3.Whether the respondent proved a prima facie case of fraud sufficient to invoke section 25(2) of the repealed Act
Key legal issues
#Whether allegations of fraud in the accounts and management fees amounted to prima facie evidence of fraud under section 25(2) of the repealed Arbitration Act
They did not; the allegations were essentially disputes about accounting properly referable to arbitration, and the addition of the words 'wrongfully and fraudulently' did not convert them into prima facie evidence of fraud
The court examined each allegation - inflated management fees, misuse of service charge, non-reflection of fees in accounts, unpaid taxes - and found they were all matters the arbitrators could properly determine. The epithets 'wrongfully and fraudulently' did not change the substance of the complaints. The qualification of accounts by auditors carried no weight absent an affidavit from the auditors explaining why the accounts were qualified.
Whether the trial Judge applied wrong principles in revoking the arbitration clause
Yes; the Judge erred in acceding to the respondent's prayers because the party alleging fraud was the party seeking to escape arbitration, and it had shown no prima facie case of fraud
Following the approach of Clauson J in Radio Publicity (Universal) Ltd v Compagnie Luxembourgoise, the court held that a judge should hesitate long before revoking an international arbitration clause. The court declined to go as far as Russell v Russell, but held that where the party avoiding arbitration is the one charging fraud, a prima facie case of fraud must be shown, which was not done here.
Whether the repealed section 25(2) of Cap 49 governed the appeal despite its repeal
Yes; it was common ground that the appeal had to be decided under the repealed Act, though the court noted its observations on section 25(2) were no longer valid propositions under the new Act
The Arbitration Act No. 4 of 1995, operational from 2nd January 1996, contains no provision similar to section 25 of Cap 49. The parties agreed the appeal must be decided under the repealed Act, and the court expressly cautioned that most of what it said on section 25 of the old Act, though directly relevant to the outcome, are no longer valid propositions under the new Act.
Legal principles established
#- A party seeking to avoid an arbitration agreement under section 25(2) of the repealed Arbitration Act on grounds of fraud must prove a prima facie case of fraud; mere allegations dressed with the epithets 'wrongfully and fraudulently' do not suffice
- In exercising the discretion under section 25(2), a key consideration is which party is charging fraud to avoid arbitration; a party who does not wish to arbitrate and alleges fraud must show a prima facie case of fraud
- A court should hesitate long before revoking an international arbitration clause, particularly where the party resisting arbitration is the one alleging fraud
- A party who freely enters into an international arbitration agreement cannot later complain of the costs and inconvenience of participating in the foreign arbitration
Court orders
#- 1.Appeal allowed
- 2.Orders made by the High Court set aside
- 3.Respondent's originating summons dated 7th June 1990 dismissed with costs to the appellant
- 4.Costs of the appeal awarded to the appellant
The bench
#One judgment of the whole court — no separate or dissenting opinions.
- On appeal from
- High Court of Kenya at Nairobi
- H.C.C. Suit No. 2787 of 1990 (O.S.)
- Jurisdiction invoked
- First appeal to the Court of Appeal from a ruling and order of the High Court (appeal as of right against the exercise of discretion under section 25(2) of the repealed Arbitration Act, Cap 49)
Relief refused
#Respondent's prayer that the arbitration clause in the agreement of 15th July 1982 cease to have effect
The respondent failed to prove a prima facie case of fraud; the allegations were matters properly raisable before the arbitrators
Respondent's prayer that the appointment and authority of the International Chamber of Commerce and the arbitrators be declared void
No prima facie evidence of fraud was established to justify revocation of the arbitration agreement
Costs
Costs of the originating summons in the High Court and costs of the appeal awarded to the appellant
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.
we allow this appeal and set aside the orders made by the High Court. In place of those orders, we order that the respondent's originating summons dated the 7th June, 1990, be dismissed with costs to the appellant. We also award to the appellant the costs of this appeal. Those shall be our orders.
All the allegations which were made by the respondent are matters which can properly be raised before the arbitrators and we do not think the addition of the epithets "wrongfully and fraudulently" could ever change the basic allegations.
one of the important considerations or factors which a judge must take into account when exercising the discretion under section 25(2) is the question of which party is charging fraud with a view to avoid arbitration.
we think Tank, J. ought to have long hesitated before revoking the arbitration clause particularly in view of the fact that it was the party who did not want to go to arbitration that was alleging fraud.
having freely entered into that agreement, the respondent cannot now be heard to complain that it is unable to incur costs and participate in a foreign arbitration.
Key timeline
#Practical implications
#Frequently asked questions
#Cite this brief
#Cite this brief
Caselaw, "INTER-CONTINENTAL HOTELS CORPORATION v MUKAWA (HOTELS) HOLDINGS LIMITED [1997] KECA 408 (KLR)", Case Analysis (1997). Civil Appeal No. 125 of 1991. Source: https://new.kenyalaw.org/akn/ke/judgment/keca/1997/408/eng@1997-01-17
Suggested citation format for research notes or client memos. Always verify the original judgment before relying on any point.