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Court of AppealDismissedCivil Application 57 of 2006· [2006] KECA 389 (KLR)

Kenya Shell Limited v Kobil Petroleum Limited

Court of Appeal
10 November 2006
RORSC OmoloPWPN WakiJOJWO Otieno
4,405 words in judgment
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The bottom line

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Kenya's Court of Appeal refused to let Shell appeal an arbitration loss, confirming that arbitral awards are final and courts will not extend litigation without real prospects of success.

What this practically means

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Executive summary

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Kenya Shell applied for leave to appeal against the order of Mutungi J (14 February 2006) dismissing its application to set aside an arbitral award of over Ksh 58 million granted to Kobil for Shell's repudiation of a lubricant blending agreement. Shell's sole ground was section 35(2)(a)(iv) of the Arbitration Act: that the tribunal exceeded its reference by construing the limitation-of-liability clause 18 so as not to exclude deliberate non-performance, allegedly reintroducing fundamental breach. A preliminary jurisdictional objection had been resolved by majority on 5 April 2006. The Court of Appeal (Omolo, Waki and Onyango Otieno, JJA) applied the Machira test for leave: leave is refused where there are no realistic prospects of success unless a novel point, a point requiring clarification, or public interest warrants it. The Court held the tribunal was bound by the consent issues, clause 18 was squarely among them, and any complaint of misconstruction was a question of law raisable only under section 39, never invoked. Emphasising the 1995 Act's policy of finality and limited court access, the Court found the intended appeal fanciful and dismissed the application with costs. The ruling binds lower courts on the leave-to-appeal principles and the finality of arbitral awards where parties consented to the reference.

Key legal issues

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01

Principles governing grant of leave to appeal under rule 39 of the Court of Appeal Rules

Holding

Leave is a judicial discretion; it will be refused where there are no realistic prospects of success, though it may be granted for novel points or public interest reasons; there must almost always be a ground meriting serious judicial consideration.

Reasoning

The Court adopted the test in Machira v Mwangi and Mohamed Yakub: leave is refused where the applicant has no realistic prospect of success, 'realistic' excluding fanciful arguments. Leave may nonetheless be granted where a novel point or an issue requiring clarification of the law, or public interest, warrants it. The approach varies with the category and subject matter of the decision.

p. 6
02

Whether the tribunal exceeded its jurisdiction under section 35(2)(a)(iv) in construing clause 18

Holding

No. Clause 18 was among the issues submitted by consent; the tribunal considered it and did not go beyond the scope of the reference. Any complaint of misconstruction of the clause is a question of law raisable only under section 39, which was not invoked.

Reasoning

The plain reading of section 35(2)(a)(iv) against the consent issues showed the tribunal acted within jurisdiction. The mandate came from the parties' express consent to the issues. A claim that the tribunal misconstrued clause 18 in law could only be raised under the stringent terms of section 39, which Shell never invoked; the award was therefore final under section 10.

p. 8
03

Public policy and finality of arbitration

Holding

The Arbitration Act 1995 embodies a public policy of finality of arbitral awards and severe limitation of access to courts, which weighs against granting leave.

Reasoning

Comparing the 1995 Act with the repealed cap 49, the Court identified a legislative message of finality of disputes and limited court intervention, citing sections 6, 10, 12, 15, 17, 18, 28, 35 and 39. Public policy, though an unruly horse, fluctuates with the times and here favoured an end to litigation rather than extending it.

p. 8

Legal principles established

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  • Grant of leave to appeal is a judicial discretion exercised on established principles; leave will generally be refused where the applicant has no realistic prospects of success, unless the point is novel, requires clarification, or is in the public interest.
  • An arbitral tribunal is bound to decide in accordance with the terms of the particular contract, however onerous, absurd or unreasonable a clause may appear.
  • A party cannot challenge the scope of issues referred to arbitration where the parties and their advocates themselves drew and submitted those issues by consent.

Court orders

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  1. 1.Application for leave to appeal dismissed with costs

Authorities

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Legislation

  • Court of Appeal Rules (cap 9 Sub Leg)rule 39
  • Arbitration Act, 1995 (Act No 4 of 1995)sections 6, 10, 12, 17, 18, 28, 29, 29(5), 35(2)(a)(iv), 35(2)(b)(ii), 35(6), 35(11), 39
  • Civil Procedure Rules (cap 21 Sub Leg)order XLV
  • Arbitration (Repealed) Act (cap 49)

Cases cited (6)

  • Machira t/a Machira & Company Advocate v Mwangi & another
    [2002] 2 KLR 391

    Principles for granting leave to appeal: realistic prospects of success, novel points, public interest.

  • Yakub, Mohamed & another t/a Yasser Butchery v Badur Nasa & 2 others
    Civil Application No NAI 285 of 1999

    Approach to leave varies with the category and subject matter of the decision and reason for seeking leave.

  • Photo Productions Ltd v Securior Transport Ltd
    [1980] 1 All ER 557; [1980] AC 827

    Cited by applicant: re-introduction of fundamental breach doctrine laid to rest; approved and followed in Kenya.

  • Kihuni v Gakunga & another
    [1986] KLR 572

    A party cannot challenge issues referred to arbitration where the parties themselves drew the issues.

  • Richardson v Mellish
    [1824] 2 Bing 229

    Public policy as 'an unruly horse'; variable and fluctuating with circumstances of the time.

  • Christ for All Nations v Apollo Insurance Co Ltd
    [2002] 2 EA 366

    Three-limb test for setting aside an award as inconsistent with public policy under section 35(2)(b)(ii).

On appeal from
High Court of Kenya at Milimani Commercial Courts, Nairobi
HC Misc C Appl No 59 of 2004
Jurisdiction invoked
Rule 39 of the Court of Appeal Rules (cap 9 Sub Leg) - leave to appeal against an interlocutory order of the High Court

Key timeline

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Practical implications

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Frequently asked questions

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Later judgments citing this (9)

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Judgments in the corpus that rely on this one. Where the Court said how it treated the authority, that is shown.

Cite this brief

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Cite this brief

Caselaw, "Kenya Shell Limited v Kobil Petroleum Limited", Case Analysis (2006). Civil Application 57 of 2006. Source: https://new.kenyalaw.org/akn/ke/judgment/keca/2006/389/eng@2006-11-10

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