Kenya Oil Company Limited & Another v Kenya Pipeline Company
The bottom line
#Kenya's Court of Appeal confirmed courts can only challenge arbitration awards on points of law, not facts, and damages must be properly proven.
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 High Court erred in its appreciation and application of section 39 of the Arbitration Act in allowing the respondent's appeal from the arbitral award
- 2.Under what circumstances should the High Court interfere with an arbitral award under section 39 of the Arbitration Act
- 3.Did the High Court apply the right standards, and what is the interplay between the principles in Geogas S.A v Trammo Gas Ltd (The 'Baleares'), Vinava Shipping Co. Ltd v Finelvet A.G (The 'Chrysalis') and Bashir Ahmed Butt v Uwais Ahmed Khan
- 4.Whether the High Court was right in setting aside the arbitrator's award in favour of the respondent on the counterclaim
Key legal issues
#Scope of the High Court's jurisdiction under section 39 of the Arbitration Act
The High Court had mandate to entertain an appeal on points of law but not carte blanche to interfere with the arbitrator's findings of fact, including findings on liability
The parties' agreement to appoint the arbitrator reserved a right of appeal on questions of law, and section 39 permits such appeals. The court adopted Lord Justice Steyn's principle that arbitrators are masters of the facts and the court must decide questions of law on a full and unqualified acceptance of the arbitrator's findings of fact, per party autonomy.
Whether the complaints before the High Court were questions of law
The complaints relating to proof of loss and damages were matters of law within the province of appeal; findings of fact on liability were not
Applying Geogas and The Chrysalis, the court held that whether loss was proved to the requisite standard is a legal question, and an error of law may be inferred where a correct application of law to the facts found would inevitably lead to a different answer. The arbitrator's awards of damages lacked a proper evidential foundation.
Interplay between Geogas, The Chrysalis and Bashir Ahmed Butt
There is no inconsistency between the decisions; the High Court proceeded on the correct principle in disturbing the award of damages
Bashir Ahmed Butt concerns when an appellate court may disturb an award of damages (erroneous estimate or wrong principles); Geogas and The Chrysalis concern identifying questions of law and inferring errors of law from the arbitrator's reasoning. The court found the principles complementary in the context of section 39.
Duty of the arbitrator in a documents-only arbitration
A documents-only procedure does not oblige the arbitrator to accept documents without consideration; he must act judicially, weigh the material and give reasons
The arbitrator, as master of procedure under section 20, could invite further submissions or documents on pivotal matters. Mere presentation of documents, especially an expert report, without more cannot establish loss to the required standard of balance of probabilities in the absence of cross-examination.
The cross-appeal on the counterclaim award
The counterclaim award is inextricably linked to the appellants' claim and should be reconsidered by the arbitrator alongside the damages claim
Since the matter was properly remitted to the arbitrator for reconsideration of the assessment of loss and damage, and the counterclaim is linked to the appellants' claim, the High Court's setting aside of the counterclaim award could not stand; the cross-appeal failed.
Legal principles established
#- On an appeal under section 39 of the Arbitration Act, the court must accept the arbitrator's findings of fact and may interfere only on questions of law
- In a documents-only arbitration, the arbitrator is not bound to accept documents at face value and must assess their probative value
- A party's loss must be proved to the requisite legal standard of balance of probabilities before damages can be awarded
Court orders
#- 1.The appeal is dismissed
- 2.The respondent's cross-appeal is dismissed
- 3.Each party shall bear its own costs of the appeal and of the cross-appeal
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.A. No. 13 of 2010
- Jurisdiction invoked
- First appellate jurisdiction over an appeal from the High Court exercising its powers under section 39 of the Arbitration Act, 1995
Relief refused
#Setting aside the High Court's decision and reinstating the arbitral award in full
The High Court correctly interfered with the award of damages as the arbitrator fell into an error of law on the measure of damages
The respondent's cross-appeal seeking reinstatement of the award on the counterclaim
The counterclaim award is inextricably linked to the appellants' claim and should be reconsidered alongside it
Costs
Each party shall bear its own costs of the appeal and of the cross-appeal
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.
The result of the foregoing is that the appeal fails and is dismissed. The respondent's cross appeal also fails and is also dismissed.
We think, in all the circumstances, the appropriate order as regards costs of the appeal and of the cross appeal is that each party shall bear its own costs.
Clause 2 of the agreement and section 39 of the Act did not however give the High Court the mandate, carte blanche, to interfere with findings of fact made by the arbitrator. The mandate was restricted to points of law.
in an arbitration by documents, the mere presentation of documents by a party is not conclusive as to the fact sought to be proved. It remains incumbent on the arbitrator to be satisfied as to the probative value of those documents or reports particularly in the absence of cross-examination.
The principle of party autonomy decrees that a court ought never to question the arbitrators' findings of fact.
The parties are therefore bound by the arbitrator's findings of fact on liability and the matter could only be remitted back to the arbitrator for reconsideration on the question of assessment of loss and damage.
Issues in the judgment
#Opening paragraph misstates the award as damages 'to the appellants' and gives figures inconsistent with those detailed later
Paragraph 43 contains an incomplete sentence beginning 'In Geogas S A vs. Trammo Gas Ltd and the decision of this Court...'
Key timeline
#Practical implications
#Frequently asked questions
#Cite this brief
#Cite this brief
Caselaw, "Kenya Oil Company Limited & Another v Kenya Pipeline Company", Case Analysis (2014). Civil Appeal No. 102 of 2012. Source: https://new.kenyalaw.org/akn/ke/judgment/keca/2014/851/eng@2014-01-31
Suggested citation format for research notes or client memos. Always verify the original judgment before relying on any point.