Kenya Bureau of Standards v Geo Chem Middle East [2019] KECA 109 (KLR)
The bottom line
#The Court of Appeal threw out a KSh 1 billion+ arbitration award against KEBS because the dispute was referred to arbitration too late and covered obligations the contract never imposed.
What this practically means
#Executive summary
#Key legal issues
#Whether the appeal properly lies to the Court of Appeal
The Court declined to determine its own jurisdiction because leave had already been granted in Nairobi Civil Application No. 132 of 2017 and that order remained valid and unsetting aside; it noted a related question pending before the Supreme Court but said no more.
The respondent argued that Section 35 of the Arbitration Act contains no right of appeal and that Sections 36 and 39 are mutually exclusive. The Court held that since leave had been granted and not set aside, the jurisdictional question did not lie for determination before it, and acknowledged the issue was pending before the Supreme Court without further comment.
Whether the arbitral tribunal had jurisdiction, the reference being allegedly time-barred
The reference and appointment of the tribunal were done outside the time limits prescribed in Clause C.10 of the Contract; the reference was time-barred and the tribunal had no jurisdiction.
The Government's suspension communicated on 26th March 2010 was 'until further notice' and was a force majeure event, but the contract did not stand terminated at that point. Time began to run only when the appellant's letter of 15th July 2013 communicated termination. The respondent was then required to declare a dispute and refer it to arbitration within 21 days, which it did not do, referring the matter almost two years later.
Whether the tribunal dealt with matters outside the terms of the reference
The Contract imposed no obligation on the appellant to collect fees or make good any default in payment by the oil marketers; the tribunal's determination of liability to pay on the part of the appellant was a matter outside the scope of the reference under Section 35(2)(iv) of the Arbitration Act.
The Court noted party autonomy must be revered and courts have no business rewriting contract terms. Parties confirmed that fees levied on inspection were to be paid directly by importers to the respondent, which would remit 0.2% to the appellant. There was no clause placing any obligation on the appellant to collect the fees and pay them to the respondent, so the tribunal could not determine liability to pay where no such liability was provided for in the contract.
Whether the award conflicted with the public policy of Kenya
An award imposing liability on a state corporation to pay from public funds over 1 billion Kenya shillings without proof of liability to pay is clearly against public policy.
Having found no contractual or legal basis for the liability imposed on the appellant, a state corporation running on public funds allocated from the National Treasury, the Court held enforcement of the award would be against public policy, reinforcing its conclusion that the High Court ought to have set the award aside.
Legal principles established
#- A reference to arbitration made outside the time limits prescribed in the arbitration agreement robs the tribunal of jurisdiction over the dispute.
- Where the award deals with a dispute or imposes an obligation not contemplated by or falling within the terms of the reference to arbitration, it is liable to be set aside under Section 35(2)(iv) of the Arbitration Act.
- An award imposing liability on a state corporation to pay from public funds without proof of liability is in conflict with the public policy of Kenya and may be set aside.
- Where the suspension of a contract is expressed to be 'until further notice', time for referring a dispute to arbitration under the contractual dispute-resolution clause does not begin to run against the party disputing termination until it is informed of the termination.
Court orders
#- 1.Appeal allowed
- 2.The learned Judge of the High Court should have allowed the Notice of Motion dated 30th September 2016 seeking to set aside the arbitral award
- 3.Each party to bear its own costs both in the appeal and in the High Court
- On appeal from
- High Court of Kenya at Nairobi
- H.C. Misc. Cause No. 455 & 501 of 2016
- Jurisdiction invoked
- Leave to appeal granted by the Court of Appeal in Nairobi Civil Application No. 132 of 2017, the appellant having relied on Section 39(3) of the Arbitration Act
Key timeline
#Practical implications
#Frequently asked questions
#Cite this brief
#Cite this brief
Caselaw, "Kenya Bureau of Standards v Geo Chem Middle East [2019] KECA 109 (KLR)", Case Analysis (2019). Civil Appeal No. 259 of 2018. Source: https://new.kenyalaw.org/akn/ke/judgment/keca/2019/109/eng@2019-11-22
Suggested citation format for research notes or client memos. Always verify the original judgment before relying on any point.