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Court of AppealPartially AllowedCivil Appeal No. 163 of 2016· [2020] KECA 522 (KLR)

Kenya Breweries Limited & another v Bia Tosha Limited & 5 others [2020] KECA 522 (KLR)

Court of Appeal
10 July 2020
9,594 words in judgment
View original judgmentRead on Kenya Law Watch case
AI-assisted case brief
·~38 min to read original · ~4 min brief

The bottom line

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Kenya's Court of Appeal ruled that commercial disputes wrapped in constitutional language must still go to arbitration if the contract says so.

What this practically means

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Executive summary

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This interlocutory appeal challenged a ruling of the High Court (Onguto, J.) granting Bia Tosha Limited conservatory orders preserving the 'Bia Tosha Territory' exclusively to it pending the hearing of a constitutional petition alleging that repossession of distributorship routes without refund of goodwill violated Article 40 of the Constitution. The High Court had declined to refer the dispute to arbitration despite arbitration clauses in the distributorship agreements, holding that purely constitutional questions had arisen from the commercial relationship. The Court of Appeal identified three issues: whether the Judge wrongly assumed jurisdiction ignoring party autonomy and the arbitration agreement; whether final orders conferring contractual rights were issued before trial; and whether a commercial dispute was improperly elevated into a constitutional petition. Holding that the constitutional complaints were embedded in the written distributorship agreements containing mediation and arbitration clauses, and that the Judge failed to heed Article 159(2)(c) promoting alternative dispute resolution, the Court found the Judge misdirected himself. It further held that the conservatory order was final in effect, granted exclusive control over territories also claimed by other distributors who had paid goodwill, disregarded the parties' respective interests, the alternative remedy of damages or restitution, and the public interest principles in Gatirau Peter Munya. The appeal was allowed: the conservatory order of 29th June 2016 was set aside and substituted with a stay of the High Court proceedings pending referral of the dispute to arbitration, with costs to abide the outcome of the dispute.

Key legal issues

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01

Jurisdiction of the High Court in the face of an arbitration agreement

Holding

The learned Judge misdirected himself in concluding that the constitutional issues raised were not suitable for arbitration; disputes predicated on agreements containing arbitration clauses should first go to arbitration

Reasoning

The constitutional breaches complained of arose from the distributorship agreements, and the alleged infringement of constitutional rights cannot be divorced from the written agreements in which they are embedded. The Judge also failed to give due consideration to Article 159(2)(c) of the Constitution mandating courts to promote alternative dispute resolution, and did not heed its dictates, thereby wrongly assuming jurisdiction.

p. 9
02

Exercise of discretion in granting conservatory orders

Holding

The Judge failed to take into account the respective interests of the parties, the availability of damages/restitution as an alternative remedy, and the public interest element; the order was final in effect and conferred rights not established at trial

Reasoning

The conservatory order granted the 1st respondent exclusive control over disputed territories where other distributors had paid goodwill, potentially locking them out of the market contrary to Section 21(3) of the Competition Act. Serious triable issues existed on exclusivity and refundability of goodwill which only a trial could resolve, and the Judge ignored the public interest framework in Gatirau Peter Munya vs Dickson Mwenda Kithinji.

p. 11
03

Whether goodwill is property under Article 40

Holding

Goodwill is a species of personal property which can be bought, sold, disposed of by will and charged, but the claimant must vindicate exclusive rights by proving ownership and absence of conditions

Reasoning

The Court agreed with the learned Judge that goodwill is private property if proved there were no conditions attached, relying on Inland Revenue Commissioners vs Muller & Co's Margarine Ltd. However, whether the goodwill here was refundable and whether the routes were exclusive were seriously contested issues requiring evidence, so no conclusive determination could be made at the interlocutory stage.

p. 10
04

Standard for appellate interference with discretion

Holding

An appellate court interferes with a discretionary decision only where the judge misdirected himself in law, misapprehended the facts, took into account or failed to take into account relevant matters, or was plainly wrong

Reasoning

The Court adopted the classic principles in United India Insurance Co. Ltd vs East African Underwriters (Kenya) Ltd per Madan JA. Finding that the Judge misdirected himself on jurisdiction and failed to weigh the parties' respective interests and the public interest, the Court was entitled to interfere and set aside the conservatory order.

p. 6

Legal principles established

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  • Where parties have agreed on arbitration as the mode of dispute resolution and constitutional claims are embedded in the contract, that avenue ought to be exhausted first and the court should stay proceedings under Section 6(1) of the Arbitration Act
  • A party claiming goodwill as property must discharge the burden of proving ownership and that no conditions were attached to it
  • Conservatory orders in constitutional petitions must be granted bearing in mind the public interest, constitutional values and the respective interests of all affected parties
  • A court cannot rewrite a contract between parties by imposing terms pending determination of disputed issues

Court orders

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  1. 1.The conservatory order made on 29th June 2016 set aside and substituted with an order staying the proceedings before the High Court pending the dispute being referred to arbitration
  2. 2.The dispute between the 1st appellant and 1st respondent referred to arbitration in accordance with the respective parties' distributorship agreements
  3. 3.Costs to abide the outcome of the dispute

Authorities

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Legislation

  • Constitution of Kenya, 2010Article 163(4)(a)
  • Constitution of Kenya, 2010Article 159(1)(c) and 159(2)(c)
  • Constitution of Kenya, 2010Article 165(3)(b), 165(3)(d)(ii)
  • Constitution of Kenya, 2010Article 40(1)
  • Constitution of Kenya, 2010Articles 2, 3, 10, 19, 22, 23, 24, 27, 36
  • Arbitration ActSection 6(1)
  • Competitions ActSection 21(1), 21(3)
  • Evidence ActSection 97
  • Constitution (Protection of Rights and Fundamental Freedoms) Practice and Procedure Rules, 2012Rule 23(1)
  • Court of Appeal RulesRule 5(2)(b)

Cases cited (12)

  • Kenya Breweries Limited vs. Kiambu General Transport Agency Limited
    [2000] eKLR
  • Communication of Kenya & 5 others vs. Royal Media Services Ltd & 5 others
    [2015] eKLR
  • Nyutu Agrovet vs. Airtel Networks Ltd
    [2015] eKLR
  • In the matter of the interim Independent Electoral Commission (applicant)
    Constitutional Application No. 2 of 2011
  • United India Insurance Co. Ltd vs. East African Underwriters (Kenya) Ltd
    [1985] E.A 898
  • Niazsons (K) Ltd vs. China Road & Bridge
    [2001] eKLR
  • Corporate Insurance Company vs. Loice Wanjiru Wachira
    [1996] eKLR
  • UAP Provincial Insurance Company Ltd vs. Michael John Beckett
  • Metrocall Inc -v- Electronic Tracking Systems (Pty) Ltd
  • Gatirau Peter Munya vs. Dickson Mwenda Kithinji & 2 others
    [2014] eKLR
  • Inland Revenue Commissioners vs. Muller & Co's Margarine Ltd
    [1901] AC 217
  • National Bank of Kenya Ltd vs. Pipeplastic Samekolit (K) Ltd
    [2002] EA 503
On appeal from
High Court of Kenya at Nairobi
H.C. Pet. No. 249 of 2016
Jurisdiction invoked
Appellate jurisdiction of the Court of Appeal over the High Court ruling (the 1st respondent's attempt to invoke Article 163(4)(a) was rejected by the Supreme Court); interim relief had earlier been sought under Rule 5(2)(b) of the Court of Appeal Rules

Key timeline

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Practical implications

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Frequently asked questions

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Later judgments citing this (5)

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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 Breweries Limited & another v Bia Tosha Limited & 5 others [2020] KECA 522 (KLR)", Case Analysis (2020). Civil Appeal No. 163 of 2016. Source: https://new.kenyalaw.org/akn/ke/judgment/keca/2020/522/eng@2020-07-10

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