Engen Kenya Limited v Stanely Munga Githunguri & another [2017] KEELC 1055 (KLR)

Environment and Land Court of Kenya

4 October 2017

CYC. Yano

1,869 words in judgment

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AI-assisted case brief

·~7 min to read original · ~4 min brief

The bottom line

Kenya's Environment and Land Court sent a Mombasa property sale dispute to arbitration as the contract required, while freezing dealings with the property to keep arbitration meaningful.

What this practically means

Executive summary

The Plaintiff, a tenant of Sub-Division 2804, Section One, Mainland North, Mombasa under a twenty-year lease expiring 28th February 2018, moved the court by Notice of Motion dated 21st February 2017 seeking referral of its dispute with the Defendant to arbitration under Clause 17 of a Sale Agreement dated 22nd September 2016, and an injunction restraining the Defendant from advertising, transferring, charging, leasing or otherwise dealing with the property pending arbitration. The Plaintiff alleged it had offered Kshs.120,000,000 for the property, paid a Kshs.12,000,000 deposit, and given a professional undertaking for the balance, only for the Defendant to unilaterally cancel the sale. The Defendant contended he signed the agreement under a mistaken belief that it renewed the lease, could not obtain spousal consent, and had received a higher offer. The Interested Party, the Defendant's wife, asserted the property was matrimonial, that the agreement was void for want of her consent, and that no dispute was arbitrable. The court held the dispute fell within the arbitration clause and that both parties agreed arbitration had not been resorted to, so the contractual machinery had to be exhausted. It further held that under Section 7 of the Arbitration Act the subject matter required protection because, if the Interested Party's caveat were removed, the property could be sold during arbitration and the process rendered futile. The Notice of Motion was allowed in terms of prayers 3 and 4 - referral to arbitration and an interim injunction - with each party bearing their own costs. Issues of illegality and spousal consent were left for determination at a later stage.

Key legal issues

Whether the dispute should be referred to arbitration under Clause 17 of the Sale Agreement

Holding

Yes. Both parties agreed the contract contained an arbitration clause and that arbitration had not yet been resorted to; the court was bound to give effect to that agreement.

Reasoning

The court found the dispute - the Plaintiff's claim for transfer of the suit property and the Defendant's cancellation of the sale - fell within the arbitration clause. Since both parties were in agreement that the dispute ought to go to arbitration and no other agreement had been exhibited, the law enjoined the court to respect and give effect to the contractual machinery for dispute resolution.

p. 3

Whether an injunction should issue preserving the subject matter pending arbitration

Holding

Yes. Although the lease was to run until 28th February 2018 and a caveat had been placed by the Interested Party, removal of the caveat could allow the property to be transferred while the dispute was under arbitration, rendering the arbitral process futile.

Reasoning

The court reasoned that the Plaintiff remained in possession under a lease expiring in February 2018 and the Defendant had assured the Plaintiff its rights would be respected. However, the caveat lodged by the Interested Party was the only impediment to a sale to third parties; if removed, the arbitration would be futile. Section 7 of the Arbitration Act provided the basis for the court to intervene and protect the subject matter during arbitration.

p. 3

Whether the alleged illegality/voidness of the Sale Agreement for want of spousal consent bars reference to arbitration

Holding

This issue was not determined at the interlocutory stage.

Reasoning

The Interested Party argued the Sale Agreement was illegal and void because she, as spouse, had not consented, leaving no dispute capable of arbitration. The court declined to resolve this contested issue at the interlocutory stage, leaving it to be determined in the appropriate forum.

p. 3

Legal principles established

Where a contract contains an arbitration clause, that dispute-resolution machinery must be exhausted before resort to the courts, and the court must give effect to the parties' agreement to arbitrate.
The court has power under Section 7 of the Arbitration Act to preserve the subject matter of a dispute pending arbitration where its omission may render the arbitral process futile.

Court orders

1.The suit is referred to Arbitration in accordance with Clause 17 of the Sale Agreement dated 22nd September 2016 (prayer 3 granted)
2.An injunction restraining the Defendant, its servants and/or agents from advertising, transferring, charging, leasing, interfering with the Plaintiff's quiet possession of or otherwise dealing with Sub-Division 2804, Section One, Mainland North, Mombasa pending the hearing and determination of the dispute by Arbitration (prayer 4 granted)
3.Each party to bear their own costs

Authorities

Legislation

Arbitration ActSection 7
Civil Procedure RulesOrder 40
Constitution of KenyaArticle 159

Jurisdiction invoked: Article 159 of the Constitution of Kenya; Order 40 of the Civil Procedure Rules; Section 7 of the Arbitration Act

Key timeline

Practical implications

Frequently asked questions

Cite this brief

Caselaw, "Engen Kenya Limited v Stanely Munga Githunguri & another [2017] KEELC 1055 (KLR)", Case Analysis (2017). Civil Suit No 48 of 2017. Source: https://new.kenyalaw.org/akn/ke/judgment/keelc/2017/1055/eng@2017-10-04

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