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ELCPartially AllowedELC Case (Narok) – suit arising from sale agreement dated 1st October 2014; application dated 16th June 2023· [2024] KEELC 108 (KLR)

Osman v Gulaam Enterprises Limited (Environment & Land Case E013 of 2023) [2024] KEELC 108 (KLR)

Environment and Land Court
24 January 2024
3,651 words in judgment
View original judgmentRead on Kenya Law Watch case
AI-assisted case brief
·~15 min to read original · ~4 min brief

The bottom line

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A Kenyan land court stopped a property lawsuit and sent the dispute to arbitration because the sale agreement's arbitration clause still applies even if the contract itself is disputed.

What this practically means

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Executive summary

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This is a ruling of the Environment and Land Court at Narok (Mbogo C.G., J) dated 24th January 2024 on the defendant's Notice of Motion dated 16th June 2023, brought under Section 6 of the Arbitration Act 1995, various provisions of the Civil Procedure Rules and Article 159(2)(c) of the Constitution. The defendant sought a stay of proceedings and referral to arbitration under clause 13 of the sale agreement dated 1st October 2014 over plots 60, 61 and 62 (formerly 243, 244 and 245) Block 4 Narok Township. The plaintiff's suit sought declarations of ownership and fundamental breach, injunctions against interference with the suit property, compensation of 30% of the purchase price, and general and exemplary damages. The plaintiff opposed the application, arguing that the agreement was terminated on 15th April 2017 and, having allegedly never received the Kshs. 285,000,000/= consideration, was null and void, taking the arbitration clause down with it. He also argued the defendant bore the burden of showing a referable dispute and had not stated the nature of the dispute. The court applied section 6(1) of the Arbitration Act and the principle of separability, holding that the contention over payment of the purchase price is itself a dispute falling within 'any dispute' under clause 13.2 and must go to arbitration. Relying on Kenya Airports Parking Services and Premium Nafta Products v Fili Shipping, the court found both parties bound by the arbitration clause absent fraud, duress or misrepresentation. The application was allowed: all proceedings were stayed and the parties referred to arbitration, with time for filing the defence stayed. The court made no orders as to costs.

Key legal issues

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01

Whether a dispute over the validity of the main contract (including whether consideration was paid) precludes referral to arbitration

Holding

No. Under the separability principle, the arbitration clause survives and disputes as to validity, consideration and performance fall to the arbitrator.

Reasoning

The plaintiff argued the arbitration clause was tied to the validity of the main agreement, which was null and void for want of consideration. The court applied section 6(1) of the Arbitration Act and the separability principle, holding that contention about validity or payment of the purchase price is itself a dispute falling within the phrase 'any dispute' under clause 13.2, and that absent fraud, duress or misrepresentation the parties are bound by their chosen mode of dispute resolution.

p. 6
02

Whether the defendant's non-disclosure of the nature of the dispute to be referred to arbitration disentitles it to a stay

Holding

The court noted the non-disclosure but did not treat it as fatal, since the contested issues (consideration, performance, possession) were evident from the pleadings and affidavits.

Reasoning

The plaintiff argued the applicant bore the burden of showing a dispute within the arbitration clause and had not stated its nature. The court observed that non-disclosure 'gives the implication that there is no valid contract', but found that the core contested matters — payment of the purchase price and possession since 2019 — were disputes properly referable to arbitration under clause 13.

p. 6

Legal principles established

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  • Under the principle of separability, a party's view that the main agreement is invalid does not invalidate the arbitration clause.
  • An application under section 6(1) of the Arbitration Act only requires the applicant to bring it promptly, upon which the court must consider the three threshold matters.
  • Where there is no allegation of undue influence, duress, fraud or misrepresentation, parties are bound by the arbitration clause they agreed to.

Court orders

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  1. 1.That there be stay of all proceedings in this matter and refer the parties to arbitration as envisaged by clause 13 of the agreement of sale dated 1st October, 2014 between the plaintiff and the defendant which agreement has given rise to the present suit.
  2. 2.That pending the hearing and determination of this application, this honourable court be pleased to stay the period within which the defendant is enjoined to file its defence in this matter.

Authorities

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Legislation

  • Arbitration ActSection 6(1), (2), (3)
  • Civil Procedure RulesOrder 7 Rule 1; Order 40 Rule 7; Order 51 Rules 1 & 15
  • Constitution of Kenya, 2010Article 159(2)(c)
  • Evidence ActSections 65(8), 106, 106B

Cases cited (15)

  • National Bank of Kenya Limited versus Pipeplastic Samkolit (K) Limited & Another
    [2001] eKLR
  • Kenneth Kinoti Muriuki & 5 Others versus Dinara Developers Limited & Another
    [2020] eKLR
  • Yes Cooperative Society Limited versus Kenneth Onsare Maina
    [2020] eKLR
  • Charles Njogu Lofty versus Boudin Enterprises Limited
    [2005] eKLR
  • Monique Oraro versus AAR Insurance Company Limited
    [2019] eKLR
  • Kabew Kenya Limited versus Inabensa-Kenya
    [2016] eKLR
  • Jimmy Mutuku Mwithi t/a Oasis Farm versus Eric Okondo Omanga t/a Cidai Farm
    [2016] eKLR
  • Lee versus The Showmen’s Guild of Great Britain
    (1952) 2 QB 329 (CA)
  • Niazsons K Limited versus China Road & Bridge Corporation Kenya
    [2001] eKLR / [2001] KLR 12
  • Esmaj versus Mistry Shamji Lalji & Co.
    (1984) KLR
  • Neptune Credit Management Limited & Another versus Jani & Another
    (Civil Appeal 201 of 2019) [2022] KECA 619 (KLR) (13 May 2022)
  • Corporate Insurance Company versus Wachira
    [1996] eKLR
  • UAP Provincial Insurance Company Limited versus Michael John Beckett
    C.A No. 26 of 2007
  • Kenya Airports Parking Services Ltd & another versus Municipal Council of Mombasa
    [2010] eKLR
  • Premium Nafta Products Limited (20th defendant) and others (respondents) versus Fili Shipping Company Limited (14th claimant) and others (appellants)
    {2007} UKHL 4
Jurisdiction invoked
Article 159(2)(c) of the Constitution and Section 6 of the Arbitration Act, 1995

Key timeline

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Practical implications

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Frequently asked questions

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Cite this brief

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Cite this brief

Caselaw, "Osman v Gulaam Enterprises Limited (Environment & Land Case E013 of 2023) [2024] KEELC 108 (KLR)", Case Analysis (2024). ELC Case (Narok) – suit arising from sale agreement dated 1st October 2014; application dated 16th June 2023. Source: https://new.kenyalaw.org/akn/ke/judgment/keelc/2024/108/eng@2024-01-24

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