MEANING
Definition:
- An out of court method of settlement of civil disputes by arbitral tribunals/panels which make arbitral awards as opposed to judgments.
Process:
- Similar to litigation, where two parties to a dispute agree to allow a neutral third party called an arbitrator/arbiter to resolve their dispute.
Description:
- A private consensual process where parties in dispute agree to present their grievances to a third party for settlement.
Initiation:
- Usually, parties insert an arbitration clause in their contract. Others may enter into an agreement to submit their dispute to arbitration, which forms an enforceable contract. The court may also refer/encourage the parties to arbitration.
Lord Justice Raymond’s Definition:
- Defined an arbitrator as ‘a private extraordinary judge between party and party, chosen by their mutual consent to determine controversies between them’. Arbitrators are called so because they have arbitrary power. Their sentences are definite from which there lies no appeal, provided they observe the submission and keep within their due bonds.
ADVANTAGES
Party autonomy; Confidential; Cost effective; Saves time; Minimum procedural formalities; Flexibility; Limited interventions by the court; Less adversarial; Expert determination.
DISADVANTAGES
It can be costly; Greater likelihood of non-compliance since it depends on the goodwill of the parties; Limited grounds of appeal; Award can be set aside.
PRINCIPLES OF ARBITRATION
Party autonomy.
Confidentiality.
Neutrality.
Equality of the parties.
Flexibility.
Finality of awards.
DEVELOPMENT OF ARBITRATION IN KENYA
Early Legislation:
- The first Kenyan legislation was the East Africa Protectorate Arbitration Ordinance of 1913, which came into force on 1 January 1914. It repealed the Indian Code of Civil Procedure for use in the East African Protectorate.
1914 Ordinance:
- A reproduction of the English Arbitration Act, 1889. It accorded courts in Kenya ultimate control over the arbitration process. It was used mainly for resolution of commercial disputes as an alternative to litigation.
UN Recognition:
- The UN Charter recognized arbitration under Article 33 in 1945, stating that parties should seek solutions by negotiation, enquiry, mediation, conciliation, arbitration, judicial settlement, resort to regional agencies or arrangements, or other peaceful means.
Post-Independence:
- The first legislation regulating arbitration after independence was the Arbitration Act 1968. It was modelled around the English Arbitration Act of 1950.
1968 Act Issues:
- This Act generally laid the framework for court’s intervention but afforded courts too much intrusive powers, affecting efficiency, expediency, and effectiveness due to delays, additional procedures, and costs. Stakeholders sought repeal because it allowed courts excessive leeway to interfere.
UNCITRAL Model Law (1985):
- Adopted by the United Nations Commission on International Trade Law, providing a framework to reform and modernize laws related to arbitral procedures for international commercial arbitration. It covers all stages: arbitration agreement, tribunal composition/jurisdiction, court intervention, and recognition/enforcement of the award. Kenya needed to modernize its laws to keep up with international standards and reduce court intervention.
New York Convention:
- Kenya acceded to the New York Convention on the Recognition and Enforcement of Arbitral Awards of 1958 in 1989.
Current Law:
- The legal reforms culminated in the enactment of the Arbitration Act of 1995, the current law governing arbitration in Kenya. The 1995 Act repealed the 1968 Act and is based on the UNCITRAL Model Arbitration Act. It contains 42 sections divided into 8 parts.
Arbitration Rules:
- The Arbitration Rules were enacted in 1997 to provide for the procedure and process of court intervention.
Constitution of Kenya 2010:
- Article 159(2)(c) encourages Kenyan national courts to promote arbitration. This was aimed at improving dispute resolution speed by providing a mechanism to offload cases from the judiciary, which had a significant backlog.
Nairobi Centre for International Arbitration (NCIA):
- The NCIA Act 2013 was passed to establish an independent arbitration institution. Section 5 mandates the NCIA to promote, administer, facilitate, and encourage the conduct of international commercial arbitration in Kenya. NCIA is influenced by established institutions like the London Court of International Arbitration (LCIA). NCIA Arbitration Rules (2015) are very similar to the LCIA and its rules.
CIArb:
- The 2020 Rules govern arbitration conducted under the auspices of the Chartered Institute of Arbitrators (Kenya Branch).
Regulation:
- The Arbitration Act regulates domestic and international arbitration conducted in Kenya. Under the Act, arbitration includes any arbitration, whether administered by a permanent arbitral institution or not.
DOMESTIC ARBITRATION
Occurs if the agreement provides expressly or by implication for arbitration in Kenya, AND at the time proceedings are commenced or arbitration is entered into:
- If between individuals, parties are nationals of Kenya or habitually resident in Kenya.
- If between bodies corporate, parties are incorporated in Kenya or their central management/control is exercised in Kenya.
- If between individual and body corporate, both 16(i) and 16(ii) conditions apply to the respective parties.
- The place where a substantial part of the obligations of the commercial relationship is to be performed, or the place most closely connected with the subject matter, is Kenya.
INTERNATIONAL ARBITRATION
Occurs if:
(a) The parties, at the time of agreement conclusion, have their places of business in different states; OR
(b) One of the following places is situated outside the state where the parties have their places of business:
(i) The juridical seat of arbitration determined by or pursuant to the agreement; OR (ii) Any place where a substantial part of the commercial relationship obligations is to be performed or the place most closely connected with the subject-matter; OR
(c) The parties have expressly agreed that the subject-matter relates to more than one state.
PLACE OF BUSINESS RULES (INTERNATIONAL)
If a party has more than one place of business, the relevant place is that which has the closest relationship to the arbitration agreement. If a party does not have a place of business, reference is made to their habitual residence.
INSTITUTIONAL ARBITRATION
Conducted pursuant to institutional arbitration rules and overseen by an arbitral institution. The institution is responsible for various aspects, such as arbitrator appointments, fixing of arbitrators’ fees, and administrative support. Parties incorporate the rules of a recognized institution and adopt it as the appointing authority.
AD HOC ARBITRATION
Where parties have not selected an institution to administer the arbitration. Parties select their arbitrators and together determine the arbitral procedure and rules, without recourse to institutional rules or oversight.
ARBITRATION ARGREEMENT (AA)
Basis:
- The basis of arbitration proceedings in Kenya is the arbitration agreement.
Definition:
- An agreement by the parties to submit to arbitration all or certain disputes which have arisen or which may arise between them in respect of a defined legal relationship, whether contractual or not.
Nature:
- It is a contractual undertaking by the parties to resolve their dispute(s) by arbitration process. The dispute itself can be contractual or not.
ARBITRATION ARGREEMENT (AA) - FORM
SECTION 4
An arbitration agreement must be in writing.
- Arbitration clause in a contract.
- A separate agreement.
- A court direction/order.
WRITTEN FORM CONDITIONS: Satisfied if contained in:
- A document signed by the parties; OR
- An exchange of letters, telex, telegram, facsimile, electronic mail, or other means of telecommunications which provide a record of the agreement; OR
- An exchange of statements of claim and defence in which the existence of an agreement is alleged by one party and not denied by the other party.
FORMALITY:
- It is not necessary for the AA to be a formal agreement or that all terms be contained in one document. Reference in a contract to a document containing an arbitration clause constitutes an AA if the contract is in writing and the reference is made in a manner that makes the clause part of the contract.
CONTENTS of a Properly Drafted AA:
- The dispute(s) being referred to arbitration.
- The parties to the arbitration process.
- The number of arbitrators.
- The venue of arbitration (seat of arbitration).
- The applicable law.
- Procedure and rules of arbitration.
- Limitation period for dispute resolution.
- Costs.
- Appeal.
ARBITRATION ARGREEMENT (AA) - SEPARABILITY
(Section 17): An AA is considered a separate agreement from the contract it is contained in. An arbitration clause is treated as an agreement independent of the other terms of the contract. A decision by the arbitral tribunal that the basis contract is null and void shall not invalidate the arbitration clause. The AA survives and continues to exist even if the main contract is nullified or terminated, in order to deal with liabilities arising by or after termination.
ARBITRATION ARGREEMENT (AA) - DISPUTES RELATING IT’S EXISTENCE AND VALIDITY
Disputes relating to the existence or validity of the AA are dealt with at the initial stages.
Jurisdiction (Tribunal):
- If the question is raised once the arbitral tribunal is composed, Section 17(1) gives the tribunal the power to hear and determine this question.
Jurisdiction (Court):
- If raised in court proceedings, Section 6(1) clothes the court with jurisdiction. The court shall stay the proceedings and refer parties to arbitration unless it finds that (a) the AA is null and void, inoperative or incapable of being performed; or (b) there is not in fact any dispute between the parties.
Procedure:
- Recourse to court is usually via a formal application, which must be made before entering appearance or filing a statement of defence.
ARBITRATION ARGREEMENT (AA) - LIMITATIONS
Arbitration Agreements are subject to the Limitation of Actions Act.
ARBITRATION ARGREEMENT (AA) - INTERIM MEASURES
(Section 7): Section 7 empowers the court to grant interim measures to any party before or during arbitral proceedings, as a measure of protection, usually to preserve assets subject to proceedings. If the tribunal had ruled on the matter under section 18(1), the court takes that ruling as conclusive. It is not incompatible with an AA for a party to request such a measure from the High Court.
APPOINTMENT AND COMPOSITION OF ARBITRAL TRIBUNAL - NUMBER AND APPOINTMENT OF ARBITRATORS
Number of Arbitrators (Section 11):
Parties are empowered to determine the number. If they fail to agree, the number shall be one.
Two Arbitrators:
If the AA provides for two arbitrators, it is deemed to include a provision that the two shall appoint a third arbitrator immediately after they are themselves appointed.
Appointment Procedure:
Parties are free to agree on a procedure. Failing agreement:
(a) Three arbitrators: Each party appoints one, and the two appointed arbitrators appoint the third arbitrator.
(b) Two arbitrators: Each party shall appoint one arbitrator.
(c) One arbitrator: The parties shall agree on the arbitrator.
APPOINTMENT AND COMPOSITION OF ARBITRAL TRIBUNAL - NON COOPERATION, DEFAULT, AND CHALLENGES TO SOLE APPOINTMENT
Non-Cooperation/Default:
- If each of two parties is to appoint an arbitrator and one party fails to do so within the time allowed, or within fourteen days (if no time specified), the other party may give notice proposing to appoint his arbitrator as sole arbitrator. If the party in default does not appoint their arbitrator within fourteen days after notice, the other party may appoint his arbitrator as sole arbitrator, and the award of that arbitrator shall be binding.
Challenging Sole Appointment:
- The party in default may apply to the High Court to set aside the sole appointment. The High Court may grant the application if there was good cause for the failure/refusal. The High Court’s decision is final. If the High Court grants the application, it may appoint a suitable arbitrator (by consent or otherwise).
Nationality:
- No person shall be precluded by reason of nationality from acting as an arbitrator, unless agreed otherwise by the parties.
APPOINTMENT AND COMPOSITION OF ARBITRAL TRIBUNAL - INDEPENDENCE, IMPARTIALITY, AND CHALLENGES TO APPOINTMENT
Independence and Impartiality (Section 13): - Arbitrators are required to be impartial and independent. Any person approached to act as an arbitrator is mandated to disclose any circumstances likely to give rise to justifiable doubts as to his impartiality or independence. This duty to disclose runs from the time of appointment and throughout the proceedings.
Challenging Appointment (Sections 13(3) rtw 14):
A party has a right to challenge an appointment if:
(a) Circumstances exist that give rise to justifiable doubts as to his impartiality and independence; OR
(b) He does not possess qualifications agreed to by the parties; OR
(c) He is physically or mentally incapable of conducting the proceedings.
APPOINTMENT AND COMPOSITION OF ARBITRAL TRIBUNAL - PROCEDURE AND EFFECT OF CHALLENGE TO ARBITRATIOR
Challenge Procedure:
- Parties may agree on a procedure. If not agreed, the challenging party must send a written statement of reasons to the arbitral tribunal within fifteen days after becoming aware of the composition or the circumstances of challenge.
Tribunal Decision:
- Unless the challenged arbitrator withdraws or the other party agrees, the arbitral tribunal shall decide on the challenge.
Appeal to High Court:
- If a challenge is unsuccessful, the challenging party may apply to the High Court within thirty days after being notified of the rejection. The High Court’s decision is final.
Effect of Application:
- The application to the High Court does not prevent the commencement, continuation, and conclusion of arbitral proceedings. However, no award shall take effect until the application is decided, and the award shall be void if the application is successful.
APPOINTMENT AND COMPOSITION OF ARBITRAL TRIBUNAL - TERMINATION, SUBSTITUTION, WITHDRAWAL AND IMMUNITY OF ARBITATORS
Failure and Termination of Appointment (Section 15): The arbitrator’s authority terminates if:
(a) The arbitrator is unable to perform functions or fails to conduct proceedings properly and with reasonable dispatch; OR
(b) The arbitrator withdraws from office; OR
(c) The parties agree in writing to the termination of the mandate.
High Court Role in Termination:
- A party may apply to the High Court to decide on the termination of the mandate. The court’s decision is final.
Substitute Arbitrator:
- Where a mandate is terminated, a substitute is appointed in accordance with the original appointment procedure.
Arbitrator Withdrawal Relief:
- Unless agreed otherwise, an arbitrator who withdraws may apply to the High Court to grant relief from any incurred liability and make any fitting order.
Immunity (Section 16B):
- Arbitrators are shielded from liability for anything done or omitted in good faith in the discharge or purported discharge of functions.
POWER TO RULE ON JURISDICTION
(Section 17) The arbitral tribunal has powers to rule on its jurisdiction, including the power to rule on the validity or existence of the arbitration agreement.
TMING OF PLEAS ON JURISDICTION AND SCOPE
A plea that the tribunal does not have jurisdiction must be raised no later than the submission of the statement of defence.
A plea that the tribunal is exceeding the scope of its authority must be raised as soon as the matter alleged to be beyond scope is raised during proceedings.
Where the tribunal rules that it has jurisdiction, any aggrieved party may apply to the High Court within 30 days after receiving notice of the ruling. The High Court’s decision shall be final.
GENERAL JURISDICTION POWERS OF THE TRIBUNAL
Determine choice of law.
Determine place of arbitration.
Appoint arbitrators (for three-arbitrator panels).
Determine timetable for arbitration.
Determine the rules of procedure.
Determine the admissibility, relevance, materiality, and weight of any evidence.
Make interim orders.
Make orders for security of costs.
Terminate proceedings or dismiss the claim.
Make and correct the award.
Apportion costs and expenses.
