INTRODUCTION
Arbitration is a form of alternative dispute resolution where two parties make their arguments to an arbitrator who is a neutral third party. It is a private dispute resolution process that parties choose and it is consensual. Arbitration happens if the parties agree that it will be their form of dispute resolution, for instance, if there is a breach of contract, through an arbitration clause contained in the contract.
TYPES OF ARBITRATION
Ad hoc arbitration
This type of arbitration is not usually administered by a specialized institution and the parties and arbitrators independently determine the procedure. Parties make arrangements for the selection of arbitrators, for designation of rules, applicable law and procedures.
Ad hoc proceedings are more flexible, cheaper and faster than the administered proceeding and it is also a popular type of arbitration because there need not be any administrative fees.
Institutional arbitration
This is where parties designate an institution to administer the arbitral process in accordance with its arbitration rules. However, it is not the institution that arbitrate the dispute; it is only the rules of that institution that are used.
ARBITRAL AWARDS
An arbitration award is the award granted by the arbitrator in their decision and the award can be money, that one party has to pay to the other or even an injunctive relief.
It is not easy to appeal an arbitration award because the court has to be satisfied that there was some prejudicial conduct before the court ‘interferes.’The court must be satisfied that an arbitrator’s decision is seriously wrong before it intervenes. Like in the case of Mi Copen SR v the Shipowners’ Mutual Protection and Indemnity Association, the judge held that for an appeal to be successful, there must be an error of law and not just an error of fact.
A foreign arbitral award is when an arbitration award given in one state and it is to be enforced in another state.
LEGISLATIVE FRAMEWORKS
Arbitration Act CAP 49 of 1995
Section 2 states that the act shall apply to domestic and international arbitration.
The Act also states that an arbitration is international if:
(a) the parties to an arbitration agreement have, at the time of the conclusion of that agreement, their places of business in different states;
(b) one of the following places is situated outside the state in which the parties have their places of business—
(i) the juridical seat of arbitration is determined by or pursuant to the arbitration agreement; or (ii) any place where a substantial part of the obligations of the commercial relationship is to be performed or the place with which the subject-matter of the dispute is most closely connected; or
(c) the parties have expressly agreed that the subject-matter of the arbitration agreement relates to more than one state.
Section 36 provides that an international arbitration award shall be recognized as binding and enforced in accordance to the provisions of the New York Convention or any other convention to which Kenya is signatory and relating to arbitral awards. Sub-section 3 further states that unless the High Court otherwise orders, the party relying on an arbitral award or applying for its enforcement must furnish:
(a) the original arbitral award or a duly certified copy of it; and
(b) the original arbitration agreement or a duly certified copy of it.
If the arbitral award or arbitration agreement is not made in the English language, the party shall furnish a duly certified translation of it into the English language.
The court can also refuse to enforce an arbitral award at the request of the party against whom it is invoked if they proof to the court that a party to the arbitration agreement had some form of incapacity, the arbitration agreement was invalid, there was failure to adhere to the due process, for instance, the party against whom the arbitral award is invoked was not given proper notice of the appointment of an arbitrator or of the arbitral proceedings or was otherwise unable to present his case; also if there was infringement on the scope of the arbitration agreement, the arbitral tribunal did not have jurisdiction or the making of the arbitral award was induced or affected by fraud, bribery, corruption or undue influence.
Moreover, if the High Court finds that:
the subject-matter of the dispute is not capable of settlement by arbitration under the law of Kenya; or
(ii) the recognition or enforcement of the arbitral award would be contrary to the public policy of Kenya.
Like in the case of Royal Exchange PLC vs. Patrick Nyaemba Tumbo [2019] Eklr, the Court denied recognition and enforcement of the International Arbitral Award on the ground that the Respondent was not served with the requisite arbitration process notices and pleadings and was therefore denied an opportunity to participate in the arbitration. The said actions were held to be in contravention of the Respondent’s right to fair hearing and fair administrative action.
So, the Kenyan courts are fairly strict in scrutinizing the International Arbitral Awards against the provisions of section 37 of the Act to ensure the award is in consonance with Kenya’s minimum thresholds of justice.
Convention on the Settlement of Investment Disputes Between States and Nationals of Other States (Washington Convention)
It establishes the International Centre for Settlement of Investment Disputes and article 1 provides that the purpose of the Centre shall be to provide facilities for conciliation and arbitration of investment disputes between Contracting States and nationals of other Contracting States.
Kenya is party to this Convention, in addition, article 36 provides that:
Any Contracting State or any national of a Contracting State wishing to institute arbitration proceedings shall address a request to that effect in writing to the Secretary-General who shall send a copy of the request to the other party.
The request shall contain information concerning the issues in dispute, the identity of the parties and their consent to arbitration in accordance with the rules of procedure for the institution of conciliation and arbitration proceedings.
The Secretary-General shall register the request unless he finds, on the basis of the information contained in the request, that the dispute is manifestly outside the jurisdiction of the Centre. He shall forthwith notify the parties of registration or refusal to register.
The United Nations Commission on International Trade Law (UNCITRAL) Model Law on International Commercial Abitration
This Model Law is designed to assist States in reforming and modernizing their laws on arbitral procedure so as to take into account the particular features and needs of international commercial arbitration. It covers all stages of the arbitral process from the arbitration agreement, the composition and jurisdiction of the arbitral tribunal and the extent of court intervention through to the recognition and enforcement of the arbitral award. It reflects worldwide consensus on key aspects of international arbitration practice having been accepted by States of all regions and the different legal or economic systems of the world.
It has also warranted greater predictability and certainty in carrying out arbitration and the Model Law provides essential elements as a legal framework during arbitration proceedings, as well as provides special procedural regime for international commercial arbitration.
The Arbitration Act 1995 (as amended in 2010) is based entirely on the UNCITRAL Model Law. Initially, it was a mirror copy of the Model Law, but with the 2010 amendments, the Act now encompasses recent developments in arbitration practice and procedure, like in:
Section 16(A) and (B) on withdrawal and immunity of an arbitrator.
Section 19(A) on equal treatment of parties.
Section 32(A), (B) and (C) on the effect of awards, costs and expenses, and interest.
New York Convention: United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards (of 10 June 1958)
The convention’s field of application
Article 1 of the New York convention provides for the field of application of the convention. The title of the convention refers to recognition of ‘foreign arbitral awards’. there is hence need for the arbitral awards to be foreign. Article 1 of the convention defines this to mean an arbitral award issued in the territory of another state other than the state where recognition and enforcement are sought. It hence applies to awards made in any other state. Article 1(3) of the convention however allows a state when making an application to ratify the convention, to make a reservation that it will only apply the convention with regards to other contracting states only. This means that arbitral awards made by non-contracting states will not be guided by the New York convention.
The arbitration agreement
Article 2(1) provides that Each Contracting State shall recognize an agreement in writing under which the parties undertake to submit to arbitration all or any differences which have arisen or which may arise between them in respect of a defined legal relationship, whether contractual or not, concerning a subject matter capable of settlement by arbitration.
2. The term “agreement in writing” shall include an arbitral clause in a contract or an arbitration agreement, signed by the parties or contained in an exchange of letters or telegrams.
3. The court of a Contracting State, when seized of an action in a matter in respect of which the parties have made an agreement within the meaning of this article, shall, at the request of one of the parties, refer the parties to arbitration, unless it finds that the said agreement is null and void, inoperative or incapable of being performed.
Procedure (for recognition and enforcement of foreign arbitral awards.)
Article 3 provides that Each Contracting State shall recognize arbitral awards as binding and enforce them in accordance with the rules of procedure of the territory where the award is relied upon, under the conditions laid down in the following articles. There shall not be imposed substantially more onerous conditions or higher fees or charges on the recognition or enforcement of arbitral awards to which this Convention applies than are imposed on the recognition or enforcement of domestic arbitral awards.
The Article hence provides that the procedure of recognition and enforcement of foreign arbitral awards will follow the same procedure as domestic awards in the country where recognition and enforcement is sought.
Article 4 provides that to obtain the recognition and enforcement mentioned in the preceding article, the party applying for recognition and enforcement shall, at the time of the application, supply:
(a) The duly authenticated original award or a duly certified copy thereof;
(b) The original agreement referred to in article II or a duly certified copy thereof.
If the said award or agreement is not made in an official language of the country in which the award is relied upon, the party applying for recognition and enforcement of the award shall produce a translation of these documents into such language. The translation shall be certified by an official or sworn translator or by a diplomatic or consular agent.
Grounds for rejection of recognition or enforcement
Article 5 provides that Recognition and enforcement of the award may be refused, at the request of the party against whom it is invoked, only if that party furnishes to the competent authority where the recognition and enforcement is sought, proof that:
(a) The parties to the agreement referred to in article II were, under the law applicable to them, under some incapacity, or the said agreement is not valid under the law to which the parties have subjected it or, failing any indication thereon, under the law of the country where the award was made; or
(b) The party against whom the award is invoked was not given proper notice of the appointment of the arbitrator or of the arbitration proceedings or was otherwise unable to present his case;
A court in Bremen, Germany, refused to enforce an award made in London because the German party against which enforcement was sought had not been informed of the other party’s arguments. The facts of the case, as reported, indicate that the German party submitted documents to the arbitral tribunal and thereafter received no other communication from the arbitrators until the award.
A court in Naples, Italy, refused enforcement of an award made by the Arbitration Board of the Commodity Exchange in Vienna, finding that one month’s notice given to the Italian respondent to attend the hearing in Vienna was insufficient as during that very period the area where the respondent was located was hit by a major earthquake.
(c) The award deals with a difference not contemplated by or not falling within the terms of the submission to arbitration, or it contains decisions on matters beyond the scope of the submission to arbitration, provided that, if the decisions on matters submitted to arbitration can be separated from those not so submitted, that part of the award which contains decisions on matters submitted to arbitration may be recognized and enforced; or
(d) The composition of the arbitral authority or the arbitral procedure was not in accordance with the agreement of the parties, or, failing such agreement, was not in accordance with the law of the country where the arbitration took place;
Case:-The arbitration clause in question provided for arbitration by two party-appointed arbitrators who ‘in the event of disagreement’ would select a third arbitrator. The clause provided also that the third arbitrator would be appointed by the Commercial Court in Luxembourg if the two arbitrators were unable to agree on the third arbitrator. When a dispute arose, each party appointed an arbitrator (a French accountant and a New York lawyer). After discussions between the two arbitrators relating to procedure but not the merits, the French accountant requested the Luxembourg court to appoint a third arbitrator, which it did. The New York lawyer objected that this appointment was premature and refused to participate in the arbitration. The enforcement of the award made by two arbitrators, (i.e. a party appointed arbitrator and the third arbitrator) was refused in the United States on the ground of violation of the parties’ agreement on the composition of the arbitral tribunal.
(e) The award has not yet become binding on the parties, or has been set aside or suspended by a competent authority of the country in which, or under the law of which, that award was made.
Article 5(2) continues to say that recognition and enforcement of an arbitral award may also be refused if the competent authority in the country where recognition and enforcement is sought finds that:
(a) The subject matter of the difference is not capable of settlement by arbitration under the law of that country; or
(b) The recognition or enforcement of the award would be contrary to the public policy of that country.
Enforcement of foreign arbitral awards at Common Law.
The basic elements for the successful enforcement of a foreign arbitration award in England are that the parties submitted to the arbitration, that the arbitration was conducted in accordance with the submission and that the award is valid by the law of the country in which it was made.
There must be a valid submission to arbitration, either in the form of an arbitration clause contained in a substantive contract or a free-standing agreement to arbitrate. The material validity, scope, interpretation and effect of an arbitration agreement are determined by its proper law. the proper law of the arbitration agreement is the law chosen by the parties expressly or impliedly; in the absence of choice, it is the system of law with which the arbitration agreement has the closest and most real connection.
The recognition and enforcement of a foreign arbitral award seems to be subject to the obvious defenses that the arbitrator lacked jurisdiction, that the award was obtained by fraud, that its recognition and enforcement would be contrary to English public policy and that it was obtained in proceedings which contravene the rules of Natural justice.
THE INSTITUTIONAL FRAMEWORK FOR THE ENFORCEMENT OF FOREIGN ARBITRATION AWARDS IN KENYA
In Kenya, a party seeking the recognition and enforcement of an International Arbitral Award, applies to the High Court of Kenya under sections 2 and 36 of the Arbitration Act No. 4 of 1995 (as amended in 2009) (the “AA”). This means that the High Courts of Kenya are the only courts mandated to enforce the foreign arbitral awards in our jurisdiction. It need be noted that the provisions of the Arbitration Act replicate those of the New York Convention in as far as recognition and enforcement of an International Arbitral Award is concerned.
The New York Convention together with Kenyan case law on the subject have established that a party applying for the recognition and enforcement of an International Arbitral Award bears the burden of proving the recognition of the arbitration agreement from which the Award arises. The Applicant therefore must prove to the satisfaction of the court that there exists an agreement in writing under which the parties undertook to submit all or any differences between them to arbitration in respect of a defined legal relationship, whether contractual or not concerning a subject matter capable of settlement by arbitration. Where this burden is discharged and the Applicant furnishes the court with the original or duly certified copy of the arbitral award together with the original or duly certified copy of the arbitration agreement and any translations thereto (where a language other than English is used), the award is deemed to be enforceable unless opposed by the party against whom the award is invoked i.e. the objector
While Kenya signed the New York Convention with a reciprocity reservation to the effect that it may choose to only recognize and enforce International Arbitral Awards from corresponding signatory states and citizens, section 37 of the Arbitration Act allows for the non-enforcement of any and all arbitral awards irrespective of the state in which the award was made, on the aforementioned grounds.
THE ISSUE OF APPEALS
Until 2019, the legal framework in Kenya was well settled. Where an objection succeeds and a determination made that an International Arbitral Award is unenforceable, the Applicant has no further recourse, even by way of an appeal. This means that international arbitral awards have no appeals. The High Court’s ruling is final.
Section 39(3) states that;
Notwithstanding sections 10 and 35 an appeal shall lie to the Court of Appeal against a decision of the High Court under subsection (2):
(a) if the parties have so agreed that an appeal shall lie prior to the delivery of the arbitral award; or
(b) the Court of Appeal, being of the opinion that a point of law of general importance is involved the determination of which will substantially affect the rights of one or more of the parties, grants leave to appeal, and on such appeal the Court of Appeal may exercise any of the powers which the High Court could have exercised under subsection (2).
(4) An application or appeal under this section shall be made within the time limit and in the manner prescribed by the Rules of Court applicable, as the case may be, in the High Court or the Court of Appeal.
(5) When an arbitral award has been varied on appeal under this section, the award so varied shall have effect as if it were the award of the arbitral tribunal concerned.
When an arbitral award has been varied on appeal under this section, the award so varied shall have effect as if it were the award of the arbitral tribunal. However, on 6 December 2019, the Supreme Court of Kenya in Nqutu Agrovet Limited vs. Airtel Networks Limited determined that an appeal may lie from the High Court to the Court of Appeal under section 35 of the Arbitration Act where the High Court in setting aside a domestic arbitral award has stepped outside the grounds in the said section and thereby made a decision so grave, so manifestly wrong and which has closed the door of justice to either of the parties.
This decision has opened up controversy as to whether the right of appeal recognized by the Supreme Court should extend to a decision of the High Court not to recognize and enforce and International Arbitral Award based on the grounds envisaged under section 37 of the Act which so happens to be the exact same grounds envisaged under section 35 and especially where the International Arbitral Award can only ever be enforced in the said jurisdiction.
Finally, the High court will also refuse recognition or enforcement of the arbitral award if it finds the subject matter of the dispute not capable of arbitral settlement under Kenyan law or finds the recognition or enforcement to be contrary to public policy. In Tanzania Roads Agency vs Kurdan Singh through an application dated 15th January, 2013, the appellant, Tanzania National Roads Agency, sought the following orders from the High Court at Mombasa:
That the international Arbitral Award from Stockholm Chamber of Commerce No. V:09/2009 between Kundan Singh Construction Limited (as claimant) and Tanzania National Roads Agency (Respondent) dated 25th January, 2012 together with interpretation and clarification of the same dated 8th March, 2012 be recognized and enforced as a decree of this court.
The genesis of the dispute giving rise to this appeal can be traced back to a contract entered into between the appellant and the respondent on 1st August 2007, through which the respondent agreed to undertake upgrading works on the Mbeya- chunya- Makongolosi Road Section 1: Lwanjilo in Tanzania at a consideration of Tshs. 27,463,878,000/. The contract provided for resolution of any dispute initially through a reference to the Disputes Resolution Board, and thereafter a further reference for arbitration to the Stockholm Chamber of Commerce by any party still dissatisfied.
[4] As anticipated, a dispute arose between the parties and the dispute having been addressed by the Dispute Resolution Board, and the respondent being dissatisfied, referred the matter to the Arbitration Institute of the Stockholm Chamber of Commerce for arbitration. The arbitration proceedings were carried out by a panel of three arbitrators who determined the dispute through a majority award dated 25th January, 2012 signed by two arbitrators, one arbitrator dissenting. This is the award that the appellant moved to the High Court at Mombasa to enforce. Meanwhile, the respondent, being dissatisfied with the award, challenged the award through an appeal before the Stockholm Court of Appeal.
[5] The respondent had also filed an application dated 24th April, 2012 before the High Court in Nairobi seeking orders that part of the majority award which allowed the counterclaim of the appellant in the arbitration proceedings be set aside or alternatively, that part of the majority award be remitted to the majority arbitrators to decide the same, applying Tanzanian law which the parties to the arbitration specifically agreed would govern the arbitral proceedings. A preliminary objection was taken in regard to that application on the grounds that the Kenyan Courts had no jurisdiction to set aside an international arbitral award. That objection was upheld by Havelock, J. when he ruled on 18th December, 2012, that Sweden is the country of the primary jurisdiction in relation to the arbitration and that Kenya only had a secondary jurisdiction in terms of recognition and enforcement of the arbitral award.
The learned Judge Muya, J. delivered a ruling dated 15th August, 2013, in which in his ruling, Muya, J. held inter alia that under sections 36 and 37 of the Arbitration Act, Chapter 49 of the Laws of Kenya hereinafter referred to as the Arbitration Act, the Court in Kenyan had jurisdiction to recognize and enforce any arbitral award irrespective of the country in which it was made, save that the recognition or enforcement of the award could be refused where the court finds that the recognition or enforcement of the award would be contrary to the public policy of Kenya; that the arbitration award was arrived at in breach of the express terms of the agreement between the parties which provided that the arbitration shall be governed by the law of Tanzania; and that enforcing such a contract would be contrary to the public policy of Kenya.
As determined in Loucks vs. Standard Oil Company, the court will refuse to enforce or recognize a foreign right unless it would violate some fundamental principles of justice; some prevalent conception of good morals; some deep root tradition of common weal. It has become acceptable that this is the definition of public policy.
The International Chamber for Commerce
Under this institution there exists an international court of arbitration. Members of the court are appointed by the council of the international chamber of commerce. The functions of the court are to provide for the settlement by arbitration of business disputes of an international character in accordance with the Arbitration rules of 2021.
No comments:
Post a Comment