This case, emblematic of the challenges facing arbitration in Kenya, brought to light the tension between party autonomy in arbitration and the judicial duty to safeguard justice. The Court of Appeal addressed a matter spanning an extraordinary 17 years, with the drawn-out litigation highlighting how arbitration’s potential as a swift alternative to litigation can falter in practice. Reflecting on this protracted ordeal, the Court poignantly remarked, “Watu wameteseka kuteseka” (people have suffered immeasurably).
At the core of the dispute was an arbitral award of Kshs. 526,720,698 granted to Nyutu Agrovet Limited, primarily for general damages attributed to negligence. This claim, however, was neither pleaded nor within the scope of the distributorship agreement’s contractual terms. In a decision dated December 1, 2011, Kimondo J. as he was then, identified three critical issues for resolution: whether the dispute was within the scope of the parties’ agreement, whether the arbitrator had exceeded the terms of reference, and whether the award conflicted with public policy. Concluding that the arbitrator had exceeded their jurisdiction and that aspects of the award were inconsistent with public policy, the High Court set aside the award in its entirety.
Nyutu’s efforts to appeal encountered multiple judicial hurdles. The Court of Appeal initially struck out the appeal, reasoning that Section 35 of the Arbitration Act did not provide for a right of appeal. However, the Supreme Court intervened, holding that while appeals under Section 35 are generally barred, they may be allowed in exceptional circumstances where judicial errors are egregious enough to deny justice. The Supreme Court remitted the case to the Court of Appeal, adding an additional qualifier to determine whether the matter merited being “heard at all.”
Upon review, the Court of Appeal upheld the High Court’s ruling. The appellate court found that the arbitrator had indeed acted outside the bounds of the contract by awarding damages for negligence, which were explicitly excluded by the distributorship agreement’s limitation of liability clause. Furthermore, the Court emphasized that the High Court had acted within the confines of Section 35 of the Arbitration Act, addressing issues strictly related to jurisdiction and public policy without overreaching its mandate. Importantly, the Court noted that the High Court’s decision did not preclude the parties from resolving their dispute through fresh arbitration.
The Court’s reasoning underscored the importance of maintaining arbitration’s integrity while curbing its misuse. It reaffirmed that party autonomy—the cornerstone of arbitration—must be exercised within the framework of the parties’ agreement. Judicial oversight, though limited, is necessary to ensure fairness and prevent egregious errors. The Court cautioned against opening the floodgates to appeals in arbitration, which would undermine arbitration’s goals of finality and efficiency.
This case is a landmark in Kenyan arbitration jurisprudence, clarifying the scope of judicial intervention under Section 35 and offering guidance on the rare circumstances where appellate courts may entertain arbitration-related appeals. It serves as a stern reminder to arbitrators to adhere strictly to their jurisdiction and a warning to parties about the binding nature of contractual terms. By lamenting the systemic failures that have turned arbitration into an ordeal for many, the judgment calls for a return to arbitration’s core promise of expediency, cost-efficiency, and finality.
