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THE ENFORCEMENT OF FOREIGN ARBITRAL AWARDS IN KENYA: THE DECISION REINFORCES THE IMPORTANCE OF ADHERING TO THE GOVERNING LAW CLAUSES IN AGREEMENTS

By Terry Mwango Wednesday, August 06, 2014
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The brief facts of the case are that on or about 1 August 2007 the Tanzania National Roads Agency (TNRA) and Kundan Singh Construction Limited (Kundan), a company registered in Kenya, entered into an agreement in terms of which Kundan was to carry out certain works for the upgrading of a section of road in Tanzania. The agreement provided for resolution of disputes by way of arbitration by the Disputes Resolution Board (DRB) at first instance, and the Stockholm Chamber of Commerce (SCC) if a party was dissatisfied with the decision of the DRB. The agreement clearly stipulated that the governing law of contract was Tanzanian law. A dispute arose between the parties and was referred to the DRB. Kundan was unhappy with the DRB’s recommendation and referred the matter to the Arbitration Institute of the SCC. The dispute was heard by a panel of three SCC arbitrators who by a 2:1 majority decision, found in favour of the Tanzania National Roads Agency. Kundan was again dissatisfied with the SCC decision and sought to challenge the same at the Court of Appeal in Stockholm, Sweden. In the meantime TNRA sought to enforce the award by way of Miscellaneous Civil Application No.171 of 2012 Tanzania National Roads Agency v Kundan Singh Construction Limited [2013] eKLR filed in the High Court of Kenya.

Kundan challenged the enforcement of the award in Kenya, on among other grounds that the award was unenforceable because the SCC arbitral tribunal had in their majority decision failed to apply relevant Tanzanian legislation and instead applied English law when determining whether or not an Engineer was an agent of the contractor, which was a material finding in the case.

TNRA’s enforcement application was dismissed by the High Court of Kenya (Muya J) which agreed with Kundan that the award was unenforceable due to the fact that the laws of Tanzania had not been applied by the arbitral tribunal in reaching its decision and that this was contrary to the agreement of the parties. Kenya is a party to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards adopted by the United Nations General Assembly in New York on 10 June, 1958 (the "New York Convention") and domesticated the same through the Arbitration Act 1995 (the "Arbitration Act"). Kenyan courts are therefore required to enforce foreign arbitral awards irrespective of the state in which the award was made, subject to the limited exceptions provided under the New York Convention and the Arbitration Act. One of these exceptions is where the recognition or enforcement of the arbitral award would be contrary to the public policy of Kenya.

The High Court found that enforcing the award would be contrary to the public policy of Kenya in that the tribunal had failed to apply the governing law agreed to by the parties. In the words of Justice Muya;

"In our present case the final award was arrived at in breach of the express terms of the agreement between the parties which contains the arbitration clause that any dispute shall be referred to arbitration and shall be governed by the law of Tanzania. There is ample evidence from the Respondents replying affidavit and further affidavit that the decision of the majority as set out in the award was made contrary to the laws of Tanzania. Should the court condone that breach by recognizing and enforcing the award.I find there would be no justification legally or morally to condone a breach of a contract Between two parties and it would contrary to the public policy of Kenya to allow a court to be used towards that end."

This decision seeks to reinforce the importance of parties adhering to the governing law clauses in their agreements and the danger of having unenforceable awards, where this is not done.In light of this decision, we would recommend that extra care and attention be given in drafting the terms of any reference to an arbitral tribunal and/or the framing of issues for determination by the arbitral tribunal. It will be necessary to ensure that the issues that the arbitral tribunal is asked to adjudicate upon fall within the governing law and where this appears not to be happening, that guidance is given to the tribunal.