KENYA: ARBITRATION OR LITIGATION? THE HIGH COURT EXPLAINS THE POSITION OF ARBITRABLE DISPUTES
The High Court (Court), in HCCOMM No. E897 of 2021 AECOM South Africa Holdings (Pty) Ltd v Kenya National Highways Authority, dismissed an application by the Kenya National Highways Authority (Defendant) that sought to stay the suit filed by AECOM South Africa Holdings (Pty) Ltd (Plaintiff) for payment of consultancy services and to have the dispute referred to arbitration.
The Plaintiff, under its previous name, BKS Group (Pty) Ltd, entered into a contract with the then Ministry of Roads and Public Works for the Provision of Consultancy Services for the Northern Corridor Transport Improvement Project for a contract sum of USD 199 765.50. The contract was later novated to the Defendant. The Plaintiff filed a suit claiming that the parties executed a further contract for the sum of USD 737 958.00 and that despite successfully performing its obligations under the two contracts, the Defendant had refused to pay it the sum of USD 746 691.00.
On the other hand, the Defendant claimed that the first contract, under its Special Conditions, provided for a mechanism of resolving disputes arising between the parties and mandatorily designated this to be by arbitration. The Defendant argued that the Plaintiff had knowingly filed the suit in violation of the agreed dispute resolution mechanism in the contract, which remained operative, valid and capable of being performed.
The main issue for the Court to determine was whether the suit ought to be stayed and the dispute referred to arbitration. In deciding on the main issue, the Court considered Section 6(1) of the Arbitration Act and the facts of the case. The Court noted that the Arbitration Act provided that a court could stay proceedings which are brought in a matter which is the subject of an arbitration agreement, and refer the parties to arbitration unless it finds that the arbitration agreement was null and void, inoperative or incapable of being performed, or that, in fact, there is no dispute between the parties with regard to the matters agreed to be referred to arbitration.
In terms of the facts of the case, the Court noted that the Plaintiff had presented invoices and demand letters showing that the Defendant was indebted to it. On its part, the Defendant did not present any correspondence or evidence between the parties either intimating or demonstrating that it disputes the Plaintiff’s claim.
The Court further stated that the Defendant had not stated why it disputed the Plaintiff’s claim for the Court to determine, even on a prima facie basis, that there is a dispute worthy of resolution by arbitration. In light of the above, the Court held that there was no dispute in fact that ought to proceed for resolution by arbitration as the debt due to the Plaintiff appeared to be undisputed by the Defendant.
This decision clarifies the two-pronged criteria that courts use to determine whether to allow applications for stay of proceedings pending reference to arbitration. The first step is usually to ascertain whether there is a genuine dispute between the parties. The second step is to determine, based on the facts of a particular case, whether such a dispute deals with matters agreed to be referred to arbitration within the scope of a valid and operative arbitration agreement. Parties should therefore consider the test above, and the circumstances of a particular case, before approaching the High Court through Section 6 of the Arbitration Act.