Stratogen Limited v County Government of Kisii (Civil Case 1 (E002) of 2021) [2023] KEHC 25071 (KLR) (8 November 2023) (Ruling)
Neutral citation:
[2023] KEHC 25071 (KLR)
Republic of Kenya
Civil Case 1 (E002) of 2021
TA Odera, J
November 8, 2023
Between
Stratogen Limited
Plaintiff
and
The County Government of Kisii
Defendant
Ruling
1.Before is a Notice of Preliminary Objection filed by the Defendant and dated and filed on 28th March 2022. It reads thus: -Take Notice that the Defendant herein shall raise a Preliminary Objection on points of law at the first instance and/or at the next mention, to be determined In Limine, on grounds that this Honourable Court is divested of Jurisdiction since this suit has been instituted contrary to clear provisions to Section 3.19.1 & 3.19.2 of the General Conditions of the Contract as well as Section 3.19.1 of the Special Conditions of Contract and on further grounds that the suit has been filed before Court pre-maturely surpassing the clear conditions of the contract between the Plaintiff and the Defendant.
2.The Plaintiff and the Defendant filed their submissions in relation to the Preliminary Objection.
3.The Defendant filed its Submissions dated 17th May 2022. The Defendant submitted that the suit is not ripe for determination by the Court. They cited the case of H.C. Coast Pet. No. 28 of 2012 eKLR, where Justice Mrima held that a court is barred from a considering a dispute whose dispute has not crystallized enough as to warrant the Court’s intervention. They also cited the case of Nrb. Const. Pet. No. 453 of 2015 [2010] eKLR where Onguto J. stated that the justiciability doctrine prohibits a court from entertaining hypothetical or academic interest cases and a Court is prohibited from determining an issue when it is too early or simply out of apprehension. The Defendant submitted that the Plaintiff herein was merely apprehensive because of delayed payment and ought to have referred the matter to arbitration. They further submitted that the both Parties agreed under the Contract that all disputes arising out of the contract would be referred to arbitration and therefore the current suit was premature. They submitted that under Clauses 3.19.1 and 3.19.2 of the contract, the Court lacks jurisdiction to hear any dispute arising from the contract at the first instance. The Defendant submitted that the present objection meets the threshold of a preliminary objection as per the definition captured in the case of Mukisa Biscuits Case. They also submitted that Courts should not interfere with the terms and conditions on contracts but Courts enforce the wishes of parties and therefore, this Court was improperly called to resolve a contractual dispute arising out of a contract, which contract compels parties to engage in arbitration.
4.The Plaintiff filed its submissions dated 17th May 2022 in opposition to the Preliminary Objection. The Plaintiff reproduced the contents of clauses 3.19.1 and 3.19.2 of the Contract. The Plaintiff submitted that upon being served with the Summons to Enter Appearance and Plaint, the Defendant did not invoke the arbitration clause under Section 6(1) of the Arbitration Act. The Plaintiff cited the case of Speaker of the National Assembly v James Njenga Karume [1992] eKLR where the Court of Appeal held that everyone should strictly follow clear procedures for redress. The Plaintiff submitted that by failing to invoke the arbitration clause, the Defendant abandoned/ waived its right to subsequently invoke the arbitration clause in the contract. The Plaintiff cited the case of Serah Njeri Mwobi v John Kimani Njoroge [2013] eKLR, where the Court of Appeal held that the doctrine of waiver denies a party its right on the basis that it had accepted to forego the same rights. The Court of Appeal further held that the doctrine of estoppel precluded a party from asserting something contrary to what they had implied by a previous action. The Plaintiff cited Article 165(3)(a) of the Constitution confers the High Court with unlimited and original jurisdiction. They cited the case of Samuel Kamau Macharia & Another v Kenya Commercial Bank & Another [2012] eKLR where the Supreme Court held that a Court’s jurisdiction flows from either the Constitution or legislation or both. They submitted that the preliminary objection was incompetent as it did not meet the threshold in Mukisa Biscuit Manufacturing Co. Ltd. V West End Distributors Ltd. (1969) EA 696. It was their submission that the preliminary objection was incapable of disposing of the suit and that Section 6(1) of the Arbitration Act did not empower the Court to determine the case in limine. They also submitted that Section 6(1) of the Arbitration Act contemplates an application for stay of proceedings and to refer parties to arbitration and not a preliminary objection. Even if the Preliminary Objection were to be construed an application, the same was time-barred for being filed almost a year after the entry of appearance and filing of defence. The Plaintiff cited the case of Charles Njogu Lofty v Bedouin Enterprises Ltd. [2005] eKLR where the Court of Appeal held that even after considering the conditions, the Court would still be entitled to reject an application for stay and referral to arbitration if the application was not made at the time of entering an appearance. The Plaintiff cited the case of Trishcon Construction Co. Ltd. v Leo Investments Ltd. (2013) eKLR. In the case of TM AM Construction (Africa) Group v Attorney General (2001) eKLR, the Court held that the Attorney General was obliged to apply for a stay not later than the time when he entered appearance. The Plaintiff further submitted that the resolution of the legal question was within the province of the Court as the dispute affected public or general interests on account of the Defendant and the EACC being in a strange concert thereby leading to the destruction of local industry and the citizen contractor in breach of Section 3(i)(j) of the Public Procurement and Asset Disposal Act, 2015 and Section 56 of the Anti-Corruption and Economic Crimes Act, 2003. The Plaintiff submitted that the present dispute related to issues of public and general interests and hence not arbitrable. They cited the book of Settling Disputes Through Arbitration in Kenya (2012) Glenwood Publishers Limited, where the author Dr. Kariuki Muigua, FCIArb, PhD posits at page 33 that disputes relating to general or public interests should be the preserve of the Judiciary.
5.Both Parties made their oral submissions on 9.10.2023. Mr. Mokaya for the Defendant submitted that the instant suit is premature and so the court is divested of jurisdiction to hear the suit based on clauses 3.19.1 and 3.19.2 of the general conditions of contract between the parties entered on 29.3.2018 which provide for amicable settlement of disputes by way of alternative dispute resolution/ amicable dispute resolution. The present suit was filed without invoking the clear provisions of the contract. He relied on High Court Petition No. 28 of 2011 where the Court held that where parties have provided for a manner of conflict resolution, they should not go to court at the first instance. He further cited Nairobi Constitutional Petition No. 453 where Justice Onguto held that justiciability prevents the court from determining hypothetical issues. He also relied on the case of Mukisa Biscuits Case which case defines what a preliminary objection is. He urged that the instant suit ought to be dismissed to pave way for arbitration or mediation. He submitted that the Plaintiff challenged the Applicant’s Memorandum of Appearance and its Defence for being filed out of time. He submitted that the Plaintiff argued that the Defence waived their right to have the matter referred to arbitration by filing a notice of appointment and defence. He submitted that the court does not award itself jurisdiction and a Preliminary Objection may be raised at any time before judgment. In any event, the previous counsel overlooked the arbitration clause and the said mistake should not be visited upon the Defendant. He submitted that the principal of waiver or equitable or promissory estoppel can only be invoked during contract negotiation and parties may opt out of a waiver. He cited Article 159(2) (c) of the Constitution provides for alternative dispute resolution as intended by the parties in the contract. Section 6 of the Arbitration Act provides that any party seeking stay pending arbitration should move the court within 30 days of filing the suit. He submitted that the issue is not stay pending arbitration but challenging the jurisdiction of this court to hear the preliminary objection in the first instance, and a litigant should come to court with clean hands. The Plaintiff’s hands were unclean for having failed to invoke the Arbitration clauses of the contract.
6.Mr. Gachaba for the Plaintiff submitted that on 21.9.22 Lady Justice Ougo made a Ruling on the application to strike out the defence and memorandum of appearance. She ruled that the same were properly before court. Clause 3.19.1 provides for the arbitration clause while clause 3.19.2 provides that should informal negotiations fail, then a party may move to formal mechanism of dispute resolution as per clause 3.19.1. He submitted that the Plaintiff wrote to the Defendant vide a letter dated 27.1.21 seeking payment of half of the contractual sum which letter was ignored. The Defendant therefore closed the window for engagement. The Plaintiff filed the suit on 10.3.21 after the 30 days provided for under clause 3.19.2. He submitted that if the Defendant was desirous of arbitration, it should have moved the court under section 6 of the Arbitration Act for referral of the suit to arbitration. By filing a Memorandum of Appearance and later, a Defence, it meant that the Defendant was not desirous of invoking the arbitration clause in the agreement. He cited the case of Speaker of National Assembly v Njenga Karume 1992 CA eKLR where the Court of Appeal held that the procedures provided for in law must be strictly followed. He also cited the case of Serah Njeri v John Kimani Njoroge 2013 eKLR where again the Court of Appeal discussed the doctrine of waiver and held that the doctrine of waiver will deny a party his right for waiving the same where he knew the same to be in existence. The Defendant knew of its right but abandoned it and could not purport to invoke it. He cited Article 165 (3)(a) of the Constitution which provides that this Court has unlimited original jurisdiction in civil matters and no provision of the law ousts that jurisdiction. He cited the case of S.K. Macharia v KCB where the Supreme Court held that jurisdiction is conferred by the Constitution or the law. He cited the case of Mukisa Biscuits and submitted that Preliminary Objection filed by the Defendant was incapable of disposing the suit entirely. Section 6(1) of the Arbitration Act does not empower the court to determine the suit in limine but only allow for stay and thus the Preliminary Objection did not fit the threshold set out in the Mukisa Biscuits Case. He also relied on the case of Charles Njogu Lofty v Bedouin Enterprises Limited (2005) eKLR and submitted that the Preliminary Objection was incompetent as any action to stop the suit ought to have been taken before entering appearance. He cited the case of Trechcon Construction Limited v Leo Investment Limited 2013 eKLR, where the Court dismissed an application because it was filed after filing of pleadings. In the case of TMAM Construction Africa Group v AG 2001 eKLR, the Court held that the provisions of the arbitration clause could not be raised where the defendant had filed appearance and defence. He submitted that the suit raised serious points of law in relation to the powers of the EACC. He submitted that the Defendant indicated that it did not pay half the decretal sum on directions from the EACC. Section 56 of the EACC provides that the EACC has no power to interfere with a contract pursuant to the Public Procurement Act. He submitted that the Defendant had not produced any order stopping the payment which meant that the Defendant and the EACC were acting in collusion. The collusion between the EACC and the Defendant led to accumulation of bills against public interest and Section 104(1) Paragraph (e) (i) of the Public Finance Management Act which were issues which could not be determined by an arbitrator, but by a Court of law. He cited Kariuki Muigua’s Book, Settling Disputes by Arbitration in Kenya at par. 33 which provides that there is no justification to allow for arbitration to intervene where the subject matter of a dispute affects the public interest. He submitted that the suit was based on pending bills and public debt and ought to be determined by the Court. He further submitted that the Defence filed on 20.4.21 had not pleaded lack of jurisdiction and thus the preliminary objection was an afterthought meant to delay the resolution of the dispute and prejudice the plaintiff.
7.In rejoinder, Mr. Mokaya for the Defendant submitted that the letter dated 27.2.21 was requesting for payment. He submitted that the Defendant did not initiate any informal or formal resolution of the dispute. He reiterated that Section 6 of the Arbitration Act provides for stay and referral to arbitration. The Preliminary Objection pleaded lack of jurisdiction in line with the definition in the Mukisa Biscuits case. He submitted that where parties were bound by a contract to refer to arbitration, the Court could suo moto raise the issue of the Preliminary Objection. He submitted that the present suit was not based on constitutional issues and if the same were the position, then the suit ought to have been filed by way of a petition. He submitted that it was too soon for the court to interfere with the contract terms.
Determination
8.I have considered the Preliminary Objection dated 28.03.2022 and the Parties’ Submissions. I have also considered the cases cited by both parties, though none were filed as directed.
9.Before I move further, I note that the Defendant submitted that the suit is premature and it has not crystalized and I would wish to address this first. A dispute may be loosely defined as a claim or conflict. From the pleadings, the Plaintiff is laying a claim against the Defendant on the basis of a contract entered, works done and certain payments not made. The Plaintiff claims to have demanded for the monies but they are yet to receive the same. The Defendant, on the other hand, denied the claim in its defence, which in itself is a dispute. The he Defendant also claimed that there are indeed outstanding payments but that the EACC had barred it from making those payments. It is clear to me from the pleading herein that there is a dispute between the parties.
10.On preliminary objection, the Court of Appeal in the case of Mukisa Biscuit Manufacturing Co. Ltd. v West End Distributors Ltd. [1969] EA 696 Sir Charles Newbold P. stated:
11.I am also minded that jurisdiction is everything. In Republic v Karisa Chengo & 2 Others [2017] eKLR, the Supreme Court of Kenya held:(35)In the above regard, we note that in almost all the legal systems of the world, the term “jurisdiction” has emerged as a critical concept in litigation. Halsbury’s Laws of England (4th Ed.) Vol. 9 at page 350 thus defines “jurisdiction” as “…the authority which a Court has to decide matters that are litigated before it or to take cognizance of matters presented in a formal way for decisions.” John Beecroft Saunders in his treatise Words and Phrases Legally Defined Vol. 3, at page 113 reiterates the latter definition of the term “jurisdiction” as follows:[110] None of these foreign cases, attractive their reasoning is related to the issue of the jurisdiction of the Courts that determined the cases under review. As we know, jurisdiction goes to the root of any litigation. This position was forcefully reiterated in the locus classicus decision of Nyarangi, J.A. in The Owners of Motor Vessel Lilian “S” v. Caltex Oil Kenya Ltd. ]1989] KLR 1 that “jurisdiction is everything”. Without it a Court cannot make a move. When an act is void, it is a nullity ab initio. It cannot found any legal proceedings and Lord Denning’s decision in the Privy Council case of Benjamin Leonard Macfoy United Africa Company Limited (UK) [1962] AC 152 succinctly makes this point. He states thus:
12.The present Notice of Preliminary Objection is grounded on the fact that the Plaintiff ought to have referred the matter to arbitration as opposed to presenting the suit to Court at the first instance. The Defendant submitted that the suit was in the circumstances, premature and ought to be dismissed.
13.I have considered the clauses 3.19.1 and 3.19.2 of the contract entered between the parties herein. Indeed, the contract provides for amicable resolution and arbitration at the first instance in the event of a dispute.
14.Section 6(1) of the Arbitration Act, Cap 11 of 2009 provides as follows: -6. Stay of legal proceedings(1)A court before which proceedings are brought in a matter which is the subject of an arbitration agreement shall, if a party so applies, not later than the time when that party enters appearance or otherwise acknowledges the claims against which the stay of proceedings is sought, stay the proceedings and refer the parties to arbitration unless it finds-(a)that the arbitration agreement is null and void, inoperative or incapable of being performed; or(b)that there is not in fact any dispute between the parties with regard to the matters agreed to be referred to arbitration.(2)Proceedings before the court shall not be continued after an application under subsection (1) has been made and the matter agreed to be referred to arbitration.(3)If the court declines to stay legal proceedings, any provision of the arbitration agreement to the effect that an award is a condition precedent to the bringing of legal proceedings in respect of any matter is of no effect in relation to those proceedings. (Emphasis mine)
15.My understanding of the law is that an application for stay of proceedings and referral to arbitration ought to be filed at the time a party enters appearance or otherwise acknowledges the claim, and not later. It is, therefore, important that I discuss the chronology of events in this matter. The plaint dated 15.02.2021 was filed on 10.03.2021, Memorandum of Appearance dated 15.04.2021 was filed by the Defendant on 20.04.2021, a Defence dated 23.04.2021 was filed on 20.04.2021, the Defendant’s List of Witnesses dated 23.04.2021 was filed on 20.04.2021 the Defendant’s List of Documents dated 23.4.2021 was filed on 20.04.2021 and the Defendant’s Further List of Documents dated 21.11.2021 was filed on 23.11.2021. The instant Notice of Preliminary Objection is dated 28.03.2022 and was filed on similar date.
16.Obviously, the Notice of Preliminary Objection was filed almost a year after the Memorandum of Appearance was filed.
17.Ideally, the Defendant ought to have filed an application via summons, and not a preliminary objection, as it did herein. Rule 2 of the Arbitration Rules, 1997 provides that “Applications under sections 6 and 7 of the Act shall be made by summons in the suit.
18.My understanding of a preliminary objection is that it should be one that finally disposes off a matter. The law envisions an application for stay and not a preliminary objection.
19.With an application for stay, the Court would be obligated to consider whether the application meets the threshold set out in Section 6(1) of the Arbitration Act.
20.The wording of the law indicates that a court can indeed entertain a suit which is the subject of an arbitration agreement upon failure of arbitration or where the right to arbitration is waived. The law further provides that should an application for stay be filed, the court shall stay the proceedings and refer the parties to arbitration. It does not provide for dismissal of the suit, but stay the proceedings. Black’s Law Dictionary, 6th Ed. At page 1548 defines stay as the postponement or halting of a proceeding, judgment, or the like; 2. An order to suspend all or part of a judicial proceedings or a judgment resulting from that proceeding. A stay of suit does not equate to a termination of proceedings as would be in the case of a preliminary objection.
21.The Court of Appeal has pronounced itself on the suitability of filing a preliminary objection in matters relating to the invocation of arbitration clauses. In Niazsons (K) Ltd. v China Road & Bridge Corporation Kenya (2001) eKLR, the Court of Appeal held that “…A finding as to whether or not there exists a dispute capable of being referred to arbitration cannot in my view be the subject matter of a preliminary objection. Likewise, the finding one way or the other whether an arbitration agreement is inoperative or incapable of being performed also requires an examination of the evidence.
22.This Court, separately constituted, in Havas Media Limited v Switch TV Limited [2021] eKLR, held that “…it remains for the party ought to comply with Section 6 of the Arbitration Act and not raise a preliminary objection as there is set legal procedure to invoke arbitration clause.”
23.In the decision of the Court of Appeal in Niazsons (K) Ltd. v China Road & Bridge Corporation Kenya (Supra), Tunoi JA in his dissenting opinion held that:
24.I am in full agreement with the said finding. The Defendant cannot claim that this Court lacks jurisdiction as the same would be contrary to public policy. In addition, the very wording of the Arbitration Act expressly provides that disputes relating to matters where parties had an arbitration agreement may still be filed in Court with the proviso that courts can stay the said proceedings should the Parties wish to refer the matter to arbitration.
25.Assuming that I were to treat the Preliminary Objection as an application for stay or proceedings pending arbitration, would the Defendant have been deemed to have met the threshold set out in Section 6(1) of the Arbitration Act? I think not.
26.In an application for stay of proceedings, there are certain issues that a court must consider. In UAP Provincial Insurance Company Ltd. v Michael John Beckett [2013] eKLR, the Court of Appeal held as follows: -
27.The Court of Appeal in Mt. Kenya University v Step Up Holding (K) (Ltd.) [2018] eKLR crystallized the test into 3 issues:a.Whether the applicant has taken any step in the proceedings other than the steps allowed by the section 6 of the Act;b.Whether there are any legal impediments on the validity, operation or performance of the arbitration agreement; andc.Whether the suit intended concerned a matter agreed to be referred to arbitration.
28.In Mt. Kenya University v Step Up Holding (K) (Ltd.) (Supra), the Court of Appeal referred to the case of Adrec Limited v Nation Media Group Limited [2017] eKLR, where the court stated as follows: -
29.The Court further cited the case of Eunice Soko Mlagui v Suresh Parmar & 4 Others [2017] eKLR, and the Court of Appeal found its interpretation as being correct. In the end, the Court of Appeal held as follows: “We have construed section 6 of the Arbitration Act on our own and considered it in light of the case law highlighted above. We adopt the position taken by the Court in the above pronouncements as in our view; they represent a correct interpretation of the provision. Considering the above in light of the findings of the trial Judge, it is our finding that the trial Judge correctly exercised his discretion and properly appreciated both the facts and the law and arrived at the correct conclusion on the matter. We reiterate that in order to succeed, the law obligated the appellant to file the application seeking reference to arbitration simultaneously with the entry of appearance and thereafter take no further procedural steps in the matter. The appellant herein entered appearance, and then responded to the respondent’s application for injunction before filing the application seeking an order for reference to arbitration. Critically the appellant’s response to the respondent’s application for injunction amounted to the taking of a procedural step in the matter before the initiation of the reference process.”
30.In the instant case, the Defendant entered appearance on 20.04.2021, filed its defence on 20.04.2021, and various other documents filed on various dates ranging from 20.04.2021 to 23.11.2021. In the circumstances, it is evident that the Defendant took procedural steps in the matter and by that conduct, waived its right to refer the matter to arbitration.
31.I am in agreement with the Plaintiff’s submission that the Defendant waived its right to refer the matter to arbitration and have it handled at that forum in line with the terms of the agreement. Indeed, in Serah Njeri Mwobi v John Kimani Njoroge [2013] eKLR, the Court of Appeal held that “The doctrine of waiver operates to deny a party his right on the basis that he had accepted to forego the same rights having known if their existence. The doctrine of estoppel operates as a principle of law which precludes a person from asserting something contrary to what is implied by a previous action or statement of that person. See Seascapes Limited v Development Finance Company of Kenya Limited, Nai Civil Appeal No. 247 of 2002.
32.Indeed, in the instant matter, the Defendant waived its right to have the claim determined in arbitration by taking further procedural steps after entering appearance. The Defendant is further estopped from claiming its right to have the matter determined at arbitration.
33.The Defendant’s Counsel was well-aware of this. He faulted the Defendant’s previous counsel. It would appear that knowing that they would not find recourse in Section 6(1) of the Arbitration Act, the Defendant opted to file a Notice of Preliminary Objection. Unfortunately, for the reasons state herein above, the Preliminary Objection must fail.
34.I proceed dismiss the Defendant’s Notice of Preliminary Objection dated 28.03.20022 with costs to the Plaintiff.
35.Before I pen off, the Plaintiff submitted that the instant suit raises matters of public interest. What is public interest, and in particular, public interest litigation? In Brian Asin & 2 Others v Wafula W. Chebukati & 9 Others [2017] eKLR, Justice Mativo (as he then was) referred to the Black’s Law Dictionary 6th Edition which defines public interest litigation as a legal action initiated in a court of law for the enforcement of public interest or general interest in which the public or class of the community have pecuniary interest or some interest by which their legal rights or liabilities are affected.60. The Public Interest Litigation was designed to serve the purpose of protecting rights of the public at large through vigilant action by public spirited persons and swift justice.
36.The suit as filed does not meet the threshold of a public interest litigation as it is a clear claim of breach of a breach of contract. I would be hesitant at this juncture to classify the claim as public interest litigation.
37.I proceed dismiss the Defendant’s Notice of Preliminary Objection dated 28.03.20022 with costs to the Plaintiff.
DATED, DELIVERED AND SIGNED AT KISII THIS 8TH DAY OF NOVEMBER 2023.T.A ODERAJUDGEIn the presence of:Parties absent Oigo- Court Assistant