Arbitration: A Time to Rethink?
By Walter Amoko
“See you in Court” is a common refrain of TV court dramas, which obscures an open secret. This formal method of dispute resolution, which is of ancient vintage and is adversarial in common law countries, does not enjoy universal acclaim. The process is often too complex, formal, expensive and fraught with antagonism and sometimes, negative publicity. More often than not, due to its winner-takes-all approach, parties who ‘see you in court’ come out of it so bruised, that to expect them to be friendly thereafter is a product of fertile imagination, without any compensating social benefit.
The disadvantages of the Court processes have exacerbated over time and led to the clamour for a less formal, friendlier and conciliatory alternative process, whose outcome is still binding on disputants. Arbitration was seen as a God-sent alternative which accommodates these needs. Arbitration in Kenya is largely contractual and is governed by, among others, the Arbitration Act of 1995 (which is based on the UNICITRAL Model Law on Arbitration). This act was enacted in part, to reduce and limit Court interference with the arbitral process and enable it play a more supportive role.
Parties entering into any written contract have the liberty to include an arbitration clause in their contracts. Such a clause is helpful, as parties are then able to submit any dispute contemplated under the said clause for arbitration, instead of going through the court process.
There are a few pre-requisites that a party must consider before referring a dispute to arbitration. Key among these considerations are: the composition of the arbitral tribunal, the powers of the arbitrator(s), the seat of the arbitration, as well as the applicable law. All these considerations are best handled by a well- drafted and comprehensive arbitration clause. However, no matter how well drafted such a clause may be, a recalcitrant counter party may stymie the process, hence the continued role of the Court.
Once a dispute has been referred to arbitration and the preliminary issues sorted out, the process of resolving the dispute commences and is finally concluded when the tribunal delivers its award. Such award is binding and enforceable, just like any other decree of the Court.
It is often the case that a party for one reason or another, may be dissatisfied with an award and seek to challenge it. Consistent with the philosophy of party autonomy and encouragement of arbitration, the grounds for such challenge are limited. These grounds include: incapacitation of a party at the time of entering into an arbitration agreement; invalidity of an arbitration agreement; where an award goes beyond the scope of the arbitral reference; improper composition of the tribunal; where an award is tainted by fraud, bribery or undue influence; where an award is in conflict with public policy; among other grounds.
It has always been the case that where a party is aggrieved with the finding of the High Court, especially where such finding sets aside or varies the award delivered in its favour through arbitration, it has a limited avenue through which to appeal to the Court of Appeal. Though there have been conflicting decisions as to whether or not such decisions are appealable.
In a recent decision, a specially constituted five-judge panel of the Court of Appeal resolved this conflict by snuffing out that avenue. In Nyutu Agrovet Limited vs Airtel Networks Limited, Civil Appeal No. 61 of 2012, the Court of Appeal emphatically stated that no appeal lies to it from the High Court, where a party is appealing from a decision setting aside an arbitral award, or a decision affirming the award. As a decision of an intermediate appellate court, this decision has far reaching ramifications on the conduct of arbitration in Kenya. For one, it emphasises the finality with which arbitral awards are viewed. The decision effectively bars a party from appealing against a High Court decision setting aside or confirming an arbitral award.
The obvious danger of the foregoing is that a party has limited recourse against decisions of arbitral tribunals to the High Court and no recourse at all from the decision of the High Court, even in instances where these institutions have clearly misdirected themselves in law, or fact, or both. Once the High Court makes a determination, the matter is presumed to have been concluded.
The resultant effect of this is that parties now need to make a careful judgment and be guided by two fundamental questions, namely: ‘should we include an arbitration clause in our contracts or refer disputes to arbitration in the first place?’ and secondly, ‘are we ready to bear the brunt of the finality principle even where a tribunal and/or the High Court misdirects itself?’.
The above questions are difficult to answer, bearing in mind the policy considerations behind arbitration. However, parties certainly need to be more careful in drafting arbitration clauses. One factor that parties need to seriously consider is the composition and size of the arbitral tribunal. Having a tribunal comprising more than one arbitrator, though costly, is a good suggestion, though the reality is that there is little assurance for a risk-averse party.
In the meantime, the effect of all this is that though arbitration now has a Constitutional anchor and Courts are empowered to compel arbitration (as well as mediation). Additionally, as arbitral awards are now increasingly impervious to challenge and in the absence of a credible process for error- correction, the Court process, warts- and-all, has seemingly become more attractive. The big question therefore is: has the time come to rethink whether we really need arbitration in Kenya? The jury is still out.
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