Nigeria: Case Review: Tracer Limited v. SGS Kenya Limited And Olufunke Adekoya

Last Updated: 17 July 2018
Article by Ibifubara Berenibara and Odinaka Okoye

The High Court of Kenya lacks jurisdiction to hear an application seeking to set aside a foreign arbitral award where the agreed seat of arbitration is outside the jurisdiction of the High Court.

Introduction

On 18 October 2017, the High Court of Kenya refused to entertain a Chamber Summons application made by a party to an arbitration to set aside a foreign arbitral award brought before it.

In MISC. Civil Case N0. 331 of 2015, between Tracer Limited (Tracer) v. SGS Kenya Limited (SGS Kenya) and Olufunke Adekoya, following the publication of the arbitral award in Paris, France, Tracer filed a Chamber Summons application at the High Court of Kenya, seeking to set aside the arbitral award published by the sole arbitrator, Olufunke Adekoya on 20 April 2015. SGS Kenya challenged the jurisdiction of the High Court to entertain the Chamber Summons application on the ground that laws of England govern the substantive agreement of the parties, and the seat of arbitration is Paris, France. Consequently, SGS Kenya argued that the High Court of Kenya cannot exercise primary jurisdiction over the international arbitral award.

Background

Tracer and SGS Kenya entered into a Reseller Agreement ("the Agreement"), which contains dispute resolution clauses. By Clause 9.1 of the Reseller Agreement, the parties agreed that the Agreement shall be governed by, and interpreted in accordance with substantive laws of England, exclusive of any rules with respect to conflict of laws. While Clause 9.2 provides that all disputes arising from the Agreement will be finally settled under, the Rules of Arbitration of the International Chamber of Commerce and proceedings would take place in Paris, France.

However, Clause 12 of Appendix 11 to the Agreement titled "General Conditions of Service and Sale for Kenya Revenue Authority Electronic Cargo Tracking System (ECTS), provides that the contract shall be governed by the laws of Kenya, and all disputes arising out of or in connection with these General Conditions or the contract shall be finally settled under the rules of arbitration of the Chartered Institute of Arbitration, Kenya and the seat of Arbitration shall be Nairobi, Kenya.

SGS Kenya's preliminary objection challenging the Court's jurisdiction to hear and determine Tracer Kenya's Chamber Summons Application is based on the following grounds:

  1. The Reseller Agreement shall be governed by and interpreted in accordance with the substantive laws of England.
  2. All disputes arising out of or in connection with the Reseller Agreement will be finally settled under the Rules of Arbitration of the International Chamber of Commerce and the seat of arbitration proceedings is Paris, France.
  3. Consequently, the Kenyan Court has no jurisdiction to hear an application to set aside the arbitral award made in Paris.

SGS Kenya's Submission

SGS Kenya argued that the seat of arbitration determines the law of the country where a challenge to an interim or final arbitral award may be made and any challenge to an interim or final award is to be made only in the courts of the place designated as the seat of the arbitration. Relying on Article 5 of the New York Convention which is similar to Section 35 of the Arbitration Act of Kenya, as well as the arbitration agreement of the parties, SGS Kenya submitted that the High Court of Kenya can only exercise secondary jurisdiction over the award for recognition and enforcement or refusal of recognition of the foreign award, but does not have the jurisdiction to set it aside. It was further argued that under section 37(1) of the Arbitration Act of Kenya, the High Court can only deal with an arbitral award that is binding, or suspended by the court of the State in which or under which the award was made; and that an agreement as to the seat of arbitration is analogous to an exclusive jurisdiction clause.3

Tracer Limited Submission

Tracer Limited relied on Clause 12 of Appendix 11 to Reseller Agreement to oppose the preliminary objection, and submitted that the contract was founded on the law of Kenya and courts in Kenya have acknowledged that they have jurisdiction to entertain a matter where the seat of arbitration is outside its jurisdiction. It further submitted that the New York Convention distinguishes between the State in which the award is made and the state of the applicable law, thus the setting aside of an international award can be done outside the seat of arbitration and in the country of the applicable law.

SGS Kenya in response, further submitted that the law governing the main contract should take precedence over the law cited in the Appendix to the Reseller Agreement.

The High Court's Decision

The Court noted that there is no dispute between the parties that the arbitration and the resultant award are a subject of international arbitration. Nevertheless, the issue is whether the High Court of Kenya has jurisdiction to set it aside.

The Court then referred to section 35 of the Arbitration Act of Kenya on the power of the High Court of Kenya to set aside arbitral awards and the factors the Court would consider to exercise that jurisdiction. In the opinion of the Court, the provision does not stipulate whether the "arbitral award" refers to international and/or domestic arbitral award. The Court however posited that the section refers to the power of the High Court to set aside both international and domestic arbitral awards.

Where the High Court has the power to set aside an international award, it has to then consider whether the Court has jurisdiction to set aside an arbitral award where the seat of arbitration is outside the jurisdiction of the Court. In answering this question, it had to determine whether it is the law that governs the substance of the contract (lex causae) or the law governing the arbitration proceedings (lex arbitri) or the law of the State or juridical seat of arbitration that will be applicable.

The Court then further highlighted options open to parties who are dissatisfied with an international arbitral award. These options are: (1) appeal against the award, if this is permitted under the applicable law or the arbitration rules; (2) challenge the award in the courts of the place where the award was made; (3) wait until the successful party initiates enforcement proceedings before a court at which stage it can seek to resist enforcement.

While in the first two scenarios, the forum is normally the place where the award is made and the initiative lies with the unsuccessful party, the third option is initiated by the successful party and by Article 34 of the UNCITRAL Model Law, an application to set aside an award is made in the place of arbitration, and in the opinion of the Court, review of awards by the courts at the seat of arbitration "promotes efficiency in international arbitration by enhancing the trust of the parties in the process."

The Court then stated that challenge is the only remedy a party has against an award in the Court of the place where the award was made, while enforcement may still be insisted in other courts.

In the Court's analysis of the arguments of the parties, it held that Tracer's reference to Kenyan law in the Appendix to the Reseller Agreement cannot override the provisions of Article 9.1 and 9.2 of the Reseller Agreement. In reaching this decision, the Court considered that Clause 12 of the Appendix 11 to the Reseller Agreement cannot be the basis for determining the court with jurisdiction, as that agreement does not refer directly to the parties to the arbitration, and it was not the basis for the subject matter arbitration. Parties participated in the arbitral proceedings conducted in accordance with the provisions of Article 9.2 of the Reseller Agreement. Consequently, the provisions of clause 12 of the General Conditions of Service referred to by Tracer cannot override the provisions of Article 9.2 of the Reseller Agreement.

The Court held that the seat of Arbitration is the most preferred forum for setting aside an international award, because it promotes the efficiency in the international arbitration by enhancing the trust of parties in the process, and the Arbitrator who considered the dispute is well versed with the substance of the matter to consider the grounds for setting aside the Arbitral Award. The substantive matters are better dealt with by the court with the primary jurisdiction.

Copious reference was made to the decision in Kundan Singh Construction Limited v Tanzania National Roads Agency4  where the Court held in a similar scenario that by section 35 of the Arbitration Act of Kenya, the High Court of Kenya is allowed to set aside both domestic and international awards. However, where the parties have by their agreement chosen another seat in relation to the arbitral proceedings and for remedies as to the challenge of the award made thereunder, that country becomes the primary jurisdiction in relation to these proceedings and not Kenya, which only has a secondary jurisdiction role in terms of recognition and enforcement of arbitral awards.

The High Court then concluded that it has no jurisdiction to hear Tracer's Chamber Summons Application seeking to set aside the foreign arbitral Award as the seat of arbitration was outside the jurisdiction of the Court. This is more so, as the parties agreed that the Agreement, which formed the subject of Arbitration proceedings, is governed and interpreted in accordance with the substantive law of England, and all disputes would be determined under the rules of International Chamber of Commerce, while the seat of arbitration was agreed to be Paris. 

Our Thoughts

The decision of the High Court of Kenya highlights the importance the courts of Kenya attach to agreements of parties. While it recognises that statutes governing arbitration in Kenya acknowledge that both international and domestic arbitral awards can be set aside by the High Court of Kenya, recourse was however given to the definite agreement of the parties which excludes the High Court of Kenya. Whilst some courts would want to jealously guide their jurisdiction and would not be prepared to surrender any such power vested in them, the Kenyan court poses a good example for arbitration friendly environment. 

Footnotes

1. LLM; MCIArb; ACTI; Senior Associate at AELEX

2. ACIArb; Associate at AELEX

3. Reliance was placed on Rogers Shashowa & 2 Others v. Mukesh Sharma (2009) EWHC 957 (COMM)

4. MISC. SIVIL CAUSE NO. 248 of 2012

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