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Court of AppealPartially AllowedCivil Appeal (from Civil Suit No 1121 of 1981)

Agip (K) Ltd v Kibutu [1981] KECA 48 (KLR)

Court of Appeal of Kenya
21 December 1981
1,688 words in judgment
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The bottom line

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What this practically means

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Executive summary

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Agip (Kenya) Ltd licensed the defendant to operate its petrol station on Park Road, Nairobi, and terminated the agreement for breach, suing for possession, mesne profits, damages and an injunction. The defendant's defence and counterclaim raised clause 14 of the Operator Agreement, an arbitration clause, as a point of law purporting to oust the court's jurisdiction. By consent, the High Court judge first determined the arbitration question and, without hearing argument on the merits, dismissed Agip's application for a temporary injunction. The Court of Appeal allowed the appeal. It held that under Section 6(1) of the Arbitration Act (Cap 49), a stay of proceedings pending arbitration must be applied for by notice of motion supported by affidavit before delivery of any pleading or other step in the proceedings; raising the arbitration clause in a defence is, following Purshottam v Keshavlal, self-destructive, since filing a defence and counterclaim constitutes taking a step in the suit. There was also no affidavit showing the defendant's readiness and willingness to arbitrate, as required per Halsbury's Laws of England and Kenya Oil Co Ltd v Rajwani. The judge had made no order of stay or reference, and none could be implied from his ruling. The dismissal of the injunction application without hearing argument was also wrong, as it was not an issue before the judge. The ruling and formal order were set aside and the injunction application remitted to the High Court for hearing by another judge, with costs of the appeal to the appellant.

Questions the Court framed

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The issues the Court set itself to decide, in its own words.

  1. 1.Whether the dispute should have been referred to arbitration notwithstanding that no application for stay of proceedings was made under Section 6(1) of the Arbitration Act
  2. 2.Whether by filing a defence and counterclaim the defendant waived the arbitration clause or was disqualified from invoking it
  3. 3.Whether the learned judge erred in dismissing the application for a temporary injunction without hearing argument on its merits
  4. 4.Whether the judge misapplied the decision in Maluki v Oriental Fire and General Insurance

Key legal issues

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01

Whether the arbitration clause could be invoked without a formal stay application under Section 6(1) of the Arbitration Act

Holding

No. A stay must be applied for by notice of motion supported by affidavit before any pleading is delivered; raising the arbitration clause as a point of law in a defence is self-destructive and ineffectual.

Reasoning

Section 6(1) of the Arbitration Act requires the application to be made before delivering any pleadings or taking any other step in the proceedings. Delivery of a defence is itself a step, and a counterclaim is a cross-suit invoking the court's jurisdiction. Raising the clause in a pleading therefore defeats the very application. The formal order made no order of stay or reference, and none could be implied. The requirement is mandatory and strictly construed.

p. 3
02

Whether the defendant demonstrated readiness and willingness to arbitrate

Holding

No affidavit was on record establishing that the defendant was, and remained, ready and willing to do everything necessary for the proper conduct of the arbitration, so any stay application had to be dismissed.

Reasoning

Citing Halsbury's Laws of England, 4th Ed, Vol II, paragraph 564, and Madan JA in Kenya Oil Co Ltd v Rajwani, the court held the court must be satisfied of the applicant's readiness and willingness to arbitrate. There was no affidavit and no such holding by the judge, so even treating paragraph 6 of the defence as a stay application, it failed on two grounds: late filing and lack of evidence of readiness.

p. 3
03

Whether the judge could dismiss the temporary injunction application without hearing argument on its merits

Holding

He could not. The parties had agreed he would first determine the arbitration question; the injunction application was not in issue and its dismissal without argument was wrong.

Reasoning

The parties had consented that the judge determine whether the dispute should be referred to arbitration before hearing the merits of the injunction application. No submissions were made on the merits, yet the judge dismissed the application. Dismissing an application that was not in issue, without hearing any argument, denied the parties a hearing on the relief sought and was an error requiring the ruling to be set aside.

p. 2

Legal principles established

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  • An application for a stay of proceedings under Section 6(1) of the Arbitration Act must be made before delivering any pleadings or taking any other step in the proceedings, and cannot be raised as a point of law within a pleading.
  • Filing a defence and counterclaim constitutes a step in the proceedings which disqualifies a party from seeking a stay under Section 6(1).
  • The court must be satisfied on material before it that the applicant is ready and willing to do everything necessary for the proper conduct of the arbitration; absent such satisfaction the stay application must be dismissed.
  • A court cannot dismiss an interlocutory application that was not in issue before it and on which no argument was heard.

Court orders

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  1. 1.Appeal allowed with costs
  2. 2.The ruling and formal order of the High Court dismissing the plaintiff's application for a temporary injunction set aside
  3. 3.The plaintiff's application dated June 11, 1981 for a temporary injunction remitted to the High Court to be heard and determined by another judge
  4. 4.Costs of the abortive hearing in the High Court left in the discretion of the judge who hears the remitted application

The bench

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One judgment of the whole court — no separate or dissenting opinions.

majority

Wrote the judgment

majority
majority
On appeal from
High Court of Kenya
Civil Suit No 1121 of 1981
Jurisdiction invoked
First appellate jurisdiction over an interlocutory ruling of the High Court (Arbitration Act, Cap 49, Section 6(1) in issue)

Relief refused

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Referral of the dispute to arbitration / stay of the suit

No stay application was made before delivery of pleadings, the defendant had taken a step in the proceedings, and there was no affidavit evidencing readiness and willingness to arbitrate

p. 3

Costs

Appeal allowed with costs to the appellant; costs of the abortive High Court hearing in the discretion of the judge hearing the remitted application.

Quotable passages

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Verbatim from the judgment, each located to the page it appears on in the official PDF — so these can be cited and checked directly.

The only way in which an application for stay to enforce an arbitration clause in an agreement can be made is by notice of motion supported by affidavit; it cannot be disguised as a point of law contained in a pleading.
p. 3Form and timing of stay application under Section 6(1) Arbitration Act
The court must be satisfied as to this, and unless so satisfied the application to stay must be dismissed.
p. 3Requirement of readiness and willingness to arbitrate
It was not open, and is not now open, to the defendant to apply for the suit to be stayed, as he has taken a step in the proceedings by delivering a defence and counterclaim before making any such application.
p. 3Waiver by taking a step in the proceedings
We set aside the ruling and formal order, the subject of this appeal, and direct that the plaintiff's application dated June 11, 1981, for a temporary injunction, be remitted to the High Court to be heard and determined by another judge.
p. 3Final orders and disposition

Issues in the judgment

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minor

The judgment cites Maluki v Oriental Fire and General Insurance with inconsistent citations: [1973] EA 162 on first mention and [1973] EA 1962 in ground 3 of the appeal

Key timeline

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Practical implications

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Frequently asked questions

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Later judgments citing this (1)

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Judgments in the corpus that rely on this one. Where the Court said how it treated the authority, that is shown.

Cite this brief

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Cite this brief

Caselaw, "Agip (K) Ltd v Kibutu [1981] KECA 48 (KLR)", Case Analysis (1981). Civil Appeal (from Civil Suit No 1121 of 1981). Source: https://new.kenyalaw.org/akn/ke/judgment/keca/1981/48/eng@1981-12-21

Suggested citation format for research notes or client memos. Always verify the original judgment before relying on any point.