East African Power and Lighting Company Ltd v Kilimanjaro Construction Ltd [1983] KECA 73 (KLR)
The bottom line
#Kenya's Court of Appeal ruled that demanding arbitration without actually starting it means you can lose the right to have your case arbitrated.
What this practically means
#Executive summary
#Questions the Court framed
#The issues the Court set itself to decide, in its own words.
- 1.Whether the disputes in the action fell within the scope of the arbitration agreement
- 2.Whether the defendant was ready and willing to do all things necessary for the proper conduct of the arbitration
- 3.Whether there was sufficient reason not to refer the matter to arbitration and whether the judge properly exercised his discretion in refusing a stay under section 6(1) of the Arbitration Act
- 4.Whether the order for costs for two advocates was justified
Key legal issues
#Readiness and willingness to arbitrate under section 6(1) of the Arbitration Act
Readiness and willingness must be evidenced by positive action towards a reference to arbitration, not mere words; the defendant never initiated arbitration and so was not entitled to a stay.
The court examined the correspondence. The defendant's only reference to arbitration was a letter stating it did not waive the arbitration provision and demanding that the plaintiff refer the dispute to Acres. The plaintiff's advocates had offered to arbitrate under ICC Rules and warned that proceedings would issue otherwise. The clause allowed either party to refer. The defendant never moved, having terminated the contract and called in the bond, so it could not claim to have been ready and willing.
Scope of the arbitration clause and sufficient reason
The disputes did not all fall within the arbitration clause (the defamation claim over the Performance Bond did not), Acres's partiality gave sufficient reason, and the judge properly exercised his discretion against a stay.
The clause covered disputes on interpretation or application of the contract or determination of a breach. Acres, as defendant's agents and project managers who had accused the plaintiff of delay, could not impartially decide; the plaintiff's genuine doubts about impartiality, the defendant's failure ever to invoke arbitration, and the claim for damages for defamation arising from calling in the bond furnished sufficient reason not to refer. A reference may be split, per Kenya Oil Company Ltd v Abdul Sultan Jiwa Nathoo.
Costs for two advocates
An order for costs of two advocates requires that both appeared; the award of two-counsel costs here was an inadvertent slip and was varied.
The record showed Mr Nowrojee appeared on three adjourned occasions only, and Mr Bhandari alone argued the case on 10 and 11 November 1982; the judge's note 'Coram as before' was an inadvertent slip. Since the appellant scored only a minor success on this point, costs of the appeal were not altered but the decree was amended to limit costs to one advocate.
Legal principles established
#- A party applying for a stay under section 6(1) of the Arbitration Act must demonstrate readiness and willingness to arbitrate by taking positive steps to set the reference in motion; a bare assertion that it does not waive the arbitration clause does not suffice.
- A court may refuse a stay where sufficient reason is shown, including where the party demanding arbitration has itself repudiated the contract and never invoked the arbitration clause.
Court orders
#- 1.Appeal dismissed with costs
- 2.Decree of the High Court amended by limiting the order for costs to one advocate only
- 3.Defendant (appellant) to pay costs of the appeal
The bench
#One judgment of the whole court — no separate or dissenting opinions.
Wrote the judgment
Madan JA delivered the leading judgment. He held that a party seeking a stay under section 6(1) of the Arbitration Act must take positive steps to set arbitration in motion; mere protestations of readiness and willingness, or a statement that the arbitration clause is not waived, are insufficient. The defendant had terminated the contract, called in the Performance Bond and never initiated arbitration, so the judge below properly found sufficient reason not to stay. The defamation claim over the Performance Bond fell outside the arbitration clause. The appeal was dismissed but the High Court decree amended to limit costs to one advocate.
In my opinion the learned judge was right in his reasons, and he exercised his discretion properly in refusing to stay the proceedings. The defendant had handcuffed, it has only itself to blame.p. 5
Wrote the judgment
Chesoni Ag JA agreed with Madan JA and added that the arbitration clause covered only disputes over interpretation or application of the contract or determination of a breach, not termination itself, quality of work or payment; Acres, having given the warning that grounded termination, could not act impartially; and readiness and willingness had to be demonstrated by active steps.
It was not enough for the appellants to say that they were ready and willing to go to arbitration. They should have gone further and demonstrated their willingness and readiness to do so by taking active steps to refer the matter to arbitration for such reference was the duty of both parties.p. 6
- On appeal from
- High Court of Kenya at Nairobi
- Civil Case No. 846 of 1982
- Jurisdiction invoked
- First appeal to the Court of Appeal from an interlocutory order of the High Court (appeal from an order of the High Court of Kenya at Nairobi)
Relief refused
#Stay of all further proceedings in the High Court under section 6(1) of the Arbitration Act
The defendant took no positive steps to refer the dispute to arbitration, was not ready and willing as required, and there was sufficient reason not to refer the matter; Acres was allegedly partial and the defamation claim fell outside the arbitration clause.
Costs for two advocates before the High Court
Mr Nowrojee never appeared with Mr Bhandari when the case was argued; the order was an inadvertent slip and not justified.
Costs
Appeal dismissed with costs to the respondent; costs of the appeal to the respondent; the High Court decree amended to limit the order for costs below to one advocate only.
Quotable passages
#Verbatim from the judgment, each located to the page it appears on in the official PDF — so these can be cited and checked directly.
I would dismiss the appeal with costs but first amend the decree of the High Court by limiting the order for costs to one advocate only. I would not alter the order for costs of the appeal as the defendant has scored only a minor success. As Kneller JA and Chesoni Ag JA agree, it is so ordered.
There should be, either way, some positive action taken which could lead to a reference to arbitration, so that, even though it may not actually take off the ground owing to refusal or non-action by the other party, the court is able to say that there was and is readiness and willingness to do all things necessary for the proper conduct of the arbitration; all this is one of the pre-requisites to an order for stay of proceedings.
It is doubtful whether a party who has unilaterally repudiated a contract should be allowed to rely on it when he chooses to do so.
This dispute did not fall within the scope of the agreement as it was not connected with the work to be done there under. It could not have been properly referred to arbitration, though a reference may be split up Kenya Oil Company Ltd v Abdul Sultan Jiwa Nathoo and Another CA 50 of 1977 (unreported).
Issues in the judgment
#Internal inconsistency in the judgment: Chesoni Ag JA refers to a letter of February 5, 1981 by the respondents whereas the judgment of Madan JA dates the plaintiff's advocates' letter offering arbitration as February 25, 1982; the year 1981 appears to be an error.
The record shows the judge's note 'Coram as before' led to costs being awarded for two advocates when only one argued the case.
Key timeline
#Practical implications
#Frequently asked questions
#Cite this brief
#Cite this brief
Caselaw, "East African Power and Lighting Company Ltd v Kilimanjaro Construction Ltd [1983] KECA 73 (KLR)", Case Analysis (1983). Civil Appeal No. 43 of 1983. Source: https://new.kenyalaw.org/akn/ke/judgment/keca/1983/73/eng@1983-11-21
Suggested citation format for research notes or client memos. Always verify the original judgment before relying on any point.