TONONOKA STEELS LIMITED v EASTERN AND SOUTHERN AFRICA TRADE AND DEVELOPMENT BANKA [1999] KECA 6 (KLR)
The bottom line
#Kenya's Court of Appeal ruled that a Kenyan company could sue a development bank despite its immunity claim, because their contract chose English law.
What this practically means
#Executive summary
#Questions the Court framed
#The issues the Court set itself to decide, in its own words.
- 1.Whether a point of law not argued before the superior court may be taken for the first time on appeal
- 2.The effect of clause 16.10 of the Loan Agreement selecting English law as the proper law of the contract
- 3.Whether the Bank's immunity defence under the Privileges and Immunities Act and Legal Notice No. 265 of 1991 was available where the proper law of the contract is English law
- 4.Whether the choice-of-law clause and the arbitration clause ousted the jurisdiction of the Kenyan courts
- 5.Whether Legal Notice No. 265 of 1991 could validly deprive a party of access to the courts
Key legal issues
#Taking a new point of law on appeal
A new question of law may be raised on appeal where it concerns the legal effect of pleaded or admitted facts and requires no investigation of disputed facts; the court may also raise jurisdictional points of its own motion.
The court summarised established principles from East African and English authority: new points of law on construction of documents or admitted facts are expedient in the interests of justice; where evidence may be needed, argument may be allowed de bene esse; and jurisdictional points may be raised by the court itself. Clause 16.10 formed part of the agreement, required no factual inquiry, and was jurisdictional, so it was entertained.
Proper law of the contract
Clause 16.10 expressly selected English law, which is therefore the proper law of the Loan Agreement.
Where parties expressly stipulate the governing law, that law is the proper law; absent express choice, an inferred choice may be found, for example from the seat of arbitration, which here would also be England. The trial judge erred in applying Kenyan law, including Kenyan immunity law, to a contract governed by English law, and no English law on the immunity of the organisation was ascertained or proved.
Immunity of the Bank
The immunity defence under the Privileges and Immunities Act and Legal Notice No. 265 of 1991 was not available because Kenyan law did not govern the contract.
Since the proper law was English law and no English law granting the Bank immunity was cited or ascertained, the defence of immunity founded on Kenyan subsidiary legislation could not sustain dismissal of the suit. The judge's reliance on Kenyan law was a fundamental flaw. The court also observed that commercial transactions by the Bank should not create a legal minefield for borrowers.
Ouster of jurisdiction and access to courts
Neither the choice-of-law clause nor Legal Notice No. 265 of 1991 ousted the court's jurisdiction; jurisdiction can only be ousted by the Act itself in clear words.
Agreements purporting to oust jurisdiction are prohibited (Scott v Avery). The court adopted Pyx Granite, holding that recourse to Kenyan courts may be excluded only by clear and unambiguous parliamentary words. A subsidiary instrument could not achieve this, and the court leans against an ouster construction. The proper procedure on the arbitration clause was a stay application under section 6 of the Arbitration Act, 1995, which was never made.
Legal principles established
#- Where parties expressly stipulate that a contract is governed by a particular law, that law is the proper law of the contract.
- A choice-of-law clause in favour of foreign law does not oust the jurisdiction of Kenyan courts; ouster agreements are prohibited.
- The right of access to Kenyan courts may only be taken away by clear and unambiguous words of Parliament.
- A court may raise and consider a point of law of its own motion on appeal, particularly on jurisdiction.
- A party relying on an arbitration clause must apply under section 6 of the Arbitration Act, 1995 for a stay of proceedings; failure to do so forfeits the objection.
Court orders
#- 1.Appeal allowed with costs
- 2.Order and decree of the superior court set aside
- 3.Substitution of the order granting relief No. 3 sought in the plaintiff's Chamber Summons dated 26th February 1993, with costs
- 4.Trial of the action in the superior court to proceed to hearing before another judge
- 5.Costs of the application and suit in the superior court, if paid, to be refunded within 30 days with interest at court rates by the defendant to the plaintiff
The bench
#One judgment of the whole court — no separate or dissenting opinions.
Wrote the judgment
Allowed the appeal, holding that the proper law of the contract was English law, that the Kenyan immunity defence under Legal Notice No. 265 of 1991 was therefore unavailable, that a choice-of-law clause does not oust the court's jurisdiction, and that the right of access to Kenyan courts can only be taken away by clear and unambiguous statutory words.
Accordingly and, for the reasons above stated, I would allow this appeal with costs, set aside the order and decree of the superior court appealed fromp. 5
- On appeal from
- High Court of Kenya at Nairobi
- H.C.C.C. No. 267 of 1998
- Jurisdiction invoked
- First appellate jurisdiction under the Court of Appeal Rules (rule 101 cited); appeal from the High Court ruling striking out the suit
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.
Accordingly and, for the reasons above stated, I would allow this appeal with costs, set aside the order and decree of the superior court appealed from and substitute the order granting the relief No. 3 sought in the plaintiff’s Chamber Summons dated 26th February, 1993 with costs and order the trial of the action in the superior court to proceed to a hearing before another judge.
the right of access to the Courts of the Republic may only be taken away by clear and unambiguous words of the Parliament of Kenya.
where the parties expressly stipulate that a contract shall be governed by a particular law, that law will be the proper law of the contract.
It is a well settled general rule recognized in the English Courts, which prohibits all agreements purporting to oust the jurisdiction of the courts.
The defence of immunity was accordingly not available to the Bank because it was not the Law of Kenya that was applicable.
Issues in the judgment
#The judgment refers to the plaintiff's Chamber Summons as dated 26th February, 1993, although the suit and application were filed on 26 February 1998; the 1993 date appears to be an error.
The judgment is styled 'JUDGMENT OF LAKHA, J.A.' and is signed only by A.A. Lakha, although Court of Appeal appeals are ordinarily heard by a panel of three judges; no other judges are named in the coram.
Key timeline
#Practical implications
#Frequently asked questions
#Cite this brief
#Cite this brief
Caselaw, "TONONOKA STEELS LIMITED v EASTERN AND SOUTHERN AFRICA TRADE AND DEVELOPMENT BANKA [1999] KECA 6 (KLR)", Case Analysis (1999). Civil Appeal 255 of 1998. Source: https://new.kenyalaw.org/akn/ke/judgment/keca/1999/6/eng@1999-08-13
Suggested citation format for research notes or client memos. Always verify the original judgment before relying on any point.