UNIVERSITY OF NAIROBI v N.K. BROTHERS LIMITED [2009] KECA 423 (KLR)
The bottom line
#Kenya's Court of Appeal confirmed that a contractor's claim for more than the agreed contract price is a 'dispute' that must go to arbitration, not court.
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 plaint filed by the respondent in the superior court raised a dispute or difference between the parties that could be referred to arbitration under clause 36 of the three contracts dated 2nd January 1990
- 2.Whether an architect's certification of amounts in excess of the agreed contract sum binds the employer, or whether the excess claimed constitutes a dispute within the arbitration clause
- 3.Whether the claim for interest at 32% per annum, not provided for in the contracts, constitutes a dispute referable to arbitration
Key legal issues
#Scope of the arbitration clause - whether the word 'dispute' extends to 'difference' and to any matter arising under or in connection with the contract
Clause 36 covers both disputes and differences and is to be given a wide interpretation; it is not confined to disputes only.
The clause uses the phrase 'dispute or difference' and extends to any matter or thing of whatsoever nature arising under or in connection with the contract, including rights and liabilities under specified clauses. Its wording gives rise to a wide interpretation. Consequently, a difference as to what the contractor is entitled to under the contract falls within the clause even if the architect has certified the amounts claimed. The court refused to confine arbitration to disputes between employer and contractor only, excluding the architect acting on the employer's behalf.
Effect of an architect's certificates on the existence of a dispute
A claim for amounts certified by the architect but plainly in excess of the agreed contract sum constitutes a dispute between contractor and employer as to what the contractor is entitled to under the contract.
The court posed the question whether the employer must pay simply because the architect certified the amount. Applying Halsbury's Laws of England on when a final certificate is conclusive, a certificate binds only if its subject-matter is within the certifier's powers; no clause allowed the architect to certify amounts in excess of the contract sum. The earlier Court of Appeal decisions in Golf Hotels and Gupta were distinguished as summary judgment applications where certificates were not for amounts in excess of the contract sum. The excess claim and the uncontractual 32% interest claim each constituted a dispute, and proof of one suffices.
Section 6(1) of the Arbitration Act, 1995 - the statutory duty to stay proceedings and refer parties to arbitration
Where an application is made in time and no exception in section 6(1)(a) or (b) is established, the court must stay proceedings and refer the parties to arbitration; the judge erred in dismissing the application.
Section 6(1) obliges a court before which proceedings are brought in a matter subject to an arbitration agreement, on a timely application, to stay the proceedings and refer the parties to arbitration unless the agreement is null and void, inoperative or incapable of being performed, or there is in fact no dispute. The respondent relied on section 6(1)(b), contending there was no dispute because the claim was based on the architect's certificates. The Court of Appeal found there was in fact a dispute as to entitlement, so the statutory bar did not apply and the referral had to be made.
Legal principles established
#- Proof of one dispute or difference under an arbitration clause is sufficient to cause a suit to be referred to arbitration; where a contractor claims amounts in excess of the agreed contract sum pursuant to an architect's certificates, that is a dispute between employer and contractor referable to arbitration.
- An architect's final certificate is conclusive and binding on the parties only if it is within the powers of the certifier; a certificate given for an amount in excess of the contractual amount, in the absence of a clause permitting it, does not bind the employer and does not preclude a referral to arbitration.
Court orders
#- 1.The appeal is allowed
- 2.The order of the superior court made on 23rd July 2001 is set aside
- 3.High Court Civil Suit No. 1534 of 2000 is referred to arbitration pursuant to section 6 of the Arbitration Act
- 4.The appellant shall have the costs of the appeal and of the application dated 16th November 2000 in the High Court
The bench
#One judgment of the whole court — no separate or dissenting opinions.
- On appeal from
- High Court of Kenya at Nairobi
- H.C.C.C. No. 1534 of 2000
- Jurisdiction invoked
- First appeal to the Court of Appeal under the Court of Appeal's appellate jurisdiction (the judgment proceeds as a first appeal from an interlocutory ruling)
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.
In the result, this appeal succeeds. It is allowed, the order of the superior court made on 23rd July, 2001 is set aside. The High Court Civil Suit No. 1534 of 2000 is hereby referred to arbitration pursuant to section 6 of the Arbitration Act.
In our view, at this stage, proof of one dispute or difference under clause 36 is enough to cause the suit to be referred to arbitration.
In our collective mind the architect’s certification may be binding on the employer in a building contract but only if that architect has not made certification of an amount in excess of the contractual amount.
We cannot see that aspect covered in the contractual agreement and Mr. Hira referred us to none. In our view, it constitutes a dispute and it will, if the respondent succeeds in getting it awarded, impact very heavily on the entire claim.
This is a first appeal. In law, we are duty bound to revisit the application that was before the superior court afresh, analyse it, evaluate it and come to our own independent conclusion
Issues in the judgment
#Internal inconsistency in the affidavit evidence on the contract III amount: the affidavit gives Ksh.80,002,988/25 whereas the contract documents record Ksh.67,943,179/75, a discrepancy the court itself noted.
The section 6(1) quotation as reproduced in the judgment reads 'in operative' and 'in applicable of being performed' where the statutory text would be 'inoperative' and 'incapable of being performed'.
Key timeline
#Practical implications
#Frequently asked questions
#Later judgments citing this (1)
#Judgments in the corpus that rely on this one. Where the Court said how it treated the authority, that is shown.
Cite this brief
#Cite this brief
Caselaw, "UNIVERSITY OF NAIROBI v N.K. BROTHERS LIMITED [2009] KECA 423 (KLR)", Case Analysis (2009). Civil Appeal 309 of 2002. Source: https://new.kenyalaw.org/akn/ke/judgment/keca/2009/423/eng@2009-06-12
Suggested citation format for research notes or client memos. Always verify the original judgment before relying on any point.