by: Geoffrey Imende & Victor Wanjohi
Introduction
Arbitration has long been a preferred dispute resolution mechanism in Kenya, valued for its efficiency, flexibility, and confidentiality. However, in the recent past, a growing trust deficit—driven by concerns over arbitrator incompetence, corruption or rising arbitrator fees—has led to a decline in its popularity. This erosion of trust may be driving an increasing number of challenges against arbitral awards, primarily through the setting-aside mechanism under Section 35 of the Arbitration Act. However, the grounds for setting aside an award are narrowly construed, making this recourse both difficult and often unsuccessful. As a result, some corporates are abandoning arbitration altogether to retain broader options for challenging unfavorable awards. Others are opting for international arbitration under the rules of institutions like the LCIA or ICC, bypassing the arbitration legal framework in Kenya. While effective, these alternatives are costly and inaccessible for many parties.
In this context, the right of appeal under Section 39 of the Arbitration Act offers a practical and cost-effective solution. By reserving the right to appeal against an award on points of law, parties can address legal errors in arbitral awards without resorting to expensive dispute resolution mechanisms or facing the strictures of the setting aside process. This article explores why section 39 is underutilized and why parties should consider incorporating it into their arbitration agreements.
Is there a Trust Deficit in Arbitration in Kenya?
Arbitration was designed to provide a faster, more efficient alternative to litigation. In Kenya however, annecdotal evidence[1] shows that there are increasing concerns about the competence of some arbitrators or their lack of integrity either through corruption or padded arbitrator fees. These concerns are slowly eroding confidence in the arbitral process in Kenya.
This trust deficit may be reflected in the increasing number of challenges to arbitral awards. Under Section 35 of the Arbitration Act, parties can apply to set aside an award on limited grounds, such as procedural irregularities or violations of public policy. However, Kenyan courts have consistently interpreted these grounds narrowly. For instance, in Christ for All Nations v Apollo Insurance Co. Ltd [2002] eKLR Ringera J (as he then was) held that public policy, as a ground for setting aside an arbitral award, must be narrow in scope.
Conversely, the Supreme Court of Kenya in Nyutu Agrovet Limited v Airtel Networks Kenya Limited [2019] eKLR expanded the scope of court intervention in arbitration proceedings beyond what is contemplated by section 10 of the Arbitration Act. While acknowledging that section 10 of the Arbitration Act bars any court intervention except where it is expressly provided for in the Act, the Supreme Court nevertheless read into the Act a limited right of appeal against a decision by the High Court allowing or refusing an application to set aside an arbitral award. The rationale for the Court’s conclusion appears to align with the argument behind the trust deficit in our people or institutions. The Supreme Court rendered itself as follows at para 72;
- “Thus our position is that, as is the law, once an arbitral award has been issued, an aggrieved party can only approach the High Court under Section 35 of the Act for Orders of setting aside of the award, and hence the purpose of Section 35 is to ensure that Courts are able to correct specific errors of law, which if left alone would taint the process of arbitration. Further, even in promoting the core tenets of arbitration, which is an expeditious and efficient way of delivering justice, that should not be done at the expense of real and substantive justice. Therefore, whereas we acknowledge the need to shield arbitral proceedings from unnecessary Court intervention, we also acknowledge the fact that there may be legitimate reasons seeking to appeal High Court decisions.” [Emphasis supplied]
The Shift to International (Institutional) Arbitration
Frustrated by the limitations of the local arbitration process, some corporates are turning to international arbitration under the rules of institutions like the LCIA or ICC. These institutions offer robust procedural safeguards and a perceived higher standard of arbitrator competence and impartiality.
However, international (institutional) arbitration comes with some challenges. The costs of hiring foreign arbitrators, legal representation, and administrative fees can be prohibitively high, particularly for small and medium-sized enterprises. Additionally, the process can be time-consuming, undermining one of the key advantages of arbitration over litigation.
Section 39: A Cost-Effective Alternative
Section 39 of the Arbitration Act provides a middle ground between the strictures of the setting aside process and the high costs of international arbitration. It allows parties to appeal an arbitral award on a question of law, provided the right of appeal is expressly reserved in the arbitration agreement or with the consent of all parties.
This provision is particularly valuable in complex disputes where errors of law can have significant consequences. For example, an arbitrator’s misinterpretation of a contractual term or statutory provision could lead to an unjust outcome. By reserving the right of appeal, parties can ensure that such errors are corrected without having to navigate the narrow grounds of Section 35 or incur the costs of international arbitration.
Despite its potential benefits, Section 39 is rarely invoked. Many parties and legal practitioners are either unaware of this provision or underestimate its importance. There is also a perception that allowing appeals could undermine the finality of arbitration, which is one of its key attractions.
However, this perception overlooks the fact that Section 39 strikes a careful balance between finality and fairness. It allows parties to address significant legal errors without necessarily opening the door to frivolous appeals. Moreover, the right of appeal can be tailored to suit the parties’ needs, such as limiting it to specific types of legal questions.
To take advantage of Section 39, parties should expressly include the right of appeal in their arbitration agreements. For example, an arbitration clause could state:
“The parties reserve the right to appeal any arbitral award on a question of law under Section 39 of the Arbitration Act.”
If the right of appeal is not included in the arbitration clause, parties can still agree to it during the preliminary meeting. This flexibility allows parties to adapt their approach based on the specific circumstances of the dispute.
Conclusion
The right of appeal under Section 39 of the Arbitration Act offers a practical and cost-effective solution to the challenges facing arbitration in Kenya. By reserving this right, parties can address errors of law without resorting to expensive international arbitration or facing the strictures of the setting aside process. This balanced approach ensures that arbitration remains a fair, reliable, and accessible dispute resolution mechanism.
- The anecdotal evidence has been gathered from informal discussions with clients, advocates, attendance at conferences and seminars focused on arbitration, and contributions from various speakers on the topic. This evidence has not been systematically collected or analyzed using a scientific method and should be interpreted as indicative rather than definitive. ↑