Alternative Dispute Resolution Lectures

8/2/2019 Alternative Dispute Resolution Lectures

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b ADR Lecture- 18th March

CAT on 26th March at 6 p.m.-Thursday

Principles of Natural Justice in Relation to ADR proceedings

It is a fundamental requirement of justice in deciding a disputebetween two or more parties,

Firstly that the arbitrator or the tribunal must be and must be seen to be disinterested and unbiased.Secondly, every party must be given a fair opportunity to present his case and to answer the case of his opponent.

The first principle is embodied in section 13 of the Arbitration Act which provides that when a person is approached for appointment as an arbitrator he must disclose any circumstances likelyto give rise to justifiable doubts as to his impartiality or independence. That duty on the part of the arbitrator is a continuing dut

y right from the time that he is approached through to the timehe accepts appointment, conducts the reference, and renders his award.

So under section 13(2) the arbitrator is obliged through the arbitral proceedings to disclose without delay such circumstances.

The arbitrator must be on his guard with respect to connectionswith a party or connections in the subject matter of dispute or connections with the nature of the dispute. And the test that thearbitrator must always bear in mind is whether a reasonable person not being a party to the dispute would think that the connection was close enough to cause the arbitrator to be biased.

So there are three elements there of connections.---party--subject matter

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--nature of the dispute

The arbitrator has an obligation to conduct the reference impartially in both actions and words and to decide each issue put before him fairly and impartially. And whatever the provocation, each decision must be made impartially. There is therefore an overriding duty to work fairly and dispassionately even if one of theparties, for example, provokes the arbitrator by making the wild

est of accusations.

The arbitrator should also take pains not to associate with one party of his representative more than with the other. He should, for example, never have lunch with one party during a hearing orin the course of the reference in the absence of the other party.He should also try to avoid even casual conversation with one side in the absence of the other. For his confidence in his own probity may not be shared by a party who does not know him.

Each party must also be given a fair opportunity to present their

case and to know the opposing case and to meet the opposing case.

Under section 19 of the Arbitration Act, for example, parties must be treated with equality and each party given full opportunityof presenting their case.

Section 21 is perhaps also relevant in this regard in that if parties have not agreed on the place of arbitration, the tribunal mustdetermine the place having regard to the circumstances of the case and the convenience of the parties. The arbitrator is doinga balancing act.

Under Section 21 the parties have the right to agree on the venue, failing which section 21 (b) intervenes.

Section 24 provides for exchange of statements of claim and statements of defence: To inform parties of the case they are to meet: natural justice.

Section 25 provides that the arbitral tribunal must hold oral hearings unless the parties have agreed that no hearing shall be held. For the same reason an arbitrator should not receive oral evidence or arguments from one party in the absence of the other.Neither should the arbitrator receive any document from one party without ensuring that the other party receives a copy. It is important to make it clear to the parties that all correspondencewith the arbitrator must be copied to the other party. This should be in the agenda of the preliminary meeting.

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The arbitrator, if there is to be a hearing, must fix hearing datesso far as practicable convenient to both parties.

Other provisions in the Arbitration Act that you may want to look at:

Section 27, where a tribunal appoints an expert if it has the power to do so. The report must be available to the parties and they

must have the opportunity to examine that expert and to present their own expert on the subject.

Section 29: obligation on the part of the tribunal to decide the dispute in accordance with the rules agreed upon by the parties

What happens when an arbitrator uses his knowledge and experience to determine the matter? Should the parties have right toinfluence the judges mind? That is where the arbitrator is empowered by the parties to use his own expertise, he should grant the parties an opportunity to comment on his views and so on.

Section 35 deals with the setting aside of an award. If a party was not afforded an opportunity to be heard, notice not served, appointment of arbitrator, etc.

Under section 26 an arbitrator has powers to decide on a hearing date unless otherwise agreed by the parties. Any party that fails to attend a hearing, the hearing could go on, etc.

In summary, the principles of natural justice must be observed in the arbitral process.

Go through the Arbitration Act in your own time and see what sections have a bearing on natural justice.ALTERNATIVE DISPUTE RESOLUTION LECTURE 2 FEBRUARY 2004

When drafting the substantive contract it is important to point out that in case of any dispute the matter is to go before arbitration. This can be part of the substantive contract or just a clause.

Invariably almost all insurance companies include arbitration clauses in all their policies.

THE ARBITRATION AGREEMENT

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Arbitration is a process in which a third party neutral or an oddnumbered panel of neutral persons render a decision on the merits of a case.

The statute that deals with arbitration in Kenya is the Arbitration Act (1995) Act No. 4 of 1995 Cap 49 Laws of Kenya. This statute commenced on the 2nd of January 1996 by virtue of Legal Noti

ce No. 394 of 1995. This date is important because prior to thisstatute we had an Arbitration Act that was based on different legal principles for instance under the repealed or previous Acts, the courts had a wider role in Arbitration than they do under thecurrent Act. Parties to Arbitration under the previous statute had recourse to the High Court more than they do under the current Act. For instance under the old Arbitration Act a party couldchallenge an award of an arbitrator on the grounds that the arbitrator has misbehaved in the course of arbitration. Misbehaviour on the part of an arbitrator suggested that it was a ground onwhich the award could be challenged which is not the case unde

r the current law. Some cases may suggest that one might haverecourse to the High Court when it is not so. Under the currentAct the situations where one can go to court to complain after arbitration are limited.

The current Arbitration Act is based on a Model of the United Nations Commission on International Trade Law (UNCITAL) which was adopted in 1985 with a view to encouraging arbitration and processes that would have global recognition. United Nations came up with a model of a statute that has been adopted by manycountries. The essence of the Act is that it provides for very broad party autonomy in fashioning the Arbitration process. This means that parties who enter into an arbitration agreement are toa large extent at liberty to determine the process of adjudication of the disputes that will go to arbitration. Autonomy for example in deciding who the arbitrator will be, the venue of arbitration, the substantive law that will apply to that agreement or arbitration. Once a dispute has arisen, they also have autonomy with regards to how the arbitral process itself will be conducted. To a large extent, the Arbitration Act provides the default position in very many respects so that if parties in an arbitration agreement have not provided the number of arbitrators, then the statute will tell you that the default position is the presumption thatthe parties intended for one arbitrator.

WHAT IS AN ARBITRATION AGREEMENT?

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According to Section 3 of the Arbitration Act Arbitration Agreement means an agreement by the parties to submit to arbitrationall or certain disputes which have arisen or which may arise between them in respect of a defined legal relationship whether contractual or not. A distinction is made or liberty is given to theparties to choose that only certain types of disputes will go to arbitration and not all of the disputes that arise will go to arbitration. An example is where you have a tenancy agreement betwe

en a tenant and a landlord which provides that there will be review of rent after every two years of the term under the tenancyand the tenancy agreement may proceed to say that at the timeof review the margin by which rent will be increased will be by agreement of the two parties. It may proceed to state that if there is a dispute as to what the margin should be, then the mattershould be referred to arbitration.

Effectively what those two parties have done is to select certaintype disputes that would arise under that agreement and decidethat they are the only two that would go to arbitration if they ar

ose. Parties are at liberty to select certain disputes and agree that those should go to arbitration while others may remain for determination by the courts.

The other important distinction made by the statutory definitionis that parties can anticipate disputes and parties can also decide to go into arbitration after disputes have already arisen i.e. anagreement to arbitrate may be made in respect of existing disputes between the parties or in respect of disputes that may occurin the future and in each of these cases that agreement to refereither existing or future disputes to arbitration is an arbitrationagreement.

Traditionally an agreement to refer future disputes to arbitration was referred to as an Arbitration Agreement whilst an agreement made after disputes have arisen was traditionally referred to as a submission or a submission agreement. But in light of the statutory definition that distinction between submission and agreement is no longer relevant.

Section 2 - except as otherwise provided in a particular case theprovisions of the Act shall apply to both domestic and international arbitration.

WHAT ARE THE FORMALITIES/WHAT ARE THE FORMAL REQUIREMENTS

This is dealt with under Section 4 of the Arbitration Act.

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The formal requirements under the Arbitration Act are set out under Section 4 of the Arbitration Act and the first thing the statute provides for is that an arbitration agreement may be in the form of an arbitration clause in a contract or it may be in the form of a separate agreement all together. So for example in a contract between the government and a building road contractor, the contract will set out what the works are and the instructionsfrom the engineer and one of the clauses in that agreement may

simply be the clause that says any or all the disputes arising from this contract shall be referred to Arbitration. That is one option.

The other option is where the contract is silent on whether it should bind the parties to arbitration.

An Arbitration Agreement shall be in writing, it is a requirementthat it be not oral. Section 4 (3) an arbitration agreement is inwriting if it containsa written document by the parties;

an exchange of letters; telex, telegram or other means of telecommunications which provide a record of the agreement;an exchange of statements of claim and defence in which the existence of the agreement to arbitrate is alleged by one party and not denied by the other party.

Section 4 (4) the reference in a contract to a document containing an arbitration clause shall constitute an arbitration agreement if the record is in writing and the reference is to make that arbitration clause part of the contract. This is talking of incorporation of an arbitration agreement by reference.

CONSTITUENTS OF A PROPERLY WORDED ARBITRATION CLAUSE

In practice not both parties to an agreement are as keen to havethe dispute resolved. The disputants are usually at different positions. So if you have a clause that facilitates a bbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbbprotraction of the process then the Respondent will capitalise on it since he is not interested in having thematter resolved. It is thus advisable that a basic arbitration agreement or clause should provide some essential details. For if an arbitration clause simply provides that disputes to be settledby arbitration questions would arise as to how the arbitrator is to be appointed, what qualifications the arbitrator should have,where the arbitration should take place, how many arbitrators,what substantive law is to apply to that contract, what procedural law is to apply to that contract etc.

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Is there a distinction between the law governing the contract and the law governing the arbitration?

There is a distinction between the law governing the contract and the law governing arbitration. For instance if a contract stipulates that in case of a dispute the substantive law to apply will be Kenyan law, then any other arbitration law will apply. It is important if one is to avoid conflict in basic matters that the arbitr

ation clause should be as clear in these matters as possible.

WHAT ARE THE ESSENTIAL INGREDIENTS

1. PROVISION WITH REGARD TO THE NUMBER OF ARBITRATORS

Section 11 of the Arbitration Act provides that the parties are free to determine the number of Arbitrators and section 11(2) failing a determination by the parties on the number of arbitrators,the number shall be one. The nature of the dispute should dicta

te how many arbitrators to go for.

2. METHOD OF APPOINTMENT

A lot of time can be spent and wasted between parties on this question once a dispute has arisen. The default position is that ifthe parties do not agree on the method of appointing then theycan apply to the court to appoint Section 12 of the Arbitration Act. There is a drawback in doing that, firstly time is of the essence and you will lose so much time like a few months. Then thereis the question of the costs to be paid to court over the process.So if the procedure for appointment had already been provided for in the arbitration clause one can avoid the delay and the cost

Parties will choose an institution if they are not agreeable on an arbitrator, they can approach another institution i.e. the chartered institute of arbitrators to appoint. They can for example decide if there is a dispute as to method the chairman of LSK becomes the appointing authority.

3. CHOICE OF THE RULES TO APPLY IF ANY

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The Arbitrator has power to control the preparations for hearing.He is obliged to exercise that power and to do so by reference

to demanding standards. Also an arbitrator is involved in each case during its interlocutory stages. If he makes proper use of his powers he can and should shape the preparations so as to eliminate unnecessary costs. In particular he can direct the advocates, the experts and even the parties to get to grips with identifying what the issues really are and how best to present them.

He can decide a preliminary issue quickly; or it may be enough ifhe merely indicates his provisional views. In this way both the issues themselves and the costs that have to be incurred in preparing for them, can be greatly reduced.

4. TIME FRAMES

Time frames are matters that should be spelt out in the Arbitration Agreement for the following:the time limit for the giving of the notice of claimthe time limit for giving of notice to appoint an arbitrator;

and the time limit for the commencement of arbitration.

Time frames give certainty in any industry and a time frame within which the parties should agree is essential.

5. REMUNERATION:

Parties may decide how the arbitration costs are to be shared,whether the loser in the dispute bears the cost or both parties provide for the costs.

Section 12 of the Arbitration Act provides that parties are free to agree on procedure of appointment and failing such agreement where parties have provided for 3 arbitrators the presumptionis that each party shall appoint one arbitrator each and the third one is to be appointed by those two.

There is a common misconception that in situations where you have 3 and each party appoints one that the arbitrators are the agents of the respective parties, they are not, arbitrators must always remain impartial.

In arbitrations where provision is made for one arbitrator then the parties should agree on the person to be appointed failing which an application is then to be made to the High Court.

Section 12 of the Arbitration Act - to read

No person shall be precluded by reason of that persons nationality from acting as an arbitrator, unless otherwise agreed by theparties.

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(2) The partiesThe Chartered Institute of Arbitrators has published rules and itis open to parties to an arbitration agreement to provide in thatagreement that for instance the Arbitration Rules of the Chartered Institute of Arbitrators shall apply. For instance these ruleswill provide for how parties to an arbitration agreement can approach the institute to appoint an arbitrator where the parties ar

e unable to agree. They also provide the procedure to be adopted by the arbitrator upon appointment. To a large extent the rules in arbitration are influenced by the rules of pleadings in a civil process e.g. the Chartered Institute of Arbitrators Rules provide that the claimant should make a statement for a claim within 21 days, 21 days to file defence and 14 days to file a reply..

It also provides for what is to happen if one of the parties doesnot comply.

WHAT HAPPENS WHERE PARTIES HAVE AGREED THAT DISPUTES

WILL GO TO ARBITRATION BUT ONE PARTY RENEGES AND FILESA SUIT IN COURT?

The party is in breach of the agreement in so long as they have

ALTERNATIVE DISPUTE RESOLUTIONS Lecture 14.9.03

Alternative Dispute Resolution - Alternative to what? LitigationorDispute resolution mechanisms that are alternative to litigation

ArbitrationNegotiation - meet and sit down and try and arrive at a conflict resolution without help of a third partyMediation - facilitated negotiation there is a neutral third partywho assists the parties in dispute resolution.

Other Books of referenceGetting to Yes by Roger Fisher and William UryGetting past NO - Negotiating with difficult people by William Ury

You can negotiate Anything by Herb CohenMediation Why People fight and how to help them to stop by Michael Williams

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Alternative Dispute Resolution refers to processes for resolvingdisputes other than litigation. The distinction between the various types of dispute resolution processes, they can be arrangedfrom the perspective of the level of control the disputants haveover the process the more formal they get the less control the parties have.

Dispute Prevention

NegotiationMediation;Hybrid between mediation and arbitration (Medarb)Hybrid between arbitration and mediation (Arbmed)ArbitrationLitigation or the trial itself.

There are other mechanisms or processes that exist; there aremany trials and early neutral evaluations. As we examine theseprocesses the following features emergea. The more formal the process, the higher the level of involv

ement by a third party in the process. Parties do not have a sayin the process itself but they are bound by rules of procedure which they have to follow so compared to other processes like arbitration the element of party participation in arbitration is higher because the parties are at liberty to decide which rules of procedure to apply or the venue etc.

b. As you approach the more formal processes like litigation,the process is increasingly formal from the dress that the parties wear, i.e. wigs an gowns in litigation or judicial process, manner of address, references to magistrates and Judges as my lord and your honour, the requirement as to pleadings and the formatthat they have to meet etc,

c. The more formal the process, the more the danger or likelihood of potentially damaging the relationship between the disputants. The decision that is reached after the result of a trial isan imposed decision and carries consequences for not complying with it. Secondly the parties have not voluntarily submitted to that process. For example in a matrimonial dispute where a husband is forced to pay alimony to the wife, that kind of decisioncannot endear the parties to each other, the more formal it is the likelihood of destroying the relationships.

d. Arguably the more the formal the processes the more expensive it is, arguably because arbitration can be expensive as well, getting the disputes through the process is very expensive interms of court fees, lawyers fees etc.

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The standard practice in arbitration is that the arbitrator is paidon an hourly basis that is not to say that the arbitrator is not atliberty to value his services with that value of the dispute, he isat liberty to adopt a method of charging that best suits him.

e. The process of litigation tends to take longer. From commencement to the stage of the dispute resolution the amount of time taken is a lot longer. Rules of procedure in li

tigation are rigid and they tend to make a case to last longer than it should. There is also the backlog and the volume of workthat the judiciary have to go through, its a lot.

f. Finally the more formal the structure is, the higher the focus on the disputants rights as opposed to their interests. The distinction between interests and rights is that interests of parties are usually in having a continuous relationship and when parties litigate their interests are destroyed by virtue of enforcing their legal rights.

Dispute Prevention

One mechanism for preventing disputes is by providing disputeresolution training. Training that provides people with skills toprevent unnecessary disputes. If you take a typical case of a husband and wife, how would training come in to prevent disputesarising? Training maybe in better communication skills.

Second method of dispute resolution is partnering. This requires disputants involved in a project to meet to discuss how to resolve any conflict which may arise. If for instance there is a building contract that involves, employer, QS engineer building contractor etc. these people can meet at their own set of this projectand decide that should conflict arise we will deal with it in this fashion that is partnering. They can agree for instance that thedecision of the architect will be the final decision.

The other form of dispute prevention is systems design which involves determining in advance what process would be used for handling conflicts which arise.

NEGOTIATION

Negotiation is any form of communication between two or morepeople for the purpose of arriving at a mutually agreeable solution. In a negotiation the disputants may represent themselves or they may be represented by agents and whatever the case, whether they are represented or not represented, they have control over the negotiation process. When attempts are made to settle matters out of court involves negotiations

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There are two extreme styles of negotiating. there is what is referred to as the competitive bargaining style and there is the co-operative bargaining style or hard bargaining and soft negotiating.

The competitive negotiators are so concerned, with the substantive results, that they advocate extreme positions. They createfalse issues, they mislead the other negotiator, they even bluff t

o gain advantage. It is rare that they make concessions and if they do, they do so arguably, they may even intimidate the othernegotiator.

Cooperative negotiators are more interested in developing a relationship based on trust and cooperation they are therefore more prepared to make concessions on substantive issues in order to preserve that relationship.

Is negotiation a dispute resolution mechanism that can be applied in all kinds of situations? Are there disputes that will not be

necessarily resolved by negotiations? There are certain disputes that negotiations would not perhaps assist.

In as far as hard bargaining is concerned, the perceived advantages would beThe hard negotiator is likely to get a better substantive especially in circumstances where such a negotiator is negotiating witha co-operative negotiator;If a negotiator is a professional negotiator i.e. one who is calledupon to negotiate on behalf of parties, he is likely to develop a reputation which will be useful in future negotiations;The competitive negotiator is not open to easy manipulation;A negotiator of that style is also likely to take initiative and to take a lead role in negotiations;

Disadvantages

The solution that comes out of such hard negotiations is likely to be a fragile one and therefore not long lasting so the other party is likely to come out of the negotiations feeling like maybe they gave too much and this may create ill feelings;

The competitive or hard negotiator may by reason of his approach fail to take an opportunity to reach a good deal because of the attitude that he must have his way and a good deal may be put on the table which he does not look at as he does not want tocompromise.bbb

It may harm the relationship; it may also create misunderstanding by the fact that the interests of the party maybe compromised.

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The competitive bargainer or negotiator is unlikely to be alignedto the concerns of the other party because the emphasis is no compromise.

SOFT NEGOTIATING STYLE

ADVANTAGES

Sustaining relationships or good long term relationships;A deal or compromise will be reached when there is a deal to bemade;From the perspective of a professional negotiator, it is more likely that people will want to deal with you.A compromise is likely to be reached sooner and to work quicklyeither to agree or disagree.

DISADVANTAGES

A good deal may be lost or the opportunity for a good deal maybe lost because the negotiator by the end of the process may feel that they give more than they should have;There is the possibility of manipulation by the other party.The negotiator may be taken advantage of by the other party;The party may want to get out of the deal later so he may feel sorry and try to get out of the deal.In the case of a professional negotiator, a cooperative negotiator may not get a very good name e.g. compromises too much which may not be good for business.

In each of these two styles and based on the mentioned disadvantages, the negotiators are more focussed on their respective positions than with their interests and to try and reap the advantages of both the cooperative and competitive bargaining style,Roger Fisher and William Ury came up with a project at HarvardLaw School and developed what they referred to as principled negotiations.

Principled negotiations require negotiators to focus on the interests of each of the disputants with the goal of creating satisfactory options for resolution which may be assessed by objective criteria.

Principled negotiation seeks to take advantage of both cooperative and competitive styles and avoid the pitfalls or the disadvantages of the two styles.

MEDIATION:

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Mediation is a non-binding process in which an impartial thirdparty facilitates the negotiations process between thedisputants and it is that impartial third party who is called themediator. The mediator has no decision making power, he hasno decision making power and the parties maintain the controlover the substantive outcome of the mediation.

However, the mediator with the assistance of the parties will co

ntrol the process and he will with the consent of the parties setand enforce the ground rules for the mediation process. If in the dispute the two examples that we have looked at we now bring in a third party as the mediator, he will probably get an overview from both parties as to what their contentions are. He will then agree with the parties that each party will be given an opportunity to state their case, they could also agree that when oneparty is stating their case, the other party shall not interrupt. The role of the mediator is not to impose his own solutions and not to even suggest solutions but that the solutions should be suggested and agreed upon by the parties themselves.

Story telling - the disputants communicate with the mediator totell their story. The mediator then assures them that he has heard the story by re stating what each party has told you and letting them state whether those are the facts as they have stated them. You re narrate the story. You may then ask them to suggest the way forward and both parties can state how they want to proceed. Lay down the rules.

The mediator should not descend to the arena but should let thedisputants decide how to conduct the negotiations.

ARBITRATION AND MEDIATION

Arbitration is a process in which a third party neutral, or an oddnumber panel of neutrals render a decision based on the meritsof the case. The Hybrid of mediation or the hybrid between mediation and arbitration which is a very rare sort of scenario is that the third party neutral commences the process in the role of amediator and if that does not yield or result in a resolutions themediation ceases and the mediator assumes or becomes an arbitrator who then makes a binding decision. In the arbitration mediation hybrid (arbmed) the disputants present their respectivecases to the third party neutral who prepares or makes a decision, he does not however share that decision or release that decision to the parties but he keeps it away and then assumes the role of a mediator. If a result of the mediation, the parties reach aresolution, he destroys his decision but if the mediation does not resolve in a resolution then he releases his decision to the parties.

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OMBUDSMAN

An ombudsman is a person who investigates complaints and attempts to assist the disputants to reach a decision. Usually this is an independent officer of the government or a public or quasi-public body. An ombudsman can be classified as an alternativedispute resolution.

ADR Lecture 8 22nd April 2004

POWERS OF THE ARBITRATOR

REMUNERATION OF AN ARBITRATOR

AWARD

GROUNDS UPON WHICH THE AWARD CAN BE SET ASIDE.

POWERS

The principal source of the powers of an arbitral tribunal is the arbitration agreement itself and therefore the mandate of the tribunal stems from the agreement of the parties.

The arbitration agreement may confer powers on the arbitral tribunal expressly for instance if the arbitration agreement itself stipulates expressly that the tribunal or the arbitrator will have power to give an interim or provisional relief. If the arbitration agreement provides that the Arbitration Act will apply then the extensive powers given under that Act again will be available to the Arbitrator.

The powers are stemming from the Agreement of the parties. The parties are the ones conferring the powers on the arbitrator through the arbitration agreement i.e. powers to determine procedure, powers to determine the venue, power to give the award,power to rule on jurisdiction.

If the agreement incorporates the rules of an institution for instance the arbitration rules of the chartered institute of arbitrators again the powers that are conferred under those rules would be available to the tribunal.

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Under Clause 16 of Chartered Institute of Arbitrators Rules, thetribunal has jurisdiction to determine the extent, validity or existence of an agreement which is essentially an adoption of Section 17 of the Arbitration Act. There is power under that clause toallow an amendment of the arbitration agreement itself. If for instance the arbitration agreement has an error, tribunal has power to rectify such error. Under the same clause there is powerto decide on questions of law. there are powers to decide on qu

estion of dishonesty, fraud or bad faith arising in the dispute, there is power to order parties to furnish further details of claims,there is power to make an order for conservation of property, power to order parties to make interim payments towards the cost of arbitration. Power to order payment of interest etc.

To a large extent the rules summarises the powers found in theArbitration Act but the overriding principle is that the tribunal has those powers conferred on it by the parties.

REMUNERATION OF THE ARBITRATOR

THE EXPRESS CONTRACT FOR REMUNERATION

It is highly desirable in an ad hoc arbitration that an arbitratorwho regards remuneration as important should make an expressagreement in writing with the parties as to his remuneration. Ideally, this should be done before he accepts the appointment. But in many cases he knows very little about either the sums in issue or the magnitude of the task involved. So in practice he often accepts the appointment and leaves the subject of fees to bedealt with at or shortly after the preliminary meeting. In doingso, he takes a risk. Having accepted the appointment he is notentitled to insist on specific arrangements and can only ask for them. If one of the parties is difficult, then his only option is to go on without more or to resign forthwith. Of course in that event, he may have to repay any fees that he has managed to secure.

REMUNERATION OF THE ARBITRATOR

The fees of arbitration should be proportionate to the substanceof the case.

The parties, tribunals or institutions should look for and encourage the use of fee structures that encourage speed and efficiency.

EXPRESS AGREEMENT

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In many cases, the fee or basis of remuneration is expressly agreed before or immediately upon appointment so that the question of what right of remuneration is implied does not arise. Manyarbitrators now include for interim payments in their terms, which is likely to bring unhappiness on the part of the parties aboutthe costs of the tribunal to the surface at an early bstage.

PAYMENT THROUGH AN INSTITUTION

In arbitrations administered by some institutions, the tribunalsfees are channelled through the institution, thus to a considerable degree insulating the tribunal from the concerns of the parties about the tribunal costs. And the institutions are usually safefrom much in the way of complaint, since they will have established some basis for paying the tribunal in advance.

THE LIEN

The practice of requiring payment before issue of the award ma

y reduce the enthusiasm of a party for a dispute about fees, which are anyway likely to be one of the smaller bills that the arbitration will generate. While there is a mechanism for dealing withthis problem, it involves a trip to court and thus yet further fees.

The 1996 Act has now addressed Under S. 28, the express contractual position (which is the most usual arrangement) is preserved. Absent of an agreement, the parties are jointly and severally liable for such reasonable fees and expenses (if any) as are appropriate in the circumstances. The concept of such reasonable fees and expenses as are appropriate in the circumstances ispicked up when it comes to payment of the costs of the arbitration. Section 64 defines the costs(for purposes of payment as between the parties) as including only such reasonable fees and expenses of the arbitrators as are appropriate in the circumstances. Thus what the arbitrators can recover from the parties, in a situation where there was no express agreement between the parties and the arbitrators, should match exactly what is recoverable between the parties when the final word on costs is known.

Where there is an agreement between the arbitrators and the parties, the inevitability of a match is lost. If the difference proves to be substantial, with the contractual rates at the high end,an arbitrator may find difficulty in obtaining payment, if he hasnot been paid in advance.

Section 32 (5) there is power on the part of the tribunal to orderas to who becomes responsible for costs.

THE AWARD

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Section 29 (3) to Section 34 (3)

Order XX a judgment is required to acquire a particular formatwhich is not the case with an award. Order XX is to effect that the court needs to set some facts, the decisions and reasons fordecisions

Section 32 of the Arbitration Act which stipulates the formal requirements of an award provides that the award should be in writing, it must be signed by the arbitrator or arbitrators and it must be signed by all arbitrators in the event that there is more than one arbitrator, and if it is not signed by all of them, reasons must be stated for the omitted signatures. There is a requirement under this Section that the reasons for the award should be stated unless the parties have agreed that a reasoned award willnot be required. Or if an award is as a result of a settlement onagreed terms under Section 31.

To meet the requirements as to reasons for the award, it is sufficient for the arbitrator to say that for example on issue NumberA I find in favour of the claimant for the reasons that the evidence of Claimant A was more credible.

The other formal requirement is that the award should have a date and the place where the award is made. The date is important as there is a time limit within which any party can apply to have a suit set aside Section 35. The place is also significancewhere there is an application for setting aside. An award underthis section may be set aside if the Arbitration Agreement is notvalid under the law to which the parties have subjected it. Section 35 (II) a.

The award must make it clear that due process was observed sothere would perhaps be a recital to that award that will recite the agreement to arbitrate, it would state or refer to the document under which the tribunal was constituted, it would allude to the fact whether a hearing was conducted, and if no hearing was conducted whether it was by the agreement of the parties. It would perhaps briefly state what the facts are, the issues in contention, the tribunals findings on those issues with the reasons and a summary of the award itself.

SECTION 35 - SETTING ASIDE AN AWARD - RECOURSE TO COURTAGAINST AN AWARD

When a party states that they were not heard -

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Section 26 - if a claimant fails to submit his statement of claim,the tribunal should terminate the proceedings. If the Respondent fails to submit his statement of defence the tribunal shall continue with the proceedings, but there is nothing like a default judgment. And if a party fails to appear after hearing or to produce evidence the tribunal may continue with the proceedings andmake an award on the evidence that is before it. It very well could be that a party has been given an opportunity to present the

ir case but they have not presented their evidence and an awardhas been given.

What must be established is that the party or all the parties were afforded the opportunity to present their case, they have notice of the hearing etc.

John Adero v. Ulinzi Sacco H.C.C. 1879 of 1999 Milimani Commercial Court

In this case Justice Onyango Otieno as he then was allowed an a

pplication under Section 35 of the Arbitration Act on grounds that there was no evidence of Notice having been given in a matter which had proceeded before an Arbitrator ex-parte. In taking that view, Justice Otieno said one thing seems to be clear to meand that is that no evidence exists to confirm that the Applicantwas aware of the Hearing Date. The matter was heard ex parteand a decision made without the Applicants input. It is now settled law that no one can be condemned unheard, the Applicant in this case was indeed condemned unheard and this was not proper. He concludes by saying that the award is for that reason set aside and the matter remitted back to the same tribunal for a full hearing.

This ruling raises the question that if the High Court finds underSection 35 that an award should be set aside, what follows? It invalidates the agreement of the parties.

If the award deals with a matter which was not in contemplationby not falling within the terms of the reference to arbitration.

HFCK V. Gitutho Associates & Another Civil App. 76 of 2000

In this case the Plaintiff applied to set aside an award under S.35 (2) (a) (ii) on the basis that jurisdiction was exceeded, but onthe facts of this case the Judge Justice Mbaluto dismissed the Application of the Plaintiffs action and said

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that having carefully considered the evidence and the law applicable to the matter, I cannot see any justification for claiming that the award dealt with a dispute not contemplated by or not falling within the terms of the reference to arbitration nor for thatmatter can I see any basis for finding that the decisions of the Arbitrator are on matters beyond the scope of the reference. Heproceeded to dismiss the application.

Express Kenya Limited v. Peter Titus Kanyago Civil App. 963 0f 2002

This was an application under Section 35 seeking to set aside anaward in which the arbitral tribunal had granted the respondentan award of 5.4 million as a consultancy fee in terms of a consultancy services agreement. The dispute in that respect did not stem or was not covered under the Arbitration Clause but the Arbitrator Found that the matters that the parties had agreed to refer to Arbitration under the Arbitration Agreement were inextricably linked to the matter stemming from the consultancy servi

ces agreement and proceeded to make the award of the 5.4 Million. Whilst the arbitration agreement was contained in a share holders agreement which then Justice Ringera found to have been outside the scope of the arbitration agreement.

Ringera J. as he was then known arrived at the conclusion that the arbitrator had exceeded or gone outside the scope of the reference and set aside part of the award.

The High Court may set aside an award if the High Court finds that the award is in conflict with public policy of Kenya

Christ for All Nations v. Appollo Insurance Civil Case 499 of 1999

An application under Section 35 to set aside an arbitral award on grounds that the award was in conflict with public policy.

Justice Ringera after reciting Section 35 (2) (b) went on to say as followsAs far as I know the above provision has not received judicial interpretation in our courts. He then goes to India and is guidedby an Indian decision in the case of Renu Saghar Power Co. v. General Electric where the Indian Supreme Court identified 3 patterns of the operation of the doctrine of public policy. In the field of enforcement and recognition of foreign arbitral awards. Those 3 patterns he says areThat an award will not be given effect if it is contrary to the fundamental policy of the Indian Law i.e. if the award involves a violation of the Indian Laws on non-compliance with a courts order;If the enforcement of the award would be contrary to the interests of India and

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If the award would be contrary to justice and morality.

He adopts these principles and then saysI am persuaded by the logic of the Supreme Court of India andI take the view that although public policy is a most broad concept incapable of precise definition or that as the common law judges used to say, it is an unruly horse. An award could be set aside under Section 35 (2) (b) of the Arbitration Act as being incon

sistent with public policy of Kenya if it was shown that it was eitherInconsistent with the constitution or other laws of Kenya whether written or unwritten;Inimical to the national interests of Kenya,Contrary to Justice or morality.

In the latter category he gives an example of awards induced bycorruption or fraud or awards founded on contracts contrary topublic morals.

In the second category of national interests he gives examples of national defence and security, economic prosperity of Kenya and good diplomatic relations with friendly nations. But he is quick to observe that that list is not inexhaustible.

Incapacity - ie. If the party entered into an agreement when they were insane, minors.

Composition - if the composition of the tribunal or the procedure did not accord with the agrs eement. Where for instance parties have agreed that there will be a hearing and the tribunal departs from that agreement.

Where arbitration agreement provides for 3 arbitrators and thereference is determined by one.

Time Frame Section 35 (3)

Time frame within which the application must be made - the award may not be made 3 months have elapsed from the date on which the party making that application had received the arbitralaward or if a request had been made4 under section 36 from thedate on which that request had been disposed of by the arbitralaward.

Justice Onyango Otieno in the case ofAPV Hall Equitorial Ltd V. Mistri Jagva Pagbat Civil App 39 1999Milimani

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In this matter an application to set aside an award under Section 35 was made after the expiry of the 3 months and the advocate for the applicant sought to argue or argued that the provisions of Section 35 (3) conferred a discretion on the court to admit an application to set aside. Apparently the language used was that an application for setting aside an award may not and the judge ruled that the mere use of the word may in that section cannot be taken to mean that a party to arbitration proceedings can

ignore that provision as to time limit with impunity. In his viewit is still a provision that must be complied with and on compliance with it is clearly at the detriment of the party failing to comply and he then upheld the Respondents submissions that the application was incompetent having been made after 3 months.

Section 36b

Section 37 - essentially repeats the provisions of section 35 to avery large extent as it sets out the grounds for refusal to recognise an award being similar to the grounds under Section 35.

ADR Lecture 7 15th April 04

CONSTITUTING THE TRIBUNAL

MISCELLANEOUS MATTERS OF JURISDICTION

If parties to an arbitration have failed to agree, where they apply to the court and the court appoints an arbitrator, and one party alleges that the arbitrator is not impartial is this a matter of jurisdiction? If one is appointed an arbitrator and one party saysthat part of the matters agreed to be covered by the arbitrationagreement is outside the scope of arbitration agreement is thata jurisdiction question?

Case lawIt is important that one is clear in terms of how they want to structure an arbitration agreement.

Barlany Car Hire Services Ltd v. Corporate Insurance

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In this case an application was made under Section 6 of the Arbitration Act to Stay Proceedings. There was also a point taken on a preliminary basis that no claim could be made under an arbitration agreement in that case because a claim had not been raised within the time limit of 12 months. The relevant arbitration clause or arbitration agreement was to the effect that all differences under the policy should be referred to the decision of an arbitrator to be appointed by the parties. And if they cannot agree

on a single arbitrator then each party was required to appoint an arbitrator within one calendar month of the request to do so and the two arbitrators would then appoint an umpire who wouldsit with the arbitrators and preside at their meetings. The clause also provided that if the company disclaimed liability the claimshould then be made or commenced within 12 months from thedate of disclaimer.

In this case the insured vehicle was stolen a claim was made onthe insurance company which repudiated liability on the 9th August 1994. There was an attempt to appoint an arbitrator in April

of 1995 which did not materialise. An application was then made to the Court under Section 12 of the Arbitration Act for the Court to appoint an Arbitrator. That application was dismissed bythe Court as being premature and finally, no arbitrator was everappointed and the insured then decided to go to court to try andpursue its claim there and that was well after the 12 months had lapsed.

The court essentially upheld the argument that parties under anarbitration agreement are at liberty to contract a shorter limitation period than that which is prescribed under the limitation ofactions Act. The other important point that the court makes is that the Plaintiff had not complied with the Agreement as set outin the arbitration clause as to how or as to the manner of appointing an arbitrator. According to the High Court, the ArbitrationAgreement provided 4 steps for the appointment or for the constitution of the Tribunal.

Once the insurance company repudiated liability the parties were then to agree or attempt to agree on a single arbitrator;

If a single arbitrator was not agreed upon, either party could give a 30 days notice to the other side for the appointment of ownarbitrator and to require the other party to appoint its own arbitrator;

If the parties appoint their respective arbitrators then those two arbitrators are required to appoint the umpire.

If either party fails to appoint then an application can then be made under Section 12 to the Court to appoint.

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The important points that emerge from this decision are that

the drafting of the arbitration clause is a very important taskonce parties have agreed on a process of appointment includin

g time limits the courts will honour that agreement anda party may easily protract the process of commencing arbitrati

on and again an advocate can avoid some of these consequences in provided a well considered properly worded arbitration agreement.

Section 11 of the Arbitration Act stipulates that parties are freeto determine the number of arbitrators. Usually an arbitration agreement will provide for either a sole arbitrator or two arbitrators with an umpire as has been demonstrated by the clause in Barlany or three arbitrators. But theoretically speaking, Section11 permits parties to have any number of persons as arbitratorswhich means one can appoint even numbers.

Important when drafting the arbitration agreement one is alive to most of these issues so that one does not provide for two arbitrators and one can run into serious problems.

An even number is undesirable.

Section 11 (2) provides that where the Arbitration Agreement does not stipulate the number of arbitrators, the presumption is that one arbitrator is intended and indeed in practice the provision for a single arbitrator is the norm.

By the time the parties are seeking arbitration, there are already differences and therefore it is difficult for them to sit down and agree on one arbitrator where the clause provides for one arbitrator. It would be helpful to provide that the parties go to theChartered Institute of Arbitrators in case of dispute.One of the problems that is involved or arises in constituting the tribunal in a sole arbitrator scenario is(i) After the dispute has arisen, the task of agreeing on an arbitrator becomes difficult because in the atmosphere of difference the parties are hardly in a position to agree on many things;this is a difficulty.

(ii) Section 12 then says that if the parties fail to agree theymake an application to court and when this happens the court will disregard the proposed arbitrators and even if the proposed arbitrators were experts in that certain field, the court will decide and name other arbitrators.

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(iii) Where a dispute has arisen and your client asks you to propose names for the persons to put forward as likely arbitrators,how is one to do this? It is safer to approach the chartered institute for them to assume that responsibility lest you name an arbitrator and the client loses and continues to blame you for yourchoice of arbitrator. Firstly the parties may not have the reservoir of information with regard to who should be nominated as suitable arbitrators. An institution may be better placed to do tha

t and secondly the parties advisers are usually reluctant to suggest names. What procedure would one employ to come up with one name? you could agree to pick lots, elimination methodwith a criteria i.e. must be an architect, Q.S etc. Section 12 (3)permits you to agree on a procedure.

All these disputes can be avoided by substantially suggesting aname in advance as by nominating the arbitrator in advance e.g.should disputes arise they should referred to arbitration by Mr.Onyango.

Problems with two or more arbitrators

1. The cost, where an arbitration agreement stipulates two ormore arbitrators, it is a costly arrangement. The difficulties in doing this would be, the two arbitrators may not agree on a third,when this happens Section12 (3) kicks in. The advantage is thatthe party who one party nominates does not require consultation. Another problem would be that constituting a 3 panel tribunal is a time consuming exercise. When it comes to charging, there are problems, how do you justify paying more to one arbitrator for a certain job to the parties who are paying. There are however advantages, if you have a dispute that cuts across industries i.e. you have an engineer, lawyer, architect, then you are well equipped with the expertise from all the fields. When it comesto the final decision if all arbitrators cannot agree, then there isa problem. But Section 30 provides for a majority decision. When it comes to writing the award, there are still problems in terms of logistics, if the arbitrators live in different cities or town,how do you get 3 people together to expeditiously deliver the award. All these go back to the initial step of when one is drawing the original agreement and all these matters have to be considered.

There is a distinction between a tribunal of 2 arbitrators and anumpire and a tribunal of 3 arbitrators. The umpire usually comes in to break ties between the two arbitrators and in the case of3 arbitrators they are all substantive in the sense that they all have an input.

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Assuming that grounds have arisen to challenge an arbitrator and one of the parties wants to challenge or to ask for the removal of that arbitrator. How is this effected? The current arbitration Act in an effort to limit bbbthe numbers of avenues that onecan use to challenge an arbitrator.

Section 13 imposes the arbitrator once approached to declare interest. S 13(3) an arbitrator may be challenged only if . Or do

es not possess qualification agreed to

Section 4 a party may challenge an arbitrator appointed by him only for reasons that he becomes aware after the appointment.

Case law on bias

The Elissar Case (1984) 2 Lloyds LR 84

What test do you apply when dealing with a question of whether

an arbitrator is biased or not biased. That is suggested by Justice Ackner in Elissar case that in answering that question the test should beDo there exist grounds from which a reasonable person would feel that there was a real likelihood that the arbitrator could notor would not fairly determine the issue on the basis of the evidence and arguments to be adduced before him. It seems to me that that is the satisfactory way of expressing the objective test.To suggest that the mere lack of confidence which no reasonable person would in the relevant circumstances experience shouldbe a basis for removal of an arbitrator seems to be quite unacceptable.

The test here is one of a reasonable person and the existence ofa real likelihood of bias. Mere lack of confidence is not sufficient.

The Bremer v. Ets Soules [1985] 1 Lloyds LR 84

This case was based on a provision where an arbitrator could beremoved on grounds of misconduct. Mustill J. discussed what heconsidered to be 3 material situations

Actual Bias;Implied Bias;Conduct that would have justified removal of an arbitrator.

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Section 13 and 14 of the Arbitration Act are relevant provisions in this regard. Section 14 specifically deals with the challenge procedure where the impartiality of independence of an arbitrator arises. Section 14 (1) says that parties are free to agree on procedure and 14(2) says that if they dont agree on procedure aparty intending to challenge an arbitrator send a written statement of reasons for the challenge within 15 days after becoming aware of the composition of the Tribunal and if the arbitrator wh

o has been challenged does not withdraw, then the Tribunal is required to make a decision on that challenge.

In practical terms there is a situation where a dispute has arisenand the parties do not agree on choice or arbitrator and the clause says that the institution will appoint and goes ahead and appoints and then you realise that the arbitrator has interest in thematter which he does not declare. This is what Section 14 is talking about.

You write to the arbitrator requesting him to withdraw to the off

ice for the following reasons.

Section 14 (3) provides for the procedure if the challenge is notsuccessful. The competent authority has been gazetted under Legal Notice No. 64 of 2001. in other words if you ask the tribunal to make a decision on the challenge and they say they dont consider that there are grounds for them to remove themselves,then one can go to court.

Mustill says there are 3 material situations in which the High Court has power to remove an arbitrator under Section 23 of the Arbitration Act 1950. (It is important to note that this decision was based on that Section)

Mustill says thatWhere it is proved that the Arbitrator suffers from what may becalled actual bias, then he may be removed; and what the complaining party needs to satisfy the court is that the arbitrator ispredisposed to favour one party or conversely to act unfavourably towards him for reasons peculiar to that party. He then saysthat prove of actual bias entails prove that the arbitrator is in fact incapable of approaching the issues with the impartiality required.

Where the High Court may remove an arbitrator is where the relationship between the arbitrator and the parties or between thearbitrator and the subject matter of the dispute is such as to create an evident risk that the arbitrator has been or will in futurebe incapable of acting impartially. In this case prove of actual bias is not necessary. The concern here is the manifest risk of partiality. This is what is referred to as imputed bias.

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Conduct which it is doubtful that cabbbbbbbbbbbbbbbbbbbbbbbbbbbbbbn be raised under our section 13 is where the conduct of the arbitrator is through lack of talent, experience, diligence or incapability of conducting the reference in a manner in which the parties are entitled to expect.

Section 15 of the Act shall terminate if the parties agree to term

inate his mandate. These are not grounds you can challenge under Section 13.

DEGREE OF CARE TO BE EXERCISED IN DRAWIN THE ARBITRATION AGREEMENT

How do you move the court under Section 14 (3)? Look it up.

Is it open for a party to submit to an arbitrator and say that youare not constituted? These grounds can be raised and an objection brought under Section 17.

Doctrine of Kompetenz Kompetenz and the doctrine of Separability.

These are both covered under Section 17 (1)

Where the law says that we can separate the agreement from the main contract that sets out the rights and obligations. Even though one may argue that substantive contract is void the tribunal is competent to arbitrate in that decision

17. (1) The arbitral tribunal may rule on its own jurisdiction,including ruling on any objections with respect to the existenceor validity of the arbitration agreement, and for that purpose-

An arbitration clause which forms part of a contract shall be treated as an independent agreement of the other terms of the contract; andA decision by the arbitral tribunal that the contract is null and void shall not itself invalidate the arbitration clause.

Where one of the parties says that the agreement is void for whatever reason and argues that the agreemebbbbbbbbbbbbbbbbbnt is void, if the agreement is taken up and the arbitration agreement is a clause within that agreement, is the arbitration itself void?

The arbitrator has power to rule on this particular point, so what happens if the arbitrator rules that the agreement is void.

s. 17 is a reaction to the logic of common law.

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Christopher Brown Limited v. Genossenschaft

ADR Lecture 5 March 11, 2004

SECTION 6 -STAY OF LEGAL PROCEEDINGS

The concern of Section 6 is that if you have two parties who have entered into an agreement that contains an arbitration agreement clause and one party ignores the arbitration clause and files in court, what is open to the other party if the party would like the dispute to be referred to arbitration. This is what Section6 is dealing with.

It is a provision that enables the courts to force parties to go toArbitration where that mode of dispute resolution is the mode o

f choice.

Section 6. (1) A court which before proceedings are brought in a matter which is the subject of an arbitration agreementshall, if a party so applies not later than the time when that party enters appearance or files any pleadings or takes any other step in the proceedings, stay the proceedings and refer the parties to arbitration unless it finds---

That the existence of an Arbitration Clause or Arbitration Agreement in a contract is not an impediment to resolving disputes incourt if neither party objects which means that parties can still ignore the arbitration clause and file the proceedings in court. However, if one of the parties to the Arbitration Agreement goesto court but the other party wishes to enforce the Arbitration Agreement, then it is for that latter party to seek an order from court under Section 6 of the Arbitration Act 1995 staying the courtproceedings and if the order is granted it leaves the initiator ofthe court proceedings with no option but to follow the provisions of the Arbitration Agreement if he wishes the dispute to be resolved. Under Section 6 a party wishing to enforce the Arbitration Agreement in a situation where the other party has initiated court proceedings must apply to court not later than the time when that party enters appearance or files any pleadings or takesany other step in the proceedings. That is to say that the application for stay under S. 6 must be made at the correct time. Thecorrect time

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How do you move the court for a stay of proceedings as per Section 6 of the Arbitration Act.

Rule 2 of the Arbitration Rules 1997 being the rules made by theChief Justice under Section 40 of the Arbitration Act provides that an Application under Section 6 shall be made by summons inthe Suit. In some instances judges have said that if you move the court using a wrong procedure, you may lose your right to reli

ef so that where the rules say you should move the court by summons and you do it by notice of motion, you may be thrown out of court. But one might add that there are conflicting decisions on that point.

REPUBLIC OF KENYAIN THE HIGH COURT OF KENYA AT NAIROBICIVIL CASE NO. 210 OF 2004

X .PLAINTIFF

Y .DEFENDANT

SUMMONS(Under Section 6 of the Arbitration Act and Rule 2of the Arbitration Rules 1997)

LET ALL PARTIES concerned attend before the Honourable Judge(court) on of 2004 at 9.00 oclock in the forenoon or soon thereafter as the Advocates may be heard on theHearing of an Application by counsel for the Defendant for orders that:-that the proceedings in this suit be stayedThat the dispute between the parties be referred to arbitration;That the costs of this Application be borne by the Plaintiff.

Which Application is based on the grounds:-(a) That the parties under an Arbitration Agreement to refer the matters in controversy in this suit to Arbitration;(b) That the dispute has not been referred to Arbitration;

The Application is supported by the Affidavit of Y sworn herein.

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Dated at Nairobi this day of2004.

Kairu & McCourt AdvocatesADVOCATES FOR THE DEFENDANT

Drawn & Filed by:

If any party served does not appear at the time and place

Order L imposes that the summons should have a notice at the bottom

Prepare an Affidavit to accompany summons

CASE LAW ON SECTION 6

TM AM Construction Group Africa v. The Attorney General Civil Case 236 of 2001 at the High Court Milimani Commercial CourtsDecision by Honourable Justice Mbaluto

In this case, the Plaintiff instituted suit against the Attorney General on the 21st February of 2001. The Attorney General entered appearance on the 15th March 2001. On the 25th April 2001 theAttorney General then made an Application under Section 6 of the Arbitration Act and Rules 2 of the Arbitration Rules 1997 seeking orders that the suit be stayed and that the Dispute be referred to Arbitration. The Application for stay under Section 6 of the Arbitration Act having therefore been filed on the 25th April 2001 was 41 days after the Memorandum of Appearance.

The Plaintiff opposed the Application for stay on grounds thatit was out of time under Section 6;That there was in fact no dispute within the meaning of Section6 (1) (b) to refer the matter to Arbitration.

Justice Mbaluto upheld the two grounds.

On the question of time Justice Mbaluto cited a passage from the Court of Appeal decision ofCorporate Insurance Company v. Loise Wanjiru Wachira Civil Appeal NO. 151 of 1995. the decisionwas based on an arbitration clause before the enactment of thecurrent Act

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In the present case, the Appellant did more than just enter an appearance. It delivered a defence which is of course a pleading. The Appellant made no Application for Stay of Proceedings. The Appellant was a party to an Arbitration Agreement within the meaning of Section 6 of the Act. Arbitration Clause in this case are known as Scott v. Avery Arbitration Clauses named after a leading case decided by the House of Lords in 1856 in which their efficacy was considered and have long been accepted a

s valid. These clauses do more than provide that disputes shallrefer to Arbitration. They also stipulate that the award of an Arbitration is to be a condition precedent to the enforcement of any rights under the Contract so that a party has no cause of action in respect of a claim falling within the Arbitration Clause unless and until a favourable award has been obtained. In the present case, if the Appellant wished to take the benefit of the clauseit was obliged to apply for a Stay after entering appearance andbefore delivering any pleading. By filing a defence the Appellant lost its right to rely on the clause.

Justice Mbaluto applied that passage to the case in TM and heldthat the attorney General had lost the right to rely on the Arbitration Clause because if the AG was to rely on it, he was obligedto make the application under Section 6 not later than when heentered appearance. In other words if you file a Memorandum of Appearance today and you do not file for an application for stay, tomorrow is too late.

On the question of whether there was a dispute or not, it had been argued for the Plaintiff that the Attorney General was in factmaking an application under Section 6 of the Arbitration Act asa delaying tactic because it was submitted that there was not infact a dispute about the claim.

Justice Mbaluto cited another passage from the case ofLondonand Northwestern Joint Railway v. JH Bilington Limited (1899) A.C. 79

Lord Halsbury is cited as having said the following

A condition precedent to the invocation of the Arbitratoron whatever grounds is that a difference between the parties should have arisen and I think that must mean a difference of opinion before the action is launched either by Plaint or writ. Any contention that the parties could when they are sued for the price of the services raise for the first time the question whether ornot the charges were reasonable, and that therefore they havea right to go to an arbitrator seems to me to be absolutely untenable.

If there is no dispute, the court will not stay the proceedings.

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HYPOTHETICAL CASE

Definition of arbitration agreement entitles parties to select disputes that will go to arbitration and others that will not. Refer to Section 3 of the Arbitration Act

A and B are business partners. In the year 2000 A and B entered into an agreement where A would lease a fleet of vehicles to B.

A had the obligation to maintain and repair those vehicles at Bs cost. During the lease arrangement, A would introduce customers to B for which a commission was payable. In the year 2002 the parties entered into a formal agreement under which B agreed to purchase outright from A the fleet of vehicles. That agreement provided for payment of the purchase price by instalments. It also provided that should B default in the repayment of those instalments, A could repossess the vehicles. A claims thatB defaulted in those instalments and as a result exercised his ri

ght to repossess the vehicles and indeed repossessed them. B on his part claims that the purchase price has been paid, there has been no default and A has no business repossessing the vehicles. The purchase agreement of 2002 provides for Arbitration and so B has invoked the Arbitration Clause, has referred the matter to Arbitration seeking two orders1. A declaration that repossession by A is wrongful;2. An order directing A to give possession of those vehicles to B.

before the Arbitrator, A has counter-claimed against B for maintenance costs incurred by him under the lease arrangement thatpre-dated 2002. when the matter comes up for hearing before the Arbitrator, B takes an objection to jurisdiction with respect to As counterclaim and argues that As claim on maintenance charges does not arise from, neither is it related to the purchase agreement of 2002.

The Arbitration Clause in the 2002 purchase agreement providesany disputes or differences arising from or relating to this agreement shall be referred to Arbitration.

The question is does the Arbitrator have power, jurisdiction withrespect to the counterclaim?

The Arbitrator has said he has no power to rule on the matters of a counter claim.

Tropical Food Products International v. The PTA Bank H.C.C. NO.1534 OF 2001 MILIMANI H C NAIROBI \MWELA J.

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The judge interprets Section 6 with regard to timing in a very liberal fashion.

In his view Section 6 does not impose the time limit.

the court would wish to comment on Section 6 of the Arbitration Act. He then reproduces Section 6 and sums his positionas follows

accordingly, this court is not of the view that a party is limited as to when it can apply to go to arbitration in a matter subject of an arbitration agreement. He hinges that view on Section 6 (2) Notwithstanding that an application has been brought under (1) and the matter is pending before the court arbitral proceedings may be commenced or continued and an arbitral awardmay be made.

That this provision says that 6 (2) that it does not matterthat an Application has been brought under Section 6 (1) and asuit is pending before the court. Arbitral proceedings can still b

e brought and an award made.

Under Rule 2 you make application by summons but Mbaluto J.where an objection was taken as to form, in another case wheresimilar objection was said that application did not conform withrule 2 he ruled that it could be overruled.

Arbitration Lecture 4 4th March 2004

Arbitration Clauses (Samples)

Any dispute arising between the parties and all claims or matters in such disputes not otherwise mutually settled between theparties shall be referred to arbitration by single arbitrator to beappointed by agreement between the parties or in default of such agreement within 14 days of the notification of such dispute by either party to the other upon application by either party to the chairman for the time being of the Kenya Branch of the Chartered Institute of Arbitrators. Every award made under this clause shall be subject to and in accordance with the provisions of the arbitration Act 1995 or other Act or Acts for the time being in force in Kenya in relation to arbitration. To the extent permissible by law the determination of the arbitrator shall be final and binding upon the parties.

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Arbitration proceedings shall take place in Nairobi Kenya. The law which is to apply to the contract and under which the contract is construed is Kenyan law. The law governing the procedureand administration of any arbitration instituted pursuant to thisclause is Kenyan law.

Section 12 of the Arbitration Act moves in to prescribe what happens if this clause is not adhered to

Section 12. (1) No person shall be precluded by reason of thatpersons nationality from acting as an arbitrator, unless otherwise agreed by the parties.The parties are free to agree on a procedure of appointing the arbitrator or arbitrators and failing such agreement-(a) in an arbitration with three arbitrators, each party shall appoint one arbitrator and the two arbitrators so appointed shall appoint the third arbitrator;(b) in an arbitration with one arbitrator, the parties shall agree on the person to be appointed.

If-(c) in the case of three arbitrators, a party fails to appoint thearbitrator within 30 days of receipt of a request to do so from the other party or if the two arbitrators fail to agree on the third arbitrator within 30 days of their appointment; or(d) In case of one arbitrator, the parties fail to agree on the arbitrator;

The appointment shall be made, upon application of a party, bythe High Court.This clause does not say who will appoint the umpire if there isdisagreement.

Chief Justice published rules under Legal Notice 58 to the effectthat the application will be by way of Originating Summons andwill be served upon the parties within 14 days.

The above clause makes a distinction between the law of contract and the law of governing procedure and arbitration. The substantive rights under the contract will be adjudicated based on substantive law of Switzerland while the procedural law is that ofKenya. In this situation of an employee in Kenya with employerin Switzerland, it means that one may utilise the Arbitration Actin matters of appointing the Arbitrator but in terms of the substantive law the Swiss law shall apply.

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Following arbitration sample is plucked out of an Insurance Policy all differences arising out of this policy shall be referred to the decision of an arbitrator to be appointed in writing by the parties in difference or if they cannot agree upon a single arbitratorto the decision of two arbitrators one to be appointed in writingby each of the parties within one calendar month after having been required in writing so to do by either of the parties or in thecase the arbitrators do not agree of an umpire appointed in writ

ing by the arbitrators before entering upon the reference. Theumpire shall sit with the arbitrators and preside at their meetings and the making of an award shall be a condition precedent toany right of action against the company. If the company shall disclaim liability to the insured, for any claim hereunder and suchclaim shall not within 12 calendar months from the date of suchdisclaimer have been referred to arbitration under the Provisions herein then the claim shall for all purposes be deemed to havebeen abandoned and shall not thereafter be recoverable.

The following clause is extracted from an oil operators licence c

ompany between an oil company and a petrol station owner. ifany dispute or difference shall arise between the parties heretotouching on their respective rights, duties or liabilities under this agreement, the same shall be referred for determination to and shall be determined by an advocate of the High Court of Kenya,to be agreed upon by the parties within 30 days of sending of a

written notice to the other by the party seeking the determination of the matter in dispute. In default of agreement such advocate shall be nominated by the chairman for the time being of the Law Society of Kenya. If either party is not satisfied with thedecision of such advocate, an objection must be filed within 10days of the date of the decision and copies thereof forwarded toboth the Advocate and the other party and within a further 30 days from the date of the objection the objecting party shall fileproceedings in the High Court of Kenya. Provided that if the objection is not made or proceedings are not filed as aforesaid within the stipulated period the decision of the Advocate shall be final and binding on both parties.

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One of the problems with this clause is with the language because firstly is the advocate who is appointed under this clause to determine the claim as an arbitrator? The other question is, if that advocate is to determine the dispute as an arbitrator under the arbitration act, what type of objections can either of the party take as against the advocates determination? That question is to be considered in the context of Section 35, 36, 37 and 39 ofthe Arbitration Act. Under the Arbitration Act there are limited g

rounds under which you can challenge an arbitration agreementthis is an illustration of how not to draft an arbitration clause because it will raise many problems. The language is important i.ethe first line of the clause, is it possible that there will be other

types of disputes that could arise under the agreement that arenot resolvable by arbitration. You want finality in the dispute resolution process and you do not want the loser to go on challenging the decision.

An example of a clause that combines arbitration with other alternative dispute resolution processes such as negotiation as a m

eans of settling failing which it provides for mediation and failing which it provides for arbitration. If any dispute or differenceshall arise between the parties to this agreement from or in connection with this agreement or its performance construction, orinterpretation the parties shall endeavour to resolve it by agreement through negotiations conducted in good faith. If they areunable to agree the issues shall in the first instance be dealt with by mediation with a mediator to be chosen jointly by them. Both parties reserve all their rights in the event that no agreed resolution shall be reached in mediation. If the dispute has not been resolved by mediation within dash days of initiation thereof orsuch extended period as the parties may agree the dispute shallbe referred to Arbitration by a single arbitrator in accordance with the provisions of the Arbitration Act 1995 or any amendmentsthereto whose decision in relation to such dispute or differenceshall be final and binding on the parties.

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The use of language or phrases is important from the perspective of covering the types of disputes that you want referred. Expression or words like arising out of or words like claims or differences or disputes or words used in connection with or in relation to or in respect of or with regard to may pose problems of interpretation with regard to the qbuestion of the scope of thematters that parties have agreed to refer. It is a danger that aperson drafting an arbitration agreement should be alive to or s

hould guard against. For instance under Section 35 of the Arbitration Act an arbitral award may be set aside if it deals with a dispute not contemplated by the parties or not falling within the terms of the reference. It is also important to note that an arbitrator or an arbitral tribunal has so much power as the parties confer. In other words the jurisdiction of an Arbitrator or of an arbitral tribunal is defined in the context of what the arbitration agreement or the arbitration clause mandates.

When a question arises as to whether an arbitrator or an arbitral tribunal acted within his jurisdiction, that question will in turn

hinge on the wording or particular forms of wording that are employed in the arbitration agreement. In construing arbitration agreements courts have adopted 3 broad principles

The courts will make the prima facie assumption that the parties intended all disputes relating to a particular transaction to beresolved by the same tribunal.It will be assumed that unless the words of an arbitration clauseare clearly intended to limit the arbitrators powers then it willbe taken that the parties intended that the arbitrator should have all the powers which will be exercisable by a court.Words of a broad import used in an arbitration clause for example words such as in connection with this agreement should be given their natural meaning in the context in which they are found.

So if e.g in one case a court has interpreted all disputes arisingin relation to in a limiting way, that is not to say that that same interpretation should be given wherever those words appear in other cases.

Section 6. (1) A court before which proceedings are brought

ADR Lecture 3 26th February 04

Rules of the Chartered Institutes of Arbitrators

Clause 1

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Rule 16 - deals with jurisdiction and powers of a tribunal. It stipulates that by submitting to Arbitration under these rules the parties submit themselves to these rules.

Is the Agreement that contains the Arbitration Agreement valid?The Arbitral tribunal has powers to determine any question

Section 17. Competence of arbitral tribunal

17. (1) The arbitral tribunal may rule on its own jurisdiction,including ruling on any objections with respect to the existenceor validity of the arbitration agreement, and for that purpose-

An arbitration clause which forms part of a contract shall be treated as an independent agreement of the other terms of the contract; andA decision by the arbitral tribunal that the contract is null and void shall not itself invalidate the arbitration clause.

Where one of the parties says that the agreement is void for whatever reason and argues that the agreement is void, if the agreement is taken up and the arbitration agreement is a clause within that agreement, is the arbitration itself void?

The arbitrator has power to rule on this particular point, so what happens if the arbitrator rules that the agreement is void.

There are 3 related principles

Doctrine of Kompetenz Kompetenz - tribunal has power to rule on its own jurisdictionSeparability - when the arbitration agreement is part of the contract agreement you can sever _ Heyman v. Darwins Limited - this case seemed to suggest that what Section 17 is trying to say is not achievable.

Section 7 of the 1996 Act,

Unless otherwise agreed by the parties, an arbitration agreement which forms or was intended to form part of another agreement (whether or not in writing) shall not be regarded as invalid,non-existent or ineffective because that other agreement is invalid, or did not come into existence or has become ineffective, and it shall for that purpose be treated as a distinct agreement.

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The arbitration provision is to be treated as wholly distinct fromthe host contract. Consequently it is unaffected by the fact, if such it be, that the host contract is or was invalid, or non-existent or has, at the time the issue arises, become ineffective. Theseflaws in the host agreement do not percolate down or otherwiseinfect the arbitration agreement. The issue is simply whether itcan be established that there was an arbitration clause that wasin fact part of a host agreement (however flawed) or whether

it can be established that such a clause was intended to becomepart of the host agreement.

If the tests are met, there is a prima facie an arbitration agreement between the parties. One consequence of this is that, insofar as proceedings in court were started in apparent breach of this agreement, they would be expected to be subject to the mandatory stay provided for in Section 9 and discussed above.

Kompetenz Kompetenz

The related doctrine of Kompetenz Kompetenz, namely the ability of the tribunal to decide upon its own jurisdiction has the effect of statutorily conferring on the putative tribunal a limited jurisdiction - namely the jurisdiction to determine whether it, the tribunal, has a jurisdiction under the arrangements that the parties have made. The resultant proceedings are no less an arbitration than they would have been had they arisen under an express agreement, whether or not the resultant decision is in favour of a party determined jurisdiction or against it. The award in which the position is declared binds the parties; it may also make an order for costs, which can be enforced in the usual way. Accordingly, the tribunal, the arbitration and the award will be subject to the provisions of the Act in the usual way.

As a general proposition, this entitlement of the applicant to a stay would be valid even if the jurisdi

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Alternative Dispute Resolution Lectures