In this matter, Nyutu Agrovet and Airtel entered into a distributorship agreement. A dispute arose and was submitted to arbitration, where an award was rendered in favor of Nyutu Agrovet. The bulk of the damages were awarded for the tort of negligence, notwithstanding the fact that it was a contractual dispute being arbitrated. Moreover, the damages were assessed for an erroneously extended period. Both matters resulted in a significant windfall benefit accruing to Nyutu Agrovet.
Airtel Networks Kenya Limited was dissatisfied with the arbitral award and requested the High Court to set it aside under Section 35 of the Arbitration Act. Kimondo J set aside the entire arbitral award on the ground that the matters addressed were outside the scope of the distributorship agreement. The High Court’s decision was subsequently submitted to the Court of Appeal, and then to the Supreme Court. The attempted recourse to a second tier of appellate jurisdiction was vehemently opposed by Airtel Networks on the basis that no right of appeal existed under Section 35 of the Arbitration Act. However, Kimondo J, in granting the leave to appeal, noted that it would be the duty of the Court of Appeal to determine whether the case had merit to be heard before it.
Upon further appeal to the Supreme Court, the apex court ruled on 6th December 2019 in Nyutu Agrovet Limited vs Airtel Networks Kenya Limited (Chartered Institute of Arbitrators – Kenya Branch: Interested Party) [2019] eKLR that there exists a right to appeal the decision of a court under Section 35 of the Arbitration Act to set aside an arbitral award where, in making the decision to set the award aside, the court “stepped outside the grounds set out in the said Section and thereby made a decision so grave, so manifestly wrong, and which has completely closed the door of justice to either of the parties.” The Supreme Court held that “an unfair determination by the High Court should not be absolutely immune from the appellate review” and held that the case should be referred back to the Court of Appeal for hearing.
However, as the Supreme Court reiterated, the scope of this appellate jurisdiction is narrow. Otherwise, it would negate the finality of arbitration. In Nyutu Agrovet Limited vs Airtel Networks Kenya Limited [2024] eKLR, a judgment delivered on 9th May 2024, the Court of Appeal clarified the scope of this jurisdiction.
The Court of Appeal noted that the Supreme Court specified that, before addressing the content of the arbitral award that was set aside, the Court of Appeal ought to determine in limine whether the threshold for admitting the appeal has been met. In other words, the appellate court must first address itself to whether the decision of the lower court in setting aside the arbitral award falls within its jurisdiction as specified by the Supreme Court.
The grounds for setting aside arbitral awards are provided under Section 35 (2) and (3) of the Arbitration Act, including “where the award deals with a dispute not contemplated or is outside the terms of reference to arbitration or matters beyond the scope of reference”. The Court of Appeal addressed itself to whether the judge set aside the award outside of this ground.
Persuaded by a judgement of the Supreme Court of the United Kingdom in Mozambique vs Privinvest [2023] UKSC, the Court of Appeal affirmed that the scope of an arbitration agreement must be determined by reference to whether a dispute “arises out of the contractual relationship of the parties”, as “rational businesspeople are likely to intend that [any such dispute] be decided by the same tribunal,” unless the language of the arbitration agreement makes it clear that certain questions were intended to be excluded from the arbitrator’s jurisdiction.
The Court of Appeal held that, in disallowing unpleaded claims, the High Court judge did not step outside the scope of Sections 35 (2) and (3) of the Arbitration Act. While it is true that during breach of contract a tort may arise, in the present case, it lay outside the scope of the arbitration agreement, both because rational businesspeople would not have foreseen it as a matter “arising out of the contractual relationship” and because of the construction of the specific arbitration in question. The award of general damages was not an immediate, foreseeable result of the performance of contractual duties.
In the end, the Court of Appeal held that the appellant failed to demonstrate that the decision of the High Court had stepped outside the grounds set out in Section 35 (2) and (3) of the Arbitration Act. Therefore, the appellant failed to bring their case within the Court’s circumscribed and narrow jurisdiction for granting leave to appeal against the High Court decision.
The decision of the Court of Appeal has offered clarity on the scope of its appellate jurisdiction regarding a decision of the High Court to set aside an arbitral award. This jurisdiction is exercised first in limine, i.e., the appellate court first determines whether there are grounds to grant leave to appeal—whether the High Court set aside the award outside of the grounds provided under the Arbitration Act. Only once the Court of Appeal satisfies itself that the High Court judge indeed relied on grounds extraneous to the Arbitration Act will it then hear the appeal.
This limitation is welcomed. It acts as a bottleneck that works toward safeguarding the finality of arbitration while also preserving the inherent jurisdiction of the Court of Appeal to correct a manifest injustice.
