Case ID:202389

Akaki v Pinnacle Engineering and Construction Limited (Commercial Cause E029 & E053 of 2021 (Consolidated)) [2022] KEHC 12916 (KLR) (Commercial and Tax) (14 September 2022) (Ruling)

Case Metadata

Case Number:

Commercial Cause E029 & E053 of 2021 (Consolidated)

Parties:

Akaki v Pinnacle Engineering and Construction Limited

Date Delivered:

14 Sep 2022

Case Class:

Court:

High Court at Nairobi (Milimani Commercial Courts Commercial and Tax Division)

Case Action:

Ruling

Judge(s):

David Amilcar Shikomera Majanja

Citation:

Akaki v Pinnacle Engineering and Construction Limited (Commercial Cause E029 & E053 of 2021 (Consolidated)) [2022] KEHC 12916 (KLR) (Commercial and Tax) (14 September 2022) (Ruling)

Advocates:

Mr Omondi instructed by Migos-Ogamba and Waudo Advocates for the Applicant, Mr Okemwa instructed by Okemwa and Company Advocates for the Respondent

Court Division:

Commercial and Tax

County:

Nairobi

Advocates:

Mr Omondi instructed by Migos-Ogamba and Waudo Advocates for the Applicant, Mr Okemwa instructed by Okemwa and Company Advocates for the Respondent

Disclaimer:

The information contained in the above segment is not part of the judicial opinion delivered by the Court. The metadata has been prepared by Kenya Law as a guide in understanding the subject of the judicial opinion. Kenya Law makes no warranties as to the comprehensiveness or accuracy of the information

Akaki v Pinnacle Engineering and Construction Limited (Commercial Cause E029 & E053 of 2021 (Consolidated)) [2022] KEHC 12916 (KLR) (Commercial and Tax) (14 September 2022) (Ruling)

Neutral citation:

[2022] KEHC 12916 (KLR)

Republic of Kenya

In the High Court at Nairobi (Milimani Commercial Courts Commercial and Tax Division)

Commercial and Tax

Commercial Cause E029 & E053 of 2021 (Consolidated)

DAS Majanja, J

September 14, 2022

Between

Rodgers Omukhulu Akaki

Applicant

and

Pinnacle Engineering and Construction Limited

Respondent

Ruling

Introduction and Background

1.

By a General Agreement dated October 12, 2016 (“the Agreement”), the Applicant contracted the Respondent to implement and finish works on his residential property situated on LR. No. Kjd/Kap-North/10238 Kitengela for an agreed contractual sum of Kshs. 6,235,655.00. In the course of the works, a dispute arose between the parties which was referred to arbitration before a sole arbitrator, Charles J. Mwaura (“the Arbitrator”) for determination. Having considered the parties’ evidence and submissions, the Arbitrator published an award on July 21, 2020 (“the Award”).

2.

It is the Award that forms the subject of two applications before the court for determination. The Applicant’s application, brought by way of the Chamber Summons dated 2

nd

September 2021 is made, inter alia, under section 36 of the

Arbitration Act

. It seeks recognition and enforcement of the Award. It is supported by the Applicant’s affidavit sworn on September 2, 2021. The Respondent has opposed the application through the replying affidavit of its director, David Ayieko sworn on December 14, 2021.

3.

The Respondent’s application is the Notice of Motion dated December 15, 2021 made, inter alia, under section 35 of the

Arbitration Act

. It seeks to set aside the Award. It is supported by the affidavit of David Ayieko sworn on December 15, 2021 and opposed by the Applicant through his replying affidavit sworn on January 11, 2022.

4.

Both applications were heard together by way of written submissions filed by the parties.

5.

Before I consider the application, I think it is necessary to set out the issues in dispute resolved by the Arbitrator. In the Award, the Arbitrator proposed to deal with six issues and also held that any issue prayed for and not dealt with should be considered as having been rejected.

6.

The first issue concerned disputes arising before the completion of Phase One of the project. The Arbitrator found that Applicant only paid Kshs. 1,545,575.00 despite Clause 19 of the Agreement which provided that he was to pay a 40% deposit for the works to commence and that the works under Phase One commenced on February 9, 2018 and were completed on April 27, 2018 without any issues. That although, no documentary evidence was submitted indicating issuance of a default notice on either in the delay and/or on the amount of funds advanced before completion of Phase One, a meeting was held on 7

th

March 2018 with the Applicant’s financier, HFC, which culminated in an understanding on re-scheduling payment drawdown. The Arbitrator held that “Contracts are not cast in stone” and may be modified after they are signed and as such the final submission of the drawdown schedule was such a modification. The Arbitrator therefore rejected all claims made before completion as there was no dispute arising before completion of Phase One.

7.

The second issue was whether the dispute arose from the Applicant’s failure to make payment for Phase Two or from disagreement on value of work done including variations. The Arbitrator noted that after completion of Phase One on April 27, 2018, the Applicant paid the Respondent Kshs. 2,537,330.00 on May 8, 2018 to cover for Phase Two. In the meantime, the Respondent had evaluated the works covered under Phase One plus variations at Kshs. 4,248,262.70 while the Applicant had evaluated the same at Kshs. 2,888,130.28. The Arbitrator held that the dispute arose mainly from disagreement on the value of work done including variations and in order to resolve the issue, the Arbitrator relied on a joint re-measurement presented to him which he considered as the final value of work done inclusive of all variations and that the difference between the total value of work done inclusive of variations (Kshs. 3,144,036.00) and the total amount paid (Kshs. 4,082,905.00) resulted in an overpayment of Kshs. 938,869.00 meaning that the Respondent had been paid fully for works done under Phase One including the associated variations.

8.

The Arbitrator thus held that as of May 8, 2018, the Respondent had Kshs. 938,869.00 at his disposal to commence work for Phase Two but this notwithstanding, the Respondent stopped work on 14

th

May 2018. The Arbitrator awarded simple interest at a rate of 13% per annum commencing May 15, 2018 and ending on November 6, 2019, the date of the final meeting (496 days) and found that the amount payable was Kshs. 1,104,727.30.

9.

The third issue was whether the Applicant was entitled to detain the Respondent's tools and equipment from June 8, 2018 for non-payment of Kshs. 100,000.00 advanced to the Respondent on April 9, 2018. The Arbitrator noted that while the Respondent admitted receiving the money in its pleadings, both parties could not agree on the terms under which the advance of Kshs. 100,000.00 was made. The Arbitrator found that the tools and equipment were detained after the Respondent stopped the works and that the Applicant had given an offer to the Respondent to collect his equipment from the project site upon payment of the said Kshs. 100,000.00. The Arbitrator held that the current value of the tools and equipment compared well with the amount of money which was advanced on a gentleman’s understanding and as such answered the issue in the affirmative that the Applicant’s action was justified. As a result, the Arbitrator directed the Respondent to pay the Applicant Kshs. 100,000.00 advanced to him whereupon the Applicant would return all the tools and equipment in his possession to the Respondent.

10.

The fourth issue concerned the value of materials left on site since the parties did not take a joint inventory of the materials when the Applicant closed the site on June 8, 2018 and denied the Respondent access. The Arbitrator observed that as a general rule in construction contracts, the procedure to follow before site closure is for the parties to take an inventory of tools and equipment including taking a joint site re-measurement of the quantity of material on site. The Arbitrator held that since the procedure was not followed, the list issued by the Respondent was genuine hence the total value of materials payable to the Respondent was Kshs. 155,060.00.

11.

The fifth issue was whether the Applicant was liable to pay 10% compensation to the Respondent for the procurement of the National Construction Authority (NCA) certificate of compliance even if he did not determine the Agreement. The Arbitrator found that both parties were involved in procurement of the certificate as the Respondent presented the registration forms to NCA and thereafter took the invoice to the Applicant who in turn made payment. That the Respondent then delivered the receipt on behalf of the Applicant to NCA and was able to procure the Certificate which he delivered to the Applicant. The Arbitrator held that Clause 22(iv) of the Agreement which provided that, “if the Client upon receipt of the certificate of construction from the National Construction Authority or any other authorized body with the involvement of the Contractor to procure the same shall be liable to pay the Contractor 10% of the Contract sum as compensation” was meant to alert the Applicant of the consequences to befall him if the Respondent provided the above services as similarly done under Clause 22 (i) of their Agreement, “if the Client fails to make an interim payment due under the provisions of Clause 19 within 14 days of such payment being due”. As a result, the Arbitrator resolved that the percentage of involvement in the NCA registration is 80% for the Respondent and 20% for the Applicant. The Arbitrator thus held that the amount payable to the Respondent for procuring the NCA Certificate was Kshs. 455,892.40.

12.

The sixth issue was whether the Respondent was justified to stop work on May 14, 2018. The Arbitrator noted that the agreed joint re-measurement was valued at Kshs. 3,144,036.00, the Applicant’s Quantity Surveyor valued the same at Kshs. 2,888,130.28 reflecting an under payment of Kshs. 255,905.00 (8.14%) and that the Respondent’s “Quantity Surveyor” valued the same at Kshs. 4,248,262.70 reflecting an over payment of Kshs.1,104,226.00 (35.12%). The Arbitrator held that an error of not more than 10% is generally acceptable for an interim valuation and as such held that the Respondent failed to complete the works by stopping the work on May 14, 2018 and was liable to pay for damages computed from May 15, 2018 upto August 24, 2018 both days inclusive being 102 Days at Kshs. 5,000.00 per day making a total of Kshs. 510,000.00.

13.

On the seventh and final issue, the Arbitrator directed the Respondent to refund Kshs. 20,000.00 paid by the Applicant to the appointing authority, the Chartered Institute of Arbitrators.

14.

In sum, the Arbitrator found in favour of the Applicant on the following terms set out in the Award:

a)

The Respondent shall pay the Claimant within 30 days, from the date of delivery of this Award the sum of Kenya Shillings One Million One Hundred and Twenty Three Thousand Seven Hundred and Seventy Four cents its Ninety (Kshs. 1,123,774.90) only.

b)

The above payment will be paid in full and as final settlement of the Claimant’s claim against the Respondent.

c)

Any amount remaining unpaid after 30 days have lapsed from the date of delivery of this Award will attract simple interest of 13% per annum.

d)

The Claimant to return to the Respondent within 30 days from the date of delivery of this Award all the tools and equipment as listed under Issue No.3.

e)

In my judgement there has not been any discreet circumstances that would require me to subject either party to pay the cost of this Arbitration.

I make judgement therefore that each party bears its own cost of the reference.

f)

My Arbitration Fees and Expenses which I hereby determine in the sum of Kenya Shillings Five Hundred and Thirty Thousand One Hundred (Kshs.530,100.00) only inclusive of V.A.T. will be equally borne by the parties.

After deducting Kshs.100,000/= from fees deposit, the balance payable is Kenya Shillings Four Hundred and Thirty Thousand One Hundred (Kshs.430,100.00) only.

In case one party pays the balance of the Arbitrator’s fees in order to collect the Award, the amount paid shall become a debt payable to the other party within seven days from the date of delivery of this Award.

Analysis and Determination

15.

From the parties’ pleadings and submissions, the main issues for determination are whether the Award ought to be set aside or enforced and recognized as an order of this court. Since a determination of the former will also dispose the later, I propose to first deal with the Respondent’s application.

16.

The court’s jurisdiction to set aside an arbitral award is demarcated by section 35(2) of the

Arbitration Act

which provides as follows:

35.

Application for setting aside arbitral award

(1)

……………………….

(2)

An arbitral award may be set aside by the High Court only if—

(a)

the party making the application furnishes proof—

(i)

that a party to the arbitration agreement was under some incapacity; or

(ii)

the arbitration agreement is not valid under the law to which the parties have subjected it or, failing any indication of that law, the laws of Kenya; or

(iii)

the party making the application was not given proper notice of the appointment of an arbitrator or of the arbitral proceedings or was otherwise unable to present his case; or

(iv)

the arbitral award deals with a dispute not contemplated by or not falling within the terms of the reference to arbitration or contains decisions on matters beyond the scope of the reference to arbitration, provided that if the decisions on matters referred to arbitration can be separated from those not so referred, only that part of the arbitral award which contains decisions on matters not referred to arbitration may be set aside; or

(v)

the composition of the arbitral tribunal or the arbitral procedure was not in accordance with the agreement of the parties, unless that agreement was in conflict with a provision of this Act from which the parties cannot derogate; or failing such agreement, was not in accordance with this Act; or

(vi)

the making of the award was induced or affected by fraud, bribery, undue influence or corruption;

(b)

the High Court finds that—

(i)

the subject-matter of the dispute is not capable of settlement by arbitration under the law of Kenya; or

(ii)

the award is in conflict with the public policy of Kenya.

(ii)

the award is in conflict with the public policy of Kenya.

17.

The Respondent’s application is predicated on the grounds that the Award dealt with a dispute not contemplated by or not falling within the terms of the reference to arbitration or contains decisions on matters beyond the scope of the reference to arbitration and the agreement and that the same was in conflict with the public policy of Kenya.

18.

On the ground whether Award dealt with a dispute not contemplated by or not falling within the terms of the reference to arbitration or contains decisions on matters beyond the scope of the reference to arbitration, the Court of Appeal in

Synergy Credit Limited v Cape Holdings Limited

NRB CA Civil Appeal No. 71 of 2016 [2020]

eKLR

set out the basic considerations as follows:

In determining whether the arbitral tribunal has dealt with a dispute not contemplated or falling within the terms of the reference, or whether its award contains decisions on matters beyond the scope of the reference to arbitration, the arbitral clause or agreement is critical. Other relevant considerations, with-out in any way prescribing a closed catalogue, would include the subject matter, pleadings and submissions by the parties, as well as their conduct in the arbitration. Pleadings, however, must be considered with circumspection because, as the US Court of Appeals for the Ninth Circuit observed in Ministry of Defence of the Islamic Republic of Iran v. Gould, Inc. (supra), the real issue in such an inquiry is whether the award has exceeded the scope of the arbitration agreement, not whether it has exceeded the parties’ pleadings.

19.

The scope of the Arbitrator’s jurisdiction is grounded on the arbitration clause, reference and the law. The express words used in the arbitration agreement or as interpreted with reference to the subject matter of the contract will determine whether the issues raised by an applicant are contemplated by the agreement or fall within the terms or scope of the reference to arbitration. Even where general, broad, generous and elastic words are used in an arbitration agreement or reference to arbitration, courts will still interpret them by reference to the subject matter of the contract (see

Kenya Tea Development Agency Ltd & 7 others v Savings Tea Brokers Limited

ML HC Misc. Application No. 129 of 2014 [2015]

eKLR

).

20.

In its final submissions before the Arbitrator, the Respondent addressed this very issue as follows:

The contract as drawn by Pinnacle Engineering and signed between Pinnacle Engineering and Rodgers Akaki has an Arbitration clause which states that “should there be a Trade Dispute” This does not single out any one particular matter of dispute. It embraces any manner of dispute as may be encountered in relation to the contract based and anchored on the stipulated terms and conditions of engagement in the said contract as signed. The existence of this clause in the contract gives relevance and merit to the arbitration process which has been readily accepted by both parties. On the same strength ALL other clauses in the contract bear the same and equal relevance and legitimacy and must be accepted by both parties. Anything to the contrary would equally render the arbitration process irrelevant and lacking merit. There cannot be excuses for non - compliance with a host of clauses in the contract while at the same time seek to give credence to one particular clause in the same contract.”

21.

The Respondent therefore agrees on the elastic nature of the dispute resolution clause to accommodate any kind of disputes arising out of the Agreement. The Respondent, in its counterclaim, sought a number of prayers including orders that the Applicant pay the Respondent 10% interest on the financed amount of Kshs. 948,687 per month prorated on the deficit for Phase One from February 7, 2018 to May 8, 2018, that the Applicant pay the Respondent Kshs. 182,053.50 considering that he had paid a sum of Kshs. 100,000.00 to cover the deficit of Phase Two items and 10% interest per month prorated on the same amount from 8

th

May 2018 to date, that the Applicant pays for the full invoiced amounts on the machinery and tools from June 2018 to May 13, 2019 amounting to Kshs. 4,993,800, that the Applicant pay the Respondent 10% of the practical value of all the balance works that were carried out through sub-contracting during the period the NCA registration certificate for the Respondent, that the Applicant pays the Respondent Kshs. 1,775,000 (355 days 8

th

of June 2018 to 28

th

May 2019) and in addition the make payments at the same rate for every day adding up to date, that the Applicant should pay the Respondent a sum of Kshs. 623,565.50 under Clause 22(iv) and that as per Clause 22(i) & (ii), damages as may be determined by the Arbitrator in view of the breach in these clauses, damages as may be determined by the Arbitrator in view of the flagrant breach of the Agreement, that the rates in the joint re-measurement report be reviewed to comply with the rates already established by the two consultants as guided by the regulations of the practice and in conformity to IQSK reviews of December 2017 and Public Works revision number 31 and that the variation amounts be paid in full, whether arising from rates, omitted items and additional quantities.

22.

In the Award, the Arbitrator held that he had dealt “with the issues for determination seriatim. Any issue prayed for and not dealt with below shall be considered as rejected”. Indeed, going through the issues and the findings by the Arbitrator which I had highlighted earlier and the Respondent’s prayers, I note and find that the Arbitrator conclusively dealt with all of those issues raised by the Respondent and the parties as a whole. I do not find any instance where the Arbitrator ventured on his own frolic so as to find himself outside the scope of reference of the arbitration. I further find that the Arbitrator made determinations on issues that were raised by the parties and that in his findings, he made reference to the Agreement, the parties’ claims, evidence and submissions and came to conclusions that were within the scope of reference. For these reasons, I find that it cannot be said that the Arbitrator dealt with a dispute not contemplated by or not falling within the terms of the reference to arbitration or contained decisions on matters beyond the scope of the reference to arbitration.

23.

The Respondent also complains that the Award was contrary to public policy as the Arbitrator rewarded the Applicant for his impunity in detaining the Respondent’s equipment and punishing the Respondent thus conferring on the Applicant unjust benefit/enrichment and shutting his eyes against the injustice meted on the Respondent. As a result, the Respondent stated that the Award contravened public policy explored in the law, legislative enactment, constitutional constraints or judicial practice.

24.

The Arbitration held that the Respondent admitted to owing the Applicant Kshs. 100,000.00 and that the Applicant was justified in detaining the said tools and equipment until payment of the said debt. I find nothing wrong in policy or statute in this determination as the law allows one to retain that which is rightfully and continuously in his possession belonging to another until the present and accrued claims of the person in possession are satisfied (see Halsbury’s Laws of England (4

th

Ed) Para 502 at 221 and

Unibilt Kenya Ltd (Under Receivership) vs. Mukhi and Sons Ltd

[2004] 2

EA

340). For this, I find that the Award was not in contravention of any public policy as has been advanced by the Respondent.

25.

For the foregoing reasons, I find and hold that the Respondent has not discharged its burden of proving the grounds for setting aside the Award. Having reached the conclusion that the application to set aside the Award lacks merit, I now turn to consider whether the Applicant’s application dated September 2, 2021 for recognition and enforcement of the Award is merited.

26.

Under section 32(A) of the

Arbitration Act

, an arbitral award is final and binding upon the parties and no recourse is available against the award otherwise than in the manner provided by the

Arbitration Act

. The High Court, under section 36 of the

Arbitration Act

, has the power to recognise and enforce domestic arbitral awards and the court can only reject such an application on grounds set out under section 37 of the

Arbitration Act

. The Respondent’s opposition to this application to enforce the Award was anchored on its own application to set it aside. Since I have already dismissed the grounds for setting aside the Award, I do not find any valid and substantive reason to refuse the application.

27.

Neither the Arbitration Agreement nor the Award and their contents are disputed. In the circumstance, the Applicant’s application for recognition and enforcement of the Award is allowed.

Disposition

28.

For the reasons I have set out above, I now make the following orders:

(a)

The Respondent’s Notice of Motion dated December 15, 2021 is dismissed.

(b)

The Applicant’s Chamber Summons dated 2

nd

September 2021 is allowed on terms that the Award published on July 21, 2020 by Charles J. Mwaura, Sole Arbitrator, be and is hereby recognised and adopted as a judgment of this court and leave be granted to the Applicant to enforce it as a decree of this court.

(c)

The Respondent shall bear the costs of both applications which I assess at KES. 50,000.00.

DATED AND DELIVERED AT NAIROBI THIS 14

TH

DAY OF SEPTEMBER 2022.

D. S. MAJANJA

JUDGE

Court Assistant: Mr Michael Onyango

Mr Omondi instructed by Migos-Ogamba and Waudo Advocates for the Applicant.

Mr Okemwa instructed by Okemwa and Company Advocates for the Respondent.