Supreme Court Reaffirms The Appeal Threshold Under Section 35 Of The Arbitration Act.

Recently, the Supreme Court affirmed that a very limited avenue is available to allow any appeals stemming from Article 35 of the Arbitration Act in its decision rendered on 12th April 2024 between Kampala International University and Housing Finance Company Limited. 

Brief History 

The Appellant is an educational institution based in Kampala with plans to expand into Kenya. They acquired land in Kitengela, intending to construct its Kitengela Campus at an estimated cost of USD 15,000,000.00. They approached the Respondent for construction financing, and the Respondent agreed to advance the loan facility of USD 15,000,000.00 to the Appellant.  

In January 2014, the Respondent disbursed a sum of USD 10,000,000.00. As for the balance of USD 5,000,000.00, it was contended by the Appellant that there was an inordinate delay in the release of the same and that the Respondent only disbursed USD 1,300,000.00 but failed to disburse the balance of USD 3,700,000.00. The parties advanced various reasons for the delay in disbursement, non-payment of the balance or otherwise. 

Following the breach of contract and overcharging of interest alleged by the Appellant, the parties agreed to resolve the matter through arbitration. Thereafter, the parties jointly appointed Mr. Collins Namachanja as their sole arbitrator. 

The Arbitral Tribunal heard the parties and, in a Final Award dated 17th September 2019, partly allowed the Appellant's claim and wholly allowed the Respondent's counterclaim. The Tribunal dismissed the Appellant's claim for loss of USD 3,333,606.40 but instead awarded a nominal sum of USD 500,000 payable as general damages. However, the Appellant's claim of USD 549,762.54 being interest overcharged was successful. On the other hand, the Respondent's counterclaim was successful on all counts. The Appellant was ordered to pay the Respondent a sum of USD 12,767,508.33 within 30 days of the publication of the Award, together with interest thereon at the rate of 9.5% per annum compounded from 16th January 2018 until payment in full. 

Aggrieved by the Final Award, the Appellant moved the High Court seeking orders to set aside the Final Award, a declaration that the Final Award was unfair, that the Award was illegal and void ab initio, and costs. The High Court dismissed the Appellant's application and allowed the Respondent's application, and the Court adopted the Final Award as an order of the Court.  

Aggrieved by the decision of the High Court, the Appellant moved the Court of Appeal seeking orders for a stay of the Ruling of the High Court, a conservatory order restraining the Respondent from entering and taking possession of the charged property, leave to appeal the whole of the decision/ruling; and costs. The Court of Appeal framed only one issue for its determination: whether the Appellant had met the threshold for grant of leave to appeal to the Court of Appeal. 

In the end, the Court of Appeal dismissed the application because the Appellant neither demonstrated any of the circumstances envisaged under Section 35(2)(a) and 39 of the Arbitration Act nor any issue of great public importance to warrant grant of leave. Aggrieved by the entire Judgment, the Appellant has filed the instant appeal challenging the decision of the Court of Appeal. 

Issues in Consideration 

Taking into consideration the submissions from both parties, the Supreme Court found that there were only two issues for them to determine: 

1. Whether this Court had jurisdiction to hear and determine the appeal; and 
2. Whether the Appellant has met the threshold for grant of leave to appeal to the Court of Appeal. 

Analysis 

The Supreme Court looked at the principle established in Teachers Service Commission v. Kenya National Union of Teachers and 3 Others, which held that this Court lacks jurisdiction to entertain an application challenging the exercise of discretion by the Court of Appeal under Rule 5 (2) (b) of the Court's Rules, there being neither an appeal nor an intended appeal pending before the Supreme Court. This principle was also brought out in the case of Basil Criticos v. Independent Electoral and Boundaries Commission & and 2 Others. 

However, the Court also looked at the exceptions of the foregoing principle where it could assume jurisdiction notwithstanding that an appeal before it was against an interlocutory decision by the Court of Appeal, as seen in the Hassan Ali Joho Case. This exception was restated in Ananias N. Kiragu v. Eric Mugambi & 2 Others and in Paul Mungai Kimani & 2 Others v. Kenya Airports Authority & 3 Others which held that the Supreme Court has no jurisdiction to entertain appeals from interlocutory decisions save where the interlocutory decision in question is a substantive determination of a constitutional issue that has been canvassed through the superior courts below. 

Another exception to the foregoing principle arises if the appellate Court goes beyond the preservation of the substratum of the appeal and issues orders that are likely to occasion an injustice to one of the parties, as seen in the case of Deynes Muriithi & 32 Others v. Law Society of Kenya & Anor.  

In the case at hand, the Court found that the intended appeal is against a Judgment of the High Court affirming an Arbitral Award. On the face of it, and weighed against their decision in the Teachers Service Commission Case, they would ordinarily have no jurisdiction to determine the appeal, there being no pending appeal or an intended appeal. The Appellant would need to show that a constitutional issue is at play for the Apex Court to assume jurisdiction in the matter. 

The question as to whether an appeal lies as of right to the Court of Appeal against a decision of the High Court decision under Section 35 of the Arbitration Act was settled with finality by this Court in the Nyutu Agrovet Case. The Court, in this case, found that the only instance that an appeal may lie from the High Court to the Court of Appeal on a determination made under Section 35 is where the High Court, in setting aside an arbitral award, has stepped outside the grounds set out in the said Section. This principle was restated in the Synergy case wherein the Court stated that not every decision of the High Court under Section 35 is appealable to the Court of Appeal. 

Conclusion 

The Supreme Court relied on the thresholds set in the Nyutu Agrovet and Synergy Industrial Credit cases, which stated that "an appeal lies as of right to the Court of Appeal against a decision of the High Court decision under Section 35 of the Arbitration Act ...[only] where the High Court, in setting aside an arbitral award, has 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", and that the Court of Appeal must grant leave before such an appeal is filed. The appellants failed to pass the threshold set, so their appeal to the Court of Appeal could not be allowed. 

On the issue of jurisdiction, the Supreme Court found that there was no constitutional issue that had arisen from an appeal stemming from a decision under Section 35 of the Arbitration Act, which either of the Superior Courts below had decided on, and that neither did the refusal of leave by the Court of Appeal encompass any constitutional issue. The Supreme Court added that it would not assume jurisdiction on a "mere claim by a party to the effect that its rights were violated by a superior court for whatever reason." 

The Supreme Court ultimately held that there is no basis upon which this Court can assume jurisdiction to overturn or otherwise deal with the Court of Appeal's decision declining to grant leave to appeal to the Appellant herein. With this, the second issue was automatically determined. 

With this decision, the Court has further affirmed that a very limited avenue is available to aggrieved parties to allow any appeals stemming from article 35 of the Arbitration Act.