When to make application under Section 6 of Arbitration Act

TM AM Construction Group (Africa) v. Attorney General HCCC (Milimani) No. 236 of 2001

High Court of Kenya (Milimani, Nairobi), Mbaluto J.

Date: 5^th June, 2001.

Authorities Referred to in the Ruling

1. Co-operative Insurance Co. v. Loice Wanjiru Wachira (Court of Appeal, Civil Appeal No. 151 of 1995)

2. London and North Western Joint Railway v. JH Billington Limited (1899) AC 79

3. Section 6(1) of the Arbitration Act 1995

4. Section 107 (1) and 109 of the Evidence Act

This is a leading case on applications under section 6(1) of the Arbitration Act 1995. The main issue here was what time an application for stay of proceedings for reference to arbitration can be made. The court held that an application must be made not later than the time when appearance is made otherwise the it will be incompetent and doomed to fail.

The court was making a ruling pursuant to an application by the Attorney-General, the defendant in the matter, under section 6(1) of the Arbitration Act 1995 and Rule 2 of the Arbitration Rules 1997 for orders that the suit be stayed and the dispute between the parties referred to arbitration. The application was opposed allegedly as being bad in law for contravening section 6(1) of the Arbitration Act. The Plaintiff opposition was grounded in the fact that the application was filed after defendant had entered appearance and that there was no dispute "between the parties which could be referred to arbitration."

The plaintiff in the case had instituted a suit against the Attorney General on 21^st January 2001. The learned AG entered appearance on the 15^th March 2001. The instant application was then made on the 25^th April 2001.

Even though the presiding judge found there was an arbitration clause providing for reference of disputes to arbitration, he upheld the Plaintiff's opposition dismissing the application with costs. On the question of time Justice Mbaluto found that the AG had not taken action in the matter within the times limited by law. Not only did the AG file and serve a memorandum of service late, but he also failed to file a defence within prescribed time prescribed under the Civil Procedure Rules. Indeed, the Plaintiff's advocates had lodged an application on 10.4.2001 for leave to apply for judgement against the AG for failure to file and serve the necessary defence in the prescribed time.

The learned judge cited Co-operative Insurance Co. v. Loice Wanjiru Wachira (Court of Appeal, Civil Appeal No. 151 of 1995) where the Court of Appeal stated:-

"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 clauses such as the 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 as valid. These clauses do more than provide that disputes shall be referred to arbitration. They also stipulate that the award of 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 an 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 clause it was obliged to apply for a stay after entering appearance and before delivery of any pleading. By filing a defence the appellant lost its right to rely on the clause."

Applying the foregoing decision of the Court Appeal, the learned judge found that the AG was obliged to apply for a stay 'not later than the time when he entered appearance'. The court thus held that the AG had lost the right to rely on the arbitration clause because if the AG was to rely on the same he was obliged to make and application under section 6 not later than when he entered appearance.

On the second ground as to lack of dispute for arbitration, it was argued for the plaintiff that the AG was in fact making an application under section 6 of the Arbitration Act as a delay tactic given that there was not in fact a dispute about the claim. It was submitted that the AG took long and did not do anything on the matter and thus was precluded under section 6 (1) (b) of the Arbitration Act.

Section 6(1) (b) of the Arbitration Act provides that the court shall stay the proceedings and refer the parties to arbitration, unless it finds:-

"(b) that there is not in fact any dispute between the parties with regard to matters agreed to be referred to arbitration"

The AG claimed that there was dispute between it and the respondent deserved to be referred arbitration. The respondent retorted that there was in fact no dispute between the parties with regard to matters agreed to be referred to arbitration. The court found that the AG had failed to tender any evidence showing that there was in fact any dispute between the parties. The learned judge interpreted this to imply that no basis had been established to show that a dispute in fact existed to justify staying the proceedings and referring the proceedings to arbitration.

On this second point Justice Mbaluto cited a passage from the old case of London and North Western Joint Railway v. JH Billington Limited (1899) AC 79 In that case, Lord Halsbury stated at page 81:-

"A condition precedent to the invocation of the arbitrator on 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 by writ. Any contention that the parties could when they are sued for the price of the services raised for the first time the question whether or not the charges were reasonable and that therefore they have a right to go to an arbitrator seems to me to be absolutely untenable."

In the learned judge's view, the above statement correctly expressed the view held by the court in the present case that a party who is wholly unable to produce the minutest of evidence to support an allegation of a dispute in a contract of the magnitude evidenced in the matter had absolutely no right to come to court and seek a stay of proceedings and reference to arbitration allegedly because he for the first time alleges that there is a dispute between the parties.

In this finding the judge was relying of provisions of section 107 (1) and 109 of the Evidence Act dedicated to burden proof generally and proof of a particular fact respectively.

"107. (1) Whoever desires any court to give judgment as to any legal right or liability dependent on the existence of facts which he asserts must prove that those facts exist."

109. The burden of proof as to any particular fact lies on the person who wishes the court to believe in its existence, unless it is provided by any law that the proof of that fact shall lie on any particular person.

The learned judge found that the requirements of the above sections of the Evidence Act had not been met by the affidavit evidence availed by the applicant to prove that there was dispute. He took issue with the fact that the affidavit on record only made reference to a discussion relating to a dispute while not a single piece of evidence was tendered to show that a dispute in fact exists between the parties. The judge also concluded that there was no positive disposition in the affidavit as to existence of a dispute or any documents to support the dispositions.