LIMITED APPELLATE AVENUES UNDER SECTION 35 OF THE ARBITRATION ACT – SUPREME COURT REAFFIRMS JURISDICTIONAL THRESHOLDS

Introduction

In its decision delivered on 12th April 2024 in Kampala International University v. Housing Finance Company Limited, the Supreme Court of Kenya reaffirmed the principle that the right of appeal under Section 35 of the Arbitration Act (No. 4 of 1995) is tightly circumscribed. The decision reinforces the doctrine of finality in arbitration and reasserts the jurisdictional limits of appellate courts in matters arising from arbitral awards. This brief examines the legal background, factual matrix, procedural history, issues considered, and jurisprudential significance of the ruling within the context of Kenya’s arbitration framework.

Factual Background

The Appellant, Kampala International University (KIU), an educational institution headquartered in Uganda, undertook an expansion project in Kenya, intending to construct a campus in Kitengela. To facilitate the project, the Appellant sought and secured a loan facility of USD 15 million from the Respondent, Housing Finance Company Limited (HFCL).

While an initial tranche of USD 10 million was disbursed in January 2014, the Appellant contended that the remaining USD 5 million was not fully released, with only USD 1.3 million being disbursed, and the balance of USD 3.7 million being withheld without sufficient justification. Disputes also arose concerning alleged breach of contract and overcharging of interest.

By mutual agreement, the dispute was referred to arbitration, and Mr. Collins Namachanja was appointed as sole arbitrator. On 17th September 2019, the arbitrator issued a final award:

• The Appellant’s claims were largely dismissed, with nominal damages of USD 500,000 awarded.
• The Appellant succeeded in its claim for USD 549,762.54 for overcharged interest.
• The Respondent’s counterclaim succeeded in full, with KIU ordered to pay USD 12,767,508.33, plus compound interest at 9.5% p.a. from 16th January 2018.

Procedural History

Aggrieved by the arbitral outcome, the Appellant filed an application before the High Court seeking to set aside the award under Section 35 of the Arbitration Act, asserting, inter alia, that the award was illegal and void ab initio. The High Court dismissed the application and adopted the arbitral award as a judgment of the court.

Subsequently, the Appellant sought leave to appeal from the Court of Appeal, alongside a stay of execution and conservatory orders. The Court of Appeal declined to grant leave, holding that the Appellant had not met the threshold under Sections 35(2)(a) and 39 of the Arbitration Act, nor had it demonstrated any issue of public importance.

The Appellant then escalated the matter to the Supreme Court, challenging the jurisdiction of the lower courts and seeking to set aside the Court of Appeal’s refusal to grant leave.

Issues for Determination

The Supreme Court distilled the dispute into two primary issues:

1.        Whether the Supreme Court had jurisdiction to entertain the appeal.

2.        Whether the Appellant had met the threshold for grant of leave to appeal to the Court of Appeal.

Analysis and Determination

1. Jurisdiction of the Supreme Court

The Court reaffirmed that under Article 163(4) of the Constitution, its appellate jurisdiction is limited to matters involving constitutional interpretation or application, or where leave has been granted on the basis of matters of general public importance. It cited precedents including:

• Teachers Service Commission v. Kenya National Union of Teachers & 3 Others,
• Basil Criticos v. IEBC & 2 Others,
• Hassan Ali Joho v. Suleiman Said Shahbal,
• Deynes Muriithi & 32 Others v. LSK & Another.

The Court observed that where no constitutional issue has been raised or determined by the superior courts below, it has no jurisdiction to assume appellate authority. Mere dissatisfaction with outcomes or claims of injustice are insufficient to invoke its jurisdiction.

2. Threshold for Leave under Section 35

The Court reiterated its landmark decision in Nyutu Agrovet Ltd v. Airtel Networks Ltd & Another [2019] eKLR, which held that appeals from decisions under Section 35 of the Arbitration Act are not automatic. Such appeals lie only where the High Court, in setting aside or refusing to set aside an arbitral award, acts beyond the statutory grounds provided, resulting in a decision that is:

• manifestly erroneous,
• closes the door to justice, or
• contravenes public policy.

This position was upheld in the Synergy Industrial Credit Ltd v. Cape Holdings Ltd [2019] eKLR decision. The Court emphasized that leave must be sought and granted before an appeal can proceed from the High Court to the Court of Appeal under Section 35.

In the present case, the Appellant failed to demonstrate that the High Court had acted outside the statutory limits, nor did it establish that any constitutional or public interest issue was at stake. Consequently, the Court found that no appeal lay as of right, and it could not assume jurisdiction to challenge the denial of leave by the Court of Appeal.

Conclusion and Legal Implications

The Supreme Court dismissed the appeal, holding that there was no constitutional question or exceptional circumstance warranting its intervention. The Court reaffirmed the finality of arbitral awards, and the limited scope for appellate recourse under Kenya’s arbitration regime.

This decision is a critical reinforcement of:

• The doctrine of party autonomy in arbitration,
• The limited supervisory role of courts in arbitral proceedings, and
• The principle that judicial interference is only permissible in exceptional cases strictly defined by statute and precedent.

In effect, the ruling serves as a guiding precedent for lower courts and litigants alike, confirming that:

"Not every error of law or fact arising from arbitral proceedings gives rise to an appealable issue; rather, it is only where justice has been fundamentally denied that appellate intervention may be considered."

Key Authorities Cited

• Nyutu Agrovet Ltd v. Airtel Networks Kenya Ltd & Another [2019] eKLR
• Synergy Industrial Credit Ltd v. Cape Holdings Ltd [2019] eKLR
• Teachers Service Commission v. Kenya National Union of Teachers & 3 Others
• Deynes Muriithi & 32 Others v. Law Society of Kenya & Another
• Hassan Ali Joho v. Suleiman Said Shahbal

 Disclaimer: This article is for informational purposes only and does not constitute legal advice.

Desertion and Repudiation in Employment Law: An Analysis of Mumali v Blink Studio Ltd [2025] KEELRC 2112 (KLR)

1. Introduction

The Kenyan legal framework governing employment relationships is premised on principles of fairness, accountability, and mutual obligations. While the Employment Act, 2007 extensively protects employees from arbitrary termination, it equally obligates employees to uphold their duties, including attending work and communicating absences. The decision in Mumali v Blink Studio Limited offers a salient judicial interpretation of employee desertion, repudiation of contract, and the boundaries of procedural fairness under the Act.

 The detailed Case summary is available here 

2. Factual Background and Judicial Findings

In Mumali, the Claimant instituted legal proceedings for unfair termination, asserting that the employer had not followed procedural safeguards as mandated by Section 41 of the Employment Act, 2007. The Respondent contended that the Claimant had absconded duty without justification or communication, and that the issuance of a one-month termination notice was an administrative necessity rather than a punitive measure.

The court ultimately sided with the Respondent, holding that the Claimant’s prolonged, unexplained absence without the intention to resume work amounted to desertion, a form of repudiation of the employment contract. The employer’s issuance of a termination notice was viewed as a lawful acceptance of that repudiation, and the termination process was deemed procedurally fair in the circumstances.

Key Facts:

• The Claimant filed a claim for unfair termination.
• The Respondent argued the Claimant had absconded duty without explanation or indication of return.
• After a period of unexplained absence, the Respondent issued a one-month notice of termination.
• The Respondent asserted that the Claimant’s conduct amounted to a repudiation of the employment contract 

Court's Holding:

• The Claimant’s conduct constituted desertion, not mere absenteeism.
• Desertion amounts to repudiation of the employment contract.
• The Respondent’s issuance of a notice of termination was a lawful acceptance of that repudiation.
• Procedural fairness under Section 41 was not strictly required because the employee was unavailable and had abandoned the relationship.
• The termination was fair and lawful. 

3. Legal Issues and Doctrinal Analysis

3.1 Desertion as Just Cause for Termination

Desertion is recognized under Section 44(4)(a) of the Employment Act, which permits summary dismissal if an employee “without leave or other lawful cause, absents himself from the place appointed for the performance of his work.” This provision captures both unauthorized absenteeism and prolonged absences that indicate abandonment of employment duties.

In Mumali, the court applied this statutory standard, finding that the Claimant’s conduct transcended mere absenteeism and qualified as intentional desertion. Courts have historically required that desertion be voluntary, without cause, and accompanied by an intent not to return to work—criteria that were satisfied in this instance.

3.2 Repudiation and Contractual Frameworks

The employment relationship in Kenya is grounded in contractual obligations, and the doctrine of repudiation—borrowed from general contract law—applies. Repudiation occurs where one party, by words or conduct, demonstrates an intention not to be bound by the contract.

In Mumali, the employee’s conduct amounted to such a repudiation. The employer’s subsequent action in issuing a termination notice was viewed as a legal acceptance of that repudiation, thus bringing the contract to an end. This approach aligns with common law principles recognised in earlier Kenyan decisions such as Catherine Wanjiru Gachigi v Airtel Networks Kenya Limited [2013] eKLR, where employee conduct was interpreted as implied termination through breach.

3.3 Procedural Fairness under Section 41 of the Employment Act

A key point of contention was whether the employer complied with Section 41, which outlines procedural safeguards prior to termination:

• Notification of grounds for dismissal.
• Opportunity for the employee to respond in the presence of a colleague or union representative.

While this provision is mandatory in most dismissal cases, Kenyan courts have acknowledged exceptions in cases of employee desertion. In Mumali, the court held that where the employee has made themselves unavailable, it is impractical to adhere strictly to procedural steps. This is consistent with the reasoning in Ayub Kombe Gwali v Kenya Ports Authority [2016] eKLR, where the court observed that procedural fairness cannot be enforced where the employee’s own conduct renders it impossible.

4. Broader Implications for Kenyan Labour Law

The ruling in Mumali provides a pragmatic balance between employee rights and employer duties:

• It confirms that desertion, when proved, constitutes a lawful ground for termination.
• It demonstrates judicial recognition of contextual fairness, especially when employee conduct precludes adherence to strict procedural norms.
• The case reinforces the principle that employment contracts are reciprocal: just as employers must act fairly, employees must fulfil their duties, including attendance and communication.

Additionally, this case may serve to guide HR policies and internal disciplinary mechanisms, particularly in sectors prone to high turnover or absenteeism. Employers are advised to keep detailed records of absences, attempts at communication, and notice issuance, to withstand legal scrutiny.

5. Conclusion

The court's decision in Mumali v Blink Studio Ltd underscores a key principle in Kenyan employment jurisprudence: that procedural fairness must be interpreted contextually, and that employee conduct—especially where it signals abandonment—can relieve an employer from full procedural compliance. This reinforces a contractual understanding of the employment relationship, where both parties are bound by duties of good faith, communication, and performance.

As Kenyan employment law continues to develop, this case illustrates how courts may increasingly rely on practical realities and contractual doctrines to resolve employment disputes in a fair and balanced manner.

 

 Disclaimer: This article is for informational purposes only and does not constitute legal advice.

 

The Unconscionability doctrine - Even an otherwise valid contract may be voided or modified when terms are oppressive or exploitative: The case of Dhiman v Shah (Civil Appeal E380 of 2023) [2025] KECA 1264 (KLR)

Full Case: Dhiman v Shah(Civil Appeal E380 of 2023) [2025] KECA 1264 (KLR)

Procedural History

• The dispute originates from High Court, Nairobi, Commercial Case No. 205 of 1999.
• The respondent (Shah) sued for recovery of loan amounts plus interest and sought sale of property secured by a memorandum of charge.
• In 1999, an ex parte judgment was entered awarding the respondent sums and authorizing sale of the secured land.
• The property was sold by public auction; respondent obtained vesting order; he became registered owner and evicted the appellant.
• The appellant applied to review and set aside the ex parte judgment; this was dismissed.
• Appellant appealed to Court of Appeal (Civil Appeal No. 33 of 2007). In July 2015, the Court of Appeal set aside the ex parte judgment, remitted the case for retrial, deeming the draft defence as filed.
• On retrial, the High Court upheld the agreement, the vesting, and dismissed the counterclaim.
• The appellant (Dhiman) lodged the present appeal (E380 of 2023) challenging the High Court’s decision.

Facts of the Case

• On 17 December 1996, Dhiman and Shah entered a loan agreement: Shah would lend Ksh 13,000,000 in three tranches:
1. Ksh 2,500,000 on or before execution
2. Ksh 2,500,000 on 31 January 1997
3. Ksh 8,000,000 on 2 April 1997
• In fact, only Ksh 7,000,000 was advanced:

• Ksh 2,500,000 on 17 December 1996
• Ksh 2,500,000 on 31 January 1997
• Ksh 2,000,000 on 5 August 1997

• The loan was to carry 36% interest per annum, payable quarterly. The first two tranches were secured by promissory notes and a memorandum of charge over the property LR No. 209/8192/8 (owned by the appellant).
• The appellant defaulted on payments including interest, and by February 1999 had not repaid principal or interest.
• The respondent filed suit in February 1999 claiming Ksh 13,813,132.25 plus interest, and sought sale of the property and deficiency judgment.
• Because the appellant did not enter appearance or defence, interlocutory (ex parte) judgment was entered in 1999, and the property was sold via court process, with the respondent himself bidding and securing registration.
• The appellate history noted above followed, culminating in the 2015 Court of Appeal’s order setting aside the ex parte judgment and remitting for retrial.
• On retrial, the High Court found the loan agreement valid, upheld the security, and held appellant’s counterclaim time‑barred, among other findings.

Issues on Appeal

The Court of Appeal distilled the grounds into four main questions:

1. Whether the vesting order and consequential orders remained valid after the ex parte judgment was set aside in 2015.
2. Whether the loan agreement was enforceable, considering alleged deviations from its terms, illegality, or unconscionability.
3. Whether the respondent’s suit was premature, i.e., filed before the contractual time for repayment had arisen.
4. Whether the appellant’s counterclaim was time‑barred or otherwise valid.

Additionally, issues of whether the interest rate was unconscionable or illegal under the Banking Act, whether the contract was materially breached or compromised, and whether unjust enrichment principles should apply were also debated.

Holding (Decision)

• The appeal is partly allowed.
• The Court of Appeal set aside the High Court’s orders (19 September 2019).
• The ex parte judgment of 16 September 1999 and all consequential orders (including vesting order) were declared null and void by virtue of their being based on the ex parte judgment which had been set aside.
• The respondent’s title to LR No. 209/8192/8 is revoked; the land register is to be rectified in favour of the appellant.
• The appellant is ordered to pay the respondent Ksh 4,000,000 (the outstanding loan sum) with interest at court rates from 19 September 2019.
• Should the appellant fail to pay, the suit property may be sold by public auction for recovery of the debt.
• Because both parties succeed in part, no costs order is made.

Reasoning

1. Effect of setting aside ex parte judgment & consequential orders
• The Court held that setting aside the ex parte judgment in 2015 logically nullified all orders that emanated from it (sale, vesting, transfers).
• The respondent argued the sale and vesting orders remained valid because they were never appealed or set aside by the appellant. He contended that special procedure should have been invoked to challenge them (Orders of Civil Procedure).
• The Court rejected this, reasoning that because the foundation (ex parte judgment) was voided, its offspring orders cannot stand.
• The Court conceded that the 2015 judgment did not expressly mention “consequential orders,” but held that the intent to set aside all dependent orders was implicit.
2. Enforceability of the loan agreement; Unconscionability
• The appellant challenged the contract on multiple grounds:
  a) Material deviation / compromise — the fact that only Ksh 7 million was disbursed (not the full 13 million) and deviations in timing.
  b) Illegality under the Banking Act (i.e., unauthorized lending).
  c) Unconscionable interest terms (36% per annum, compounded quarterly) leading to extreme escalation.
• On material deviation: The Court held that the deviations did not render the entire contract unenforceable. The appellant was first in material breach by failing to meet interest obligations, thus justifying the respondent’s refusal to advance further funds.
• On illegality under the Banking Act: The Court found no evidence that the respondent was operating as a banking institution or that the agreement contravened statutory restrictions. Ordinary individuals may lend to one another, unless proven otherwise.
• On unconscionability: The Court held the terms were unconscionable, notably the compound interest over many years resulting in astronomical figures far disproportionate to the principal. The Court declared the agreement void on that ground.
3. Prematurity / timing of suit
• The appellant argued the suit was prematurely filed (before contract matured). The Court addressed this but found that the appellee was entitled to act when default and nonpayment became clear, especially given the appellant’s failure to meet interest obligations.
4. Counterclaim / time-bar
• The High Court had held the appellant’s counterclaim was time-barred, treating it as a contractual claim subject to a 6-year limitation. The appellant argued his counterclaim was proprietary (seeking restitution of land) and not subject to the limitation.
• The Court of Appeal considered that issue moot in light of its primary holding (that the vesting order is void and contract unenforceable).
5. Unjust Enrichment / Restitution
• Since the agreement is void, the Court did not merely leave the parties as they were. To prevent unjust enrichment, the Court ordered Dhiman (appellant) to repay Ksh 4,000,000 (the amount he had actually received and not repaid) with interest at court rates.

Legal Principles & Doctrines Applied

• Unconscionability doctrine: Even an otherwise valid contract may be voided or modified when terms are oppressive or exploitative.
• Effect of voiding a foundational judgment: When a judgment is set aside, orders dependent on it cannot stand.
• Restitution / unjust enrichment: When a contract is void, equitable doctrines may require recovery or return of value to prevent one party being unjustly enriched.
• Freedom of contract limited by equity: Parties are bound by terms, but courts may intervene when enforcement would result in manifest injustice.
• Limitation of actions: Where counterclaims are based on contract, they may be subject to limitation periods unless they involve proprietary/land rights (though the Court treated that issue as moot).

Disposition / Orders

• The High Court's judgment of 19 September 2019 is set aside.
• The orders and judgment of 16 September 1999 (ex parte) and all consequential orders (sale, vesting, transfers) are declared null and void.
• The respondent’s title to the suit property is revoked; register rectified in favour of appellant
• The appellant is to pay Ksh 4,000,000 with interest from 19 September 2019; failure to pay enables public auction of the property.
• No costs order (since each party succeeds in part).

 Disclaimer: This article is for informational purposes only and does not constitute legal advice.