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.