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In a decision dated 11 October 2024, the Kenyan Court of Appeal refused to stay the execution of an order by the High Court of Kenya staying proceedings pending arbitration, despite allegations of bias and corruption against the ICC. This post explores the main takeaways from this decision, which underscores the commitment of Kenyan courts to enforcing arbitration agreements.
Background
On 5 August 2009, Technoservice Limited (“Technoservice”) and Nokia Corporation (“Nokia”) entered into the Frame Repair Service (FRS) Agreement, under which Technoservice provided after-sales warranty repairs for Nokia's customers in Kenya. Subsequently, the parties entered into a Nokia Original Accessory Partner (NOAP) Agreement, appointing Technoservice as a non-exclusive distributor of Nokia accessories in Kenya. On 2 September 2013, Nokia sold its mobile phone business to Microsoft, including all related contracts. A dispute arose between the parties regarding the validity of Nokia's transfer of the FRS Agreement and the NOAP Agreement (together, the “Agreements”) to Microsoft without Technoservice's prior written consent. The Agreements contained almost identical arbitration clauses which provided for ICC arbitration seated in Helsinki, Finland.
The underlying arbitration
On 26 March 2018, Technoservice filed a request for arbitration, alleging that Nokia breached the Agreements by transferring them to Microsoft without Technoservice’s prior consent and sought damages for the breach (plus compound interest), totalling circa US$ 78 million. However, after Technoservice failed to pay its share of the advance of arbitration costs, the ICC notified Technoservice, on 27 March 2020, that its claims were considered withdrawn in accordance with article 37(6) of the ICC Arbitration Rules 2021.
After the discontinuance, Technoservice proceeded to pursue court proceedings in breach of the arbitration agreement.
Technoservice’s High Court Proceedings
On 16 April 2020, Technoservice commenced an action against Nokia before the High Court of Kenya. Nokia described the claims in this action as “identical” to the claims in the arbitration and filed an application seeking an order staying proceedings and referring the dispute to arbitration in accordance with Section 6 of the Kenyan Arbitration Act 1995.
In a ruling dated 23 October 2023, the High Court granted Nokia’s application, staying the proceedings pending arbitration. The court noted that the arbitration agreement was valid and enforceable, rejecting Nokia’s arguments that it was incomplete and inoperable for inter alia failing to state the place of the arbitration. The court noted that, absent an agreement by the parties, article 18 of the ICC rules allowed the ICC Court to fix the place of the arbitration. The court also rejected Technoservice’s arguments that the ICC was “biased, corrupted, prohibitively expensive, slow and unconstitutional”, noting that these arguments were not raised before the tribunal and were, in any event, unsubstantiated. The court condemned Technoservice for “casting aspersions” without proof and refused to give further consideration to its allegations.
The court concluded that there were “no tenable reasons that would make the arbitration clauses inoperative or unenforceable”, citing what appears to be the prevailing principle in Kenya that “where the test for inoperability and incapability of performance of the arbitration clauses were not met, then an invitation to declare the arbitration clauses inoperative and void was legally infirm.”
Technoservice sought to appeal this decision and applied to the Court of Appeal for an order staying the execution of the High Court’s order referring the parties to arbitration.
Court of Appeal’s Ruling
In its decision, the Court of Appeal considered the two grounds for granting the stay: (i) whether the appeal is arguable; and (ii) whether the interests of justice necessitate the grant of the stay. The appeal was rejected pursuant to the first ground.
Technoservice argued the High Court should have found that ICC was “biased, corrupted, prohibitively expensive, slow and unconstitutional”, the arbitration agreement was null and void, and Nokia had committed tax fraud in Kenya. However, the court found that Technoservice’s complaints were “misplaced”, noting that the parties were bound by the arbitration agreement and that Nokia fulfilled all requirements for the grant of a stay under the Kenyan Arbitration Act 1995.
The court did not find it necessary to address the merit of Technoservice’s allegations and dismissed its application, awarding costs to Nokia and upholding the High Court’s order.
Comments
This decision underscores the Kenyan courts’ commitment to enforcing arbitration agreements, even in the face of allegations of bias and corruption. Neither the High Court nor the Court of Appeal was swayed by these allegations, with both courts enforcing the arbitration agreement and effectively referring the said allegations for determination by the arbitral tribunal. This demonstrates the commitment of Kenyan courts to protecting parties’ choice of arbitration and serves to reassure arbitration users that Kenyan courts will respect and enforce arbitration clauses.
The authors would like to thank Suvethan Ganapathy Sundaralingam for his help in preparing this article.