In Kenya, the hype and hope around arbitration is waning.
In textbooks, we read that commercial arbitration has three advantages over litigation in courts—speed, finality and cheapness. It seems to me that here in Kenya these principles are honoured more in breach than in practice.
Away from the public limelight, an arbitration dispute between Kenya Breweries Ltd and a building contractor has left the beer maker with a whopping Sh2.5 billion claim over what began as a smaller claim of Sh163 million in February, 2020.
The subject of this sensational arbitration dispute is the construction of the Kisumu Breweries. The dramatis personae: Jilk Construction Company whose proprietor is Pastor Sammy Maina Kamau. The arbitrator is a Nairobi-based quantity surveyor, Mr Mutinda Mutuku, who was appointed by the Architectural Association of Kenya on an application by Mr Kamau.
The latest development in the saga is the move by Kenya Breweries to file a petition in the High Court to challenge the arbitration proceedings on the grounds of constitutionality of the process.
Escalation of claim
The escalation of claim is the most remarkable aspect in this saga because the upshot of the whole arbitration process is that Kenya Breweries is now faced with a claim of a value that far exceeds the entire value of the project. The original value of the contract was Sh1.5 billion, compared to the Sh2.5 billion claim that was allowed by the arbitrator. Mark you, Kenya Breweries had already paid Sh1.2 billion to the contractor by the time the parties went into arbitration.
The biggest lesson from this is that mismanagement of arbitration proceedings can seriously damage the health of commerce in an economy. Whichever way you look at it, this dispute raises broader public policy issues.
In theory, arbitration is supposed to be cheap and efficient. Yet as you read through the documentation in the proceedings in this case, the inescapable conclusion you will arrive at is that even paying an arbitrator has become a very expensive affair.
I have seen a case in the current dispute where the arbitrator claimed to have spent 570 hours reviewing documents within 23 days, which is implausible even if he had worked continuously for 24 hours. I also came across two separate invoices of Sh5.5 million each, where the arbitrator charged for working 275 hours. The fees by the arbitrator was set at Sh20,000 per hour.
I have also held the view that courts, hospitals and litigation in general has become a luxury in Kenya in terms of costs. Clearly, and as the case I describe demonstrates, commercial arbitration has also become a luxury in this country.
We read in textbooks that arbitration proceedings are fast, efficient and economical. That in the developed world, arbitration proceedings are typically concluded in between six to 12 months. Is it not the height of irony that the case I am referring to here has been going on for four years? The fees have been accumulating, rapidly. Today, arbitration is becoming, cumbersome, slow and expensive.
If we are to restore public faith in arbitration proceedings, we will also have to deal with the issues of conflict of interest, even-handedness and impartiality of the arbitrator.
From the outset, the most contentious issues revolved around allegations of improper relationships between players and the arbitrator. You had an environment whereby allegations of the arbitrator being biased were flying back and forth almost daily. Applications to have the arbitrator recuse himself over improper dealings and transactions with parties had to be litigated all the way to the High Court.
Apparently, and from the court filings, the Directorate of Criminal Investigations (DCI) last year obtained court orders allowing investigators to inspect the bank accounts and call logs of some of the players in the conflict and the arbitrator. The reason Kenya Breweries has included DCI as an interested party in the petition is to force those findings to be put on record. It contains sensational stuff. How the events evolve remains to be seen. But the petition lodged in court promises to be a cause celebre, especially if the DCI is called upon to table its findings.
Waning
In Kenya, the hype and hope around arbitration is waning. In my view, the problem is not with arbitration itself, but with arbitration as currently practised in this country. It seems to me that it is the calibre and intellectual integrity of the person entrusted with the job of decision-making that matters. The crux of the petition by Kenya Breweries is that the proceedings raise issues that transcend the scope of the Arbitration Act
If you lose faith with a politician in Kenya, you can kick him out. If you lost faith in an arbitrator, you still have to live with him. We must resolve the crisis of public faith in arbitration.
