Arbitration is a preferred dispute resolution mechanism in Kenya, valued for its efficiency, confidentiality, and flexibility. However, corruption poses significant challenges in this landscape. As the fight against corruption intensifies across all business stages, allegations increasingly surface in commercial disputes and arbitration proceedings. These claims may arise as strategic tactics, excuses for avoiding obligations, or genuine efforts to address irregularities and misconduct.
Can allegations of corruption serve as a bar to jurisdiction of arbitral tribunals or admissibility of claims?
Any claim that is marred by corruption is inadmissible in Kenya and arbitral tribunals have the power to rule on their jurisdiction in such a case.
Under Section 17 of the Arbitration Act 1996 (the Arbitration Act), arbitral tribunals in Kenya have the authority to determine their own jurisdiction, including issues regarding the existence or validity of the arbitration agreement (principle of compétence-compétence).
The Arbitration Act upholds the principle of separability, ensuring that the arbitration agreement remains valid even if the main contract is invalidated due to corruption. Thus, arbitrators can address disputes, including those involving economic and private concerns, irrespective of prior corrupt activities.
Notably, in World Duty Free Company Limited v Republic of Kenya (ICSID Case No. ARB/00/7), para. 188, an ICSID tribunal dismissed the claim against Kenya, ruling that a contract obtained through corruption is unenforceable as it contravenes international public policy. Despite this, World Duty Free later received a favorable ruling from an ad hoc tribunal, which was subsequently set aside by the Kenyan High Court for being against public policy, as it was tied to the corruptly obtained contract (Kenya Airports Authority v World Duty Free Company Limited t/a Kenya Duty Free Complex (High Court of Kenya, Nairobi, misc. application no. 67 of 2013)).
Can allegations of corruption affect the validity of an arbitral award?
Yes, under Kenyan law, allegations of corruption can significantly impact the validity of an arbitral award. According to Section 35 of the Arbitration Act, awards may be set aside if they are found to be influenced by fraud, undue influence, or corruption. Additionally, Section 37 of the Arbitration Act allows arbitral awards to be challenged at the enforcement stage in the High Court if they conflict with the public policy of Kenya. This includes corruption and bribery offences, which are prohibited by the Anti-Corruption and Economic Crimes Act and the Bribery Act, 2016. Public policy considerations in Kenya include adherence to the Constitution of Kenya, 2010, and other laws strictly prohibiting corrupt practices. Consequently, awards influenced by corruption are likely to be viewed as contrary to public policy and subject to annulment (as demonstrated in Nedermar Technology BV Ltd v Kenya Anti-Corruption Commission & Another [2006] eKLR).
A pivotal example is the World Duty Free Company Limited v Republic of Kenya (ICSID Case No. ARB/00/7) mentioned above. As explained, an ICSID tribunal initially dismissed World Duty Free Company Limited’s claim against Kenya, stating that a contract obtained through bribery violated international public policy. Although an ad hoc tribunal later awarded damages to World Duty Free Company Limited, this decision was overturned by the Kenyan High Court, which found the award to be inimical to public policy due to the corrupt origins of the contract (Kenya Airports Authority v World Duty Free Company Limited t/a Kenya Duty Free Complex (High Court of Kenya, Nairobi, misc. application no. 67 of 2013)).
In annulment or enforcement proceedings, can the court review the award and the merits to determine whether corruption or related offences affect the underlying dispute?
In annulment or enforcement proceedings, the High Court of Kenya has the authority to review an arbitral award to determine whether corruption or related offences affect the underlying dispute. Under Section 37 of the Arbitration Act, the court may refuse to recognise or enforce an award if it is shown that a party to the arbitration agreement was incapacitated, the agreement is invalid, proper notice was not given, the party was unable to present their case, the award deals with matters beyond the arbitration agreement’s scope, the composition or procedure of the tribunal was improper, the award is not binding or has been annulled, or if the award was procured by fraud or corruption. Additionally, an award can be set aside if its enforcement would be contrary to the public policy of Kenya, which includes instances of fraud and corruption.
The Supreme Court of Kenya, in Nyutu Agrovet Limited v Airtel Networks Kenya Limited & Another, held that an appeal against a High Court decision under Section 35 of the Arbitration Act lies as of right to the Court of Appeal only in cases where the High Court has made a decision so manifestly wrong that it closes the door to justice for either party. This decision underscores the finality of arbitration awards and limits the grounds for appeal. Similarly, in Kampala International University vs. Housing Finance Company Limited (Petition No. 34 (E035) of 2022), the Supreme Court upheld the Court of Appeal’s decision to deny leave to appeal against a High Court decision, reinforcing the limited circumstances under which appeals against arbitral awards are permissible.
A landmark case demonstrating the Kenyan judiciary’s stance on corruption in arbitral awards is World Duty Free Company Limited v Republic of Kenya discussed above. An ICSID tribunal initially dismissed World Duty-Free’s claim against Kenya due to the corrupt origins of the contract. Despite an ad hoc tribunal later awarding damages to World Duty Free, the Kenyan High Court set aside this award, citing it as contrary to public policy because of the corrupt foundation of the contract.
Furthermore, under Section 39 of the Arbitration Act, the High Court can vary an arbitral award if the parties have expressly agreed that any question of law arising from the award may be referred to the High Court. The court, in determining such a question of law, may confirm, vary, or set aside the award.
In conclusion, while the High Court of Kenya is generally cautious about intervening in arbitral awards, it retains the authority to review and set aside awards involving corruption or other public policy violations. This approach, supported by statutory provisions and case law, balances the finality of arbitration with the necessity to uphold public policy.
Can courts review corruption allegations which have not been raised in the arbitration?
In Kenya, there is no requirement in the Arbitration Act that allegations of fraud or corruption must have been raised during the arbitral proceedings. A party challenging the enforcement and recognition of an award can bring these allegations before the High Court, offering proof that the award was obtained through corruption or fraud. The High Court may refuse enforcement if it finds that recognition and enforcement would be contrary to Kenya’s public policy, which includes considerations of fraud and corruption. This means that even if the parties do not raise such allegations, the court has the authority to examine the record and, if satisfied that the proceedings were tainted by fraud and corruption, refuse recognition and enforcement.
The World Duty Free case serves as an example of how the Kenyan judiciary handles corruption in arbitral awards. The Kenyan High Court set aside the award, deeming it contrary to public policy because of the corrupt foundation of the underlying contract. Notably, the bribery allegation was not raised by either party in the arbitration, yet the High Court still addressed it, emphasising the judiciary’s active role in ensuring that arbitral awards comply with public policy and are free from corruption.
Do courts defer to the arbitral tribunal’s finding that no corruption acts were committed?
Under Kenyan law, Sections 107 and 108 of the Evidence Act stipulate that the burden of proof lies with the party alleging corruption. The courts may not necessarily defer to an arbitral tribunal’s finding that no acts of corruption were committed, depending on when these allegations were raised. The High Court has a duty to independently evaluate the evidence presented before the arbitral tribunal and make its own determination regarding the existence of corrupt acts. The burden of proof rests with the party alleging corruption, as seen in the case of Alice Wanjiru Ruhiu v Messiac Assembly of Yahweh [2021] eKLR.
Is there a standard of proof used by arbitrators and reviewing courts to assess the existence of corruption?
In Kenya, there is no specific burden of proof for allegations of corruption in arbitration proceedings. However, since these proceedings are civil in nature, arbitrators and the High Court generally apply the balance of probabilities standard to determine the existence of corruption. This means that the party alleging corruption must demonstrate that it is more likely than not that the corruption occurred, in accordance with Sections 107 and 108 of the Evidence Act. The courts will scrutinize the evidence presented to assess if it adequately supports the claim that corruption influenced the arbitration process.
Furthermore, Kenyan courts emphasise the necessity of a high threshold of evidence to substantiate allegations of corruption, ensuring that claims are not based on mere speculation but are backed by solid evidence, as highlighted in Telkom Kenya Ltd vs Kam Consult Ltd [2001] 2 EA 574.
Which method do arbitrators and reviewing courts employ to establish evidence of corruption?
Arbitrators and reviewing courts in Kenya employ a comprehensive approach to establish evidence of corruption. This includes the use of documentary evidence, witness testimony, forensic analysis, circumstantial evidence, affidavits, cross-examination, audit reports, and legal presumptions. The aim is to ensure that any allegations of corruption are substantiated by credible and substantial evidence, maintaining the integrity of the arbitration and judicial processes, as seen in Gerick Kenya Limited v Honda Motorcycle Kenya Limited [2019] eKLR and Kenneth Maweu Kasinga v Cytonn High Yield Solution LLP & Another [2020] eKLR.
Are arbitrators seated in your jurisdiction bound by criminal proceedings on issues that could impact the underlying arbitration dispute?
In Kenya, arbitrators are not strictly bound by criminal proceedings but must consider the implications and relevant evidence arising from such proceedings. They operate independently under the Arbitration Act but must be mindful of public policy considerations, the potential impact of criminal findings, and the need to ensure a fair and just resolution of the arbitration dispute. Courts may also intervene to stay arbitration in certain circumstances to ensure coherent and consistent legal outcomes, as illustrated in Telkom Kenya Ltd vs Kam Consult Ltd [2001] 2 EA 574 and Laiser Communications Limited v Safaricom Limited.
Criminal and civil proceedings can run concurrently in Kenya, as stipulated by Section 193A of the Criminal Procedure Code. Consequently, arbitration proceedings, being civil in nature, can proceed alongside any criminal proceedings related to corruption charges.
To what extent do they rely on or defer to findings from parallel criminal investigations?
In Kenya, Section 193A of the Criminal Procedure Code allows both civil and criminal proceedings to run concurrently. If a conviction for corruption occurs before the conclusion of arbitration proceedings, the tribunal may, upon application or sua sponte, take these findings into account, particularly if they affect the validity of contracts or the fairness of the arbitration. However, if the arbitration has concluded, the arbitral award may be set aside under Section 35 of the Arbitration Act if it is deemed contrary to Kenyan public policy, which includes considerations of criminal conduct such as fraud or corruption.
If criminal proceedings are ongoing without definitive findings, arbitrators may proceed cautiously, evaluating the evidence available without fully deferring to the criminal process. This approach maintains the integrity of the arbitration while acknowledging the potential impact of criminal findings.
In Telkom Kenya Ltd vs Kam Consult Ltd [2001] 2 EA 574, it was noted that an arbitrator does not lose jurisdiction simply due to an allegation of fraud. The arbitrator is entitled to examine evidence and determine whether fraud has been established. While it would be against public policy to enforce a contract with an arbitration clause if fraud is proven, dismissing an arbitrator’s jurisdiction based solely on unproven allegations would undermine the legislative intent.
Are remedies available when an arbitral tribunal rules that there is no evidence of corruption but subsequently a criminal ruling decides otherwise?
In Kenya, when an arbitral tribunal concludes that there is no evidence of corruption, but a subsequent criminal ruling finds otherwise, several remedies are available. These include setting aside the arbitral award, appealing, or seeking annulment of the award. These remedies ensure that public policy is upheld and that awards tainted by corruption are not enforced. Courts play a crucial role in reviewing such cases to ensure justice and adherence to legal standards.
In the case of Laiser Communications Limited v Safaricom Limited, the Court of Appeal emphasized that, given the initiation of criminal investigations, the fraud allegations were serious and should be adjudicated by the courts. This case underscores the importance of distinguishing between the roles of arbitration and criminal proceedings, affirming that serious allegations of corruption may warrant judicial intervention beyond the scope of arbitration.
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