International Commercial Arbitration in Kenya

Globalization has necessitated the growth and development of international arbitration worldwide. International traders' preference for international arbitration has been due to the lack of trust for the national courts to settle disputes.

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Globalization has necessitated the growth and development of international arbitration worldwide. International traders’ preference for international arbitration has been due to the lack of trust for the national courts to settle disputes. National courts and legal systems are viewed as inconsiderate to the different national and legal backgrounds at play in international disputes. One of the key features of international and regional trade is the need for an effective framework to manage commercial disputes.1 The reason is disputes are inevitable in international trade. International trades traverse nations, and therefore international arbitration is the preferred mode of settling disputes because of its; flexibility and adaptability of procedure, the ability to customize the process, party participation predictability, the expertise of arbitrators, procedural and evidentiary advantages, the finality of decisions and awards, the enforceability of awards, speed and efficiency of arbitration, cost savings, privacy and fairness and accountability.2 These factors have contributed to the success of international arbitration in recent decades. As traditional justice systems lack the practicability to solve international disputes, arbitration has gained ground. The presence and growth of institutions with the expertise in handling international disputes have aided the growth of international arbitration. One such institution is the Nairobi Centre for International Arbitration (NCIA) in Nairobi. As a preferred alternative to international disputes, this article examines the challenges to its practice in Africa and Kenya and its advantages and disadvantages.

Advantages of International Commercial Arbitration

The advantages of international commercial arbitration include provision for enforcement under the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the New York Convention), choice of neutral forum, choice of arbitrator, speed and finality, flexibility, and confidentiality.

Although the New York Convention allows for enforcement, the national law still plays an important role. Therefore the national courts are at play in the enforcement of the arbitral award. The avoidance of scrutiny by national courts may never be realized as the matter may well find its way before a judge in the country of enforcement.

Although the parties under international commercial arbitration have the freedom to choose a neutral forum and arbitrators of their choice, the country law may direct that a specific entity handle certain disputes. For example, investment disputes with investors from countries with which Kenya has a Bilateral Investment Treaty (BIT) must have the matter determined at ICSID. There is little allowance for selecting either the forum or the arbitrator.

Confidentiality is another advantage since businesses need to keep their matters private. This advantage is, however, threatened by the growing tendency of publishing international commercial arbitration awards. Leonard Obura Aloo and Edmond Kadima Wesonga, in their paper, ‘What is there to Hide? Privacy and Confidentiality versus Transparency: Government Arbitrations in Light of the Constitution of Kenya 2010’5 discuss the opposite principles of transparency and confidentiality and argue for public access to government or state-related arbitration, which would include an international commercial arbitration in which the state is a party.5 Most of the proponents of enforcement of confidentiality in international commercial arbitration argue that exposure of disputes to public scrutiny may have negative consequences to parties businesses.

Disadvantages

It is quite costly to engage in international commercial arbitration. For example, an arbitrator under the International Centre for Settlement of Investment Disputes (ICSID) handling an investment dispute receives USD 3,000 per meeting day or an 8-hour day of other work.8 That is the equivalent of Kshs. 300,000 per day at an exchange rate of 1:100. This is excluding per diem subsistence allowances, when the arbitrators are away from their normal place of residence, to cover personal expenses such as food, accommodation and personal communications for the arbitrators.6 Fees and living allowances are not the only costs involved; an arbitrator must also be reimbursed travel expenses for all meetings related to arbitration. The travel expense is for one class above the economy class, which is business class for flights. The ICSID Secretariat is responsible for the refund after claims submission by the arbitrator. Upon approval of the claim, the World Bank makes the payment to the arbitrator’s bank account. The parties only receive the final bill after tabulation but do not have access or control over the claimed expenses. The costs to the parties can be quite expensive.

Challenges to International Commercial Arbitration

1. Appointment of international arbitrators by parties.

Despite the fact that Africa and Kenya have individuals with the necessary skills and expertise to arbitrate on international disputes, coupled with institutions that facilitate international commercial arbitration, parties still insist on choosing arbitrators from their home countries. This is made worse by the fact that even local parties prefer to appoint non-locals as arbitrators opting to appoint non-Africans. The autonomy to appoint arbitrators in international commercial arbitration implies that parties cannot be forced to appoint an arbitrator involuntarily. This law places Africa, and indeed Kenya at a disadvantage since the continual appointment of foreigners to arbitrate portrays Africa and Kenya as lacking arbitrators with sufficient expertise and skills for international commercial arbitration.

2. Insufficient legal frameworks and institutions on arbitration.

There have been inadequate legal regimes and infrastructures for the efficient and effective organization and conduct of international commercial arbitration in Africa.7 For a long time, African states have neglected establishing adequate legal and institutional frameworks for international arbitration. The existing legislation on arbitration barely contain provisions for international arbitration. States may be lacking knowledge in multilateral treaties since they do not participate in such treaties that contain international disputes. This works against international arbitrators since they cannot showcase their prowess in international dispute resolutions.

3. Different cultures between parties

Foreigners have always been wary of African international arbitrators, especially when one of the parties is African due to cultural differences. These differences may be in reference to economic, political and/or legal developments, thus creating varying opinions of issues, prejudices and conflicts of interests, especially in international economic relations.8 This has led to most disputants seeking for non-African arbitrators to oversee their disputes.

4. Poor or inadequate marketing

Marketing Africa as a center for international commercial arbitration has been poor. The perception is that Africa lacks skilled and qualified international arbitrators and also lacks institutions to spearhead international arbitration. Foreigners and even African business leaders have not sought to know the status of arbitration in Africa, and Africa hasn’t positioned itself as a center for international arbitration.

5. Unclear drafts

Arbitration clauses in Africa need proper drafting to eliminate ambiguity. Misinterpretation of clauses is a major cause of courts interference as parties seek courts interpretation of clauses. This interference intimidates the foreigners, thus making them shy away from African centres.9

6. Interference by courts

This is a significant challenge for arbitrators. Courts exercise authority over arbitration matters either as a matter of statutory or inherent powers.10 Arbitration Act gives the courts freedom to interfere or intervene in arbitration proceedings in certain instances. The exercise of these powers is sometimes misused and extended beyond what the Act provides. In cases of evidence of illegality, fraud, incapacity or an award against public policy, courts intervention is sometimes misused. Investors are intimated by the latitude given by the courts to intervene in arbitral proceedings. The fear is from the fact that it’s unclear what reasoning the courts might adopt in the deliberation of disputes. In the recent past, courts have enforced the provisions of the Arbitration Act with exceptional diligence, thus lending more credence to the arbitral process.11 The Kenya Arbitration Act Section 10 limits courts intervention to that which is provided for in the Act, which is in line with Article 5 of the UNCITRAL Model Law on international commercial arbitration. The article limits the role of courts in arbitration proceedings to only circumstances that are expressly mentioned in the Model Law. However, courts interference has increased on account of public policy. The Kenya Arbitration Act provides for international arbitration placing Kenya as a favourable destination in matters arbitration. Foreigners, however, are wary of the fact that the Act does not state instances of courts intervention but generalizes on the issue. This generalization leaves room for courts intervention for interpretation. For instance, it is unclear what public policy is, but it is subject to courts interpretation. Though the public policy has been defined in the Kenyan context20, the lack of a clear-cut definition of the same can sometimes be applied with disastrous results.

Other challenges worth of mention are: Corruption, Government interference, control of costs, Biasness, institutional capacity and endless court proceedings. In addition to the Arbitration Act , 1995 , Kenya acceded to the New York Convention on the Recognition and Enforcement of Arbitral Awards (NYC) and to the International Convention on the Settlement of Investment Disputes (ICSID). The 1958 New York Convention is an important convention in recognising and enforcing foreign arbitral awards, which is an important factor in giving legitimacy to such arbitral awards regardless of state boundaries.13 The Arbitration Act, No. 4 of 1995 (As amended in 2009), governs the arbitration process in Kenya. Under this law, parties to a dispute can refer their disputes to arbitration by way of a written agreement.14 This can be done through arbitration clauses which clearly stipulates that any matter that arises thereof shall be referred to arbitration. An arbitration is international if inter alia the parties to an arbitration agreement have, at the time of the conclusion of that agreement, their places of business in different states.15 Section 36(2) of the Kenyan Arbitration Act, 1995 provides that international arbitration awards shall be recognized as binding and enforced in accordance with the provisions of the New York Convention or any other convention to which Kenya is a signatory and relating to arbitral awards.16 Applied well, Kenyan Law has the potential and platform to advance international commercial arbitration.

Conclusion

Arbitration, is one of the Alternative Dispute Resolution, is the preferred tool for resolving disputes among international business people. Its advantages over litigation, such as its transnational applicability in international disputes with minimal or no interference by the national courts, have given business people the confidence to realise justice in the best way achievable.17 The challenges in international arbitration in Africa and Kenya are a huge obstacle to the delivery of justice. These challenges need to be resolved so that Africa and Kenya can be great contributor to international commercial arbitration. There have been significant efforts to do so, but it has not yet been implemented fully because of the obstacles that need to be addressed with regards to these institutions. This will, in turn, go a long way in making Africa reach the international standard for commercial disputes both in Africa and the world at large.

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