Automated Summary
Key Facts
Tononoka Steels Limited (Kenyan plaintiff) appealed a High Court dismissal of its suit against the Eastern and Southern Africa Trade and Development Bank. The dispute centered on a loan agreement governed by English law and an arbitration clause in London. The Court of Appeal ruled the High Court erred by applying Kenyan law instead of English law, overturning the dismissal and remanding for trial. The Bank's immunity defense under Kenyan law was rejected, as the contract's proper law was English, and commercial immunity exceptions applied.
Transaction Type
Loan and import credit facility agreements governed by English law
Issues
- Whether the arbitration clause in the Loan Agreement (clause 16.12) effectively ousts the Kenyan court's jurisdiction, and whether the defendant's failure to seek a stay under the Arbitration Act affects this determination.
- The validity of the defendant's defense of immunity under the Privileges and Immunities Act (Cap. 179) and Legal Notice No. 265 of 1991, and whether such immunity can be claimed when the contract's governing law is English.
- Whether the Kenyan court has jurisdiction when the contract is governed by English law, as stipulated in clause 16.10 of the Loan Agreement, and if this ousts the court's jurisdiction to hear the dispute.
Holdings
- The appeal was allowed with costs. The lower court's order striking out the suit and application was set aside, and the plaintiff's Chamber Summons relief was granted. The trial was ordered to proceed before another judge, with costs of the application and suit to be refunded by the defendant.
- The court determined that the arbitration clause (clause 16.12) in the Loan Agreement did not oust the jurisdiction of the Kenyan courts. The defendant should have applied for a stay under the Arbitration Act 1995, which it failed to do, rendering the lower court's jurisdictional ruling flawed.
- The court held that the defendant's immunity defense was invalid as the contract was governed by English law, not Kenyan law, and thus immunity could not be claimed under Kenyan jurisdiction. The learned judge's dismissal of the suit on immunity grounds was erroneous.
- The court ruled that Legal Notice No. 265 of 1991 could not oust the jurisdiction of the courts unless done by clear and unambiguous parliamentary legislation. The notice's provisions were insufficient to grant immunity to the defendant.
Remedies
- The defendant is ordered to refund the costs of the application and suit in the superior court, if already paid, within 30 days with interest at Court rates.
- The court substitutes the order to grant the relief sought in the plaintiff's Chamber Summons dated 26th February 1993 with costs.
- The order and decree of the superior court that dismissed the plaintiff's case are set aside.
- The trial of the action in the superior court is ordered to proceed to a hearing before another judge.
- The court allows the appeal with costs, overturning the lower court's dismissal of the plaintiff's suit and application for injunction.
Legal Principles
The court examined the application of Sovereign Immunity to the Eastern and Southern Africa Trade and Development Bank, concluding that immunity from judicial processes cannot be claimed in purely commercial transactions. The judgment emphasized that while sovereign immunity is recognized, exceptions apply when a state entity engages in commercial activities, and such immunity must be explicitly granted by statute, not inferred from contractual terms.
Precedent Name
- Damodar Jihanbhai & Co. Ltd. V Eustace Sisal Estates Ltd.
- Jagat Singh Bains v Chogley
- Overseas Finance Corporation Ltd. V Administrator-General
- Connecticut Fire Insurance Company v Kavanagh
- Pyx Granite Co. v Ministry of Housing
- Davis & Another v Mistry
- Scott v. Avery
- Visram and Karsan v. Bhatta
- Lever Bros. V Bell
Key Disputed Contract Clauses
- Clause 16.10 of the Loan Agreement stipulated that the agreement would be governed by English law, which became central to the jurisdictional dispute over whether Kenyan courts could adjudicate the case.
- Clause 16.12 of the Loan Agreement required disputes to be resolved via arbitration of the International Chamber of Commerce (ICC) in London, raising questions about its effect on Kenyan court jurisdiction.
Cited Statute
- Arbitration Act, 1995
- Privileges and Immunities Act (Cap. 179 of the Laws of Kenya)
- Legal Notice No. 265 of 26 May, 1991
Judge Name
- Ole Keiwua, J.
- A.A. Lakha
Passage Text
- I cannot bring myself to suppose that the defendant can be immune from the consequences of its acts... My conclusion therefore enables effect to be given to the manifest intention and consequences that flow from purely commercial transaction.
- This was also relied upon by Mr. Muthoga in his submission before the learned judge. There is no power to enact rules depriving any party of his access to the courts. If Mr. Muthoga's submission is correct (and I find that it is not), that the jurisdiction of the court was ousted and the defendant is immune from its process, then there is no power to make such a rule.
- The defence of immunity was accordingly not available to the Bank because it was not the Law of Kenya that was applicable. The proper law of the contract and the law the parties had selected to construe and govern the contract was the Law of England. It follows that the application and the suit before the superior court could not be dismissed by application of the Law of Kenya as the learned judge, with respect, erroneously did.
Damages / Relief Type
- Injunction
- Compensatory Damages