ARBITRATION AS AN ALTERNATIVE DISPUTE RESOLUTION METHOD

INTRODUCTION

Arbitration is aprocess in which a third party NEUTRAL or an ODD NUMBERED panel of ne

utral persons render a decision on the merits of a case.1 The statute that deals with arbitration in
Kenya commenced on the 2nd of January 1996 by virtue of Legal Notice No. 394 of 1995.2 The
Constitution provides that, in exercising judicial authority, the court and tribunals must be guided
by the following principles:3 Alternative forms of dispute resolution including reconciliation,
mediation, arbitration and traditional dispute resolution mechanisms will be promoted. 4

The Arbitration Act is based on a Model of the United Nations Commission on International Tr
ade Law (UNCITAL) which was adopted in 1985 with a view to encouraging arbitration and pro
cesses that would have global recognition. United Nations came up with a model of a statute that
has been adopted by many countries. The essence of the act is to provide for a broad party auton
omy in fashioning the arbitration [Link] means that parties who enter into an arbitration ag
reement are to a large extent at liberty to determine the process of adjudication of the disputes th
at will go to arbitration. This autonomy includes but not limited to:

 who the arbitrator will be

 the venue of arbitration.
 the substantive law that will apply to that agreement or arbitration.
 how the arbitral process itself will be conducted.

1
WIPO,` What is Arbitration’ < [Link] accessed 12 March 2020
2
Arbitration Act (1995) Act No. 4 of 1995
3
Article 159(2)
4
Ibid,159(2)(d)
 To a large extent, the Arbitration Act provides the default position in very many respects so that
if parties in an arbitration agreement have not provided the number of arbitrators, then the statute
will tell you that the default position is the presumption that the parties intended for one arbitrato
[Link] Act provides for an agreement by the parties to submit to arbitration all or certain disputes
which have arisen or which may arise between them in respect of a defined legal relationship wh
ether contractual or not. 5 A distinction is made or liberty is given to the parties to choose that onl
y certain types of disputes will go to arbitration and not all of the disputes that arise will go to arb
itration. An example is where you have a tenancy agreement between a tenant and a landlord w
hich provides that there will be review of rent after every two years of the term under the tenancy
and the tenancy agreement may proceed to say that at the time of review the margin by which ren
t will be increased will be by agreement of the two parties. It may proceed to state that if there is
a dispute as to what the margin should be, then the matter should be referred to arbitration.

Parties are at liberty to select certain disputes and agree that those should go to arbitration while
others may remain for determination by the [Link] other important distinction made by the st
atutory definition is that parties can anticipate disputes and parties can also decide to go into arbit
ration after disputes have already arisen i.e. an agreement to arbitrate may be made in respect of
existing disputes between the parties or in respect of disputes that may occur in the [Link] Act
shall apply to both domestic and international arbitration.6

FORMAL REQUIREMENTS7

(a) an arbitration agreement may be in the FORM of an arbitration clause in a contract or it may
be in the form of a separate agreement all together.

(b) An Arbitration Agreement shall be in writing, it is a requirement that it be not [Link] arbitrat
ion agreement is in writing if it contains ;a written document by the parties,an exchange of letters;
telex, telegram or other means of telecommunications which provide a record of the agreement
and an exchange of statements of claim and defence in which the existence of the agreement to a
rbitrate is alleged byone party and not denied by the other party.

5
Arbitration Act, Sec 3
6
Arbitration Act cap 49,Sec 2
7
Arbitration Act, Sec 4
The reference in a contract to a document containing an arbitration clause shall constitute an arbi
tration agreement.8

In practice not both parties to an agreement are as keen to have the dispute resolved. The disputa
nts are usually at different positions. So if you have a clause that facilitates to prolong the proces
s then the Respondent will capitalise on it since he is not interested in having the matter resolved.
It is thus advisable that a basic arbitration agreement or clause should provide some essential det
[Link] is a distinction between the law governing the contract and the law governing arbitrati
on. For instance if a contract stipulates that in case of a dispute the substantive law to apply will
be Kenyan law, then any other arbitration law will apply. It is important if one is to avoid confli
ct in basic matters that the arbitration clause should be as clear in these matters as possible.

TYPES OF ARBITRATION.

a) ad hoc
b) institutional
c) statutory
d) look- sniff
e) flip- flop
f) documents-only
g) domestic and international.

Ad hoc arbitration is one that is not administered by an institution as the arbitration agreement
does not specify an institutional arbitration and it may encompass domestic or international com
mercial arbitration. For this particular type, parties determine all aspects of arbitration like, select
ion and manner of appointment of the arbitral tribunal, applicable law and procedure for conducti
ng arbitration. This type is mostly used where one of the parties is a State or parastatal.

Institutional arbitration is administered by specialist institution, where parties should incorpora

te the rules of the selected institution into their arbitration clause by reference. Such rules are exp
ressly formulated for arbitrations conducted under the administration of relevant institutions.

8
Arbitration Act Cap 49,Section 4(4)
Statutory arbitration is one that originates from a mandatory provision in an Act of Parliament,
without necessary requiring a pre- existing arbitration agreement between the parties.

Look- sniff arbitration is defined as a combination of the arbitral process and expert opinion, w
here parties select the arbitrator on basis of his or her specialized knowledge, expertise and exper
ience in a particular area of business or trade. This type depend on technical skills in a particular
trade. Further, procedures are governed largely by the customs of the trade and there are usually
no lawyers, witnesses or arguments. This type of arbitration save parties a lot of time and trouble
in hiring an independent expert witness, as would be the case if they decided to resort to litigatio
n.

Flip- flop arbitration also known as baseball arbitration, is one where parties formulate their ca
ses beforehand and then they invite the arbitrator to choose one of the two. The arbitrator then m
akes an award an award in favour of one party and the other must clearly lose.

Document-only arbitration is defined as one that is based on the claim statement and statement
of defence and written reply by the claimant, if any. It's said to be one of the most appropriate, w
here all evidence relevant to dispute is contained in documents, including expert reports and ther
e are no need for oral testimony from witnesses. It can also be appropriate where dispute involve
simple issues of fact and opinion.

Domestic arbitration is one that arbitration agreement provides expressly or by implication for
arbitration in Kenya, and at time of proceedings are commenced is entered into where the arbitra
tion is between individuals , parties are nationals of Kenya or are habitually resident in Kenya; w
here the arbitration is between bodies corporate, the parties are incorporated in Kenya or their ce
ntral management and control are exercised in Kenya.

Lastly, an arbitration is international if the parties to an arbitration agreement have, at the time o
f conclusion of that agreement, their places of business is in different states.

ESSENTIAL INGREDIENTS OF AN ARBITRATION

1. Number of Arbitrators
 The parties are free to determine the number of Arbitrators,failure of the parties to determine
the number of arbitrators, the number shall be one .The nature of dispute should dictate how
many arbitrators to go for.9

2. Method of appointment

The default position is that if the parties do not agree on the method of appointing then they can
apply to the court.10. There is a drawback in doing that:Firstly time factor. Then there is the que
stion of the costs to be paid to court over the process. So if the procedure for appointment had al
ready been provided for in the arbitration clause one can avoid the delay and the cost. Parties wil
l choose an institution if they are not agreeable on an arbitrator, they can approach institutions lik
e the Chartered Institute of Arbitrators to appoint. They can also decide that if there is a dispute
as to method of appointing an arbitrator the chairman of LSK can becomes the appointing author
ity.

3. Choice of the rules to apply if any

The Arbitrator has power to control the preparations for hearing. He is obliged to exercise that p
ower and to do so by reference to demanding standards. Also an arbitrator is involved in each ca
se during its interlocutory stages. If he makes proper use of his powers he can and should shape t
he preparations so as to eliminate unnecessary costs. In particular he can direct the advocates, th
e experts and even the parties to get to grips with identifying what the issues really are and how b
est to present them.

4. Time frames

Time frames are matters that should be spelt out in the Arbitration Agreement for the following:

the time limit for the giving of the notice of claim

the time limit for giving of notice to appoint an arbitrator; and

the time limit for the commencement of arbitration.

9
Arbitration Act, Section 11
10
Arbitration Act, Section 12(3)
 5. Remuneration

Parties may decide how the arbitration costs are to be shared, whether the loser in the dispute bea
rs the cost or both parties provide for the costs.11 Parties are free to agree on procedure of app
ointment and failing such agreement where parties have provided for 3 arbitrators the presumptio
n is that each party shall appoint one arbitrator each and the third one is to be appointed by those
two.

In arbitrations where provision is made for one arbitrator then the parties should agree on the per
son to be appointed failing of which an application is then to be made to the High Court. No pers
on shall be precluded by reason of that person’s nationality from acting as an arbitrator, unless ot
herwise agreed by the parties.12

6. The parties

The Chartered Institute of Arbitrators (CIA) has published rules and it is open to parties t
o an arbitration agreement to provide in that agreement that for instance the Arbitration R
ules of the Chartered Institute of Arbitrators shall apply. For instance these rules will pro
vide for how parties to an arbitration agreement can approach the institute to appoint an a
rbitrator where the parties are unable to agree, orthe procedure to be adopted by the arbitr
ator upon appointment. To a large extent the rules in arbitration are influenced by the rul
es of pleadings in a civil process e.g. the Chartered Institute of Arbitrators Rules provide t
hat the claimant should make a statement for a claim within 21 days, 21 days to file defe
nce and 14 days to file a reply..It also provides for what is to happen if one of the parties
does not comply.

11
Arbitration Act, Section 12
12
Ibid, Section 12(1)
What happens when one party agrees that the dispute will go to arbitration but one party
reneges and files a suit in court?The court will stay the legal proceedings “A court before which
proceedings are brought in a matter which is the subject of an arbitration agreement shall, if a
party so applies not later than the time when that party enters appearance or files any pleadings
or takes any other step in the proceedings, stay the proceedings and refer the parties to arbitration
unless it finds— that the arbitration agreement is null and void, inoperative or incapable of
being performed; or that there is not in fact any dispute between the parties with regard to the
matters agreed to be referred to arbitration.13

Characteristics of Arbitration

 Arbitration is consensual

 The parties choose the arbitrator(s)

 Arbitration is neutral

 Arbitration is a confidential procedure

ADVANTAGES OF ARBITRATION

 Greater certainty about the enforcement of awards.14 It provides a means through which
awards from foreign tribunals can be applied by the national courts of the country in which
enforcement is sought.
 Avoiding the specific legal systems and national courts of certain jurisdictions provides
parties with greater control, rather than leaving matters to the discretion of the courts.
 Flexibility in terms of the procedure, allowing parties to decide on which procedure they
will apply.

13
Arbitration Act, Section 6
14
UN Convention on the Recognition and Enforcement of Foreign Arbitral Award 1958 (New York Convention)
 Confidentiality. Arbitration proceedings are not public. For example, the parties to
International Chamber of Commerce Arbitration15 remain anonymous to this day. 16
 There are limited grounds for challenges and appeals, such as where the award is tainted
with bribery, fraud, or corruption.

DISADVANTAGES OF ARBITRATION

 Reluctance of tribunals to issue sanctions for non-compliance with deadlines, even where
they have rules governing the proceedings permitting interim reliefs.
 The time it can take from commencement of the arbitration to publication of the final
award. While the process is efficient, it is not necessarily quick.
 The limited grounds for challenges and appeals which, together with the confidential
nature of the process, can create a risk of a lack of intellectual rigour in the award.
 In some cases, a poor choice of tribunal has resulted in an award so controversial that it is
questionable whether arbitration was the right medium for the dispute. In these cases, the
arbitrator's reputation is damaged.
 The cost effectiveness of arbitration has been questioned on several occasions, as some
references can take longer than usual to be finalised.
 The fact that consolidation of references can only be undertaken by consent of the parties
has been cited as a big disadvantage.

15
No 1110 of 1963
16
John Miles, `Arbitration procedures and Practice in Kenya’(2018) < [Link]
633-8955?transitionType=Default&contextData=([Link])&firstPage=truen > accessed 12 March 2010