This is after the High Court reversed the decision of an arbitrator, Mr Rajinder Billing, to award the lender Sh611.4 million as damages for termination of the revenue collection contract and ordered a fresh trial.
Justice Charles Kariuki declined the bank's request to order the enforcement of the arbitrator's award dated March 26, 2024, and instead allowed the county government's application for an order to set aside the same.
"The final award of Hon Rajinder Billing (Sole Arbitrator), published on March 26, 2024, is hereby set aside in its entirety. The application for the enforcement of the award of the arbitrator published on March 26, 2024, and delivered on June 24, 2024, is unsuccessful. The matter is hereby referred back before a new arbitrator for hearing and determination," ordered the judge.
In the judgment, the court found that the payment of the amount to the bank would cause gross injustice to the county government's coffers and that the award was against Kenya's public policy.
"The court makes a finding that the applicant (county government) has demonstrated that the final award would occasion a gross injustice to the applicant and thus contravenes Kenya's legal system, constitutional values, or fundamental notions of justice and morality. Thus, the application for setting aside the award is meritorious," said Justice Kariuki.
"This is so because the final award of Hon Rajinder Billing (sole arbitrator), published on March 26, 2024, exhibited bias and went against public policy," he added.
The arbitration award stemmed from a row between the lender and the devolved unit in 2013 after the county government terminated a 10-year agreement the defunct Narok County Council had entered into with the bank on April 19, 2011.
The agreement was for the provision of a smart card system for the Masai Mara National Reserve, allowing the bank to collect gate fees for the world-famous game reserve.
The e-ticketing contract, aimed at boosting efficiency and accountability, was to run for 10 years with the bank earning a 7 percent commission on a fixed annual revenue base.
However, the county government terminated the contract after two years in June 2013 over alleged failure of the electronic system and procured another service provider, leading to a legal dispute which was referred to arbitration.
The dispute was before the arbitrator from August 2013, and after an extensive process that included parties filing pleadings together with supporting evidence and making submissions, the sole arbitrator, Rajinder Billing, published his award, holding that the county government had unlawfully terminated the agreement.
The arbitrator determined that the county had not proved the alleged failure of the smart card system and that there was no material breach on the part of the bank.
In his decision, the arbitrator awarded the bank a principal sum of Sh611,469,155 and costs of Sh110,895,329, totalling Sh722.2 million.
He had also awarded the lender a simple interest on the principal amount at the rate of 12 per cent per annum. The award of Sh611.4 million was on the basis of anticipated commissions for 10 years.
The county government was aggrieved and moved to court, applying to set it aside. It contended that the arbitrator exhibited bias against the county by not considering its evidence and written submissions as made.
It added that the award contained decisions on matters not pleaded and that it addressed a dispute not covered by the terms of the reference to arbitration. Further, it claimed, it included decisions on matters outside the scope of the arbitration agreement.
Another argument was that the arbitrator went against public policy, as the decision did not consider the various legal and financial obligations of the county government.
"The applicant is a public institution established under Article 176 of the Constitution of Kenya, 2010, and derives its revenue from public funds; therefore, the Hon. Arbitrator was bound to treat the applicant accordingly. The award granted was excessive and unjustifiably high, given the colossal public funds involved. The award will therefore cause the respondent to be unjustly and unfairly enriched from the loss of the applicant," said the county government's representative, John Mayiani Tuya.
Equity opposed the application and informed the judge that it had already applied to enforce the award.
It added that the application did not meet the threshold set out in section 35(2) of the Arbitration Act for setting aside an award.
"The applicant (county government) has not demonstrated that the arbitrator had any interest, association, conduct, or extraneous knowledge that would support the allegation of bias against the applicant," said the bank's representative, John Njenga, in a replying affidavit.
He maintained that the court lacked jurisdiction to set aside an award based on the arbitrator's alleged bias or failure to consider the county government's legal and financial obligations.
The bank also argued that the applicant had not demonstrated that the contested award violated Kenya's public policy.
It urged the court to dismiss the county's application and, consequently, to allow the application that was filed separately for recognition and enforcement of the award.
However, the court ruled in favour of the county by finding that the arbitrator was bound to treat it as a public entity.
Justice Kariuki said the award granted was excessive and unjustifiably high, given the colossal public funds involved.
"This court, after reviewing the award, notes that the arbitrator's decision did not take into account the various legal and financial obligations of the applicant," he stated.
He also found that the arbitrator awarded the bank colossal sums of money, despite them not being provided for in the agreement between the parties or proven as owed before the arbitral tribunal.
Additionally, the court found that the arbitral award contained matters that were not contemplated, such as the bank's investment costs.
"This court notes that, under Section 35(2)(a)(iv) of the Arbitration Act, an arbitral award may be set aside if it contains decisions on matters not contemplated by or not falling within the terms of reference to arbitration. The investment costs were not part of the tender terms. This particular matter ought to have been resolved in other forums based on the relevant procurement laws," said Justice Kariuki.
