Win for Airtel in Sh541m award tiff with former distributor

Airtel Kenya headquarters in Nairobi.

Photo credit: File | Nation Media Group

The Court of Appeal has ended a decade-long dispute between Airtel and its former distributor by upholding the quashing of the Sh541 million award of damages against the telco regarding a contract.

A bench of five judges said it was satisfied that Justice Kanyi Kimondo identified the issues for determination, all of which were drawn from the grounds under Section 35 of the Arbitration Act.

The judges agreed with Airtel’s lawyer Fred Ngatia that there was nothing in section 35(2) and (3) that permits an arbitrator to allow claims that have not been pleaded.

The mobile operator successfully argued for the setting aside of the award given to Nyutu Agrovet Ltd by senior counsel Fred Ojiambo, after arguing the arbitrator went beyond the scope of the agreement.

“Arising from our conclusions on the issues discussed above, it is our finding that the appellant (Nyutu Agrovet) has not demonstrated that the learned judge, in setting aside the arbitral award, stepped outside the grounds set out in section 35(2) and (3) of the Act,” Justices Mohammed Warsame, Patrick Kiage, Lydia Achode, John Mativo and Grace Ngenye-Macharia said.

The parties agreed on December 20, 2007 for Nyutu Agrovet to distribute Airtel’s products in Donholm Estate, Nairobi.

Between March 9 and 16, 2009, an agent of the distributor presented two bank payment slips amounting to Sh11 million at an Airtel shop on Koinange Street and collected the goods. It was later discovered that the payment slips were forgeries and Airtel reversed the credit entries and terminated the distributorship.

In August 2009, the parties settled on Dr Ojiambo as the sole arbitrator to determine the dispute. After hearing the case, he awarded Nyutu Agrovet the amount for general damages for negligence plus interest. Airtel appealed against the decision and Justice Kimondo set aside the award in 2011, stating that the decision contained matters that were outside the distributorship agreement. 

The distributor appealed but a bench of three judges of the Court of Appeal dismissed the case. Not satisfied, the distributor escalated the matter to the Supreme Court but, in 2019, it was referred back to the appellent court for a fresh hearing.

The distributor faulted the High Court judge for delving into the merits of the decision of the arbitrator and reversing the findings. He also submitted that the judge contradicted himself by interfering with the award on damages.

The lawyer said Justice Kimondo ought to have referred the matter back to the arbitrator for hearing instead of quashing the award. 

Airtel through senior counsel Ngatia opposed the case arguing that Justice Kimondo was right in quashing the award as the arbitrator expanded the scope of the contract by assessing general damages for negligence and using the wrong multiplier.

Mr Ngatia added that the High Court intervened to correct a manifestly wrong award. He submitted that the distributor allowed the agent to use its account, obtained goods on credit on the strength of the banking slips, which turned out to be forgeries.

After the forgeries were discovered, a reversal was made and the distributor was unable to regularise its accounts leading to the termination of the contract.

He said by backdating the interest, the former distributor got a windfall of Sh195 million.

In the judgment, the judges stated that the Supreme Court was emphatic that the court intervention in arbitration matters can only be allowed in exceptional instances and such power should be exercised carefully so as not to open a floodgate of appeals arising from arbitration.

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Note: The results are not exact but very close to the actual.