By Asli Osman and Jerioth Muthoni
The Arbitration Act has long been overdue for an amendment to align it with emerging practices and address gaps that impede its effectiveness. Through the Arbitration (Amendment) Bill 2024, several changes are proposed to the arbitral framework in Kenya. These changes include the establishment of the Arbitral Court, provisions for third-party funding, appeal mechanisms, and streamlined fast-track arbitration processes. In this article, we analyse the proposed amendments and offer commentary on their constitutional validity, practical implications, and potential to advance Kenya’s arbitration landscape.
Some of the changes proposed in the Amendment Bill are as follows:
- Third-Party Funding
The Arbitration Amendment Bill introduces a new Section 39A to the Arbitration Act to provide for Third-Party Funding (TPF) in international arbitration proceedings seated in Kenya and not domestic. It is not clear what the policy consideration for this distinction might be. The author firmly believes that TPF should also extend to domestic arbitration as well.
The proposed amendment sets down the parameters for the application of TPF. TPF is permissible unless:
- the funding is non-recourse and tied to a success fee or outcome-dependent remuneration;
- The third-party funder’s expected return is unreasonably high. The term “unreasonably high” is not defined.
- Where the respondent is a public entity, the funder supports multiple claims against a public body. There is no way of measuring what may be considered as “multiple” claim. How many is too many?
- The funder has a direct or indirect interest in the dispute beyond the funding agreement.
- The funding contract is considered to be contrary top public policy.
The funded parties are required to disclose, at the time of filing the claim or promptly after entering into a funding agreement, the funder’s identity, beneficial owner, and funding agreement terms to the tribunal, parties, and arbitral institution (if applicable). Where applicable, the arbitral rtibunal is empowered to request additional details on whether the third-party funder agrees to cover the adverse cost award, the expected return amount of the third-party funder, where the respondent is a public body, the number of cases for which the third-party funder has provided funding, any agreement between the third-party funder and the legal counsel or firm representing the funded party and any other necessary information.
- The Arbitral Court
The Nairobi Centre for International Arbitration Act No. 26 of 2013 establishes the Arbitral Court that is mandated to “hear and determine disputes referred to it in accordance with the Act”. The Arbitration Amendment Bill proposes to amend the Arbitration Act by substituting any reference to “High Court” with “Arbitral Court” in order to align it and perhaps operationalise the Arbitral Court. Only section 35 has been spared the substitution “High Court” with “Arbitral Court”.
The Arbitral Court, introduced by the Bill, will not be composed or appointed through the Judicial Service Commission, as is the case with conventional courts in Kenya. Instead, the power of appointment lies with the Board of the Nairobi Centre for International Arbitration (NCIA) as per the Nairobi Centre for International Arbitration Act. Therefore, the composition, term and appointment of the Arbitral Court shall be in accordance with that Act.
- Fast-track procedures
The introduction of fast-track arbitration procedures under the proposed Part IVA (sections 28A–28C) is a welcome move as it is likely to enhance the efficiency and accessibility of arbitration in Kenya. This can be deemed as a positive development.
Proposed Section 28A provides that the fast track provisions shall apply to domestic arbitration unless the parties agree that it should not apply to their arbitral proceedings.Parties are at liberty to agree on the fast track procedure at any time before after the appointment of the arbitral tribunal.
Once a matter is admitted udner the fastrack procedure, the dispute will be decieded on the basis of the written pleadings, documents and submissions filed by the parties without any oral hearing. The arbitral tribunal retains power under 28B (3) (c) to call for oral hearings.
Under 28C, the timeline for the delivery of the Award under fastrack procedure is six (6) months however, parties may, by consent, extend the period specified in subsection (1) for a further period not exceeding six months under subsection (3). If the award is not made within the stipulated time, or the extended period, subsection (5) empowers to apply to the Arbitral Court to terminate the mandate of the arbitrator. In addition to the termination of the mandate, the proposed amendment also recommends a 5% per month reduction in the arbitrator’s fees. The potential 5% fee reduction per month of delay incentivizes arbitrators to adhere to timelines. These provision gives parties a mechanism for repreive from undue delays caused by arbitrators. One of the reason arbitration is hugely promoted as an effective alternative dispute resolution mechanism is its relatively shorter timelines for resolving disputes compared to the traditional court system, which is often criticized for protracted litigation and backlog-induced delays. By imposing a maximum 12-month period (six months plus a potential six-month extension), the provision aligns with the Bill’s overarching objective under section 3A to promote fair and expeditious dispute resolution without unnecessary delay or expense.
The fast track provisions are a pivotal reform that upholds arbitration’s promise of speed and efficiency. They provide a practical remedy for procedural obstacles during hearings, delays, and technicalities. Overall this proposed amendment aligns with global best practices, and support Kenya’s ambition to foster a modern, business-friendly arbitration framework.
- The Registrar of the Arbitral Court
The Bill also introduces the position of the Registrar of the Arbitral Court, who plays a central administrative and quasi-judicial role within the new framework. Based on the Bill, the Registrar will serve as the gatekeeper of the Court, handling a wide range of procedural and case management duties. The Registrar shall be the Chief Executive Officer of NCIA and shall be responsible for the day-to-day management of NCIA. The Registrar is also the Secretary of the Board.
One of the most significant powers given to the Registrar is the authority to determine challenges to the appointment of arbitrators. This is a substantial departure from the current framework, where such matters would usually be escalated to the High Court. Giving this power to the Registrar is intended to fast-track the resolution of appointment disputes, which can otherwise stall proceedings. However, it also places a lot of discretion in the hands of one officer, raising legitimate concerns about procedural fairness, impartiality and transparency in the appointment of an Arbitrator. The Bill does not spell out every single duty, but the Registrar will have both administrative and decision-making responsibilities, similar to a judicial officer in the regular Court system.
- Challenging the Appointment of an Arbitrator
One of the more interesting shifts in procedure involves how parties can challenge the appointment of an arbitrator. Instead of moving to Court right away, parties must now lodge the challenge before the Registrar of the Arbitral Court. If the Registrar is satisfied that there is “good cause”, a term that the Bill does not define what “good cause means”, the Registrar may set aside the appointment of an Arbitrator and appoint a substitute Arbitrator.
This is quite a powerful function to vest in a Registrar and it effectively turns the Registrar into a first-level decision-maker in disputes over Arbitrator neutrality or suitability. That said, the Bill does preserve a safety valve whereby if any party is dissatisfied with the Registrar’s decision, they can escalate the matter to the Arbitral Court for review.
While this approach seems to promote efficiency by resolving simple challenges administratively, there is also the risk of inconsistency or perceived bias, especially if the Registrar is not fully insulated from institutional influence. It remains to be seen whether this two-tier system will speed things up or add another procedural layer.
- Interim Measures under Section 7 Now Have a Time Limit
Another key amendment under the Bill is in regard to the interim measures by the Court under section 7 of the current Arbitration Act, 1995. As it stands, Section 7 allows parties to apply to the High Court for interim protection measures, such as orders to preserve assets, maintain the status quo, or prevent further harm, before or during arbitral proceedings. These orders have traditionally remained in force until expressly discharged by the Court or until the arbitral tribunal is in a position to act.
The Bill proposes a new time-bound approach where any interim measure granted under Section 7 will automatically lapse at the end of sixty (60) days or after such a time as may be extended by the High Court. On one hand, this is a practical way to prevent interim relief from being abused or becoming indefinite. However, this amendment could also present practical challenges. In complex commercial disputes, sixty (60) days may not be sufficient to initiate arbitration, especially where the parties are negotiating the terms of reference, appointment of arbitrators or navigating institutional rules. There is also the added burden of returning to Court to seek an extension, which may introduce additional costs and procedural steps. The provision may therefore need to be applied with flexibility, especially in cases where delays are not due to the fault of the Applicant.
Overall, while the intention behind the 60-day limit is clear, which is to prevent abuse and encourage expedition, it will be important to monitor how this provision is applied in practice and whether it ends up promoting or hindering access to interim protection in genuine cases of urgency.
- The Retention of Section 17(8): A Question of Redundancy
Another aspect worth noting is the Bill’s retention of Section 17(8) of the current Arbitration Act, 1995, which deals with Applications challenging the jurisdiction of the Arbitral tribunal. The provision allows arbitral proceedings to continue, even to the point of conclusion, despite the fact that a challenge to the tribunal’s jurisdiction may be pending before the Arbitral Court.
At first glance, this seems to promote efficiency by ensuring that arbitration is not stalled every time a jurisdictional objection is raised. However, when you consider the other provisions of the Bill, the practical value of Section 17(8) becomes questionable. The Bill provides that any award rendered while such a challenge is pending will have no effect until the Court rules on the jurisdiction issue; and if the Court finds that the tribunal did not have jurisdiction, then the entire award is automatically void. This raises a valid question: What is the point of continuing the arbitral proceedings under such uncertainty? If parties and tribunals know that the fate of the entire process hinges on a pending Court decision, it may feel like wasted time and resources to carry on. In practice, many parties may choose to pause proceedings anyway, especially where the jurisdictional challenge is serious or central to the case.
So, while the idea behind retaining Section 17(8) may have been to avoid delays, it seems a bit redundant in light of the stronger provisions that tie the enforceability of the award to the outcome of the jurisdictional challenge. It will be interesting to see whether, in practice, arbitrators and parties make much use of this provision or whether it simply remains on the books as a formality.
- Proposed Section 32(4A) and (5A)
The question of when an arbitral award is deemed to be delivered has long perplexed the court’s in Kenya with several conflicting decisions thus createing uncertainty in arbitration practice. The reason why this is important in arbitration is that the time of delivery of an award triggers the remedies available to parties seeking to set aside an award. Under section 35 of the Act, an application to set aside an arbitral award must be filed within three months from the date the party making the application received the award (or from the disposal of a request for correction or interpretation under section 34). The proposed subsections (4A) and (5A) clarify when this “receipt” occurs, either upon collection or 15 days post-notification.
The proposed new section 5A introduces clarity on when an award is deemed to be made. It provides that an award shall be deemed to be delivered to the parties on the date of collection by a party or where no party has collected the award, within fifteen days after notification is made to the parties in accordance with subsection (4A), that the award is ready for collection.
Subsection 4A provides that an arbitral tribunal shall notify the parties when the arbitral award is made and ready for collection. The threshold for notification and communication between the parties and the arbitral tribunal is set out in the new Section 9 which governs written communications and specifies the modalities of delivering notices and commmunication either by hand delivery, registered post, courier, electronic mail, or other means providing a delivery record. The notification requirement under proposed 4A reduces ambiguity on when parties are deemed as duly notified.
Collectively, these two provisions introduce a definitive structure for the delivery of an arbitral award which was lacking in the current act:
- The arbitral tribunal must proactively notify the parties when the award is ready for collection (subsection 4A).
- The award is deemed delivered either on the date a party collects it, or if no party collects it, 15 days after the notification is issued under subsection (4A) (subsection 5A).
The Amendment Bill, 2024, introduces new subsections (5) and (6) to section 35 of the Act regulating appeals from High Court decisions on applications to set aside arbitral awards.
As per the proposed subsection (5), the leave of the Court of Appeal is required for any appeal from an order for grant or refusal to set aside made by the High Court under this section. The Bill’s amendments to section 35 do not replace references to the “High Court” with the “Arbitral Court” for applications to set aside arbitral awards. This indicates that the High Court remains the primary judicial body for handling applications to set aside awards under section 35, and appeals from those decisions require leave from the Court of Appeal.
Subsection (6) provides that in an application for leave under subsection (5), the Court of Appeal shall not grant leave unless it is satisfied that:
- in making the order appealed against the High Court has relied on grounds other than those contemplated in subsection (2);
- if the question of law before it is one of general importance; or,
- one which for some other special reason should be considered by the Court of Appeal.
The proposed subsection (7) gives the Court of Appeal powers to order the applicant to provide security for costs and may dismiss the application if the order is not complied with. Subsection (9) provides a 14 days from the date of the High Court’s decision for a party to file an application for leave to appeal.
Proposed Subsection (14) expressly prohibits appeals beyond the Court of Appeal for decisions made under section 35 of the current Act. While this clause may reinforce arbitration’s principle of finality, limiting judicial intervention to ensure swift and conclusive dispute resolution, consistent with the Bill’s objective under section 3A to promote expeditious resolution without unnecessary delay or expense, it can be a claw back on the two landmark cases of Synergy Industrial Credit Limited v Cape Holdings Limited [2019] eKLR and Nyutu Agrovet Limited v Airtel Networks Kenya Limited [2019] eKLR.
The proposed absolute bar on further appeals contradicts the Supreme Court’s Nyutu and Synergy decision, which recognized potential Supreme Court review under Article 163(4) on either constitutional issues or issues of general public importance. By barring further appeals to the Supreme Court appeals, the proposed subsection (14) risks leaving uncorrected errors in Court of Appeal decisions, such as misinterpretations of section 35(2) grounds or procedural unfairness, which Nyutu and Synergy sought to address.
- Bankruptcy
The Arbitration (Amendment) Bill, 2024, extensively updates the Arbitration Act to align with modern arbitration practices such as fast-track arbitration, third-party funding and Arbitral Court jurisdiction however, it does not amend Section 38, despite the significant changes in insolvency law since 1995.
In 1995, when the Arbitration Act was enacted, Kenya’s bankruptcy law was governed by the Bankruptcy Act (Cap. 53) and the Companies Act (CAP 486), the term “bankruptcy was often treated analogously in both context. Section 38’s use of the term “bankruptcy” was broad, encompassing bankruptcy proceedings for both individuals and companies. Since 1995, Kenya’s insolvency regime has significantly changed, particularly with the enactment of the Insolvency Act, 2015 (No. 18 of 2015), which repealed the Bankruptcy Act (Cap. 53) and consolidated insolvency laws for both natural persons and corporate entities.
The key changes in the Insolvency Act 2015 include the terminology shift wherein the Insolvency Act, 2015, distinguishes between the term “bankruptcy” as applying exclusively to natural persons and Insolvency/Liquidation/Administration as applying to to corporate entities. Therefore, section 38’s use of “bankruptcy” is misaligned with the Insolvency Act, 2015 and creates ambiguity as to whether Section 38 applies to corporate insolvency, or is it limited to individual bankruptcy. In 1995, “bankruptcy” covered both, but today’s legal framework requires precise terminology to avoid confusion.