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Section 6 -Stay of Legal Proceedings


The concern of Section 6 is that if you have two parties who have entered into an agreement that contains an arbitration agreement clause and one party ignores the arbitration clause and files in court, what is open to the other party if the party would like the dispute to be referred to arbitration.  This is what Section 6 is dealing with.

It is a provision that enables the courts to force parties to go to Arbitration where that mode of dispute resolution is the mode of choice.

Section 6. (1)  A court which before 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 existence of an Arbitration Clause or Arbitration Agreement in a contract is not an impediment to resolving disputes in court if neither party objects which means that parties can still ignore the arbitration clause and file the proceedings in court.  However, if one of the parties to the Arbitration Agreement goes to court but the other party wishes to enforce the Arbitration Agreement, then it is for that latter party to seek an order from court under Section 6 of the Arbitration Act 1995 staying the court proceedings and if the order is granted it leaves the initiator of the court proceedings with no option but to follow the provisions of the Arbitration Agreement if he wishes the dispute to be resolved.  Under Section 6 a party wishing to enforce the Arbitration Agreement in a situation where the other party has initiated court proceedings must apply to court not later than the time when that party enters appearance or files any pleadings or takes any other step in the proceedings.  That is to say that the application for stay under S. 6 must be made at the correct time.  The correct time

Section 6 (1) it appears that once summons to appear are served on the defendant, if the defendant wishes to enforce the agreement, he must not later than the time he enters appearance file for stay.  Section 6 appears to suggest that this option is open but we shall look at case law that says if you file a defence you have lost your right.  Another judge says that even after you file your defence you can still go to arbitration.  We shall find which view is correct.

Once the application for stay under Section 6 is made at the correct time, whatever the correct time might be, the court’s obligation under Section 6 is clear.  It must stay the court proceedings and refer the parties to Arbitration.  There are however 2 provisos

(a)              The court shall not stay the proceedings if the Arbitration Agreement is null and void; if for instance it is inconsistent with the law i.e. if it is illegal.
(b)              The Arbitration Agreement is inoperative or incapable of being performed;

The second part of Section 6 is to the effect that the court shall not stay proceedings if there is not in fact a dispute between the parties with regard to the matters that are agreed to be referred to arbitration.

Where an Arbitration Agreement says that an award of an arbitrator shall be a condition precedent to the right of any party to that agreement to seek court relief, meaning parties are not at liberty to go to court whatsoever unless they firstly go to arbitration

It would read as follows or have a provision in these terms

“Where by this clause any dispute or difference is to be referred to arbitration the making of an award shall be a condition precedent to any right of action by either party against the other.

This provision is generally referred to as the Scott v. Avery clause following a very old English case which recognised and gave effect to such a provision in an arbitration agreement.  In other words the English courts have for a long time recognised that where parties contract to refer disputes to arbitration effect will be given by the courts to such a contractual provision.

The effect of Section 6 is really to say that whether or not an arbitration clause contains such a stipulation, the court will give it effect.
CASE LAW ON SECTION 6

TM AM Construction Group Africa v. The Attorney General Civil Case 236 of 2001 at the High Court Milimani Commercial Courts
Decision by Honourable Justice Mbaluto

In this case, the Plaintiff instituted suit against the Attorney General on the 21st February of 2001.  The Attorney General entered appearance on the 15th March 2001.  On the 25th April 2001 the Attorney General then made an Application under Section 6 of the Arbitration Act and Rules 2 of the Arbitration Rules 1997 seeking orders that the suit be stayed and that the Dispute be referred to Arbitration.  The Application for stay under Section 6 of the Arbitration Act having therefore been filed on the 25th April 2001 was 41 days after the Memorandum of Appearance.

The Plaintiff opposed the Application for stay on grounds that
1.       it was out of time under Section 6;
2.      That there was in fact no dispute within the meaning of Section 6 (1) (b) to refer the matter to Arbitration.

Justice Mbaluto upheld the two grounds.

On the question of time Justice Mbaluto cited a passage from the Court of Appeal decision of Corporate Insurance Company v. Loise Wanjiru Wachira Civil Appeal NO. 151 of 1995.  the decision was based on an arbitration clause before the enactment of the current Act

            In the present case, the Appellant did more than just enter an appearance.  It   delivered a defence which is of course a pleading.  The Appellant made no Application for Stay of Proceedings.  The Appellant was a party to an Arbitration Agreement within the meaning of Section 6 of the Act.  Arbitration Clause in this case are known as Scott v. Avery Arbitration Clauses named after a leading case decided by the House of Lords in 1856 in which their efficacy was considered and have long been accepted as valid.  These clauses do more than provide that disputes shall refer to Arbitration.  They also stipulate that the award of an Arbitration is to be a condition precedent to the enforcement of any rights under the Contract so that a party has no cause of action in respect of a claim falling within the Arbitration Clause unless and until a favourable award has been obtained.  In the present case, if the Appellant wished to take the benefit of the clause it was obliged to apply for a Stay after entering appearance and before delivering any pleading.  By filing a defence the Appellant lost its right to rely on the clause.”

Justice Mbaluto applied that passage to the case in TM and held that the attorney General had lost the right to rely on the Arbitration Clause because if the AG was to rely on it, he was obliged to make the application under Section 6 not later than when he entered appearance.  In other words if you file a Memorandum of Appearance today and you do not file for an application for stay, tomorrow is too late.

On the question of whether there was a dispute or not, it had been argued for the Plaintiff that the Attorney General was in fact making an application under Section 6 of the Arbitration Act as a delaying tactic because it was submitted that there was not in fact a dispute about the claim.

Justice Mbaluto cited another passage from the case of London and Northwestern Joint Railway v. JH Bilington Limited (1899) A.C. 79

Lord Halsbury is cited as having said the following

            A condition precedent to the invocation of the Arbitrator on whatever grounds is that a difference between the parties should have arisen and I think that must mean a difference of opinion before the action is launched either by Plaint or writ.  Any contention that the parties could when they are sued for the price of the services raise for the first time the question whether or not the charges were reasonable, and that therefore they have a right to go to an arbitrator seems to me to be absolutely untenable.”

If there is no dispute, the court will not stay the proceedings.
Tropical Food Products International v. The PTA Bank H.C.C. NO. 1534 OF 2001 MILIMANI H C NAIROBI  \MWELA J.

The judge interprets Section 6 with regard to timing in a very liberal fashion.

In his view Section 6 does not impose the time limit.

            “the court would wish to comment on Section 6 of the Arbitration Act.  He then reproduces Section 6 and sums his position as follows
            “accordingly, this court is not of the view that a party is limited as to when it can apply to go to arbitration in a matter subject of an arbitration agreement.  He hinges that view on Section 6 (2) Notwithstanding that an application has been brought under (1) and the matter is pending before the court arbitral proceedings may be commenced or continued and an arbitral award may be made.

            “That this provision says that 6 (2) that it does not matter that an Application has been brought under Section 6 (1) and a suit is pending before the court.  Arbitral proceedings can still be brought and an award made.”

Under Rule 2 you make application by summons but Mbaluto J. where an objection was taken as to form, in another case where similar objection was said that application did not conform with rule 2 he ruled that it could be overruled.

 
 
 

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