‘Conflict of Courts’ Kenya:
Don’t Let your Contractual Choice of Jurisdiction or Law, Let you Down
1. Choice of Applicable Jurisdiction
Under Kenyan Law, parties have the right to make the choice of forum/jurisdiction that will govern disputes under a commercial contract. Ordinarily, for simple contracts, parties domiciled in Kenya are likely to prefer to choose Kenyan courts as the forum for dispute resolution. This can be attributed to any of the following reasons:
i.it is cheaper when it comes to hiring lawyers; or
ii.it is faster as you go through one legal system as opposed to two;
iii.the assets which an aggrieved party will seek to attach in the event they become a judgement creditor (i.e. they win the case) are located in Kenya and it is procedurally easier and faster to enforce a local judgement than a foreign court judgement; or
iv.the Recognition and Enforcement of Foreign Judgements Act of Kenya (Cap 43) does not provide for the enforcement of judgements from the courts of the alternative country.
What to Consider when Drafting a Clause on Choice of Foreign Courts (in Contracts Connected to Kenya)?
Unfortunately, as regards recognition of foreign court civil judgements, few countries outside of Europe (including Kenya) have ratified the Convention on Choice of Court Agreements which would have made it easy to recognize court judgements from the courts of a large number of jurisdictions globally.
This means that a party needs to be very careful when choosing the courts of a foreign jurisdiction in a contract a party may seek to enforce in Kenya - this is because there is no overarching international law on reciprocal enforcement of court judgements as there is for arbitration.
Kenya only enforces judgements from the few countries listed in the Recognition and Enforcement of Foreign Judgements Act; and therefore when it comes to complex commercial contracts connected to Kenya, for instance those involving cross-border parties; parties may consider making a choice of jurisdiction abroad only if that jurisdiction is provided for under this statute.
For instance, the courts of England and Wales are a good and indeed popular choice for contracts entered into with African/Kenyan counterparties and furthermore a significant number of commonwealth countries provide for enforcement of judgements from the courts of England and Wales in their respective statutes on the recognition & enforcement of foreign judgements. I advise my clients to consult on the particular modalities of these statutes on a case by case basis.
What to Consider when drafting a clause on Foreign Arbitration (in Contracts Connected to Kenya)?
Whereas the Recognition and Enforcement of Foreign Judgements Act of Kenya restricts the viable number of courts where one can get a judgement to be enforced in Kenya, the Arbitration Act of Kenya (Cap 49) is fortunately more encompassing. Arbitration abroad is a viable choice of forum for a contract connected to Kenya if you consider the following:
i.Firstly, Kenya is party to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards. The advantage of this is that most countries are signatories to the New York Convention on Recognition and Enforcement of Foreign Arbitral Awards and therefore Kenya affords reciprocal enforcement of foreign arbitral awards to 159 co-signatories. This means that a valid arbitral award from most of the countries of the world is enforceable in Kenya.
ii.Secondly, regarding validity of an arbitration clause in a contract - under Kenyan law, an express and clear provision in the contract that defers any dispute to arbitration before any litigation is commenced must be complied with. Thus, the High Court in Kenya would be bound to uphold such a provision in a contract should a winner of an arbitral award seek to enforce the award in Kenya (against assets or people located in Kenya).
iii.Thirdly, on the issue of enforcement of awards by foreign arbitral tribunals in Kenya - S 29 of the Arbitration Act provides that a foreign award shall be enforceable in the High Court and that any such award shall be treated as binding.
When it comes to contracts connected to Kenya, it is cost effective to conduct arbitration within one of the renowned arbitration centers of Africa. For example arbitration in Mauritius is a popular choice of forum due to Mauritius’ reputation for impartiality as well as Mauritius’ prominence as a more robustly regulated financial center in Africa.
2. Choice of Applicable Law
Choice of Kenyan Law to govern a commercial contract connected to Kenya, rarely presents any issues as Kenyan Law is derived from the Common Law System of England - both under statute and in precedent law of the Courts of Kenya. Further, Common Law has the backing of the Kenyan Constitution.
Exceptions to Parties’ Autonomy to make Choice of Law/Choice of Court in Kenyan Contracts
However, there are exceptional commercial contracts connected to Kenya in which parties do not have the autonomy to choose either the applicable law or the forum for dispute resolution. The only valid contractual choice in these exceptional contracts is Kenyan Law and Kenyan Courts. This is because Kenya is deemed more favourable to the weaker class of party. These commercial contracts are:
· Employment contracts in Kenya;
· Contracts with clauses relating to consumer protection in Kenya; and
· Insurance contracts in Kenya.
Similar legal provisions apply in Uganda, Tanzania and Rwanda regarding freedom of choice of law and choice of forum.
What happens in the Absence of a Contractual Clause on Choice of Applicable Law/Forum?
In such cases, a party may start litigation in any place connected to the contract provided they do not fall under the umbrella of weaker parties in Kenya whom are protected under mandatory provisions of law from a harsh choice of law/forum.
(Remember that in designated cases of 'weaker parties' listed in the paragraph above, the conflicts’ rules of the weaker party’s domicile in Kenya would be applicable irrespective of the express choice of law.)
It is advisable to closely scrutinize the rules pertaining to enforcement of foreign judgements if a party intends to designate a place other than Kenya as the forum for dispute resolution under a contract he would seek to enforce in Kenya (and which contract is connected to Kenya).
This means choosing a dispute resolution method - litigation in court or arbitration - on a case by case basis. Otherwise, you stand to obtain a judgement that means nothing as it lacks any legal backing for enforcement in Kenya.