The ongoing legal dispute between Kenya Breweries Limited (KBL) and JILK Construction Company has cast the spotlight on flaws in the system of arbitration as a dispute resolution mechanism, and raises questions over its effectiveness.

This comes even as many entities from both the public and private sector are increasingly turning to arbitration in a bid to settle contractual disputes that sometimes involve billions of shillings.

In the dispute between KBL and construction firm JILK Construction Company, both parties have filed petitions in the High Court after their private arbitration process broke down. 

KBL accuses JILK Construction of inflating its claim for compensation for work done from Sh163 million to Sh2.4 billion. Citing reports from a whistleblower, KBL states that this variation is fueled by corruption between the mediator, Mutinda Mutuku, and JILK Construction and that any arbitral award will be illegal.

JILK Construction on the other hand wants the identity of a whistleblower be revealed and has sought to rope in KBL’s parent company East African Breweries Limited, EABL, which is due for a shareholder transaction later this year. 

Last month the case took another twist when High Court Judge Freda Mugambi who was presiding over the matter recused herself, citing concerns over a possible conflict of interest.

The protracted legal dispute that began in 2020 has cast the spotlight on the role that private arbitration plays in dispute resolution and the inherent flaws that could be making the process a stumbling block to justice.

At its core, arbitration promises the involved parties of a speedier dispute resolution process outside the lengthy court proceedings. 

Arbitration is less formal, allows parties to select an arbitrator and according to the Arbitration Act of 1995, arbitral awards are recognised and binding, enforced by the High Court unless compelling reasons exist to overturn them. 

Alongside other alternative dispute resolution mechanisms like mediation and alternative traditional justice systems, arbitration has been gaining popular use in recent years by Kenyans seeking legal redress. 

Today, arbitration is a standard clause in contract and tender documents and is generally understood as the first point of intervention in legal disputes between two or more parties.

“The Judiciary has played a pivotal role in fostering an arbitration-friendly environment,” said Chief Justice Marthe Koome during a lecture at the African Nazarene University in November 2024. 

According to the Chief Justice, the establishment of the Commercial and Tax Division of the High Court is a clear example, where arbitration- related matters have been expedited, ensuring swift adoption and enforcement of arbitral awards. 

The Kenya Revenue Authority, KRA last year said it unlocked Sh21.9 billion through alternative dispute resolution mechanisms like mediation and arbitration in the 2023/2024 financial year. According to the taxman, this has seen the tax dispute resolution rate grow from 78% in 2021 to 81% in 2023. 

On the other hand however, rising cases of parties appealing their legal disputes to the High Court and in some cases the Court of Appeal, has raised serious questions over the effectiveness of arbitration and mediation, particularly in cases involving high stakes such as large sums of money, land or property. 

According to data from the Judiciary, a total of 4,7088 matters were referred to mediation between 2022 and 2023 with the overall annual settlement rate of 52 per cent. While the Judiciary indicates that Sh8.6 billion was released back to the economy as a result of mediation, close to half of the issues referred remained unresolved.

Another pointer to inadequacies of alternative dispute resolution mechanisms like arbitration and mediation is the steady increase in the number of cases filed at the country’s courts. 

Between 2020 and 2024, the number of cases filed at the High Court went up by more than 100 per cent from 23,602 to 48,392. The same trend is rife at the Court of Appeal, Employment and Labour Relations Court and Environment and Land Court which all saw filed cases more than double over the same period of time.

At the same time, the privacy of arbitration and mediation systems and the legally binding nature of arbitral awards can present a double edged sword for parties involved. On one hand parties are assured of confidence and impartiality by appointing their own arbitrators and holding closed-door sessions.

On the other hand, and a crucial point that has underpinned the arbitration dispute between KBL and JILK Construction, parties have limited recourse in the event that improprieties like bias, corruption and conflict of interest come to the fore. 

The arbitrator wields significant influence and their award is considered final to the process itself. This perhaps points to the rising number of matters settled through arbitration finding themselves in court corridors.   

Another issue has been the period of time involved in settling arbitration matters. As an alternative dispute resolution path, arbitration is supposed to take shorter and cost less than going to the courts. However, parties are finding the period of time and costs involved in achieving out of court settlements to be as high, if not higher than going to the courts. 

This story was first published in The Standard.