Court of Appeal rules no automatic right of appeal without express reservation in arbitration agreement

On 18 March 2016, Afrasia Bank Limited (the Respondent) deposited USD 7.5 million (the Fixed Deposit Sum) with Chase Bank Kenya Limited (Chase Bank) at an interest rate of 2.35% per annum for one month, maturing on 18 April 2016. However, on 7 April 2016, Chase Bank was placed under receivership and its assets were later acquired by SBM Bank (Kenya) Limited (the Appellant).

Before the acquisition, the Respondent sent a demand letter on 20 April 2016 to Chase Bank for payment of the Fixed Deposit Sum and accrued interest. In response, the receiver manager through a letter dated 6 May 2016 confirmed the Fixed Deposit Sum and informed the Respondent that the Fixed Deposit Sum would be re-invested for nine (9) months.

In 2019, the Respondent filed a suit at the High Court against the Appellant seeking payment of the Fixed Deposit Sum and accrued interest of USD 9,791.67 from 18 March 2016 to 17 April 2016. By a consent filed in court on 6 July 2020 during the course of the High Court proceedings, the parties agreed to refer their dispute to arbitration and simultaneously reserved the right to appeal the award on issues of law. Parties attended the arbitration proceedings where the Respondent’s claim was dismissed. The Respondent appealed against the arbitral award to the High Court which set aside the arbitral award and allowed the Respondent’s claim, on the grounds that inter alia, the parties had reserved the right of appeal to the High Court and therefore the High Court had jurisdiction to entertain the appeal.

The case at the Court of Appeal

Aggrieved by the decision of the High Court, the Appellant appealed to the Court of Appeal. The Respondent raised an objection challenging the Court of Appeal’s jurisdiction to entertain the appeal on the basis that Section 35 of the Arbitration Act (the Act) does not give an aggrieved party the right of appeal to the Court of Appeal and that the Appellant had not sought or obtained leave of the Court of Appeal under Section 39(3) of the Act prior to filing the appeal. While this was a preliminary objection, the Court of Appeal reserved the determination of this jurisdictional question with the main appeal as it was one of the grounds of appeal.

The Appellant contended that it had the right of appeal to the Court of Appeal under Section 39 (3) of the Act pursuant to the consent between the parties  that allowed them to appeal on points of law. The Appellant’s main ground of appeal was that the High Court lacked jurisdiction to determine issues of fact arising out of the arbitral award. In support of this argument, the Appellant submitted that the consent between the parties to allow appeals on points of law was not capable of conferring jurisdiction to the High Court. It argued that the Respondent should have reverted to the original suit which had been stayed when the matter was referred to arbitration instead of instituting a fresh suit to set aside or appeal against the award. The Appellant further argued that the Act only allowed for commencement of arbitration by way of an arbitration agreement and not by reference from an existing suit. Therefore, an award made pursuant to such reference could only be set aside in accordance with Order 46 of the Civil Procedure Rules. 

The Respondent argued that the consent dated 6 July 2020 between the parties to refer their dispute to arbitration constituted the arbitration agreement (the Agreement) and that upon reference of the matter to arbitration pursuant to the Agreement, the initial High Court suit was closed with the High Court directing that any further recourse after the arbitration would be to the High Court and then to the Court of Appeal as the case may be. The Respondent also submitted that the Agreement reserved the right of appeal to the High Court on points of law and/or fact and that no right of appeal to the Court of Appeal was reserved in the Agreement.

Findings of the Court of Appeal

The main issues for determination were whether Section 35 of the Act that allowed a party to apply to the High Court for the setting aside of an arbitral award granted an aggrieved party the right of appeal to the Court of Appeal and whether the Appellant's appeal from the High Court's decision to the Court of Appeal, as outlined in Section 39(3) of the Act, and which was based on an appeal provision in the parties' arbitration agreement, necessitated leave to appeal from the Court of Appeal .

On the first issue, the Court of Appeal reiterated its previous decisions that there is no automatic right of appeal to the Court of Appeal from decisions of the High Court made under Section 35 of the Act, unless it is demonstrated that the High Court’s decision was grave, so manifestly wrong, and completely closed the door of justice to either of the parties. The Court of Appeal further held that its limited and circumscribed jurisdiction to determine appeals under Section 35 of the Act is only triggered once leave is sought and granted by the Court of Appeal upon satisfaction by the Court of Appeal that the substance of the appeal deserves admission. The Court held that the leave sought by the Appellant orally and peremptorily and granted by the High Court without justification was not sufficient and that such leave ought to have been sought and granted by the Court of Appeal. Therefore, the leave granted to the Appellant by the High Court was declared null by the Court of Appeal.

On whether the Agreement granted the Appellant the automatic right of appeal to the Court of Appeal pursuant to Section 39 (3) of the Act, the Court of Appeal held that an agreement to appeal to the High Court does not act as an automatic right of appeal to the Court of Appeal unless such right is expressly reserved in the arbitration agreement. The Court emphasized that the right to a second appeal must be well defined to safeguard the arbitration process from losing the flavor of finality and must be expressly agreed upon just as the right of appeal to the High Court. Based on the foregoing, the Court of Appeal found that the appeal was not properly before it and struck it out with costs to the Respondent.

Why is this decision important?

This decision adds to the position taken by Kenyan courts that appeals to the Court of Appeal against the decision of the High Court made under Section 35 of the Act do no lie as of right, but under special circumstances with leave of the Court of Appeal. Additionally, the Court has clarified that an agreement between parties in arbitration to a first appeal does not automatically grant them the right to the second appeal to the Court of Appeal under Section 39 of the Act unless such a right of appeal to the Court of Appeal is expressly reserved in the arbitration agreement. As such, where no second right of appeal was expressly agreed to between the parties, an application for leave to appeal must be filed by the appellant at the Court of Appeal, notwithstanding the High Court’s leave to appeal being granted on a peremptory basis. 

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SMB Bank (Kenya) Limited v Afrasia Bank Limited [2025] KECA 386 (KLR)