A technology and printing company, Pesa Print Limited, and Austrian smart-card maker Austria Card are locked in a Sh460 million arbitration dispute over a contract to supply five million cards for the electronic driving licence programme.
This follows a High Court decision to clear the way for Austria Card to enforce an arbitration award worth €3.16 million (Sh460 million) after dismissing Pesa Print’s bid to overturn the arbitrator’s verdict.
The dispute centres on allegations of contractual breaches, with Austria Card claiming unpaid invoices and losses from cancelled orders, while Pesa Print argued that the cards failed to meet the required specifications.
The case arose from a May 12, 2017, contract under which Austria Card was to supply five million polycarbonate cards for the National Transport and Safety Authority’s (NTSA) electronic driving licence programme. The cards were intended for second-generation licences.
Austria Card accused Pesa Print of breaching the agreement by failing to buy the agreed number of cards, pay overdue invoices, deal exclusively with it and honour obligations linked to a performance guarantee. Pesa Print argued that the cards did not meet the contract’s specifications and sought a refund of €663,617 (Sh96 million) it had paid.
The dispute went to arbitration under the parties’ agreement. Arbitrator Phillip Bliss Aliker issued a final award on October 7, 2021, followed by a correcting memorandum on December 12. He found Pesa Print in breach and dismissed its counterclaim.
The award ordered Pesa Print to pay Austria Card €3.16 million (Sh460 million), comprising €19,397.94 for overdue invoices, €589,434.12 in damages for raw materials bought for a cancelled order of 500,000 cards and €2,355,450 in lost profits on 4.1 million cards. It also awarded interest, legal costs of €159,809 and arbitration costs of €42,073.
In December 2021, Pesa Print asked the High Court to set aside the award, arguing that it breached Kenyan public policy, unjustly enriched Austria Card and reflected bias on the arbitrator’s part.
Through its director, David Njane, the company said the arbitrator misapplied the card specifications, overlooked the approved master sample, failed to account for the possible resale of unused materials and overstated lost profits.
It also alleged breaches of public procurement law. “The award is tainted with manifest, unmitigated and inexcusable bias of the arbitrator against it,” it argued.
Austria Card opposed the application. Its main contention was that the court lacked jurisdiction to determine Pesa Print’s application because the dispute was supposed to be handled in London.
Its finance director, Markus Kirchmayr, said recourse against the arbitration award ought to have been sought in London, not the local courts. Austria Card also applied for recognition, adoption and enforcement of the arbitration award.
Austria Card argued that Pesa Print’s case sought a retrial of factual and contractual findings. It said London was the arbitration’s legal seat, making the English courts the proper forum for setting aside the award.
The court agreed with the foreign company on jurisdiction. It noted that the contract provided for Kenyan law to govern the supply agreement but required disputes to be resolved under the London Court of International Arbitration (LCIA) rules, with London as the venue.
The judge held that London was the juridical seat and that the High Court lacked jurisdiction to set aside the international award.
“In my considered view, London was the juridical seat of the arbitration. The law applicable to the arbitration agreement was English law,” said Justice Francis Gikonyo, adding that the award was an international arbitral award.
The court then considered enforcement in Kenya. It noted that the Arbitration Act and the New York Convention allow refusal on specified grounds, including procedural defects or conflict with public policy. The judge found that Pesa Print had not proved any of those grounds.
The court noted that LCIA rules required a party questioning an arbitrator’s impartiality to challenge the appointment within 14 days of the appointment or of learning of the grounds for the challenge. The judge found no indication that a challenge had been made and no proof of actual or apparent bias.
“The overall impression from the evidence and arguments presented is that Pesa Print has not established that the award was contrary to the Constitution, written law or defined moral or legal principles or illegal,” Justice Gikonyo said.
The court held that claims that the arbitrator had rewritten the contract or mishandled lost profits invited a re-evaluation of the evidence.
“Whether the arbitrator got it right or wrong is not a ground for intervention, less so on the basis of public policy,” the court stated, dismissing Pesa Print’s application with costs and allowing Austria Card’s enforcement application.
A National Treasury audit of NTSA’s 2022/23 accounts said a consortium led by National Bank of Kenya signed a Sh2.03 billion contract in March 2017 for five million smart-card licences.
By June 2023, about four million cards had been delivered, but only 1.48 million had been printed, leaving more than 2.56 million unused in NTSA stores.
The government has since pursued a separate public-private partnership plan involving Pesa Print and KCB.
