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ALTERNATIVE DISPUTE RESOLUTION – ITS IMPACT ON COMMERCIAL CONTRACTUAL RELATIONSHIPS

ALTERNATIVE DISPUTE RESOLUTION – ITS IMPACT ON COMMERCIAL CONTRACTUAL RELATIONSHIPS

Introduction

In today’s fast-paced business environment, resolving disputes efficiently is essential for maintaining robust commercial relationships. In this regard, Alternative Dispute Resolution (ADR) has become a key tool, offering businesses effective alternatives to traditional litigation. By integrating ADR mechanisms into commercial contracts, companies can streamline dispute resolution, reduce costs, and preserve valuable business relationships. This article examines how ADR impacts commercial contractual relationships, highlighting its benefits and practical implications for businesses seeking to enhance their dispute management strategies.

The Constitution of Kenya, 2010, under Article 159(2)(b) clearly expresses as follows:

“(2) In exercising judicial authority, the courts and tribunals shall be guided by the following principles – ……alternative forms of dispute resolution including reconciliation, mediation, arbitration, and traditional dispute resolution mechanisms shall be prompted subject to clause (3).

It then follows to note that the most common forms of ADR in Kenya include reconciliation, mediation, arbitration, and negotiation. This notwithstanding, it is not mandatory for the parties to commercial litigation to submit to ADR proceedings. Alternatively, Section 59C of the Civil Procedure Act, Cap 21 provides that a court may, in its motion, refer a matter to ADR either in its own motion or on the application of the parties involved. This section essentially supports the integration of ADR into the judicial process, facilitating more efficient dispute resolution.

This position has been further emphasized by the establishment of bodies that handle ADR proceedings in Kenya. These include: The Kenyan Chartered Institute of Arbitrators, The Dispute Centre and Mediation Training Institute, and The Nairobi Centre for International Arbitration (NCIA).

In the same breath, the Courts have time without number, insisted on the exhaustion of the ADR mechanism available. In the case of Geoffrey Muthinja Kabiru & 2 Others vs Samuel Munga Henry & 1756 Others [2015] eKLR, the court of Appeal noted that where a dispute resolution mechanism exists outside the court, the mechanism should be exhausted first before the court’s jurisdiction in invoked.

Key Forms of Alternative Dispute Resolution in Kenya

We shall now delve into the different forms of ADR.

1.Arbitration

Arbitration is an alternative dispute resolution mechanism in which a dispute is submitted, by mutual agreement of the parties, to one or more arbitrators who consider the arguments presented and render a binding decision based on the evidence provided.

In Kenya, arbitration is regulated by the Arbitration Act of 1995, as amended in 2009, alongside the Arbitration Rules, the Civil Procedure Act (Cap 21), and the Civil Procedure Rules, of 2010. Kenya also ratified the United Nations Commission on International Trade Law (UNCITRAL Model Law), which obligates courts to uphold the principle of autonomy in resolving commercial disputes.

The Arbitration Act is the main legislation when it comes to matters of arbitration. This position was reiterated in the Commercial Arbitration Cause E038 OF 2023 between Sumaya Inayat Ali Jivraj & Yasin Juma Mohamed KEHC 24066 (KLR), where the court stated as follows; “…..It is now settled that the Act is the complete code on matters arbitration and this position has been affirmed in several decisions……Therefore, the Court can only make such orders that are in conformity with the Act, and if a ground is non-existent in the Act, then the court will not give any due consideration to it.”

Arbitration plays a significant role in commercial contractual relationships by offering a faster and more cost-effective resolution than traditional litigation. It often resolves commercial disputes more expeditiously, thereby reducing the time and expense involved. Additionally, the process is confidential, safeguarding sensitive business information from public exposure and maintaining privacy. By incorporating arbitration clauses in contracts, businesses can mitigate the risk of prolonged litigation and manage disputes with greater predictability.

2. Mediation

Pursuant to Section 59(B) of the Civil Procedure Act, the court may, at the request of the parties involved, or when it deems it appropriate, or when required by law, direct that any dispute before it be referred to mediation.

Furthermore, any agreement reached between the parties as a result of mediation must be documented in writing, registered with the Court that directed the mediation, and shall be enforceable as if it were a judgment of that Court. In the context of commercial disputes, the regulatory frameworks for mediation are primarily comprised of various procedural rules established by institutions such as the Judiciary, the Nairobi Centre for International Arbitration, and the Chartered Institute of Arbitrators. These rules govern the conduct of mediations administered within their respective institutions. Notable examples include the Mediation (Pilot Project) Rules, 2015, which govern Court-Annexed Mediation, and the Nairobi Centre for International Arbitration (Mediation) Rules, 2015, which apply to mediations conducted at that Centre. However, this fragmented approach results in issues such as a lack of uniformity and certainty in the mediation process.

Mediation has positively impacted the resolution of commercial disputes by significantly reducing the time and costs associated with litigation. Since the introduction of Court-Annexed Mediation, the speed of dispute resolution has improved, and business relationships have been better preserved by facilitating amicable settlements.

3. Negotiation

In addition to arbitration and mediation, negotiation is another form of ADR that has seen increased use. Unlike arbitration and mediation, where a neutral third party is involved, negotiation is a process in which the parties themselves work together to reach an amicable solution. The process is flexible and informal, ensuring confidentiality as per the parties’ preferences. In commercial relationships, negotiations can be used to resolve existing disputes or to establish the foundation for future relationships between two or more parties.

Negotiation often serves as the initial step before mediation, allowing the parties to attempt to reach an agreement or, in some instances, agree to disagree. During this phase, the key issues at the heart of the conflict are discussed and bargained over. The primary objective of negotiation is to reconcile the differing interests of the parties in an amicable manner. The process involves the parties directly exploring potential resolutions without the involvement of a third party. It typically includes extensive back-and-forth communication, with each party making settlement offers. If an offer is accepted by the other party, the dispute is considered resolved amicably.

Negotiation in commercial transactions plays a pivotal role in resolving disputes and fostering relationships within Kenya’s business environment. This process is typically faster, more cost-effective, and less adversarial than other dispute resolution methods, helping to preserve ongoing commercial relationships. Moreover, negotiation in a commercial context encourages collaboration and innovation, as parties work together to find creative solutions that meet their mutual needs. This approach contributes to a more stable and predictable business environment, which is crucial for the growth and sustainability of commercial activities in Kenya.

Conclusion

In summary, Alternative Dispute Resolution (ADR) in Kenya has significantly transformed the framework of commercial contractual relationships in Kenya by offering more efficient, cost-effective, and confidential dispute resolution methods. Arbitration provides a structured yet adaptable alternative to traditional litigation, preserving business relationships through confidentiality and expert decision-making. Mediation encourages collaborative solutions, maintaining long-term commercial ties, while negotiation serves as an initial step, allowing parties to independently resolve conflicts.

The integration of arbitration, mediation, and negotiation into commercial contracts enables businesses to handle disputes with increased predictability and preserve essential relationships. As ADR mechanisms continue to advance and gain recognition, they present a viable alternative to conventional litigation, fostering a more stable and supportive environment for commercial activities. By adopting these methods, businesses can achieve quicker dispute resolution and contribute to a more robust business climate in Kenya, supporting ongoing economic growth and development. CR Advocates LLP is dedicated to assisting clients through these processes, ensuring the protection and advancement of their commercial interests.