A distributor has failed to overturn a Sh56 million judgment in favour of BAT Kenya Tobacco Ltd after the Court of Appeal ruled that it had admitted owing the money.
A three-judge bench held that an arbitration clause cannot be used as a shield or delaying tactic by a debtor seeking to evade payment of an admitted debt.
The court added that where no genuine factual or legal dispute exists, proceedings cannot be stayed to allow arbitration.
‘In the face of a clear undisputed admission, the plaintiff (BAT Kenya) is legally entitled to bypass arbitration entirely and apply for a judgment on admission or summary judgment under the Civil Procedure Rules, to enforce payment of the admitted debt immediately,’ said the court in a decision on October 16.
M’Big Limited had appealed against the High Court’s decision to enter judgment on admission for Sh56 million and reject its application to have the dispute referred to arbitration.
In September 2023, the High Court entered judgment against the distributor following an application filed by BAT Kenya in 2022. The court also dismissed M’Big’s application to refer the matter to arbitration.
Court records show that the two companies entered into a five-year cigarette distribution agreement effective June 1, 2015, under which M’Big was appointed to market, resell and distribute BAT Kenya’s products.
The dispute arose after an account reconciliation established an outstanding balance of Sh56,184,300.
In an email dated February 2, 2022, M’Big acknowledged receiving a demand letter and said it was in the process of disposing of a parcel of land to settle the amount. It also proposed a payment plan to clear the debt, which it acknowledged was due and owing.
However, in opposing BAT Kenya’s application, the distributor argued that the manufacturer had breached the agreement by failing to follow the prescribed procedures, giving rise to the dispute.
M’Big further claimed that its admission of liability resulted from fraudulent misrepresentation of the true state of the business.
The company cited a complaint letter dated November 2021, in which it disputed the amounts claimed, and minutes of a meeting held on November 29, 2021, which it said showed that BAT Kenya had misrepresented the business’s financial position.
M’Big also maintained that it had overpaid BAT Kenya and that the manufacturer, in fact, owed it Sh473,248,923.
It argued that these issues were triable and could not be resolved through summary proceedings or judgment on admission.
BAT Kenya, however, maintained that the distributor had not disputed its liability for the outstanding amount.
The Court of Appeal dismissed the appeal, finding no credible challenge to M’Big’s admission of the debt.
‘We arrive at the same conclusion as the trial judge – that there was no dispute capable of being referred to arbitration. In such circumstances, the trial court was justified in declining to refer the case to arbitration. Indeed, as held by the trial judge, the appellant never called a dispute after the accounts had been reconciled,’ said the court.
The judges also rejected M’Big’s allegations that BAT Kenya had misrepresented the facts and that an audit had established an overpayment, with the distributor accusing the manufacturer of fraud.
The court agreed with the trial judge that the allegations were raised too late to displace the earlier admission of liability.
‘The appellant has not given us any convincing material for us to fault the trial judge’s exercise of judicial discretion on the issue,’ said the court.
The appellate court further upheld the High Court’s reliance on a second Variation Agreement dated June 18, 2020, which amended the dispute resolution clause in the original contract and conferred exclusive jurisdiction on Kenyan courts.
‘It was therefore not open for the appellant to attempt to resile from the mutually binding terms of the said Variation Agreement,’ said the court.