Your Exclusive Jurisdiction Clause May Not Survive a Kenyan Court

A foreign supplier signs a distribution agreement with a Kenyan company. The contract was negotiated carefully, and one clause was drafted with particular care: all disputes shall be resolved exclusively by the courts of England. When the relationship sours, the Kenyan distributor ignores that clause and files suit in Nairobi. The foreign company's lawyers are confident the case will be struck out within weeks. Two years later, the matter is still before the High Court, and the foreign company is defending it on the merits.

That outcome surprises many international businesses, but it should not. Kenyan courts take exclusive jurisdiction clauses seriously, yet they have never treated them as absolute, and a clause that would be enforced without hesitation in London may be set aside in Nairobi if the facts point strongly enough towards Kenya.

The rule and its exception

The leading Kenyan authority remains the Court of Appeal's decision in United India Insurance Co Ltd v East African Underwriters (Kenya) Ltd.¹ The court accepted that a jurisdiction clause should normally be respected and that strong reason must be shown before a court will decline to give effect to it. It described the burden on the party seeking to escape the clause as a heavy one. At the same time, it held that Kenyan courts retain a discretion to assume jurisdiction over an agreement made to be performed in Kenya, notwithstanding a clause conferring jurisdiction on a foreign court.

In exercising that discretion, the court drew on the English authorities, in particular The Eleftheria, in which Brandon J identified the factors relevant to whether a party should be held to a foreign jurisdiction clause: where the evidence is located, which law governs the contract, the parties' connections with each country, whether the defendant genuinely wishes to litigate abroad or is merely seeking a procedural advantage, and whether the plaintiff would be prejudiced by having to sue abroad.² The House of Lords later restated the same principle by requiring a party who sues in breach of an exclusive jurisdiction clause to show strong cause why the clause should not be enforced.³

How the clause was defeated in United India Insurance

The facts of United India Insurance show how the discretion works in practice. Two Indian insurers had appointed a Kenyan company as their chief agent in Kenya under agreements governed by Indian law, which provided that the courts of Bombay alone would have jurisdiction. The Kenyan agent later sued in Nairobi, alleging that the insurers had breached the agreements by procuring Kenyan business through other agents. The insurers entered appearance under protest and applied to stay the suits in favour of Bombay.

The application failed in the High Court and again on appeal. The Court of Appeal accepted that Kenya was the natural forum because every alleged breach had taken place in Kenya, the evidence and witnesses were in Kenya, and both the plaintiff and one of the defendants were Kenyan companies. Separate proceedings in two countries would also have risked inconsistent findings on the same issues. Notably, the court gave weight to unrebutted evidence of delays in the Bombay courts, and one member of the court criticised the insurers for failing to file evidence in support of their own application, such as the identity of their witnesses or the likely timetable for a trial in Bombay.

The lesson is not that foreign clauses are weak. It is that a party relying on one must prove why it should be enforced, rather than simply pointing to the words of the contract.

When the clause holds

Kenyan courts do enforce exclusive jurisdiction clauses where no strong reason is shown. In Great Rift Drilling Ltd v Cluff Geothermal Ltd, a Kenyan drilling company sued a company registered in the United Kingdom for about USD 2.85 million, despite a deed that conferred jurisdiction on the courts of England and Wales. The Kenyan company argued that the deed had been procured by fraudulent misrepresentation and that this was a strong reason to disregard the clause. The High Court held that the parties were bound by their contract, found that the alleged fraud had not been proved, and struck out the suit for want of jurisdiction.⁴ The Court of Appeal later refused to grant an injunction pending appeal, finding no arguable point in the intended appeal.⁵

The contrast with United India Insurance is instructive. A clause is most vulnerable where the dispute is rooted in Kenya and the foreign forum adds cost without adding anything of substance. It is strongest where the parties chose the forum with their eyes open and the party seeking to escape it relies on allegations it cannot prove.

Allegations of fraud and invalidity

A common tactic is to allege that the contract containing the clause is void, often because it was procured by fraud, and to argue that a void contract cannot confer exclusive jurisdiction on anyone. Great Rift Drilling shows that such an allegation must be substantiated. In the context of arbitration clauses, the House of Lords held in Fiona Trust & Holding Corp v Privalov that the clause is separable from the main contract and survives an allegation that the contract as a whole was induced by bribery, unless the allegation is directed specifically at the dispute resolution clause itself.⁶ Kenyan courts have not yet settled how far that reasoning extends to exclusive jurisdiction clauses, and the point remains open to argument.

Where the clause provides for arbitration rather than a foreign court, the court's discretion is narrower. The Arbitration Act requires the court to stay proceedings and refer the parties to arbitration unless the arbitration agreement is null and void, inoperative or incapable of being performed, or there is in fact no dispute between the parties.⁷

The overrides that no clause can defeat

Some claims cannot be contracted away at all. The Supreme Court has held that the principle of party autonomy cannot bind the superior courts to cede their jurisdiction to interpret the Constitution.⁸ A dispute that genuinely raises questions under the Bill of Rights may therefore be heard in Kenya regardless of the forum the parties chose.

In consumer contracts, Parliament has intervened directly. Any term in a consumer agreement that requires disputes to be submitted to arbitration is invalid in so far as it prevents a consumer from exercising a right, given by the Consumer Protection Act, to commence an action in the High Court.⁹ Businesses that sell to Kenyan consumers on standard terms should therefore assume that their dispute resolution clause will face particular scrutiny.

The one-sided clause

Lenders and large suppliers often use asymmetric clauses, under which the Kenyan counterparty may sue only in one country while the drafting party may sue anywhere. English law generally enforces such clauses. In Mauritius Commercial Bank Ltd v Hestia Holdings Ltd, the English Commercial Court upheld a clause of this kind.¹⁰ The French Cour de cassation, by contrast, struck down a one-sided clause in favour of a private bank on the ground that it gave the bank an unfettered choice of forum,¹¹ and the Court of Justice of the European Union has since held that such clauses are valid under EU law only if they identify the available courts with sufficient precision.¹²

No Kenyan court has yet ruled on an asymmetric clause. A Kenyan court applying the United India Insurance discretion may well regard a clause that binds only the weaker party as a factor weighing against strict enforcement, particularly where that party is a Kenyan business and the dispute arose in Kenya.

How a clause is lost by conduct

Even a strong clause can be thrown away in the way the litigation is conducted. The Court of Appeal has held that a defendant who enters an unconditional appearance submits to the jurisdiction of the court, whatever the pretext.¹³ A foreign party served with a Kenyan suit should therefore enter appearance under protest, apply promptly for a stay or for the suit to be struck out, and avoid any step, such as filing a defence on the merits, that could be read as accepting the jurisdiction. Where the foreign party is outside Kenya, it should also examine whether leave to serve it out of the jurisdiction was obtained at all, because the High Court assumes jurisdiction over a foreign defendant only once leave has been granted and the summons properly served.¹⁴

What this means for businesses

For a foreign company contracting with a Kenyan party, an exclusive jurisdiction clause is valuable but not self-executing. Its prospects improve where the clause is clear and mutual, where the chosen forum has a genuine connection with the transaction, and where the party relying on it is ready to file evidence showing why the dispute belongs there. Its prospects fall where the performance, the breach and the witnesses are all in Kenya, or where the foreign forum would be slow, costly or unconnected with the dispute.

For a Kenyan company bound by a foreign clause, the clause is a serious obstacle but not necessarily the end of the road. A carefully prepared application, supported by evidence of where the dispute is truly centred and of the prejudice that litigating abroad would cause, can persuade a Kenyan court that strong reason exists.

The words of the clause decide where the argument begins. In Kenya, the evidence decides where it ends.

Benson Odiwuor is a Nairobi-based dispute resolution lawyer and researcher in internet jurisdiction, who handles dispute resolution in cross-border digital, data protection and online reputation matters. He is also the editor of The BOLD, a legal newsletter focusing on dispute strategies and legal developments in the regulated industries of Kenya. Subscribe to The BOLD here.

For inquiries, contact the author at  info@bensonodiwuor.com.