High Court Sends KSh19.4 Million Moyo Casino-Pesapal Dispute to Negotiations

Carnaval Kenya, operator of Moyo Casino, accuses Pesapal of withholding KSh19.4 million and US$65,605.55, with the High Court ordering 30 days of negotiations before possible arbitration.

A KSh 19.4 million dispute between Moyo Casino’s operator and Pesapal has been pushed from court.

The High Court has ordered both companies to negotiate before arbitration can begin.

Justice Benard Wafula Murunga ruled that their contract requires negotiations before arbitration proceedings.

The decision leaves Carnaval Kenya Limited’s substantive claims against Pesapal unresolved for now.

It also means the companies must confront their dispute away from the courtroom first.

Millions Frozen

The dispute began with a merchant agreement signed by Carnaval and Pesapal on February 7, 2024.

Under that agreement, Pesapal provided payment services for Carnaval’s gaming and entertainment business.

The contract incorporated Pesapal’s standard terms governing the companies’ commercial relationship.

At the heart of the agreement was Clause 12.1, which established their dispute-resolution mechanism.

The clause required the parties to pursue good-faith negotiations for thirty days before arbitration.

The dispute escalated after Pesapal allegedly froze Carnaval’s account on April 4, 2024.

Carnaval subsequently sued Pesapal on July 30, 2024, seeking recovery of withheld funds.

Its claim identified KSh19,464,224.33 and US$65,605.55 (KSh8,517,568) as the disputed amounts.

Carnaval later amended its pleadings, expanding its allegations against the payment-services provider.

It alleged that Pesapal froze its account without contractual notice or lawful justification.

The company also accused Pesapal of imposing settlement conditions outside their agreement.

More seriously, Carnaval alleged that Pesapal assumed anti-money-laundering powers reserved for statutory authorities.

The account freeze also affected unrelated customer funds, according to the company.

Carnaval said Pesapal eventually released the funds on October 1, 2024, without interest.

Those allegations transformed a payment dispute into a broader legal battle over contractual authority.

Arbitration Fight

Pesapal moved quickly after Carnaval filed the lawsuit, seeking to keep the dispute outside court.

On August 15, 2024, Pesapal entered an appearance and filed its Chamber Summons.

It asked the High Court to stay proceedings and refer the dispute to arbitration.

Crucially, Pesapal had not filed a defence when it sought the stay.

The company relied on Section 6 of the Arbitration Act and Clause 12.1.

Pesapal argued that the clause created a valid and binding arbitration agreement.

It maintained that the dispute arose directly from its commercial relationship with Carnaval.

Carnaval opposed the application, arguing that Pesapal’s conduct raised wider constitutional questions.

It said the alleged freezing of funds implicated its property rights under Article 40.

Carnaval further argued that private arbitrators could not determine those public-law questions.

Justice Murunga, however, separated the allegations themselves from the question of forum.

The judge stressed that the court was not determining whether Pesapal acted unlawfully.

Instead, the immediate question concerned where the parties should resolve those allegations.

That distinction became decisive in the eventual ruling.

Contract Prevails

The judge first found that Pesapal had complied with Section 6’s strict timing requirements.

Pesapal entered appearance and filed its arbitration application on the same day.

It had neither filed a defence nor taken another substantive step in the proceedings.

The court then considered whether a genuine dispute existed between the companies.

Justice Murunga found substantial disagreement concerning the account freeze and withheld funds.

The parties also disagreed over Pesapal’s contractual powers and potential liability.

The judge concluded that a genuine dispute “plainly subsists” between the parties.

Carnaval’s constitutional arguments nevertheless received serious consideration from the judge.

He acknowledged that prolonged freezing of funds could raise significant property-rights concerns.

However, those allegations did not automatically invalidate the parties’ arbitration agreement.

The judge relied on the doctrine of separability under Section 17 of the Arbitration Act.

That doctrine treats an arbitration clause as independent from the wider contract.

Consequently, allegations affecting contractual conduct do not automatically destroy arbitration provisions.

The court also examined Pesapal’s contractual powers concerning KYC and anti-money-laundering requirements.

Those provisions allowed Pesapal to suspend services following certain material contractual breaches.

Whether those powers were properly exercised remained a contractual question for determination.

The judge therefore found that the dispute arose “in connection with this agreement”.

Talks Come First

The judge nevertheless found one major problem with an immediate arbitration referral.

The parties had completely skipped the mandatory negotiation stage contained within Clause 12.1.

Neither company had undertaken the required thirty-day good-faith negotiations before approaching court.

Justice Murunga refused to treat that omission as making arbitration impossible.

Instead, he directed both parties to follow the agreement exactly as written.

The High Court consequently stayed Commercial Suit E422 of 2024.

It also suspended Pesapal’s obligation to file its defence until the process concludes.

The companies must now undertake thirty days of good-faith negotiations.

If those negotiations fail, either party may commence arbitration before a sole arbitrator.

The arbitrator will operate under the Chartered Institute of Arbitrators’ Kenya Branch rules.

The judge also allowed either party to seek further court directions where legally permitted.

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However, Carnaval was ordered to bear the costs of Pesapal’s arbitration application.

The ruling does not determine whether Pesapal unlawfully froze Carnaval’s money.

Nor does it decide whether Carnaval ultimately deserves compensation or interest on the withheld funds.

Instead, it determines the route those questions must now follow.

For Carnaval and Pesapal, the next courtroom battle has therefore been postponed.

Their immediate challenge is now across the negotiating table, not before the judge.

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