[2022] KEHC 15995 (KLR)

Endende v Anand & another (Commercial Suit E826 of 2021) [2022] KEHC 15995 (KLR) (Commercial and Tax) (2 December 2022) (Ruling)

Neutral citation: [2022] KEHC 15995 (KLR)

Republic of Kenya

In the High Court at Nairobi (Milimani Commercial Courts Commercial and Tax Division)

Commercial and Tax

Commercial Suit E826 of 2021

A Mabeya, J

December 2, 2022

Between

Wycliffe Afandi Endende

Plaintiff

and

Vishudh Anand

1st Defendant

Smic Kenya Limited

2nd Defendant

Ruling

1. This is a ruling on the defendants’ application dated 24/1/2022. The same was brought under article 159 of the Constitution2010, section 72 of the Interpretation and General Provisions Act, sections 2 and 6 of the Arbitration Act 1995.

2. The defendants sought that the matter be referred to arbitration as agreed by the parties under article 31 of the 2nd defendant’s articles of association. They also sought that these proceedings be stayed pending the determination of the arbitral proceedings.

3. Alternatively, the defendants sought to have the plaint dated 23/8/2021 struck out for being an abuse of the court process.

4. The grounds for the application were that, the plaintiff filed this suit on 1/12/2021 seeking, inter alia, that the 1st defendant disclose all of the 2nd defendant’s audited accounts for each year from the year of its incorporation. He further sought that the 1st defendant remits dividends owed to him for every financial year subsisting from the date of incorporation.

5. That under the 2nd defendant’s articles of association, any differences on the affairs of the company are to be referred to an arbitrator to be appointed by the Association of Arbitrators Kenya Chapter. That the defendants have not taken any steps in these proceedings and that this matter should be referred to arbitration for determination of any issues that arise therefrom.

6. The plaintiff filed grounds of opposition in response to the application dated 21/2/202.

7. The plaintiff contended that the suit raises issues of breach of statutory obligations on the part of the defendants expected of them as per the provisions of theCompanies Act, The Income Tax Act and the Value Added Tax Act.

8. That raising substantive issues and/or questions of law are exempt from referral to arbitration. That the suit raises issues that were not contemplated in the arbitration clause as set out in in the 2nd defendant’s articles of association. That referring the same to arbitration will be ultra vires the arbitration clause and any arbitration panel constituted whereof will be deprived of the necessary jurisdiction.

9. The defendants lodged a supplementary affidavit sworn on 21/3/2021 by the 1st defendant in response to the plaintiff’s grounds of opposition.

10. The affidavit reiterated the contents of the defendant’s application. Further, it asserted that the plaintiff misinterpreted article 31 of the 2nd defendant’s articles of association by alleging that the dispute forming the basis of this matter is not covered under the subject article.

11. The court has considered the entire record including the submissions filed by the parties herein.

12. Jurisdiction is everything and without it, the court must down its tools.

13. Section 6 of the Arbitration Act provides: -“A court before which proceedings are brought in a matter which is the subject of an arbitration agreement shall, if a party so applies not later than the time when that party enters appearance or otherwise acknowledges the claim against which the stay of proceedings is sought, stay the proceedings and refer the parties to arbitration unless it finds.”

14. What the court must answer is whether the suit before it ought to be referred to arbitration as claimed by the defendants. Article 31 of the 2nd defendant’s articles of association provides: -“Whenever any differences arises between the company on the one hand and of the members, their executors, administrators, or assigns on the hand, touching the true intent or construction, or the incidents, or consequences of these articles, or of the statutes, or touching anything then or thereafter done, executed, omitted, or suffered in pursuance of these articles, or any claim on account of any such breach or alleged breach, otherwise relating to the premises, or to these articles or to any statutes affecting the company, or to any of the affairs of the company, every difference shall be referred to the decision of an arbitrator, to be appointed by the Association of Arbitrators Kenya Chapter.”

15. Vide a plaint dated 23/8/2021, the plaintiff sought that the 1st defendant to disclose audited accounts of the 2nd defendant for each year from the date of incorporation and allow the plaintiff access to the said accounts. He further to compel the 1st defendant to remit dividends owed to him for every financial year from the date of the incorporation of the company.

16. The defendants claimed that the issues raised in the plaint ought to be referred to arbitration as stipulated in the aforementioned article 31. Conversely, the plaintiff contended that the suit does not raise issues as contemplated in the said article. That the suit raises issues of breach of statutory obligations on the part of the defendants.

17. My understanding of the said article 31 is that, disputes arising from the 2nd defendant’s affairs touching on the intention, construction or consequences of the articles of association shall be referred to an arbitrator.

18. The dispute as described in the plaint touches on the disclosure of audited accounts and payment of dividends to the shareholders by the 1st defendant as a director of the 2nd defendant. In my view, that falls squarely within article 31 as the distribution of dividends or generally the running of the affairs of the company is provided for in the articles of association and ought to be determined as stipulated therein.

19. In Abdirahman Affi AbdallavOsupuko Service Station Ltd &another [2012] eKLR, it was held: -“With respect, Mr Chelang’a’s contention overlooks one fundamental principle of company law. That principle ordains that a company’s articles of association give rise to a contract not only between every member and the company, but also among the members of the company inter se. The logical conclusion to be drawn from that principle is that the members of the 1st plaintiff company are bound by that company’s articles among themselves, and therefore article 31 becomes an arbitration agreement among all the members.”

20. I concur with the authority above. Articles of association are contractual in nature binding its shareholders, the company and its directors. The court will not rewrite its contents and has no discretion to determine the dispute arising in the plaint.

21. In this regard, I find merit in the application dated 24/1/2022 and grant prayers c) and d) therein. Costs in the arbitration.It is so ordered.

DATED AND DELIVERED AT NAIROBI THIS 2ND DAY OF DECEMBER, 2022. A. MABEYA, FCIArbJUDGE