[2022] KEHC 13782 (KLR)

Enzyne Creations Limited v Stecol Corporation; Equity Bank Limited (Interested Party) (Miscellaneous Application E308 of 2022) [2022] KEHC 13782 (KLR) (Commercial and Tax) (14 October 2022) (Ruling)

Neutral citation: [2022] KEHC 13782 (KLR)

Republic of Kenya

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

Commercial and Tax

Miscellaneous Application E308 of 2022

A Mabeya, J

October 14, 2022

IN THE MATTER OF THE ARBITRATION ACT NO.4 OF 1995 AND IN THE MATTER OF THE ARBITRATION RULES, 1997 AND IN THE MATTER OF THE CONTRACT FOR SERVICE OF VARIATION AND CLAIMS FOR CONSTRUCTION OF NAIROBI- JKIA EXPRESSWAY PROJECT

Between

Enzyne Creations Limited

Plaintiff

and

Stecol Corporation

Defendant

and

Equity Bank Limited

Interested Party

Ruling

1. Before Court are 2 applications. The first one is by the plaintiff and is dated 12/7/2022 while the second one is dated 18/7/2022 and is by the defendant.

2. The first application was brought inter alia pursuant to Order 5 Rule 22(b); Order 13 Rule 2; Order 39 Rule 1, 5, 6, and 8; Order 40 Rule 1 and 2; Order 46, Rule 20 of the Civil Procedure Rules 2010; Sections 7, 12(9)(a) of the Arbitration Act 1995 and Rule 3(1) of the Arbitration Rules 1997.

3. The plaintiff sought a raft of prayers but important of them is a temporary mareva injunction to freeze and/or restrain the defendant from accessing, transferring from, moving or transacting in any other way with any money below the cumulative amount of Kshs.326,578,955. 62 out of its bank account and credit balances in account number 1410260616569 at Equity Bank (Kenya) Limited, Lavington Supreme Branch.

4. In the alternative, the applicant prays that pending the determination of the arbitration between the parties, the defendant be directed to deposit Kshs.326,578,955. 62 into a joint interest earning account in the names of the firms of advocates representing the parties.

5. Further, the plaintiff prays that the original title for a property known as Katani quarry in Machakos be deposited in Court and the defendant be directed to facilitate quarrying activities on the said property and to continue supplying the plaintiff if certain materials therefrom.

6. The grounds for the application were set out in its body and the supporting affidavit sworn on 12/7/2022 by Evans Omari Obae, the Managing Director and majority shareholder of the plaintiff.

7. The grounds included that the operations of Katani quarry in Machakos County which is owned by the defendant were halted by the court in Machakos ELC No.466 of 2017 (“the said Case). That the parties entered into an Agreement dated 10/7/2020 whereby it was agreed that the plaintiff was to negotiate and create a good relationship between plaintiffs in the said case and the defendant. That was aimed in having the resumption of activities of the said quarry.

8. That the agreement further provided a formula of ensuring that the plaintiff would be compensated for its input in the negotiations in two ways namely picking up aggregates and finished products for its projects. Further, the parties entered into an addendum agreement dated 22/7/2020 which stipulated the obligations of the parties in relation to the quarry operations.

9. Mr.Obae averred that in a bid to foster negotiations and with the authority of the plaintiff, he secured a facility capped at USD 260,000. 00 from Standard Chartered Bank on 14/10/2020 guaranteed by his investment in the banks together with other personal funding all amounting to Ksh.326,578,955. 62. That in order to ensure performance of its obligations in the contract, the plaintiff got into different contractual obligations.

10. In pursuance thereof, the plaintiff conducted the negotiations successfully resulting in the withdrawal of the said Case and had the quarry back in full operation.

11. That the outstanding balance of the facility stood at USD 172,726. 08 and Mr.Obae’s investment at Standard Chartered Bank valued at USD 215,565. 27 currently faced the threat of liquidation if funds are not deposited to change the status.

12. Mr. Obae averred that due to the foregoing, he had been forced to redeem his investment at Standard Chartered Bank in order to use the proceeds thereof to pay off the said overdraft. That the defendant breached the aforesaid agreements by abandoning the quarry operations which were the plaintiff’s only source of compensation for its input in the settlement of the said Case on behalf of the defendant.

13. The plaintiff pleaded that it had been extremely affected by the closure of the quarry whereby it had been exposed to possible default on its ongoing projects. That the defendant, being a Chinese company, could be winding up its business in Kenya and it would only be fair to freeze its bank accounts as the plaintiff is exposed to the risk of not being compensated for the services rendered.

14. The defendant opposed the application through a replying affidavit sworn on 21/7/2022 by Kun Guo, its Project Manager. It was averred that through the present application, the plaintiff had obtained ex-parte orders that froze its bank account number 1410260616569 at Equity Bank Limited, Lavington Supreme Branch.

15. It denied that it was a flight risk as alleged by the plaintiff. It was averred that the defendant is undertaking several major road construction projects within the country. That some of them included the ‘Upgrading and Landscaping of Kenyatta Road (C565) Project (FIDIC EPC/TURNKEY)’ which is a contract whose value is over Ksh.1. 7 billion with a contract period of 24 months from 29/9/2021.

16. That due to the ex-parte orders, the account was frozen which had paralyzed its operations and was unable to fund the ongoing construction projects, pay salaries and wages for its employees, daily operational costs, payments to service providers and taxes.

17. That there is no order, judgment, award nor decree of a court or arbitral tribunal that may be a basis of the claim by the plaintiff for Kshs.326,578,955. 62. The defendant denied owing the plaintiff the claimed amount or any sum at all.

18. It was contended that in an earlier application dated 12/7/2022 wherein the plaintiff had sought the appointment of an arbitrator, the plaintiff had claimed Kshs.180,652,980 and not the sum of Kshs.326,578,955. 62 nor Kshs.235,000,000/- that is now claimed in the present application.

19. In the premises, the defendant pleaded that it is in the interest of justice to dismiss the application and to have the ex-parte orders discharged.

20. The interested party lodged grounds of opposition dated 26/7/2022 in response to the instant application. Its grounds were that the reliefs sought in the application were substantive and could not be granted by way of a miscellaneous application. That the joinder of the interested party was without leave and therefore improper. In any event, no reliefs were sought against the interested party who has no stake in the proceedings.

21. On 19/8/2022, the respondent lodged a further affidavit sworn by its Project Manager in supplementary opposition to the present application.

22. It was averred that Katani Quarry in Machakos County, which was used to supply the aggregates to Nairobi Outer-Ring Road (C59) Project is now closed as the respondent has completed the project. That notwithstanding the foregoing, the land in which the said Katani Quarry is situate is a property that lawfully belongs to the respondent. That however, because the respondent has other ongoing construction projects, they have another quarry in Kilimambogo, Kiambu County with full set of aggregate crushing plant.

23. That the respondent has various site offices for the projects it currently undertakes. That the respondent is duly registered to carry out its trade in Kenya and has plenty of transportation vehicles and construction equipment.

24. The Court has considered the pleadings, affidavits and submissions on record. The principal order is a temporary injunction to freeze the respondent’s account held at Equity Bank, pending the determination of the intended arbitration.

25. Vide a ruling dated 12/8/2022, this Court ordered the parties to appoint an arbitrator within 14 days of the ruling in line with the addendum dated 22/7/2022 and if that would be unsuccessful, within 7 days after, the chairman of the Chartered Institute of Arbitrators would appoint a sole arbitrator.

26. The said ruling found that the dispute between the parties ought to be solved through arbitration in accordance with the agreement dated 10/7/2020 and its addendum dated 22/7/2020.

27. The applicant now seeks through this application, to have the amount Kshs.326,578,955. 62 frozen or alternatively deposited in a joint interest earning account pending the determination of the intended arbitration.

28. The foregoing being the case, the objection by the interested party that the orders are wrongly being sought in a miscellaneous application cannot stand. The arbitration ordered operates as a substantive proceeding. The application only seeks interim relief of protection.

29. The Court is alive that there is no award yet for the said amount. However, there is no dispute that the parties were in a contractual relationship. That the same gave rise to rights and obligation. The applicant alleges that the respondent is a foreign company with no known assets in Kenya. That with the closure of the subject quarry, the respondent may abscond and leave the jurisdiction thereby exposing the applicant to grave loss and injustice.

30. The respondent retorted that it has ongoing projects with the Government of Kenya. The one disclosed will terminate within the next 12 months. There is no assurance of further continued stay in Kenya. It is unlikely that within that period, the arbitration would have been concluded.

31. There is clearly a dispute between the parties herein arising from the agreement and addendum that they entered into which has to be resolved through arbitration. The tribunal would render its findings and determine which party was liable and award the appropriate amount. In the event the tribunal rules in favour of the respondent, then whatever monies that would have been sequestered would be released to it.

32. On the other hand however, if the tribunal rules in favour of the applicant and the respondent is found to have left the jurisdiction, the applicant would suffer untold loss thereby amounting to an injustice.

33. It must be had in mind that a mareva injunction is meant to safeguard the status quo so as not to expose a party to a proceeding to untold suffering. In the event the respondent closes shop now or in the foreseeable future, the applicant may be exposed to extreme hardship and irrecoverable loss. There should be some measure of protection.

34. The other issue is the amount sought to be sequestered. It is in excess of Kshs. 300 million. The respondent has questioned the basis of that claim having in mind that in a previous application, the amount quoted was less than that.

35. In the affidavits, the amount shown to have been used as collateral was about US$.260,000/-. That is approximately Kshs.31 million.

36. The court therefore is of the opinion that the respondent is not a flight risk as it is based in Kenya and is carrying on various projects worth a lot of money. It is therefore likely to be present during the arbitral proceedings and likely to pay any arbitral award to the applicant if granted by the tribunal.

37. The upshot of the above is that the application dated 12/7/2022 is partially successful.

38. The second application dated 18/7/2022 sought to have the interim orders issued on 13/7/2022 set aside in order to allow the respondent to access its bank account number 1410260616569 held at Equity Bank Limited.

39. Owing to the Court’s findings above, the application is overtaken by events.

40. Accordingly, the Court makes the following orders: -a.The application dated 18/7/2022 is hereby marked as overtaken by events.b.The application dated 12/7/2022 succeeds to the extent that, an amount of Kshs.31,000,000/- be transferred from the respondent’s AC. No. 1410260616569 at Equity Bank (K) Ltd, Lavington Supreme Branch to an interest earning account in the joint names of the Advocates for the applicant and respondent.c.Upon such transfer being effected, the freezing order made herein on the said account be discharged forthwith. Costs to be in the arbitration.It is so ordered.

DATED AND DELIVERED AT NAIROBI THIS 14TH DAY OF OCTOBER, 2022. A. MABEYA, FCIArbJUDGE