[2022] KEHC 15336 (KLR)

Kailikia v Orawo & 3 others (Civil Suit E174 of 2022) [2022] KEHC 15336 (KLR) (Civ) (11 November 2022) (Ruling)

Neutral citation: [2022] KEHC 15336 (KLR)

Republic of Kenya

In the High Court at Nairobi (Milimani Law Courts)

Civil

Civil Suit E174 of 2022

JK Sergon, J

November 11, 2022

Between

Patrick Mweti Kailikia

Applicant

and

Fredrick Okello Orawo

1st Respondent

Seraph Engineering Limited

2nd Respondent

Kenya Pipeline Company Limited

3rd Respondent

Aveva Software Middle East FZ LLC

4th Respondent

Ruling

1. The plaintiff/applicant herein took out the Notice of Motion dated 21st September, 2022 and sought for the orders hereunder:i.Spent.ii.Spent.iii.Spent.iv.That this Honourable Court be pleased to grant leave to the plaintiff to serve summons and the court documents upon the 4th defendant outside the jurisdiction of the court by way of registered courier, DHL.v.That an order of temporary injunction do issue barring the 1st defendant from making any decisions, transacting with, contracting, negotiating or in any way making representations regarding the 2nd defendant without involving the plaintiff pending the hearing and determination of the suit.vi.That an order of temporary injunction do issue barring the defendants from executing, performing contract no. KPC/PU/OT-038/I&C/NBI/21-22 For the Design, Supply, Installation, Configuration, Testing and Commissioning of SCADA System Upgrade pending the hearing and determination of the suit.vii.Costs of the application.viii.Any other reliefs as the court may deem fit.

2. The Motion is supported by the grounds set out on its body and the facts stated in the affidavit of the 1st applicant.

3. To oppose the Motion, the 1st defendant/respondent put in the Grounds of Opposition dated 4th October, 2022 featuring nine (9) grounds essentially arguing that this court lacks jurisdiction to entertain the instant Motion and the suit for the reason that the issues are subject to arbitration proceedings; that the applicant lacks the authority to institute the suit on behalf of the 2nd defendant/respondent and that he is not a shareholder in the 2nd respondent company; and that the suit is sub judice in view of a pending suit in High Court Commercial Case No. E111 of 2022 (Patrick Mweti Kailika v Fredrick Okello Orawo, Seraph Engineering Limited & Another).

4. On its part, the 2nd respondent filed the grounds and notice of preliminary objection dated 4th October, 2022 raising 14 grounds to challenge the competency of both the instant Motion and the suit for reasons similar to those raised by the 1st respondent above; and on grounds that the plaintiff is not privy to the contract between the 2nd, 3rd and 4th respondents; that the 1st respondent is the majority shareholder of the 2nd respondent and its Managing Director; that the instant Motion rides on falsehoods and misrepresentation of facts; that there are other separate proceedings pending in various courts over the same subject matter.

5. The 3rd respondent also opposed the Motion by putting in the Grounds of Opposition dated 4th October, 2022 arguing inter alia, that the applicant’s claim against it is premised on a contract entered into between the 2nd and 3rd respondents without the involvement or participation of the applicant; that the 3rd respondent acted in good faith at all material times and was never a party to the construction of the 2nd respondent’s memorandum and articles of association and cannot therefore be expected to be aware of their contents.

6. The 3rd respondent also put in the replying affidavit sworn by its Senior Legal Officer, Elizabeth Rop, on 11th October, 2022.

7. When the parties attended court, directions were given that the preliminary objection and the instant Motion be heard and determined together. Consequently, the parties put in written submissions on the same.

8. The record shows that the 4th respondent did not participate at the hearing of the Motion. Nonetheless, it is also clear from the record that on 21st September, 2022 this court gave directions granting the applicant leave to serve summons and the court documents upon the 4th respondent outside the jurisdiction of the court by way of registered courier, DHL thereby dispensing with prayer (iv) of the Motion listed hereinabove.

9. I have taken into consideration the grounds set out on the face of the Motion and the facts deponed to in the affidavits in support of and in resistance thereto. I have also considered the Grounds of Opposition, the notice of preliminary objection and the contending submissions and authorities relied upon.

10. Before I consider the merits of the Motion, I will first address the issues raised in the notice of preliminary objection filed by the 2nd respondent.

11. As mentioned hereinabove, the 2nd respondent raised two (2) main preliminary arguments of objection.

12. The first has to do with whether this court has jurisdiction to entertain the instant Motion and the suit.

13. To support its position that this court lacks jurisdiction, the 2nd respondent submits that the applicant ought to have first exhausted the internal/alternative dispute resolution mechanisms available under Article 31 of the 2nd respondent’s Articles of Association, which provide for arbitration as a means of resolving disputes that arise.

14. The 2nd respondent is therefore of the view that the dispute ought to be referred for arbitration.

15. In response, the applicant submits that he was not a party to the contract entered into between the 2nd and 4th respondents in order for the arbitral clause to be invoked and cites the case of Standard Group PLC v Wesley Kiptoo Yegon & another [2019] eKLR where the court reasoned that:“Thus the position seems to be that, where a third party is involved, the Court may refuse to stay the proceedings as the case will only be appropriate for only part of the dispute. However, it is noteworthy that the position in UK has changed and involvement of third party is no longer a reason to refuse stay.It is not in dispute that the 2nd Defendant is not a party to the arbitral and neither did it participate in the hearing of the application, obviously for the simple reason that, it is not bound by the arbitral agreement. Therefore, the claim in relation to the second Defendant cannot be referred to arbitration.”

16. Upon my perusal of the record, I note that the applicant annexed a copy of the 2nd respondent’s memorandum and articles of association. Article 31 of the articles of association makes provision for dispute resolution and stipulates that any dispute/difference relating to the company (“the 2nd respondent herein”) and arising between itself and its members, assigns, administrators or executors shall be referred for arbitration.

17. It is apparent from the record that the dispute in question is in the nature of negligence and/or fraud and touches on the regulations of the 2nd respondent pursuant to its memorandum and articles of association.

18. Nonetheless, it is also apparent from the record that the dispute extends to third parties; namely the 3rd and 4th respondents, and hence I am of the view that the arbitration clause in the articles of association may not extend to them but would only apply in the instance of an internal dispute between the 2nd respondent and the persons set out hereinabove in accordance with Article 31.

19. In view of the foregoing circumstances and in the absence of anything to indicate that the respondents herein had submitted themselves to the arbitral process by way of an agreement, I am satisfied that the instant Motion and the suit are properly before this court.

20. The second preliminary issue concerns itself with whether the applicant had the legal authority to institute the present suit.

21. On the part of the 2nd respondent, it is submitted that the applicant has no locus standi to institute the suit and to bring the instant Motion since it is the 2nd respondent who can enforce rights and actions vested in itself in respect of irregularities in the conduct of the company’s internal affairs.

22. The 2nd respondent also submits that the applicant ought to have filed a derivative action as a minority shareholder.

23. In reply, the applicant contends that he instituted the suit in his capacity as a shareholder and director of the 2nd respondent, and that his grievance has to do with the ultra vires nature of the actions on behalf of the 2nd respondent, which amounted to a breach of the articles of association.

24. The law is well settled that preliminary objections apply only in instances where a pure point of law is raised and the facts are undisputed.

25. Reference is made to the case of Mukisa Biscuit Company v West End Distributors Limited [1969] EA 696 where the court defined the term ‘preliminary objection’ in the following manner:“A Preliminary Objection is in the nature of what used to be a demurrer. It raises a pure point of law which is argued on the assumption that all the facts pleaded by the other side are correct. It cannot be raised in any fact that has to be ascertained or if what is sought is the exercise of judicial discretion.”

26. Upon my study of the record, it is apparent that the issues touching on the applicant’s shareholding are in dispute and would therefore require an investigation into the merits of the suit, which can only take place at the hearing and not at this stage.

27. Flowing therefrom, I am not convinced that the issue of locus standi raised herein can be considered to be a preliminary issue on a pure point of law.

28. In the same light, I note that the 1st and 3rd respondents also raised an issue to the effect that the suit is sub judice in view of similar or related cases that have been filed by the applicant, and which argument is refuted by the applicant.

29. Upon my perusal of the record, I have not come across any credible evidence to lead me to conclude that the separate cases, if any, are filed before the same court and in respect to the same subject matter and parties, in order for the sub judice rule to become applicable. Consequently, I am hesitant to find the instant Motion and/or the suit to be sub judice.

30. On the merits of the Motion, it is clear that it concerns itself with the granting of an interlocutory injunction until such time as the suit is heard and concluded. The germane principles on interlocutory injunctions originated from the Court of Appeal in East Africa in Giella v Cassman Brown & Co. Ltd [1973] EA cited in the submissions by the respective parties and are as follows:a)The applicant must first establish a prima facie case with a probability of success.b)The applicant must then demonstrate that he, she or it stands to suffer irreparable loss that cannot be adequately compensated through damages.c)Where there is doubt on the above, then the balance of convenience should tilt in favour of the applicant.

31. In respect to the first principle on whether there exists a prima facie suit, it is the applicants’ argument that the contract entered into amongst the respondents is invalid since the 1st and 2nd respondents did not ensure lawful resolutions were passed prior thereto and in accordance with the memorandum and articles of association of the 2nd respondent.

32. The applicant further states and submits that there was negligence on the part of the 3rd and 4th respondents, whereas the actions by the 1st and 2nd respondent amount to fraud.

33. In contrast, the 2nd and 3rd respondents submit that the applicant has not established a prima facie case.

34. Upon my perusal of the pleadings and material on record and without delving into the merits of the suit at this stage, I am satisfied that the applicant has established a prima facie case.

35. On the second principle, the applicants argued that unless an interlocutory injunction is granted, the applicant states and submits that unless the injunctive orders sought are granted, the applicant who is also a director of the 2nd respondent, stands to suffer criminal liability in respect to illegal/fraudulent acts of which he was not a party to but which were performed by the respondents.

36. On their part, the 2nd and 3rd respondents are of the view that the applicant has not shown that he stands to suffer irreparable harm which cannot be adequately compensated by an award of damages.

37. Upon my consideration of the rival positions, I am of the opinion that the applicant has reasonably demonstrated the likelihood of irreparable damage for which an award of costs may not constitute adequate compensation, if the injunctive orders sought are denied.

38. In view of the foregoing, I am persuaded that the balance of convenience tilts in favour of the applicant.

39. The upshot therefore is that the Notice of Motion dated 21st September, 2022 succeeds in terms of prayers (v) and (vi) thus giving rise to the following orders:i.An order of temporary injunction be and is hereby issued barring the 1st defendant from making any decisions, transacting with, contracting, negotiating or in any way making representations regarding the 2nd defendant without involving the plaintiff pending the hearing and determination of the suit.ii.An order of temporary injunction be and is hereby issued barring the defendants from executing, performing contract no. KPC/PU/OT-038/I&C/NBI/21-22 For the Design, Supply, Installation, Configuration, Testing and Commissioning of SCADA System Upgrade pending the hearing and determination of the suit.iii.Costs of the application to abide the outcome of the suit.

DATED, SIGNED AND DELIVERED ONLINE VIA MICROSOFT TEAMS AT NAIROBI THIS 11TH DAY OF NOVEMBER, 2022. ...................................J. K. SERGONJUDGEIn the presence of:................... for the Plaintiff/Applicant................... for the 1st Defendant/Respondent................... for the 2nd Defendant/Respondent................... for the 3rd Defendant/Respondent................... for the 4th Defendant/Respondent