[2023] KEELC 18528 (KLR)

Mediratta & 17 others v Karen Hills Limited & 2 others (Environment & Land Case E047 of 2021) [2023] KEELC 18528 (KLR) (3 July 2023) (Ruling)

Neutral citation: [2023] KEELC 18528 (KLR)

Republic of Kenya

In the Environment and Land Court at Nairobi

Environment & Land Case E047 of 2021

OA Angote, J

July 3, 2023

Between

Dipan Mediratta

1st Plaintiff

Raakhe Mediratta

2nd Plaintiff

Hoseah Muthoga

3rd Plaintiff

Damysyl Investment Limited

4th Plaintiff

Judy Karori

5th Plaintiff

Hitesh Mediratta

6th Plaintiff

Shalina Mediratta

7th Plaintiff

Jemimah Mutii

8th Plaintiff

George Ombis

9th Plaintiff

Leah Ombis

10th Plaintiff

Lyma Meadows Limited

11th Plaintiff

Nishit Mediratta

12th Plaintiff

Rakhee Mediratta

13th Plaintiff

Peter Maina Kahuthia

14th Plaintiff

Samuel Mburu Kamau

15th Plaintiff

Sahara Capital Ventures

16th Plaintiff

Mbatia Kimani

17th Plaintiff

Jane Nyagaturi Mbatia

18th Plaintiff

and

Karen Hills Limited

1st Defendant

Lordship Africa Fund Management Limited

2nd Defendant

Karen Hills Management Company Limited

3rd Defendant

Ruling

1. Vide a Notice of Motion application dated 7th September 2022, the 5th Plaintiff/ Applicant has sought for the following orders:a.That pending the hearing and determination of the intended arbitration, temporary injunction do issue restraining the Defendants whether by themselves, their servants, agents, employees or in any way whatsoever from charging, levying or demanding payment of interest on the Service Charge for the period 2011 to March 2022 from the 5th Plaintiff.b.That pending arbitration between the parties, a temporary injunction do issue restraining the Defendants jointly and severally from discontinuing and/or disrupting the provision of services to the 5th Plaintiff/ Applicant including but not limited to supply of water, security, electricity in the common areas, cleaning of common areas or in any way howsoever from interfering with the 5th Plaintiff’s/ Applicant’s right to peaceful enjoyment of the property known as Unit 60 on Land Reference No. 195/228/ Nairobi (Karen Hills).c.That this Honourable do issue directions for the expeditious hearing and determination of the main suit.d.That the costs of this application be awarded to the 5th Plaintiff/ Applicant.

2. The application is premised on the grounds on the face of the application and the Supporting Affidavit sworn by Judy Karori, the 5th Plaintiff/Applicant. The 5th Plaintiff deposed that the 3rd Defendant has demanded from her the sum of Kshs. 457,221; that the said sum was the disputed and unlawful interest levied on the Service Charge to be paid within 14 days and that the Defendants have threatened to discontinue provision of services including electricity and water supply to her premises.

3. It was deposed by the 5th Plaintiff that such sum is not due and there is no basis for demanding it and that unless an order is issued restraining the Defendants from levying the disputed interest, she stands to be prejudiced as there is an imminent threat to discontinue provision of services to her.

4. The 5th Plaintiff averred that at the institution of this suit, the Plaintiffs filed a Notice of Motion application dated 1st February 2021 in which they sought for interim reliefs including orders restraining the Defendants from charging and collecting Service Charge pending the provision of audited accounts for the financial years 2013-2019 and that vide a Ruling dated 3rd March 2022, this Court ordered the Defendants to furnish the Plaintiffs with audited accounts of all the service charge within 30 days from the date of delivery of ruling.

5. It is the 5th Plaintiff’s case that the 3rd Defendant subsequently furnished the Plaintiffs with audited accounts on service charge and water bills for financial years 2013-2020 and further issued demands to the Plaintiffs to pay service charge, water bills and accrued interest.

6. According to the Applicant, the Defendants however failed to furnish the Plaintiffs with audited accounts on the service charge and water bills for the financial years 2011-2013 in blatant violation of this Court’s order and that the accounts for the financial years of 2013-2020 are unacceptable to the Plaintiffs as they are qualified by the Defendants’ auditors.

7. According to the 5th Plaintiff, while the Plaintiffs are ready and willing to pay service charge, such sum ought to be based on records and acceptable audited accounts on sums actually due; that as a sign of good faith, she has paid the sum of Kshs. 622,593 indicated in the auditor’s statement, being service charge for the period of 30th March June 2022.

8. The 5th Plaintiff further deposed that the Defendants have failed or ignored to disclose and furnish to the Plaintiffs the contracts and agreements it has entered into with various service providers, which contracts ought to have been the basis of the audited accounts and that the Plaintiffs are entitled to this information as a matter of right, being plot owners in Karen Hills Estate.

9. It was the 5th Plaintiff’s deposition that they are keen to pursue arbitration in accordance with the Agreement of Lease dated 20th March 2013 and have sought the conservatory orders herein to preserve the subject matter, namely the disputed interest on the service charge; that they have sought the appointment of an arbitrator through a letter dated 13th July 2022 to the Chairman of the Chartered Institute of Arbitrators of the United Kingdom- Kenya Branch and that there is no right or power reserved in the lease agreements for the Defendants to withdraw services on account of interest.

10. The 1st, 2nd and 3rd Defendants’ director deposed that the application is an abuse of the process of this court because all the Plaintiffs, including the 5th Plaintiff, lodged an application dated 1st February 2021 seeking injunctive relief against the Defendants pending trial, in respect to service charges and the interest charged upon default of their payment.

11. It was deponed that the 1st and 2nd Plaintiffs lodged another application dated 21st September 2021 seeking injunctive relief to restrain the Defendants from terminating any common services offered to them on account of non-payment of service charge and that the 5th Plaintiff is seeking to relitigate the same issues.

12. The Defendants’ Director deposed that vide a Ruling dated 3rd March, this court gave directions on the provision of audited accounts and dismissed both injunctive applications; that the issues which the 5th Plaintiff proposes to raise in her proposed arbitration are similar to some of the issues raised by the Plaintiffs in these proceedings; that by instituting these proceedings, the Plaintiff forfeited her right to refer the matter to arbitration and lastly, that the 5th Plaintiff is proposing the arbitrator to sit in judgement over the findings made by this court in its March Ruling.

13. According to the Defendants’ Director, they provided all plot owners with the audited accounts for 2013 to 2020; that the 3rd Defendant was not incorporated in 2012 and did not incur any expenditure prior to 2013; that in the Agreement of Lease, the property was sold to the 5th Plaintiff subject to the terms and conditions contained in the lease and that the 5th Plaintiff also agreed to be bound by the Home Owner’s Manual by virtue of Clause 10 of the Agreement.

14. It was deposed that as per Clause 3. 11 of the Lease and Rule C of the Home Owner’s Manual, the Applicant is responsible for payment of service charge to the Lessor and/or the management company and that upon failure to pay service charge, penalty interest accrues on the arrears from the due date at the rate of 5% per annum as per Clause 3. 1.2(d) of the Lease and Rule C (3. 4) of the Home Owner’s Manual.

15. The Defendants’ Director averred that the audited accounts shows that the Applicant defaulted from paying service charge form 2018 despite the 3rd Defendant’s provision of services to the property and that due to the persistent non-payment of service charge by the Applicant and other plot owners and their expectations for the provision of services, the 3rd Defendants had to borrow funds from related companies so as to meet the costs of provision of services.

16. According to the Defendants, this court at paragraph 53 of its Ruling, upheld that the Defendants are well within their rights to charge interest on the unpaid arrears; that the amount of service charge payable is not unascertainable and that Clause 3. 11. 1(a) of the Lease is clear that in the event that no certificate is available, then service charge shall be increased by not less than 10% over the service charge amount payable in the previous year.

17. The 5th Plaintiff filed a Further Affidavit in which she deponed that the Defendants’ allegations that the statements of account produced by the Plaintiffs are incomplete is false; that the audited accounts furnished to the Plaintiffs on 13th April 2022 are different from those produced as JAJ-2 in the Defendants’ Replying Affidavit and that the Defendants have produced statements alleging to be a breakdown of apportionment of service charge which were not provided to the plot owners.

18. The 5th Plaintiff deponed that as a plot owner, she has invoked Clause 6. 10. 2 of the Lease to declare a dispute and referred the matter of the disputed and unlawful demand for interest on service charge to arbitration; that an arbitrator has been appointed and the parties appeared before him on 23rd March 2023 to take directions on the reference; and that the sole arbitrator will not be sitting on appeal of this court’s Ruling.

Submissions 19. Counsel for the 5th Plaintiff submitted that despite the orders of this court in its Ruling dated 3rd March 2022, the Defendants failed to furnish the Plaintiffs with the audited accounts on the service charge and water bills for the financial years 2011-2013 and that as the Defendants did not appeal against or apply for a review, they are bound by the orders of this court.

20. It was the Applicant’s Counsel’s submission that this application is brought under Section 7 of the Arbitration Act seeking conservatory orders to preserve the subject matter of the arbitration, namely the disputed interest charged by the 3rd Defendant in the sum of Kshs. 457,221. 000 pending the hearing and determination of the arbitration proceedings.

21. Counsel submitted that on the first limb, an arbitration contract exists between the 5th Plaintiff and the 1st Defendant, as provided for under Clause 3. 11. 2 (e) of the Lease dated 20th March 2013. Counsel relied on the case of Zhongxing Construction Company Ltd vs Eden Development Limited (K); Highland Carriers Limited vs National Oil Corporation of Kenya Limited.

22. On the second limb, counsel submitted that the subject matter of the arbitration is the demand by the Defendants of the unlawful interest levied on the service charge; that the arbitration reference is in threat because should the 1st Defendant be permitted to arm-twist the 5th Plaintiff into paying the purported interest by disrupting or withdrawing provision of services, this will render the ongoing arbitration nugatory and that in the circumstances, orders maintaining status quo and restraining the 3rd Defendant from disrupting services and provision of water is merited.

23. Counsel submitted that the 5th Plaintiff did not waive the right to refer the dispute to arbitration; that the issue of unlawful interest levied on the service charge is not an issue in the suit before this court and that such dispute would be best resolved by an Arbitral Tribunal as envisioned in the registered lease.

24. Counsel for the Defendants submitted that there is no agreement between the 5th Plaintiff and the 3rd Defendant as it was not party to the March 2013 agreement; that even assuming there was an arbitration agreement, by commencing the present suit, the 5th Plaintiff has forfeited/waived such right and that the issue of payment of interest on the service charge is still pending before this court and cannot therefore be referred to arbitration at this stage.

25. The Defendant’s counsel submitted that the application is an abuse of process as the 5th Plaintiff is attempting to relitigate issues over and over again, seeking another determination from this court and that the Plaintiff’s contention that the service charge was not properly demanded due to failure to keep proper records was considered and rejected by this court in its first Ruling.

26. Counsel submitted that this Court already found that notwithstanding the lack of audited accounts, the 3rd Defendant acted within its rights in charging interest on arrears.

27. Counsel submitted that the Defendants did not seek to stay the proceedings under Section 6 of the Arbitration Act and have the matters referred to arbitration, but have instead filed a joint defense; that the parties waived the arbitration clause and submitted to the jurisdiction of this court and that this matter has been in court for over two years and the two applications seeking injunctive reliefs have been determined.

Analysis and Determination 28. Having considered the application, the pleadings filed by the parties, the annexures and the submissions filed herein, the following issues are for this court’s determination:a.Whether the 5th Plaintiff is relitigating issues already addressed by this court.b.Whether the 5th Plaintiff waived her right to arbitrationc.Whether the 5th Plaintiff’s application for interim remedies is merited.

29. Under Article 159 (2) (c) of the Constitution, this court is to be guided by the principles of alternative dispute resolution including arbitration, which the 5th Plaintiff herein seeks to pursue. Section 20 of the Environment and Land Act enjoins this court to adopt and implement alternative dispute resolution mechanisms either on its own motion, or at the request of the parties.

30. The 5th Plaintiff has sought to stay orders pending the hearing and determination of its intended arbitration, wherein a sole arbitrator was appointed and the parties appeared before him on 23rd March 2023 for directions. The Applicant has particularly sought to stop the Defendants from charging, levying or demanding payment of interest on the service charge for the period 2011 to March 2022 from the 5th Plaintiff, and from disconnecting/disrupting the provision of services to the Applicant’s property, including supply of water, provision of security and electricity in the common areas.

31. The Defendants have opposed the application on three grounds: first, that the Applicant is seeking to relitigate issues addressed by this court vide its Ruling dated 3rd March 2022. Secondly, that by instituting this suit, the 5th Plaintiff forfeited her right to arbitration and lastly, that the Defendants are well within their rights to charge interest on the unpaid arrears.

32. As to whether the 5th Plaintiff/Applicant is seeking to relitigate settled issues, this court has to relook at its Ruling of 3rd March 2022. The subject of the Ruling were two applications for injunction by the Plaintiffs dated 1st February 2021 and 21st September 2021.

33. In its determination, this court noted that while the Defendants failed to account for the service charge received and failed to issue certificates pursuant to Clause 3. 11 of the Lease Agreement, the Plaintiffs did not adduce evidence to show that the Defendants have been lax in maintaining the premises.

34. This court further held that the Defendants are well within their rights to charge interest on unpaid arrears. Further, this court found that a dispute as to accounts cannot form the basis for the grant of an injunction. Consequently, this court directed the Defendants to furnish the Plaintiffs audited accounts in respect of service charge received from all property owners within Karen Hills Estate and the expenses incurred from the years 2011 to date within 30 days.

35. It is pursuant to the said orders that the Defendants availed audited accounts from 2013 to 2020. The 5th Plaintiff has faulted the Defendants for failing to avail accounts for the financial years of 2011 to 2013. She has also averred that the presented accounts are unacceptable as they are qualified by the Defendants’ auditors.

36. The Defendants on their part, have asserted that the 3rd Defendant was incorporated in 2012 and did not incur any expenditure prior to 2013. Although the Defendants have not presented evidence of the incorporation of the 3rd Defendant, the 5th Plaintiff has not impugned this claim.

37. The 5th Plaintiff’s intended arbitration is on the basis of the notice issued to it for the payment of interest of Kshs. 457,221 levied on the service charge by way of a letter dated 1st September 2022. This letter was pursuant to the audit of the 3rd Defendant’s accounts which this court ordered the Defendants to furnish.

38. The direction for the Defendants to furnish the Plaintiffs with audited accounts was with the understanding that such accounts would be the basis for the Plaintiffs to seek further appropriate orders. It is therefore clear that the 5th Plaintiff’s application is not an attempt to relitigate issues settled by this court.

39. The 1st Defendant’s assertion that the 5th Plaintiff has forfeited her right to arbitration is based on Section 6 of the Arbitration Act, wherein a party may seek stay of legal proceedings and referral of a dispute to proceedings. Indeed, the Court of Appeal in Eunice Soko Mlagui vs Suresh Parmar & 4 Others [2017] eKLR held as follows:“The provisions, for example, of section 6 which require parties to make an application for referral of a dispute to arbitration at the earliest opportunity and before taking any other action, or those that require the court not to refer a dispute to arbitration if the arbitration agreement is null and void, or is incapable of being performed, or if there is no dispute capable of being referred to arbitration, cannot be described as inconsistent with the constitutional principle of promoting alternative dispute resolution because the court is also obliged to take into account the equally important constitutional principle that justice shall not be delayed, by for example sending to arbitration a non-existent dispute, or allowing a party who has otherwise elected to pursue proceedings in the court, to belatedly purport to opt for arbitration.”

40. In this matter, the Applicant is not seeking to refer this dispute to arbitration. In fact, arbitration proceedings are ongoing having commenced on 23rd March 2023. What the Applicant is seeking is for an interim measure of protection by the court under Section 7 of the Arbitration Act. In the case of Safaricom Limited vs Ocean View Beach Hotel Limited & 2 Others [2010] eKLR, the Court of Appeal considered the rationale of interim measures as follows:“It may be necessary for an arbitral tribunal or a national court to issue orders intended to preserve evidence, to protect assets, or in some other way to maintain the status quo pending the outcome of the arbitration proceedings themselves. Such orders take different forms and go under different names. In the case of Kenya, the Arbitration Act is modeled on the Model Law and the UNCITRAL Rules and this is the reason they are known as “interim measures of protection” under section 7 of the Arbitration Act. On the other hand, in the English version of the ICC Rules for example, they are known as “interim conservatory measures”. Whatever their description however, they are intended in principle to operate as “holding” orders, pending the outcome of the arbitral proceedings. The making of interim measures was never intended to anticipate litigation…Interim measures of protection in arbitration take different forms and it would be unwise to regard the categories of interim measures as being in any sense closed (say restricted to injunctions for example) and what is suitable must turn or depend on the facts of each case before the Court or the tribunal – such interim measures include, measures relating to preservation of evidence, measures aimed at preserving the status quo measures intended to provide security for costs and injunctions.”

41. The application has been made pursuant to Section 7 of the Arbitration Act for interim orders, which provides as follows:“(1)It is not incompatible with an arbitration agreement for a party to request from the High Court, before or during arbitral proceedings, an interim measure of protection and for the High Court to grant that measure.(2)Where a party applies to the High Court for an injunction or other interim order and the arbitral tribunal has already ruled on any matter relevant to the application, the High Court shall treat the ruling or any finding of fact made in the course of the ruling as conclusive for the purposes of the application.”

42. The 5th Plaintiff has relied on the Court of Appeal’s decision in Safaricom Limited vs Ocean View Beach Hotel Limited & 2 Others [2010] eKLR, where the court articulated the test for interim reliefs as follows:“Under our system of the law on arbitration the essentials which the court must take into account before issuing the interim measures of protection are:-1. The existence of an arbitration agreement.2. Whether the subject matter of arbitration is under threat.3. In the special circumstances which is the appropriate measure of protection after an assessment of the merits of the application?4. For what period must the measure be given especially if requested for before the commencement of the arbitration so as to avoid encroaching on the tribunal’s decision making power as intended by the parties?”

43. In this case, an arbitration agreement inheres between the parties, as provided by Clause 10(U) 0f the Agreement of Lease dated 20th March 2013, which states as follows:“Any dispute, difference or question whatsoever which may arise between the parties including the interpretation of rights and liabilities of either party shall be referred to an arbitrator under the rules of the Arbitration Act 1995 of Kenya as amended by the Arbitration (Amendment) Act 2009 or any statutory modification or re-enactment for the time being in force, such arbitrator shall be appointed by agreement of both parties and in the absence of agreement within fourteen (14) days of the notification of the dispute by either party to the other then on the application of any one party by the Chairman of the Chartered Institute of Arbitrators (Kenya Branch) and the decision of such arbitrator shall be final and binding on the parties hereto.”

44. Counsel for the Defendants has argued that the 3rd Defendant was not a party to the agreement of lease above. Indeed, while the 3rd Defendant was not a signatory to the agreement, the lease agreement referred to its formation, and its duties and obligations under the agreement. This court further notes that Jonathan Adrian Jackson, who swore the Defendants’ Replying Affidavit is a Director of all the three of the Defendants, and that he has been a Director of the 3rd Defendant since 2013.

45. In any case, this court is persuaded by the finding in Euromec International Limited vs Shandong Taikai Power Engineering Company Limited [2021] eKLR where it was held that an arbitrator, and not the court has the authority to resolve any dispute relating to the interpretation, applicability, enforceability, or formation of the agreement including, but not limited to any claim that all or any part of the agreement was void or voidable.

46. This corresponds with the provision of Section 17 of the Arbitration Act which articulates “the competence/competence principle” as follows:“(1)The arbitral tribunal may rule on its own jurisdiction, including ruling on any objections with respect to the existence or validity of the arbitration agreement, and for that purpose—(a)an arbitration clause which forms part of a contract shall be treated as an agreement independent of the other terms of the contract; and(b)a decision by the arbitral tribunal that the contract is null and void shall not itself invalidate the arbitration clause.”

47. The second limb of the test for interim measures is whether the subject matter of the appeal is under threat. The 5th Plaintiff has argued that the arbitration reference is in threat because should the 1st Defendant be permitted to arm-twist her into paying the purported interest by disrupting or withdrawing provision of services, it will render the ongoing arbitration nugatory.

48. Indeed, the question of the chargeable interest on the service charge is an issue before the arbitrator. The payment of the interest on the service charge should be stayed pending the hearing of the determination of the arbitration.

49. For those reasons, the application dated 7th September 2022 is allowed as follows:a.Pending the hearing and determination of the intended arbitration, temporary injunction do issue restraining the Defendants whether by themselves, their servants, agents, employees or in any way whatsoever from charging, levying or demanding payment of interest on the Service Charge for the period 2011 to March 2022 from the 5th Plaintiff.b.That pending arbitration between the parties, a temporary injunction do issue restraining the Defendants jointly and severally from discontinuing and/or disrupting the provision of services to the 5th Plaintiff/ Applicant including but not limited to supply of water, security, electricity in the common areas, cleaning of common areas or in any way howsoever from interfering with the 5th Plaintiff’s/ Applicant’s right to peaceful enjoyment of the property known as Unit 60 on Land Reference No. 195/228/ Nairobi (Karen Hills), on Condition that the 5th Plaintiff pays the chargeable service charge.c.Costs of the application to be in the cause.

DATED, SIGNED AND DELIVERED VIRTUALLY IN NAIROBI THIS 3RD DAY OF JULY, 2023. O. A. ANGOTEJUDGE