[2022] KEHC 3298 (KLR)

Mutanga Investments Limited v Mimano & another (Civil Case E618 of 2021) [2022] KEHC 3298 (KLR) (Commercial and Tax) (7 July 2022) (Ruling)

Neutral citation: [2022] KEHC 3298 (KLR)

Republic of Kenya

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

Commercial and Tax

Civil Case E618 of 2021

WA Okwany, J

July 7, 2022

Between

Mutanga Investments Limited

Applicant

and

Ian Mbuthia Mimano

1st Respondent

BM Security

2nd Respondent

Ruling

1. This ruling determines two applications; the plaintiff’s application dated June 4, 2021 and the defendant’s application dated July 13, 2021. Application dated June 4, 2021

2. The plaintiff filed the application dated June 4, 2021 seeking the following orders:-1. Spent.2. Spent.3. That after inter parties hearing this honourable court be pleased to issue a temporary injunction restraining the Respondents, their servants and/or agents or anyone acting on their behalf from managing, running and interfering in any manner whatsoever with the day to day management of the Applicant Company and at the applicant's Kirimara Coffee farm pending hearing and determination of the suit.4. That the costs of this application be provided for.

3. The application was supported by the affidavit of the applicant’s Managing Director Mrs. Rose Mumbi Mimano and is based on the grounds that: -a.On December 4, 2015, the Directors of the Applicant passed a resolution removing the 1st Respondent as a Director of the Applicant.b.Despite this, the 1st respondent continues to fraudulently misrepresent himself as a Director of the Applicant.c.On or about May 21, 2021 the 1st respondent purportedly engaged the 2nd respondent for the provision of security services at the applicant's Kirimara Coffee farm (the "Farm") without authority from the applicant.d.The 1st respondent issued firm instructions to the 2nd respondent to deny access to the applicant's managing director, Mrs. Rose Mumbi Mimano, who is now unable to carry out the business of the Applicant.e.In further execution of the fraudulent scheme, the 1st respondent also fired 10 other employees and, in their place, recalled employees who had been suspended by the applicant Company for theft.f.The 1st respondent is not a Director of the applicant Company and cannot therefore sanction the above actions.g.The 1st respondent's actions have caused confusion and amount to interference with the smooth running and management of the affairs of the applicant Company.h.Unless the 1st respondent is stopped from interfering with the applicant's affairs, the property of the applicant is in grave danger of being wasted, damaged or misappropriated.i.The applicant stands to suffer irreparable loss, damage and harm to its property that cannot be compensated by way of damages.j.The balance of convenience tilts in favour of the Applicant in maintaining the status quo pending the hearing and determination of the suit herein.k.In any event even if this honourable court were to find that the 1st respondent is still a Director of the applicant Company, the 1st respondent's actions having been made unilaterally and are contrary to the fiduciary obligations imposed on directors of companies.l)It is in the interests of justice for the orders sought to be granted.

4. The 1st defendant opposed the application through the replying affidavit of Mr. Ian Mbuthia Mimano who states that he is a Director of the plaintiff company. He further states that the plaintiff has no Managing Director contrary to its Memorandum and Articles of Association. He avers that he does not have shares in the Company while his mother and sister Charlotte Mutisya hold shares.

5. The plaintiff’s Director further states that the allegation that one Mr. Muiruri was stealing coffee is not true as no such evidence was presented to the police. He contends that he hired the 2nd defendant to provide security to the farm and instructed him to allow the directors of the company entry to the farm. He further avers that he did not fire any employee but rather allowed the 11 employees to go on leave.

6. The application was canvassed by way of written submissions which I have considered. The main issue for determination is whether the applicant has made out a case for the granting of the orders sought. The applicant seeks orders to restrain the respondents, their servants or agents from managing, running and/or interfering with the management of the applicant company.

7. The threshold for the granting of interlocutory injunction was set out in Giella v Cassman Brown & Co. limited (1973) EA 3585 where the court held that an applicant must show that; firstly, he has a prima facie case with a probability of success. Secondly, an interlocutory injunction will not normally be granted unless the applicant might otherwise suffer irreparable injury, which would not adequately be compensated by an award of damages. Lastly, if the court is in doubt, it will decide the application on the balance of convenience.

8. In Mrao Ltd v First American Bank of Kenya Ltd & 2others[2003] KLR 125, Bosire, JA defined aprima facie case as follows: -“...So what is a prima facie case? I would say that in civil cases it is a case in which on the material presented to the court a tribunal properly directing itself will conclude that there exists a right which has apparently been infringed by the opposite party as to call for an explanation or rebuttal from the latter...a prima facie case is more than an arguable case. It is not sufficient to raise issues. The evidence must show an infringement of a right, and the probability of the applicant's case upon trial. That is clearly a standard which is higher than an arguable case."

9. Applying the above principles to the instant case, it is necessary to examine the plaintiff’s case in order to determine if it meets the above threshold.

10. The applicant contended that despite the fact that the 1st respondent was, by a resolution, removed as a director of the company he has continued to interfere with the applicant’s affairs. It is the applicant’s case that the plaintiff’s property was in grave danger of being wasted, damaged or misappropriated.

11. The 1st respondent, on the other hand argued that he was acting in the best interest of the company and that he could not be removed as a director as the Articles and Memorandum of Association of the company did not provide for his removal. He further contended that he did not remove the company’s employees but instead allowed them to go on leave.

12. He maintained that the assertion that Mr. Muiruri was stealing coffee was not true and no evidence to that effect was presented to the police.

13. The courts have taken the position that they will not interfere with the internal affairs of a company. This is the position that was advanced in the celebrated case of Foss v Harbottle(1843) 2 Hare 261 wherein it was held that;“...... an elementary principle is that a court does not interfere with the internal management of companies acting within their powers:The court further stated that: -“courts will interfere only where the act complained of is ultra vires or is of a fraudulent character or not rectifiable by ordinary resolution. It is really very important to companies and to the economy of the country in general, that the court should not, unless a very strong case is made out on the facts pleaded and proved or admitted, take upon itself to interfere with the domestic forum which has been established for the management of the affairs of a company ........."

14. In the instant case, I find that the matters complained of do not border on fraud or ultra vires but are such that they can be resolved by the company itself. The parties have not demonstrated that they cannot agree on the management in a general meeting or that they attempted to resolve the same in a special resolution. For the above reasons, I do not find that the applicant has established any prima facie case against the respondent.

15. In Paul Gitonga Wanjau v Gathuthi Tea Factory Company Ltd & 2others[2016]eKLR the court considered the Halsbury’s laws of England definition of irreparable loss is and stated that: -“first, that the injury is irreparable and second, that it is continuous. By the term irreparable injury is meant injury which is substantial and could never be adequately remedied or atoned for by damages, not injury which cannot possibly be repaired and the fact that the plaintiff may have a right to recover damages is no objection to the exercise of the jurisdiction by injunction, if his rights cannot be adequately protected or vindicated by damages.”

16. In the present case, the applicant did not demonstrate that the company will suffer harm that cannot be remedied by damages should the orders sought be declined. I am therefore not persuaded that the applicant is entitled to the orders sought in the application. Consequently, I find that the application lacks merit and I therefore dismiss it with costs to the respondents.

Application dated July 13, 2021 17. Through the application dated July 14, 2021, the defendant seeks the following orders:-1. Spent2. That the suit filed herein be stayed and the dispute referred to arbitration in accordance with the Memorandum and Articles of Association of the plaintiff Company.3. Thatthe costs of the application be borne by the plaintiff.

18. The application is supported by the affidavit of the 1st respondent Mr. Ian Mbuthia Mimano and is based on the following grounds:-a.There is an arbitration clause in the plaintiff's Memorandum and Articles of Association requiring the parties/members in dispute to submit to arbitration any dispute arising between them.b.The arbitration clause has not been invoked by the Plaintiff Company as per the Memorandum and Articles of Association of 11th of October 1984 and incorporated on the 19th of November 1984. c.The arbitration clause provides the dispute resolution mechanism for its members and hence the matter is prematurely before this court.d.The said Memorandum and Articles of Association is binding on its members who are bound to comply with its provision.

19. The plaintiff opposed the application through the replying affidavit sworn by its Managing Director Mrs. Rose Mumbi Mimano who states that section 7 of the Arbitration Act 1995 vests the court with the jurisdiction to grant an interim measure of protection before or during arbitral proceedings. She further states that in the event the court refers the matter for arbitration it would be important to protect the subject matter of the dispute before the commencement of the arbitration proceedings.

20. Parties canvassed the application by way of written submissions which I have considered. It was submitted by the respondent herein that according to the arbitration clause, the matters that could be referred to arbitration were any disputes between the company and its members, their executors, administrators or assigns. It was further submitted that the main issue between the parties was whether the respondent was a director of the company and thus the dispute did not fall within the ambit of the matters that could be referred to arbitration under clause 31 of the memorandum and articles of association.

21. The applicant submitted that clause 31 of the memorandum and articles of association clearly showed that any dispute should be resolved by way of arbitration. Counsel submitted that any of the affairs of the company was wide enough to include the dispute sited by the plaint.

Issues 22. Whether the application herein could be stayed and the matter be referred to arbitration.

Analysis 23. I have carefully considered the pleadings, the evidence before court, the written submissions canvassed by the parties.

24. The main issue for determination is whether the instant proceedings should be stayed and the matter be referred to arbitration.

25. Section 6 (1) of the arbitration Act states that:-“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—(a)that the arbitration agreement is null and void, inoperative or incapable of being performed; or(b)that there is not in fact any dispute between the parties with regard to the matters agreed to be referred to arbitration”.

26. The defendant/applicant herein contended that the Memorandum and Articles of Association contain an arbitration clause which provides the dispute resolution mechanism for its members.

27. The respondent, on the other hand submitted that the dispute over whether the respondent is a director of the company does not fall within the purview of the matters that can be referred to arbitration under Clause 31 of the company’s Memorandum and Articles of Association. The said clause stipulates that: -Whenever any difference arises between the Company on one hand and any of the members, their executors, administrators or assigns on the other hand, touching on the true intent or construction, or the incidents, touching anything then or thereafter done, executed, omitted or suffered in pursuance of these articles or of the statutes touching anything then or thereafter done, executed, omitted, or suffered in pursuance of these articles or of the statutes or touching any breach or alleged breach or otherwise relating to the premises or to any of the affairs of the company, every such difference shall be referred to the decision of an arbitrator to be appointed by the parties in difference, or if they cannot agree upon a single arbitrator to the decision of the two arbitrators, of whom one shall be appointed by each of the parties in difference.

28. In Nyutu Agrovet Limited v Airtel Networks Limited[2015] eKLR the court held that:-“Arbitration as a dispute resolution mechanism is not imposed on parties. They choose it freely when they incorporate the arbitration agreement into their contract, and at times even include the finality clause as was the case here. When they do so, they send the message that they do not wish to be subjected to the long, tedious, expensive and sometimes inconvenient journey that commercial litigation entails. That is what party autonomy, a concept that the courts treats with deference, is all about."

29. In the present case, I note that the nature of the dispute between the parties is with regard to the management of the company itself. My finding is that any dispute over the running of the company is governed by the arbitration clause. It is clear that by choice, the parties herein ousted the court’s jurisdiction in matters relating to the affairs of the company and I therefore find that this is a matter that ought to be referred arbitration.

30. In the upshot, I find that the defendant’s application is merited and I therefore allow it as prayed.

DATED, SIGNED AND DELIVERED VIRTUALLY AT NAIROBI THIS 7THDAY OF JULY 2022. W. A. OKWANYJUDGEIn the presence of: -Mr. Otenyo for Defendants.Mr. Mitto for Plaintiff.Court Assistant- Sylvia