[2019] KEHC 5595 (KLR)

REPUBLIC OF KENYA

IN THE HIGH COURT OF KENYA AT NAIROBI

COMMERCIAL & TAX DIVISION

MILIMANI LAW COURTS

HIGH COURT CIVIL APPEAL (HCCA) NO. 6 OF 2017

RAJ PREMCHAND SHAH...........................APPELLANT

-VERSUS-

CAPITAL MARKETS AUTHORITY..........1ST RESPONDENT

AFRIKA INVESTMENT BANK.................2ND RESPONDENT

RONAK SHAH..............................................3RD RESPONDENT

(Being an appeal from the decision of the Capital Markets Tribunal delivered on 31st August 2017 in Capital Markets Tribunal Appeal No. 1of 2016)

-BETWEEN-

RAJ PREMCHAND SHAH...........................1ST RESPONDENT

CAPITAL MARKETS AUTHORITY.........2ND RESPONDENT

RONAK SHAH.....................................................THIRD PARTY

RULING

APPEAL;

This is an appeal arising from the Ruling delivered by Capital Market Tribunal(CMT)on 31st August 2017 with regard to the above subject-matter. The Appellant sought a declaration that the Appellant is entitled to compensation from the 2nd Respondent for unlawful sale of Appellant’s shares to Rea Vipingo. The 2nd Respondent to be ordered to pay the Appellant the sum of Ksh 6,229,200/- with simple interest of 12% per annum from 1st November 2013 until payment in full. This claim being compensation for loss occasioned by the unlawful, unauthorized and premature sale of Appellant’s shares in Rea Vipingo.

The Appellant was/is aggrieved on the following grounds outlined in the Memorandum of Appeal but condensed as hereunder;

1. The Tribunal erred by failing to uphold that provisions of Section 25A (2) & (3) of Capital Markets Act on granting of compensation which are mandatory.

2. The Tribunal erred in law by importing Common law principles and equitable doctrines to override the clear mandatory provisions of Section 25A (2) & (3) of Capital Markets Act on granting compensation/restitution.

3. The Tribunal erred in law by failing to grant compensation to the Appellant after the 1st Respondent’s finding of liability in respect of breach of the Regulations by the 2nd Respondent.

4. The Tribunal erred in law by relying on unsubstantiated oral instructions which cannot override the mandatory statutory requirement under Regulation 23(1) (b) of Capital Markets (Licensing Requirements) (General) Regulations, 2002 to obtain written instructions for sale of shares.

PROCEDURAL FACTS

On 22nd July 2015, the Appellant Mr. Raj Shah lodged an official complaint against Afrika Investment Bank (AIB)’s unauthorized sale of their Rea Vipingo shares with Capital Markets Authority (CMA).

On 28th August 2015, CMA called a meeting between themselves, Mr. Raj Shah andAIB. However, AIB was not in attendance.

On 23rd May 2016, the CMA responded with their determination upholding the Appellant’s claim that AIB violated provisions of the relevant Capital Markets Regulations but denied Mr. Raj Shah restitution for the losses he suffered as a result of these violations.

Mr. Raj Premchand Shah dissatisfied with the Capital Markets Authority’s decision dated 23rd May 2016, appealed to the Capital Markets Tribunal (CMT) and filed Memorandum of Appeal dated 7th June 2016.

The CMT delivered its decision dated 3rd August 2017and upheld the decision of CMA not to order compensation or restitution. The grounds being that the Appellant had gone against the rules of equity when he approached the Tribunal by being tainted with profiting from a transaction carried out in breach of the regulations. The Appellant benefitted from the proceeds of the sale of shares and the 3rd party from the commission from sale of said shares.

The Appellant was aggrieved by the decision of the CMT, appealed to the High Court against the said Ruling on the grounds that the Tribunal: erred in law by failing to hold that the provisions of section 25A (2) & (3) of the Capital Markets Act on granting of compensation/ restitution are mandatory. By applying common law and principles of equity where there is an applicable statute contrary to the provisions of Sections 3 (1) (c) of the Judicature Act.

The Appellant thus filed a Memorandum of Appeal dated 28th September 2017 and parties filed their submissions in response or opposition to the Memorandum of Appeal.

APPELLANT’S SUBMISSIONS

The Appellant filed submissions dated 3rd April 2018 filed on 11th April 2018. The issues brought out in the Appellant’s submissions from the grounds of appeal are as follows;

Misapplication of Statutory provisions

The Appellant relied on Regulation 22(1) (b) of the Capital Markets (Licensing Requirements) (General) Regulations 2002 which sets out the fiduciary nature of the relationship between the stockbrokers and dealers. The Appellant also relied on Section 34A (2)-(4) of the Capital Markets Actwhich provides for compensation to a party who suffers loss as by reason of an offence under the Act.

Section 25A (2)-(3) of the Capital Markets Act provides that the 1st Respondent has the power to grant orders for restitution under the following conditions;

i. Breach of the provisions of the Capital Markets Act or Regulations;

ii. The amount of loss is quantified and proved to the Authority by the person making the claim;

iii. Notice must be served by the Authority on the person expected to make an order for restitution.

The Appellant submits that all the above conditions have been met and that the terms in Section 25A (3) of the Capital Markets Act are couched using the word “shall” and are thus mandatory, therefore, the Tribunal erred in law when it failed to order restitution.

Misapplication of Rules of Equity and Common Law

The Appellant relies on Section 3 (1) of the Judicature Act, that expressly sets out that Common law, doctrines of equity, and statutes of general application cannot override the provisions of Statute. They relied on the case of David Sironga Ole Tukai vs Francis Arap Muge & 2 others [2014] eKLR; where the Court of Appeal stated;

“….To begin with it is difficult to comprehend the legal basis of the view that the court has the power to ignore clear and express provisions of a statute under the guise of equity……The application of the substance of common law, the doctrines of equity and statutes of general application in Kenya is further circumscribed by the requirement in the Judicature Act that they shall apply so far only as the circumstances of Kenya and its inhabitants permit and subject to such qualifications as those circumstances may render necessary. (Emphasis added). In our view, the import of this qualification is that once an issue has been expressly and comprehensively provided for by legislation, the courts cannot invoke the substance of common law, the doctrines of equity and statutes of general application to contradict the provisions of the Kenya statute.”

The Appellant submits that where there are clear statutory provisions, courts must apply the letter of the law and not seek to override the same with notions of equity and common law.

The Appellant also relied on the case of Republic vs Lucas M Maitha Chairman Betting Control and Licensing Board & 2 others Ex-Parte Interactive Gaming and Lotteries Limited [2015] eKLR; where Justice Odunga stated that;

“It was further held in Republic vs. Public Procurement Complaints, Review And Appeals Board & Another Ex Parte Kenya Airports Authority [2005] 1 KLR 628that:

“It is now settled law that there can be no estoppel against a statute, for estoppel cannot supersede the law of the land. An admission on a point of law cannot found an estoppel. Similarly, representations of law, not fact cannot be found as an estoppel.”

It was thus the Appellant’s submission that there was no estoppel against the law, and thus the 1st and 2nd Respondents cannot make the argument that subsequent conduct ratified an illegality.

The Appellant further submitted that the Tribunal erred in law by finding that there were valid instructions yet stated that there was a dispute as to the price of the shares. It was the Appellant’s submission that this amounts to approbation and reprobation on the part of the Tribunal and is in itself basis for this court to vacate the Tribunal’s decision.

Moreover, the Appellant also claims that the Tribunal erred by failing to note that at no point during the email exchange, did the 2nd Respondent claim to have had telephone instructions to sell the shares.

It was thus the Appellant’s prayer that this Court allows the appeal as prayed having satisfied the statutory requirements for an award of restitution.

APPELLANT’S REJOINDER SUBMISSIONS

(In response to the 1stand 2nd Respondents submissions dated 5th February 2019)

In response to the 1st Respondent’s submissions at paragraph 22(c) who asserts that the Appellant is not entitled to restitution because it did not inform the 2nd Respondent of the amount of Kshs 6,229,200/- in the Notice to show cause. The Appellant responded by stating that the 2nd Respondent was fully aware of the particulars of the claim which was also included in the complaint dated 22nd July 2015 which the Appellant filed with the 1st Respondent and a copy supplied to the 2nd Respondent.

The Appellant also responded to paragraph 27 and submitted that Regulation 23(2) of Capital Markets Authority provides that an order shall constitute of written instructions by a client to a stockbroker and hence a telephone conversation did not amount to valid instructions.

The Appellant reiterated its submissions that as long as the sale remained unreversed, the Appellant was entitled to the sale proceeds and to make subsequent investments and the 3rd Respondent was entitled to commission, all which are entirely separate and do not form part of the cause of action.

The Appellant submitted that the said actions did not amount to ratification as that would amount to an illegality and relied on the case of Maina Wanjigi & Another vs Bank of Africa Kenya Ltd & 2 Others [2015]eKLR.

The Appellant also relied on the case of Njogu & Co.Advocates vs National Bank of Kenya Ltd[2016]eKLRwhere the court found that a professional who acts contrary to the rules of his profession which he should be well aware of, cannot rely on illegality as a defense. The 2nd Respondent, a professional, knew at the time it acted on the disputed telephone instructions that the same was not a valid order under the Capital Market Authority’s Regulations.

1ST RESPONDENT’S SUBMISSIONS

The 1st Respondent submitted that the jurisdiction of the court when sitting as an Appellate court is only on points of law and relied on the case of Mercy Kirito Mutegi vs Beatrice NkathaNyaga& 2others [2013] which stated that;

“A Court of Appeal will not normally interfere with a finding fact by the trial court unless such finding is based on no evidence or on a misapprehension of the evidence or the Judge is shown demonstrably to have acted on wrong principle in reaching the finding; and an appellate court is not bound to accept the trial Judge's finding of fact if it appears either that he has clearly failed on some material point to take account of particular circumstances or probabilities material to an estimate of the evidence, or if the impression based on the demeanor of a witness is inconsistent with the evidence in the case generally.”

Application of Statutory provisions for Restitution in the Act and Criteria

The 1st Respondent submitted that the reliance by the Appellant on Section 34A (2)-(4) of the CMA Act is of no significance since neither the Capital Markets Tribunal nor this court has criminal jurisdiction wherefrom an order for restitution would arise.

The 1st Respondent also refuted allegations that the Appellant has satisfied the conditions for the order of restitution met under section 25A(3)(a)(b) of the Act as it claims that;

a) The Appellant has neither quantified nor proved to the court any loss suffered. It would be erroneous for the Appellant to calculate his loss amounting to Kshs 6,229,200/- since the Appellant has never demonstrated that he would have held the shares long enough to sell them at the price of Kshs 85/-, which was the takeover price of each share on 26th March 2015;

b) That the court should be guided by the principle of remoteness of damage in determining whether the Appellant is entitled to restitution. The Appellant therefore failed to demonstrate that the claim satisfies the criteria set to determine proximity of damage, relying on the case of Hadley vs Baxendale (1854)9 Exch 341;

c) The 1st Respondent indeed issued a Notice to show cause, dated 11th September 2015. However, the NTSC only gave the Appellant a chance to be heard; but it did not contain details of the amount claimed by the Appellant and hence submitted that the Appellant had not met the last criteria.

Application of Rules of Equity and Common law

The 1st Respondent claimed that the 3rd Respondent did not instruct Mr. Ngugi of the 2nd Respondent, to buy back all the shares from the person who had bought them but only instructed Mr. Ngugi to buy back 53000RVP shares only.

Furthermore, the 1st Respondent submitted that the Appellant failed to direct the 2nd Respondent either directly or through the 3rd Respondent, to segregate the funds received from the sale of the shares.

The 1st Respondent also submitted that the Appellant did not reject the proceeds of the sale and make an immediate demand for restitution and compensation but instead, applied the proceeds of the sale by buying securities for his investment portfolio. The Appellant is therefore tainted with profiting from a transaction carried out in breach of rules and regulations and therefore the court should not come to his aid. This position is ofMapis Investments (K) Limited vs Kenya Railways Corporation supported by the case [2005]eKLR;where the court held that;

“…. If the illegality is duly brought to the notice of the court, and if the person invoking the aid of the court is himself implicated in the illegality. It matters not whether the defendant has pleaded the illegality or whether he has not. If the evidence adduced by the plaintiff proves the illegality the court ought not to assist him.”

2ND RESPONDENT’S SUBMISSIONS

The 2nd Respondent submitted that the appeals to the High court should only be based on law and not facts, relied on the case of Shah Munge & Partners Ltd & 4 others vs Capital Markets Authority [2009]eKLR; where Waweru J stated;

“We can thus deal only with issues of law in these appeals. We must resist any temptation or invitation by counsel to re-open issues of fact that were settled by the Tribunal. There are many grounds of appeal that raise issues of fact.”

The 2nd Respondent therefore submits that the following facts were conclusively determined by the Capital Markets Tribunal;

a) There were indeed instructions issued for the sale of the shares;

b) There was a valid contract between the Appellant through his agent and the 2nd Respondent, therefore making the contract binding;

c) The 3rd party was an agent of the Appellant hence the instructions issued were binding;

d) The Appellant did not suffer any loss and in fact made gains.

Misapplication of Statutory provisions

The 2nd Respondent submitted that the issue of restitution brought up by the Appellant with regard to Section 34A (2)-(4) had been determined by the Capital Markets Tribunal at paragraph 33 of its decision. The 2nd Respondent claims that Section 25A (2)and (3) of the Act grants discretion to the Capital Markets Authority and it is hence not a compulsory remedy.

Misapplication of Rules of Equity

The 2nd Respondent submitted that the Appellant has not come before the court with clean hands as he did not suffer any loss but indeed made a gain. Therefore the court should not award an order for restitution, as it would amount to unjust enrichment. The 2nd Respondent relied on the case of Macharia Mwangi Maina& 87 Others vs Davidson Mwangi Kagiri[2014] eKLR; where the court held that;

“Article 159 (2) (b)of the Constitution requires that justice should not be delayed. This matter has been in the courts since 1993. The persons or groups interested in the suit property are individuals of different status in the Kenyan society. Article 159 (2) (a) of the Constitution requires justice to be administered to all, irrespective of status; Article 159 (2) (g) of the Constitution stipulates that justice shall be administered without undue regard to procedural technicalities.”

3RD RESPONDENT’S SUBMISSIONS

The 3rd Respondent submitted that at the time of sale, the 2nd Respondent had not finalized the Agency agreement with the 3rd Respondent and only did so after 5th November 2013. The 3rd Respondent therefore claimed that it was illegal for a 3rd party to act in excess of its authority as the principal cannot sanction that which is unlawful.

Further, the 3rd Respondent submits that the sale of the Appellant’s shares without written instructions was contrary to Regulation 23(1)(b) of the Capital Markets (Licensing Requirements) (General) Regulations 2002as was held in the case of Joseph Mwangi Gitundu vs Gateway Insurance Co Ltd[2015]eKLR;where Gikonyo J held that;

“The obligation is statutory and a strict one; it cannot be shifted or abrogated by a term in the contract of insurance or in the manner proposed by the Defendant, lest the noble intention of the Act to guarantee compensation of third parties who suffer injuries arising from by use of the insured motor vehicle on the road should be lost.”

The 3rd Respondent also submitted that there can be no estoppel against statute as set out in Republic vs Lucas M Maitha Chairman Betting Control and Licensing Board & 2 others Ex-Parte Interactive Gaming and Lotteries Limited [2015] eKLR.

The 3rd Respondent further submitted that he had contested the sale on 1st November 2013 as soon as he was aware of the unlawful sale and warned the 2nd Respondent not to sell more shares. He claimed that the Appellant was indeed entitled to the sale proceeds and duly gave credit for the proceeds of the unauthorized sale. The claim is only the difference between the amount earned from an unauthorized transaction and what would have been earned from the takeover which commenced on 13th November 2015.

It was thus the 3rd Respondent’s submission that the 2nd Respondent cannot shift blame to the 3rd Respondent.

DETERMINATION

The jurisdiction of this Court is as outlined by the provisions of Section 35A (22) & (24) of Capital Markets Authority Act which provide …

“(22) Any party to proceedings before the Tribunal who is dissatisfied by a decision or order of the Tribunal on a point of law may, within thirty days of the decision or order, appeal against such decision or order to the High Court.

Principles of Commercial Law by K.I.Laibuta Pg 105, restitution is one of the remedies in both contracts and torts and is defined as follows;

“It takes the form of an order for specific delivery or property wrongfully held by a party in violation of owner’s right to title or other right at law or equity; whose damages for its retention are inadequate.

It is granted for recovery of valuable articles of a rare and/or special nature so that to decree payment of their pecuniary value as compensation would be inequitable.”

Restitution is a remedy available where loss and/or damage is incurred and a party may not be adequately compensated by damages but by restoring the party to the position it was before the impugned act.

Compensation on the other hand is assessment of loss or damage and to the best possible situation compensate a party for the said loss or damage.

ISSUES:

In the instant case, this Court is called upon to determine the following issues;

1) Are statutory provisions Section 25A (2) & (3) of the Capital Markets Act mandatory or discretionary on grant of restitution?

2) Is the Appellant entitled to restitutionunder Section 25A (2) & (3) of the Capital Markets Act?

3) Is Capital Market Tribunal’s decision of 31st August 2017 upheld or dismissed?

1) Are statutory provisions Section 25A (2) & (3) of the Capital Markets Act mandatory and/or discretionary on grant of restitution?

Restitution is provided for under Section 25A (2) & (3) of the Capital Markets Act which provides:

“(2)In addition to any other sanction or penalty that may be imposed under this section, the Authority may make orders for restitution, subject to the provisions of subsection (3).

(3)The Authority shall make orders under subsection (2)where the breach of the provisions of this Act or the regulations made under the Act results in a loss to one or more aggrieved persons, but subject to the following conditions-

a. That the amount of the loss is quantified and proved to the Authority by the person making the claim; and

b. That notice is served by the Authority on the person expected to make the restitution, containing details of the amount claimed and informing them of their right to be heard.”

In Republic v Council of Legal Education & another Ex parte Sabiha Kassamia & another [2018] eKLR; the court held:

“In construing a statutory provision the first and the foremost rule of construction is that of literal construction. All that the Court has to see at the very outset is, what does the provision say? If the provision is unambiguous and if from that provision the legislative intent is clear, the other rules of construction of statutes need not be called into aid. They are called into aid only when the legislative intention is not clear.”

The Appellant contended that Section 25A is couched in mandatory terms due to the use of the word ‘shall’ in Section 25A (3) of the Act. Therefore, once breach of CMA law/regulations is established the grant of restitution is automatic/mandatory.

Applying the literal meaning, this Court shall address itself to issue(s) of law. Section 25A (2) CMA grants the CMA discretion to impose in addition to sanction or penalty restitution on mandatory conditions set out in Section 25A (3)CMA. This discretion is coined in the use of the word ‘may’ in Section 25A (2) of the Act. Therefore, the substantive law is in Section 25A (2) of the Act. The wording of Section 25A (2) is “…the Authority may make orders for restitution, subject to the provisions of subsection 3. ”

With respect, a reading all parts of Section 25A of the Act together, collectively denote that once the CMA exercises discretion provided in Section 25A (2) of the Acton whether or not to grant orders for restitution as an added remedy, then it is mandatory that the grant of restitution is pegged on a breach of the CMA Act and/or Regulation which directly results in loss to aggrieved person (s). The aggrieved party (ies) must quantify the loss and prove it to CMA so that the Authority may serve notice with details of amount claimed on the basis of actual loss to the party to make restitution with the right to be heard.

The CMA Act outlines a rigorous process of claim, proof and award of restitution remedy.

In other words what is mandatory/compulsory is not grant of restitution but once CMA is satisfied that grant of restitution is merited, CMA has to comply and enforce the conditions outlined in Section 25A (3) CMA. It is incumbent upon aggrieved person(s) whose loss is from the breach of CMA Act/Regulations to quantify the direct and resultant loss, give details of the said loss and prove it to CMA.

Therefore, it is not mandatory/automatic that once breach of CMA Act and/or Regulations consequently/automatically restitution is granted. The Tribunal did not err in law by failing to hold that the provisions of Section 25A (2) & 3 of the Capital Markets Act on granting restitution are not mandatory.

2) Is the Appellant is entitled to restitution under Section 25A (2) & (3) of the Capital Markets Act?

The question that then remains for determination is whether the Capital Markets Tribunal was right not to grant the Appellant restitution and instead upheld Capital Markets Authority decision of 11th September 2015. What this court has to determine is whether the Appellant fulfilled the above conditions to merit grant of restitution remedy.

The decision by CMA is vide letter dated 11th September 2015 that found 2nd Respondent liable for;

“executing a sale order without the client’s written instructions and acted contrary to requirements of Regulation 23(a) of Capital Markets (Licensing Requirements) (General) Regulations 2002 which provides that an ‘’order’’ for the purpose of this Regulation, shall constitute written instructions by a client to a stockbroker as to the security name, quantity, price or price limits and duration or validity of instructions.”

The CMA imposed sanctions against the 2nd Respondent pursuant to Section 25A(1) (a) (v) of CMA Act of payment of Ksh 43,572. 10/- being double the commission the 2nd Respondent was paid by the Appellant for impugned sale of shares.

It is in addition to the above sanction that the Appellant sought restitution remedy in addition to the sanction against 2nd Respondent.

The Appellant challenged CMA’s lack of exercise of the discretion to grant restitution. CMA, 1st Respondent claimed that even if they were to exercise discretion to grant restitution; the mandatory conditions of Section 25 A (2) & (3) of CMA Act were not met. One of the issues is that the 1st Respondent contended that the Appellant did not suffer actual loss directly resulting from breach of CMA Act and/or Regulations. CMA were of the view that despite lack of written instructions to sell shares from Appellant or his agent to 2nd Respondent; the Appellant and agent accepted the proceeds of the impugned sale and directed investment by purchase of other shares. Secondly, the 3rd party, who was/is shareholder and agent sought and received commission for sale of the said shares. They could not now seek restitution as it would amount to unjust enrichment and the Appellant came to the forum seeking redress with unclean hands. Hence he could not be granted restitution an equitable remedy.

On the other hand, the Appellant argued that he suffered a loss to the tune of Kshs. 6,229,200/- being the difference between the amount he was paid and the amount he would have been paid at the take-over of Rea Vipingo in March 2015, if his shares had not been sold in November 2013. His claim is that he would have earned the sum of Kshs. 9,129,000/= (107,400 shares* Kshs.85/- each) as opposed to Kshs. 2,899,800/= (107,400shares* Kshs. 27/-each) which is the amount he earned from the proceeds of the sale of shares.

It is worth noting that the Appellant’s 107,400 shares of Rea Vipingo were sold on 1st November 2013 while the protracted takeover process of Rea Vipingo by Rea Trading was announced on 13th November 2013 and concluded on 26th March 2015.

On 16th January 2015, the Appellant and 3rd Respondent lodged an official complaint against AIB 2nd Respondent with Nairobi Securities Exchange (NSE). There was/is no evidence placed before CMT and/or adduced by Appellant and 3rd Respondent/3rd Party to prove that the Appellant would have held the shares long enough to sell them at the price of Kshs. 85/= which was the take-over price of each share of Rea Vipingo on 26th March 2015? Secondly, on what basis is the Appellant claiming a loss of Kshs. 6,229,000/= if at the time he was lodging his complaint with 2nd Respondent through his son and agent on 1st November 2013 over the impugned sale there was no public notice of the takeover offer of Rea Vipingo ?

There was/is no evidence adduced to show or confirm or prove that at the Stock Exchange as at/on 1st November 2013 there were higher prices/offers for sale of Rea Vipingo shares that the 2nd Respondent ignored/refused to consider. That such failure, therefore caused direct loss of financial gain from sale of shares albeit irregularly by the 2nd Respondent failing to get the best price in the market for the said shares that day.

It then follows that this court ought to apply the principles of remoteness of damage and the foreseeability test to establish whether the loss was a foreseeable consequence of the 2nd Respondent’s breach or whether the damage was too remote. In the landmark case of The Wagon Mound A.C 388, it was held that;

“In order to be recoverable, damage must be foreseeable in all the circumstances. That a man should be responsible for the necessary or probable consequences of his act (or any other similar description of them), not because they are natural or necessary or probable, but because, since they have this quality, it is judged by the standard of the reasonable man that he ought to have foreseen them."

The landmark case of Hadley vs Baxendale [1854] 9 Exch 341 puts forth the criteria in which the court should rely on when determining the remoteness of damage in contract:

1. The loss must have been foreseeable to any reasonable person in the Defendant’s position; or

2. If it was not so foreseeable, the Defendant must have been in possession of particular information indicating its likelihood in the event.

The Appellant herein failed to prove that as at 1st November 2013, the 2nd Respondent could have legally foreseen the takeover of Rea Vipingo at the price of Kshs. 85/=. Further, the Appellant has also failed to show that as at 1st November 2013, the 2nd Respondent had information that would indicate that the Rea Vipingo shares would be sold atKshs. 85/=. If the 2nd Respondent had any such information of impending takeover and used it before public announcement, it would amount to an offense of insider trading. Moreover, it is not disputed that all parties were not aware of the takeover of Rea Vipingo Ltd until 13th November 2013 when there was official communication of the takeover.

This Court noted from the record of appeal following pertinent facts;

a) On 28th October 2013, Ronak Shah Applicant’s son, shareholder and agent wrote an email to AIB asking that the previous agent managing Raj Shah’s share portfolio held by themselves bechanged to himself.Furthermore, he requested for a statement of account in respect of the entire portfolio which included his own shares.

b) On 1st November 2013, Ronak Shah requested that the information be forwarded in much easier to readable format. He also requested on finalization of his commissions sincehe was entitled to commissions at 50% from AIB on all transactions effected on the portfolio, being the agent in charge of the portfolio.

c) On 1st November 2013 at 1201hrs, AIB without written instructions and written confirmation from Raj Shah, proceeded to dispose of 107,400 Rea Vipingo shares at the price of Kshs. 27 per share.

d) On 1st November 2013 at 1217hrs, Ronak Shah responded by expressing his dismay at the sale and asking if all 107,400 shares had been disposed. He further instructed AIB not to do anything without consulting him first.

e) On 1st November 2013; at 1230hrs, Ronak Shah further wrote to AIB that they should not have sold without his confirmation on the price and that Raj Shah was not pleased with their unilateral actions.

f) On 1st November 2013; at 1234hrs, having received no response to his earlier emails, Ronak Shah wrote to AIB instructing them to reverse the transaction as he had not authorized it. He further instructed that AIB to effect a buy back from the buyers.

g) On 1st November 2013; at 1411hrs, Ronak Shah having seen no action by AIB to reverse the sale, advised them to at least make effort to buy back 53,000 shares of Rea Vipingo at Kshs. 25.

h) On 5th November 2013 Ronak Shah and AIB 2nd Respondent finalized their agency relationship through execution of an Agency Agreement.

The above facts are outlined and highlighted only to demonstrate that the Appellant and agent are father and son respectively. The Appellant held his son out with authority to take over the shares portfolio from 2nd Respondent and run it as agent. The impugned sale was conducted during intense communication by 3rd Party/3rd Respondent with 2nd Respondent and 3rd Party/3rd Respondent over the shares portfolio. As shareholder and agent the 3rd Party/3rd Respondent received and accepted commission and sale proceeds arising from the impugned sale. He further signed an Agency Agreement after the impugned sale to regularize the agency relationship. As agent he tried but was partially successful to have shares sold reversed and bought back. So the Appellant tried restitution on the same day of the sale and was not fully successful putting a party back where he was before the impugned sale. It would have been unlikely to successfully pursue restitution; when the Appellant partially succeeded by buying back only some shares on the same day. The sale of shares was completed and the sale proceeds released and accepted and spent by Appellant and 3rd Party/3rd Respondent. Finally, the 3rd Party was instrumental in the impugned sale in that he knew of the sale but only contested the price of sale of shares and he cannot justifiably now claim compensation and/or restitution on his own behalf and Appellant’s part without proof of actual loss.

Having established that at the time the unlawful sale was carried out albeit irregularly, the criteria in Hadley vs Baxendale [1854] 9 Exch341 and The Wagon Mound A.C 388 had not been satisfied, it is safe to say that the Appellant’s claim of a loss of Kshs. 6,229,000/- was not established. Secondly, it is Centum’s publication of Rea Vipingo Takeover by Rea on 13th November 2013; days after the sale was done that the Appellant realized that they would have benefited more had they retained the shares until the buyout of Rea Vipingo by Rea Trading Company Ltd.

Therefore, the first condition of Section 25A (3) of the Capital Markets Act of actual/resulting loss for the sale was not fulfilled.

The 1st Respondent served the 2nd Respondent with a Notice to Show Cause dated 11th September 2015. The Notice to Show Cause only informed the 2nd Respondent of the Appellant’s complaint alleging that his 107,400 shares of Rea Vipingo had been sold without his authorization. The Notice to Show Cause did not contain details of the amount claimed. The Appellant stated that their claim for loss of Ksh 6,229,000/- was tabulated in the pleadings and therefore it was quantified.

The claim for restitution being discretionary by CMA and at the time were not satisfied of the claim and had not exercised discretion on grant of restitution as an additional remedy did not find it necessary to give notice of the claim and allow the 2nd Respondent the right to be heard. CMA would issue such notice if the loss is quantified, detailed and proved. Therefore, the condition in Section 25A (3) (b) of the Capital Markets Act was not fully satisfied.

3. Is Capital Market Tribunal’s decision of 31st August 2017 upheld or dismissed?

Taking into account the written and oral submissions presented by parties through their respective Counsel, this Court has considered the issues of law presented for determination and finds that the statutory provisions on remedy of restitution are discretionary for CMA to grant based on circumstances of each case. Although the sale of Rea Vipingo was approved through verbal instructions, the 3rd Respondent/party cannot benefit as agent who paid 2nd Respondent commission and proceeds of the impugned sale and thus in these proceedings claim restitution for actual loss. Even if the remedy of restitution was granted as an additional remedy to sanction or penalty; It is this court’s finding that the Appellant did not satisfy the conditions set out in Section 25A (3) of the Capital Markets Act and is hence not entitled to restitution under Section 25A (2) of the Capital Markets Act.

DISPOSITION

1. The Memorandum of Appeal dated 28th September 2017 is hereby dismissed with costs.

2. That the decision of the Capital Markets Tribunal dated 31st August 2017 is hereby upheld.

DATED, SIGNED & DELIVERED IN OPEN COURT ON THIS 15th JULY 2019.

M. W. MUIGAI

JUDGE

IN THE PRESENCE OF;

MS LEAH MUHIA FOR APPELLANT

MR GITHENDU FOR CMA- 1ST RESPONDENT

MR. OMARI FOR 2ND RESPONDENT

MR. ISAIAH OTIENO- COURT ASSISTANT

Ms Muhia:We seek leave to appeal.

Court: Leave to appeal is granted, the proceedings and Ruling be availed to the parties after payment of requisite fees.

M. W. MUIGAI

JUDGE