[2009] KEHC 1124 (KLR)

REPUBLIC OF KENYA

IN THE HIGH COURT OF KENYA

AT NAIROBI (MILIMANI COMMERCIAL COURTS) Civil Case 394 of 2009

SAFARICOM LIMITED………………………………………………. PLAINTIFF

VERSUS

OCEANVIEW BEACH HOTEL …………….…………………………. 1ST DEFENDANT

SALIM SULTAN MOLOO ……………………………..………………. 2ND DEFENDANT

ALSAI (KENYA) LIMITED ……………………………………………. 3RD DEFENDANT

RULING

The plaintiff’s chamber summons dated 28th May 2009 is brought under section 7 of the Arbitration Act 1995 and order 39 of the Civil Procedure Rules. The applicant is seeking for a temporary order of injunction restraining the defendants either by themselves or their agents from removing the plaintiff’s towers antennae, dish antennae or any other equipment or apparatus that has been set up by the plaintiff in the suit property or otherwise interfering with the plaintiff’s quiet and peaceful enjoyment and/ or access to the property known as L.R. NO.4709 Section 1 Mainland North situate in Mombasa. Secondly, pending the hearing and determination of the dispute between the plaintiff and the 1st defendant, there be a temporary injunction.

Briefly, the matters giving rise to this application emanate from an agreement to lease (The Agreement) dated 27th June 2005 entered between the plaintiff and the 1st defendant over a portion of land known as LR NO.4709 section Mainland North Mombasa (hereinafter referred to as the suit premises). The 1st defendant was to grant the plaintiff a lease for an initial period of 9 years and 11 months subject to renewal for a further term. The parties agreed on the conditions set out in that agreement. It was a term of the agreement that the lease would be prepared by the plaintiffs’ advocates and that the plaintiff was put in the possession of the suit premises.

According to the agreement, the plaintiff was supposed to prepare the Lease through their advocates and to comply with certain conditions such as obtaining the requisite licenses from the authorities. The plaintiff contends that their advocate prepared the lease which was sent to the 1st defendant for execution in September 2007. It was never executed, and a further set of the same lease was sent to the 1st Defendant in 1st August 2008, it was also never executed. Sometimes on 13th February 2009, the 1st defendant purported to issue a notice giving the plaintiff 3 months within which to vacate the suit premises.

The plaintiff claim that the reasons why they were given notice of termination of the agreement was because there was a charge by the 2nd defendant and the chargee had refused to give consent to the execution of the lease. The pleadings were amended to include a 3rd defendant who also claims to be the registered lessee of the suit premises. The 3rd defendant also purported to give the plaintiff a notice to remove their equipments and apparatus erected on the suit premises. It was argued that the 1st defendant warranted under the agreement to have legal title of the suit premises, it was supposed also to obtain the necessary consents by any mortgagee, chargee or any other 3rd party which was necessary for the effective operation of the agreement.

On the part of the plaintiff they paid the rent even the sixth year’s rent was forwarded to the 1st defendant by a letter of 24th March 2009, but the cheque was returned by the 1st defendant’s advocate. Through the plaintiff’s investigation they established that there was another suit being HCCC NO. 175 OF 2006 in Mombasa between the Partap Singh Gill and Devinder Kumar Soni vs. Salim Sultan Moloo over the 1st defendant’s suit property. The plaintiffs in that suit had obtained an injunction against the 2nd defendant preventing him from dealing in any manner with the 1st defendant’s property.

It was therefore argued by the plaintiff’s counsel that the 2nd defendant’s purported refusal to give consent to the lease, cannot defeat the plaintiff rights to the suit property as set out in the agreement. Moreover by accepting rent payment from the plaintiff, the 1st defendant demonstrated that it was always ready and willing to carry out its obligations under the agreement. The agreement provides for an arbitration of any dispute arising between the parties. Counsel for the plaintiff argued that the plaintiff will suffer irreparable loss if the interim order is not granted. The plaintiff has expended a considerable amount of money in erecting a base Tran receiver station and installing various equipment on the suit property in connection with its business as permitted use of the suit property in the Agreement.

Even if the lease was not registered, it still has the force of a contract and it is enforceable inter parties. This was the holding in the case of Gross Venor v Rogan – Kamper (Law, AG. V.-P). There is jurisprudence to show that the Courts have enforced and registered leases or agreements to lease as contract inter parties. On the issue of the joinder of the 2nd and 3rd defendants, Mr. Ohaga submitted that they are necessary parties in the arbitration because they would be affected by the orders of the arbitrator. Whenever there is an arbitration clause in an agreement, and a dispute arises between the parties, the matter should be referred for arbitration. Counsel for the applicant urged the court to refer the matter for arbitration and grant an order of injunction pending the arbitration.

This application was opposed on many grounds, including an application to strike out the suit against the 2nd defendant. Counsel for the 2nd defendant filed an application dated 13th June 2009, seeking to have the suit against the 2nd defendant struck out and so is the chamber summons by the plaintiff against the 2nd defendant. This application was argued but I reserved the ruling since the matters raised in this application cut across the entire application and are similar to the matters argued in response to the plaintiffs chamber summons. I decided to give a comprehensive ruling in the interest of judicial time. It is possible to determine whether to grant the orders sought in the two applications in one ruling.

According to the 2nd defendant, this suit was filed in contravention of the provisions of section 12 (d) of the Civil Procedure Act. The suit should have been filed where the suit premises is situated. Both defendants and the suit premises are located in Mombasa. Moreover, the gazette notice of 27th February 2009 the Chief Justice issued practice directives which set up the High Court Registries. There is a High Court in Mombasa, the plaintiff should not be allowed to shop for court but should have followed the law and filed the suit in Mombasa.

The subject matter of the suit is an agreement to lease which provided that a lease would be provided later. Although the agreement is dated 27th June 2005, to date no lease has been executed or registered. Mr. Kamundi counsel for the 2nd defendant argued that the plaintiff is guilty of larches and cannot benefit from equity which does not aid the indolent. More importantly, the 2nd defendant secured a charge of the suit premises which was registered on 11th November 2004. Under the provisions of the Registered Titles Act section 28 the charge which is a registered document has priority over other un registered instruments which cannot compete with a registered document. Therefore the interest of the plaintiff cannot over ride those of the 2nd and 3rd defendants.

The 2nd and 3rd defendants are not parties to the arbitration agreement. The suit premises does not comprise the entire parcel of land which includes a beach hotel and if the injunction is given, the entire hotel would be ruined. The proposed lease covers 144 sq m. and the injunction would also affect the rights of the 2nd and 3rd defendants who are not parties to the contract. The plaintiff’s agreement to lease was with the 1st defendant and is not registered. It was to be followed by a lease, which was supposed to be registered. The rights of the 2nd and the 3rd defendants are secured by the charge, and a lessee. The 2nd and 3rd defendants did not give their consent to the 1st defendant to enter into the lease. This is clearly spelt out under the charge document.

This application was also opposed by counsel for the 1st defendant Mr. Mbabu; he submitted that the plaintiff has not established a prima facie case with a probability of success to entitle it to an order of injunction. Firstly, the plaintiff occupied the suit premises in 2003 and no agreement was reduced into writing. Including the 2nd and 3rd defendants in this suit was meant to cause confusion because those are third parties who have no locus standi as far as the agreement to lease between the plaintiff and the 1st defendant is considered.

The agreement to lease clearly provides for termination of the lease agreement, the plaintiff is required to give 90 days notice. The 1st defendant took the option under the agreement to terminate the lease; therefore this matter does not require arbitration because a termination clause is included in the agreement as an option. The letter terminating the lease was sent in February, giving the 1st defendant 90 days within which to vacate the premises. The plaintiff did not commence arbitration proceedings although he was required to do so within 14 days.

The other point to consider is that the agreement was drawn by the plaintiffs’ advocates in June 2005; they were supposed to prepare a lease which was never prepared until September 2007, and was sent to the 1st defendant towards the end of 2008. The lease required to be endorsed with the consent of the chargee. Since the 1st defendant was unable to obtain the consent of the 2nd defendants, the lease was returned. Further the agreement specifically provided for the termination of the lease therefore the 1st defendant opted to terminate the lease as per the agreement.

Other matters to take into account are that the 1st plaintiff was not leasing the entire suit premises which are occupied by a beach hotel but a particular portion. The plaintiff omitted the documents such as a survey plan showing the actual area in dispute. This is information which was not revealed to the court when the ex parte order was sought, and that the plaintiff did not obtain the requisite consents or licenses. Counsel for the 1st defendant urged the court to dismiss the plaintiff’s application.

The above is the summary of the rival submissions, as well as the matters pleaded in this dispute. The issues for determination as I see them are; firstly, whether the suit against the 2nd and 3rd defendants should be struck out. Secondly, whether the plaintiff has established a prima facie case for granting an order of injunction pending the arbitration as per the arbitration clause in the agreement, also pursuant to the Arbitration Act.

It is evident from the pleadings herein that the plaintiff entered into some agreement with the 1st defendant way back in October 2003 when they erected a base station and when they took possession of a portion of the plaintiffs suit premises. However the agreement to lease was not entered until June 2005, this was supposed to be followed by a lease which, according to the records was sent to the 1st defendant sometimes in 2007 and 2008. The 1st defendant contends that it could not sign the lease due to the fact that the 2nd defendant who had registered a charge over the suit premise in November 2004 declined to endorse his consent. The lease was never signed and it was never registered.

That lease agreement provides for arbitration over any dispute between the parties, a dispute under clause 10 (1) once declared, should be referred to arbitration by a single arbitrator within 14 days. In this case, the plaintiff was notified of the 1st defendant’s intention to terminate the lease on 13th February 2009. That letter is stamped having been received by plaintiff on 2nd March 2009. The notice required the plaintiff to vacate the suit premises on or before 31st May 2009. The plaintiff did not declare a dispute under clause 10(1) of the Agreement which required the party aggrieved to do so within 14 days.

The plaintiff came to court on 29th May 2009, just when the notice was about to expire. The plaintiff’s were granted an ex parte order of injunction to restrain the defendants from evicting them. It is trite that a party desiring to benefit from an equitable remedy should move with speed as equity does not aid the indolent. Further, it is also evident from the agreement to lease; the parties are given the option to terminate the lease as provided for under clause 7(1). The 1st defendant contends that he took the liberty to terminate the Agreement to Lease and gave 90 days notice as provided for in the agreement. In the face of the above situation, and the issues raised that the plaintiffs failed to draw the lease expeditiously, failed to declare a dispute within 14 days, failed to include the survey map for the area leased and to obtain licenses from the Municipal Council of Mombasa and the National Environmental Authority, is the plaintiff entitled to an order of injunction to preserve the subject matter pending the arbitration?

While the above issues are still lingering in my mind the plaintiff has also been faulted and rightly so, for sitting on their rights from the time they erected their communication base in October 2003. There is a lull over a period of two years before a lease agreement is signed. This is followed by another lull of two years before a lease is drawn and forwarded to the 1st defendant for execution. In the meantime, the 2nd defendant secured and registered a charge over the suit premises. The 2nd and 3rd defendants are not parties to the lease agreement; can they withhold their consents to the lease? I am afraid northing stops them because in law their interests are registered and they take priority over the plaintiffs’ unregistered rights moreover this should be a triable issue.

The plaintiff’s Agreement to Lease was never registered therefore it cannot be binding upon 3rd parties. It is a contract in rem between the plaintiff and 1st defendant. See the case of Grossvenor v. Rogan-Kamper (supra) where the Court of Appeal as per LAW Ag V.P found that

“An agreement for a term exceeding 12 months is invalid unless registered. This lease, gives no protection against the rights of third parties, whereas s.41 makes it clear that a lease, or agreement for a lease, for a term not exceeding 12 months is effective of all purposes without the necessity for registration. Furthermore, the trend of judicial decision in East Africa has been for the courts to enforce unregistered leases or agreements for leases as contracts inter parties, where the contract is one capable of being specifically enforced and does not affect the rights of third parties.”

I am persuaded that since the 2nd and 3rd defendants were not parties to the agreement to lease, there is no legal basis for issuing orders against them. Furthermore going by the principles for granting an order of injunction, as set out in the oft’ cited cases of Giela vs. Cassman Brown. Firstly, the plaintiff has to establish a prima facie case with a probability of success, Secondly, irreparable harm which can not be compensated for in damages would arise and if in doubt, the court will determine the matter on a balance of convenience. Applying those principles to the present case, the relationship between the plaintiff and the 1st defendant is as provided for in the agreement to lease. That agreement to lease gives each party the option to terminate the lease. The 1st defendant exercised its option to terminate the Agreement to Lease. That option to terminate the lease is what is challenged by the plaintiff which matter they wish to refer to arbitration because there is an arbitration clause. As far as a prima facie case with a probability of success is concerned, am afraid none is disclosed. Accordingly, I do not have to apply the second test on whether damages would arise. The tests are sequential, so that the second condition can only be addressed if the first one is satisfied and when the court is in doubt then the third is addressed. For these reasons, the plaintiff/applicant cannot be granted an interim order of injunction, because the option to terminate is well founded in the agreement. The plaintiff is obviously free to refer the matter for arbitration.

As regards the application to strike the suit the only reason why I will not strike the suit is because the plaintiff claims that the notices issued by the 2nd and 3rd defendants can be challenged because the rights of a chargee does not vest proprietary rights over a property. In other words the plaintiff is challenging the rights under the charge in favor of the 2nd defendant and a lease registered in favor of the 3rd defendant. The plaintiffs should be given an opportunity to ventilate their claim or cause of action if any, within the broad principles of the administration of justice as enunciated by the Court of Appeal in the Case of

DT Dobbie & Co. Ltd. versus Muchina 1982KLR In that that case the Court of Appeal held as per Madan JA:

“The court should aim at sustaining rather than terminating a suit. A suit should only be struck out if it is so weak that it is beyond redemption and incurable by amendment. As long as a suit can be injected with life by amendment, it should not be struck out.”

This suit was also challenged because it was filed in Nairobi when the defendants are based in Mombasa and the suit premises is located in Mombasa thus the suit should have been filed in Mombasa as provided for under section 12 (b) of the Civil Procedure Act. The provisions of the Law on where a suit should be filed were elaborated by the Chief Justice’s Practice Directives published in Gazette Notice of 27th February 2009. This is within the broader context of ensuring that matters are determined expeditiously, efficiently and without allowing parties to forum shop for courts. I entirely agree with this, and in this regard direct that this suit should be transferred to Mombasa High Court for hearing and determination.

For the aforesaid reasons, I decline to grant the orders sought in the chamber summons dated 28th May 2009, and the interim exparte order of injunction granted on 29th May 2009 is hereby vacated. The defendants will have the costs.

RULING READ AND SIGNED ON 6TH NOVEMBER 2009 AT NAIROBI.

M.K. KOOME

JUDGE