[2022] KEHC 270 (KLR)

Sun Transfer Kenya Investments Limited v Solar Connect EG (Insolvency Notice E021 of 2021) [2022] KEHC 270 (KLR) (Commercial and Tax) (25 March 2022) (Ruling)

Neutral citation: [2022] KEHC 270 (KLR)

Republic of Kenya

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

Insolvency Notice E021 of 2021

DAS Majanja, J

March 25, 2022

Between

Sun Transfer Kenya Investments Limited

Applicant

and

Solar Connect EG

Respondent

Ruling

1. The Respondent (“Solar Connect”) is a cooperative established in Germany under German cooperative law and provides solar energy to remote regions of developing countries. The Applicant (“Sun Transfer”) is a member of Solar Connect having purchased one business share worth €210 on 12th May 2016. On diverse dates between January and October 2018, Solar Connect supplied Sun Transfer with solar equipment valued at €400,000 which equipment Sun Transfer received and subsequently sold to its customers.

2. Solar Connect claims that Sun Transfer has failed to settle the aforementioned sum. After failed negotiations, Solar Connect issued to Sun Transfer a Statutory Demand dated 5th March 2021 (“the Statutory Demand”) claiming the € 400,000 for the supply under the provisions of section 384 of the Insolvency Act.

3. Sun Transfer has moved the court by the Notice of Motion dated 13th May 2021 made, inter alia, under section 384 of the Insolvency Act, Regulation 6 and 17 of the Insolvency Regulations, 2016 seeking to set aside the Statutory Demand. The application is supported by the supporting affidavit and further affidavit of Gathu Kirubi, Sun Transfer’s Managing Director, sworn on 13th May 2021 and 17th February 2022 respectively. It is opposed by Solar Connect through the replying affidavit of its director Wolfgang Gregor, sworn on 19th November 2021.

4. The application was disposed by way of written submissions which are on record where the parties have advanced their respective positions. The issue for consideration from the application, depositions and submissions is whether the court should set aside the statutory demand.

5. Section 26 of the Insolvency Act grants the court discretion to stay an application by a creditor on such terms, and for such period, as the Court considers appropriate. Further, Regulations 16 and 17 of the Insolvency Regulations, 2016 provides as follows:16. Application to set aside statutory demand(1)The debtor may, apply to the Court for an order to set aside the statutory demand—a.within twenty-one days from the date of the service on the debtor of the statutory demand; orb.if the demand has been advertised in a newspaper, from the date of the advertisement's appearance or its first appearance, whichever is the earlier.(2)Subject to any order of the Court under regulation 17 (7), time limited for compliance with the statutory demand shall cease to run from the date on which the application is lodged with the Court.(3)The debtor's application shall be in Form 7 set out in the First Schedule and shall be supported by an affidavit, which shall be in Form 8 set out in the First Schedule.(4)The affidavit referred to under paragraph (3) shall—a.specify the date on which the statutory demand came into the debtor's possession;b.state the grounds on which the debtor claims that it should be set aside; andc.annex a copy of the statutory demand.17. Hearing of application to set aside statutory demand(1)On receipt of an application under regulation 16, the Court may, if satisfied that no sufficient cause is shown for granting the statutory demand, dismiss the application without giving notice to the creditor.(2)The time limited for compliance with the statutory demand shall commence from the date on which the application is dismissed.(3)If the application is not dismissed under paragraph (1), the Court shall fix a date and venue for it to be heard, and shall give at least seven days’ notice to—(a)the debtor or, if the debtor’s application was made by an advocate acting for him, to the advocate,(b)the creditor; and(c)any other person who is named in the statutory demand as the person whom the debtor may enter into communication with in reference to the statutory demand or, if more than one person is named, the first person to be named.(4)Where the creditor responds to the application, the creditor shall serve the response upon the debtor and the Court at least three days before the date of hearing of the application.(5)On the hearing of the application, the Court shall consider the evidence before it, and may either summarily determine the application or adjourn it, and shall give such directions as it considers appropriate.(6)The Court may grant the application if—(a)the debtor appears to have a counterclaim, set-off or cross-demand which equals or exceeds the amount of the debt or debts specified in the statutory demand;(b)the debt is disputed on grounds which appear to the Court to be substantial;(c)it appears that the creditor holds some security in respect of the debt claimed by the demand, and either paragraph (6) is not complied with in respect of the demand, or the Court is satisfied that the value of the security equals or exceeds the full amount of the debt; or(d)the Court is satisfied, on other grounds, that the demand ought to be set aside.………………………………(9)If the Court dismisses the application, it shall make an Order authorising the creditor to present a bankruptcy application either immediately or on or after a date specified in the Order.(10)The Registrar of the Court shall, after the Court has made an order under paragraph (8), send a copy of the Order to the creditor. [My Emphasis]

6. Although the aforesaid provisions apply to the bankruptcy of natural persons, the principles outlined in Regulation 17(6) are still applicable to the insolvency of corporate persons as the court retains inherent jurisdiction to strike out a statutory demand it considers an abuse of the court process (see Re Libya Arab Africa Investment Company Kenya Ltd HC IN No. E031 of 2020 [2021] eKLR). From the material before the court, the application is grounded on the contention that the debt is disputed and that the court lacks jurisdiction to entertain these proceedings as they ought to be under German law.

7. Sun Transfer’s case is that Solar Connect seeks to enforce the payment of invoices by invoking the provisions of the Insolvency Act contrary to the express agreement of the parties that their contract was exclusively governed by German law and not Kenyan law. It therefore contends that that this court has no jurisdiction to hear and determine any petition seeking to commence any liquidation of Sun Africa by invoking the provisions of the Insolvency Act which is a Kenyan law when the parties agreed to be governed and regulated by the German law.

8. Solar Connect asserts that Sun Transfer owes it €400,000 on account of solar equipment it delivered. It contends Sun Transfer has never challenged the delivery or quality of the solar equipment and that it was agreed on receipt of the solar equipment, it would settle the invoice and debt owing to Solar Connect. Solar Connect states that once Sun Transfer received the solar equipment, it proceeded to sell the same to its clients.

9. Solar Connect avers that when payments fell due and no payment was forthcoming and in a bid to recover the debt, it offered Sun Transfer a payment plan and even went further to waive interest and a portion of the debt. Despite this, Sun Transfer failed to make payment making these proceedings necessary. Solar Connect states that since 2019, Sun Transfer only paid €20,000 towards the debt thus acknowledging the parties’ relationship. Solar Connect states that a creditor is entitled to petition for liquidation of a company where the company is indebted to the creditor in excess of KES. 100,000. 00 and that the debt owed to it is in excess of the statutory limits of liquidating a company and the said debt has been outstanding for more than two years and remains outstanding and the total amount due is not disputed.

10. Solar Connect avers that for the orders sought to be granted, Sun Transfer needs to demonstrate imminent threat or loss which has not been demonstrated and that there is no imminent threat or danger of an advertisement of the petition. Furthermore, that an advertisement of a liquidation petition, if any is carried out, is a legal and statutory requirement/process under the Insolvency Act. Solar Connect contends that it would be unjust for Sun Transfer to refuse to pay the debt and in the same breath object to Solar Connect taking measures to recover the debt and it takes the view that Sun Transfer has failed to demonstrate it is entitled to the orders sought. It further contends that Sun Transfer is a company incorporated in Kenya, with its registered offices in Kenya. That it accepted delivery of the solar equipment supplied by Solar Connect in Kenya and Sun Transfer sold the said equipment in Kenya. In addition, and without prejudice to the foregoing, it states that if the liquidation is successful, a liquidator/administrator would be appointed in Kenya to administer assets of the company in Kenya.

11. Solar Connect adds that that if the petition would have been filed in Germany as suggested by Sun Transfer for a company that is unable to pay its debts, this would have been expensive. Solar Connect asserts that Sun Transfer has no presence or assets in Germany that would necessitate the insolvency proceedings to be commenced in Germany and it is only just and expedient for the insolvency proceedings to be determined in Kenya. It is thus Solar Connect’s contention that the court has jurisdiction to hear and determine this cause and that Sun Transfer’s application lacks merit and should be dismissed with costs.

12. There is no dispute that the parties’ relationship is contractual hence the obligations of the parties and in particular whether one party is indebted to the other is governed by the contract. Hence, the determination of whether the debt is disputed calls for an understanding of the relationship between the parties which is a matter governed by German law. This position is fortified by the invoices which state on their face that, “This contract and all deliveries based on it shall be governed by German law with exclusion of its conflict of law provisions and the international conventions on the sale and purchase of goods”.

13. The Court of Appeal, in Raytheon Aircraft Credit Corporation & Another v Air Al-Faraj Limited NRB CA Civil Appeal No. 29 of 1999 [2005] eKLRrestated the general rule that where parties have bound themselves by an exclusive jurisdiction clause effect should ordinarily be given to that obligation unless the party suing in the non-contractual forum discharges the burden cast on him of showing strong reasons for suing in that forum (see also Karachi Gas Co. Ltd v Issaq [1965] EA 42).

14. What the parties call upon the court to decide in this case is to determine whether the debt is disputed. In resolving this question, the court must have regard to whether German law is applicable. By filing and issuing the Statutory Demand with a view to commencing insolvency proceedings, Solar Connect attempts to circumvent the choice of law clause applicable to the contractual relationship and the incidents thereto. Since the applicable law is German law, the court would have to appraise itself of the elements of German law in order to determine the debtor’s liability. Under section 48 of the Evidence Act (Chapter 80 of the Laws of Kenya), the court is entitled to seek expert opinion on matters of foreign law hence the question is not merely whether the Sun Transfer is indebted but whether it is indebted under German law bearing in mind that Solar Connect excluded the application of conflict of law provisions. I hold therefore that insolvency proceedings of this nature are not the proper forum for determination of this issue in the circumstances.

15. I therefore hold that whether the Sun Transfer is indebted is a substantial issue for determination and it is not a matter for resolution by the court exercising Insolvency jurisdiction for the reasons I have set out above. Having reached the conclusion that debt is disputed on bona fide and substantial grounds, it is not necessary to decide whether the court lacks jurisdiction to liquidate a company incorporated in Kenya on the basis of a debt to be resolved by reference to foreign law.

16. For the reasons I have set out above, I allow the Applicant’s Notice of Motion dated 13th May 2021 on terms that the Statutory Demand dated 5th March 2021 be and is hereby set aside. The Respondent shall bear the costs of the application assessed at KES. 30,000. 00.

SIGNED AT NAIROBID. S. MAJANJAJUDGEDATED AND DELIVERED AT NAIROBI THIS 25TH DAY OF MARCH 2022. A. MABEYAJUDGECourt Assistant: Mr. M. Onyango.Mr Ogembo instructed by Ogembo and Associates Advocates for the Debtor/Applicant.Mr Wachira instructed by Munyaka Advocates LLP Advocates for the Creditor/Respondent.