[2022] KEHC 11578 (KLR)

Yang Guang Property Design Manufacturing Limited v Fuxin Engineering Limited & 2 others (Miscellaneous Application E272 of 2021) [2022] KEHC 11578 (KLR) (Commercial and Tax) (23 May 2022) (Ruling)

Neutral citation: [2022] KEHC 11578 (KLR)

Republic of Kenya

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

Commercial and Tax

Miscellaneous Application E272 of 2021

A Mshila, J

May 23, 2022

Between

Yang Guang Property Design Manufacturing Limited

Applicant

and

Fuxin Engineering Limited

1st Respondent

Li Jun

2nd Respondent

Yan Fu

3rd Respondent

Ruling

1. The applicant filed a notice of motion dated April 16, 2021 under section 7(1) of the Arbitration Act; The application was supported by the sworn affidavit of Lien Cheng and sought for the following orders;a.Pending the hearing and determination of this application, summons for personal attendance in court, be issued against the 2nd and 3rd respondents for their personal appearance before the court to show cause why the 1st respondent should not furnish security before court for satisfaction of any arbitral award that may be passed against them in the arbitration proceedings.b.The court to order the 1st respondent to deposit in court Kshs 5,493,250 or such sum as the court may in its sole discretion consider adequate within 30 days from the date of the order as the security for the intended arbitration.c.The applicant be at liberty to apply for such further or other orders and/or directions as the court may deem fit to grant.

2. The applicant stated that it entered into an agreement dated September 29, 2020 with the 1st respondent herein. The said agreement was for the sum of Kenya shillings seven million eight hundred and seventy-four thousand five hundred (Kshs 7,874,500. 00) which the 1st respondent was to pay in full upon the completion and the performance of the agreement.

3. The applicant has honoured its obligations under the contract by delivering the commodities as agreed to the 1st respondent, which 1st respondent refused and/or neglected to accept or take into custody some of the commodities delivered to its sites without proffering reasonable explanations.

4. Clause 16 of the agreement stipulates that any dispute or difference arising therefrom shall be settled through negotiation, and in case no settlement can be reached, the case then shall be referred to arbitration pursuant to Arbitration Act.

5. The applicant will suffer great prejudice and substantial loss unless this application is allowed and the 1st respondent are compelled to provide necessary security herein. The 1st respondent has no assets within Kenya and thus it is only just and equitable that the 1st respondent be ordered to deposit security for costs with the court pending arbitration.

6. No prejudice would be occasioned on the 1st respondent should the orders sought be granted.

7. The parties were directed to file and exchange written submissions; hereunder is a summary of the respective submissions;

Applicant’s Case 8. It was the applicant’s submission that the court has the requisite jurisdiction to determine this instant application as the arbitral proceedings are yet to commence. The interim orders sought are meant to prevent the ends of justice from being defeated by securing the respondents presence within the jurisdiction of the court.

9. The applicant invited the court to consider the decision in Safaricom Limited v Ocean View Beach Hotel Ltd & 2 others when granting the interim measure of protection. It is not in dispute that the parties entered into an agreement which provided for arbitration as a means of settling disputes.

10. The respondents herein are foreigners owning no assets within this court’s jurisdiction but rather bearing huge debts thus threatening the applicant from recovering any damages whatsoever should its claim be successful. In the case of Keary Developments v Tarmac Construction [1995] 3 All ER 534 the court raised guidelines applicable when exercising its discretion to order a plaintiff which was a limited liability company to provide security for costs to a defendant in a suit.

11. The applicant contended that the 2nd and 3rd respondents intended to fold up the activities of the 1st respondent and move to their country of origin away from the jurisdiction of this court as a result of which the applicant will suffer irreparable harm since it will not be able to recover the costs and damages should it succeed in the arbitral cause.

12. The applicant asked the court to allow the application and that the respondents deposit security with the court and the 2nd and 3rd respondents be ordered to deposit their passports with the court in order to secure their attendance before the arbitral tribunal and to enable the applicant recover its damages should it succeed in the arbitral cause.

Respondents’ Case 13. In response, the respondents submitted that the burden of proof lies upon the applicant in an application for security of costs as was held in the case of Ahmednasir Yasin Ahmed & 2 others v Ahmed Ibrahim Abass & 2 others.

14. The applicant ought to go beyond mere speculation and allegation to discharge the burden by providing cogent evidence of either insolvency, inability to pay or threat of leaving the country. The applicant failed to discharge the said burden of proof and the respondents have no intention of leaving the country or not fulfilling any of its obligations under law or contract.

15. The respondents contended that the application is pre-emptive. The arbitration process alleged to have been initiated is unknown to the respondents. The respondents were never notified of the initiation of an arbitration process and the same was to be preceded by a negotiation process.

16. The applicant cannot without any sufficient evidence support an Application for orders of security rely on the jurisdiction of the court under section 7 of the Arbitration Act to usurp the agreed mode of dispute resolution.

17. It was the respondents’ submission that the 1st respondent is a reputable international brand which carries on operations across the globe and as such the applicant’s decree can be satisfied locally. The applicant has no material proof that the 2nd and 3rd respondents might leave the jurisdiction.

18. Moreover, the applicant has not established that the 1st respondent intends to either dissipate its assets or remove itself from the jurisdiction of this court with the intention to obstruct the applicant from executing any decree or arbitral award. The respondents relied on the case of Godfrey Oduor Odhiambo v Ukwala Supermarket Kisumu Limited [2016] eKLR.

19. The respondents argued that their operations will be extremely prejudiced if ordered to come up with the substantial sum which the applicant is asking for in the nature of security.

Issues For Determination 20. After considering the application, the response and the parties written submissions, the court finds only one issue for determination;a.Whether the respondents should furnish security before court for satisfaction of any arbitral award that may be passed against them in the arbitration proceedings?

Analysis 21. The purpose of an interim measure of protection is to ensure that the subject matter will be in the same state as it was at the commencement or during the arbitral proceedings. The court must be satisfied that that the subject matter of the arbitral proceedings will not be in the same state at the time the arbitral reference is concluded before it can grant an interim measure of protection.

22. The court can only intervene in matters governed by the Arbitration Act, only as provided for under section 10 of the said Act. The same provides as follows: -“Except as provided in this Act, no court shall intervene in matters governed by the Act.”

23. It is not in dispute that the parties herein entered into a sale agreement dated September 29, 2020 and arbitration clause is well provided for under clause 16 of the agreement.

24. The parties herein are yet to begin the arbitration proceedings and the only step taken by the applicant so far is to request the Chartered Institute of Arbitrators to appoint an arbitrator in accordance with the letter dated April 9, 2021 by the applicant to the institute.

25. The application herein is brought under section 7 of the Arbitration Act which provides;(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.

26. In order to succeed, the applicant must satisfy the court that the respondents are about to leave the country with intent to delay the applicant case or to avoid any process of the court or to obstruct or delay the execution of any decree that may be passed against it. The court is not satisfied that the applicant has been able to justify why this court should grant it the order sought as it has also not been to demonstrate that it will not be able to recover the arbitral award, if the same was entered in its favour.

27. It was the applicant’s contention that the 2nd and 3rd respondents intended to fold up the activities of the 1st respondent and move to their country of origin away from the jurisdiction of this court as a result of which the applicant will suffer irreparable harm since it will not be able to recover the costs and damages should it succeed in the arbitral cause.

28. It is this court’s view that the applicant has not adduced any evidence to prove the said claims and therefore these are and they remain as mere speculations not based upon any tangible evidence.

29. It is also noted that the furnishing of security pending arbitral proceedings is within the domain of the arbitral tribunal under section 18 of the Arbitration Act. The arbitral tribunal has the power to order a party to provide security for costs or order any party to provide security in respect of any claim or any amount in dispute under the said Arbitration Act.

30. Section 18 of the Arbitration Act provides as follows: -(1)Unless the parties otherwise agree, an arbitral tribunal may, on the application of a party—(a)order any party to take such interim measure of protection as the arbitral tribunal may consider necessary in respect of the subject matter of the dispute, with or without an ancillary order requiring the provision of appropriate security in connection with such a measure; or(b)order any party to provide security in respect of any claim or any amount in dispute; or(c)order a claimant to provide security for costs.(2)The arbitral tribunal or a party with the approval of the arbitral tribunal, may seek assistance from the High Court in the exercise of any power conferred on the arbitral tribunal under subsection (1).(3)If a request is made under subsection (2) the High Court shall have, for the purposes of the arbitral proceedings, the same power to make an order for the doing of anything which the arbitral tribunal is empowered to order under subsection (1) as it would have in civil proceedings before that court, but the arbitral proceedings shall continue notwithstanding that a request has been made and is being considered by the High Court.

31. Going by the above mentioned provision, this court is satisfied that the applicant has recourse to seek to be furnished with security by the respondents before the arbitral tribunal and finds the tribunal to be the first port of call as this is an issue that can be dealt with before the arbitral tribunal.

Findings And Determination 32. In the light of the forgoing reasons this court makes the following finding and determination;(i) The application is found to be lacking in merit and it is hereby dismissed with costs;(ii) The applicant shall bear the costs of the application.Orders accordingly.

DATED, SIGNED AND DELIVERED ELECTRONICALLY AT NAIROBI THIS 23RD DAY OF MAY, 2022. HON A MSHILAJUDGEIn the presence of;Ms Kemunto for the applicant.Gatunga for the 1st, 2nd and 3rd respondents.Lucy--------------------------court assistant.