Adan v Farah & 3 others [2022] KEHC 10424 (KLR)

Adan v Farah & 3 others (Civil Suit 100 of 2016) [2022] KEHC 10424 (KLR) (Commercial and Tax) (3 June 2022) (Ruling)

Neutral citation: [2022] KEHC 10424 (KLR)

Republic of Kenya

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

Commercial and Tax

Civil Suit 100 of 2016

A Mabeya, J

June 3, 2022

Between

Yusuf Abdi Adan

Plaintiff

and

Hussein Ahmed Farah

1st Defendant

Hussein Unshur Mohammed

2nd Defendant

Mohamed Abdikadir Adan

3rd Defendant

Blue Bird Aviation Ltd

4th Defendant

Ruling

1. Before Court is the 2nd defendant’s application dated 9/2/2022. In it, he sought that the Business Valuation Report (“the report”) of the 4th defendant dated 6/12/2021 submitted by RSM (Eastern Africa) Consulting Ltd (hereinafter “RSM”) be adopted as an order of the Court. That consequently, the plaintiff do transfer his 25% shareholding in the 4th defendant to either of the defendants at a value of Kshs.320,912,500/- forthwith in accordance with the report.

2. There was an alternative prayer that the deputy registrar of this Court to execute the share transfer forms to transfer the plaintiff’s 25% shareholding in the 4th defendant upon either defendant depositing the sum of Kshs.320,912,500/- into this Court. The said sum would only be released to the plaintiff after the Registrar of Companies has effected the changes in the said shareholding.

3. Lastly, the 2nd defendant prayed that upon full payment of the value of the plaintiff’s 25% shareholding in the 4th defendant, the Registrar of Companies be directed to effect the changes in the shareholding of the 4th defendant to reflect that the plaintiff has ceased to be a shareholder thereof.

4. The application was premised on the grounds that on 1/10/2021, the Court ordered, inter alia, that the plaintiff’s shares in the 4th defendant be purchased by any of the respondents. That the parties were to appoint a reputable firm to value the 4th defendant to facilitate the aid purchase.

5. That by consent, the parties agreed to appoint RSM to undertake the said valuation as ordered by the Court. Consequently, RSM rendered its valuation report on 6/12/2021 which was filed in court on 7/12/2021. The plaintiff sought some clarification from RSM on the methodology of the valuation exercise which was responded to but surprisingly, the plaintiff later on expressed its intention not to abide by the terms of the report. This led this Court to issue a peremptory order requiring the parties to comply with the court orders issued on 1/10/2021 within 14 days.

6. The 2nd defendant pleaded that without the plaintiff’s cooperation, it would be impossible for the plaintiff’s shares to be purchased within the prescribed time limits and that the 3rd defendant has expressed his readiness to purchase the plaintiff’s 25% shareholding in the 4th defendant.

7. The plaintiff strenuously opposed the application vide his replying affidavit sworn on 22/2/2022. He averred that the asset valuation report attached to the report was not signed by the director and or sealed as required by its limiting conditions. That the parties were yet to agree on the adoption of the report or any settlement. That vide a letter dated 7/2/2022, the plaintiff had proposed another valuation by other nominated firms.

8. The plaintiff argued that the valuer though jointly appointed, was under the influence of the respondents. That the order of 1/10/2021 had not been complied with as the report was not capable of ascertaining the real and fair value of his shareholding. That the valuer had failed to provide the signed audited books of account which were allegedly used in the valuation process. In the premises, the plaintiff urged that the Court do appoint another valuer since the parties had failed to agree on the competent valuation exercise.

9. The 2nd defendant swore a further affidavit on 28/2/2022, in opposition to the plaintiff’s replying affidavit. He contended that the plaintiff had confirmed the appointment of RSM as a valuer amongst various other firms. That he had agreed to the terms of engagement by the valuer and that the report had been duly signed by the valuer.

10. He further contended that the plaintiff had not tendered any evidence to contradict the contents of the valuation report and that the plaintiff was turning the Court into an auction to occasion the conduct of countless valuations in order to select the highest bid.

11. The Court has carefully analysed the opposing contestations and the submissions of Learned Counsel. The issue for determination is whether the valuation report by RSM should be adopted and the consequences thereto.

12. In the ruling of this Court of 1/10/2021, the Court directed in paragraph 54 thus: -c)The plaintiff’s shares in the 4th respondent be purchased by the remaining shareholders, that is, the 1st, 2nd and 3rd respondent or any one of them or by the 4th respondent, and the company’s capital be reduced accordingly.d)Consequently, the parties are hereby directed to agree within 14 days of the date hereof, on the appointment of a reputable firm to undertake the valuation of the 4th respondent with a view of ascertaining the value of the plaintiff’s shareholding thereon for subsequent purchase as aforesaid. In default, the court shall appoint one.”

13. From the foregoing, it is clear what the parties were required to do. The 4th defendant was to be valued so as to ascertain its value for purposes of ascertaining the value of the plaintiff’s shareholding. The valuation was to be undertaken by a valuer agreed upon by the parties failing of which, the Court through the Deputy Registrar would appoint one. The valuation was to be undertaken by a reputable firm.

14. Vide a letter of appointment dated 2/11/2021, the parties, including the plaintiff, appointed RSM to carry out the valuation of the 4th defendant. The said letter is annexed as ‘HM 8’ in the 2nd defendant’s affidavit in support of the application. RSM accepted the appointment and sent a letter of engagement vide a letter dated 8/11/2021. The parties then requested RSM to amend the aforementioned letter of engagement to incorporate the changes agreed between the parties.

15. Consequently, RSM sent an amended letter of engagement produced as ‘HM-12’ wherein they set out the scope of work, terms and conditions of engagement and the respective areas of responsibility for RSM and the defendants. All of the parties, except the 1st defendant, acknowledged and accepted the amended letter of engagement.

16. On 7/12/2021, a softcopy of the valuation report by RSM produced as ‘HM-13’ was sent to the parties and the same was lodged in Court. According to that report, each share of the 4th defendant was valued to be worth Ksh.1,283. 65. The plaintiff’s shares were therefore cumulatively held to be worth Kshs.320,912,500/-.

17. From the foregoing, it is clear that, save for the 1st defendant, the parties had consented to and agreed to appoint RSM to value the 4th defendant. Some concerns which were raised by the plaintiff regarding the first engagement letter were considered and a 2nd engagement letter was issued by RSM to incorporate those concerns. It is also clear that a valuation report was issued by RSM in accordance with the letter of engagement and the Court order of 1/10/2021.

18. On 1/2/2022, during a mention in court, the plaintiff’s advocate stated that RSM had withdrawn the valuation report. However, the letters produced as ‘HM-22A’ and ‘HM-22B’ show that RSM had confirmed the said report to be final.

19. The plaintiff’s counsel also alleged that the valuation of the assets of the 4th defendant conducted by Lloyd Masika Limited which was part of the valuation report was invalid because it was not signed. However, a signed copy of the said report and valuation of the assets of the 4th defendant including the land, buildings and 17 aircrafts produced as ‘HM 23’ attest otherwise.

20. From the foregoing, the Court is of the opinion that since the parties had jointly engaged RSM to undertake the valuation of the 4th defendant and willingly agreed to its letter of engagement, a valid consent and/or existed between the parties.

21. The plaintiff does not want the report of RSM to be recognized on the ground that the valuation was not carried out independently as the valuer failed to provide the signed audited books of account that were used. Further, that the valuer was under the influence of the other shareholders of the company. The plaintiff has not provided any proof for these allegations.

22. A consent is akin to a binding contract between the parties thereto and can only be set aside on conditions that can set aside a contract.

23. InSamson Munikahpractising as Munikah & Company AdvocatesvWedube Estates Limited[2007] eKLR the court cited with approval the case of Brooke Bond Liebig (t) Ltd V. Mallya[1975] E.A. 266, where the then Court of Appeal for East Africa set out the circumstances in which a consent judgment could be set aside by the courts. It was held: -​​QUOTE“The circumstances in which a consent judgement may be interfered with were considered by this Court in Hirani v. Kassam [1952] 19 EACA 131 where the following passage from Seton on Judgments and Orders, 7th Edn., Vol 1, P. 124 was approved:“Prima facie, any order made in the presence and with the consent of the counsel is binding on all parties to the proceedings or action, and on those claiming under them and cannot be varied or discharged unless obtained by fraud or collusion, or by an agreement contrary to the policy of the court or if consent was given without sufficient material facts, or in misapprehension or in ignorance of material facts, or in general for a reason which would enable the court to set aside an Agreement.”

24. Applying the foregoing to the present case, it was upon the plaintiff first to demonstrate that the consent to appoint RSM was obtained in the circumstances set out above. That the report that resulted from the said consented appointment was fraudulent and amenable to be set aside.

25. To the contrary, the plaintiff has not illustrated any grounds required to vary or discharge the consent including fraud, collusion or lack of sufficient material facts at the time of entering into the consent. He has failed to prove any foul play on the part of the defendants and to give any evidence as to why the valuation is not correct.

26. I have considered at the submissions and authorities relied on by the plaintiff. They would have been applicable in an application challenging the report. There is no such application before this Court. The application in issue is the one to adopt the report.

27. In any event, if the plaintiff was truly aggrieved by the conduct of the valuers, all that he could have done was to make an appropriate application to impeach the consent and the valuers conduct and thereby have their report set aside. This he has not done. He has attempted to do so in his reply to the application by the 2nd defendant and the submissions. There is no jurisdiction to do so.

28. The plaintiff is bound by the consent entered into with the defendants and cannot rescile from it. It is clear that from the outset, that the Court’s intention in directing the parties to agree on a joint valuer was to avoid instances where the valuation of the 4th defendant would be unreasonably contested.

29. The 2nd defendant averred that the 3rd defendant was interested in purchasing the plaintiff’s 25% shareholding in the 4th defendant at a value of Kshs.320,912,500/-. This would implement the court order of 1/10/2021 and bring the endless litigation that plagues this matter to an end.

30. On the basis of the foregoing, the court finds merit in the application dated 9/2/2022 and allows the same on the following terms: -a.Prayer 2 is granted.b.Prayer 3 is granted. The plaintiff is hereby ordered to transfer his 25% shareholding in the 4th defendant to the 3rd defendant who is interested in purchasing them upon receipt of the sum of Kshs.320,912,500/- being the value of his shareholding thereof. This should be within 60 days from the date hereof.c.In default, prayer 4 shall be deemed granted.d.Prayer 5 is granted as prayed.e.Each party to bear own costs.

It is so ordered.DATED AND DELIVERED AT NAIROBI THIS 3RD DAY OF JUNE, 2022. A. MABEYA, FCIArbJUDGE