Nisha Holdings Limited v Patel & another [2023] KEHC 24856 (KLR)

Nisha Holdings Limited v Patel & another (Miscellaneous Application E030 of 2022) [2023] KEHC 24856 (KLR) (Commercial and Tax) (6 October 2023) (Ruling)

Neutral citation: [2023] KEHC 24856 (KLR)

Republic of Kenya

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

Commercial and Tax

Miscellaneous Application E030 of 2022

EC Mwita, J

October 6, 2023

Between

Nisha Holdings Limited

Applicant

and

Mayank Nikhilbhai Patel

1st Respondent

Kum Kum Distributors Ltd

2nd Respondent

Ruling

1. The applicant filed an application under section 36 of the Arbitration Act, seeking recognition and adoption of the Final Arbitral Award dated 20th December 2021. The applicant further sought leave to enforce the award as a decree of this Court.

2. The applicant’s case is that the agreement dated 24th February 2019, barred shareholders not to act as directors of or hold material interest in any company which carries on business in competition with the applicant.

3. The shareholders were also not to set up business in direct competition with the applicant within a 200 kilometer radius of the applicant’s locations in Ruiru and Limuru for five years upon ceasing to have an active role in the applicant.

4. The shareholders further undertook not to engage in any employment or work for any company or third party, including consulting engagements, that would be directly or indirectly in competition with the application or any or its successors without consent from other shareholders. Further, a shareholder would not directly or indirectly induce or influence, any of the applicant’s client, employee, or aid, assist or abet any third-party into any activities that compete with the applicant.

5. The 1st respondent resigned and ceased to be a shareholder of the applicant on 11th January 2020 and as director from 29th February 2020. The 1st respondent did not abide by the confidentiality clauses in the shareholders’ agreement, forcing the applicant to seek an injunction in HCCC no E054 of 2021, restraining the 1st respondent from contacting or soliciting the applicant’s clients on behalf of the 2nd respondent.

6. In a ruling delivered on 1st July 2021, the Court issued an interim measures of protection directed that arbitral proceedings be commenced within 30 days.

7. Following that ruling, parties consented to the appointment of Mr. Kyalo Mbobu as the sole arbitrator. Arbitral proceedings commenced and despite service the arbitrator’s orders for directions, the respondents did not file their pleadings. Through order for directions no 2 issued on 12th July 2021, the arbitrator rescheduled the preliminary meeting due to the 1st respondent’s absence. The 1st respondent however absconded the next meeting.

8. The 1st respondent purported to have written letter dated 16th July 2021 objecting to the terms and conditions which was however neither served upon the applicant nor the arbitrator. The respondents could not purport to have objected to the terms and conditions after the arbitral process had commenced when their advocates continued to receive proceedings and documents; participated in the appointment of the arbitrator and attended the preliminary meeting.

9. The applicant argued that parties entered into a valid agreement with an arbitration clause; the arbitral tribunal was presented with relevant materials, evidence and facts and properly exercised its jurisdiction after duly considering the pleadings and evidence before rendering the final award on 20th December 2020 in the applicant’s favour.

10. The applicant asserted that the 1st respondent is precluded from challenging the arbitral award because he took no further step in the arbitral proceedings after participating in the appointment of the arbitrator and had not sought to set aside the arbitral award within the statutory timelines.

11. The applicant stated that the respondents’ failure to take part in the arbitral proceedings resulted into a waiver of the right to apply to set aside the arbitral award or resist enforcement of the award under sections 34 and 36, even where one or more grounds in section 34(2) or 36(1) are satisfied.

12. The applicant relied on Delargy v Hickey and another [2015] IEHC 436 for the position that the respondents lost the right to challenge the arbitrator’s findings due to their refusal to take part in the arbitral proceedings.

13. Reliance was again placed on the decision in Re Corporacion Transnacional de Inversiones, S. A. de C. V. et al v STET International, S.p.A. et al, 1999 CanLII 14819 (ON SC) 1999-09-22 that a party waives its right to apply to set aside an award under the Model Law where it refused to take part in arbitral proceedings.

14. The applicant urged the Court to strike out the respondents’ replying affidavit for being an abuse of the court process. It relied on KenyaShell Ltd v Kobil Petroleum Limited, Civil Appeal no 57 of 2006 [2006] eKLR for the principle that in arbitral proceedings, the role of the Court should be minimal and the focus should be on the way the Court can support the arbitration process enforce arbitral awards in a timely and cost-effective manner and bring finality to the process.

15. The applicant further relied on Kenya Shell Ltd v Kobil Petroleum Limited [supra] and National Cereals & Produce Board v Erad Suppliers & General Contractors Limited [2012] eKLR, on the principle of finality of arbitral awards.

Response 16. The respondents opposed the application and urged the Court to dismiss the application for being frivolous, vexatious, speculative and unreasonable. The 1st respondent asserted that before he could agree on the arbitrator’s non-refundable and non-accountable fees of ksh 58,000, the arbitral proceedings began without his or his advocates participation.

17. The respondents contended that the arbitral proceedings went on despite objection to the quantum of fees charged by the arbitrator. They asserted that the application is mischievous because the applicant knew all along of their objection to the fees.

18. The respondents’ counsel argued from the bar, that the respondents did not consent to the appointment of the arbitrator, but confirmed that although the respondents were aware of the appointment of the arbitrator, they did not participate in the arbitral proceedings. The respondents also admitted through counsel, that they did not file an application to set aside the arbitral award.

Determination 19. The issue before this court is whether the arbitral award should be enforced. There is no dispute that the matter was referred to arbitration and the arbitral tribunal was appointed. Although the applicant filed its pleadings the respondents did not. The respondents did not also take part in the arbitral proceedings.

20. Notwithstanding the respondents’ absence, the arbitral tribunal went ahead to conduct the proceedings and published the final award in favour of the applicant thereby concluding the arbitral proceedings. This is the award the applicant sought to have recognized for purposes of enforcement.

21. The respondents urged that the application should not be allowed because they did not take part in the arbitral proceedings having objected to the terms of fees set by the arbitral tribunal.

22. The application has been brought under section 36 of the Act. The section provides that a domestic arbitral award should be recognized as binding and, upon application to Court, it should be enforced subject to this section and section 37.

23. Section 37 provides grounds on which the Court may decline to recognize and enforce the award. The grounds include: where a party to the arbitration agreement was under some incapacity; the arbitration agreement is not valid under the law to which the parties have subjected it or, failing any indication of that law, under the law of the state where the arbitral award was made and the party against whom the arbitral award is invoked was not given proper notice of the appointment of an arbitrator or of the arbitral proceedings or was otherwise unable to present his case

24. The respondents did not raise any of the grounds in section 37 for objecting to the recognition and enforcement of the arbitral award. The respondents were aware of the appointment of the arbitrator, attended preliminary meeting but chose not to participate further in the arbitral proceedings. They also did not file an application to set aside the arbitral award.

25. The respondents urged the Court to dismiss the application because, in their view, it was frivolous, vexatious, speculative and unreasonable. The respondents’ other ground was that before they could not agree on the arbitrator’s non-refundable and non-accountable fees of ksh 58,000, the arbitral proceedings began without their or the advocates participation.

26. The respondents did not say that they were not aware of the appointment of the arbitral tribunal or arbitral proceedings or that for some plausible reason, they were unable to present their case. In other words, the respondents did not give a good reason why they did not take part in the arbitral proceedings. The reason that the proceedings commenced before agreement on fees had been settled is not a sufficient reason given that they were aware of the appointment of the arbitrator and commencement of the arbitral proceedings.

27. This Court’s mandate when dealing with an application under section 36, is to enforce the arbitral award if it meets the requirements under that section. The respondents have not alleged that the application does not meet the conditions under sections 36 or 37. The choice not to attend arbitral proceedings was a personal one that should not be equated to the grounds set out in section 37 that would make this Court decline to recognize and enforce the arbitral award.

28. In Kenya Shell Ltd v Kobil Petroleum Limited (supra), the Court of Appeal observed that:Arbitration is one of several dispute resolution methods that parties may choose to adopt outside the courts in this country. The parties may either opt for it in the course of litigation under Order XLV of the Civil Procedure Rules or provide for it in contractual obligations in which event the Arbitration Act, Act no 4 of 1995 (the “Act”) would apply and the courts take a back seat.

29. In Delargy v Hickey and another [2015] IEHC 436, the applicant sought leave of Court to enter judgment in terms of the arbitral award made in favour of the applicant against the respondent for alleged construction defects in the property possessed by the applicant in pursuance of a contract between the parties. The respondents sought an order for setting aside the arbitral award. The applicant contended that the respondents had failed to take active participation in the proceedings, thus their application could not be allowed.

30. The Court, Gilligan J, refused the application for setting aside the arbitral award. The Judge observed that the powers of the Court to set aside an award were discretionary and required the respondent to discharge the burden of proving that the contravention of Law had in fact taken place. The Court held that it would not simply annul or remit the award if a party owing to its own fault did not take part in the arbitral process earlier and now wanted to escape the liability decided against it. The Court took the view that the due process of law would presume that the party that comes to the Court would come with clean hands and not with an intent to hide its own guilt and fault.

31. In Re Corporacion Transnacional de Inversiones, S. A. de C. V. et al v STET International, S.p.A. et al, (supra), the Court observed that where a party had refused to participate in the arbitration proceeding, inter alia, by refusing to participate in the signing of a confidentiality agreement and by withdrawing when the final hearing had commenced, it had deliberately forfeited the opportunity to be heard.

32. In the present application, the respondents did not apply to set aside the arbitral award so that the only application before this court is for enforcement of the award. The respondents did not also show that the arbitral award fell a foul section 37 of the Act.

33. Furthermore, the respondent refused to participate in the proceedings, thus forfeited their opportunity to be heard.

34. In the circumstances, I find no reason to decline the application. Consequently, the application is allowed with costs.

DATED SIGNED AND DELIVERED AT NAIROBI THIS 6TH DAY OF OCTOBER 2023. E C MWITAJUDGE