Njue Mugo v Mutegi Mugweta & Mugo and Murango Mining Company Ltd [2017] KEHC 2632 (KLR) | Company Directors Disputes | Esheria

Njue Mugo v Mutegi Mugweta & Mugo and Murango Mining Company Ltd [2017] KEHC 2632 (KLR)

Full Case Text

REPUBLIC OF KENYA

IN THE HIGH COURT OF KENYA

AT CHUKA

HIGH COURT CIVIL CASE NO. 8 OF 2016

NJUE MUGO....................................................................................PLAINTIFF

VERSUS

MUTEGI MUGWETA.............................................................1ST DEFENDANT

MUGO AND MURANGO MINING COMPANY LTD...........2ND DEFENDANT

R U L I N G

1. NJUE MUGO, the applicant herein has, through a Notice of Motion dated 14th November, 2016 brought under Orders 20 Rules 1, 3& 4, 40 Rule 10 Civil Procedure Rule and Section 7 of the Arbitration Act, sought the following prayers namely:-

(i) That this application be certified urgent (which prayer has since been overtaken by events).

(ii) That pending the hearing and determination of the Arbitration, (a prayer  introduced vide an amendment on 11th January 2017) the 1st defendant, MUTEGI MUGWETA be ordered to produce forthwith or as this Honourable Court shall order, for the plaintiff and/or his appointed accountant or representative to inspect all the records or inventory of the assets of the 2nd defendant, Mugo and Murango Mining Company Ltd, book of accounts, daily sale records, expenditure records, correspondence files, bank statements and documents, cheque books, salary records and all other documents pertaining to the business of the 2nd defendant.

(ii) That pending the hearing  and determination of the Arbitration (prayer introduced vide an amendment on 11/1/2017) the 1st defendant be ordered to give and produce before this honourable court  an accurate and detailed account of all the income earned by the 2nd defendant's  business from January, 2016 to date.

(iv) That this honourable court be  pleased to grant any further orders and or directions as it shall deem fit and just.

(v) That costs of this application be provided for.

2. The grounds upon which this application has been brought are as follows:-

a)That the both applicant/plaintiff and the 1st defendant/respondent are directors of the 2nd defendant with both owning 50% shares each and that the company carries on the business of stone mining and cutting in Mwoga area of Tharaka Nithi County.

b)That the 1st defendant/respondent has locked out and excluded the applicant from the said business and thereby oppressing the applicant for his own benefit despite applicant's wide knowledge and experience in the said business.

c)That the plaintiff gave a personal guarantee to secure a loan of Kshs.30,000,000 to the 2nd defendant.

d)That the 1st defendant/respondent has no experience in running the business and is likely to run it down.

e)That the 1st defendant has failed to call any meetings of directors and/or shareholders, file annual returns of the company, prepare accounts, file tax returns, pay taxes and/or comply  in anyway with the law thus exposing the company to civil and criminal sanction.

f)That the 1st defendant has failed to give an account of the 2nd defendant business and/or keep records of the same in an attempt to unjustly enrich himself and oppress the applicant in the process and cause him loss.

g)That the employees of the 2nd defendant both skilled and unskilled are likely to suffer prejudice and resort to industrial action if the company is run in the manner it is run currently.

h)That the applicant has been denied his salary entitlement of  Kshs.300,000 per month and has been kept off the business premises through threats to harm him.

i)That disputes relating to the company should be referred to Arbitration and that the Chairman Kenya Institute of Arbitrators has already appointed an Arbitrator to hear the dispute.

j)That the orders sought herein are just and fair intended to preserve the assets of the 2nd defendant and ensure that the Arbitration award if any is not rendered nugatory as well as ensure that in the meantime the company's business is carried out profitably for the benefit of all shareholders.

3. The applicant has supported the above grounds with his affidavit sworn on 14th November, 2016 where he has basically reiterated the grounds above and the various roles he claims he played in setting up of the company. He  has deposed that he has come to this court for purposes of accessing the business site the assets and records to enable him present a case before the appointed Arbitrator. The applicant alleges that the 1st defendant/respondent has failed and/or refused to give him an account of the operations of the company and kept for himself the records in order to enrich himself to hisdetriment.

4. I his written submissions done through his learned counsels Wanja and Kibe Advocates, the applicant has submitted that the 1st defendant's action has exposed him the risk of criminal and civil litigation by his failure to keep records of income and declare taxes owing from the company besides  not keeping records of employees salary and statutory deductions. It  is further contended that as per Article 31 of the Articles of Association of the company (2nd defendant) all disputes relating to members or between members and the company are to be referred to Arbitration and that the only reason why the applicant has approached this court is for purposes of preserving the assets of the 2nd defendant to ensure that the Arbitration is not done in vain.

5. The applicant has further contended that the orders being sought in this application are only interim and would not occasion any prejudice to the respondents. In his view if the orders are granted. the parties would expeditiously go ahead with the arbitration/as provided by law and pursuant to clause 31 of the Articles of Association of the company (2nd defendant). The applicant further contends that this court has jurisdiction to determine and grant orders sought in this application under Article 159 (d) of the Constitution and Order 46 Rule 20 of the Civil Procedure Rule. He has also submitted that this court has unlimited jurisdiction under Article 165(3)(a) of the constitution and supervisory jurisdiction under Article 165 (b) over the subordinate  courts and any other body/authority exercising a judicial or quasi judicial function like the Arbitration Tribunal. In his view this court can grant interim orders under Section 7(1) of the Arbitration Act and Order 40 Rule 10 of the Civil Procedure Rules and has submitted that the respondents have not demonstrated why the orders should be granted.

6. The applicant finally urges this court under prayer 3 of his application to direct that this matter be referred to Arbitration within a specific period so that that the dispute between the parties herein can be heard and determined without delay.

7. The  defendants/respondents have opposed this application through the grounds of opposition dated 23rd January, 2017 and the written submissions by their learned counsel Mr. Murango.

The main thrust of the opposition by the respondents is that the orders sought in this application are permanent and does not fall within the purview of Section 7 of the Arbitration Act. The defendants have also contended that this court lacks jurisdiction to grant the orders sought under Section 7 of the Arbitration Act. They contend that the jurisdiction to grant the orders lies with the Arbitration Tribunal as provided under Section 17, 18, 20 21, 25 and 26of the Arbitration Act, 1995.

8 The respondents have contended that the applicant has not made out a case for an interim measure as envisaged under Section 7 of the Arbitration  Act and that except as provided under Section 6 &10 of the Arbitration Act, this court's powers are limited.

9. In their written submissions the respondents have cited the decision in the case of OLIVE MWIHAKI MUGENDA & ANOR -VS- OKIKI OMTATA OKOITI & 4 OTHERS [2016] eKLR to support their contention  that the players sought are inappropriate as it will dispose the whole suit without the benefit of trial.

10. The respondents have also cited the provisions of Article 159(2) of the Constitution in urging this court to promote Alternative Dispute Resolution mechanism by referring this matter to the Arbitration Tribunal. The decision in the case of Kenya Shell Ltd- Vs- Kobil Petroleum Ltd [2006] eKLR has also been citied in this regard.

DETERMINATION

11. On question of jurisdiction of this court, this court partly agrees with the contention by the plaintiff/applicant that under the provisions of Article 165 (3), this court is granted unlimited jurisdiction in all criminal and civil matters save for matters that fall under Article 162 (1)  of the Constitution which are :-

(i) Employment and Labour relations matters, and

(ii) The Environment and matters to do with use, title and occupation of land.

The matter before this court does not fall under Article 162 (1) of the Constitution in anyway and is incorrect to say that Section 7 of any of the provisions of the Arbitration Act No. 4 of 1995 limits the jurisdiction of this court to grant such as orders as it may be deemed fit. The powers of this  court provided under the Constitution cannot be limited by a statue because of the supremacy of the Constitution well illustrated under Article 2 of the same. This court also has  the supervisory jurisdiction over anybody or authority exercising a judicial or quasi-judicial function and the Arbitral Tribunal provided under the Arbitration Act is one such body under the supervisory jurisdiction of this court. This court's supervisory jurisdiction under the constitution is only limited by matters/actions done by the superior courts. Article 165(b) court is clear on this and it states as follows:-

"The High Court has supervisory jurisdiction over the subordinate courts and over any person, body or authority exercising a judicial or quasi-judicial function but not over a superior court."

I am therefore not persuaded by the respondents contention that this court's powers on matters under Arbitration are limited. The cited case of MIDROC WATER DRILLING CO. LTD- Vs- NATIONAL WATER CONSERVATION & PIPELINE CORPORATION [2015] eKLRis in my view quoted out of context because in that case an applicant was inter-alia seeking to stay proceedings for purposes of referring a matter to the Arbitration and to limit the jurisdiction of the Arbitrator to only consented issues. The court was therefore determining different issues  altogether from the issues in the application, although I find that the court correctly observed in part  of the said decision that the court's intervention in assuming jurisdiction over matters pending in the Tribunal is envisaged under Section 10 and is not interference whatsoever.

12. Going back to the prayers sought in this application, the applicant has in his amended application sought exactly the same reliefs sought in his amended plaint. This is improper and untenable in law because a party cannot seek final orders at an interlocutory stage as that would deprive the other party  or parties a chance to heard and have all the issues interrogated through a full trial. I am therefore in agreement with the respondent that granting prayers 2 & 3 in this application at this stage will determine the suit. This court cannot issue final orders or reliefs sought in a suit without hearing all the parties as do so will be an abuse of the court process.

13. The applicant has correctly stated that disputes between members of shareholders relating to the company (2nd defendant) should be referred to Arbitration pursuant to Article 31 of the Article of Association of the Company.  I have perused through  the cited article and found that that is what it provided and the respondents have even admitted as much. The applicant has stated that the purpose of this application is to preserve the assets of the company. He has however not said why he has not expressly sought for preservation of the assets through injunctive reliefs or any other order if he feels that the assets of the company are in danger of being wasted. The applicant cannot seek general prayers of preservation or inspection under Order 40 rule 10of the Civil Procedure Rule without  citing specific orders in order to give a fair chance to the respondents to make a response. To do so is tantamount to ambushing the respondents with adverse orders being amplified or specified at the hearing. The applicant was under a duty to be specific in her prayers for this court to determine  the merits of the same. This therefore finds that the prayers sought by the applicant under Order 40 Rule 10 in his application is incompetent for want of specificity. The applicant has not demonstrated the nature of interim measure that requires the intervention by this court under Section7of Arbitration Act. He has also not stated that the appointed Arbitrator is unable or has declined to grant any relief  deem just and expedient for determination of the dispute referred to him under the Arbitration Act pursuant to the Arbitration Clause (Article 31) in the Articles of Association.

14. This court having considered this application and found that the prayers sought under prayer 2& 3 untenable for the aforesaid reasons,  further finds that the provisions of Order 46 rule 20 Civil Procedure Ruleactually  provides for an avenue that meets the ends of justice. The provision provides as follows:-

"Nothing under this order may be construed as precluding the court from adopting and implementing of its own motion or at the request of the parties, any other appropriate means of dispute resolutions (including mediation) for the attainment of the overriding objective envisaged under Sections 1A & 1B of the Act".

In order to facilitate a just expeditious and affordable resolutions of the dispute between the parties herein, I am inclined upon striking out prayers 2 & 3 of this application to give the following orders and directions:-

(i) The dispute herein is hereby referred to Arbitral Tribunal as per Article 31 of the Article of Association of  the company and as provided under Section 12 of the Arbitration Act.

(ii) The appointment of arbitrator(s) if no agreement has been reached as yet be  done within 30 days from today and in default any aggrieved  party is at liberty to apply or move this courts.

(iii) Subject to directions given under (ii) above, there shall be a stay of proceedings herein pending the determination of the dispute herein by the appointed Arbitrator(s) and parties are directed to proceed expeditiously in accordance with the law for the interest of justice.

(iv) Costs shall be in cause.

Dated and delivered at Chuka this 12th  day of October, 2017.

R. K. LIMO

JUDGE

12/10/2017

Ruling signed dated and delivered in the open court in the presence of Murango Advocate for defendant and Ngunjiri holding brief for Mrs Kibe for Applicant.

R.K. LIMO

JUDGE

12/10/2017