Rao v Shreeji Chemicals Limited & 3 others [2023] KEHC 24600 (KLR)

Rao v Shreeji Chemicals Limited & 3 others (Petition E005 of 2021) [2023] KEHC 24600 (KLR) (Commercial and Tax) (3 November 2023) (Ruling)

Neutral citation: [2023] KEHC 24600 (KLR)

Republic of Kenya

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

Commercial and Tax

Petition E005 of 2021

FG Mugambi, J

November 3, 2023

Between

Mukkasa Giridhar Rao

Petitioner

and

Shreeji Chemicals Limited

1st Respondent

Haresh Vrajlal Damodardas Soni

2nd Respondent

Delta International Fze

3rd Respondent

Shreeji Enterprises Limited

4th Respondent

Ruling

1. The dispute before the Court arises from a disagreement over the appointment of an arbitrator to determine the dispute between the applicant and the respondents. The disagreement culminated to the Chamber Summons application dated 9th June 2023. It was brought under Order 46 rules 5 and 20 of the Civil Procedure Rules 2010, sections 1A, 1B, 3A of the Civil Procedure Act, section 12 of the Arbitration Act 1995, rule 3(2) of the Arbitration rules 1997 and Article 159(2) of the Constitution of Kenya.

2. The application sought orders for the Court to appoint Ms. Njeri Kariuki as the sole arbitrator or in the alternative, to appoint a sole arbitrator from between Ms. Esther Kinyenje and Mr. Kamau Karori, in accordance with Article 44 of the 1st respondent’s Articles of Association, to determine the dispute between the parties. The application was premised on the grounds on the face of it and supported by the affidavit and supplementary affidavit sworn by Mukksasa Giridhar Rao. The applicant also filed written submissions dated 21st August 2023.

3. The application was opposed by way of a replying affidavit sworn by Umangkumar Haresh Soni on 3rd July 2023 and further supported by the written submissions dated 22nd September 2023 on behalf of the respondents.

4. The main bone of contention by the respondents is that the issues raised by the applicant are res judicata having been determined in the injunction application in Misc. E734 of 2021. The respondents also argue that the process of appointing an arbitrator under the arbitration clause had not been exhausted and as such the court’s intervention would be premature.

Analysis 5. I have considered the pleadings, submissions and evidence presented by the rival parties herein. In my view, there are only 2 issues raised for determination and that is:i.Whether the issue of the appointment of an arbitrator is res judicata.ii.Whether the Court ought to appoint an arbitrator to hear and determine the dispute before the parties.

Whether the issue of the appointment of an arbitrator is res judicata 6. The respondent’s raise the issue of res judicata over the question of appointment of an arbitrator, the same having been determined by this Court in the Originating Summons dated 30th September 2021. In response to this averment, the applicant confirms that the Originating Summons sought the appointment of an arbitrator to determine the shareholder’s dispute between the applicant and the respondents in Miscellaneous Application No. E734 of 2021. The Court dismissed the Originating Summons on a technicality by stating that it was sub-judice owing to the existence of this suit.

7. I have looked at the impugned ruling and I note that the Learned Judge did not make any conclusive substantive findings on the question of the appointment of an arbitrator. In fact, at paragraph 21 of the said ruling, the Learned Judge affirms that:“…The Court dealing with Petition 005 of 2021 will also address all the issues in dispute relating to the Company herein. Appointing an arbitral tribunal to initiate arbitration proceedings will amount to two concurrent suits running between the same parties, on the same issues. In that regard, this suit should be dismissed to pave way for the Court to determine all the issues in Petition 005 of 2021. ”

8. The applicant has referred this Court to the Supreme Court decision in John Florence Maritime Services Limited &another V Cabinet Secretary, Transport and Infrastructure & 3others, [2021] eKLR. It was held in that case that for res judicata to be invoked in a civil matter, the following elements must be demonstrated:a.There is a former judgment or order which was final;b.The judgment or order was on merit;c.The judgment or order was rendered by a court having jurisdiction over the subject matter and the parties; andd.There must be between the first and the second action identical parties, subject matter, and cause of action.

9. In light of my observations and the decision by the Supreme Court, I concur with the applicant that the decision of the Court on the issue was not on merit and the question of appointment of an arbitrator is therefore not res judicata.

Whether the Court ought to appoint an arbitrator to hear and determine the dispute before the parties. 10. For the avoidance of doubt, the arbitration clause, which is clause 44 in the Articles of Association in question reads as follows:“Whenever any differences arise between the Company on the one hand and any of the members, their executors, administrators, or assigns on the other hand, touching the true intent or construction, or the incidents, or consequences of these Articles, or of the statutes, or touching anything then or thereafter done, executed, omitted, or suffered in pursuance of these Articles, or of the statutes or touching any breach, or alleged breach, of these Articles, or any claim on account of any such breach or alleged breach of this, or otherwise relating to the premises, or to these Articles or to any statues affecting the Company, or to any of the affairs of the Company, every such difference shall be referred to the decision of any arbitrator, to be appointed by the parties in difference, or if they cannot agree upon a single arbitrator to the decision of two arbitrators, of whom one shall be appointed by each of the parties in difference.” (emphasis mine).

11. It is clear that the arbitral clause contemplates the appointment of a sole arbitrator agreed to by the parties, and if the parties cannot agree, then each party is at liberty to appoint their own arbitrator. The clause does not however provide a mechanism that parties can invoke in case they are unable to agree on the nomination of their preferred arbitrator.

12. I have carefully perused the evidence submitted by the parties. I note that the applicant issued a notification of the dispute on 4th June 2021, and proceeded to nominate a sole arbitrator. The applicant offered 3 options; Ms. Njeri Kariuki (Ms. Kariuki), Mr. Kamau Karori (Mr. Karori) and Mr. Kiragu Kimani (Mr. Kiragu) and requested the respondents to get back with their nominee sole arbitrator within 7 days.

13. By the lapse of the 7 days the respondents had not replied with their nominee prompting the letters of 16th June 2021 18th June 2021 and 25th June 2021, where the applicant informed the respondents of their proposal for the appointment of Ms. Njeri Kariuki as the applicant’s arbitrator as parties were unable to agree on the appointment of a sole arbitrator.

14. On 21st July 2021, well over 30 days since the notification of the dispute, the respondents proposed the appointment of Mr. Sanjeev Khagram (Mr. Khagram) as sole arbitrator and rejected the appointment of Ms. Kariuki as the sole arbitrator.From the correspondence on record, the applicants had by this time presumed that the respondents were not interested in appointing a sole arbitrator and had moved to the appointment of 2 arbitrators.

15. What followed subsequently was nominations and rejections of nominations by both parties. The applicant rejected the nomination of Mr. Khagram (as sole arbitrator) alleging that he was conflicted. The respondents also rejected appointment of Ms. Njeri Kariuki as sole arbitrator notwithstanding the fact that the applicant had stated that her nomination was not for sole arbitrator.

16. The applicant reiterated his nomination of Ms. Kariuki and the respondents nominated Ms. Patriciah Kiwanuka and Ms. Wanjiru Ngige, who were again rejected by the applicant on grounds that they lacked the requisite qualifications to act as arbitrators. The correspondence on record also shows that parties were also unable to agree on using the Chartered Institute of Arbitrators, Kenya Branch (the CIArb) as an appointing authority to unlock the impasse.

17. From my reading of section 12(3) of the Arbitration Act, it would seem that the parties disagreed on the appointment of the sole arbitrator as early as June 2021 when the respondents failed to nominate an arbitrator within the timelines. Consequently, the alternative clause for two arbitrators had kicked in. This is reiterated by the applicant who confirms that instead of nominating an arbitrator when asked to, the respondents invoked section 12(3)(c) of the Arbitration Act (the Act) which the applicant understood to mean that the respondents were not agreeable to the appointment of a sole arbitrator.

18. In fact, the respondent wrote to the applicant on 16th August 2021, reiterating that the nomination of Ms. Kariuki as nominee arbitrator for the applicant had been rejected and in the same letter confirmed Mr. Khagram as our client’s nominee. The discussions are also confirmed vide the letter dated 9th September 2022 from the respondents and 7th October 2022. It is now over 2 and a half years later and parties are yet to appoint the arbitrator(s).

19. Having laid out the background of the issues in this case, my understanding, and fortunately so, is that neither of the parties have sought to be excused from any of the terms of the contract.

20. As the arbitration clause provides the mode for the resolution of disputes, I find that I have no alternative but to give effect to it, in accordance with the contract to which the parties herein are party. I am also cognizant of the inherent power bestowed on the Court to make such orders or to give such directions as may be necessary to give give effect to the terms of the contract and facilitate the arbitration proceedings. In doing so, my humble view is that the Court would not be re-writing the terms of the said contract, as doing so would be inconsistent with the principle of party autonomy.

21. The Court recognizes that arbitration, as a mode of independent dispute resolution, is susceptible to certain drawbacks. Similarly, the conduct of the parties to the arbitration in some circumstances may hamper, prejudice or result in the failure of the arbitral proceedings. To avoid such lapses, the Arbitration Act empowers the Court to interfere in the arbitral proceeding whenever necessary to ensure that the arbitral proceeding is conducted in consonance with the intention of parties.

22. The scope of judicial intervention is of course subject to section 10 of the Act. Such need at the stage of appointment of arbitrator arises when the parties to the arbitration agreement fail to mutually appoint the arbitral tribunal, in this case occasioned by the failure to mutually agree on the arbitrators. In Leopard Rock Mico LimitedvCounty Government of Meru, Misc. Civil Application No. 24 of 2019, for example, the Court dealt with a dispute over the appointment of arbitrators. Mabeya J. expressed himself thus:“That since the parties did not concur on the appointment of a single arbitrator, the application is meritorious. Accordingly, I allow the application. I direct the Chairperson of the Chartered Arbitrators of Kenya to appoint a single arbitrator within 14 days of this order, to determine the dispute between the parties.”

23. Likewise, in Cubic Business SolutionsvSpectre International Limited, [2021] eKLR the court again expressed itself in the following words when faced with circumstances similar to those in the present case:“If an arbitrator was not appointed, the parties would be unable to give effect to the agreement between the said parties, that their preferred forum for resolution of disputes was arbitration.”

24. I note that this matter has taken an inordinately long time which is rather unfortunate as this delay is not the objective of arbitration proceedings. It is also unfortunate that the delay has been caused by the very persons whose interest it ought to be, to see that the matter proceeds in haste as was intended by the arbitration agreement.

25. In the absence of an appointment of the arbitrator by the applicant and a consequent application seeking to set aside such an appointment under section 12 of the Arbitration Act, the application may be termed as premature.

26. This Court has previously held, for instance in Magdalene M Mjomba & 3 OthersvInformation and Communications Technology Authority; Chairman Chartered Institute of Arbitrators (Interested Party), [2021] eKLR that:“This court does not have original jurisdiction in the appointment of an arbitrator where a party is in default. The Court only comes in after the party has made an appointment under section 12(4) of the Act and the party in default moves to set aside that appointment under Section 12 (5). Further, Section 12(6) and (7) provides that the High Court can only appoint a sole arbitrator after it has dealt with the application for setting aside which appointment can only be by consent of the parties or application by either party.”

27. I however note that this application is also brought under the provisions of Order 46 Rule 5 of the Civil Procedure Rules 2010. That Rule reads as follows:“(1)In any of the following cases, namely—(a)where the parties cannot agree within thirty days with respect to the appointment of an arbitrator…or(b)…….(c)…….(2)If, within seven clear days after such notice has been served or such further time as the court may in each case allow, no arbitrator or no umpire is appointed, as the case may be, the court may, on application by the party who gave the notice, and after giving the other party an opportunity of being heard, appoint an arbitrator or umpire, or make an order superseding the arbitration, and in such case shall proceed with the suit.”

28. The applicant referred to the case of Heritage Consultants Ltd V Permanent Secretary, Ministry of Regional Development, [2013] eKLR. Justice Havelock found that Order 46 rule 5(1) of the CPR gave the court the authority and jurisdiction to appoint an arbitrator where parties have been unable to agree on the appointment of an arbitrator and the applicant has filed an application under section 12 of the Arbitration Act.

29. The Court found that the provisions of Order 46 of the Civil Procedure Rules would kick in where the circumstances under section 12 of the Arbitration Act have not been exhausted. This position is also supported in Everett Aviation (Charter) Limited V Jubilee Insurance Company Limited, [2020] eKLR.

30. I shall adopt the reasoning in Heritage Consultants Ltd (supra) which I find sound. The parties herein have failed to agree on the arbitral tribunal, more than 30 days after the applicant’s advocate’s letter of 4th June 2021 which was a clear 7 days’ notice for the appointment of an arbitrator under Order 46 rule 5(1)(a).

31. Having heard the respondent as envisaged by rule 5(2), and by the principle of the independence of the arbitrator, the court, as an appointing authority under Order 46 rule 5 must engage in authoritative intervention following the parties’ inability to agree on an arbitrator in order to avert any such further delay and allow the parties to proceed with arbitration.

32. To this end, I direct that the Chairman of the Chartered Institute of Arbitrators, Kenya Branch will appoint a suitable arbitrator from amongst the Institute’s Members, within 14 days of the date hereof. The costs of this application will be in the costs of the arbitration.

DATED, SIGNED AND DELIVERED IN NAIROBI THIS 3RD DAY OF NOVEMBER 2023. F. MUGAMBIJUDGE