Republic v Institute of Certified Investment and Financial Analysis; Andre Desimone (Exparte) [2022] KEHC 13553 (KLR)

Republic v Institute of Certified Investment and Financial Analysis; Andre Desimone (Exparte) (Miscellaneous Application E039 of 2020) [2022] KEHC 13553 (KLR) (Judicial Review) (15 September 2022) (Judgment)

Neutral citation: [2022] KEHC 13553 (KLR)

Republic of Kenya

In the High Court at Nairobi (Milimani Law Courts)

Judicial Review

Miscellaneous Application E039 of 2020

AK Ndung'u, J

September 15, 2022

Between

Republic

Applicant

and

Institute of Certified Investment and Financial Analysis

Respondent

and

Andre Desimone

Exparte

Judgment

1. The motion before court is dated September 17, 2020 and is filed under article 47 of theConstitution of Kenya, 2010, order 53 rule 3(1)(2) of the Civil Procedure Rules and sections 4, 7, 8, 9 and 11 of the Fair Administrative Action Act. The motion seeks the following prayers:i.An order of prohibition do issue against the respondent prohibiting them by their servants, agents and/ or employees from taking any steps in enforcing the respondent’s decision contained in the notice of disciplinary action dated July 15, 2020. ii.An order of certiorari do issue against the respondent to quash the decision of the respondent contained in the notice of disciplinary action dated July 15, 2020. iii.A declaration that the respondent has acted contrary to article 47 and 50 of theConstitution of Kenya.iv.Any other order or further relief that this honourable court may deem fit to grant.v.The costs of this application.

2. According to the verifying affidavit sworn by Andre Desimone in support of the application, on or about February 20, 2019 while working as the CEO and Executive Director at Kestrel Capital (EA), the Capital Markets Authority (CMA) commenced investigations against him on grounds that he had contravened the provisions of section 32B (1)(b) of the Capital Markets Act cap 485A (CMA Act) by disclosing material price sensitive nonpublic information (MNPI) relating to the intended takeover of KenolKobil to two of his authorized agents who, according to him were subject to confidentiality agreements.

3. The CMA issued the ex parte applicant with a notice to show cause alleging that he had engaged in insider trading. It was alleged that he had disclosed the intended takeover of KenolKobil Plc at a price of Kshs 23 per share to Mr Aly Khan Satchu and Kunal Somchand Bid. Mr Aly Khan Satch is said to have relied on the said information to encourage and/or advice his clients to deal in 56,995,000 shares of KenolKobil Plc. His clients were likely to gain Kshs 457,786,600 from the transaction.

4. The ex parte applicant was summoned by CMA on May 27, 2019 to appear before its ad hoc committee for a hearing regarding an inquiry into the alleged insider trading allegation. He appeared on June 10, 2019, accompanied by counsel. The ad hoc Committee, having determined that the ex parte applicant was culpable of insider trading imposed several administrative sanctions which included his disqualification from holding office as a key officer or director of a public listed company and/ or issuer, licensee or in any other capacity in an approved institution of CMA for a period of one (1) year from the date of the enforcement notification and a financial penalty of two million five hundred thousand shillings (Kshs 2,500,000).

5. Although being on an extended family leave outside the country owing to the extreme negative publicity of the said investigations and the conclusion thereof, the ex parte applicant immediately cleared the financial penalty upon receiving the enforcement action on July 5, 2019. Upon his return to Kenya the ex parte applicant lodged an appeal against the decision by the CMA. The appeal is yet to be heard and determined for the reason that the CMA’s tribunal, that is tasked with hearing appeals from any decisions rendered by its ad hoc committee is not fully constituted.

6. Subsequently, the respondent’s council issued him with notice to show cause letters dated 7th and October 30, 2019, in which yet again it was alleged that the respondent had established that the ex parte applicant was guilty of insider trading as he was an advisor of Wells Petroleum Ltd and in possession of material non-public price sensitive information (MNPI) of the sale of the 24. 99% Wells shareholding in KenolKobil to Rubis Energies SAS (Rubis). Further that he was aware of the impending takeover of KenolKobil by Rubis.

7. The ex parte applicant was said to have been in possession of MNPI by October 9, 2018 when the terms of the sale of block shares held by Wells Petroleum were agreed upon with Rubis and communicated to the ex parte applicant by the Rubis CEO. In addition, that he was also aware of the terms of the final share purchase agreement between Rubis lawyers and Wells Petroleum Limited.

8. The respondent also went ahead to state that at the time, Mr Kunal Somchand Bid and Mr Aly Khan Satchu were stockbroking agents of Kestrel Capital during the material time. The ex parte applicant was accused of disclosing the said information to Mr Bid and Mr Satchu prior to the takeover announcement by Rubis on October 24, 2018. The two then used the insider information to deal in the price affected shares by advising and/or buying on behalf of their various clients approximately 59 million KenolKobil shares in the week before the takeover announcement.

9. Pursuant to the council’s consideration of the matter, it tasked its disciplinary committee to handle the said allegations and on November 11, 2019, the respondent’s disciplinary committee invited the ex parte applicant’s legal representative to the inquiry to make oral submissions in respect of the allegations against the applicant. On November 25, 2019, the ex parte applicant’s legal representative submitted his written responses to the inquiry into the applicant’s conduct.

10. On July 15, 2020, the respondent found the ex parte applicant culpable for professional misconduct in his duties and responsibilities as a registered Investment and Financial Analyst, pursuant to the provisions of section 26 (1) (f) (h) (n) of the Investment and Financial Analysts Act. Particularly, they found as follows. The disciplinary committee directed the ex parte applicant to pay costs of the inquiry undertaken by the disciplinary committee assessed at Kshs 100,000 a fine to the tune of Kshs 1,000,000 and the cancellation of his membership with the respondent for a period of ten (10) years. The respondent instructed that the payment of Kshs 1,100,000 be within fourteen (14) days from the date of the disciplinary notice.

11. It is the ex parte applicant’s case that the said proceedings conducted by the respondent were unlawful and procedurally unfair and rife with bias in contravention of article 47 and 50 of theConstitution.

12. The ex parte applicant in addition to being an investment advisor, was also a member of the Institute of Certified Investment and Financial Analysts. Further, it was the ex parte applicant’s case that the state exercises its sovereign power through various persons and institutions which include the judiciary and independent tribunals. Further that the CMA is represented on both the Council and disciplinary committee of the respondent.

13. The respondent's Committee according to the ex parteapplicant was sitting as a quasi-judicial tribunal during the disciplinary proceedings regarding his membership with ICIFA and it was therefore enjoined to act within the confines of article 47 and 50 of the Constitution. The cases of Judicial Service Commission v Mbalu Mutava & another [2014] eKLR and Dry Associates Ltd v Capital Markets Authority & another, [2012] eKLR were cited to buttress this argument. The State is said to have already probed, heard the matter, and found the ex parte applicant culpable and even collected a fine of Kshs 2,500,000/= in addition to disqualifying him from the industry for a period of one (1) year.

14. The case of Pastoli v Kabale District Local Government Council and others[2008] 2 EA 300 was cited on the grounds for judicial review. The ex parte applicant contended that pursuant to section 18E (2) of the CMA Act an appeal from a decision of the committee lies to the CMA who may modify, affirm or set aside the decision.

15. It is the ex parte applicant’s case that the decision by the respondent to commence, undertake and conclude the investigations on the allegations against him while the respondent knew that these same allegations had been heard and concluded before the CMA is indicative of bias, irrationality and procedural impropriety and as such these judicial review proceedings must succeed.

16. On the issue of bias, the case of House of Lords in Gillies v Secretary of State for Works and Pensions was cited. It is contended that the respondent’s disciplinary council acted as an investigator, prosecutor, judge and jury. This according to the ex parte applicant was not only procedurally improper, but that it also implied bias. On the principle of double jeopardy, the case of R (on the Application of Coke-Wallis) Appellant v Institute of Chatered Accountants in England and Wales [2011] UKSC 1 was cited.

17. The respondent's disciplinary proceedings are faulted for not being lawful, reasonable and procedurally fair as contemplated under article 47 and 50 of the Constitution. The same according to the ex parte applicant amounted to double jeopardy and were barred by the principle of cause of action estoppel. In support of this argument the case of R (on the Application of Coke-Wallis) Appellant v Institute of Chartered Accountants supra was cited.

18. It is the ex parte applicant’s case that the proceedings before the disciplinary committee are criminal in nature pursuant to rule 10 of the 4th schedule of the Investment and Financial Analysts Act.

19. Further that as was held in the cases of Republic v National Environment Management Authority [2006] KLR existence of an alternative remedy is not a bar to commencement of Judicial Review proceedings as the court does not deal with the impugned decision but the decision-making process.

Respondent’s Case 20. The respondent filed a replying affidavit sworn by Diana Muriuki- Maina the Chief Executive Officer on November 4, 2020. It is the Respondent’s case that ICIFA is the only body authorized by law to register and grant practicing certificates to Certified Investment and Financial Analysts (CIFAs) in Kenya both in private and public practice. Further that the Institute drew its disciplinary powers from the Act as a body mandated to regulate the professional practice and standing of financial analysts in Kenya.

21. It is the respondent’s case that section 28 of the Act provides that an inquiry into the conduct of a registered member may be conducted by the Committee. Further that the disciplinary procedure to be applied in respect of a member who is believed to be guilty of professional misconduct is provided under section 1 to 5 of the fourth schedule to the Act. In addition, that the disciplinary committee has powers under section 29 (1) to submit to the respondent's Council a report of the inquiry which may recommend inter alia the fining and suspension of the registered member from practice for a specified period.

22. The Disciplinary Committee according to the deponent was comprised of the following persons:No. Name Designation

1. FA Nguru Wachira Chairman

2. FA Job Kihumba Member of ICIFA

3. FA Elizabeth Mwai Member of ICIFA

4. Mr Emmanuel Bitta Member Representing the Attorney General

5. FA Abubakar Hassan Member Representing the Capital Markets Authority

6. FA Obare Nyaega Member Representing the Institute of Certified Secretaries

FA Dr Stephen Ikikii Member Representing the National Treasury

8. FIHRM Odhiambo Ooko Member Representing the Institute of Human Resource and Management

9. FA Diana Muriuki Secretary

20. The respondent urged that upon listening to the ex parte applicant's advocate and considering both his oral and written submissions the disciplinary committee noted that it does not sit as a tribunal or a court but as a professional body, that its proceedings are administrative and not civil nor criminal proceedings; and finally that its inquiry into the allegations of professional misconduct is inquisitorial in nature.

21. It was contended that the ex parte applicant had, by dint of section 29 (3) of the Act, the option to appeal by way of review to the Council within sixty (60) days upon which the Council could direct the Disciplinary Committee to reopen the inquiry with such directions as are necessary to specify the aspects of the matters it requires the Disciplinary Committee to consider.

22. The ex parte applicant failed to pursue this option but, in the event, the ex parte applicant had the limited right to appeal to the High Court pursuant to the provisions of section 30 of the Act. The said ex parte applicant had therefore an alternative remedy which he failed to invoke.

23. The respondent further argued that the disciplinary committee having made a recommendation to the Council became functus officio in the absence of any appeal and there is no residual action before the Council or the disciplinary committee in respect of the proceedings which can be judicially reviewed.

24. The ex parte applicant is also faulted for failing to show any violation by the respondent of the process for disciplinary action under the Act to warrant any orders of a judicial review nature. It is the respondent's contention that the applicant has not exhausted the administrative remedies available to him in challenging the decision of its disciplinary committee.

25. On the principle of double jeopardy, the respondent contended that in considering the same, one must look at the relevant process which has to be undertaken by the two distinct institutions established under their respective legislation. The power granted to the CMA under the Capital Markets Act (cap 485A) is to regulate the transactional licenses and those participating in the capital markets as therein derived while the respondent is concerned with the examination, registration, certification and discipline of certified investment and financial analysts. Further that the said principle is a criminal law principle whose foundation is article 50(2) which offers legal protection against one being prosecuted or sentenced twice.

26. On the exhaustion of statutory remedies, section 9 (2) of the Fair Administrative Action Act, 2015 and the cases Speaker of National Assembly v James Njenga Karume [1992] eKLR and Geoffrey Muthinja & another v Samuel Muguna Henry & 1756 others [2015] eKLR were cited.

Analysis and Determination 27. I have carefully considered the pleadings, the affidavit evidence, the learned submissions by counsel, case law cited and the applicable law. The issues for determination crystalize as follows;a.Whether the notice of motion dated September 17, 2020 offends the doctrine of exhaustion of remedies.b.Whether the respondent acted within its jurisdiction in instituting the inquiry into the professional misconduct of the applicant.c.Whether the inquiry offended the principle of double jeopardy.d.Whether the applicant was prejudiced by the representation of CMA in the disciplinary committee.e.Whether the ex parte applicant has made out a case to warrant the issuance of orders of judicial review sought.

a) Whether The Notice Of Motion Dated September 17, 2020 Offends The Doctrine Of Exhaustion Of Remedies 28. This issues goes to the jurisdiction of the court. It is trite law that it must be dealt with at the earliest as without jurisdiction the court should not move a single step. It is a truism that jurisdiction is everything and is what gives a court or a tribunal the power, authority and legitimacy to entertain any matter before it. The Court of Appeal in Phoenix ofEAAssurance Company Limited v SM Thiga t/a Newspaper Service [2019] eKLR expressed itself on the issue as follows:“In common English parlance, ‘jurisdiction’ denotes the authority or power to hear and determine judicial disputes, or to even take cognizance of the same. This definition clearly shows that before a court can be seized of a matter, it must satisfy itself that it has authority to hear it and make a determination. If a court therefore proceeds to hear a dispute without jurisdiction, then the result will be a nullity ab initio and any determination made by such court will be amenable to being set aside ex debito justitiae. It is for this reason that this court has to deal with this appeal first as the result directly impacts Civil Appeal No 6 of 2018 which is related to this one. We shall advert to this issue later. In the meantime, it is important to put this appeal in context’’.

29. Section 29(3) of the Investment and Financial Analysts Act No 13 of 2015 provides that an appeal lies against the decision of the council within sixty days of notification of the disciplinary action. Section 30 of the said Act provides for a limited appeal to the High Court by an aggrieved party. From the disclosed facts, the applicant who was duly notified of his right of appeal as provided in law did not lodge an appeal as envisaged in law but instead filed these judicial review proceedings vide the notice of motion dated September 17, 2020

30. There exists no doubt from the text of the law that this court has jurisdiction to review impugned administrative action by way of judicial review. However, section 9(2) of the FAAA places a caveat to the exercise of this jurisdiction. The court shall not review an administrative action or decision under the FAAA unless the mechanisms including internal mechanisms for appeal or review and all remedies available under any other written law are first exhausted. Courts have had occasion to consider the application of the doctrine of exhaustion espoused under section 9(2) of the FAAA. In the case of Republic v Commissioner of Cooperative Development & anotherex partePaul Manwa & others JR Application No 52 of 2021 the court stated;“Should the applicants have appealed to the minister before approaching this court? It is mandatory for a party to exhaust any alternative mechanism for dispute resolution before approaching the court. Section 9 of the FAAA is couched in mandatory terms. Majanja J in Misc Civil App No 139 of 2014, Vania Investments Pool limited v Capital market Authority and others (a decision upheld on appeal in Civil Appeal No 92 of 2014) at para 37 stated;“In my view, the tribunal ought to have been the first port of call. The applicant argues that the Tribunal is not quorate but I think there is nothing that prevented it from filing his appeal within the time provided by the Act. In the event the matter could not be dealt with the applicant would be at liberty to seek appropriate relief from this court. Permitting the matter to proceed to substantive hearing would be to impose on the court the mandate of the tribunal contrary to the general principle I have cited………….‘I am in agreement with the interested party’s submission that where there is an internal dispute mechanisms provided, the court ought to exercise its jurisdiction with utmost care so as to avoid usurping the powers of the body vested with that mandate.”

31. In Speaker of the National Assembly v James Njenga Karume [1992] eKLR the court of appeal put it succinctly thus;“In our view, there is considerable merit in the submission that where there is a clear procedure for the redress of any particular grievance prescribed by theConstitution or an Act of Parliament, that procedure should be strictly followed. We observe without expressing a concluded view that order 53 of the Civil Procedure Rulescannot oust clear constitutional provisions."

32. Section 9(4) of the Fair Administrative Action Act provides that, notwithstanding the requirement under section 9(2) of the Act, the High Court or a subordinate court, may in exceptional circumstances and on application by the applicant, exempt the person from the obligation to exhaust any remedy if the court considers such exemption to be in the interest of justice.

34. The exemption envisaged above shall be upon application by the aggrieved party. The onus is on the applicant to demonstrate that such a remedy is not available and effective.

35. By sidestepping the provisions for an appeal under section 29(3) and 30 of the Investment and Financial Analysts Act and filing the current judicial review proceedings, the applicant fell a foul section 9 of the FAAA. There is no evidence of an exemption having been applied for and granted. The failure to exhaust the remedy available thus divests this court of jurisdiction by dint of section 9(2) of the FAAA.

36. Where a court has no jurisdiction, it has no authority to adjudicate over the matter before it. As held by the Supreme Court in Samuel Kamau Macharia & another v Kenya Commercial Bank Limited & 2 others [2012] eKLR ;“A court's jurisdiction flows from either theConstitution or legislation or both. Thus, a court of law can only exercise jurisdiction as conferred by theConstitution or other written law. It cannot arrogate to itself jurisdiction exceeding that which is conferred upon it by law’’.

37. In the end, I find and hold that the application before the court is improperly so and flouts section 9(2) of the Fair Administrative Action Act. The applicant ought to have exhausted the available legal mechanisms for resolution of the dispute before resorting to the court for redress. The court is thus divested of jurisdiction and cannot therefore move a step further in the matter.

38. The above finding determines the application and I do not find it necessary to delve into the other issues set out for determination.

39. With the result that I find the notice of motion dated September 17, 2020 without merit. The same is dismissed with costs.

DATED SIGNED AND DELIVERED THIS 15TH DAY OF SEPTEMBER, 2022……………………AK NDUNGUJUDGE