Simba Corporation Limited v Caetano Formula East Africa, SA & another [2022] KEHC 172 (KLR)

Simba Corporation Limited v Caetano Formula East Africa, SA & another (Commercial Civil Case E049 of 2019) [2022] KEHC 172 (KLR) (Commercial and Tax) (8 March 2022) (Ruling)

Neutral citation number: [2022] KEHC 172 (KLR)

Republic of Kenya

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

Commercial Civil Case E049 of 2019

DAS Majanja, J

March 8, 2022

Between

Simba Corporation Limited

Plaintiff

and

Caetano Formula East Africa, SA

1st Defendant

Simba Caetano Formula Limited

2nd Defendant

Ruling

1. The court is called upon to determine the 2nd Defendant’s application dated 25th August 2021 made under section 6 of the Arbitration Act, 1996 seeking an order that these proceedings be stayed pending the ongoing arbitral proceedings before the Tribunal chaired by Mr Arthur Igeria, FCIArb. The application is supported by the affidavit and supplementary affidavit of its Senior Legal Officer, Grace Masaki, sworn on 25th August 2021 and 15th December 2021 respectively. The 1st Defendant opposes the application through the affidavit sworn by Sandra Peneda and Sergio Ribiero sworn on 21st October 2021. The Plaintiff did not participate in the application. The 1st and 2nd Defendant canvassed the application by written submissions.

2. Before I proceed to deal with the matters in issue, it is important to set out a brief background of the matter. The Plaintiff (“Simba Corp”) and the 1st Defendant (“Caetano”) are equal shareholders of the 2nd Defendant (“Simba Caetano”) pursuant to a tripartite Shareholders Agreement dated 9th June 2014 (“The Shareholders Agreement”). Simba Caetano is in the business of selling, distributing and providing aftersales service of Renault vehicles and providing related and ancillary services in Kenya which business relationship was consummated when Caetano and Simba Caetano entered into a Distribution Agreement in June 2014 (“the Distribution Agreement”) where Simba Caetano was granted non-exclusive rights as Caetano’s distributor.

3. On 19th February 2019, Caetano wrote to Simba Caetano expressing its intention not to renew the Distribution Agreement. By a letter dated 26th March 2019, Simba Corp wrote to Caetano and declared a dispute pursuant to Clause 20 of the Shareholders Agreement, which dispute was referred to arbitration before Mr. Arthur K. Igeria, FCIArb (“the Arbitrator”). In the arbitration, Caetano filed a Notice of Motion dated 4th September 2019 under section 17 of the Arbitration Act challenging the jurisdiction of the Arbitrator to entertain Simba Corp’s claim. Even though Simba Corp had sought to file an application seeking interim orders of protection, it was agreed that this application could only be heard after the Arbitrator’s determination of the issue of jurisdiction.

4. After hearing Simba Corp’s and Caetano’s arguments, the Arbitrator published the first Interim Award on 16th April 2020. In the award, the Arbitrator framed three issues for determination. First, whether the Arbitrator lacked jurisdiction to hear and determine the dispute between the parties, second whether the Arbitrator was to find that the reference to arbitration of any dispute arising under the Shareholders Agreement is premature and whether the Arbitrator was to strike out the purported Statement of Claim on the ground that it was lodged prematurely without the requisite directions having been issued by the Arbitrator.

5. On the issue of jurisdiction, the Arbitrator found that the arbitration clause contained in the Distribution Agreement provides that disputes arising under it are to be determined in Portugal under Portuguese law and that Simba Corp did not dispute this, therefore, he held that he did not have jurisdiction to hear and determine any dispute arising out of the Distribution Agreement. Further, that Simba Corp is not a party to the Distribution Agreement and it is impossible for a dispute to arise between it and Caetano under the Distribution Agreement. However, the Arbitrator found that he had jurisdiction to entertain Simba Corp’s claim arising out of the Shareholders Agreement because there is an arbitration clause in the Shareholders Agreement and a dispute had arisen between the parties.

6. The Arbitrator’s further held that the reference to arbitration of the dispute arising out of the Shareholders Agreement was not premature hence the statement of claim was to remain pending issuance of directions by the Arbitrator. Simba Caetano also filed an application dated 8th May 2020 seeking to be joined to the arbitration proceedings as an interested party. The Arbitrator allowed the application when he published the second Interim Award on 26th February 2021.

7. In the intervening period, Caetano also filed a suit, HC Misc. Civil Application No. E641 of 2020; Caetano Formula East Africa SA v. Simba Corporation and Simba Caetano Formula Ltd where it sought, inter alia, orders for the appointment of an auditor to inspect Simba Caetano’s affairs. It also sought to refer the matter to arbitration and stay the said proceedings. The court, in its ruling dated 2nd June 2020, allowed Simba Corp’s application and the dispute between Caetano and Simba Corp arising out of the Shareholders Agreement was referred to arbitration and Caetano’s application and all further proceedings were stayed pending conclusion of the arbitration proceedings.

8. I have gone through the application, deposition and submissions, I find that the main issue for determination is whether the dispute is to be referred to arbitration and these proceedings stayed pending hearing and determination of the arbitral proceedings before the Arbitrator.

9. Under section 6(1)(a) and (b) of the Arbitration Act, the court may decline to refer a matter to arbitration only when the arbitration agreement is null and void, inoperative or incapable of being performed; or there is not in fact any dispute between the parties with regard to the matters agreed to be referred to arbitration (see Niazsons (K) Ltd v China Road & Bridge Corporation Kenya NRB CA Civil Appeal No. 157 of 2000 [2001] eKLR).

10. Caetano’s position is that the proceedings before the Arbitrator as declared by Simba Corp relate to a dispute arising from the Shareholders Agreement and not the Distribution Agreement. It points out that this is evident from the Notice of declaration of dispute dated 26th March 2019 where Simba Corp declared a dispute under Clause 20 of the Shareholders Agreement, the Arbitrator’s Interim Awards dated 16th April 2020 and 26th February 2021 and the court’s ruling dated 2nd June 2020 in HC Misc. Civil Application No. E641 of 2020. It insists that the dispute before this Court as set out in its Notice of Motion dated 17th June 2020 does not arise from the Shareholders Agreement but from the Distribution Agreement.

11. Caetano adds that the Arbitrator has already ruled it has no jurisdiction to hear disputes arising from the Distribution Agreement in the Interim Award dated 16th April 2020 and that in the absence of an Arbitration Agreement between the parties in the Distribution Agreement, the Arbitrator would have no jurisdiction to hear and determine the proceedings before this Court as they relate to the Distribution Agreement. It therefore submits that Simba Caetano’s application does not meet the legal threshold under section 6 of the Arbitration Act.

12. In dealing with this matter, it must be emphasized that arbitration is a consensual process and in the absence of an agreement, the court will not intervene in disputes in the manner contemplated by the Arbitration Act. I am therefore constrained to agree with Caetano. The dispute herein relates to the Distribution Agreement as can be seen from the orders sought in Simba Corp’s originating pleadings. Caetano has averred and submitted that the Distribution Agreement does not include an arbitration clause upon which an order of stay or proceedings can be granted within the meaning of section 6 of the Arbitration Act above as sought by Simba Caetano. Article 24 of the Distribution Agreement provides that “Any dispute arising in connection with the performance of this Agreement, its content and/or interpretation or any dealings between the DISTRIBUTOR and CAETANO, that cannot be resolved on an amicable basis, shall be submitted to Portuguese courts and shall take place in Oporto, Portugal. Should several versions of the Agreement exist in different languages, the Agreement drafted in the English language shall be the only binding version”.

13. Simba Caetano wishes to place the dispute between the parties before the Arbitrator in the ongoing arbitral proceedings but Article 24 of the Distribution Agreement is a dispute resolution clause by which the parties have agreed to submit any dispute to Portuguese courts. The court cannot re-write the parties contact by imposing on them another mode of dispute resolution.

14. The 2nd Defendant’s application dated 25th August 2021 lacks merit. It is dismissed with costs to the 1st Defendant.

SIGNED AT NAIROBID. S. MAJANJAJUDGEDATEDANDDELIVEREDATNAIROBITHIS8THDAY OF MARCH 2022. A. MABEYAJUDGEMr Change instructed by Arwa and Change Advocates for the Plaintiff.Ms Weru instructed by Iseme, Kamau and Maema Advocates for the 1st Defendant.Mr Musyoka instructed by H. Kago and Company Advocates for the 2nd Defendant.