Suraya Property Group Limited v Njehu Gatabaki,Rachel Mwihaki Gatabaki, Muga Developers Limited,Suraya Sales Limited,I&M Bank Limited,Samuel M. Gatabaki,Nancy W. Gatabaki & Equity Bank Limited [2017] KEHC 10003 (KLR)

THE REPUBLIC OF KENYA

IN THE HIGH COURT OF KENYA AT NAIROBI

MILIMANI LAW COURTS

COMMERCIAL &ADMIRALTY DIVISION

MISC. CAUSE NO. 73 OF 2017

SURAYA PROPERTY GROUP LIMITED……...……..………….APPLICANT

VERSUS

HON. NJEHU GATABAKI……………..……….…...……..1STRESPONDENT

RACHEL MWIHAKI GATABAKI……………...…...……..2ND RESPONDENT

MUGA DEVELOPERS LIMITED………….……..………3RD RESPONDENT

SURAYA SALES LIMITED……………….….....…1ST INTERESTED PARTY

I&M BANK LIMITED…………………...............…2ND INTERESTED PARTY

DR. SAMUEL M. GATABAKI…………............….3RD INTERESTED PARTY

MRS. NANCY W. GATABAKI………….............…4TH INTERESTED PARTY

EQUITY BANK LIMITED……………................…5TH INTERESTED PARTY

RULING

[1]The Applicant instituted these proceedings by way of the Notice of Motion Application dated 23 February 2017 and filed herein on even date. The application was taken out under Sections 7 and 35 of the Arbitration Act, 1995 and Rule 7 of the Arbitration Rules, 1997. The Applicant thereby seeks the following orders:

[a] [Spent]

[b] That directions be issued as to whether service of this  application should be effected upon the 1st, 2nd, 3rd, 4th and 5th Interested Parties who did not take part in the arbitral proceedings   and no order was made either in their favour or against them;

[c] That pending the hearing and determination of the motion, a stay be issued against the enforcement of the Award published on 25 November 2016 in the arbitral proceedings before Mr. Kyalo Mbobu, Advocate;

[d] That the Award published on 25 November 2016 in the arbitral proceedings before Mr. Kyalo Mbobu, Advocatebe set    aside in entirety;

[e] That the costs of the application be provided for.

[2]The application was premised on the ground that the Applicantneither consented to HCCC NO. 719 of 2010: Muga Developers Limited vs. Hon Njehu Gatabaki and Rachel Gatabaki,being referred to arbitration nor did it participate in the arbitral process.The Application was supported by the affidavit of Peter Murayasworn on 23 February 2017,in which the deponent, as the Managing Director of the Applicant, averred that the 3rd Respondent herein, Muga Developers Limited, is a special purpose vehicle which was established to carry out development on L.R. No. 28223/2 measuring approximately 105 acres; and that the land is registered in the name of the 3rd Respondent. It was further averred that part a part of the 105 acres, being a parcel of land measuring 20 acres (hereinafter "the Suit Plot") is the subject of a Development Agreement dated 19 March 2009 between the Applicant and the 1st Respondent, Hon. Njehu Gatabaki; and that on diverse dates in the year 2010, the 1st and 2nd Respondents visited the Suit Plot and intimidated the Project Developer and the workers with a view of stopping the construction project, and it was on account of the intimidation that the 3rd Respondent filed HCCC No. 719 of 2010 (the First Suit).

[3]It was further the averment of the Applicant that upon being served with the Plaint in the First Suit, the 1st Respondent herein filed a Defence and Counterclaim in which the Applicant, Suraya Property Group Ltd and the 3rd Respondent, Muga Developers Ltd, are named as the 1stand 2nd Defendants, respectively; but that the Applicant was never served with the Defence & Counterclaim. Accordingly, the Applicant contends that it did not instruct any advocate to act on its behalf in the First Suit; and that upon perusal of the court file in respect of the First Suit, its Counsel, Mr. Ngatia, SC, found out that a Consent was made therein dated 19 January 2016to have the matter referred to arbitration, which Consent was executed by only three of the parties in the First Suit, namely: Nchogu, Omwanza & Nyasimi Advocates, representing Hon. Njehu Gatabaki, Miller & Co. Advocates, representing Muga Developers Limited, and Judy Thongori & Co. Advocates representing Rachel Mwihaki Gatabaki; and therefore that the Applicant was not a party to the reference.

[4]It was further the contention of the Applicant that he was never given any notice of the appointment of an arbitrator and was thereby deprived of its legal right to present its defence, yet in its application seeking to set aside he Consent Order in the First Suit dated 19 January 2016, Counsel for the 3rd Respondent erroneously referred to the Applicant as being the Applicant instead of Muga Developers Limited. It was the Applicant's deposition that at no time did it instruct Counsel to apply for the setting aside of the Consent Order, granted that it was not a party thereto in the first place. The Court nevertheless, in its Ruling of 14 February 2017,held that Counsel for the Applicant executed the Consent Order pursuant to instructions from the Applicant, hence the instant application for setting aside the Award.

[5] In response to the Application, the 1st Respondent filed a Replying Affidavit sworn by himself on 1 March 2017. The Respondent’s case is that in the present application, the Applicant is inviting the Court to sit on an appeal over the decision it delivered in the First Suit on 14 February 2017. The 1st Respondent avers that the issues raised in the present application were the same issues pleaded in an application dated 25 August 2016, and that the firm of Miller & Company Advocates had always represented Applicant in the arbitral proceedings. According to the 1st Respondent, the issues in the present application were determined by this Court in the aforesaid ruling of 14 February 2017, and that the Court should not encourage the Applicant's cunning conduct of pulling out of the arbitral proceedings and crying foul at the tail end thereof.

[6] The 3rd Respondent also responded to the present application by way of an affidavit sworn on 6 March 2017 by Mr. Peter Wena, an Advocate of the High Court of Kenya practising as such in the firm of Miller & Co. Advocates.Counsel averred therein that he had the personal conduct of HCCC No. 719 of 2010 on behalf of Muga Developers Limited. He further averred that the Court record indicated that the firm of Miller & Co. Advocates was instructed to act on behalf of Muga Developers Limited and that they did not enter any appearance on behalf of Suraya Property GroupLimitedas the latter had not been served with Summons to Enter Appearance in the Counterclaim. It was further averred by Mr. Wenathat he executed the Consent for the referral of HCCC No. 719 of 2010 to arbitration on behalf of Muga Developers Limited and not on behalf of Suraya Property Group Limited;adding thatat all material times their firm was acting only for the 3rd Respondent from whom they had received instructions. With reference to the Notice of Motion dated 25 August 2016 which sought to set aside the Consent Order filed in the First Suit, it was the averment of Mr. Wena that the same was filed on behalf of one applicant, namely Muga Developers Ltd; and that the referencetherein  to the deponent Peter Muraya,as the Chief Executive Officer of Suraya Property Limited was an inadvertent error occasioned by the fact that their firm represented Suraya Property Group Limited in several other cases.

[7]The 1st Respondent, in response to the affidavit of Mr. Wena, filed a Supplementary Affidavit sworn by himself on 8 March 2017,to which he annexed copies of several documents that had been filed in the First Suit, to indicate on the face of it that the firm of Miller & Company Advocateshas all along been acting on behalf of the Applicant alongside other parties.It was therefore the 1st Respondent’s contention that Mr. Wena's affidavit dated 6 March 2017 was a false declaration.

[8]Before the application could be heard, the 1st Respondent filed a Notice of Preliminary Objection dated 1 March 2017 on 2 March 2017, thereby giving notice that the 1st Respondent would at the hearing of the Notice of Motion dated 23 February 2017 raise a preliminary objection to be determined in limine that the motion ought to be struck out for the following reasons:

[a] That the application is contra Section 35 of the Arbitration Act.

[b] It is caught by the doctrine of collateral estoppel; alternatively, issue estoppel and cause of action estoppel.

[c] That the application is otherwise an abuse of the court  process and lacks any bona fides.

[9]The 2nd Respondent also filed a Notice of Preliminary Objection dated 3 March 2017 on the following grounds:

[a] Thatthe Application is res judicata on the basis that the issues raised are the same or substantially the same as those   argued before and determined by this Honourable Court in HCCC No. 719 of 2010 between the same parties.

[b] That the Application is therefore bad in law and an abuse of the Court process.

[c] That the Court has no jurisdiction to entertain the Application.

[10]The Preliminary Objection as raised by the 1st and 2nd Respondents was taken on 14 March 2017 by way of oral submissions.Counsel for the 1st Respondent submitted that their Preliminary Objection was based on two main issues; the doctrine of res judicata and the argument that the Applicant’s application was contrary to Section 35 of the Arbitration Act. On the issue of res judicata, it was his submission that theargument now raised by the Applicant that they did not participate in the arbitral process wasan issue that was raised and was dealt with by the Court in an earlier application in the First Suit, and was deliberated on at paragraph 32 on page 99 of the Court’s ruling in the Application. Counsel further submitted that, although at paragraphs 16 to 22 of the affidavit of Peter Muraya in support of the present application, the Applicant had averred that they had no Notice of the arbitration and that Miller & Company Advocates a only acted for Muga Developers Ltd, there was a letter to Peter Muraya as the CEO of Suraya Property Group Limited from Miller & Co.Advocates informing him about the Consent and the arbitral proceedings. Counsel for the 2nd Respondent associated herself fully with the submissions made on behalf of the 1st Respondent on the issue of res judicata.

[11]In response to the preliminary objection, Counsel for the Applicant noted that the Respondents in raising the issue of res judicata did not indicate to the Court that the application dated 25 August 2016 was meant to set aside the award or that the award was published 3 months after the said application on 25 November 2016. For those reasons, it was Counsel’s submission that the present application was not res judicata. He further submitted that the present application was brought under section 35 of the Arbitration Act was therefore valid. He reiterated the depositions in the supporting affidavit to the effect that the Applicant sought to have the award set aside for the reason that it was never served with the pleadings and therefore did not sign the Consent Order by which the dispute was referred to arbitration.

[12] It was also Counsel’s submission that the ruling of this Court inthe First suit dated 14 February 2017 was in respect of an application for interim measures which was allowed and an application for setting aside of the Consent Order of 20 January 2016 which was denied. He submitted that in the said ruling there was no mention of the award and therefore posited that there is no decision thus far, that has determined the validity of the award as it stands. According to the Applicant, the Consent Orderwas executed by Miller & Company Advocates on behalf of Muga Developers Limited as opposed to Suraya Property Group Limited; and that in any event the award has never been challenged under section 35 of the Arbitration Actto attract the application of the res judicata doctrine. The Court was urged to find that  the issues raised by the Respondents are issues that arose prior to the publication of the award and that even if Suraya Property Group Limited had participated in the arbitral proceedings or prior proceedings, they were still entitled to challenge the award under Section 35 of the Arbitration Act.

[13] Having carefully considered the pleadings and submissions by Counsel for the respective parties, the main issue for determination is whether the present application is res judicata, and in this connection Section 7 of the Civil Procedure Actin the following terms:

No court shall try any suit or issue in which the matter directly and substantially in issue has been directly and substantially in issue in a former suit between the same parties, or between parties under whom they or any of them claim, litigating under the same title, in a court competent to try such  subsequent suit or the suit in which such issue has been subsequently raised, and has been heard and finally decided  by such court.”

[14]The above provision was well explicated by the Court of Appeal in the case ofUhuru Highway Development Limited v Central Bank of Kenya & 2 Others [1996] eKLR where the Court of Appeal ruled that once an application for injunction within a suit has been heard and determined under the principles laid down in Giella vs. Cassman Brown, a similar application cannot be brought unless there are new facts, not brought before the court earlier after the exercise of due diligence. Thus, for the plea of res judicata to come into play, the following prerequisites must be shown:

i. The existence of a previous suit in which the matter was in issue;

ii. That parties were the same or litigating under the same title;

iii. That a competent court heard and determined the matter in issue;

iv. That the issue has been raised once again in a fresh suit.

[15]The 1st and 2nd Respondents have placed reliance on the ruling of this Court in HCCC No. 719 of 2010 dated 14 February 2017 in affirming their position that the present application is res judicata. The ruling therein was in respect of two Notice of Motion applications; the first one dated 15 August 2016 filed by Hon. Njehu Gatabakiand the second one dated 25 August 2016 by Suraya Property Group Limited. According to the record, Suraya Property Group Limited, the Applicant herein, had filed the application dated 25 August 2016 seeking for orders that the Court be pleased to set aside the Consent Order entered into on 19 January 2016 and terminate the arbitral proceedings. The Applicant’s argument was that the person that gave their Advocates the instructions to have the dispute referred to arbitration had no authority to do so and therefore the said instructions were null and void.The Court in the said ruling found that the Consent Order by which the dispute was referred to arbitration was validly made.

[16] In the present application, in which the Applicant seeks the setting aside of the arbitral award, the Consent Order which was the bone of contention in the previous application in HCCC No. 719 of 2010,has been citedas the main ground in support of the application.The applicant avers that it neither consented to the First Suit being referred to arbitration nor did he participate in the arbitral process. It is however instructive that other than the Consent Order, the Applicant contends that the Award violates Section 35 of the Arbitration Act.

[17] Whereas the Court has made definitive findings in the First Suit in respect of the Consent Order, as to whether or not it was validly entered into on behalf of the Applicant herein, there is no gainsaying that the application dated 25 August 2016 had nothing to do with the Arbitral Award. Indeed, the Award was not published until 25 November 2016; such that this is indeed the first application in respect thereof. Under those circumstances, the plea of res judicata does not avail the Respondents, for the, the Applicant is entitled to challenge the award in the manner provided for under Section 35 of the Arbitration Act. The Applicant contends that the Arbitrator dealt with issues which were not the subject of the dispute referred to arbitration and that the award also contained decisions on matters beyond the scope of the issues in dispute. These contentions are within the confines of the grounds for setting aside an award as set out under section 35 of the Arbitration Act. Accordingly, it cannot be said that the issues raised in the present application are the very issues that were directly and substantially in issue in the former application in HCCC No. 719 of 2010.

[18] The foregoing being my view of the matter, I would dismiss the preliminary objection raised by the Respondents and direct that the application be proceeded with for hearing and determination on merits.

It is so ordered

DATED, SIGNED AND DELIVERED AT NAIROBI THIS 7TH DAY OF SEPTEMBER, 2017

OLGA SEWE

JUDGE