1. I have considered the Chamber Summons Application dated 18th August, 2023 together with the supporting affidavit sworn on even date and the replying affidavit sworn in opposition on 3rd September, 2023, together with the rival submissions made by the parties, and applicable law.
2. The Applicant seeks interim measures of protection to preserve the subject matter of the pending arbitration by restraining the 1st Respondent from transferring legal and/or beneficial ownership of his shareholding in the 2nd Respondent (“the Company”).
3. In support of the above, the applicant’s primary submission was that the dispute between the parties is governed by an arbitration agreement pursuant to a shareholder’s deed dated 12th May 2008 (“the Deed”). Clause 11 of the Deed containing the said agreement was invoked by the 1st respondent, and the parties are presently engaged in arbitration.
4. The applicant submitted that the 1st respondent has threatened unilateral sale of his shareholding in the Company unless the applicant offers to purchase his entire shareholding at a fixed price within a period of 30 days. Additionally, the applicant contended that the 1st respondent has been inviting offers from 3rd parties for the purchase of Company properties while issues relating to the same are presently before the Arbitrator.
5. The applicant submitted that the intended sale of Company property and shares as stated above would undermine the arbitration because the subject matter will have changed ownership. Accordingly, the new shareholder would not be bound to the terms of the Deed, thus rendering the arbitration an academic exercise.
6. In opposition to the application, the respondent submitted that the Company’s Articles of Association does not contain an arbitration agreement. Further, that there is no pending dispute relating to the sale and transfer of shares in the Company between the parties.
7. He contended that the e mail relied upon by the applicant as proof of the respondent’s intention to sell his shares was not admissible as the same is marked “without prejudice” and ought to be disregarded by this court.
8. The Respondent submitted that Section 36 of the Companies Act provides that the sale and transfer of shares is a matter exclusively provided for by the Company’s Articles of Association. He directed the court’s attention to Clauses 15-38 of the said Articles, which govern call for shares; transfer of shares; and transmission respectively, and argued that the Deed only governs disposal of shares by Administrators of the Estate, which does not apply in the present matter.
9. In sum, he submitted that the applicant had not met the threshold for granting the measure of protection sought.
10. I have considered the ground on the face of the application together with the further grounds in the supporting affidavit sworn on 18th August, 2023, and the replying affidavit sworn in opposition dated 3rd September, 2023, the submissions of the parties and the applicable law.
11. The starting point is that where parties have agreed to submit or refer a matter to arbitration, a court of law ought to support that process, and allow the arbitral tribunal to carry out its mandate. Further, to the above, Section 7(1) of the Arbitration Act, 1995 (“the Act’), provides that:
It is not incompatible with an arbitration agreement for a party to request from the High Court, before or during arbitral proceedings, an interim measure of protection and for the High Court to grant that measure.
12. In the present matter, the applicant has called upon this court to protect the subject matter of the arbitration (shares and property), which he claims is presently under threat of being disposed of. The respondent, on the other hand, argues that the said sale and transfer of shares and property do not fall within the scope of the arbitration agreement.
13. The criteria upon which such an interim measure of protection ought to be granted is set out in the decision of the Court of Appeal in Safaricom Limited v Ocean View Beach Hotel Limited & 2 others [2010] eKLR (No 1 LOA), as follows:
a) The existence of an arbitration agreement.
b) Whether the subject matter of arbitration is under threat.
c) In the special circumstances which is the appropriate measure of protection after an assessment of the merits of the application?
d) For what period must the measure be given especially if requested for before the commencement of the arbitration so as to avoid encroaching on the tribunal’s decision making power as intended by the parties?
14. Guided by the above, the starting point is to determine whether or not there is an agreement to arbitrate between the parties. The answer to this is affirmative. Clause 11 of the Deed provides for the same and has been invoked by the parties. Moreover, the arbitration has begun, and based on the evidence before this court, his jurisdiction is not in dispute.
15. The second issue is whether the subject matter, being the sale and transfer of shares and property fall within the scope of the reference. The applicant contended that they do, while the respondent was of the view that this matter is governed exclusively by the Articles of Association. He relied on Section 326 of the Companies Act for the proposition that the Articles are exclusive.
16. Section 326 provides as follows:
"Transferability of shares
The shares and any other interests of a member in a company are transferable in accordance with the company’s articles."
17. Reading the above section, I do not interpret the same to mean that no other agreement other than the Articles may govern the transfer of shares. On the contrary, the fact that the parties entered into the shareholder agreement, namely the Deed, shows that that the parties intended to govern the terms of their respective shareholding’s by way of an additional contractual agreement, and contemplated that they would be bound by its terms.
18. A transfer of shares by one of the parties could therefore conceivably affect or impact the subject matter or terms of the Deed, and in doing so, could also conceivably affect the subject matter of the arbitration. Beyond this, a change in ownership would undoubtedly render the arbitration academic because the new owner would not be bound by the agreement made between the applicant and the 1st respondent.
19. Having stated the above, I am of the view that questions relating to the jurisdiction of the tribunal ought to be left to the tribunal for determination in accordance with section 17 of the Arbitration Act, and ought to be made by the tribunal in the first instance. I therefore use the word “conceivably” (above) with great caution, and to preserve the tribunal right to determine the scope of its own jurisdiction without embarrassment should the present question become a live issue before it.
20. As regards the first limb of the test as set out above, I find that there is a valid agreement to arbitrate between the parties. Further, as to whether the subject matter falls within the scope of that agreement, I reiterate, the above, and find that at present, based on what is before this court, I am satisfied.
21. I move to the next limb, as to whether or not, there exists a threat to the subject matter of the arbitral proceedings? Here, I find that while the level of threat does not appear to be imminent, the threat is sufficient. I am persuaded that a in the event of a change of ownership, the new owner would not be bound to the shareholders agreement between the present parties, which is the subject matter of the present arbitration, rendering the entire process moot.
22. Addressing my mind to Giella v Cassman Brown [1973] EA 358 , in allaying any doubts in respect of the first two limbs, I am of the view that the balance of convenience tilts in favour of the applicant to preserve the status quo, at least until such time as the tribunal may determine the jurisdictional issues raised in the present application. I say this because, to my mind greater prejudice would be occasioned to the applicant in the event of a change of ownership mid -way through the arbitral proceedings as compared to the potential loss or harm incurred by 1st respondent in simply holding his horses for now.
23. Based on the reasons as set out above, I am satisfied that it is appropriate for this court to grant the orders sought in prayers (4), (5), and (6) of the application pending either the hearing and determination of the arbitral proceedings, or a ruling/ partial award on jurisdiction in relation to the specific issues/questions raised in the present application, whichever may come first.
24. The upshot is that the application dated 18th August, 2023 is with merit and is allowed on the terms set out in the preceding paragraph.
25. The file is marked as closed.