Background
1. The petitioners herein are among eighty-three (83) registered owners of various apartments, shops and office suites at the development known as the Ivory Towers Apartments (the development). The 1st respondent company is the developer and the 2nd and 3rd respondents are directors of both the 1st and 4th respondents. The 4th respondent is the management company established for the maintenance and upkeep of the development (the company). The petitioners and the other apartment owners are shareholders of the said company.
2. The petitioners filed the application dated 10th July 2023 (the first application) seeking injunctive orders against the decision of the 2nd, 3rd and 4th respondents to increase the cost per unit of water supplied to the petitioners and other members of the 4th respondent. The petitioners allege that the resolution which was communicated vide the email dated 20th April 2023 was without a prior valid company resolution.
3. The applicants further take issue with the management of the 4th respondent and argue that the 2nd and 3rd respondents have been unilaterally running the affairs of the 4th respondent without requisite accountability and have excluded all other shareholders from its operations in violation of Articles 6 and 7 of the Management Company's Memorandum and Articles of Association.
4. Upon service of this application the respondents filed the application dated 2nd August 2023 (the second application) seeking inter alia to suspend any proceedings before this court and for the first application and the petition dated 10th July 2023 to be struck out so that the parties can submit to the dispute resolution mechanism provided. The respondents urge that there is a dispute resolution mechanism contained in the leases of the petitioners which has not been exhausted.
5. The second application is opposed by the petitioners who argue that this court has unlimited jurisdiction to entertain the disputes before it, and particularly the matter at hand which relates to oppression and unfair prejudice under the Companies Act. The petitioners deny the present dispute is pegged on the lease as has been stated by the respondents.
6. It is their case that the dispute challenges the management of the 4th respondent company under the company’s Memorandum and Articles of Association which in any case allows members to approach court under article 62 in case of any dispute on the management of the company. The petitioners have urged this court that since there is no arbitration clause in the Memorandum and Articles, then the dispute is properly before this court noting that the provisions in the Companies Act and the Memorandum and Articles supersede the provisions in the leases.
7. The petitioners argue that they have exhausted all mechanisms having written to the Board of the 4th respondent with no action.
Analysis and determination
8. Since the second application seeks to suspend the present proceedings, it is imperative that I address this application, as it will significantly impact the way forward regarding the first application. In doing so, I have carefully considered the responses, submissions, and evidence presented by all parties involved.
9. The primary ground on which the respondents rely in the second application is that the suit before the court is premature owing to the dispute resolution clause in the leases. It is not disputed that the petitioners herein are lessees by virtue of the lease agreement they entered into with the lessor (the 1st respondent) and the management company. The management company, which is created by the lease, serves as the vehicle through which day-to-day management of the development is carried out. The lease, in turn, delineates the parameters of the rights and obligations of the lessee, the lessor, and the management company.
10. Clause 3 of the lease outlines the lessees’ covenants, with section 3.3 specifically addressing electricity and other services consumed, which includes water. The lease agreement further states that disputes arising in connection with the lease are subject to the dispute resolution process outlined in clauses 6.3 and 6.10 of the respective leases. The said clauses stipulate as follows: -
This Lease and its performance shall be governed by and construed in all respects in accordance with the laws of Kenya. Any dispute arising out of or in connection with this Lease shall be referred:
6.10.1 to the Management Company for mediation by the board of directors. If after Twenty-One days (21) the dispute cannot be resolved amicably, parties shall agree to immediately refer the dispute to Arbitration
6.10.2 to arbitration by a single arbitrator to be appointed by agreement between the parties or kin default of such agreement within fourteen (14) days of the notification of a dispute by one party to the others, upon the application of any party, by the Chairman for the time being of the Chartered Institute of Arbitrators (Kenya Branch). Such arbitration shall be conducted in Nairobi in accordance with the Rules of Arbitration of the said Institute and subject to and in accordance with the provisions of the Arbitration Act (1995) or any modifications or substitutes thereof. To the extent permissible by law, the determination of the Arbitrator shall be final and binding upon the parties‘. The parties agree to reserve the right of appeal under the Arbitration Act (1995) and any amendment thereto.
11. In my view the leases are contractual agreements between the parties involved and generally pertain to the management and maintenance of the property. The dispute resolution clauses referred to in the lease can therefore only relate to the specific rights, duties, and obligations arising out of the lease.
12. Within the broader context of the 4th respondent, the Memorandum and Articles of Association (often referred to as the company's constitution) are foundational documents that outline the governance, structure, and internal regulations of the company. These documents are critical in defining the company's scope of operations, as well as the powers and responsibilities of its directors and shareholders.
13. Turning to the dispute before this court, the first application, dated 10th July 2023, takes issue with the manner in which the management company has imposed payments for the provision of water in the development. This issue falls squarely within the duties outlined in the lease agreement and is one that ought to be dealt with within the dispute resolution mechanism therein.
14. The issues raised in the petition do however go beyond the scope of the lease and include matters of governance, structure, and internal regulations and accountability of the company, which would be governed by the Memorandum and Articles of Association. The remedies sought in the petition include orders for convening an AGM of the 4th respondent, resignation of the directors, striking out of their names, and a statement of accounts.
15. It is not in dispute that there exists no comprehensive dispute resolution mechanism in the Memorandum and Articles of Association, meaning that the petition is rightly before this court.
16. That said, I agree with the submission that the 2 petitioners have not filed any proof of authority from the other petitioners to institute or continue with this matter as a representative suit which would then make it a company shareholder dispute. It appears to be a dispute that has been filed by 2 members in their private capacity and not by members of a company against the management.
17. If that is the case and the court were to allow the orders sought by the 2, the same would have to apply against all the members of the 4th respondent despite the fact that this is not a representative claim. The inconvenience to the other members of the 4th respondent may outweigh the private benefit to the applicants.
18. The peculiar circumstances in this matter, including the fact that a portion of the dispute fits within the dispute resolution mechanism set out in the lease and another portion within the memorandum and articles of association, and considering that the parties herein are part of a community which stands to be affected by whatever orders this court will make, leave me with no doubt that this is a matter suitable for mediation in the first instance.
19. Section 59B of the Civil Procedure Act is instructional that:-
(1) The Court may—
(a) on the request of the parties concerned; or
(b) where it deems it appropriate to do so; or
(c) where the law so requires, direct that any dispute presented before it be referred to mediation. (emphasis mine)
20. I cannot resist reminding the parties that the benefits of mediation far outweigh those of a court claim, which should be a fallback mechanism when all else has failed. Mediation allows for party autonomy and enables the parties to resolve their dispute expeditiously, flexibly, and at minimal cost, all while maintaining their relationships, which as I have stated, are critical in this scenario.
Disposition
21. For all these reasons, the order that commends itself to me and which I hereby issue is that the dispute before me is one that is ideal for court annexed mediation. Parties shall take directions for the dispute to be placed before a court appointed mediator under section 59B (2) of the Civil Procedure Act.
22. For the avoidance of doubt the parties shall be at liberty to canvass all the issues raised in the petition as well as the first and second applications.
23. These proceedings shall in the meantime be suspended to allow time for the mediation process. In the interest of settling the dispute, the ex-parte orders issued on 11th July 2023. Are also lifted. Costs shall await the outcome of the mediation process.
1. The petitioners herein are among eighty-three (83) registered owners of various apartments, shops and office suites at the development known as the Ivory Towers Apartments (the development). The 1st respondent company is the developer and the 2nd and 3rd respondents are directors of both the 1st and 4th respondents. The 4th respondent is the management company established for the maintenance and upkeep of the development (the company). The petitioners and the other apartment owners are shareholders of the said company.
2. The petitioners filed the application dated 10th July 2023 (the first application) seeking injunctive orders against the decision of the 2nd, 3rd and 4th respondents to increase the cost per unit of water supplied to the petitioners and other members of the 4th respondent. The petitioners allege that the resolution which was communicated vide the email dated 20th April 2023 was without a prior valid company resolution.
3. The applicants further take issue with the management of the 4th respondent and argue that the 2nd and 3rd respondents have been unilaterally running the affairs of the 4th respondent without requisite accountability and have excluded all other shareholders from its operations in violation of Articles 6 and 7 of the Management Company's Memorandum and Articles of Association.
4. Upon service of this application the respondents filed the application dated 2nd August 2023 (the second application) seeking inter alia to suspend any proceedings before this court and for the first application and the petition dated 10th July 2023 to be struck out so that the parties can submit to the dispute resolution mechanism provided. The respondents urge that there is a dispute resolution mechanism contained in the leases of the petitioners which has not been exhausted.
5. The second application is opposed by the petitioners who argue that this court has unlimited jurisdiction to entertain the disputes before it, and particularly the matter at hand which relates to oppression and unfair prejudice under the Companies Act. The petitioners deny the present dispute is pegged on the lease as has been stated by the respondents.
6. It is their case that the dispute challenges the management of the 4th respondent company under the company’s Memorandum and Articles of Association which in any case allows members to approach court under article 62 in case of any dispute on the management of the company. The petitioners have urged this court that since there is no arbitration clause in the Memorandum and Articles, then the dispute is properly before this court noting that the provisions in the Companies Act and the Memorandum and Articles supersede the provisions in the leases.
7. The petitioners argue that they have exhausted all mechanisms having written to the Board of the 4th respondent with no action.
Analysis and determination
8. Since the second application seeks to suspend the present proceedings, it is imperative that I address this application, as it will significantly impact the way forward regarding the first application. In doing so, I have carefully considered the responses, submissions, and evidence presented by all parties involved.
9. The primary ground on which the respondents rely in the second application is that the suit before the court is premature owing to the dispute resolution clause in the leases. It is not disputed that the petitioners herein are lessees by virtue of the lease agreement they entered into with the lessor (the 1st respondent) and the management company. The management company, which is created by the lease, serves as the vehicle through which day-to-day management of the development is carried out. The lease, in turn, delineates the parameters of the rights and obligations of the lessee, the lessor, and the management company.
10. Clause 3 of the lease outlines the lessees’ covenants, with section 3.3 specifically addressing electricity and other services consumed, which includes water. The lease agreement further states that disputes arising in connection with the lease are subject to the dispute resolution process outlined in clauses 6.3 and 6.10 of the respective leases. The said clauses stipulate as follows: -
This Lease and its performance shall be governed by and construed in all respects in accordance with the laws of Kenya. Any dispute arising out of or in connection with this Lease shall be referred:
6.10.1 to the Management Company for mediation by the board of directors. If after Twenty-One days (21) the dispute cannot be resolved amicably, parties shall agree to immediately refer the dispute to Arbitration
6.10.2 to arbitration by a single arbitrator to be appointed by agreement between the parties or kin default of such agreement within fourteen (14) days of the notification of a dispute by one party to the others, upon the application of any party, by the Chairman for the time being of the Chartered Institute of Arbitrators (Kenya Branch). Such arbitration shall be conducted in Nairobi in accordance with the Rules of Arbitration of the said Institute and subject to and in accordance with the provisions of the Arbitration Act (1995) or any modifications or substitutes thereof. To the extent permissible by law, the determination of the Arbitrator shall be final and binding upon the parties‘. The parties agree to reserve the right of appeal under the Arbitration Act (1995) and any amendment thereto.
11. In my view the leases are contractual agreements between the parties involved and generally pertain to the management and maintenance of the property. The dispute resolution clauses referred to in the lease can therefore only relate to the specific rights, duties, and obligations arising out of the lease.
12. Within the broader context of the 4th respondent, the Memorandum and Articles of Association (often referred to as the company's constitution) are foundational documents that outline the governance, structure, and internal regulations of the company. These documents are critical in defining the company's scope of operations, as well as the powers and responsibilities of its directors and shareholders.
13. Turning to the dispute before this court, the first application, dated 10th July 2023, takes issue with the manner in which the management company has imposed payments for the provision of water in the development. This issue falls squarely within the duties outlined in the lease agreement and is one that ought to be dealt with within the dispute resolution mechanism therein.
14. The issues raised in the petition do however go beyond the scope of the lease and include matters of governance, structure, and internal regulations and accountability of the company, which would be governed by the Memorandum and Articles of Association. The remedies sought in the petition include orders for convening an AGM of the 4th respondent, resignation of the directors, striking out of their names, and a statement of accounts.
15. It is not in dispute that there exists no comprehensive dispute resolution mechanism in the Memorandum and Articles of Association, meaning that the petition is rightly before this court.
16. That said, I agree with the submission that the 2 petitioners have not filed any proof of authority from the other petitioners to institute or continue with this matter as a representative suit which would then make it a company shareholder dispute. It appears to be a dispute that has been filed by 2 members in their private capacity and not by members of a company against the management.
17. If that is the case and the court were to allow the orders sought by the 2, the same would have to apply against all the members of the 4th respondent despite the fact that this is not a representative claim. The inconvenience to the other members of the 4th respondent may outweigh the private benefit to the applicants.
18. The peculiar circumstances in this matter, including the fact that a portion of the dispute fits within the dispute resolution mechanism set out in the lease and another portion within the memorandum and articles of association, and considering that the parties herein are part of a community which stands to be affected by whatever orders this court will make, leave me with no doubt that this is a matter suitable for mediation in the first instance.
19. Section 59B of the Civil Procedure Act is instructional that:-
(1) The Court may—
(a) on the request of the parties concerned; or
(b) where it deems it appropriate to do so; or
(c) where the law so requires, direct that any dispute presented before it be referred to mediation. (emphasis mine)
20. I cannot resist reminding the parties that the benefits of mediation far outweigh those of a court claim, which should be a fallback mechanism when all else has failed. Mediation allows for party autonomy and enables the parties to resolve their dispute expeditiously, flexibly, and at minimal cost, all while maintaining their relationships, which as I have stated, are critical in this scenario.
Disposition
21. For all these reasons, the order that commends itself to me and which I hereby issue is that the dispute before me is one that is ideal for court annexed mediation. Parties shall take directions for the dispute to be placed before a court appointed mediator under section 59B (2) of the Civil Procedure Act.
22. For the avoidance of doubt the parties shall be at liberty to canvass all the issues raised in the petition as well as the first and second applications.
23. These proceedings shall in the meantime be suspended to allow time for the mediation process. In the interest of settling the dispute, the ex-parte orders issued on 11th July 2023. Are also lifted. Costs shall await the outcome of the mediation process.
DATED, SIGNED AND DELIVERED IN NAIROBI
THIS 31st DAY OF MAY 2024
F. MUGAMBI
JUDGE