1. The Petitioners’ have filed the application dated 12.05.2023 made under sections 3 and 5 of the Judicature Act (Chapter 8 of the Laws of Kenya), Order 51 Rules 1 - 3 of the Civil Procedure Rules, Part 81 of the Civil Procedure (Amendment No. 2) Rules, 2012 of England and Wales) seeking the following orders:
1. That this honourable court be pleased to commit to jail for 6 months each the 1st, 3rd, 4th and 5th respondents.
2. That the 2nd respondent do pay/ deposit into Court all the purchase prices of the sub-divisions of LR NO 7340/115 received from the purchasers.
3. That the 2nd respondent be restrained from further selling sub-divisions of LR NO 7340/115 until further orders of this Honourable Court.
4. That the 2nd respondent be restrained from further selling sub-divisions of LR NO 7340/115 pending the hearing and determination of the petition herein.
5. That the 2nd respondent do pay Kshs 10,000,000 as a fine for destroying the subject matter of the petition herein.
6. That in default of payment of the said Kshs 10,000,000/- as fine, the movable and immovable properties of the 2nd respondent including but not limited to land and buildings be attached and sold in satisfaction of the fine/penalty for contempt of Court.
7. That the costs of the application be in the cause.
2. The application is supported by the grounds on its face, the statement of facts dated 12.05.2023 and the verifying and further affidavits sworn by Robert Darby, a director of Tamarind Valley Embakasi Limited (“the Company”) on 12.05.2023 and 14.06.2023 respectively. It is opposed by the 1st, 2nd 3rd and 5th Respondents through the 1st Respondent’s replying affidavit sworn on 24.05.2023 and Grounds of Opposition of the same date. In addition to their pleadings, the parties have supplemented their arguments by filing written submissions.
3. The background and facts leading up to the present application were summarized by the court in its ruling of 24.06.2022 and are as follows. The Company is a Special Purpose Vehicle following a Joint Venture between the 1st Petitioner, Omega Commercial Services Limited and the 2nd Respondent under which they would construct 805 houses and sell them at a profit. The 1st, 3rd, 4th and 5th Respondents are directors of the 2nd Respondent. The Company was incorporated with an authorised share capital of Kshs. 1,000,000.00 divided into 100,000 shares of KES. 10 each with the following shareholding: Tamarind Investments Limited (33,333), Omega Commercial Services Limited (30,866) and Rype Limited (35,801). Under the Joint Venture, Omega would contribute land; LR No. 7340/1077 to the Company while the 2nd Respondent would contribute LR No. 7340/115. The 1st Petitioner would contribute cash amounting to KES. 60,000,000.00. In due course, 106 units were constructed on part of LR No. 7340/1077 with money lent to the Company by SMN Trust and Housing Finance Company of Kenya Limited secured by the charge in favour of Housing Finance Company of Kenya (“HFCK”), an equitable mortgage in favour of SMN Trust and personal guarantees by the directors of the Company.
4. The Joint Venture did not materialize as expected and disagreements between the shareholders caused the Petitioners to file a Petition dated 19.04.2021. According to the Petitioners, the 2nd Petitioner acquired part of the shares held by the 1st Petitioner and they claim that construction of the 331 Units was frustrated by the failure of Kenya Commercial Bank Limited to release KES. 350,000,000 which it had agreed to lend and which was secured by a charge over KES. 7340/1077. The Petitioners accuse the other shareholders in the Company represented by their directors of behaving secretly and breaching their duty to act in good faith and for the benefit of all members of the Company. They allege that the directors identified a buyer for shares but declined to name him or the source of funds despite the Petitioners agreeing to have the shares bought at a fair price following a valuation undertaken in 2017. The Petitioners state that in mid-2017, they received complaints from buyers who had paid deposits but had not been allocated any houses or refunded their deposits about the completion of the transactions. They state that the directors representing the majority shareholders have used criminal complaints to the Director of Criminal Investigations (“the DCI”) to oppress them causing a deterioration in the relationship between the majority and minority shareholders.
5. The Petitioners further allege that the majority shareholders secretly engaged HFCK and started dealing with the charged property to their exclusion. The Petitioners state that they have lost confidence in the management of the Company to resolve how money owed to secured and unsecured creditors will be paid, how the deposits will be refunded to the purchasers who have bought units and the refusal of HFCK to discharge the properties which have been paid for. The Petitioners claim that they have been oppressed, that they have not been involved in discussions with HFCK and that the directors represented by the majority shareholders have declined to attend board meetings convened by the Petitioners thus creating a deadlock in the Company. That the majority shareholders have exposed the Petitioners to risk of having their personal guarantees given to HFCK enforced against them and that the majority shareholders are using the criminal process to force the Petitioners to sell their shares.
6. Together with the Petition, the Petitioners also filed an application for appointment of an interim liquidator and consequential reliefs. The court dismissed the application by the ruling dated 24.06.2022. The court held that this is a case where the majority and minority shareholders have disagreed but that there is no deadlock since the majority control the Company and are able to make decisions regarding its management and operations. The court observed that this is a case where the facts are disputed and ultimately, the court will have to consider who is to blame and as such the court held that the Petitioners had not established a prima facie case for the appointment of an interim liquidator. It was also noted that the Petitioners had an alternative statutory remedy under section 780 and 782 of the Companies Act, 2015 and a further alternative remedy in the Joint Venture Agreement.
The Application
7. Turning to the present application, the Petitioners contend that by virtue of the rule in Walsh v Lonsdale [1882] 21 ChD 9, the Company is the beneficial owner of the said LR NO 7340/115 (“the subject property”) whilst the 2nd Petitioner is the holder of the legal title. That following the institution of the Petition, no party can deal with the assets of the Company without the leave of the Court but that during the pendency of this Petition, in early 2022, one of the shareholders, the 2nd Respondent, embarked on a sub-division of the subject property into plots and started selling them through an estate agent called Vast Realty. That on 11.05.2022 Vast Realty confirmed that it had been given authority and a power of attorney to sell 100 plots of the subject property. That the price for each plot was Kshs. 1,525,000.00 and that it had sold some plots.
8. The Petitioners claim that the 2nd Respondent planned to receive Kshs 152,500,000.00 which is money belonging to the Company and its creditors and that this is a contempt of Court for any person to sell the assets of the Company in liquidation without the sanction of the Court. The Petitioners assert that the 2nd Respondent’s shareholder has been involved in assets stripping since early 2022 and on 05.06.2022, the Petitioners demanded in writing that the 2nd Respondent stops selling the sub-divisions of the subject property but it has ignored that demand. They further claim that the 2nd Respondent has given possession to three persons who are constructing houses on the subject property and that when Mr Robert Darby visited the property on 13.04.2023, he found construction of three permanent houses taking place.
9. The Petitioners aver that it is the practice of the Courts to punish those who commit contempt of Court and that it is a principle of law that no person shall be allowed to benefit from its own wrongs and consequently, the 2nd Respondent is obliged to deposit in Court all the proceeds of sale for the various sub-divisions sold and that it is the practice of the Commercial Courts to grant injunctions to preserve the subject matter in commercial disputes.
The 1st, 2nd 3rd and 5th Respondents’ Reply
10. The 1st, 2nd, 3rd and 5th Respondents (“the Respondents”) oppose the application. They contend that the Petitioners have not demonstrated how orders, if any are in existence had been disobeyed by them. They submit that the Petitioners’ application is defective in form as the Petitioners have not complied with the procedural steps for commencing and prosecuting an application for contempt of court. They aver that the subject property that the Petitioners allege is being sold does not belong to the Company, nor does the subject property belong to the Petitioners and thus is not capable of falling under ‘asset stripping’. Further, that the subject property is not a protected property under the Insolvency Act and that the Petitioners are guilty of non-disclosure of material facts, a ground for dismissal of the application.
11. The Respondents state that the terms of the Joint Venture have been frustrated by the 1st Petitioner and it now needs to be understood that the promise to transfer the subject property could not materialize and that parcel of land is not even in the name of any of the Respondents but in the name of their late father. That the subject property was supposed to come in at Phase 2 of the project, after successful completion of Phase 1 but that Phase 1 having been unsuccessful due frustration by the 1st Petitioner, Phase 2 would not take off.
12. The Respondents contend that the dealings in the subject property is by the administrators of the Estate of their late father and has nothing to do with the dispute that has been concocted by the Petitioners herein. The Respondents reiterate that they cannot be cited for contempt as they have not disobeyed any court order or interfered with protected property under the Insolvency Act.
13. The Respondents further contend that the dispute that is gleaned from all the pleadings filed herein ought to be resolved by way of arbitration under the Joint Venture Agreement dated 17.11.2009.
Analysis and Determination
14. The main issue for determination is whether the Respondents are guilty of contempt of the orders of the court and if so, whether they should be punished in the manner sought by the Petitioners. Although the Respondents have raised procedural and technical issues regarding the application for contempt, I do not propose to deal with the same and will deal with the substance of the application for reasons that will become clear.
15. In Cecil Miller v Jackson Njeru & Another NRB HCCC No. 111 of 2016 [2017] eKLR the court held that four elements must be proved to make a case for civil contempt;
a) The terms of the order (or injunction or undertaking) were clear and unambiguous and were binding on the defendant,
b) The defendant had knowledge of or proper notice of the terms of the order
c) The defendant has acted in breach of the terms of the order and;
d) The defendant conduct was deliberate.
16. Disobedience of a court orders is not something that the court takes lightly hence the above elements must be proved strictly on a standard above the balance of probabilities but below reasonable doubt. Since contempt involves disobedience of a court order, it means that the application must show that the court issued an order, which is clear in its terms, directing the party to do or refrain from doing something. In this case, the Petitioners have not identified any order which the Respondents have disobeyed. From the record, it is clear that the court has not issued an order directed at any of the Respondents restraining or otherwise directing them to do any act in relation to the subject property. The application for contempt must fail on this ground alone.
17. The Petitioners’ case is that a company in liquidation can only deal with its assets with the leave of court. They rely on section 429(1)(a) of the Insolvency Act, 2015 which provides as follows:
429. Dispositions of property by company after commencement of liquidation to be void unless the Court otherwise orders
(1) In a liquidation ordered by the Court—
(a) any disposition of the company's property; and
(b) any transfer of shares, or alteration in the status of the company's members,
made after the commencement of the liquidation is void, unless the Court otherwise orders.
18. A plain reading of the above provisions shows that a company is not allowed to dispose of its property once the court has issued a liquidation order. In this case, the record shows that that the court has not issued any liquidation order hence section 429 aforesaid does not apply. Indeed, by the ruling dated 24.06.2022the court expressly declined to issue a liquidation order against the Company or appoint an interim liquidator.
19. Without belabouring the matter any further, I find and hold that the Petitioners have not made out a case for the grant of the orders sought in their application. I will only reiterate that what was stated in the ruling of 24.06.2022 that the Petitioners have other alternatives for relief otherwise the only issue left is for the petition to be heard on its merits.
Disposition
20. The Petitioners’ application dated 12.05.2023 is dismissed with costs to the Respondents. The Respondents are discharged from these proceedings.
DATED and DELIVERED at NAIROBI this 17th day of AUGUST 2023.
D. S. MAJANJA
JUDGE
1. That this honourable court be pleased to commit to jail for 6 months each the 1st, 3rd, 4th and 5th respondents.
2. That the 2nd respondent do pay/ deposit into Court all the purchase prices of the sub-divisions of LR NO 7340/115 received from the purchasers.
3. That the 2nd respondent be restrained from further selling sub-divisions of LR NO 7340/115 until further orders of this Honourable Court.
4. That the 2nd respondent be restrained from further selling sub-divisions of LR NO 7340/115 pending the hearing and determination of the petition herein.
5. That the 2nd respondent do pay Kshs 10,000,000 as a fine for destroying the subject matter of the petition herein.
6. That in default of payment of the said Kshs 10,000,000/- as fine, the movable and immovable properties of the 2nd respondent including but not limited to land and buildings be attached and sold in satisfaction of the fine/penalty for contempt of Court.
7. That the costs of the application be in the cause.
2. The application is supported by the grounds on its face, the statement of facts dated 12.05.2023 and the verifying and further affidavits sworn by Robert Darby, a director of Tamarind Valley Embakasi Limited (“the Company”) on 12.05.2023 and 14.06.2023 respectively. It is opposed by the 1st, 2nd 3rd and 5th Respondents through the 1st Respondent’s replying affidavit sworn on 24.05.2023 and Grounds of Opposition of the same date. In addition to their pleadings, the parties have supplemented their arguments by filing written submissions.
3. The background and facts leading up to the present application were summarized by the court in its ruling of 24.06.2022 and are as follows. The Company is a Special Purpose Vehicle following a Joint Venture between the 1st Petitioner, Omega Commercial Services Limited and the 2nd Respondent under which they would construct 805 houses and sell them at a profit. The 1st, 3rd, 4th and 5th Respondents are directors of the 2nd Respondent. The Company was incorporated with an authorised share capital of Kshs. 1,000,000.00 divided into 100,000 shares of KES. 10 each with the following shareholding: Tamarind Investments Limited (33,333), Omega Commercial Services Limited (30,866) and Rype Limited (35,801). Under the Joint Venture, Omega would contribute land; LR No. 7340/1077 to the Company while the 2nd Respondent would contribute LR No. 7340/115. The 1st Petitioner would contribute cash amounting to KES. 60,000,000.00. In due course, 106 units were constructed on part of LR No. 7340/1077 with money lent to the Company by SMN Trust and Housing Finance Company of Kenya Limited secured by the charge in favour of Housing Finance Company of Kenya (“HFCK”), an equitable mortgage in favour of SMN Trust and personal guarantees by the directors of the Company.
4. The Joint Venture did not materialize as expected and disagreements between the shareholders caused the Petitioners to file a Petition dated 19.04.2021. According to the Petitioners, the 2nd Petitioner acquired part of the shares held by the 1st Petitioner and they claim that construction of the 331 Units was frustrated by the failure of Kenya Commercial Bank Limited to release KES. 350,000,000 which it had agreed to lend and which was secured by a charge over KES. 7340/1077. The Petitioners accuse the other shareholders in the Company represented by their directors of behaving secretly and breaching their duty to act in good faith and for the benefit of all members of the Company. They allege that the directors identified a buyer for shares but declined to name him or the source of funds despite the Petitioners agreeing to have the shares bought at a fair price following a valuation undertaken in 2017. The Petitioners state that in mid-2017, they received complaints from buyers who had paid deposits but had not been allocated any houses or refunded their deposits about the completion of the transactions. They state that the directors representing the majority shareholders have used criminal complaints to the Director of Criminal Investigations (“the DCI”) to oppress them causing a deterioration in the relationship between the majority and minority shareholders.
5. The Petitioners further allege that the majority shareholders secretly engaged HFCK and started dealing with the charged property to their exclusion. The Petitioners state that they have lost confidence in the management of the Company to resolve how money owed to secured and unsecured creditors will be paid, how the deposits will be refunded to the purchasers who have bought units and the refusal of HFCK to discharge the properties which have been paid for. The Petitioners claim that they have been oppressed, that they have not been involved in discussions with HFCK and that the directors represented by the majority shareholders have declined to attend board meetings convened by the Petitioners thus creating a deadlock in the Company. That the majority shareholders have exposed the Petitioners to risk of having their personal guarantees given to HFCK enforced against them and that the majority shareholders are using the criminal process to force the Petitioners to sell their shares.
6. Together with the Petition, the Petitioners also filed an application for appointment of an interim liquidator and consequential reliefs. The court dismissed the application by the ruling dated 24.06.2022. The court held that this is a case where the majority and minority shareholders have disagreed but that there is no deadlock since the majority control the Company and are able to make decisions regarding its management and operations. The court observed that this is a case where the facts are disputed and ultimately, the court will have to consider who is to blame and as such the court held that the Petitioners had not established a prima facie case for the appointment of an interim liquidator. It was also noted that the Petitioners had an alternative statutory remedy under section 780 and 782 of the Companies Act, 2015 and a further alternative remedy in the Joint Venture Agreement.
The Application
7. Turning to the present application, the Petitioners contend that by virtue of the rule in Walsh v Lonsdale [1882] 21 ChD 9, the Company is the beneficial owner of the said LR NO 7340/115 (“the subject property”) whilst the 2nd Petitioner is the holder of the legal title. That following the institution of the Petition, no party can deal with the assets of the Company without the leave of the Court but that during the pendency of this Petition, in early 2022, one of the shareholders, the 2nd Respondent, embarked on a sub-division of the subject property into plots and started selling them through an estate agent called Vast Realty. That on 11.05.2022 Vast Realty confirmed that it had been given authority and a power of attorney to sell 100 plots of the subject property. That the price for each plot was Kshs. 1,525,000.00 and that it had sold some plots.
8. The Petitioners claim that the 2nd Respondent planned to receive Kshs 152,500,000.00 which is money belonging to the Company and its creditors and that this is a contempt of Court for any person to sell the assets of the Company in liquidation without the sanction of the Court. The Petitioners assert that the 2nd Respondent’s shareholder has been involved in assets stripping since early 2022 and on 05.06.2022, the Petitioners demanded in writing that the 2nd Respondent stops selling the sub-divisions of the subject property but it has ignored that demand. They further claim that the 2nd Respondent has given possession to three persons who are constructing houses on the subject property and that when Mr Robert Darby visited the property on 13.04.2023, he found construction of three permanent houses taking place.
9. The Petitioners aver that it is the practice of the Courts to punish those who commit contempt of Court and that it is a principle of law that no person shall be allowed to benefit from its own wrongs and consequently, the 2nd Respondent is obliged to deposit in Court all the proceeds of sale for the various sub-divisions sold and that it is the practice of the Commercial Courts to grant injunctions to preserve the subject matter in commercial disputes.
The 1st, 2nd 3rd and 5th Respondents’ Reply
10. The 1st, 2nd, 3rd and 5th Respondents (“the Respondents”) oppose the application. They contend that the Petitioners have not demonstrated how orders, if any are in existence had been disobeyed by them. They submit that the Petitioners’ application is defective in form as the Petitioners have not complied with the procedural steps for commencing and prosecuting an application for contempt of court. They aver that the subject property that the Petitioners allege is being sold does not belong to the Company, nor does the subject property belong to the Petitioners and thus is not capable of falling under ‘asset stripping’. Further, that the subject property is not a protected property under the Insolvency Act and that the Petitioners are guilty of non-disclosure of material facts, a ground for dismissal of the application.
11. The Respondents state that the terms of the Joint Venture have been frustrated by the 1st Petitioner and it now needs to be understood that the promise to transfer the subject property could not materialize and that parcel of land is not even in the name of any of the Respondents but in the name of their late father. That the subject property was supposed to come in at Phase 2 of the project, after successful completion of Phase 1 but that Phase 1 having been unsuccessful due frustration by the 1st Petitioner, Phase 2 would not take off.
12. The Respondents contend that the dealings in the subject property is by the administrators of the Estate of their late father and has nothing to do with the dispute that has been concocted by the Petitioners herein. The Respondents reiterate that they cannot be cited for contempt as they have not disobeyed any court order or interfered with protected property under the Insolvency Act.
13. The Respondents further contend that the dispute that is gleaned from all the pleadings filed herein ought to be resolved by way of arbitration under the Joint Venture Agreement dated 17.11.2009.
Analysis and Determination
14. The main issue for determination is whether the Respondents are guilty of contempt of the orders of the court and if so, whether they should be punished in the manner sought by the Petitioners. Although the Respondents have raised procedural and technical issues regarding the application for contempt, I do not propose to deal with the same and will deal with the substance of the application for reasons that will become clear.
15. In Cecil Miller v Jackson Njeru & Another NRB HCCC No. 111 of 2016 [2017] eKLR the court held that four elements must be proved to make a case for civil contempt;
a) The terms of the order (or injunction or undertaking) were clear and unambiguous and were binding on the defendant,
b) The defendant had knowledge of or proper notice of the terms of the order
c) The defendant has acted in breach of the terms of the order and;
d) The defendant conduct was deliberate.
16. Disobedience of a court orders is not something that the court takes lightly hence the above elements must be proved strictly on a standard above the balance of probabilities but below reasonable doubt. Since contempt involves disobedience of a court order, it means that the application must show that the court issued an order, which is clear in its terms, directing the party to do or refrain from doing something. In this case, the Petitioners have not identified any order which the Respondents have disobeyed. From the record, it is clear that the court has not issued an order directed at any of the Respondents restraining or otherwise directing them to do any act in relation to the subject property. The application for contempt must fail on this ground alone.
17. The Petitioners’ case is that a company in liquidation can only deal with its assets with the leave of court. They rely on section 429(1)(a) of the Insolvency Act, 2015 which provides as follows:
429. Dispositions of property by company after commencement of liquidation to be void unless the Court otherwise orders
(1) In a liquidation ordered by the Court—
(a) any disposition of the company's property; and
(b) any transfer of shares, or alteration in the status of the company's members,
made after the commencement of the liquidation is void, unless the Court otherwise orders.
18. A plain reading of the above provisions shows that a company is not allowed to dispose of its property once the court has issued a liquidation order. In this case, the record shows that that the court has not issued any liquidation order hence section 429 aforesaid does not apply. Indeed, by the ruling dated 24.06.2022the court expressly declined to issue a liquidation order against the Company or appoint an interim liquidator.
19. Without belabouring the matter any further, I find and hold that the Petitioners have not made out a case for the grant of the orders sought in their application. I will only reiterate that what was stated in the ruling of 24.06.2022 that the Petitioners have other alternatives for relief otherwise the only issue left is for the petition to be heard on its merits.
Disposition
20. The Petitioners’ application dated 12.05.2023 is dismissed with costs to the Respondents. The Respondents are discharged from these proceedings.
DATED and DELIVERED at NAIROBI this 17th day of AUGUST 2023.
D. S. MAJANJA
JUDGE