Vania Investments Pool Limited v Capital Markets Authority & 8 others [2014] KECA 452 (KLR)

IN THE COURT OF APPEAL

AT NAIROBI

CORAM: WAKI, KARANJA & KIAGE, JJ.A

CIVIL APPEAL NO. 92 OF 2014

BETWEEN

VANIA INVESTMENTS POOL LIMITED….....................................APPELLANT

AND

CAPITAL MARKETS AUTHORITY…….……………….….…..1ST  RESPONDENT

REA TRADING LIMITED……………………………....………..2ND  RESPONDENT

CENTUM INVESTMENTS LIMITED……….…………………..3RD  RESPONDENT

TAUSI ASSURANCE CO. LIMITED………….………………..4TH  RESPONDENT

G. A. INSURANCE LIMITED…………………...………………5TH  RESPONDENT

SAVCO STORES LIMITED………………..…………………...6TH  RESPONDENT

KENYALOGY COM LIMITED…………..……………………….7TH  RESPONDENT

REA VIPINGO PLANTATIONS LIMITED………..……………8TH  RESPONDENT

KILIFI COUNTY GOVERNMENT……………………………….9TH  RESPONDENT

(An Appeal from the Ruling of the High Court of Kenya at Nairobi (Majanja, J.) dated 17th  April 2014

in

H. C. MISC. CIVIL APPL. NO. 139 OF 2014)

*****************

JUDGMENT OF THE COURT

Capital Markets Authority (1st  respondent) is a body corporate established under Section 5 of Capital Markets Act (CAP 485A of the laws of Kenya).  One of its objectives which is germane to this appeal as provided for in Section 11 of the said Act is;

“the creation, maintenance and regulation of a market in which securities  can be  issued  and traded  in an orderly,  fair and efficient manner, through the implementation of a system in which the market participants are  self-regulatory  to  the maximum practicable extent.”

Another of its  core functions  as  stipulated  in Section 11(d) is  “the  protection  of investor interests”.

It was  in the performance  of some  of the functions  stipulated  above  that the  1 st respondent made the decision that was challenged before the High Court by way of Judicial Review.   The aggrieved party in those proceedings was Vania Investment Pool Limited (appellant) who moved the High Court by way of a chamber summons dated 8th April, 2014.

The chamber summons, taken out under Order 53 Rules 1, 2 and 4 of the Civil Procedure Rules was for the requisite Leave to apply for the  following orders:-

(a)      An order  of  prohibition   stopping  the  respondent  from  taking any further   step or  implementing   any  timetable  it  has  set  for completing  the  takeover  of  REA Vipingo  Plantations Limited based on the direction that offers made could not be varied after 28th of February, 2014.

(b)       An order of certiorari  removing to this Honourable Court for the purpose of the same being quashed, the respondent’s directions contained in the notice published on the 5th of February 2014 in the Daily  Nation  setting the deadline for new offers and variation of offers already made on the takeover of REA Vipingo Plantations Limited.

(c)      An order  of  mandamus  to compel  the  respondent to approve such variation  of offer  as the applicant  will make to the offer it has  already  made  for  takeover  of  REA Vipingo  Plantations Limited.

(d)       An order of mandamus to compel the respondent to allow  the applicant to submit the takeover document as provided in Regulations 13(2) of the Regulations and make such changes as are allowed by the Regulations.

The  2nd  to 8th  respondents  herein  were named  as Interested  Parties  in that chamber summons, which was heard and subsequently dismissed by Majanja, J. with costs to the 1st, 2nd and 3rd respondents herein. Being aggrieved by that decision, the appellant moved to this Court on appeal vide the memorandum of appeal filed on its behalf by Walker Kontos Advocates dated 24th April 2014. It is worth noting that the 4th, 5th, 6th  and 7th respondents supported the appellant in this appeal. The appeal is predicated on seven substantive grounds which can be summarized as follows:

That the learned Judge erred and misdirected himself in:-

·         finding that the appellant should have pursued its claim before the CMA tribunal, a statutory  tribunal mandated  to hear appeals from decisions of the 1st   respondent and not by way of Judicial Review;

·           finding  that  the   1st respondent   had  not   violated  its   own Regulations;

·        finding that the appellant had delayed before moving the Court for Judicial Review;

·         finding that the appellant had not satisfied the threshold required for leave to be granted;

·        finding that it was in the public interest not to grant the leave sought by the appellant.

The appellant therefore entreats this Court to set aside the impugned decision so that leave can be granted for it to seek the Judicial Review orders outlined in the said  Notice of Motion. We  shall  revert to these  grounds  later.  The  appeal  was canvassed by way of written submissions filed by all counsel herein. Learned counsel for the appellant also filed a reply to the respondent’s submissions.

We  have read and carefully considered  these submissions  together with the list  of authorities filed by counsel.

We now look at the transaction and/or process that gave rise to the 1st respondent’s  decision  that was  challenged  before  the High Court  before we can determine whether the impugned decision  was properly arrived at or not.

The 8th respondent, Rea Vipingo Plantations Limited (“RVPL”) is a public company listed at the Nairobi Securities Exchange (NSE).  R.E.A. Trading Limited (“REAT”) on the other hand is a shareholder of RVPL.  On 13th November 2013, “REAT” issued a notice under Regulation 4(1) of the Capital Markets (Take-overs and Mergers) Regulations, 2002 (the Regulations) to the   effect that it intended to make an offer to acquire all the issued ordinary shares of RVPL which  had not yet been owned  and registered in RVPL’s name.

This notice came to the attention of other companies who had an interest in investing in RVPL. The 3rd to 7th respondents were among companies which expressed their interest on diverse dates. The 3rd  respondent Centum  Investments Company Limited (Centum) published its notice of such intention on 2nd December, 2013. On 21st December 2013 Www.  Bid  Investment   Company   Limited  (“WBICL”) published its notice of intention, while the appellant published its notice of intention on 30th January 2014.

These notices were published pursuant to Regulation 4(1) of the Regulations which provided:-

“A company or person who intends to acquire  effective control in a listed company shall not later than twenty four hours from the  resolution   of  its  Board   to  take  effective  control   in the company or not later than twenty four hours prior to making a decision to acquire  effective control  in the company in the case of any other person announce  the proposed offer by press notice and serve  a notice  of  intention,  in writing  of  the  takeover scheme … to the

             (a)      Proposed offeree at its registered office;

(b)   Securities exchange at which the offeree’s voting  shares are listed;

(c)  Authority (in this case the Capital  Markets Authority 1st respondent) and the commissioner of monopolies and prices.”

After the said notices are served then Regulation  4(4) comes into play.  The same requires the offeror to serve on the offeree its statement of the takeover scheme within 10 days  from the  date  of the  notice  of intention  referred  to above.  Such statement shall be approved by the (CMA).

The said notice and statement can nonetheless be amended if need be but with the  permission  of  CMA.  This  can however,  only be  done  before  the  takeover document is served on the offeree. Such amendments and/or substitution of the notice must be on terms approved by CMA.

Under Regulation 7(1), the offeror is required within 14 days of service of the offeror statement to submit to CMA for approval the takeover document which CMA is  required  to approve within 30 days or such time as CMA may determine. This therefore, means that CMA has discretion to approve the statement any time before expiry of the 30 days. Once the statement is approved by CMA, the same is served on the offeree within five days of such approval.  Where there are competing take-over offers, given that they may have been made at different times, these procedures shall apply mutatis mutandis except the notice period to the competing offer. (See Section 13(1) of the Regulations).

Under Regulation 13(2), the competing offeror shall serve a competing take- over offer at least 10 days prior to the closure of the offer period and this period shall also apply to the revisions that may be made to the competing offer.

Regulation 14 is also germane to this appeal and the same provides;

14     “An offeror  must keep a take-over offer  open for acceptances for  a period  of  30 days from  the  date  the takeover document is first served in accordance with Regulation 7(4) or such period as may be determined by the Authority. (Underlining supplied)

16 (1)   An offeror may vary the terms  and conditions a takeover offer including increasing the   consideration in relation to the whole or part thereof provided such variation  shall be made at least five days prior  to the closure of the offer period.

(2)      The varied take-over offer document shall set  out in an appropriate  form particulars of such modification  of the offeror’s  statements and information required under the second schedule as necessary having  regard to the variations.

(3)      The offeror shall serve the  varied  take-over  offer document on the offeree, the Authority and the securities exchange   within   twenty   four  hours   of   making the decision to vary  the take-over  offer,  and simultaneously make a public  announcement  by press notice in at least two English language dailies of national circulation disclosing material  variations to the offer.”

We find it necessary to cite these regulations, almost verbatim in some instances, because according to the appellant, CMA breached  these regulations and that forms part of the challenge on the decision of the High Court (see ground 3 in the memorandum of appeal).

It comes out explicitly from the cited regulations that the takeover or merger transactions are strictly controlled by the CMA on very determinate timelines.  These timelines,  as  is  indeed  stipulated  by all  parties  herein,  are meant to ensure  an efficacious,  expeditious  and  predictable  process  which is  meant  to boost  investor confidence in the securities market.

Breach or violation of statutory rules and regulations by a Judicial or quasi- judicial body is  one  ground for  Judicial  Review.  If  there  was  breach  of  these regulations by CMA as claimed  by the appellant, then it’s contention that leave to proceed  by way of Judicial review should have  been granted  would be very compelling indeed.   We shall therefore  analyse and scrutinize the conduct of CMA vis-a- vis these regulations and make our findings on whether such breach or violation has been demonstrated  to warrant the grant of leave.

We shall  now retrace  the transaction  giving rise  to this  appeal  to see  what exactly  happened  and how the  appellant’s  grievance  arose.   Thereafter,  we  shall consider whether CMA’s decision was amenable to Judicial Review. We shall then examine the learned Judge’s decision and determine whether  he fell into any error  when he dismissed the chamber summons dated 8th April, 2013.

After the several offers had been made, the 1st  respondent on 5th February 2014 published in the Daily Nation Newspaper the notice setting a deadline of 28th February 2014 for the following:-

(a)       Anyone  who intended to make a new offer for the takeover of (RVPL) to issue the necessary notice of intention to RVPL;

and

(b)          If  there  were  any variations  of the  existing  offers,  the  notice was required to be served by that date.

The 1st  respondent then proceeded to issue its timetable for the takeover scheme with the anticipation that all the offers, variations etc would be closed by end of the notice deadline.

We need not go into the details of the offers and counter-offers that were made before  the set deadline.   The problem arose when  on the date of the deadline , the appellant wrote two letters to the 1st   respondent expressing reservations on the proposed take over time table.

Several letters were exchanged between the appellant and the 1 st  respondent on the subject but ultimately the 1st  respondent refused to budge and remained steadfast on the fixed deadline. On its part, the appellant insisted that under Regulation 16(1) (2)(3), it  could still  amend  or vary its  offer post  28th  February  2014.  The  1st respondent  stood  its  ground and claimed the  right to set  the  timetable  and  the deadlines pursuant to Section 11(3) (w) of the Capital Markets Act.  It consequently rejected the appellant’s bid. This strict adherence to the timetable and the subsequent refusal to accept the varied offer was, according  to the appellant,  also  contrary to Regulation 13(2) of the Regulations.  It was also tantamount to denying the shareholders  of  RVPL the  opportunity to  benefit from  the  highest  bid. These grievances are what propelled the appellant to move to the High Court by way of Judicial Review seeking the orders we have enumerated earlier in this ruling.  The said orders were declined and hence this appeal.

In his ruling which is the subject of this appeal, the learned Judge  declined to make any  definitive finding  as  to whether the 1st  respondent  was in breach of any of the  regulations  under the Act that are  meant to regulate  its  procedure,  more particularly Regulation 13(1) of the said Regulations.

The  argument  by the  1st   respondent  was  that it did not breach any  of the regulations and furthermore,  Section 11(w) of the Act under which the notice was issued gave the 1st  respondent wide powers in the execution of its duty to ensure an orderly, fair and transparent  process.    It  is  the  1st    respondent’s    stand  that the Regulations  do not prescribe   a detailed  timetable  but leave  the discretion  to it to modify  the Regulations appropriately    and hence the use of the words mutatis mutandis in Regulation 13(1).

Even  without going into great detail  on the  issue  of these  regulations  and whether  the alleged  breach  of the  same existed,  we can safely  say that  the  said regulations  are not cast  in stone. We  say so because the  primary mandate of the Capital Markets Authority (1st  respondent) as succinctly set out in the preamble to the Capital Markets Act (Cap 485A) is  inter alia to promote, regulate,  facilitate  and develop an orderly, fair and efficient Capital Market in Kenya.

Section 11(w) of the said Act mandates the 1st  respondent:-

“To  do all such acts as may  be incidental  or conducive  to the attainment  of the objectives of the Authority  or the exercise of its powers under this Act.”

Therefore, even  with  the  plethora of  regulations  made  under  the  Act,  the  1 st respondent still has wide latitude under Section 11(w) to do that which fosters and promotes  a fair and expedient process of takeovers or mergers. This section which is akin to Section 3A and 3B of the Appellate Jurisdiction Act or our so called ‘oxygen rule’ is invoked in situations where the justice of the case is likely to be hampered by strict adherence of procedural strictures which in this case would include the prescribed timelines.

In this case, the 1st  respondent was alive to the need to complete the transactio in question quickly in order to ensure that the RVPL shares were not excluded from the NSE for longer than was necessary.

The timelines set by the 1st  respondent applied to all the respondents and not just the appellant. We observe that the process was indeed open and all the players were accorded sufficient time to make their offers.  None of them could therefore justifiably claim to have been discriminated against.  The long and short of this is that there was no such flagrant or blatant breach of the regulations that would solely have impelled the learned Judge to grant the said leave to file the motion for Judicial Review. Ground 3 of the appellants appeal must therefore fail.

The other issue we wish to address is whether the learned Judge was wrong in his finding to the effect that the appellant should have sought the alternative available recourse before moving the High Court by way of Judicial Review. This is indeed the first ground in the appellant’s memorandum of appeal.  In his ruling, the learned Judge observed that one of the reasons that may cause  a court to reject an application for Judicial Review is the availability of an alternative remedy for the aggrieved party. Indeed he gave that as one of the reasons for rejecting the applicant’s application.  In this  finding, he called in aid previous  decisions of this Court in Speaker of National Assembly vs Njenga Karume (1990 – 1994) EA 546, and Republic vs National Environment Management Authority ex-parte Sound Equipment Limited CA

Civil Appeal No. 84 of 2010 (2011) eKLR in which this Court observed that:- “Where   there  was  an alternative  remedy and especially  where parliament  had  provided a statutory  appeal procedure, it  is  only in exceptional circumstances that an order for judicial  review would be granted, and that in determining whether an exception should be made and Judicial  Review  granted,  it  was necessary for  the  court  to look carefully at the suitability of the statutory appeal in the context of the particular case and  ask   itself   what, in the context of the statutory powers, was the real  issue to be determined and whether the statutory appeal  procedure was suitable to determine it.”

In other words, although ideally Judicial Review should be sought  as a remedy of last resort, there can be exceptions.  This Court pronouncing itself on this issue in Republic vs National Environmental Management Authority (2011) eKLR

stated:-

“… in determining whether an exception should be made, and judicial  review  granted,  it was necessary for the court  to look carefully at the suitability of the statutory appeal in the context of the particular  case and ask itself what, in the context of the statutory powers,  was the  real issue to  be determined   and whether the statutory appeal procedure was suitable to determine it.”

In this  case, the  appellant  pleads  that it did not move to the CMA Appeals Tribunal because the same was not quorate. The lack of quorum of the Tribunal is acknowledged  by the  respondents.  According to the 1st   respondent however,  the appellant should have either moved to the High Court for the Judicial Review orders within the statutory timelines set out in the Capital Market Act, or filed the appeal in the  Tribunal and  thereafter filed  an   application seeking  orders  of  mandamus compelling the relevant minister to appoint members of the Tribunal. The appellant did neither of the above.  Instead, it sought the Judicial Review orders long after the expiry of the 15 days provided for in the Act within which an aggrieved party must challenge  an order issued  by the  1st   respondent. This  delay, according  to the  1st respondent, cannot be countenanced.

The learned Judge was of the same view and hence his observation that “A take-over transaction relating to a publicly listed company is not a trifling matter.  It is a time bound process as illustrated by Regulations which impose 24 hours, 5 day, 10 day, 14 day and a maximum  or 30 day  limits  for  doing  certain  acts.       A period exceeding  30 days  in  the  context  of  matters  dealing  with takeover is inordinate….”

The learned Judge cited “undue and unreasonable delay” as one of the reasons for dismissing the appellant’s chamber summons application.

As to whether the appellant should have moved to the Tribunal though well aware of its challenge as far as the quorum was concerned, we note that indeed the 3 rd respondent did move to the Tribunal,  and thereafter to the High Court for orders of mandamus. That demonstrates a plausible option for the appellant as well. Would it have  been efficacious?  We think so,  as the  appellant  would have demonstrated that he had gone for Judicial Review as a last resort and this could have worked in his favour. As observed by the learned Judge, we also observe that indeed the appellant moved to the court after the deadline set out in the regulations allowing it to move the Tribunal, and that was actually the delay the learned judge was referring to in his  ruling.   We  agree with the  learned  Judge  that the  appellant  failed  to demonstrate that the circumstances of its case qualified as exceptional to warrant  a hearing by way of Judicial Review before the statutory procedure had been exhausted. Grounds one and two must therefore fail.

As to whether the learned Judge erred by delving into the merits of the matter at leave stage, it is trite law and practice that an application for leave to seek orders of Judicial Review is not granted  as a matter  of course.   There is a certain threshold which has to be met.

The   House  of  Lords    in   Inland Revenue Commissioner vs National Federation of Self-Employed  and  Small Business Ltd (ALL ER 1981 Vol 2 page

94) aptly addressed this issue in the following terms:

“The whole   purpose  of  requiring   that  leave  should  first  be obtained to make the application for judicial review would be defeated if the court were to go into the matter in any depth at that stage. If,  on a quick perusal of the material  then available, the court thinks that it discloses what might on further consideration   turn  out to be   an arguable  case in favour   of granting  to the applicant  the relief claimed, it ought, in  the exercise   of a judicial discretion, to give him  leave to apply for that relief.The discretion  that the court is  exercising  at this stage is not  the same as that  which  it is called on to exercise when all the evidence is in and the matter has been fully argued at the hearing of the application.”

Closer home, this Court echoing the above findings of the House of Lords in

Kariuki vs Attorney General (1990 – 1994) E.A. held:-

“In an application for leave to apply for orders of certiorari and mandamus,  the  applicant  only  needs to  demonstrate  a prima facie case without going to the merits of the case.”

See also Njuguna vs Minister for Agriculture (2000) 1 EA 184.

The learned Judge appreciated this test and applied it in his ruling as can be deciphered from the following statement:-

“The court  can  only  come to the  conclusion  that  the  case is frivolous, or that leave is underserved by examining  the facts…”

In this case, we note that the application for leave was actually heard inter- partes.  That was a procedure  available to the court and an invitation to examine the facts. The learned  Judge  had the opportunity  to hear all  the parties  involved and considered the material they placed before him.  This was therefore,  different from many other situations  where applications  for leave  proceed ex-parte.  The  learned Judge was therefore  in order to consider the submissions made by the parties before him and make his finding while still restraining himself from making any findings on the merits of the matter before him. That explains why he opines in his ruling

“As this is an application for leave, I am not  prepared  to say that the applicant has raised a frivolous argument, it is not one that may succeed at the end of the day but it is one that is not entirely hopeless.”

It  is  our finding that the  learned  Judge  did not depart  from the  accepted threshold of “prima facie case”.  He had to do justice giving due consideration to the submissions  of all  counsel,  which led him to the  conclusion  that leave  was  not deserved in the circumstances of the case. He did not in our view delve deeper into the merits of the case than was sufficient for him to conclude that a prima facie case had not been made out to warrant the order for leave. Ground six also falls by the wayside.

On the question as to whether it was in the public interest not to grant the leave sought, the learned Judge found that granting leave would cause hardship to third parties and would not be in the public interest as it would also diminish investor and public confidence in Capital Markets.  It is the appellant’s submission however, that the converse is actually the truth. The appellant’s contention is that what was not in public interest is the court’s countenancing the disregard of operational rules by a public body like  the CMA.   In the appellant’s  view, that would be  an  affront to investor confidence.

In that regard, learned counsel for the appellant cited the case of Republic vs Permanent Secretary/Secretary to the Cabinet and Head of Public Service Office of the President and Two Others – Ex-parte Stanley Kamanga Nganga [2006] eklr, where the court held that the purpose of Judicial Review is to check that public bodies do not exceed their jurisdiction and carry out their duties in a manner that is detrimental to the public at large.

We have however found that the 1st respondent was not in breach of its regulations and that  renders this  submission  and  the  attendant  authority  irrelevant  in the  present circumstances.

It is also noted that the delay that would have been occasioned by an open- ended schedule and the failure to stick to set timelines would have affected the other shareholders  as  their  shares  were suspended  from trading during the  take-over process.

In conclusion, we wish to add that Judicial Review orders  are discretionary.There are firm principles that guide the appellate court which must be observed before such a court  can interfere with a trial Judge’s discretion.  We fall back on the locus classicus case of  Mbogo vs Shah (1968) EA 93, in which the predecessor of this Court succinctly pronounced itself thus:

“A Court of Appeal should not interfere  with the exercise of the discretion of a Judge unless it is satisfied that the Judge in his discretion  has  misdirected  himself  in some  matter  and as  a result has arrived at a wrong decision, or unless it is manifest from the case as a whole that the Judge has been clearly wrong in the exercise of his discretion and  that  as a result there has been injustice.”

In this case we find no misdirection on the part of the learned Judge.  He applied the law correctly after considering the law and the material placed before him by learned counsel.