Faulu Microfinance Bank Ltd v Kibochi (Miscellaneous Civil Case 295 of 2018) [2021] KEHC 109 (KLR) (Commercial and Tax) (16 September 2021) (Ruling)
Neutral citation:
[2021] KEHC 109 (KLR)
Republic of Kenya
Miscellaneous Civil Case 295 of 2018
MW Muigai, J
September 16, 2021
Between
Faulu Microfinance Bank Ltd
Claimant
and
John Mwara Kibochi
Respondent
Ruling
BACKGROUND
1.The 1st matter before this Court was by Respondent’s Notice of Motion seeking to stay the enforcement of Arbitral Award of 14th November 2016 and Further Award of 29th March 2018 pending hearing and determination of the applications.
2.This Court found that the Arbitral awards were not contrary to public policy as the statutory obligation to pay tax was recognized by Arbitrator and the contested issue was computation/calculation of tax to be withheld by the Claimant.
3.This Court lacks jurisdiction to undertake the exercise and could not remit the issue to the Arbitrator under Section 34 of Arbitration Act as the Respondent filed such application on 9th December 2016 and the Arbitrator declined and stated that he lacked jurisdiction as it was not one of the issues raised as dispute(s) before the Arbitral Tribunal. This Court ordered;
4.The 2nd matter before this Court was Certificate of Urgency filed on 26th November 2019 the Claimant /Applicant sought orders;
5.This Court considered;
6This Court found;
APPLICATION FOR LEAVE TO APPEAL OUT OF TIME
7.The 3rd matter presented before this Court is by certificate of urgency filed by the Claimant on 22nd September,2020 seeking the following orders;
8.The Claimant/Applicant deposed that the parties filed applications on 31st January 2020 & 26th November 2019 respectively and were heard interpartes on 20th May 2020. The Applicant opposed the KRA computation of tax vide letter dated 8th November 2019 and the Respondent found that the computation finalized the matter as the Final Award and Further Award were recognized and enforced vide Court’s Ruling of 2019. The Ruling reserved on 26th June 2020.The Applicant deposed that the delivery of the Ruling was deferred from 26th June 2020 – 6th July 2020-13th July -25th August 2020.
9.On 25th August 2020, the matter was not listed and therefore the Applicant’s Counsel failed to appear virtually online. Counsel liaised with the Court Clerk who indicated that in the usual practice, a ruling would be delivered on Notice.
10.Based on the advice, through innocent mistake Counsel learnt of the delivery of the Ruling was not on Notice but was delivered on 28th August 2020 vide a letter dated 14th September 2020from Respondent’s Counsel.
11.The Respondent demanded payment of Ksh 22,657,535.11 from the Applicant based on the Ruling of 28th August 2020.
12.The Applicant intends to appeal the Ruling out of time and seeks leave to do so by filing Notice of Appeal out of time and the delay was based on a mistake not attributable to it. It is fair equitable and in the interest of justice that the Application is granted.
13.The Applicant has an arguable appeal as disclosed by the draft memorandum of Appeal annexed to the affidavit and seeks stay of execution of the Ruling.
REPLYING AFFIDAVIT
14.The Respondent filed Grounds of Opposition and submitted that the instant application should be dismissed as the Court lacks jurisdiction to grant leave to appeal as no right of appeal lies under Section 36 of Arbitration Act. The Court lacks jurisdiction under law to grant extension of time.
15.The Respondent vide Replying Affidavit deposed that Counsel was present on the Court’s virtual link on line and she did not see or hear Counsel for the Applicant. The Cause List of 25th August, 2020 had 13 matters listed (Copy of Cause List attached to the Affidavit) and upon the Court finishing the Cause List, Counsel requested the Court to confirm the Ruling date and the Court indicated the 28th August 2020.
16.On the same date at 12.57 pm on the same date Counsel sent a text to the Applicant/Client confirming date of delivery of the Ruling as 28th August 2020 (copy of SMS message is annexed to the Affidavit).
17.Accordingly, the failure by the Applicant to know of the Ruling of 28th August 2020 was not on the basis of innocent mistake as alleged. In any case, the matter was listed on 28th August 2020 (a copy of the Cause List is annexed)
18.The Respondent deposed that if Applicant’s Counsel was present on the Court’s virtual link as he alleged, and he believed that, matter was coming up on 25th August 2020, Counsel would have caused the matter be called out as Counsel for the Respondent did. Secondly, both Counsel had enquired from Court on their matter even if not listed before as exhibited by Cause Lists of 13th July 2020 & 6th July 2020 (annexed) and 26th June 2020. Further, on 6th & 7th May 2020, despite the matter not being listed, both Counsel addressed the Court virtually online.
19.Upon delivery of the ruling on 28th August 2020, Respondent’s Counsel sought copy of the Ruling from the DR Commercial & Tax Division and obtained a copy on 11th September 2020 and on 14th September 2020 on instructions of the Respondent, Counsel wrote to the Applicant and forwarded copy of the Ruling.
SUBMISSIONS
20.The Applicant relied on Order 50 Rule 6 of CPR 2010 in seeking for enlargement/extension of time to appeal.
21.The Applicant submitted that the Ruling sought to be appealed against is not one prescribed by Order 43 Rule 1 CPR 2010 where there is an automatic right of appeal.
22.Order 43 Rule 1 (2) & (3) CPR Rules envisage an appeal may lie with leave of Court from any other order made under these Rules and allows for leave to be sought in the 1st instance from the Court the order is sought to be appealed was granted. See JP MachiraT/A Machira & Co Advocates vs Wangethi Mwangi & Anor [2002] eKLR
23.The Applicant was out of time to seek leave to appeal within 14 days from the date of the Ruling due to the circumstances relating to the delivery of the Ruling on 28th August 2020 without Notice which explains the reason and length of delay to seek leave within the requisite period.
24.The Applicant relied on the case of Stanley Kaiyongi Mwenda vs Cyprian Kuba[2000] eKLR citing Leo Sila Mutiso vs Hellen Wangare Mwangi [1999]2 EA on the fact that the decision to extend the time for appealing is essentially discretionary. The Court takes into account Length and reason of delay, chances of success and degree of prejudice.
25.In consideration of chances of success, the Applicant relied on Gerald Kithu Muchangi vs Cathrine Muthoni Ngare & Anor [2020]eKLR that the role of the [Trial]Court is not to definitively determine the merits of appeal but understand if the intended appeal has issues worth serious judicial consideration.
26.The Applicant sought stay of execution as vide the letter dated 14th September 2020, the Respondent demanded Ksh 22,657,535.11 and seeks to execute for the perceived balance of the Final Arbitral Award based on that tax computation. Relying on the case of James Wangalwa & Anor vs Agnes Naliaka Cheseto [2012] eKLR stay of execution should considered ‘where substantial loss is what has to be prevented by preserving the status quo because such loss would render the appeal nugatory.’
27.The Claimant/Respondent submitted that the Civil Procedure Act /Rules 2010 are inapplicable to Arbitration proceedings as held by the Court of Appeal in Anne Mumbi Hinga vs Victoria Njoki Gathara [2009] eKLR. See also Mall Developers Ltd vs Postal Corporation of Kenya [2014] eKLR on the same point.
28.The Respondent submitted that this Court lacks jurisdiction to grant orders sought as it lacks requisite jurisdiction to determine the instant application and referred to the celebrated case of Owners of the Motor Vessel “Lillian S” v Caltex Oil (Kenya) Ltd (1989) KLR 1, 27. The Respondent submitted that the Applicant has no right of appeal. Section 3(1) of the Appellate jurisdiction Act Cap 9 stipulates that the right of appeal is not automatic but created by law;
29.The Claimant further submitted that Rule 11 of Arbitration Rules 1997 does not confer substantive rights as was held in the case of KamConsult Ltd vs Telcom Kenya Ltd & Anor [2001] & [2016] eKLR and was upheld in the Court of Appeal that there was no jurisdiction to review or appeal a matter determined under Section 17 of the ArbitrationAct in the High Court.
30.The Claimant relied on Nyutu Agrovet Ltd vs Airtel Networks Ltd [2015] eKLR on appeal for the 1st time in Court of Appeal where Hon. Mwera JJA opined that Article 164(3) of CoK 2010 Section 3(1) Appellate Jurisdiction Act & Section 75 of Civil Procedure Act do not confer automatic right of appeal to the Court of Appeal.
31.The Respondent’s absence online virtually on 28th August 2020 was not a bona fide mistake as the alleged facts surrounding events of 25th August 2020 were not proved by evidence.
32.The Claimant submitted that there is no dispute pending or unsettled after delivery of the Ruling and there is no computation of tax dispute as the KRA computation was set aside as it was contrary to the Arbitrator’s award and the said award was upheld by the Court.
DETERMINATION
33.After consideration of the pleadings and submissions by parties through respective Counsel, the issues for determination are;a.Whether this Court has jurisdiction to determine the applicationb.Whether the Applicant has right of appealc.Whether the Applicant should be granted leave to file appeal out of time.
JURISDICTION
34.Owners of the Motor Vessel “Lillian S” v Caltex Oil (Kenya) Ltd (1989) KLR 1, Hon. Nyarangi J. Court of Appeal held;
35.The Respondent submitted that the instant application should be dismissed as the Court lacks jurisdiction to grant leave to appeal as no right of appeal lies under Section 36 of Arbitration Act. The Court lacks jurisdiction under law to grant extension of time.
36.The Certificate of urgency /Notice of motion by the Applicant was/is brought under Article 159 CoK 2010, Sections 1A, 1B, 3A & Section 95 of CPA, Order 42 Rule 6, Order 43, Order 50 Rule 6 & Order 51 Rule 1 of CPR 2010.
37.The Supreme Court in Republic vs Karisa Chengo & 2 Others SC Petition 5 of 2017 [2017] eKLR defined jurisdiction as ‘the Court’s power to entertain, hear and determine a dispute before it also; [it means] the sphere of the Courts operations’
38.Therefore, the above provisions including Article 165 3(a) & (e) COK 2010 grant the Court jurisdiction to hear, read and consider the instant application in order to determine whether the Court can or not based on its jurisdiction grant or not grant the orders sought by the Applicant.
RIGHT OF APPEAL.
39.The Applicant sought temporary stay of Ruling (2) delivered on 28th August 2020, extension of time for the Applicant to seek leave to appeal and to lodge and serve Notice of Appeal and grants leave to by filing Notice of Appeal and obtaining typed proceedings and certified copies of the Ruling[s].
40.In Nyutu Agrovet Ltd vs Airtel Networks Ky Ltd & Chartered Institute of Arbitrators -Kenya Branch (Interested Party) Supreme Court Petition No 12 of 2016 held that at Paragraph 34;
41.It follows therefore, that in considering the Application, there must be a right of appeal before leave to appeal or leave to appeal out of time is considered.
42.To establish the Applicant’s right of appeal, the Court shall consider the following an agreement by parties before the Final Arbitral Award that they shall pursue an appeal on matters of law.
43.The Arbitration Agreement/Clause reads;The Agreement of the parties’ choice of forum does not include an agreement to pursue an appeal. There is no evidence furnished to the Court that at any stage of Arbitration proceedings before the Final Award was published, parties agreed on right of appeal to the Court of Appeal.
44.The Arbitration Act 1995 prescribes opportunity to appeal in Section 39 of the Act as follows;
45.This Court has not heard an appeal by the parties but 2 Applications on whether to recognize and enforce the Final Awards or set them aside under Section 35 of Arbitration Act.The Court Ruling of 29th July 2019 was that the Final Awards were recognized to be enforced subject to/on condition the computation of tax would be carried out by Kenya Revenue Authority, the legal and statutory body whose mandate is tax. The Court Ruling of 28th August 2020 was to set aside KRA’s computation as it was contrary to the Hon. Arbitrator’s awards and the Court lacked jurisdiction to vary amend or tamper with the Award(s).From these Applications and Rulings the parties have not pursued an appeal in the High Court and the right of appeal envisaged in Section 39 of the Act is not applicable.
46.Pre 2019, the Court would end the inquiry of the right of appeal here, but new and emerging jurisprudence on the right of appeal that binds this Court was established by the Supreme Court in Nyutu Agrovet Ltd vs Airtel Networks Ky Ltd & Chartered Institute of Arbitrators -Kenya Branch (Interested Party) Supreme Court Petition No 12 of 2016 ( Majority decision) Pg 42 which held; Synergy Industrial Credit Ltd vs Cape Holdings Ltd SC Petition No 2 of 2017, the Supreme Court ( Majority decision) Pg 42 held
47.The Supreme Court in both Appeals granted the Appellants right of Appeal before the Court of Appeal because after the High Court set aside the Final Awards, the parties were left in limbo as with the setting aside and the advanced sums of monies advanced, the fate of the said moneys advanced to the Respondents remained unknown as no decision was made as to fresh arbitration proceedings should commence or not.
48.In the instant matter, parties agreed to their choice of forum and participated in Arbitration proceedings. The Hon. Arbitrator published the Award on 14th November 2016. Parties applied to the Hon. Arbitrator under Section 34 of the Arbitration Act and the Arbitrator declined due to lack of jurisdiction as it was not part of the dispute before the Arbitrator. The parties sought recognition and enforcement of the award(s) and setting aside of the award on grounds of public policy. This Court found that tax payment was recognized as a statutory mandate what was in issue was the tax amount to be withheld and remitted to KRA.
49.On submissions of the party, the Court allowed the parties to approach KRA on computation of tax. The KRA response of 8th November 2020 was accepted by one party and refused by the other party. To the Court the computation varied, amended the Arbitrator’s award which this Court has no jurisdiction to allow as shown in the previous Rulings delivered by the Court. Similarly, despite the parties’ contention on whether the tax computation would be based on the lumpsum or not, this Court lacks jurisdiction to re-evaluate the evidence or facts or calculations of the amounts payable by and to parties.Cape Holdings Ltd vs Synergy Industrial Credits Ltd [2016] eKLR the court held;
50.The Court upheld the Final Award of 14th November 2016 and 29th March 2018. Unlike the cases on appeal to the Supreme Court, the parties herein are not left in limbo, they chose their dispute resolution forum as arbitration and after the parties fully participated in the proceedings and raised the tax issue with the Arbitrator, there are valid regular and legal awards from the Arbitrator
51.To the claim that the Court by its Ruling of 28th August 2020, that ‘any dispute on tax computation shall be addressed in separate proceedings or forum’ meant that the parties had right of appeal. The Court envisaged a situation where parties agreed to approach the Arbitrator again, or through mediation and/or negotiation through their advocates reached consent on implementation of the Arbitral award or during enforcement engaged in separate proceedings with KRA.
52.The right of appeal cannot be conferred but must be stipulated either in the Constitution or statute or in the case of Nyutu and Synergy cases post 2019, the Applicant shall prove or demonstrate either that ‘in setting aside an arbitral award, has stepped outside the grounds set out in the said section and thereby made a decision so grave, so manifestly wrong which has completely closed the door of justice to either of the parties’ or ‘that in arriving at its decision, the High Court went beyond the grounds set out in Section 35 of the Act for interfering with an Arbitral Award’. In this instance, the Applicant has not proved either of the tests laid down in the case-law above.
53.In light of the above and in totality of the circumstances of the matter, the Applicant has not established its right of appeal.
LEAVE TO APPEAL OUT OF TIME
54.In Anne Mumbi Hinga vs Victoria Njoki Gathara [2009] eKLR held;
55.Kenyatta International Convention Centre (KICC) vs Greenstar Systems Ltd [2018] eKLR which provides;
56.The Applicant relied on Order 43 Rule 1 (2) & (3) CPR Rules that an appeal may lie with leave of Court from any other order made under these Rules and allows for leave to be sought in the 1st instance from the Court the order is sought to be appealed was granted.
57.The Court takes the view that if the right of appeal is established then the Court may consider the application to file appeal out of time and stay execution pending appeal. Leave to file appeal out of time is an application filed and/or granted upon establishment of the right of appeal. In this case, the Court finds at this stage that the Applicant has no right of appeal. Secondly, the requirements to be considered and time lines relied upon are stipulated in the Civil Procedure Rules to enlarge or extend time to file Notice of Appeal and Memorandum of Appeal is not applicable in the circumstances.
DISPOSITIONDELIVERED SIGNED & DATED IN OPEN COURT ON 16TH SEPTEMBER, 2021. (VIRTUAL CONFERENCE DUE TO CORVID 19 PANDEMIC MEASURES RESTRICTING OPEN COURT OPERATIONS AS PER CHIEF JUSTICE DIRECTIONS OF 17TH APRIL 2020) M.W. MUIGAI JUDGEMS MATHANGANI FOR CLAIMANT- PRESENTMR GATUGUTI FOR RESPONDENT-PRESENT COURT CLERK - TUPET