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Court of AppealPartially AllowedCivil Appli 81 of 2009 (UR 50/2009)· [2009] KECA 282 (KLR)

CHEVRON KENYA LIMITED (CALTEX) v KANYOTTA HOLDINGS LIMITED [2009] KECA 282 (KLR)

Court of Appeal of Kenya
12 July 2009
EOE.O. O'KubasuPWP.N. WakiAVAlnashir Visram
2,431 words in judgment
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The bottom line

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Kenya's Court of Appeal let Chevron pause a Kshs. 44 million deposit order, but only if it provided Kshs. 25 million in bank guarantee or insurance bond security within 21 days.

What this practically means

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Executive summary

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This is a ruling of the Court of Appeal at Nairobi (O'Kubasu, Waki and Visram, JJA) on a rule 5(2)(b) application by Chevron Kenya Limited seeking stay of execution of an order of Khaminwa, J. dated 5 March 2009 in H.C.C.C. No. 402 of 2008, requiring the applicants to deposit Kshs. 44,100,000 as security for a contractual claim by Kanyotta Holdings Limited pending arbitration. The respondents had obtained the security order on the basis of an email suggesting the applicants' parent company was divesting its Kenyan and other African assets, raising fears that any judgment would be unenforceable. The applicants argued the superior court misapplied Order 38 of the Civil Procedure Rules, relied on speculation, and that a sale of shares as a going concern would cause no prejudice. The respondent countered that the applicants were in contempt for failing to pay within the time set. The court held that disobedience of an order is not of itself a bar to being heard, applying Fatma Ali Mohamed v. Harbans Singh Soor and the Hadkinson principle. It found the intended appeal arguable on the proper statutory basis for the security order, the finding on sale of assets, and the quantum of security, but accepted the deposit was enormous and that the respondents' concerns about the pending sale were legitimate. The court varied the decision below by granting a conditional stay: the applicants were to provide a bank guarantee or insurance bond of Kshs. 25 million within 21 days, failing which the application would stand dismissed with costs. The alternative prayer 4 was disregarded as outside rule 5(2)(b), and costs of the application were otherwise made costs in the main appeal. The decision below was varied, not reversed.

Key legal issues

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01

The twin test for stay of execution under rule 5(2)(b)

Holding

The applicants satisfied the arguability limb: there were serious issues whether the security application should have been considered under Order 38 of the Civil Procedure Rules or section 7 of the Arbitration Act, whether the finding on sale of assets was warranted, and whether the quantum of security was justified. However, arguability alone is insufficient; the nugatory limb must also be met.

Reasoning

The court examined the intended grounds of appeal, including the proper statutory basis for the security order and the affidavit evidence contradicting the finding that the applicants were selling assets and leaving the jurisdiction. It held that questioning these matters was not frivolous and that an arguable case is not one that will necessarily succeed. The first hurdle was thus surmounted.

p. 3
02

Whether the appeal would be rendered nugatory without a stay

Holding

The deposit of Shs. 44 million was enormous and default would lead to attachment, but the respondents also faced uncertainty because the sale of the applicants' business was in process and it was moot whether the purchasers would assume the liabilities. The court therefore fashioned a middle course of a conditional stay.

Reasoning

The court weighed the impact on the applicants of withdrawing such a large sum from working capital against the respondents' legitimate concern that the applicants might disappear from the jurisdiction following the sale of their business. Since neither side's position gave complete comfort, the court granted a stay conditioned on lesser security in the form of a bank guarantee or insurance bond rather than a cash deposit.

p. 4
03

Whether non-compliance with the order under appeal barred the applicants from being heard

Holding

The court found no difficulty in hearing the applicants despite their failure to deposit the security within the time set, adopting the principle that disobedience of a court order is not of itself a bar to being heard unless the contempt impedes the course of justice.

Reasoning

Relying on the court's earlier decision in Fatma Ali Mohamed v. Harbans Singh Soor and the Hadkinson principle, the court reiterated that refusing to hear a party is a strong measure justified only by grave considerations of public policy, where the contempt impedes the course of justice and no other effective means of securing compliance exists. The circumstances here did not justify barring the applicants.

p. 4

Legal principles established

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  • To succeed on a rule 5(2)(b) application, the applicant must show both that the intended appeal is arguable and that it will be rendered nugatory if stay is not granted; an arguable appeal need not be one likely to succeed.
  • A party's disobedience of a court order does not of itself bar the party from being heard; the court may refuse to hear the party only where the contempt impedes the course of justice and no other effective means of securing compliance exists.

Court orders

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  1. 1.Stay of execution of the ruling and orders of Khaminwa, J. dated 5 March 2009 granted conditionally
  2. 2.Applicants to provide a bank guarantee from a reputable bank in Kenya or an Insurance Bond from a reputable insurance company in the sum of Kshs. 25 million within 21 days of the order
  3. 3.In default of providing the guarantee or bond, the application to stand dismissed with costs without further recourse to court
  4. 4.Costs of the application otherwise to be in the main appeal
  5. 5.Prayer 4 (the alternative prayer) disregarded as not within the purview of rule 5(2)(b)

Authorities

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Legislation

  • Court of Appeal RulesRule 5(2)(b)
  • Arbitration Act, 1995Section 6
  • Arbitration Act, 1995 (No. 4 of 1995)Sections 6(1)(b) and 7
  • Civil Procedure RulesOrder XXXVIII Rules 1, 2, 5 and 12
  • Civil Procedure RulesOrder XV Rules 1, 2, 3 and 19
  • Civil Procedure Act (Cap 21)Sections 63(b) and 3A

Cases cited (1)

  • Fatma Ali Mohamed v. Harbans Singh Soor
    Civil Appl. NAI. 313/06 (UR)
On appeal from
High Court of Kenya at Nairobi
H.C.C.C. No. 402 of 2008
Jurisdiction invoked
Rule 5(2)(b) of the Court of Appeal Rules (application for stay of execution pending intended appeal)

Key timeline

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Practical implications

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Frequently asked questions

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Later judgments citing this (2)

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Judgments in the corpus that rely on this one. Where the Court said how it treated the authority, that is shown.

Cite this brief

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Cite this brief

Caselaw, "CHEVRON KENYA LIMITED (CALTEX) v KANYOTTA HOLDINGS LIMITED [2009] KECA 282 (KLR)", Case Analysis (2009). Civil Appli 81 of 2009 (UR 50/2009). Source: https://new.kenyalaw.org/akn/ke/judgment/keca/2009/282/eng@2009-07-12

Suggested citation format for research notes or client memos. Always verify the original judgment before relying on any point.