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Court of AppealAllowedCivil Appli 219 of 2009 (UR 152/2009)· [2009] KECA 437 (KLR)

BLUE SHIELD INSURANCE CO. LIMITED v SAMUEL KAMAU MUHINDI [2009] KECA 437 (KLR)

Court of Appeal of Kenya
16 October 2009
EOE. O. O'KubasuEGE. M. GithinjiDAD. K. S. Aganyanya
3,194 words in judgment
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The bottom line

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Kenya's Court of Appeal stopped Blue Shield Insurance from having to deposit Shs.44 million pending appeal, finding the High Court may have lacked power to order that security.

What this practically means

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Executive summary

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Blue Shield Insurance sought stay of execution under Rule 5(2)(b) of the Court of Appeal Rules of an order by Kimaru, J. requiring it to deposit over Shs.44 million in an interest-earning account within 14 days as security pending hearing of applications to enforce and to set aside an arbitral award in favour of Samuel Kamau Muhindi, a former Managing Director awarded 1,000,000 shares and dividends by a sole arbitrator. The Court of Appeal identified two arguable grounds. First, it held that Section 37(2) of the Arbitration Act, on its face, applies only to enforcement of foreign awards where setting-aside proceedings are pending abroad, and that Section 401 of the Companies Act governs only security for a defendant's costs, so jurisdiction to order security for a domestic award was an arguable issue of great public importance; counsel's concession could not confer jurisdiction. Secondly, it found arguable whether security could be ordered for unascertained sums exceeding the award, the respondent having unilaterally computed dividends for 2007 and 2008. On nugatory value, applying Reliance Bank v Norlake Investments, the Court found that failure to raise the very large sum could lead to sanctions, automatic enforcement and disproportionate financial loss, whereas the respondent, given the company's claimed Shs.3.1 billion asset base, could likely recover if enforcement succeeded. The Court allowed the application, granting stay in terms of prayer 2, with costs of the application to be costs in the intended appeal. The superior court's ruling was not disturbed; the appeal remains pending.

Key legal issues

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01

Jurisdiction to order security for an arbitral award in a domestic arbitration

Holding

It is an arguable legal issue of great public importance whether Section 37(2) of the Arbitration Act and Section 401 of the Companies Act confer such jurisdiction; ex facie Section 37(2) covers only foreign awards under Section 37(1)(a)(vi), and Section 401 deals with security for costs only.

Reasoning

The Court read the provisions ex facie without conclusively construing them, since its duty was only to determine arguability. Section 37(2) security arises where enforcement of a foreign award is sought and setting-aside proceedings are pending in the foreign state. Section 401 of the Companies Act is directed at security for a defendant's costs when a limited company is plaintiff, not security for a decretal sum. Counsel's concession could not confer jurisdiction.

p. 4
02

Whether security could be ordered for sums exceeding the award

Holding

It is arguable whether security could be ordered for sums in excess of the arbitral award that have not been ascertained by a court or by consensus, since the respondent unilaterally computed dividends for 2007 and 2008.

Reasoning

The arbitrator's award covered the 2006 dividend balance and costs, with future dividends and interest payable annually. The respondent unilaterally added about Shs.28,000,000 for 2007 and 2008 dividends computed on a shareholding the applicant disputed. Any sum above the awarded amount would have to be proved, making it arguable that security could not be ordered for unascertained sums.

p. 5
03

Nugatory value and disproportionate hardship under Rule 5(2)(b)

Holding

If stay were not granted the appeal would be rendered nugatory and the applicant would suffer financial loss out of proportion to any loss the respondent would suffer, given the very large sum ordered and the applicant's admitted cash-flow problems.

Reasoning

Following Reliance Bank v Norlake Investments, requiring deposit of a very large sum would likely result in sanctions including denial of audience and automatic enforcement of the award, or withdrawal of funds that would cripple the business. The respondent's claim that the applicant has an asset base of over Shs.3.1 billion meant recovery would remain possible if enforcement ultimately succeeded.

p. 6

Legal principles established

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  • Section 37(2) of the Arbitration Act 1995 ex facie provides for security only in respect of enforcement of foreign arbitral awards where a setting-aside or suspension application is pending in the foreign court, not domestic awards.
  • Section 401 of the Companies Act concerns security for costs of a defendant in proceedings where a limited liability company is plaintiff, not security for the decretal amount or the amount of an arbitral award.
  • A party's concession that a court has jurisdiction cannot confer jurisdiction where the statute does not confer it.
  • On a Rule 5(2)(b) application the Court does not conclusively construe the statutory provisions whose construction is the subject of the intended appeal; it only decides whether the issue is arguable.

Court orders

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  1. 1.Stay of execution granted in terms of prayer 2 of the application
  2. 2.Costs of the application to be costs in the intended appeal

Authorities

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Legislation

  • Court of Appeal RulesRule 5(2)(b)
  • Arbitration Act, 1995Section 35
  • Arbitration Act, 1995Section 36
  • Arbitration Act, 1995Section 37(1)
  • Arbitration Act, 1995Section 37(2)
  • Civil Procedure ActSection 3A
  • Arbitration Rules, 1997Rule 4(2)
  • Companies ActSection 401
  • Insurance ActSection 67A(1)
  • Insurance ActSection 67C(2)

Cases cited (2)

  • Soleh Bonel International Ltd. vs. Government of the Republic of Uganda
    [1993] 2 Lloyd's Rep. 208
  • Reliance Bank Ltd. vs. Norlake Investments Ltd.
    [2002] 1 EA 218
On appeal from
High Court of Kenya at Milimani Commercial Courts, Nairobi
Miscellaneous Application No. 166 of 2009
Jurisdiction invoked
Rule 5(2)(b) of the Court of Appeal Rules

Key timeline

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Practical implications

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Frequently asked questions

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Cite this brief

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Cite this brief

Caselaw, "BLUE SHIELD INSURANCE CO. LIMITED v SAMUEL KAMAU MUHINDI [2009] KECA 437 (KLR)", Case Analysis (2009). Civil Appli 219 of 2009 (UR 152/2009). Source: https://new.kenyalaw.org/akn/ke/judgment/keca/2009/437/eng@2009-10-16

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