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Court of AppealPartially AllowedCivil Application No. NAI. 54 of 2019· [2019] KECA 492 (KLR)

Space and Style Limited & another v Njama Wambugu & 4 others [2019] KECA 492 (KLR)

Court of Appeal
19 July 2019
3,152 words in judgment
View original judgmentRead on Kenya Law Watch case
AI-assisted case brief
·~13 min to read original · ~4 min brief

The bottom line

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The Court of Appeal halted High Court orders that had sent a shareholder dispute to arbitration, finding the referral questionable and granting stay to protect the company from collapse.

What this practically means

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Executive summary

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The Court of Appeal, Nairobi (Koome, Sichale and ole Kantai, JJ.A.) dealt with two consolidated motions arising from a ruling of the High Court (A. Makau, J.) in H.C.C.C. No. 194 of 2018. The first motion, by Space and Style Limited and Winfrida Wanjiku Ngumi, sought stay of execution of the High Court ruling pending an intended appeal. The second motion, by Njama Wambugu, sought striking out of the notices of appeal on the ground that, the High Court orders having been made under section 7 of the Arbitration Act, section 10 of that Act barred any appeal, relying on Nyutu Agrovet v Airtel Networks Limited. The dispute concerned a share-transfer arrangement between Wambugu and Ngumi governed by a Term Sheet and loan agreement that submitted disputes to Kenyan courts, while the company's Article 32 contained an arbitration clause covering differences between the company and its members. The High Court had referred the dispute to arbitration and issued restraining orders. The Court of Appeal applied the twin principles in Stanley Kangethe Kinyanjui v Tony Ketter: it found a single bona fide arguable point on whether the company's arbitration clause could apply to a dispute between two shareholders, and on the judge referring the dispute to arbitration without any such prayer in the plaint. It also found the appeal would be rendered nugatory if the company collapsed. The stay motion was granted with the appeal to be filed within 60 days and costs to the applicants against the 1st respondent; the motion to strike out the notices of appeal was dismissed with costs to the applicants. The decision below was not disturbed on the merits.

Key legal issues

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01

Whether the intended appeal is arguable

Holding

The intended appeal is arguable: it is arguable whether the arbitration clause in the company's Articles of Association applied to a dispute between two shareholders arising from a share-transfer agreement that provided for resolution by Kenyan courts, and arguable that the judge referred the dispute to arbitration when no such prayer was made in the plaint

Reasoning

The term sheet and loan agreement between the 2nd applicant and the 1st respondent stipulated the laws of Kenya and the jurisdiction of the Kenyan courts, whereas the arbitration clause in Article 32 addressed differences between the company and its members touching the Articles. The dispute arose between two shareholders over the share-transfer arrangement and a possible conflict of interest, so whether Article 32 could apply to that dispute is arguable. The absence of a prayer in the plaint for referral to arbitration also raises an arguable point.

p. 4
02

Whether the intended appeal would be rendered nugatory absent stay

Holding

Yes. The applicants demonstrated that if the High Court orders stood and the company's operations collapsed, the appeal would be rendered nugatory

Reasoning

Counsel submitted that the company's operations were negatively affected by the restraining orders which prevented the newly appointed directors from acting and barred changes to bank mandates. The court found that the collapse of the company and its operations would render the intended appeal nugatory, satisfying the second limb of the Rule 5(2)(b) test. Both twin principles having been met, stay was merited.

p. 4
03

Whether the notices of appeal should be struck out for want of a right of appeal under section 10 of the Arbitration Act

Holding

The second motion was dismissed; reliance on Nyutu Agrovet to argue that no appeal lies from orders under section 7 of the Arbitration Act did not persuade the court, which found the stay application competent and granted it

Reasoning

Counsel for the 1st respondent relied on Nyutu Agrovet v Airtel Networks to submit that no right of appeal exists from a decision made under section 7 of the Arbitration Act and that the Court therefore lacked jurisdiction to grant stay. The court did not accept this, having found the referral to arbitration was not merited on the facts before the High Court; the second motion was accordingly dismissed with costs.

p. 4

Legal principles established

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  • An applicant for stay of execution pending appeal must establish both an arguable appeal and that the appeal would be rendered nugatory absent stay
  • It is sufficient for arguability if a single bona fide arguable ground of appeal is raised; the court must not make definitive findings of fact or law at the stay stage

Court orders

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  1. 1.The second motion (by Njama Wambugu) seeking striking out of the notices of appeal is dismissed with costs to the applicants
  2. 2.Stay of execution of the High Court ruling and orders of 31st January 2019 granted pending the lodging, hearing and determination of the intended appeal
  3. 3.The applicants (Space and Style Limited and Winfrida Wanjiku Ngumi) to file the intended appeal within 60 days
  4. 4.Costs of the stay motion granted to the applicants against the 1st respondent

Authorities

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Legislation

  • Arbitration Actsection 7
  • Arbitration Actsection 10
  • Arbitration RulesRules 1 and 2
  • Civil Procedure Actsections 1(a), 1(b), 3, 3A
  • Appellate Jurisdiction Actsections 3, 3A, 3B
  • Court of Appeal Rules, 2010rules 42, 84 and Rule 5(2)(b)
  • Companies Act

Cases cited (2)

  • STANLEY KANGETHE KINYANJUI v TONY KETTER & OTHERS
    [2013] eKLR
  • Nyutu Agrovet v Airtel Networks Limited
    [2015] eKLR
On appeal from
High Court of Kenya at Nairobi
H.C.C.C. No. 194 of 2018
Jurisdiction invoked
Sections 3, 3A and 3B of the Appellate Jurisdiction Act and rules 42 and 84 of the Court of Appeal Rules, 2010 (Rule 5(2)(b) stay jurisdiction); challenge under section 10 of the Arbitration Act

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, "Space and Style Limited & another v Njama Wambugu & 4 others [2019] KECA 492 (KLR)", Case Analysis (2019). Civil Application No. NAI. 54 of 2019. Source: https://new.kenyalaw.org/akn/ke/judgment/keca/2019/492/eng@2019-07-19

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