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High CourtAllowedNot stated in the judgment (application dated 19/4/2019)· [2020] KEHC 2188 (KLR)

CHINA ZHONGXING CONSTRUCTION COMPANY LTD v VERSUSEDEN DEVELOPMENT LIMITED K

High Court of Kenya
26 October 2020
POP.J.O. Otieno
2,664 words in judgment
View original judgment Watch case
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·~11 min to read original · ~4 min brief

The bottom line

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If your contract mandates arbitration, a court can stop a developer from selling property while the dispute is being resolved.

What this practically means

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Executive summary

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The Plaintiff, through its Managing Director Xu Jiansheng, applied under Section 7 of the Arbitration Act and Sections 1A, 1B and 3A of the Civil Procedure Act for an injunction restraining the Defendant from transferring LR. No. MN/I/3595 Shanzu, Mombasa, pending referral of the dispute to arbitration under clause 45.1 of a construction contract dated 8/6/2009 for Beach Apartments. The Plaintiff claimed a balance of Kshs. 85,410,551/- inclusive of interest and unpaid withholding tax, and feared dissipation of the suit property. The Defendant filed a preliminary objection and replying affidavit, contending the suit should be transferred to Nairobi where both parties reside and the contract was executed, accusing the Plaintiff of forum shopping, and arguing that units had been sold to third parties not joined to the suit and that the contract did not make the project a guarantor of the contractor's claim. The court framed two issues: jurisdiction and whether interim protection was warranted. On jurisdiction, it held that suits concerning immovable property must be filed where the property is situated under Section 12 of the Civil Procedure Act, and that the court's jurisdiction flows from Article 165(3)(a) of the Constitution. On the merits, applying Safaricom v Ocean View Beach Hotel and Seven Twenty Investments, it found an undisputed arbitration agreement, an admitted debt, and a threat of dissipation since units had been sold and transferred. The court allowed the application, referred the dispute to arbitration under clause 45.1, restrained transfer of the suit property or any unalienated unit pending arbitration, and ordered costs of the application to abide the outcome of the arbitration.

Key legal issues

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01

Territorial jurisdiction of the High Court at Mombasa over a suit concerning immovable property

Holding

The court has jurisdiction because the suit property is situated in Mombasa; section 12 of the Civil Procedure Act requires suits relating to immovable property to be filed where the property is situated, and the court's jurisdiction is conferred by Article 165(3)(a).

Reasoning

The defendant argued the suit should be in Nairobi where the parties reside and the contract was executed, accusing the plaintiff of forum shopping. The court held that where the subject matter is immovable property, the suit must be filed within the local limits of where the property is situated. The property is in Mombasa, so the suit was properly filed there. Section 12 is not the conferrer of jurisdiction; Article 165(3)(a) vests unlimited civil jurisdiction.

p. 2
02

Whether interim measures of protection under Section 7 of the Arbitration Act should issue pending arbitration

Holding

Yes. There is a valid arbitration agreement (clause 45.1), the debt is not denied, and the defendant has sold and transferred units on the suit property, so the subject matter is under threat of dissipation.

Reasoning

Applying the Safaricom v Ocean View factors, the court found an arbitration agreement existed and was undisputed, the defendant admitted owing the claim and had disposed of units to third parties, creating a likelihood of wastage of the suit property. Following Seven Twenty Investments, the court need only consider the existence of a valid arbitration agreement and danger of dissipation, not the merits of the dispute.

p. 3

Legal principles established

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  • Once the court finds an arbitration agreement exists and there is a dispute for the arbitrator, the court is obligated to grant an interim order of preservation of the subject matter.

Court orders

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  1. 1.In terms of Clause 45.1 of the contract dated 6/6/2009, the dispute between the plaintiff and the defendant is referred to arbitration in terms of the aforesaid clause.
  2. 2.Pending the reference of the dispute to arbitration and determination thereof, the Defendant/Respondent by itself, its officers, employees, servants and/or agents or otherwise however are restrained from transferring the Suit Property known as LR. No. MN/I/3595 SHANZU MOMBASA or any unit of apartment comprised therein that remains alienated as at today.
  3. 3.Costs of the application to abide by the outcome of the arbitration.

Authorities

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Legislation

  • Arbitration ActSection 7
  • Civil Procedure ActSections 1A, 1B, 3A and 12
  • Constitution of KenyaArticle 165(3)(a)

Cases cited (3)

  • Owners of the Motor Vessel "Lilian S" v Caltex Oil (Kenya) Ltd
    (1989) KLR 1

    Jurisdiction is everything; a court must down its tools where it lacks jurisdiction and decide jurisdictional questions at the earliest opportunity.

  • Safaricom Limited v Ocean View Beach Hotel Ltd & 2 others
    (2010) eKLR

    Factors for granting interim measures of protection under Section 7 of the Arbitration Act pending arbitration.

  • Seven Twenty Investments Limited v Sandhoe Investment Kenya Limited
    (2013) eKLR

    Whether a dispute exists or losses would occur is not a factor; the court considers only the existence of a valid arbitration agreement and danger of dissipation.

Jurisdiction invoked
Article 165(3)(a) of the Constitution; Section 7 of the Arbitration Act; Section 12 of the Civil Procedure Act

Key timeline

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Practical implications

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Frequently asked questions

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Later judgments citing this (1)

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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, "CHINA ZHONGXING CONSTRUCTION COMPANY LTD v VERSUSEDEN DEVELOPMENT LIMITED K", Case Analysis (2020). Not stated in the judgment (application dated 19/4/2019). Source:

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