SUGAR DEAL GOES SOUR
A shareholder dispute over the way a new Kenyan sugar venture is being run must go for arbitration in SA, a judge has ruled
An investment by Mauritian millers in Kenya’s promising but mismanaged sugar industry has turned somewhat bitter. A raging dispute has developed between shareholders, and it has been referred for arbitration in SA.
Though the special tax arrangements that accompanied the 2015 deal were welcomed in some quarters, they were given the thumbs-down at the time by Kenya’s Tax Justice Network, which said such deals were bad for the local economy. Now the agreement is coming unstuck anyway, and the courts have been asked to decide which forum should settle the disputes.
At the heart of a recent court spat is a special arbitration clause included in the shareholders’ agreement signed in 2015 between a number of parties including Transmara Sugar (TSCL) — already operating in Kenya — and Mauritian newcomer Sucrière des Mascareignes. This clause provided that any dispute that could not be amicably resolved was to be settled by a single arbitrator, sitting in SA. The agreement stipulated that the award would be final and binding and not subject to appeal, and arbitration costs — excluding costs of counsel — would be shared equally between the parties.
Since the agreement was signed, a group of shareholders holding 41% of the new company, and linked to the Mombasa-based family that founded TSCL, have become unhappy with the way the Mauritian majority has been running the venture. The minority shareholders accuse the Mauritians of “oppressive” conduct that unfairly prejudiced them.
They also claimed “systemic and deliberate mismanagement” that eroded profits, and petitioned the high court in Kenya for a wide-ranging order preventing the new special-purpose vehicle, Transmara Investment, from initiating a rights issue without following agreed procedure.
Was this evidence of a dispute, however, and ought it thus to be sent for arbitration?
The minority shareholders strongly argued against arbitration, saying the dispute raised constitutional questions and such issues could not be arbitrated. The other side said the dispute was purely commercial.
The matter was dealt with by the high court’s commercial division in Nairobi, where the judge, Francis Tuiyott, found that the minority shareholders were “basically disguising issues of company law as constitutional questions”, and that they should not be allowed to avoid the forum (arbitration) they had chosen to resolve disputes “by invoking the name of the constitution”.
The minority shareholders also argued against reference to arbitration on the grounds that SA is not a “reciprocating country” under Kenya’s Foreign Judgments Act and the whole arbitration agreement was thus null and void.
New York connection
The judge said it was true that SA is not listed on Kenya’s schedule of “reciprocating countries”. This meant that even if SA law provided for recognition and enforcement of an arbitration award as a decree of court, it could not be enforced in Kenya via that country’s own law.
But that was to miss the point, said the judge, because there was another route to enforcing any SA arbitration award: under Kenya’s Arbitration Act, any such award made in SA would be recognised as binding and enforceable.
This act stipulates that Kenya is bound by the New York Convention on the Recognition & Enforcement of Foreign Arbitral Awards, a convention to which SA is a contracting party, having acceded to the convention with effect from 1976.
Clearly, therefore, the high court of Kenya could receive for recognition and enforcement a foreign arbitral award made in SA.
The judge referred the dispute for hearing by an arbitrator in SA.
But that was to miss the point, said the judge … there was another route to enforcing any SA award