Nganga & 10 others v Capital Markets Authority (Appeal 12 of 2022) [2024] KECMT 784 (KLR) (19 September 2024) (Judgment)
Neutral citation:
[2024] KECMT 784 (KLR)
Republic of Kenya
Appeal 12 of 2022
P Lilan, Chair, G Wangong’u, C Gikonyo, P.Wanga & J Eboko, Members
September 19, 2024
Between
Nicholas Nganga
1st Appellant
Graham Harold MClean
2nd Appellant
Andrew Ndegwa Njoroge
3rd Appellant
Ketan Rameshchandra Shah
4th Appellant
Daniel M Ndonye
5th Appellant
Christopher John Flowers
6th Appellant
Stephen Waruhiu
7th Appellant
Dr John Kimani
8th Appellant
Benjamin Okiring
9th Appellant
Andrew Kiragu
10th Appellant
Kakuzi PLC
11th Appellant
and
Capital Markets Authority
Appellant
Judgment
A. Introduction
1.Kakuzi Limited Plc, the 11th appellant is a public listed company incorporated under the Companies Act, Cap 486 Laws of Kenya (now repealed) and is subject the provisions of the Capital Markets Act, Cap 485A Laws of Kenya. The 1st to 8th appellants are directors of the company, the 9th appellant is said to be a secondee to the company and the 10th appellant is a former employee of the company who retired on the 30th June,2022.
2.As captured in their Amended Memorandum of Appeal dated 7th December,2022, the appellants are aggrieved and dissatisfied by the directions and or decision of the Capital Markets Authority (the Respondent) as contained in the summons for information dated 14th June,2022,1st September,2022 and a letter dated 2nd December 2022.
3.They lodged this appeal seeking orders of the tribunal to set aside the directions/decisions as contained in those documents. In the alternative, they also seek an order of the tribunal to direct the respondent to furnish them with documentation and evidence on the allegations relating to the hearing and inquiry which were the subject of the impugned directions and decision. Further, the appellants also sought an order to restrain the respondent from litigating the inquiry in the media or disclosing to any third party the particulars of inquiry, the responses to the summons or any unsubstantiated information whatsoever in connection with the inquiry and this appeal.
B. Background Facts
Summons for Information dated 14th June,2021
4.The respondent issued summons for information dated 14th June,2021 informing the appellants that it has initiated, on its own motion, an inquiry into the affairs of the Kakuzi Plc. The inquiry was said to be based on the respondent’s findings and recommendations on the company’s governance Assessment audit for the 2019 financial year and particularly on the following areas:a.Management and operational services agreements signed between Robertson Bois Dickson Anderson Limited and Kakuzi plz on 11th December 2017 and Eastern Produce Regional Services Limited and Kakuzi Plc in March,2024;b.Business dealings and agreements with related companies, namely Robertson Bois Dickson Anderson Limited, Eastern Produce Regional Services Limited, EPK Empowerment Company(Kenya) Limited, Lintak Enterprises(K) Limited, Linton Park(Kenya) Limited and Siret Tea Limited;c.Human rights abuse payment of Kshs.696 million; andd.Weak Management and board governance structures.
5.In the same summons, the respondent acting pursuant to section 13(1) and 13B(2)(a) & (b) of the Capital Markets Act, sought to be furnished with information and certified copies of a number of documents. The appellants were to do so by 25th June,2021. It was also indicated in the summons that Messrs Soita Wasike and Douglas Gichaga have been appointed by the respondent to undertake investigations and will be available to receive information and to record statements.
6.From the record, the tribunal has noted that the parties continued to engage after the summons and eventually vide a letter dated 9th July,2021, Kakuzi Plc responded to the request for information and attached copies of a number of documents. Some of the appellants also provided witness statements to the respondent.
7.Upon receipt of the documents and information, the respondent issued individual summons dated 1st September,2022 to the appellants. The Appellants were summoned to appear for interview meetings to be held at the respondent’s premises on various dates between 12th to 16th September,2022.
8.In response to the new set of summons, the appellants through their advocates, M/s. Kaplan & Stratton Advocates, wrote a letter dated 5th September, 2022.The appellants stated that they had not been informed when the investigations begun, what are the specifics on the conflict of interest and the particulars of financial impropriety. Citing Article 47 of the Constitution and section 4(3)(a) and (g) of the Fair Administrative Actions Act, the appellant’s sought full disclosure within 3 days, of the allegations and particulars of financial impropriety that they were being called to answer before the interviews could take place as per the summons. The respondent vide a letter dated 7th September 2022 wrote back to the advocates clarifying that in the summons dated 14th June,2021 the Authority had given full disclosure about the areas and aspects of the inquiry. The advocates for the appellants and the respondent continued to engage thereafter by way of correspondence. Whereas the respondent expressed its commitment to proceed with the interviews as scheduled, the advocates demanded that the appellants be interviewed collectively as opposed to individually. They also demanded that the summons dated 1st September 2022 be withdrawn so as to agree on new dates for the interview. in the end, a full board interview took place on the 9th November,2022.
Respondent’s Findings & Recommendations on Kakuzi Plc Corporate Governance Assessment for year ended December 31, 2021
9.During the pendency of the inquiry, the respondent also received from Kakuzi Plc, the company’s Corporate Governance self-assessment report for the year ended December 31,2021. The respondent conducted a comprehensive assessment on that report pursuant to the Code of Corporate Governance Practices for Issuers of Securities to the Public,2015. As per the letter dated November 15,2022, the respondent in its assessment, stated in part as follows:
10.Drawing reference to that assessment, the appellants’ advocates wrote a letter dated 28th November,2022 pointing out that the inquiry that had been ongoing since June 2021 cannot proceed any further. It was the appellants’ view that the same issues had been dealt with in the corporate governance assessment report which gave the appellants an overall weighted score of 72%. According to the appellants, the law deprecates an inquiry, investigations or trial where the matters in issue have already been subject of a finding, recommendation or determination. That the principle of double jeopardy applies.
11.The respondent wrote back through a letter dated 2nd December,2022 that the corporate governance assessment was a completely independent process from the June 2021 inquiry. It was reiterated in that letter that the inquiry was still ongoing and as such, the undertaking by Kakuzi Plc to provide a feedback during the board interview held on 9th November 2022 as well as through their e-mail of 16th November,2022 has not been varied. The respondent stated that it looked forward to receiving the appellants’ response(s)by 9th December,2022.
12.That in summary is a chronology of the events that provoked the appeal and the proceedings before this tribunal.
C. The Appeal Before The Tribunal
13.The Tribunal record indicate that even as the proceedings were ongoing before the respondent, an appeal had already been filed by the appellants. The original Memorandum of Appeal dated 14th September,2022 was lodged by the appellants, way back on the 14th September 2022 before the tribunal as currently constituted was appointed. The appellants sought orders to set aside the summons for information dated 14th June,2021 as well as the individual summons dated 1st September,2022 issued to the appellants.
14.When the respondent wrote the letter dated 2nd December,2022 informing the appellants that the corporate governance assessment was a completely independent process from the June 2021 inquiry, the appeal was amended through an Amended Memorandum of Appeal dated 7th December 2022.It is relevant to point out that amended memorandum of appeal is supported by the Appellants’ Amended Statement of Facts dated 7th December,2022 and signed by Messrs Kaplan & Stratton Advocates. The appeal was filed together with the Appellants’ Bundle of Documents dated 14th September,2022 and appellants’ Further Bundle of Documents dated 7th December,2022.
15.In summary, the appellants aver that the respondent acting on its own motion issued summons dated 14th June,2021 directed at Kakuzi Plc for information concerning the appellants’ governance assessment and audit for the 2019 financial year.
16.The appellants aver that they provided the respondent with all the information requested under the said summons. On the 9th November 2022, all the appellants board members attended an interview conducted by the respondent. The respondent informed the appellants that it would review the matter and revert with any further questions. The questions were sent out to the appellants on the 14th November 2022.However, on the 15th November 2022 the respondent issued its findings & recommendations on Kakuzi Plc corporate governance assessment for year ended December 31, 2021.
17.The appellants pleaded that the same issues that are subject of the ongoing inquiry had been dealt with in the corporate governance assessment report which gave the appellants an overall weighted score of 72%. Therefore, according to the appellants, the law deprecates an inquiry, investigations or trial where the matters in issue have already been subject of a finding, recommendation or determination. That the principle of double jeopardy applies.
18.The respondent through its letter dated 2nd December 2022 insists on proceeding with the 14th June,2021 inquiry and requites the appellant’s board members to answer to additional questions arising from the 9th November 2022 interview. According to the appellant, proceeding with the inquiry will be in breach of the rules of natural justice and violating the principles of double jeopardy.
19.On the 1st September 2022 the respondent issued fresh summons to each of the 1st to 10th appellants directing them to appear before it on diverse dates between 12th to 16th September 2022 to answer to complaints and allegations said to have been received by the respondent against Kakuzi Plc and its directors on conflict of interest and financial impropriety.
20.The appellants by a letter dated 5th September 2022 requested the respondent to disclose the particulars and the evidence of the allegations forming the basis of their directive and or decision under the summons but the respondent have failed to provide such information. Instead the respondent communicated vide a letter dated 7th September 2022 that the hearing will proceed as scheduled and should the appellants fail to appear they will be deemed to waived their right to be heard.
21.The appellants are aggrieved by the foregoing and relies on Article 47 of the Constitution as well as section 4(3)(a) and (g) of the Fair Administrative Actions Act,2015 which provides for the right to a fair administrative action that expeditious, efficient, lawful, reasonable and fair. They also rely on Article 35 of the Constitution and section 4(2) of the Access to Information Act that grants the right to information held by the respondent and for protection of their interest.
22.It is the appellants’ case that the respondent is in breach of section 13(2) of the Capital Markets Act that requires confidentiality to be maintained in any matter that is subject of the inquiry.
D. Response To The Appeal
23.The respondent opposed the appeal by filing a Statement of Defence dated 16th February,2024 supported by a Statement of Facts dated 16th Febraury,2024 and signed by Esther S. Manthi who is the respondent’s Senior Manager, Investigations & Enforcement.
24.In summary, the respondent denies that the 11th appellant’s Corporate Governance Self-Assessment report can be used to determine the inquiry in the appellants’ affairs as alleged in the Memorandum of Appeal. It averred that by dint of section 11(3) (h) of the Capital Markets Act, the respondent is empowered to conduct an inquiry on its own motion into the affairs of any person who the Authority has approved to issue securities to the public such as the 11th appellant.
25.Further that the 11th appellant’s Corporate Governance Self-Assessment Report and the inquiry that was launched into the affairs of the 11th Appellant are based on similar but distinct issues.
26.The respondent averred that the investigations are not in violation of double jeopardy as the two processes are mutually exclusive notwithstanding the findings of corporate governance may trigger an investigation. In any event the principle of double jeopardy does not apply because neither of the two processes are criminal in nature.
27.The respondent is yet to reach an adverse finding on the inquiry into the 11th Appellant and therefore there is no reason for the respondent to produce documentation that proves the adverse finding of conflict of interest.
28.The respondent also pleaded that it was still conducting investigations and hence within its statutory mandate and powers to issue summons for information to the appellants to supply information to aid in its investigations. Summons by the respondent are lawful having been issued by dint of section 13B(1)(b) and 13B (2) (a, b & c) of the Capital Markets Act.
29.Without prejudice to the foregoing, the respondent also avers that the jurisdiction of the tribunal as anchored in section 35 of the Act, does not extend to prohibiting the respondent from conducting an inquiry nor does it extend to addressing alleged breaches of constitutional rights as raised by the appellants.
30.Finally, the respondent pleaded that the Amended memorandum of Appeal ought to be struck out for material non-compliance with Rule 4(3) of the Capital Market Rules,2002. Further that the issues raised in this appeal have since been overtaken by events as the appellant’s persistent resistance to cooperating with the inquiry have necessitated the respondent issue a Notice of Show Cause dated 5th September,2023.
E. Written Submissions By The Parties
31.Both the appellant and the respondent agreed to prosecute this appeal by way of written submissions. The appellants filed two sets of Submissions dated 7th November, 2023 and 11th April,2024 and the respondent’s Submissions are dated 23rd May,2024. The appellants also filed Further Written Submissions in reply dated 30th May,2024.
32.On the 6th June,2024, the parties through their counsel adopted their respective submissions and also made oral highlights. Learned counsel, Mr. Gachuhi and Mr. Wasonga appeared for the appellant while Ms. Ndirangu and Mr. Mumo were present for the respondent.
33.In determining this appeal, the tribunal considered both the written and oral arguments made by counsel for the parties.
F. Issues Arising In This Appeal And The Tribunal’s Determination
34.Having considered the case presented by the parties based on the pleadings, the evidence on record as well as the submissions by counsel, the tribunal is of the view that the following are the issues for determination in this appeal.a.Whether the Amended Memorandum of Appeal should be struck out for material non-compliance with Rule 4(3) of the Capita Market Tribunal Rules ,2002.b.Whether the respondent’s impugned inquiry proceedings were being conducted in violation of the appellants’ constitutional rights?c.Whether the findings on Corporate Governance dated 15th November 2022 can be used to determine an inquiry.d.Who should bear the cost of this appeal?
Issue No.1: Whether the Amended Memorandum of Appeal should be struck out for material non-compliance with Rule 4(3) of the Capital Market Tribunal Rules ,2002.
35.Rule 4(3) of the of the Capita Market Tribunal Rules ,2002 provides that the Memorandum of Appeal shall be signed by the appellant, if the appellant is an individual, or by a director and the Chief Executive officer of the Corporation.
36.The Amended Memorandum of Appeal dated 7th December,2022 is signed by Kaplan & Stratton Advocates on behalf of the appellants. It in its Statement of Defence, the respondent avers that the Amended memorandum of Appeal ought to be struck out for material non- compliance with Rule 4(3) of the Capital Market Rules,2002.
37.The respondent submitted that the appellants breached the said rule and have equally failed to produce before the tribunal a form of authorization from the appellants instructing them to file the present appeal. That equally the advocates on record have not produced any evidence of authority to institute the proceedings on behalf of the 1st -10th appellants who appear as individuals in this matter, let alone the 11th Appellants.
38.The appellants submitted in response that the advocates on record (who endorsed the appeal) were duly instructed. A Notice of Appointment of Advocates dated 14th September 2022 was filed, a proof that Kaplan & Stratton Advocates were instructed to represent the appellants.
39.Rule 4(3) and 7(1) of the Capital Markets Tribunal Rules provide that the pleadings i.e the Memorandum of Appeal and the Statement of Defence shall be signed by the parties. Those provisions do not refer to the advocates for the parties. However, Rule 14 provides for representation of parties before the tribunal as follows:
40.The tribunal is therefore faced with an objection to strike out a Memorandum of Appeal in light of two sets of rules where on one part, the rules require that a pleading shall be signed by a parties while on the other hand parties may also be represented by authorized agents. In this case a firm of advocates duly appointed endorsed the appeal. It is not disputed that the said firm is properly on record for the appellants.
41.There is of course the object the legislator had in mind in requiring that pleadings be signed the party suing or defending. In the case of Vipin Maganlal Shah & another v Investment & Mortgages Bank Limited & 2 others [2001] eKLR, the Court of Appeal held that the object must clearly be to make the party suing or filing any other pleading take ownership and responsibility for the contents of the pleadings.
42.The Amended Memorandum of Appeal is a document setting out legal and factual grounds of the appeal before this tribunal. It is a document that is ordinarily prepared by or with the input of a lawyer although some litigants may also prepare it themselves. An interpretation that leads to striking out the appeal because the Memorandum is signed by the advocates would in the circumstances of this appeal, unreasonably limit the right to legal representation before this tribunal.
43.If anything, an overly strict interpretation of the rules of procedure and evidence is not the way to go in a statutory tribunal like ours. In GS Kenya Limited v Energy Regulatory Commission & 2 others (Petition 2 of 2019) [2020] KESC 64 (KLR) the Supreme Court of Kenya discouraged a strict application of standard rules of procedure or evidence in proceedings before statutory tribunals. The court held such an approach may negate the fundamental policy-object of such bodies. Instead, the court held that cases before tribunals should be determined on a case to case basis depending on special circumstances. In the words of the Supreme Court it was stated that:
44.Going by the history of this matter, it is clear to us that Kaplan & Stratton Advocates, are the same advocates who have been acting for the appellants before the respondent in the impugned proceedings.
45.However, the tribunal also noted that the amended statement of facts dated 7th December 2022 in support of the appeal was also signed by the said firm of advocates. Although the respondent did not raise an issue with it, we found that to be strange and irregular because a statement of facts under the rules of this tribunal sets out the facts on the appeal and refers to evidence to be adduced at the hearing in support of the appeal. In that regard, Rule 5 of the Capital Market Rules,2002 provides that:
46.In our understanding, that rule requires the filing of a statement of facts that would be equivalent to a witness statement ahead of a formal hearing before the tribunal. The person signing the statement is presumably the witness to be called at the hearing so as to adopt the statement as his or her evidence in chief and that person may then be subjected to cross examination by opposing parties on the contested factual allegations.
47.Although no law prohibits advocates completely from swearing affidavits and making factual averments in the course of their duties as advocates, to do so in contentious evidential facts or issues exposes advocates to the risk of being invited to the witness box for cross examination in the same cases that they are handling. It is tantamount to advocates abusing their privileged position and exposing themselves to vagaries of litigation. [see the case of Habiba Ali Mursai v Mariam Noor Abdi[2021]eKLR].
48.Luckily for the appellants herein, there was a consent by the parties to dispose of the appeal by way of written submissions on the pleadings and documents filed and the case did not proceed to hearing by way of viva voce evidence.
49.Nevertheless, and on account of what already stated, we find no merit in the objection to strike out the appeal on the basis of the memorandum having been endorsed by the advocates who are properly on record for the appellants.
Issue No. 2: Whether the respondent’s impugned inquiry proceedings were being conducted in violation of the appellants’ constitutional rights?
50.The appellants are aggrieved by the proceedings which were ongoing before the respondent. They rely on Article 47 of the Constitution as well as section 4(3)(a) and (g) of the Fair Administrative Actions Act,2015 which provides for the right to a fair administrative action that expeditious, efficient, lawful, reasonable and fair. The appellants also rely on article 35 of the Constitution and section 4(2) of the Access to Information Act that grants the right to information held by the respondent and for protection of their interest.
51.Although they had responded to the summons for information dated 14th June 2021, upon receipt the summons dated 1st September,2022 to appear for interview meetings, they began to resist the process. In fact, it is at that point that the appellants lodged the appeal. For avoidance of doubt, the tribunal’s record indicates that the appeal was fist filed on the 14th September 2022.
52.The appellants challenged the summons dated 14th June,2021 averring that they responded to the same and the respondent did not issue any findings on the inquiry. When summoned to appear for interview meeting via the individual letters dated 1st September 2022, they challenged those summons which they have referred to as “fresh summons”. It is their case that those summons were issued without particulars and evidence.
53.More specifically, the appellants state that summons dated 1st September 2022 is unlawful because it failed to identify the complaint, when it was received and what were the allegations made and against whom. That the summons also failed to identify the record or document on alleged conflict of interest as well as financial impropriety. Further that no documentation in support of the summons have been provided.
54.The tribunal reiterates that place of fair administrative action in our day-to- day interaction with administrative bodies is no longer a question for debate. Article 47 of the Constitution which is elaborated by the Fair Administrative Action Act, 2015 is also clear that a person who is subjected to administrative action is entitled to a process that is expeditious, efficient, lawful, reasonable and procedurally fair. Where the right or fundamental freedom of a person is likely to be adversely affected by administrative action, the person has the right to be given written reasons for the action.
55.At the same time, fairness in light of Article 47 therefore must be taken in the context of the case which include a determination of the nature of the proceedings and the statutory regime or architecture. In Dry Associates Limited V Capital Markets Authority & Another Interested Party Crown Berger (K) LTD [2012] eKLR where the High Court (Hon. Justice D.S. Majanja) held that there is an implicit flexibility in Article 47 where the primary consideration is whether the procedure adopted is fair and that administrative or executive efficiency and economy should not be too easily sacrificed.
56.The proceedings which led to the summons of June 14,2021 were invoked by the respondent on its own motion. Our reading of the Capital Markets Act confirms that the respondent was acting within its statutory mandate can initiate on its own motion, an inquiry into the affairs of a licenced person like Kakuzi Plc
57.Under section 11 (3) (h) of the Capital Markets Act, it is provided that the in carrying out its objectives, the Authority may exercise any of the following powers, duties and functions-Inquire, either on its own motion or at the request of any other person, into the affairs of any person which the Authority has approved or to which it has granted licence and any public company the securities of which are offered or traded on the approved securities exchange or over the counter market.
58.Section 13(1) & (2) of the Capital Markets Act also makes provisions that enables the respondent or its authorized officers to be furnished with information as may be required by a written notice. The section prescribes the manner of obtaining the required information and use. Section 13B of the Capital Markets Act also empowers the Authority to conduct investigations. This can be done where the Authority has a reasonable cause to believe, either on its own motion or as a result of complaint, that an offence has been committed under the Act or a director or an employee of its licensee or approved person may have engaged in embezzlement, fraud, malfeasance or other form of misconduct in connection with the regulated activity. The investigations may also be done where the Authority has a reasonable cause to believe that the manner in which its licensee or approved person has engaged or is engaging in the regulated activity is not in the interest of its clients or in the public interest.
59.The summons for information dated June 14,2021 notified the 11th appellant that the Capital Markets Authority, on its own motion has initiated an inquiry into the affairs of the company. The summons stated that the inquiry is based on the Authority’s findings and recommendations on the Company’s Governance Assessment Audit for 2019 Financial year. The summons stated four areas of investigations, the details of the information and copies of documents required as we have already captured in this judgement. In the conclusion, the Authority advised the company as follows:…We shall appreciate receipt of the above information by 25th June,2021. The Authority has appointed Messrs. Soita Wasike and Douglas Gichaga to undertake investigations and will be available to receive information and record statements.The Authority reiterates that all information provided is confidential and will only be used for regulatory purpose.
60.As we consider this issue and the appeal in general, the tribunal is cautious not to delve into the merits or otherwise of the issues that were being inquired by the respondent. We say so because this appeal was lodged before a final determination could be reached by the respondent. We are also aware that an Appeal No.5 of 2023 between the same parties is also pending before this tribunal and a merit determination of the issues being inquired may be prejudicial to a fair hearing and determination on what could still be pending either before the respondent or in the related appeal.
61.That notwithstanding, we agree with the Appellants submissions that the tribunal has jurisdiction over decisions and the decision making process including directions taken by the Capital Markets Authority. We are guided by the previous decision of the tribunal as referred to by the appellants in Oriental Commercial Bank Limited v Capital Markets Authority (Appeal 1(NRBI) of 2005[2016]KECMT 17(KLTR) ( 6 October 2016)(Award).
62.Nevertheless, the tribunal has noted that the individual summons issued to the 1st -10th appellants also informed them that the Authority has been undertaking investigations into the affairs of Kakuzi Plc following allegations of conflict of interest in the Kakuzi Technical Know-How Service Agreements and alleged financial impropriety. Part of the documents and information sought by the respondent in the original summons made detailed reference to the said agreements.
63.When the appellants through their advocates on record, Kaplan& Stratton Advocates raised issues with the summons dated 1st September,2022, the Authority wrote back vide a letter dated 12th September 2022 making reference to the summons of 14th June,2021. It was clarified to them that the said summons disclosed the areas of inquiry. The Authority also assured the appellants that it had not commenced any enforcement process neither has it reached any adverse findings against the appellants and that the matter was still under investigations.
64.The Advocates wrote again on the 14th September 2022 demanding for board interview of the appellants as opposed to the individual interviews. They sought for a withdrawal of the summons and that a new date be fixed for the interviews even as they reiterated that the appellants are willing to cooperate fully with the Authority. Our record indicates that on the same day [14th September 2022] this appeal was lodged before the Tribunal.
65.The Appellants have submitted to the tribunal that the respondent failed to give reasons for issuing the summons dated 14th June 2021 as well as the summons dated 1st September,2022. From the correspondence exchanged by the parties as we have seen, that is not the correct position. We find that this was an ongoing inquiry commenced by the respondent on its own motion as per the summons dated 14th June202 and the inquiry was based on the Authority’s findings and recommendations on the Company’s Governance Assessment Audit for 2019 Financial year.
66.The respondent was acting within its statutory mandate to conduct the inquiry and to seek for information as was being done. This was clearly within the provisions of sections section 11 (3) (h), 13(1) and 13B(2) (a,b&c) of the Capital Markets Act. At the point of inquiry investigations, no adverse action had been recommended against the appellants and we find no merit in the arguments that they were entitled to additional information documents to support the two sets of summons and directions of 14th June,2021 and 1st September,2022.
67.We agree with the respondent’s submissions that the investigations being done were inquisitorial in nature and its only after a notice that an adverse action is likely to be taken that the appellants’ position to be furnished with reasons and particulars would hold. The appellants moved this tribunal prematurely on that account. We are also guided by the judgment of the High Court (Lady Justice H.I Ong’udi) in Hongo & 2 others v Muthaura & 4 others [2022] KEHC 13288 (KLR) held that investigations that were being done by the Capital Markets Authority against the petitioners therein were inquisitorial in nature and it is only after the petitioners/persons being investigated were issued with a Notice to Show Cause that they would be granted an opportunity to be heard.
68.Section 26(8) of the Act also makes it mandatory in all a cases where the Authority intends to take action [adverse action] under section 25A and 26, that the persons affected, be afforded an opportunity to be heard. That provision of the Act read and interpreted with Article 47 of the Constitution as well as section 4 of the Fair Administrative Actions Act,2015 become fully applicable to the next stage of the proceedings.
69.We are also persuaded by the Court of Appeal judgment in Judicial Service Commission v Mbalu Mutava & another [2014]eKLR where it was held that the right to be given written reasons under Article 47(2) arises, if the right has been or is likely to be adversely affected by the administrative action. In other words, the administrative action must have adversely affected the right or is likely to adversely affect the right.
70.From the documents we have seen in this appeal, we are persuaded that the respondent’s summons dated 14th June2021 and the 1st September 2022 were issued within the statutory powers of the respondent. We have seen no bias, procedural impropriety, ulterior motive, failure to take into account relevant matters, abuse of discretion or unreasonableness as alleged by the appellants. At the point of lodging the appeal, the entire inquiry process was generally fair to the appellants and met the constitutional threshold.
71.The tribunal also finds that the filing of this appeal as was done in the circumstances was clearly premature. In any event, even after the filing the appeal, parties proceeded and acted substantially on the two sets of summons dated 14th June,2021 and 1st September 2022. Part of the information and documents sought have been shared with the respondent and the appellants were also interviewed on the 9th November 2022. All that was pending was sharing the additional information as was discussed in the meeting and thereafter the respondent to make its findings, a report or to take such other action as may be permitted by the law on the inquiry process. Clearly no basis has been established in this appeal to enable us set aside the two sets of summons and we decline to do so.
Issue No.3: Whether the findings on Corporate Governance dated 15th November 2022 can be used to determine an inquiry.
72.The respondent’s findings of 15th November 2022 and the letter dated 2nd December,2022 informing the appellants that the corporate governance assessment was a completely independent process from the June 2021 inquiry, prompted the appellant’s to amend the appeal.
73.It is the appellant’s amended case that the inquiry, that had been ongoing since June 2021 cannot proceed any further. It was the appellant’s view that the same issues had been dealt with in the corporate governance assessment report which gave the appellants an overall weighted score of 72%. According to the appellants, the law deprecates an inquiry, investigations or trial where the matters in issue have already been subject of a finding, recommendation or determination. That the principle of double jeopardy applies.
74.As observed in the tribunal’s previous decision CMT Appeal No. 4 of 2021; Arthur Arnold vs Capital Markets Authority, the Code of the Corporate Governance Practices for Issuers of Securities to the Public, 2015 is a legal instrument issued by the respondent pursuant to its powers conferred by section 11(3)(v) of the Capital Markets Act for application by both listed and unlisted companies. The Code was published through a Gazette Notice 1420 dated 15th December 2015.
75.In terms of implementation, Article 1.1.3 of the Code provides for immediate implementation and in case of non-compliance, the board is required to disclose to the Capital Markets Authority the reasons for non – compliance, and clearly indicate the time frame required and the strategies to be put in place towards full application.
76.Under the same Article 1.1.3 the board of the company is mandatorily required at the end of every year, to disclose in its annual report a statement of policy on good governance of the status of application of the code. The Code provides for minimum standards required of companies that issues securities to the public so as to promote high standards of conduct and to ensure that companies, their directors, shareholders and employees exercise their duties and responsibilities diligently. The Code contains broad principles, recommended practices and guidelines which companies are to adopt in making corporate governance an integral part of their business.
77.the respondent submitted to the tribunal that in compliance with Clause1.1.3 of the Code, the Respondent’s department of Issuer Governance submitted questionnaires to the 11th Appellant to conduct a self-assessment. The self-assessment interrogates whether the company has the necessary policies for purposes of good governance. The answers provided by the appellants as well as the information already available in the public was used by the respondent to evaluate the 11th Appellant.
78.The appellants submit that the assessment report resulting from that evaluation and which gave the company an overall score of 72% should be deemed to have determined the inquiry commenced vide the summons of June 14,2021. The self-assessment and evaluation as we have pointed out from the Code deals with broad principles, recommendations and guidelines. Apart from stating in broad terms, we have not seen evidence that from the appellants stating how the findings on Corporate Governance dated 15th November 2022 specifically dealt with the issues raised in the summons of June 2021 and 1st September,2022. Therefore, we agree with the respondent’s submissions that Corporate Governance Assessment report dealt with an assessment of whether the company has put in place the right structures and policies in place to achieve good governance.
79.In our view, the 11th Appellant’s corporate governance assessment report for 2022 may have awarded a good score to the 11th Appellant but the issues pending in the statutory inquiry proceedings should still be responded to and concluded even if that requires making reference to some of the specific findings in the report. To stop the process under the circumstances of this appeal would be tantamount to impeding a statutory regulator from executing its mandate without a proper basis.
80.The appellants also submitted that the summons of inquiry under sections 13(1) and 13B(2)(a) and (b) of the Capital Markets Act made reference to an inquiry areas and nothing on violation of infringement of law. According to the appellants the respondent is blowing hot and cold because on one hand the respondent wishes to rely on section 13 of the Act and on the other hand it relies on the earlier company’s governance assessment report for the financial year 2019.
81.As we understand it in this appeal, the respondent commenced an inquiry on its own motion based on its findings and recommendations in the audit report of 2019. Section 11 (3) (h) of the Capital Markets Act , we reiterate, permits the respondent to initiate an inquiry on its own motion.
82.However, to effectively conduct such an inquiry, the Act has provisions on furnishing of information to the respondent and its authorised persons. The Act also enables the respondent to deputise in writing a suitable qualified person to conduct investigations. A person so appointed may be granted powers to summon persons believed to be in possession of relevant information and documents so as to produce the same and even to record statements and to answer to questions relating to the matters under investigations. That we understand to be the import of sections 13(1) and 13B(2)(a) and (b) of the Capital Markets Act as referred to by the respondent in the summons.
83.Overall, the tribunal upholds the position taken by the respondent that the inquiry that was instituted against the appellants and the evaluation of the findings on Corporate Governance dated 15th November 2022 were two separate statutory processes with different legal consequences and the latter could not be held to have determined the inquiry that was still ongoing.
Disposition
84.In the upshot, this Tribunal finds no merit in the appeal and the same is hereby dismissed with costs to the respondent.
DATED AND DELIVERED AT NAIROBI THIS 19TH DAY OF SEPT.2024HON. PAUL LILAN, MBS - (CHAIRMAN)HON. GODWIN WANGONG’U - (MEMBER) HON. DR. CONSTANCE GIKONYO, PHD - (MEMBER)HON. PAUL WANGA - (MEMBER)HON. JOSEPHINE EBOKO - (MEMBER)