The High Court has declined to allow the sale of the shares of First European Finance Investment Limited (FEFI) in three companies, including the Vipingo Ridge Ltd, which operates an exclusive golf resort in Kilifi County, as a dispute among shareholders escalates.
FEFI, a special purpose vehicle owns shares in Vipingo Ridge Ltd, Vipingo Beach Ltd, and Sunsail Trading Company Ltd, which were previously owned by a former executive director David Mitchell.
Malindi High Court judge Stephen Githinji dismissed the request on August 22, stating that such prayers are final in nature and can only be granted after the court has heard the main case to its logical conclusion.
“Granting them at this stage will, in my view, be determining the suit primarily or at an interlocutory stage before hearing the evidence,” said the judge.
Justice Githinji also declined to issue an order for taking an account to ascertain the amounts Christopher Horsey and David Horsey expended to acquire shares in FEFI, a company incorporated in Mauritius.
“In my view, the prayer has no basis and is void of substance bearing in mind that this was clearly not an issue disputed by Mr Christopher and Mr David,” said the judge.
Alastair Mark Cavenagh filed an application in court last month seeking several orders, including one requesting an account to determine the amounts spent by the Horseys in acquiring shares in the firm, and another that two out of nine shares in the companies owned by FEFI be transferred to him or to any entity of his choice.
“Alternatively, an order that all the shares of the First European Finance Investment Ltd in the companies be put up for sale by an estate agent appointed by the court to be sold to the highest bidder,” said Mr Cavenagh, a former rally driver.
He said that sometime in 2004, he and Mr Mitchell incorporated a company to acquire a property for the purpose of developing a golf course, which they did through the three companies, inviting the Horseys as investors.
At some point, a dispute over management arose among Mr Mitchell, Mr Christopher, and Mr David.
“This necessitated me to structure a transaction where Mr Mitchell would sell his shares to First European Finance Investment Ltd, as a special purpose vehicle, and without knowing the involvement of Mr Christopher and Mr David in the firm,” he said.
Mr Cavenagh explained that, in return for persuading Mr Mitchell to sell his shares, the duo would fund and enable him to acquire two of the nine shares in the company.
He alleged that after Mr Mitchell's shares were transferred to the company, the two defendants refused to transfer his shares as agreed.
“The duo have continued to misuse their positions within the companies by terminating services of experts while replacing them with family members,” he told the judge.
Mr Cavenagh lamented that the Horseys, if not restrained by a court order, they could transfer the shares out of reach.
However, duo opposed the application, noting that they initially invested $2 million in exchange for 20 percent shareholding in Vipingo Ridge Limited and Sunsail Limited to actualise the project.
Mr David explained that the transaction that is the subject of the applicant’s grievance was indeed proposed by him (the applicant) in 2017, on the basis that Mr Mitchell did not want to sell his shares to them.
“Subsequently, Mr Cavenagh forwarded to us the proposed terms of an agreement which meant that we were to retain one-third of the sale shares and split any profit on the remaining two-thirds of the sale shares amongst ourselves and the applicant, and after the deduction of costs and reasonable interest,” he said.
He added that the applicant’s only right was an economic right in the event of a sale and that at no time was he to receive any shares as alleged in the application.
According to them, an agreement between them was eventually expressly stating that they would finance the acquisition of the sale shares at the agreed price of $6 million, payable in three equal instalments over two years.
“The applicant pledged to commit up to $1 million towards the acquisition price of the sale shares if the companies refunded him a similar amount against his shareholder loans,” said Mr David.
He also said the agreement provided that they would retain one-third of the sale shares, representing the first tranche payment.
Further, he added that the agreement provided that the applicant, Mr Christopher, and himself would hold the sale shares in the company until they were sold, at which time any profit made on the sale of the remaining two-thirds of the sale shares would be divided equally between them, after deducting any costs incurred in the transaction.
“We did not intend to become majority shareholders in the companies. We agreed that Mr Cavenagh would remain as Chairman of the board of directors of the companies until the board would decide otherwise,” said Mr David.
However, the court heard that the applicant only agreed to receive a share of the profits arising from a future sale of two-thirds of the sale shares, which transaction is yet to occur, hence that right was yet to crystalise.
The court heard that, following the agreement, Mr David and Mr Christopher then entered into a loan agreement with First European Finance Investment Ltd, in which they agreed to advance $6 million to be utilised towards the purchase of the sale shares.
In turn, the company and the sellers later entered into three share purchase agreements in July 2018 for the sale and purchase of the sale shares in the three companies.
“Later in April 2020, the applicant wrote to us stating that the sellers had agreed to a reduction of the third instalment amount of the sale shares to $1 million, which we ultimately paid,” said Mr David.
According to him, the applicant, therefore, did not at any time contribute to the purchase of the sale shares, nor was there any agreement or deed of variation entitling him to shares.
