Dominon Petroleum Kenya Ltd & another v Commissioner of Domestic Taxes

of motion also dated 6th December 20221 pursues an order staying execution of the judgment of the High Court pending the hearing and determination of its intended appeal. 2. Both applications arise from the judgment of the High Court (D.S. Majanja, J.) delivered on 19th November 2021 in Tax Appeal No. E093 of 2020, in which the learned Judge upheld the Tax Appeals Tribunal's decision on most issues but found against the applicant on the question of Withholding Tax on Deemed Interest for the period between 1st January 2011 and 31st December 2013, with the consequence that the applicant was liable to pay Kshs. 187,807,449 inclusive of penalties and interest. 3. Briey, the applicant, which is a company incorporated in Kenya, was engaged in oil exploration and entered into a Production Sharing Contract with the Government of Kenya dated 17th May 2011 in relation to Block L9 located oshore within the Lamu Basin. The applicant's exploration eorts were unsuccessful, and it relinquished its licence on 13th September 2016. Thereafter, the respondent carried out a tax audit on the applicant’s operations for the years 2011 to 2016 pursuant to which it issued assessments relating to Withholding Tax (WHT) on imported services, WHT on deemed interest, and Reverse Value Added Tax (VAT). The applicant objected to the assessments, but the respondent conrmed the majority of the assessments, leading to the lodging of an appeal before the Tax Appeals Tribunal (“the Tribunal”) by the applicant. On 24th July 2020, the Tribunal delivered its decision setting aside the respondent's assessment on Reverse VAT and WHT on Deemed Interest for the period prior to 1st January 2014. However, it upheld the respondent’s assessment decision on WHT on local services subject to certain conditions. Dissatised, the respondent appealed to the High Court, which partially allowed the appeal by upholding the Tribunal's decision on Reverse VAT, but reversing its decision on WHT on Deemed Interest for the period before 1st January 2014. As a result, the applicant was required to pay Kshs. 187,807,449 to the respondent. Both parties, being dissatised with the decision of the learned Judge, led separate notices of appeal. 4. With respect to Civil Application No. E434 of 2021 (“the rst application”), the applicant, through an adavit sworn by its counsel in support of the application, averred that on 3rd December 2021, it was served with the respondent's Notice of Appeal dated 1st December 2021. The applicant deponed that the said Notice of Appeal was fundamentally defective as it did not comply with the mandatory requirements of rule 75(3) of the repealed Court of Appeal Rules, 2010, which required a party appealing against part of a judgment to specify the part of the judgment being appealed against. According to the applicant, this omission was not a mere technicality but a substantive failure that deprived the applicant of the right to be informed and to prepare its defence, thereby warranting the exercise of the Court's discretion to strike out the Notice of Appeal under rule 84. 5. In opposition to the rst application, the respondent averred that the Notice of Appeal unequivocally signied the intention to challenge part of the High Court decision. The respondent deponed that the application was based on a mere technicality curable under Article 159 of the Constitution. According to the respondent, no prejudice was suered by the applicant, especially since the applicant conceded that the dispute was still alive by ling its own Notice of Appeal. The respondent further stated that the record of appeal would, in due course, enumerate the specic grounds of appeal, and that the issues in dispute were well known to parties. 6. In Civil Application No. E439 of 2021 (“the second application”), the applicant, in asserting that it had an arguable appeal, averred that the judgment, which upheld the respondent's assessment for Withholding Tax on Deemed Interest for the period prior to 1st January 2014, was erroneous in law. The applicant asserted that the learned Judge failed to appreciate the legal denition of a “loan”, as the nancing received from the applicant’s overseas related parties was “quasi-equity nancing” rather than interest-free loans, a common practice in the oil and gas industry. Consequently, it argued that the https://new.kenyalaw.org/akn/ke/judgment/keca/2026/1806/eng@2026-09-25 2

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deemed interest provisions of the Income Tax Act did not apply. On the nugatory aspect, the applicant deponed that the amount in question was signicant and that, were the respondent to collect the taxes and the applicant succeeds on appeal, obtaining a refund would be lengthy, causing irreparable nancial hardship given that the company has ceased operations in Kenya. The applicant expressed willingness to deposit Kshs. 5,000,000 as security. 7. In response to the second application, the respondent averred that the application was fatally defective since the applicant had not exhibited a draft memorandum of appeal to demonstrate the existence of an arguable appeal. Furthermore, the respondent states that the applicant did not provide any evidence of nancial crisis or that the respondent, being the principal tax collector in the nation, would be unable to reimburse the funds should the appeal succeed. According to the respondent, the applicant's mere apprehension regarding the refund process was not sucient to warrant issuance of an order staying the execution of the judgment. According to the respondent, Kenyans would be prejudiced by any further delay in collecting the tax, and the applicant’s oer of Kshs. 5,000,000 as security was manifestly inadequate compared to the amount owed. Finally, the respondent averred that the applicant’s prayer to “set aside” the judgment was alien to rule 5(2)(b). 8. When the applications came up for hearing, learned counsel, Mr. Ogutu, appeared for the applicant in both applications while his counterpart, learned counsel Mr. Osoro represented the respondent in both matters. Counsel, having led submissions on both motions, sought to mainly rely on them, accompanied by brief clarications. 9. Arguing the rst application, Mr. Ogutu submitted that through its Notice of Appeal, the respondent merely stated that it intended to appeal against “part of the decision” but failed to specify the exact part complained of. Counsel argued that this was a plain and outright violation of a mandatory provision of the rules warranting the exercise of this Court's discretion to strike out the notice. Relying on Tome & Another vs. Attorney General & 2 Others [2021] KECA 150 (KLR), counsel submitted that although striking out a pleading is draconian, it can be resorted to in plain and outright instances. 10. For the respondent, Mr. Osoro contended that the application is misconceived. He traced the history of the dispute to the Tribunal and asserted that both parties are fully aware of the issues in contention. Counsel maintained that the Notice of Appeal served to alert the applicant that the tax dispute was not over yet. Arguing that the defect in the Notice of Appeal is a mere technicality, counsel cited Obado vs. Oyugi & 2 Others [2014] KESC 25 (KLR), where the Supreme Court held that the lack of an address for service in a notice of appeal did not warrant the striking out of the appeal. Counsel implored the Court to invoke Article 159 of the Constitution and render substantive justice since no prejudice to the applicant can be deduced. He also referred to Multichoice (Kenya) Ltd vs. Wananchi Group (Kenya) Limited & 2 Others [2020] eKLR to argue that a notice of appeal is a mere expression of intention to appeal, and failure to comply with procedural requirements may be cured where no prejudice is occasioned. 11. As for the second application, Mr. Ogutu submitted that it met the twin principles for the grant of relief under rule 5(2)(b) of the Court of Appeal Rules. On the arguability of the appeal, counsel submitted that the learned Judge erred in law by failing to appreciate that the nancial arrangements with its overseas related parties constituted quasi-equity nancing rather than loans, and thus fell outside the denition of “deemed interest” under section 16(3) of the Income Tax Act. According to counsel, the question goes to the root of the intended appeal and demonstrates a bona de issue worthy of consideration by this Court. On the nugatory limb, counsel submitted that the amount in question is substantial and that if the respondent is allowed to collect the taxes and the applicant succeeds on appeal, the process of obtaining a refund would be protracted since section 47 of the Tax Procedures Act grants the respondent up to ve years to eect a refund. Mr. Ogutu further argued that https://new.kenyalaw.org/akn/ke/judgment/keca/2026/1806/eng@2026-09-25 3

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the applicant would suer irreparable nancial hardship and loss of use of the funds, and has therefore oered security of Kshs. 5,000,000 as a condition for the grant of the stay. 12. For the respondent, Mr. Osoro asserted that the applicant has failed to satisfy both limbs of the twin test. On the rst limb, counsel submitted that the applicant has not placed a draft memorandum of appeal before this Court, and in its absence, the Court is unable to determine whether the intended appeal is arguable. On the second limb, counsel argued that the applicant has not demonstrated by way of evidence that it is undergoing a nancial crisis or that the respondent, as the principal revenue collector in the country, would be unable to reimburse the funds should the appeal succeed. Counsel further contended that the mere apprehension of a delay in the refund process does not render the appeal nugatory, and that the Kenyan citizenry stood to be prejudiced by any further delay in the collection of taxes. Additionally, counsel asserted that the application is incompetent for seeking the “setting aside” of the judgment, which prayer is alien to the reliefs available under rule 5(2)(b) of the Court of Appeal Rules. To buttress this argument, counsel relied on Shimmers Plaza Limited vs. National Bank of Kenya Limited [2015] KECA 945 (KLR) and Law Society of Kenya vs. Deynes Muriithi & 5 Others [2015] KECA 316 (KLR). 13. Upon addressing our minds to the application and the submissions by counsel, we ag the following issues for determination: 14. a. Whether the respondent's Notice of Appeal should be struck out for non-compliance with rule 75(3) of the repealed Court of Appeal Rules, 2010; and b. Whether the applicant has satised the twin principles for the grant of a stay under rule 5(2) (b) of the Court of Appeal Rules. Should the respondent’s Notice of Appeal be struck out? The motion having been led prior to the enactment of the current rules of the Court, we are called upon to consider whether the respondent’s Notice of Appeal dated 1st December 2021 complied with rule 75(3) of the repealed Court of Appeal Rules, 2010, and if it did not, then what are the consequences of such a defect? Rule 75(3) of the repealed Court of Appeal Rules, 2010 provided that: “Every notice of appeal shall state whether it is intended to appeal against the whole or part only of the decision and where it is intended to appeal against a part only of the decision, shall specify the part complained of, shall state the address for service of the appellant and shall state the names and addresses of all persons intended to be served with copies of the notice.” 15. In the impugned Notice of Appeal the respondent stated that it was “dissatised with the Judgment of Hon. David Majanja, J. delivered on 19th November 2021 at Nairobi, and intends to appeal to the Court of Appeal against part of the decision.” The notice did not, however, specify which part of the decision was being appealed. Was the omission fatal? 16. This Court has had occasion to consider the eect of non- compliance with the rule in Christina Margit Scheiber, Bernard Scheiber Trustees for Women Community Based Organization vs. William Nyongesa Festo Lunyelekwe & Another [2020] KECA 452 (KLR) where it held that: “ In eect, it is a requirement that where it is intended that a part of a judgment or ruling is to be appealed against, then, that part of the judgment or ruling must be specically particularised. It is also worthy of note that the requirement is spelt out in mandatory terms.” https://new.kenyalaw.org/akn/ke/judgment/keca/2026/1806/eng@2026-09-25 4

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17. Similarly, in Kenya Revenue Authority vs. Doshi Iron Mongers & Another [2016] KECA 378 (KLR), the Court discussed the relevance of the rule and pointed out that: “ This provision is not restrictive at all and allows a party to appeal against an entire judgment/ decree. A party aggrieved by an entire judgment of the court must nonetheless state so. Likewise, a party who is aggrieved only by a part of a judgment is at liberty to pinpoint that part of the judgment that aggrieves him/her. When a party species the part of the judgment it wishes to appeal against, and les a notice of appeal to that eect, then it cannot thereafter be allowed to ambush the other parties by including aspects of the judgment which were hitherto deemed to have caused no grievance to the party. This is because principles of justice and fairness demand that no party should ambush the other at the hearing. When a party chooses to appeal only against a part of the judgment and sticks with that notice of appeal to the end, it cannot introduce other matters for determination either through the memorandum of appeal, or in its submissions in court. If a party is unsure of what it needs to appeal against, it is safer to appeal against the entire judgment, but thereafter condense the grounds of appeal, or drop some of them later as may become necessary.” 18. Nevertheless, we remain alive to the dictum in Tome & Another vs. Attorney General & 2 Others [2021] KECA 150 (KLR) that: “ It is now a settled principle that striking out a pleading is a draconian act, which may only be resorted to in plain and outright instances. The power of this court to strike out an appeal is discretionary and is exercised based on the peculiar circumstances of each case.” 19. In the present case, although the respondent in the Notice of Appeal indicated that the intention is to appeal against part of the judgment, the particular holding of the learned Judge which the respondent is dissatised with is not specied. However, in view of the manner in which the Notice of Appeal is framed, it is our opinion that the respondent's shortcoming is not a failure to comply with the rule altogether, but rather a failure to provide sucient particulars. The Notice of Appeal does indicate that the appeal is against “part of the decision.” Additionally, the record before us discloses that the applicant, through its Notice of Appeal dated 2nd December 2021, intended to appeal against paragraph 78 of the judgment relating to WHT on Deemed Interest for the period prior to 1st January 2014. The part of the judgment the applicant is dissatised with cannot be a point of complaint by the respondent. We are, therefore, of the view that even though the respondent does not specify the section(s) of the judgment causing dissatisfaction, it is those parts of the judgment that went against the respondent that are causing grievance. In the circumstances of the matter before us, we nd that there is no risk of ambush because both parties already know the substantive issues in contention. 20. We are guided by Obado vs. Oyugi & 2 Others (supra), where, in rejecting a complaint about failure to provide an address of service in a notice of appeal, the Supreme Court opined that: “ It is also our view that article 163(4) (a) of the Constitution gives the Appellant a ‘right’ to come to Court when seeking a constitutional interpretation and/or application. Such a right should not be abruptly excluded blatantly for noncompliance with a procedural rule, especially where no apparent prejudice to the other party can be deduced.” 21. Considering the foregoing reasons, we nd that no prejudice has been demonstrated by the applicant arising from the failure by the respondent to fully comply with rule 75(3) of the repealed Court of https://new.kenyalaw.org/akn/ke/judgment/keca/2026/1806/eng@2026-09-25 5

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Appeal Rules, 2010. The applicant has been put on notice that the respondent will be appealing against the part of the judgment that went against the respondent. The applicant has led its own Notice of Appeal in respect of the decision on the WHT on Deemed Interest. Having led a Notice of Appeal, the respondent was expected to prepare and le a record of appeal, and the grounds of appeal ought to be fully set out in the memorandum of appeal. In the circumstances, while we acknowledge that the respondent's Notice of Appeal falls short of the ideal, we decline to strike it out considering its partial compliance with rule 75(3) of the repealed Court of Appeal Rules, 2010. In the circumstances, we nd the omission was a procedural error which did not in any manner occasion prejudice to the applicant. The rst application is therefore dismissed. 22. Now turning to the second motion for stay of execution, we commence by observing that the principles governing applications under rule 5(2)(b) of the Court of Appeal Rules are well settled. For an order of injunction, stay of execution or stay of proceedings to issue, an applicant must demonstrate that the intended appeal is arguable and that unless the order sought is granted, the appeal, if successful, would be rendered nugatory. That the dual limbs must both be satised has been reiterated by the Court in several decisions, including Stanley Kang'ethe Kinyanjui vs. Tony Ketter & 5 Others [2013] KECA 378 (KLR) and Reliance Bank Ltd vs. Norlake Investments Ltd [2002] 1 EA 227. 23. The respondent argued that failure to exhibit a draft memorandum of appeal is fatal to an application under rule 5(2)(b) as it amounts to failure by an applicant to establish an arguable appeal. Although we agree with counsel for the respondent that the rst prerequisite is the demonstration of the existence of an arguable appeal, absence of a formal draft memorandum of appeal is not always fatal to the application. The Court can discern the arguability of the intended appeal from the application and supporting documents. In the present application, the grounds of appeal are discernible from the motion and the supporting adavit as already summarized in this ruling. Thus, in Cabinet Secretary Ministry of Health vs. Aura & 13 Others [2024] KECA 2 (KLR), it was held that: “Moreover, whereas such arguable points should ideally and conveniently be expressed in the form of a draft memorandum of appeal, there is no rule that it must be so. One can raise such grounds on the face of the motion and even in the supporting adavit, as happened in this case. We reiterate what was said recently in Ontweka & 3 Others vs. Onderi (supra); “While it would have been desirable for the applicant to annex a draft proposed memorandum of appeal to its application, we are of the view that the omission to do so is not fatal, and is curable in so far as the applicant has suciently set out its grievances on the face of the application. That is the case in this application. The applicant set out what it considers to be arguable points that it intends to raise during the appeal and addressed at length on the same. This is sucient to demonstrate its grievances against the orders that it seeks to be reversed.”” 24. A perusal of the applicant’s pleadings discloses that it intends to challenge the learned Judge’s nding that WHT on Deemed Interest applied for the period prior to 1st January 2014. According to the applicant, the nancing arrangements between it and overseas related parties were quasi-equity nancing, not loans, and therefore fell outside the denition of "deemed interest" under the Income Tax Act. The applicant also questions whether the nancing arrangements between itself and its related parties constituted “loans” within the meaning of section 16(3) of the Income Tax Act. These are arguable points, and as has been held time and again, an arguable appeal is not one that must necessarily succeed. In considering whether an appeal is arguable, it is sucient if a single bona de arguable ground of appeal is raised- see, for instance, President Delivery Unit & 3 Others vs. Katiba Institute [2019] KECA 713 (KLR). We are, in the circumstances, satised that the applicant has demonstrated an arguable appeal betting the attention of the Court. https://new.kenyalaw.org/akn/ke/judgment/keca/2026/1806/eng@2026-09-25 6

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25. The other question is whether the appeal will be rendered nugatory if the orders sought are not granted. The question of whether an appeal would be rendered nugatory must be assessed based on the facts of each case. In Stanley Kang'ethe Kinyanjui vs. Tony Ketter & 5 Others (supra), this Court opined that an appeal would be rendered nugatory where the resulting eect of not granting a stay is likely to be irreversible or where damages would not reasonably compensate the party aggrieved. 26. The applicant submitted that if the respondent is allowed to collect the taxes and the intended appeal succeeds, obtaining a refund will take a long time. According to the applicant, because section 47 of the Tax Procedures Act allows the respondent up to ve years to refund any amount shown to have been overpaid, such a delay would deny the applicant use of the funds, thus adversely impacting on its nancial health. This argument was countered by the submission that the applicant had not demonstrated inability to make restitution nor provided evidence of nancial incapacity by the respondent. 27. We note that the amount in question, being Kshs 187,807,449, is substantial. The applicant’s oil exploratory activities in Kenya were unsuccessful, leading to the shutting down of its operations. It is not in dispute that the respondent is capable of refunding any amount owed to the applicant should the appellant’s appeal eventually succeed. We are also cognizant of the respondent's legitimate interest in enjoying the fruits of its judgment. However, the ability of the respondent to refund any tax payments made by the applicant must be weighed against the colossal amount the applicant is required to pay. In Housing Finance Company of Kenya vs. Sharok Kher Mohamed Ali Hirji & Another [2015] KECA 447 (KLR), the Court, while stressing the necessity of balancing the interests of both parties in monetary decrees, held that: “In seeking to balance the interests of the respective parties, the approach we have always taken in determining whether or not to grant a stay of execution is to ensure that applicants are not denied their opportunity to ventilate their legal cases as aorded under the laws through the appeal process, with the possibility of success, while at the same time, respondents are not denied the fruit of judgment in their favour and their rights are safeguarded. In our view, the balance tilts in favour of the applicant in this application.” 28. We are mindful that the applicant oered to deposit Kshs. 5,000,000 as security. However, the respondent argued that this amount is manifestly inadequate compared to the amount due from the applicant. We agree, considering that the assessed amount is substantial. An oer of security in the sum of Kshs. 5,000,000 is insucient to safeguard the respondent's interest should the appeal fail, more so when the applicant no longer has any footprints in Kenya. Nonetheless, we are satised that the applicant has demonstrated that the appeal would be rendered nugatory if the stay is not granted, given the substantial amount involved. In the circumstances of the application before us, it is only just and fair to both parties that a conditional stay be issued. 29. Accordingly, the applicant’s second application succeeds on conditions to be stated hereunder. 30. In the end, we make the following orders: a. The applicant’s Civil Application No. E434 of 2021 lacks merit and is hereby dismissed; b. The applicant's Civil Application No. E439 of 2021 has merit and is hereby allowed on condition that the applicant deposits the sum of Kshs. 30,000,000 in an interest-earning account in a reputable Kenyan bank (preferably the respondent’s bankers) in the names of counsel for the parties within ninety (90) days from the date of this ruling. Failure to comply will result in the automatic lapse of the stay order; and https://new.kenyalaw.org/akn/ke/judgment/keca/2026/1806/eng@2026-09-25 7

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c. The costs of both applications shall abide the outcome of the intended appeal. DATED AND DELIVERED AT NAIROBI THIS 25TH DAY OF SEPTEMBER 2026. W. KORIR JUDGE OF APPEAL L. M. NDOLO JUDGE OF APPEAL A. I. HASSAN JUDGE OF APPEAL I certify that this is a True copy of the original Signed DEPUTY REGISTRAR https://new.kenyalaw.org/akn/ke/judgment/keca/2026/1806/eng@2026-09-25 8

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