[2022] KEHC 16417 (KLR)

Cordisons International Kenya Limited v Innovation and Growth Academy BV (Civil Appeal E014 of 2020) [2022] KEHC 16417 (KLR) (Commercial and Tax) (9 December 2022) (Judgment)

Neutral citation: [2022] KEHC 16417 (KLR)

Republic of Kenya

In the High Court at Nairobi (Milimani Commercial Courts Commercial and Tax Division)

Commercial and Tax

Civil Appeal E014 of 2020

DAS Majanja, J

December 9, 2022

Between

Cordisons International Kenya Limited

Appellant

and

Innovation And Growth Academy BV

Respondent

(Being an appeal from the Judgment and Decree of Hon. A. M. Obura, CM dated 15th May 2020 at the Nairobi Magistrates Court, Milimani in CMCC No. 807 of 2016)

Judgment

1. By way of background and according to the Plaint dated 12th February 2016 filed in the Subordinate Court, the parties herein entered into a Joint Development Agreement dated 26th January 2014 (“the JDA”) to jointly develop, finance, build and own wind-powered generation facilities at the Lake Moa Site and/or Pate Island and/or Kiongwe site (“the Project”). The Respondent advanced the Appellant a loan in the sum of USD 50,429. 00 towards its expenditure for the project. The Appellant unilaterally terminated the JDA and as result the Respondent demanded payment of the entire loan amount. Despite admitting its indebtedness and promising to pay the loan, the Appellant failed to pay the amount whereupon the Respondent filed suit seeking judgment for USD 50,429. 00 together with interest at the LIBOR rate plus 4% per annum from 6th June 2015 until payment in full.

2. In its Statement of Defence dated 4th July 2016, the Appellant denied the claim. It admitted that the parties entered into an agreement for joint development of the Project but the JDA was not executed as required by the Law of Contract Act (Chapter 23 of the Laws of Kenya) and was therefore not enforceable. The Appellant pleaded in the alternative that in the event the court found the JDA enforceable, it was entitled to terminate it as a result of the Respondent’s breach. The Respondent stated that the Appellant did not advance the USD 50,429. 00 to it as alleged and that the sum was a capital projection notwithstanding the terminology used in the JDA and would only be recovered on completion of the Project. The Appellant also denied that it admitted that it was indebted to the Respondent as alleged.

3. The Subordinate Court heard the matter, considered the submissions and rendered its judgment on 15th May 2020 in favour of the Respondent as was prayed in the Plaint. The trial court framed two issues for consideration. First, whether the JDA was enforceable and second, whether the Appellant was indebted to the Respondent. On the first issue, the trial magistrate held that since both parties agreed that the JDA had been terminated, the issue whether it was enforceable or not, was the subject of pending arbitration proceedings. It was not therefore necessary to determine this issue. On the issue of indebtedness, the trial court entered judgment on the basis of admissions liability based on two letters dated 6th June 2015 and 22nd September 2015 authored by Appellant’s director which referred to the amount as an unsecured loan which was a separate loan not dependent on the success of the Project under the JDA.

4. Aggrieved by the Judgment, the Appellant has filed this appeal on the grounds enumerated in the Amended Memorandum of Appeal dated 17th June 2020. In summary, the Appellant assails the Judgment of the Subordinate Court on the ground that it failed to find that the relationship between the parties could only be contractual in nature, solely based on a JDA that was yet to be executed by the parties. It complains that the trial court relied on without prejudice offers to settle an unsecured debt of USD 47,000. 00 which offer was not accepted and which could not give rise to any liability. The Appellant further complains that the trial court erred in dealing with the JDA on the basis of a pending arbitration case when no evidence was furnished on its existence, that it relied on a draft JDA which was not executed hence unenforceable, that it failed to consider plea of fraud which has been pleaded and proven and that it disregarded the Plaintiff’s breach of contract which discharged the Defendant of its obligations under the contract. The Appellant states that the trial court did not consider its defence and evidence and thus erred in holding that it was liable to pay the amount as there was no admission of liability.

5. This is a first appeal from the Subordinate Court. In resolving it the court is guided by the established principle set out in several decisions including that the first appellate court is entitled to review the record before the trial court and come to an independent conclusion as whether the findings of the trial court are correct but at all times making allowance for the fact that it never heard or saw the witnesses testify so as to assess their demeanour (see Abok James Odera t/a A.J Odera & Associates v John Patrick Machira t/a Machira & Co. Advocates [2013] eKLR and Selle and Another v Associated Motor Boat Company Limited and Others [1968] EA 123). In this appeal, the parties have filed written submissions which I have considered. The issue before the trial court and before this court is whether the Appellant was indebted to the Plaintiff for the sum of USD 50,429. 00.

6. Although the Respondent contends that parties did not enter into a JDA, it is not in dispute that by a letter dated 17th March 2015, the Appellant wrote to the Plaintiff terminating the JDA. I agree with trial court therefore that the validity or otherwise of the agreement on the basis that it was not executed is not relevant since the Appellant by terminating the JDA implicitly admitted its validity. Further, from paragraphs 7 and 8 of the Plaint, the Respondent’s case was founded on admissions contained in correspondence exchanged between the parties and not the JDA.

7. The thrust of the Respondent’s case, as pleaded, was that by a letter dated 6th June 2015 the Appellant acknowledged its indebtedness to the Plaintiff and offered to pay USD 47,000. 00 together with interest of 3 month LIBOR plus 4% within 180 days and the letter dated 22nd September 2015 in which the Appellant admitted its indebtedness and offered to pay the loan within 60 days. The thrust of the Appellant’s appeal is that the court could not enter judgment based on the correspondence.

8. The Appellant’s case is that the letters relied on were issued on without prejudice basis, that the Respondent did not accept the offers hence the letters were not admissible and could not form the basis for judgment. Both parties have cited several decisions to discuss the implication of without prejudice correspondence. The general principle is that a without prejudice offer is inadmissible to prove the contents of the admission unless the admission is accepted and leads to binding agreement. In Geoloy Investments Ltd v Behal t/a Krishan Behal and Sons [2002] 2 KLR 447, Mwera J., expressed the rationale for this position as follows:The rubric “without prejudice” has been used over the ages particularly in correspondence between counsel for litigating parties to facilitate free and uninhibited negotiations to explore settlement of dispute. Until such time as there is a definite agreement on the issues at hand, such correspondence cannot be used as evidence against any party. The rubric simply means “I will make you an offer, if you do not accept it, this letter should not be used against me. Or I make the offer which you may accept or not, as you like, but of you do not accept it, my having made it is to have no effect at all.” It is a privilege that is jealously guarded by the court otherwise parties and their legal advisers would find it difficult to narrow down issues in dispute or to reach out of court settlement.

9. This position is supported in other cases including Lochab Transport Ltd v Kenya Arab Orient Insurance Ltd [1986]eKLR where the court observed that, “.. if an offer is made "without prejudice", evidence cannot be given on this offer. If this offer is accepted, a contract is concluded and one can give evidence of the contract and give evidence of that ‘without prejudice’ letter". In addition to case law, section 23(1) of the Evidence Act (Chapter 80 of the Laws of Kenya) stipulates that:23(1) In civil cases no admissions may be proved if it is made either upon an express condition that evidence of it is not to be given or in the circumstances from which the court can infer that the parties agreed together that evidence of its should not be given.

10. It is against this background that I turn to the subject correspondence. The letter dated 6th June 2015 from the Appellant addressed to the Respondent is clearly written on a “without prejudice” basis. After the recounting the issues leading to the termination, the Appellant concludes with an offer on the following terms:Please confirm your acceptance or otherwise of the Offer in writing, within three (3) working days of the date of this letter, failing which the Offer will lapse and CIL will repay to ae both the USD 26,000 (ae’s incurred Cost) and the USD 47,000. 00 advanced as unsecured loans together with Interest Rate within 180 days of the date of this letter.

11. By a letter dated 23rd June 2015, the Respondent addressed the Appellant. It made reference to its earlier letter of 26th March 2015 but in the body of the letter, it referred to the Appellant’s letter dated 6th June 2015 as follows:In its letter of June 6th 2015, CIL acknowledged unsecured loans owed by CIL and its directors personally to AE in the amount of USD 47,000 and offered to repay them with interest of LIBOR + 4 by December 2015. According to the complete project expenditure list (Attachment II), the correct amount is USD 50,429. 00

12. From the two letters, it is evident that the letter dated 6th June 2015 was an express without prejudice offer for a specific amount on certain terms. This offer was not accepted within time demanded nor on the conditions set. In effect, the Respondent, in its letter of 23rd June 2015, made a counter-offer. I therefore hold that the Appellant’s letter dated 6th June 2015 could not be construed to be an admission of the debt.

13. The Appellant’s subsequent letter dated 22nd September 2015, was in response to the letter of demand dated 14th September 2015 by the Respondent’s advocates, Kaplan and Stratton Advocates, which stated, in part, as follows:Our client demands immediate payment of loans in the sum of USD 50,429/-. By your letter dated 6th June 2015 you acknowledge the said debt and offered to repay the same with interest of LOBOR plus 4% by 2nd December 2015. If the loans are not repaid with interest within 10 days from the date hereof, our client shall compelled to institute recovery proceedings without any further reference to you and at your risk as to costs and other incidentals.

14. In response to the demand letter, the Appellant wrote the letter dated 22nd September 2015 which, at the material part, stated that:With regard to unsecured loans, the amounts of which are documented, we are pleased to revise our earlier offer; we intend to repay ae within 60 calender days of this letter. Please furnish us with details of your bank account for that purpose.

15. From the totality of the correspondence between the parties, I hold that while the letter dated 6th June 2015 could not be construed as an admission of the debt, the subsequent letter dated 22nd September 2015 in response to the Respondent’s advocate’s demand, the Appellant’s letter dated 22nd September 2015 amounts not only to an admission of indebtedness but an offer to pay the documented amount. The documented amount as stated by the Respondent in its letter dated 23rd June 2015 is USD 50,429. 00.

16. Having reviewed the evidence, I find and hold that the Appellant’s admission of indebtedness to a specific amount as I have shown entitled the Appellant to judgment. In view of this clear admission, the Respondent’s contention in its defence that sum was merely a capital projection and that the amount would paid on completion of the Project could not stand. Likewise, the allegation of breach of contract, in view of the admissions, are irrelevant since the admissions was unequivocal. While I accept that the trial magistrate did not consider the Appellant’s defence in the judgment, such consideration would neither add nor subtract from the admission. Finally, the admission lays to rest any argument by the Appellant that the judgment must be based on the JDA since the admission concerned separate arrangements and the Respondent’s case, as pleaded, was on the basis of admissions contained in the correspondence.

17. For the reasons I have set out above, I am constrained to dismiss the appeal with costs to the Respondent. The costs are assessed at Kshs. 120,000. 00.

DATED AND DELIVERED AT NAIROBI THIS 9TH DAY OF DECEMBER, 2022. D. S. MAJANJAJUDGECourt Assistant: Mr M. Onyango.Ms Wanyonyi instructed by Wasuna and Company Advocates for the Appellant.Ms Onyango instructed by Kaplan and Stratton Advocates for the Respondent.