[2022] KEHC 601 (KLR)

Entreprise Generale Malta Forrest S.A.S v Kenya Electricity Transmission Company Limited & another (Commercial Case 433 of 2018 & E279 of 2020 (Consolidated)) [2022] KEHC 601 (KLR) (Commercial and Tax) (14 June 2022) (Ruling)

Neutral citation: [2022] KEHC 601 (KLR)

Republic of Kenya

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

Commercial Case 433 of 2018 & E279 of 2020 (Consolidated)

DAS Majanja, J

June 14, 2022

Between

Entreprise Generale Malta Forrest S.A.S

Plaintiff

and

Kenya Electricity Transmission Company Limited

1st Defendant

Isolux Ingeniera S.A (In Receivership

2nd Defendant

Ruling

1. The Plaintiff’s application before the court is the Notice of Motion dated 22nd February 2022. It is made under Part 22(a) and (2) of the Fifth Schedule of the Insolvency Act, 2015. It seeks an order that the court be pleased to grant leave to the Plaintiff to continue the suit against the 2nd Defendant as a nominal Defendant. The application is supported by the affidavit of the Plaintiff’s Business Controller, Jonathan Van Eetvelde, sworn on 22nd February 2022. The 1st Defendant opposes the application by the Grounds of Opposition dated 9th June 2022. The 2nd Defendant opposes the application by the Notice of Preliminary Objection dated 9th February 2022.

2. Before I deal with the substance of the application, it is important to reprise the facts leading to the application which are undisputed. On 30th December 2011, the 1st and 2nd Defendants herein entered into a contract for the engineering, procurement, construction, testing and commissioning of approximately 428km of 400kV transmission line between Loyangalani and Suswa substations. Thereafter on 25th January 2016, 2nd Defendant and the Plaintiff entered into a sub-contract for the execution and completion of part of the construction works and remedying of any defects therein. On 18th January 2017, the Plaintiff and the 1st and 2nd Defendants entered into a Direct Payment Agreement to enable the 1st Defendant make direct payments to the 2nd Defendant so as to enable the 2nd Defendant mobilize additional civil works in order to meet the rate of the construction works as stipulated therein.

3. It is pursuant to this agreement that the Plaintiff instituted this suit against the 1st Defendant by the Plaint dated 28th September 2018. It further moved the court for orders of leave to join Data Concursal SLP, the appointed Administrator/Liquidator of the 2nd Defendant. By the Amended Plaint dated 14th July 2020, the Plaintiff joined the Administrator as a 2nd Defendant. On 15th March 2021, the court adopted a consent entered into between the Plaintiff and the Administrator substituting the Administrator with the 2nd Defendant. The Plaintiff thereafter filed a Further Amended Plaint on 26th March 2021 against the 2nd Defendant.

4. The Plaintiff has invoked Part 22(1)(a) of the Fifth Schedule of the Insolvency Act which is part of the Schedule that deals with Cross-border insolvency and which provides as follows:22. The effect of recognition of a foreign main proceeding:(1)(a)Commencement or continuation of individual actions or individual proceedings concerning the debtor's assets, rights, obligations, or liabilities is stayed.(b)execution against the debtor’s assets is stayed;(c)the right to transfer, encumber or otherwise dispose of any assets of the debtor is suspended.(2)ubparagraph (1) does not prevent the Court, on the application of any creditor or interested person, from making any order, subject to such conditions as the Court thinks fit, that the stay or suspension does not apply in respect of any particular action or proceeding, execution, or disposal of assets.(3)-----(4)----- [Emphasis mine]

5. It is not in dispute that the High Court, by an order dated 24th October 2018 in Nairobi Insolvency Petition No. E009 of 2018 recognized insolvency proceedings in Ordinary Insolvency Proceedings 700/2017 in Spain in Commercial Court No.1 of Madrid in respect of the 2nd Defendant, as a debtor (Isolux Ingeniera S.A). Thus and by reason of the recognition order, the proceedings concerning the 2nd Defendants assets, rights, obligations and liabilities were stayed. The issue for resolution in the application before the court is whether the court should grant permission to the Plaintiff to proceed with the suit against the 2nd Defendant.

6. The Plaintiff contends that the 2nd Defendant is joined as a nominal defendant being the main contractor and its presence is necessary to effectively adjudicate on the dispute between the Plaintiff and the 1st Defendant. It urges that it does not seek any adverse orders against the 2nd Defendant and hence there is no threat of any execution against the company upon final determination of the suit. It urges the court to exercise its discretion under Part 22(2) of the Fifth Schedule of the Insolvency Act to allow it to proceed with the suit.

7. The 1st Defendant opposes the application on the ground that the court cannot issue an order for continuation of the proceedings on the ground that the claim by the Plaintiff against the 2nd Defendant was not subsisting as at the date of the recognition. It submits that whereas the Plaintiff moved the court for orders to join Data Concursal SLP and court granted the orders on 6th July 2020, the leave granted was in respect of the Administrator which is a distinct entity from the 2nd Defendant herein.

8. The 1st Defendant adds that the Plaintiff ought to have sought leave before commencing the suit against the 2nd Defendant and whereas the 2nd Defendant was joined to these proceedings by consent between the Plaintiff and the Administrator, the Plaintiff ought to have sought leave to commence the suit against the 2nd Defendant. The 1st Defendant points out that the Plaintiff only sought leave to have the consent recorded as between itself and the Administrator substituting the 2nd Defendant in place of the Administrator which was adopted as an order of the Honorable Court. It therefore argues that the suit against the 2nd Defendant is fatally defective and the application cannot be founded on the proceedings that are a nullity ab initio.

9. The 2nd Defendant agrees that the court has discretionary power to grant leave to an applicant seeking to commence or continue proceedings against a party under foreign insolvency proceedings recognized by the Court but urges that the Plaintiff has not established any basis that would warrant the court exercising such discretion in its favour. It however asserts that allowing the application will be prejudicial to its interests and will force it to incur substantial costs in the matter.

10. The 2nd Defendant points out that by joining it, the Plaintiff compels the 2nd Defendant to actively participate in the suit where the issues of fact between the Plaintiff and the 1st Defendant are disputed. It states that in the amended plaint, the Plaintiff alludes to the contractual relationship between the 1st and 2nd Defendant and the performance of their respective obligations which places the 2nd Defendant in a position where it is compelled to play a key role in the proceedings as well as defend its position contrary to the expected participation as a nominal defendant whose role would be to give technical input in a matter with no responsibility, no fault and no right of recovery against it. The 2nd Defendant is apprehensive that even if it is sued as nominal defendant, it will incur substantial and unnecessary legal costs to secure its participation in these proceedings noting the jurisdictional disadvantage as its receiver is based in Spain.

11. It is the 2nd Defendant’s submission that the Plaintiff has failed to provide succinct reasons supporting the need for the 2nd Defendant’s participation in this proceedings even as a nominal defendant. It states that continuation of the suit herein as against the 2nd Defendant is highly prejudicial to its interests and will have a substantial cost implication to it. It maintains that the application lacks merit and should be dismissed with costs.

12. It is not in dispute that according to the Further Amended Plaint dated 26th March 2021, the 2nd Defendant is indeed a nominal defendant in that there is no relief sought against it as the Plaintiff only seeks judgment against the 1st Defendant for specific sums. The 2nd Defendant is correct to state that by joining it as a party, it forces the 2nd Defendant to be actively involved in the matter hence incur costs. Where a Company is under Administration, the issue of costs is important as any expenses incurred by the Administrator diminishes the amount due to the creditors. In my view, any expenses incurred by the Administrator must be necessary and for the benefit of the company and its creditors. This is in line with the general objective of Cross Border insolvency under section 2 of the Fifth Schedule to the Insolvency Act which includes, “protection and maximization of the value of the debtor’s assets.”

13. Para. 22 does not set out the factors to be considered when granting leave to a party to continue proceedings against a company under administration. Although, the section does not specifically apply to Cross-border insolvencies, I think the factors set out in section 560A(1) of the Insolvency Act for lifting a moratorium following administration may provide a useful guide which this court may take into consideration. It provides as follows:560A. Considerations to take into account on applications for approval to lift moratorium(1)When considering whether to grant its approval under section 560, the court or the administrator may in particular take into consideration where appropriate —(a)the statutory purpose of the administration;(b)the impact of the approval on the applicant particularly whether the applicant is likely to suffer significant loss;(c)the legitimate interests of the applicant and the legitimate interest of the creditors of the company, giving the right of priority to the proprietary interest of the applicant;(d)whether the value of the secured creditor's claim exceeds the value of the encumbered asset;(e)whether the secured creditor is not receiving protection for the diminution in the value of the encumbered asset;(f)whether the provision of protection may be feasible or overly burdensome to the estate;(g)whether the encumbered asset is not needed for the reorganization or sale of the company as a going concern;(h)whether relief is required to protect or preserve the value of assets such as perishable goods; or(i)whether in reorganisation, a plan is not approved within six months

14. Taking the aforesaid factors in account, I hold that the overwhelming reason to refuse the application is that the Administrator of the 2nd Defendant will be forced to incur unnecessary expenses which would otherwise benefit the creditors as it is not a party against whom relief is sought by the Plaintiff. In the absence of any relief against it, the creditors of the 2nd Defendant do not have any legitimate interest to defend. They do not derive any benefit from the proceedings. Further, I do not think the Plaintiff would be prejudiced as a result of refusal by the court to grant such leave. Since the Plaintiff seeks the 2nd Defendant to give evidence and technical input to its claim, nothing stops it from summoning the 2nd Defendant to give evidence and produce such documents as it may require. In this instance, the Plaintiff will be required to pay the 2nd Defendant’s costs for attendance of court proceedings. The expenses incurred by the parties would be substantially reduced if the 2nd Defendant is only a witness dealing with a specific, known and disclosed aspect of the case rather than being forced to participate in the proceedings wholesale.

15. Although the 2nd Defendant submits that in the event the Court is inclined to grant the application, it urges that the court should direct the Plaintiff to meet the 2nd Defendant’s legal costs of participation noting that the 2nd Defendant, being a nominal defendant, is undergoing insolvency proceedings and is in financial distress. I have taken the broader interests of the 2nd Defendant and its creditors into account and for the reasons I have given, I am unable to accede to this proposal.

16. The Notice of Motion dated 22nd February 2022 is therefore dismissed with costs to the Defendants.

DATED AND DELIVERED AT NAIROBI THIS 14TH DAY OF JUNE 2022. D. S. MAJANJAJUDGECourt of Assistant: Mr M. OnyangoMr Kang’ethe instructed by Kagwimi Kang’ethe and Company Advocates for the Plaintiff.Ms Nthigah instructed by the Office of the Attorney General for the 1st Defendant.Ms Muma instructed by Kaplan and Stratton Advocates for the 2nd Defendant.HC COMM NO. 433 OF 2018 consolidated with COMM No. E279 OF 2020 RULING Page 3