[2021] KEHC 4643 (KLR)

REPUBLIC OF KENYA

IN THE HIGH COURT OF KENYA

AT MERU

CIVIL APPEAL NO. 5 OF 2019

FRANCIS KITHINJI MBOGORI…...…………...…………………..….APPELLANT

VERSUS

JOYCE KARAMBU RINGERA……………..…...…………...……….RESPONDENT

RULING

1. Francis Kithinji Mbogori, the Appellant herein bought a motor vehicle being lorry registration number KAQ 952E valued at Ksh 2,080,000/=. The purchase of the vehicle was financed by Consolidated Bank and the security for the same was a chattels mortgage over the vehicle. Francis, being unable to service the loan by Consolidated Bank, got into an agreement with Joyce Karambu Ringera, the Respondent, for transfer of the motor vehicle to her and she would in turn, settle the outstanding loan with the Bank and other repair charges. Despite paying some amounts and being willing to clear the entire loan, the Bank declined to execute the transfer forms in her favour.

2. This prompted the Respondent to file the primary suit in the lower Court, Meru CMCC No. 290 of 2009 seeking for a refund of her money, claiming that the agreement was frustrated by the Appellant. She was successful in the lower Court and by a Judgement delivered on 18th December 2018 by Hon. Mrs. Ambasi, the Court ordered the Appellant to pay her Ksh 828,127/= plus interests. In finding so, the Court held that the agreement entered into by the Appellant and the Respondent was void ab initio since the Appellant could not purport to sell a vehicle which was already the subject of a chattels mortgage.

3. The Appellant, being aggrieved by the finding of the lower Court filed the instant appeal. He claimed that the Respondent has been having possession of the vehicle and that it is the Respondent who frustrated the agreement with the Appellant by making claims against the Bank. His appeal was partially successful in that the Court, by a Judgement dated 10th March 2020 by S. Chitembwe J, set aside the initial award, ordering him to pay the Respondent Ksh 828,127/= and substituted it with an order requiring the 2nd Defendant and now the Applicant Bank to release the original log book of the vehicle to the Respondent. The Court took into account the fact that the Respondent had been in possession of the vehicle all this while.

The Application

4. Consolidated Bank of Kenya, the Applicant Bank herein and the 2nd Defendant in the primary suit was aggrieved by the decision of the Court on appeal and filed the instant application dated 16th February 2021. The Applicant seeks the following orders: -

i)

ii)

iii)

iv) That the Honourable Court be pleased to vacate and/or set aside its Judgement delivered on 14th April 2020 and issue directions for the fresh determination of the Appeal de novo.

v) That the Honourable Court be pleased to grant leave to the Applicant to be enjoined as the 2nd Respondent and/or Interested Party in the appeal herein and allow it to participate in the proceedings herein.

vi) That the costs of this application be borne by the Appellant.

5. The application is supported by the grounds on the face of it and by the supporting affidavit and further supporting affidavit of Albert Anjichi, the Bank’s Legal Manager. The Applicant claims that despite being a necessary and interested party, the Appellant failed to enjoin it in the Appeal and consequently, the Appeal was prosecuted and Judgment delivered without any notice and participation by the Applicant, contrary to the principles of natural justice. The Applicant claims never to have been served with the Memorandum of Appeal or Record of Appeal as had been directed by the Court during the admission of the appeal and that there is no affidavit of service to confirm any kind of service. The Applicant urges that in any such appeal, all parties before the trial Court must be given notice of the appeal. It is further urged that writing off a facility as a bad debt does not vanquish the recovery process as of and when there is a chance for such recovery.

6. It claims that following delivery of Judgment, a Notice to Show Cause has been issued against the Applicant to give effect to the orders of the Court. That the order required the Applicant to execute transfer documents in favour of the Respondent in respect of the subject motor vehicle whereas the said vehicle was security for a facility which has not been redeemed up to date. That there was no privity of contract between the Bank and the Respondent to warrant such a decree and that at the primary suit, the agreement between the Appellant and Respondent was declared void ab initio. That under the chattels mortgage agreement entered into between it and the Respondent, the Appellant was not allowed to part possession of the motor vehicle.

7. The Applicant’s claim is that a party cannot be condemned unheard and that owing to their non-joinder, the Judgment of the Court, is in effect ratifying a null and void sale agreement to the detriment of the Applicant who relies on the said vehicle as security. The Applicant avers that it is ready and willing to participate in the appeal in order to protect its interests as it is directly affected by the outcome of the appeal.

8. The Applicant also filed submissions dated 3rd May 2021. Therein, the Applicant restates the facts and sequence of events from the lower Court. It is further submitted that Order 10 Rule 11 gives the Court discretion to set aside Judgement and this should be done herein because the same was irregular having been entered against the Applicant despite it not having participated and/or been enjoined in the proceedings thereby condemning it unheard. The Applicant relies on the case of CA No. 6 of 2015 James Kanyita Nderitu v Maries Philotas Ghika & Another (2016) eKLR and Frigonken Ltd v Value Park Food Ltd HCC No. 424 of 2010.

9. On the issue of leave to be enjoined, the Applicant urges that Order 1 Rule 10 (2) gives the Court discretion to enjoin parties. He relies on the case of Technomatic Limited T/A Promopack Company v Kenya Wine Agencies Limited & Another (2014) eKLR. The Applicant urges that it is indeed a necessary party to the appeal, that the Judgment of the Court cannot be enforced without its presence and that its joinder is necessary to enable the Court to effectively adjudicate upon all the issues involved in the suit.

10. It is finally urged that the fact that the loan was written off as a bad debt does not mean that the Applicant has no stake in these proceedings and that the writing off of a facility as a bad debt does not vanquish the recovery process if and when there is a chance of such recovery. It is urged that as at 15th February 2021, the loan balance stand at Ks 1,253,233/= and the Appellant should therefore not be allowed to adopt a pedestrian view that writing off a debt vanquishes his obligations to service the loan as well as the Applicant’s right to recover the money owed. It relies on the case of Nicholas Mahihu Muriithi v Barclays Bank Kenya Limited (2018) eKLR and Mohamed Gulamhussein Farzal Karmali & 2 Others c C.F.C Bank Limited & Another (2006) eKLR.

Appellant’s/1st Respondent’s Case

11. The Appellant/1st Respondent opposed the application by way of his replying affidavit and further replying affidavit. He also filed submissions dated 26th May 2021. He restated the series of events in the lower Court including the contents of the Plaint and the application for injunction made by the 2nd Respondent. He also avers that in the lower Court, the Bank did not make any claim against him or any counterclaim against the 2nd Respondent in their defence. That the Bank did not challenge the orders for injunction sought by the 2nd Respondent in the lower Court and this means that from 11th February 2009 when the Bank released the vehicle to the 2nd Respondent to the date of delivery of Judgement on 18th December 2018, the 2nd Respondent has been in possession of the vehicle. That further, the Bank’s witness during hearing, DW2 Reuben Onsando made it clear that all his loans were written off as a loss in 2015. He avers that the Bank abandoned the vehicle in the hands of the 2nd Respondent over 20 years ago and that the transfer documents ought to be released as ordered by the Court.

12. Concerning the issue of privity of contract, the Appellant urges that it was the Bank’s Meru Branch Manager who advised them to enter into a sale agreement and that upon them entering into the said agreement, the vehicle was released to the 2nd Respondent and that the Bank cannot deny to have been part of the vehicle.

13. In his submissions, the Appellant gives a factual background of the matter and his submissions are majorly a restatement of what is in his affidavits. He urges that the Judgment sought to be set aside was considered and delivered by a competent Judge an appeal with powers conferred upon him under Sections 5, 32 and Order 42 Rule 5 of the Civil Procedure Rules, 2010. He urges that the Court, as currently constituted has no jurisdiction to set aside Judgment delivered on appeal from a Magistrate’s Court by a Court of equal status and that in the case herein, the relief sought, if any, lies elsewhere and not in this Court. He submits that the authorities relied upon by the Applicant are irrelevant. He urges that the application herein is misconstrued, misplaced and has no merits and he prays that the same be dismissed with costs.

Issue for Determination

14. The central issue for determination is on whether or not the judgment issued herein should be set aside. If this Court finds that the same should be set aside, the Court will inevitably enjoin the Applicant in the proceedings and order for a fresh hearing. If it finds otherwise, then the prayers for joinder will also fail.

15. Over and above these issues touching on the legal principles on setting aside judgment and joinder of parties, the real dispute between the parties involves the question of whether the Appellant, a beneficiary of a loan facility offered to it by the Applicant Bank for purposes of purchasing a motor vehicle could rightfully sell to the 2nd Respondent (who did not participate in this application, and in whose favour the Court ordered for the transfer of the log book) a motor vehicle which was the subject of a chattels mortgage. Corollary to this issue is the indebtedness of the Appellant to the Applicant Bank and how the Bank’s interests are to be secured.

Determination

Procedure for Setting Aside Judgment from a Court Sitting on Appeal

16. The Respondent in his submissions appears to suggest that a Judgment rendered by a Court sitting on appeal cannot be set aside by a court of equal status. To begin with, this Court observes that the Respondent did not raise this issue in his replying affidavits. This is a point of law which ought to been urged in the pleadings. This Court has previously held that submissions cannot be a substitute for pleadings and parties are bound by what is in their pleadings. It would thus not be necessary to explore this issue further.

17. Nonetheless, even if this issue had been properly urged, this Court finds that an order for setting aside can be done by the same Court that gave the decision, even if the Court was sitting on appeal as it rendered the Judgment. It would in fact not be possible for the Applicant to appeal against a decision in a matter where it was not in the first place a party. In any event, the application made by the Applicant is not primarily hinged on any merit based claims but it is instead hinged on the factual issues of non-joinder and omission to serve it. The issues of merit alluded to in the application are merely subservient and persuasive. This Court will therefore go into the merits of the application.

Grounds for Setting Aside a Judgment

18. The Applicant Bank claims that it was never given any service and was never served with the Memorandum and Record of Appeal. The Respondent did not allude to the fact of having served the Applicant with either the Memorandum of Appeal or Record Appeal. Indeed, this Court has perused the record and has not seen any affidavit of service with respect to service of the Memorandum and Record of Appeal.

19. The Respondent’s main contention is that the decision did not adversely affect the Applicant by reason of it having written off the loan in issue as a bad debt. In response to this issue, the Applicant has averred that the fact of it having written off a loan as a bad debt does not preclude it from recovering it as and when an opportunity arises.

20. The principles that guide Courts in determining applications for setting aside judgment are well espoused in law. Primarily, a Judgment will be due for setting aside if it is found to be irregular. An irregular Judgment is due for setting aside in limine. There are various factors that would make a judgement irregular. A judgement issued against a party who did not participate in the proceedings in this Court’s view is irregular as Court orders cannot be enforced against non-parties. This was established in Mulla’s Code of Civil Procedure, 16th Edition Vol.2 at page 1496 as follows: -

“…It cannot be gainsaid that no decree in a suit can bind a person if he is not a party thereto or duly represented therein…”

21. In the Court of Appeal case of James Kanyiita Nderitu & another v Marios Philotas Ghikas & AnotherCivil Appeal No. 6 of 2015(2016) eKLR Makhandia, Ouko (as he then was) & M’Inoti, JJ.A held as follows: -

‘In an irregular default judgment, on the other hand, judgment will have been entered against a defendant who has not been served or properly served with summons to enter appearance. In such a situation, the default judgment is set aside ex debito justitiae, as a matter of right. The court does not even have to be moved by a party once it comes to its notice that the judgment is irregular; it can set aside the default judgment on its own motion. In addition, the court will not venture into considerations of whether the intended defence raises triable issue or whether there has been inordinate delay in applying to set aside the irregular judgment. The reason why such judgment is set aside as of right, and not as a matter of discretion, is because the party against whom it is entered has been condemned without notice of the allegations against him or an opportunity to be heard in response to those allegations. The right to be heard before an adverse decision is taken against a person is fundamental and permeates our entire justice system. (See Onyango Oloo v. Attorney General [1986-1989] EA 456). The Supreme Court of India forcefully underlined the importance of the right to be heard as follows in Sangram Singh v. Election Tribunal, Koteh, AIR 1955 SC 664, at 711:

“[T]here must be ever present to the mind the fact that our laws of procedure are grounded on a principle of natural justice which requires that men should not be condemned unheard, that decisions should not be reached behind their backs, that proceedings that affect their lives and property should not continue in their absence and that they should not be precluded from participating in them.”

See alsoFrigonken Ltd v. Value Pak Food Ltd, HCCC NO. 424 of 2010.

22. Although the above authority applied to cases of suits filed at the first instance involving the requirement to serve summons, and with reference to default judgements, this Court does not see any reason why the principles espoused therein should not apply to cases on appeal. The appeal process and proceedings therein are separate and distinct from those of the trial Court and upon institution of any such appeal, it follows that the requirements of service of the memorandum of appeal and Record of Appeal to all parties is equally of value in the same way service of summons to enter appearance is of value in primary suits. On appeal, it is necessary to enjoin all parties who were parties at the trial Court for a proper determination of the issues. Failure to enjoin the Applicant Bank in the instant appeal was a fatal omission which this Court cannot overlook.

23. Furthermore, Order 42 Rule 13 of the Civil Procedure Rules requires service of the memorandum of appeal on every respondent.

[Order 42, rule 12. ] Service of memorandum.

12. After the refusal of a judge to reject the appeal under section 79B of the Act, the registrar shall notify the appellant who shall serve the memorandum of appeal on every respondent within seven days of receipt of the notice from the registrar.

24. It was a fatal omission to fail to include the Applicant Bank as a respondent in the appeal. However, this Court is mindful that during admission of the appeal, directions were given that the Applicant Bank be served. Failure to serve the Bank was therefore not only in violation of the law but also in disregard of valid Court directions.

25. This Court also takes notice of the provisions of the Court of Appeal Rules which require service of all affected parties with the Notice of Appeal. Rule 77 of the Court of Appeal Rules provides as follows: -

77. Service of notice of appeal on persons affected

(1) An intended appellant shall, before or within seven days after lodging notice of appeal, serve copies thereof on all persons directly affected by the appeal:

Provided that the Court may on application, which may be made ex parte, within seven days after lodging the notice of appeal, direct that service need not be effected on any person who took no part in the proceedings in the superior court.

(2) Where any person required to be served with a copy of a notice of appeal gave any address for service in or in connection with the proceedings in the superior court, and has not subsequently given any other address for service, the copy of the notice of appeal may be served on him at that address, notwithstanding that it may be that of an advocate who has not been retained for the purpose of an appeal

26. By analogy, if the Court of Appeal requires services of all affected parties, which will mean all those who were parties in the matter being appealed, this Court finds that the same should happen with respect to appeals from the lower Court to the High Court.

27. In the case of Ram Krishna Gosh & Others vs Roop Chand Molla & Others Civil Appeal No. 1707 of 1982 (1997) 10 SCC 307, the Supreme Court of India dealt with a similar issue where the original parties to a suit had not been enjoined in the appeal. The Court underscored the importance of enjoining all necessary parties to the appeal in the following terms: -

“In the original suit, Tarak Muchi (Ruidas) and Patasi Dasi were the only two arrayed defendants. Likewise, plaintiffs were two in number being Subimal Krishna Gosh and Bijoy Krishna Gosh. The suit of the plaintiffs was decreed by the trial court which decree was confirmed by the lower appellate court. The High Court in the second appeal reversed the same. The instant appeal is by the plaintiffs. Surprisingly, in the SLP, the two defendants aforesaid have not, by neglect or design, been impleaded as parties. On the contrary, the persons impleaded have pointed out the defect and have moved Civil Miscellaneous Petition No. 3151 of 1983 for addition of respondents and for revocation of leave.

On hearing learned counsel for the parties and having gone through the records, we find that a grave error has been committed by the appellants in not impleading the original defendants as parties herein who had contested the suit. In the absence of these contesting parties before us, the appeal cannot proceed. We therefore not only dismiss Civil Miscellaneous Petition No. 3151 of 1983 but also the appeal as well, as no relief can be granted to appellants in the absence of necessary parties.”

28. It is not at all necessary to look at the nature of claim and representations that would be made by the Applicant Bank were they made a party to the instant appeal since the instant Judgment ought to be set aside as of right. Be that as it may, this Court observes that in its Judgement, the Court indeed made remarks that would have otherwise required reaction from the Applicant Bank. It appears that the Court, was in doubt on the reasons why the Applicant’s Bank’s loan was written off. The Court relied on this fact, of the loan having been written off to make its finding. The Court held as follows: -

‘…….It is not clear why the Bank opted to write off the debt yet the Respondent went to the Bank while carrying the full loan balance of Ksh 495,000/= which amount the Bank declined to take.

……Since the loan was written off, prayer (a) is hereby amended and granted in the following terms’

29. The above is an indication that the participation of the Applicant Bank was indeed necessary in order for the Court to effectively resolve all the issues in the appeal. Furthermore, the Judgement of the Court required a positive action to be done by the Appellant Bank i.e transfer of the log book. It ought to have occurred to the Court that the party against whom an adverse decision was being made had not participated in the proceedings. The issue of joinder of all necessary parties was discussed at length by the Court of Appeal in the case ofCivicon Limited v Kivuwatt Limited & 2 others, Civil Appeal No. 45 of 2014 [2015] eKLRwhere Makhandia, Ouko & M’Inoti, JJ.A discussed the issue of joinder of parties at length. The Court cited with approval the other case of Gurtner vs Circuit (1968) I All ER 328where Denning, M.R stated thus:

“…The only reason which makes it necessary to make a person a party to an action is so that he may be bound by the result of the action, and the question to be settled therefore, must be a question in the action which cannot be effectively and completely settled unless he is a party…”

Clearly the rules of natural justice require that a person who is to be bound by a judgment in an action brought against another party and directly liable to the plaintiff on the judgment should be entitled to be heard in the proceedings in which the judgment is sought to be obtained.”

30. According to Mulla’s of Civil Procedure 16th Edition Volume 2: -

“…What makes a person a necessary party is that he has relevant evidence to give on some of the questions involved; and this would make him a necessary witness. The only reason which makes it necessary to make a person a party to an action is so that they should be bound by the result of the action and the question to be settled therefore, must be a question in the action which cannot be effectually and completely settled unless he is a party. The line has to be drawn on a wider construction of the rule between the direct legal interest and the commercial interest.”

31. Based on the foregoing, this Court finds that the Appellant was indeed a necessary party to these appeal proceedings as the orders issued by the Court cannot be enforced without their participation.

32. This Court finds that the justice of the case, requires that the appeal be re-opened for a fresh determination with the participation of all parties, including the Applicant Bank who is a proper and necessary party in these proceedings.

ORDERS

33. Accordingly, for the reasons set out above the court makes the following orders: -

i)The Judgement of the Court delivered on 14th April 2020 is hereby vacated and/or set aside.

ii)The Applicant Bank is hereby enjoined in these proceedings as the 2nd Respondent.

iii)The Appellant is directed to serve the 2nd Respondent Bank with the Memorandum of Appeal and Record of Appeal herein.

iv)Directions are hereby issued that the Appeal will be heard de novo.

v)The Appeal shall be mentioned on 29th July 2021 for directions as to the hearing.

vi)The Applicant Bank shall have the costs of this application.

Order accordingly.

DATED AND DELIVERED THIS 15TH DAY OF JULY 2021.

EDWARD M. MURIITHI

JUDGE

Appearances:

M/S Wambugu & Muriuki Advocates for the Applicant

M/S Wilson P. Mburugu Advocates for the 1st Respondent

M/S Mwirigi Kaburu & Co. Advocates for the 2nd Respondent