[2018] KECA 212 (KLR)

IN THE COURT OF APPEAL

AT NAIROBI

(CORAM: HANNAH OKWENGU, G. B. M. KARIUKI &

J. MOHAMMED, JJ.A.)

CIVIL APPEAL NO. 118 OF 2007

BETWEEN

JAMES G. K. NJOROGE T/A BARAKA TOOLS & HARDWARE .......APPELLANT

AND

APA INSURANCE COMPANY LIMITED .......................................1ST RESPONDENT

KENYA CEMENT MARKETING LIMITED..................................2ND RESPONDENT

BAMBURI PORTLAND CEMENT CO. LTD ............................... 3RD RESPONDENT

EAST AFRICAN PORTLAND CO. LTD.........................................4TH RESPONDENT

(Appeal from the ruling and order of the High Court of Kenya at Nairobi (Osiemo, J.)

dated 3rd May, 2007inH.C. CIVIL SUIT NO. 3737 OF 1995)

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JUDGMENT OF HANNAH OKWENGU, JA

[1]This is an appeal originating from a suit that was filed in the High Court in Nairobi by James G. K. Njoroge T/A Baraka Tools & Hardware Limited (herein the appellant). He had initially sued Kenya Cement Marketing Limited (herein the 2nd respondent), seeking damages for breach of contract and loss arising out of under delivery and wrong invoicing. The 2nd respondent filed a defence denying the appellant’s claim. However, on the 16th of June, 2006, judgment was entered against the 2nd respondent and in favour of the appellant, and a decree was subsequently drawn to the tune of Kshs.43,208,518/36.

[2] On the 11th July, 2006, following an application made by the 2nd respondent, an order of stay of execution was issued by the High Court for ninety (90) days on condition that the 2nd respondent deposits an insurance Bond within ten (10) days to guarantee payment of the decretal sum, failing which the order of stay was to lapse. In compliance with the condition, the 2nd respondent obtained an insurance Bond from APA Insurance Company Limited (herein the 1st respondent). The insurance Bond was deposited in court on 20th July 2006. The Bond stated on the face of it, that it would remain in force until full hearing and determination of the 2nd respondent’s application dated 10th July 2006. Subsequently, the appellant sought to have the order of 11th July 2006, reviewed with regard to the period of the temporary stay order. On 24th July, 2006, the appellant and the 2nd respondent appeared before the High Court through their respective counsels, and the High Court Visram J (as he then was) varied the orders of 11th July, 2006, so that the period of stay was amended from “90 days” to “pending the hearing and determination of the application for stay.” The 1st respondent was not present in court when the variation order was recorded.

[3] On 3rd August 2006, (Ang’awa J) having heard the application for stay of execution dated 10th July 2006, dismissed the application. This resulted in the appellant filing a Chamber Summons dated 4th August, 2006, under Order 22 Rule 1and2 of the Civil Procedure Rules; and sections 3A 92and94 of the Civil Procedure Act. Through the chamber summons, the appellant sought from the 1st respondent as garnishee/guarantor the sum of Kshs.43,208,518/36 being the amount due from the 1st respondent to the 2nd respondent on account of the guarantee payable to the appellant to be attached to answer the decree issued on 16th June, 2006, in partial satisfaction of the decree. This application which was opposed by the 1st respondent was heard by Osiemo J, who in a ruling delivered on 3rd May, 2007, dismissed the application with costs. It is this dismissal of the chamber summons dated 4th August 2006 that is the subject of the appeal now before us.

[4] The appellant has challenged the ruling of Osiemo J, on ten (10) grounds contending, inter alia, that the learned judge misdirected himself and: failed to weigh the evidence fairly, or properly apply the law; erred in accepting the objections and representations made by the 1st respondent and the 2nd respondent without considering the totality of the evidence; erred in concluding that the insurance Bond was given as a condition of stay of decree and had been unilaterally cancelled by the 1st respondent; failed to consider the submissions and authorities filed by the appellant and authorities by the respondents and thereby denied the appellant a fair hearing; delayed the delivery of his ruling from 30th October to 3rd May 2007 thereby contravening the cardinal principle that justice delayed is justice denied; and that the conduct of the proceedings by the learned judge occasioned a miscarriage of justice.

[5] Following directions given by the court, hearing of the appeal proceeded by way of written submissions that were duly filed and exchanged by the parties. During the hearing, Mr. Wamalwa, appeared for the appellant. Mr. Kimani Kagwima held brief for Mr. Kihumba for the 1st respondent and Mr. Oyatsi appeared for the 3rd respondent. Only Mr. Wamalwa highlighted his submissions while the respondents relied on their written submissions.

[6] In his written submissions, the appellant drew the court’s attention to the judgment of this Court delivered on 15th October, 1997, in which, in allowing an application to set aside an ex parte judgment against the 2nd respondent the Court made reference to a guarantee and undertaking made by the 2nd and 3rd respondent to satisfy the decree. The appellant also referred to the Insurance Bond issued by the 1st respondent binding itself to pay the appellant the decretal sum of Kshs.43,208,519/36. Upon determination of the 2nd respondent’s application for stay of execution, the appellant maintained that it was entitled to institute Garnishee proceedings against the 1st respondent on the basis of the Insurance Bond to realize the unsatisfied decree premised on section 76 of the Insurance Act.The appellant argued that the dismissal of the 2nd respondent’s application for stay of execution was the insured event that crystalized the insured risk, which was the payment of the decretal sum.

[7] The appellant faulted, Osiemo J, for failing to take into account the written submissions that the parties had filed in regard to the Garnishee application, which omission resulted in the learned judge misdirecting himself on the alleged variation of the Bond, as he failed to note that the variation did not substantively affect the insured risk. In addition, it was contended that the learned judge failed to realize that the insured risk was the payment of the decretal sum of Kshs.43,208,518/36 which risk was never altered. In this regard, the appellant relied on the dictum of Lord Goddard in Law Guarantee Trust and Accident Society vs Munich Reinsurance Company Limited [1912] I CH. D. 137 at page 143 to 154 that:

“The defendant company rests its case on the general principle of insurance that the obligation of the insurer is confined to the particular risk insured, and that if the risk in respect of which a claim is made against the insurer differs from the risk he has insured, he is not liable to make good that claim.

… the alteration if there has been an alteration, must be a real alteration of the risk; if what appears on the face of it to be an alteration of the conditions is only such an alteration as on the true construction of the contract of insurance might be taken to have been within the contemplation of the parties at the time they entered into the contract then, of course, though apparently an alteration, it is not really an alteration at all, because the fact that such alteration might take place was an element in the contract itself.”

[8] Furthermore, the appellant submitted that the conclusion made by the learned judge that the determination of the application for stay of execution discharged the insurance Bond, was erroneous, because it confused the happening of the insured event with a condition precedent for the payment of the insured risk. It was pointed out that the cancellation of the Bond on 13th September 2006, was long after the purported discharge through determination of the application which was on 24th July, 2006.

[9] The appellant urged that the purported cancellation of the insurance Bond contravened section 77 of the Insurance Act and was a breach of the 1st respondent’s undertaking under the Bond, but that notwithstanding the breach, it did not relieve the 1st respondent from its performance obligation under the Bond guarantee. The Court was therefore urged to allow the appeal.

1st respondent’s submission

[10] The 1st respondent essentially relied on the same arguments that it had been presented before the High Court. It reiterated that the bond issued by the 1st respondent was specific that it would remain in force until the hearing and determination of the 2nd respondent’s application dated 10th July, 2006. Therefore, once that application was heard, and ruling delivered, the bond expired by effluxion of time; that, in any case, the bond was cancelled by a deed dated 13th September, 2006 before any order of attachment was made; that the variation of the terms of the bond made on 4th July, 2006, vitiated the insurance bond, as it was done without the knowledge or consent of the 1st respondent; and that the 1st respondent was entitled to cancel the bond. In this regard reliance was placed on Sodha vs Vora (2004) EALR 1EA 313 for the proposition that a guarantor is entitled to cancel a bond or covenant if there is any alteration behind the guarantors back.

[11] In addition, the 1st respondent argued that Garnishee proceedings presuppose a debt; and that a bond is not a debt attachable under Order 22 of the Civil Procedure Rules. The Court was therefore urged to dismiss the appeal as lacking merit.

[12] For the 3rd respondent, it was submitted that there were three parties to the chamber summons dated 4th August, 2006, namely: the appellant as the plaintiff, the 2nd respondent as the defendant and the 1st respondent as the garnishee. It was pointed out that the 3rd respondent was not a party to the garnishee proceedings and the issues to be determined were therefore between the appellant and the 1st respondent.

[13] We have carefully considered this appeal, the submissions made by counsel and authorities cited. The application that was before the learned judge was brought under sections 92 & 94 of the Civil Procedure Act and Order XX11 Rules 1 & 2 of the former edition of the Civil Procedure Rules. In order to appreciate the nature of the application it is necessary to set out these provisions.

[14] Section 92 & 94 of the Civil Procedure Act states as follows:

“92. Enforcement of liability of surety Where any person has become liable as surety–

a. For the performance of any decree or any part thereof; or

b. For the restitution of any property taken in execution of a decree; or

c. For the payment of any money, or for the fulfillment of any condition imposed on any person, under an order of the court in any suit or in any proceeding consequent thereon,the decree or order may be executed against him, to the extent to which he has rendered himself personally liable, in the manner herein provided for the execution of decree, and such person shall for the purposes of appeal be deemed a party within the meaning of section 34:

Provided that such notice in writing as the court in each case thinks sufficient has been given to the surety.

94. Execution of decree of High Court before costs ascertained

Where the High Court considers it necessary that a decree passed in the exercise of its original civil jurisdiction should be executed before the amount of the costs incurred in the suit can be ascertained by taxation, the court may order that the decree shall be executed forthwith, except as to so much thereof as relates to the costs; and as to so much thereof as relates to the costs that the decree may be executed as soon as the amount of the costs shall be ascertained by taxation.”

[15] Order XX11 Rule 1 & 2of the former edition of theCivil Procedure Rulesstated as follows:

Order XX11 Attachment of debts

1(1) A court may, upon the ex parte application of a decree holder and either before or after an oral examination of the judgment debtor, and upon affidavit by the decree holder or his advocate, stating that the decree had been issued and that it is still unsatisfied and to what amount, and that another person is indebted to the judgment debtor and is within the jurisdiction, order that all debts (other than the salary or allowances coming within the provisions of Order XX1 Rule 43) owing from that 3rd person (hereinafter called the “garnishee”) to the judgment-debtor shall be attached to answer the decree together with the costs of the garnishee proceedings and by the same or any subsequent order it may be ordered that the garnishee shall appear before the court to show cause why he should not pay to the decree holder the debt due from him to the judgment debtor or so much thereof as may be sufficient to satisfy the decree together with the costs aforesaid.

2. At least 7 days before the day of hearing the order nisi shall be served on the garnishee, and, unless otherwise ordered on the judgment debtor.

[16] We have considered these provisions, and find that under section 92 of the Civil Procedure Act, for the application to succeed the appellant had to satisfy the court that the 1st respondent had become liable, for the payment of the decree or part thereof, either as a surety, or in fulfillment of a condition imposed upon him in the proceedings by the court.

[17] It is important at this stage to refer to the prayers that were sought by the appellant in the application. The prayers were as follows:

“1. That the application be certified urgent;

2. that the plaintiff/decree-holder be given leave to execute forthwith his decree passed herein against the defendant and or Garnishee/Guarantor except as to so much thereof as relate to party and party costs to await taxation;

3. that the sum of Kshs.43,208,518/36 accruing due from the Garnishee to the judgment-debtor to the full extent of its Bond herein and all sums therein guaranteed payable to the plaintiff to the credit of the judgment-debtor on account of the Bond dated 20th July, 2006, issued by the Garnishee herein on 20th July, 2006 by Policy No.P/10/2006/1201/87 and guaranteed by the Garnishee/Guarantor be attached to answer the decree passed herein on 16th June, 2006 against the judgment-debtor to extent of the sum of Kshs.43,208,518/36 only in partial satisfaction of sums ordered payable on the decree herein by the defendant to the plaintiff without interest thereon at 12% per cent annum from 16th June, 2006;

4. that interest on the said sum at the rate of 12% per annum from 16th June, 2006, be payable by the defendant;

5. that the garnishee/guarantor do appear in court on 16th August, 2006, on application by the decree-holder to inform the court sums due from it to the judgment-debtor and guaranteed payable to the plaintiff/judgment-creditor;

6. that Honourable court be pleased to make any orders deemed fitting for the ends of justice;

7. costs occasioned by these garnishee proceedings be taxed and paid by the judgment-debtor to the decree-holder.”

[18] From the above prayers, it is evident that the appellant sought to have his decree executed against the 1st respondent on two grounds. First, as a garnishee on account of monies that were due from the 1st respondent to the 2nd respondent from the surety bond that the 1st respondent had executed on behalf of the 2nd respondent, and secondly, as a guarantor on account of the amount guaranteed by the 1st respondent as payable to the appellant as decree holder to the credit of the 2nd respondent as judgment-debtor on account of the bond dated 20th July, 2006, issued and guaranteed by the 1st respondent.

[19] Two issues arise from the above, first, is whether the 1st respondent guaranteed through the bond dated 20th July, 2006, the payment of the decree or part of the decree against the 2nd respondent; and secondly, whether there was any money from the 1st respondent due to the 2nd respondent that could be attached by the appellant to satisfy his decree through a garnishee order.

[20] From the proceedings, the order made on the 11th July, 2006, that resulted in the 1st respondent executing the insurance bond was in the following terms:

“1. Based on the reasons outlined in the application, this matter is satisfied urgent.

2. I grant temporary stay of execution for 90 days on condition that the applicant shall deposit an insurance bond to guarantee payment of the decretal sum within the next 10 days failing which this order shall lapse.”

[21] On the face of it, the order made by the court was for guarantee of the payment of the decretal sum. However, it did not limit the guarantee to a period of either 90 days or 10 days but pegged the insurance bond on the temporary stay of execution which was limited by the court to 90 days. In other words, subject to the guarantee bond being executed, an order for stay of execution was to remain in force for 90 days.

[22] The bond signed by the 1st respondent was in the following terms:

INSURANCE BOND FOR COSTS – CASE NO. 3737 OF 1995

BY THIS BOND we APA INSURANCE LIMITED of POST OFFICE BOX NUMBER 30065-00100 NAIROBI for and on behalf of KENYA CEMENT MARKETING LIMITED, P. O. BOX 14267- 00800, NAIROBI bind ourselves to MR. JAMES G. K. NJOROGE T/A BARAKA TOOLS & HARDWARE the sum of KSHS.43,208,518. 36 (KENYA SHILLINGS FORTY THREE MILLION TWO HUNDRED AND EIGHT THOUSAND FIVE HUNDRED AND EIGHTEEN AND CENTS THIRTY SIX ONLY) being the Plaintiffs Decretal sum in HIGH COURT CIVIL SUIT NO.3737 OF 1995 or such lesser amount as shall be ordered by the High Court. This bond to remain in force until full hearing and determination of the Defendant’s Application dated 10th July, 2006 in HIGH COURT CIVIL SUIT NO.3737 OF 1995.

WHEREASKenya Cement Marketing Limited is the Defendant in HIGH COURT CIVIL SUIT NO.3737 of 1995 at the High Court Nairobi in which Mr. James G. K. Njoroge is the Plaintiff.

WHEREASby an order by Honourable Mr. Justice Visram made on the 11th day of July, 2006 in the said High Court Civil suit No.3737 of 1995 it was ordered that the Plaintiff do provide security for the Decretal sum by way of an Insurance Bond in favour of the Plaintiff, JAMES G. K. NJOROGE T/A BARAJA TOOLS & HARDWARE. The said Bond to remain in force until full hearing and determination of the Defendant’s Application dated 10th July, 2006 in HIGH COURT CIVIL SUIT NO.3737 OF 1995.

This bond is hereby issued by APA Insurance Limited pursuant to the said Court Order.

SEALED by the Common Seal of

A P A INSURANCE LIMITED

At Nairobi this day 20TH of JULY, 2006

A P A Insurance Ltd.

DIRECTOR

DIRECTR/SECRETARY

[23] It is clear from the Bond that it was pegged on the hearing and determination of the application dated 10th July, 2006. That application was for stay of execution of the judgment of the High Court dated 16th June, 2006, pending the hearing of an intended appeal against that judgment. Therefore, the risk was the execution of the decree during the pendency of the application for stay of execution.

[24] On the 24th July, 2006, the advocate for the appellant and the advocate for 2nd respondent appeared in court and the following order was recorded:

“By consent, this court order of 11th July, 2006, is hereby varied in order 2 to the effect that the stay of execution is given until the hearing and determination of the application for stay inter parties and not for 90 days as previously ordered.”

[25] It is evident that, although the 1st respondent was not represented in court on 24th July 2006, when the order of 11th July 2006 was varied, the variation was in accordance with the Bond that the 1st respondent had issued on 20th July 2006. In that Bond, the 1st respondent provided security for the payment to the appellant of Kshs.43,208,518. 36 with a condition that the Bond would:

“remain in force until full hearing and determination of the defendant’s application dated 10th July, 2006, in High Court Civil Suit No. 3737 of 1995. ”

[26] A comparison of the Bond signed by the 1st respondent and the order of the court issued on 24th July, 2006, reveals that the order of variation made by the court, simply varied the order of 11th July, 2006, to bring it to conformity with the Bond issued by the 1st respondent. The 1st respondent is therefore estopped from disowning the Bond on account of the variation,

[27] It is not disputed that the application dated 10th July 2006, was heard and a ruling delivered on 3rd August 2006, dismissing the application. Therefore, as at 3rd August 2006, the risk on account of which the 1st respondent had provided security for payment to the appellant was no longer in existence and as a result the Bond had expired. Although the 1st respondent purported to revoke the Bond by deed of cancellation, on 13th September 2006, the purported cancellation was superfluous as the Bond was no longer in existence. Indeed, that was the position as at 4th August 2006, when the appellant moved the court for the orders against the 1st respondent as guarantor. This means that the order sought against the 1st respondent as a guarantor based on the Bond signed on 20th July 2006, was no longer available to the appellant.

[28] With regard to the garnishee order, the appellant did not demonstrate or establish that the 1st respondent owed the 2nd respondent any debt upon which the order of garnishee could be pegged. It may well be that, there was some money due to the 2nd respondent from the 1st respondent on account of the Bond being discharged. However, this was neither alleged nor demonstrated. [29] As regards the Garnishee order, the provisions of Order XX11 Rule 1(1) reproduced above, shows that the order is for an attachment of a debt. Therefore, for the court to issue a garnishee order, the appellant had to satisfy the court that the 1st respondent was holding money belonging to or due to the judgment-debtor which monies should be attached to meet the decree or part of the decree that had been issued in favour of the appellant. The Bond relied on by the appellant, merely demonstrated that the 1st respondent had guaranteed payment of the decretal sum during the pendency of the application for stay of execution only. That guarantee did not amount to a debt that could be attached. The 1st respondent having specifically denied being indebted to the 2nd respondent, and there being no evidence to contradict the 1st respondent’s denial, there was no basis upon which the court could issue a garnishee order. As was stated in Petro Sonko & another v H. A. D. B. Patel & another 20 EACA 99,the onus is on the Judgment Creditor to establish that there is a debt due and recoverable from the Garnishee to the Judgment Debtor.

[30] It follows therefore, that the Bond having expired, there being no debt upon which a garnishee order could issue, the appellant’s application dated 4th August, 2006, could not succeed. For these reasons, I find no merit in this appeal. It is therefore dismissed with costs.

[31] This judgment is delivered under Rule 32(3) of the Court of Appeal Rules, Hon. G. B. M. Kariuki, JA having since retired from his position as a Judge.

DATED and delivered at Nairobi this 26th day of October, 2018.

HANNAH OKWENGU

..................................

JUDGE OF APPEAL

I certify that this is a true copy of the original.

DEPUTY REGISTRAR