[2022] KEHC 11314 (KLR)

Kassam Hauliers Limited v Company (Insolvency Cause 1 of 2021) [2022] KEHC 11314 (KLR) (7 June 2022) (Ruling)

Neutral citation: [2022] KEHC 11314 (KLR)

Republic of Kenya

In the High Court at Machakos

Insolvency Cause 1 of 2021

GV Odunga, J

June 7, 2022

IN THE MATTER OF TRIDENT INSURANCE COMPANY LIMITED AND IN THE MATTER OF THE INSOLVENCY ACT NO 18 OF 2015 AND IN THE MATTER OF THE INSOLVENCY REGULATIONS 2016

Between

Kassam Hauliers Limited

Petitioner

and

Trident Insurance Company

Applicant

Ruling

1. By a Motion on Notice dated December 22, 2021, the respondent herein, Trident Insurance Company, seeks the following orders:1. That this honourable court do certify this application as urgent and dispense with service at first instance and hear it ex-parte.2. That this honourable court be pleased to issue by way of injunction pending the hearing and determination of this Application or further orders of the court restraining the petitioner whether by itself, its agents, assigns, employees or any other person acting on its behalf from advertising the Petition (whether in the Kenya gazette or any of the local dailies).3. That the Creditor’s Petition herein dated December 10, 2021 be struck out.4. That as a consequence of grant of prayer 3 that the costs of this application and the entire petition be borne by the petitioner.

2. The Motion was supported by an affidavit sworn by Getrude Gichuru, a Legal Manager of the Trident Insurance Company the respondent. According to the deponent, the Petitioner has no locus standi to present the Petition under section 425 (1) (b) of the Insolvency Act No 18 of 2015 as it purported to do as it is not a Creditor. According to the deponent, the Petitioner has expressly admitted in its supporting affidavit in support of the Petition sworn on December 10, 2021 that indeed it is various third parties who have obtained judgment as against the Petitioner and not the Respondent herein.

3. It was depos that the amount which was due and owing to the Petitioner were costs which have been fully settled which have been attached in the said decrees and as such no amount is owed to the Petitioner as per the statutory notice dated November 12, 2021. The deponent’s view was that since section 10 of theInsurance (Motor Vehicle Third Party Risk) Actcap 405 envisages the filing of a declaratory suit which requirements and conditions are well set out in the Act before a judgment can be enforced as against an Insurance company, the filing of the Petition is a nullity ab initio and ought to be struck out.

4. It was averred that in the event thepetitioner is allowed to publish the Petition in the Kenya Gazette or any of the local dailies, it would have a detrimental effect to the business of the Company as a wrong impression and anxiety will be created to the Company’s business partners, creditors, employees and the general public that the Company is insolvent. This damage cannot be reversed as the business relies on goodwill brought by good reputation which is not quantifiable in monetary terms. The deponent averred that the Petition is brought under obvious mala-fides and lacking in bona-fides as it seeks to embarrass the Respondent Company because it seeks the respondent to pay debts which have not become due and payable out of the process as set out under Section 10 of the Insurance (Motor Vehicle Third Party Risk) Act cap 405 and the conditions set out met to have the same due and payable.

5. The court was therefore urged to issue by way of injunction pending the hearing and determination of this Application or further orders of the court restraining the Petitioner whether by itself, its agents, assigns, employees or any other person acting on its behalf from advertising the Petition (whether in the Kenya Gazette or any of the local dailies) and that the Creditor’s Petition herein dated December 10, 2021 be struck out. Consequently, it was sought that the costs of this application and the entire petition be borne by thepetitioner.

6. The deponent’s contention was that her averments above constitute proper reasons to issue an injunction as sought. To her the said grounds constitute proper grounds for a prima-facie case and that in the event the petitioner is allowed to publish the Petition in the Kenya Gazette or any of the local dailies, it would have a detrimental effect to the business of the Company as a wrong impression and anxiety will be created to the Company’s business partners, creditors, employees and the general public that the Company is insolvent, damage that cannot be reversed as the business relies on goodwill brought by good reputation which is not quantifiable in monetary terms. In her view, the balance of convenience shifts to our side as this events will affect the respondent greatly.

7. The application was opposed by the petitioner vide a replying affidavit sworn by Mohammed Kassim Hussein, one of the directors of the Petitioner herein. He deposed that on diverse dates, various third parties obtained judgment against thepetitioner in Civil Suits No. 692,142,364 and 771 of 2018 at the Chief Magistrate’s Court at Machakos following road traffic accidents that were occasioned by their motor vehicles that were insured by therespondents. As a result of the respondent’s failure, refusal and neglect to satisfy the above stated decrees as they were statutorily [Insurance (Motor Vehicle Third Party Risks) Act] obligated to do, the petitioner was compelled to sue the respondent in Civil Suits No. E163, E164, E165 and E166 of 2020 at the Chief Magistrates Court at Machakos seeking a declaration that they were bound to satisfy the decretal sum in Civil Suit Nos. 692,142,364 and 771 of 2018. Consequently, judgment was entered on July 30, 2021 and the court held that the Respondents were liable to satisfy the decretal sum as prayed.

8. It was deposed that from the entry of the Judgment until November 15, 2021 when the petitioner served the respondent with the statutory demand they had tried to have the respondent satisfy the decretal sum to no avail.

9. In the deponent’s view, based on legal advice, by virtue of the decrees in Civil Suit No. E163, E164, E165 and E166 of 2020, the petitioner falls within the ambit of a creditor under the Insolvency Act and the Petitioner has a final Judgment against the respondent as no appeal, review or setting aside has been lodged over the decrees in Civil Suit No. E163, E164, E165 and E166 of 2020. To the contrary, the respondent acknowledged payment of costs in the declaratory suits but have failed, refused and neglected to pay the decretal sum.

10. According to the deponent, there is no basis or grounds advanced by the respondent’s for striking out the instant petition. in his view the petitioner has locus standi under the Insolvency Act to Institute these proceedings since there are unsatisfied decrees against the respondent and these proceedings are not actuated by malice but a genuine pursuit of a lawfully obtained Judgment. To the contrary, it was his averment that it is in fact the respondent’s application that is actuated by malice and a calculated manoeuvre to keep the petitioner from its lawfully obtained judgment. He therefore urged the court to dismiss the application with costs.

Respondent/Applicant’s Submissions 11. On behalf of the respondent/applicant, it was submitted that the petitioner has brought a creditors petition within the basis ofsection 425(l) of the Insolvency Act No 18 of 2015 (hereinafter referred to as “the Act”) which allows Creditors to file an Insolvency Cause. However, it is contended that the Petitioner is not a Creditor for all intents and purpose and as such lacks the relevant locus standi to bring about such a petition. In the Respondent’s view, the only amount which was due and owing to the Petitioner was costs which have been fully settled which have been attached in the said decrees and as such no amount is owed to the Petitioner as per the statutory notice dated November 12, 2021.

12. It was submitted that the petitioner has expressly admitted in its supporting affidavit in support of the Petition sworn on December 10, 2021that indeed it is various third parties who have obtained judgment as against the Petitioner and not therespondent herein.

13. In support of the submissions, therespondent relied onsection 17 of the Act which states as follows;-“One or more creditors of a debtor may make an application to the court for a bankruptcy order to be made in respect of the debtor in relation to a debt or debts owed by the debtor to the creditor or creditors.”

14. Reference was also made tosection 425(l) of the Act which states that:-“An application to the court for the liquidation of a company may be made any or all of the following: (a) the company or its directors; (b) a creditor or creditors (including any contingent or prospective creditor or creditors); (c) a contributory or contributories of the company; (d) a provisional liquidator or an administrator of the company; (e) if the company is in voluntary liquidation-the liquidator.”

15. According to the respondents, when these particular sections are read together locus standi is granted to the creditors in particular to debts owed by the debtor to the creditor. In this regard therespondents cited the Black’s law Dictionary which defines Creditors as;-“one to whom a debt is owed, one who gives credit for money or goods also termed debtee.”

16. It also referred to section 2 of the Act which defines “creditor” and “debtor” as follows:“creditor" includes a person entitled to enforce a final judgment or final order."debtor" means a natural person who owes money to one or more creditors; and, if a trust, partnership or other unincorporated body owes money to a creditor, includes all of the trustees of the trust, all of the partners of the partnership and all of the members of the body;

17. It was submitted that in the context of this dispute, it is various third parties who have obtained judgment as against the Petitioner and not the respondent herein. The Court was urged to find that section 10 of the Insurance (Motor Vehicle Third Party Risk) Actcap 405 envisages the filing of a declaratory suit which requirements and conditions are well set out in the Act before a judgment can be enforced as against an Insurance company. In this case it was submitted that none of the Third parties i.e. claimant in the Primary suits filed any declaratory suits under the said section. The Respondent then summarised the positions of the subject suits as hereunder:1. Decree in Civil Suit no 692 of 2018, the respondent is not a party and is a material damage claim.2. Decree in Civil Suit no 142 of 2018, the respondent is not a party, it is a road traffic accident case and falls under Section 10 of the Insurance (Motor Vehicle Third Party Risk) Actcap 405 envisages the filing of a declaratory suit.3. Decree in Civil Suit no 364 of 2018, the Respondent is not a party, it is a road traffic accident case and falls under Section 10 of the Insurance (Motor Vehicle Third Party Risk) Act cap 405 envisages the filing of a declaratory suit.4. Decree in Civil Suit no 771 of 2017, the Respondent is not a party, it is a road traffic accident case and falls under Section 10 of the Insurance (Motor Vehicle Third Party Risk) Act cap 405 envisages the filing of a declaratory suit.5. Decree in Civil Suit no E163 of 2020, is a declaratory suit. The debtor being the decree holder in Civil Suit no 692 of 2018, the respondent is not a party and is a material damage claim.6. Decree in Civil Suit no E164 of 2020, is a declaratory suit. The debtor being the decree holder in Civil Suit no 142 of 2018 and falls under section 10 of the Insurance (Motor Vehicle Third Party Risk) Act cap 405 envisages the filing of a declaratory suit.7. Decree in Civil Suit no E165 of 2020, is a declaratory suit. The debtor being the decree holder in Civil Suit no 771 of 2017 and falls under section 10 of the Insurance (Motor Vehicle Third Party Risk) Actcap 405 envisages the filing of a declaratory suit.8. Decree in Civil Suit no E166 of 2020, is a declaratory suit. The debtor being the decree holder in Civil Suit no 364 of 2018 and falls under section 10 of the Insurance (Motor Vehicle Third Party Risk) Actcap 405 envisages the filing of a declaratory suit.

18. According to the respondent, in the entire narration of the decrees none of the sums is payable to the Petitioner herein but third parties with the costs awarded already awarded in the suits having been paid to the petitioners which fact is un-disputed. In support of its submissions the respondent relied on the decision ofAPA Insurance Limited v Gabriel Opondo Ogenga (Suing as the legal representative of Jane Akinyi Saida - Deceased) [2018] eKLR where it was held that:“16. Looking at the provisions of section 10 of the Act, I agree with the Appellant’s submission that the learned trial magistrate erred in law in taking the position that the only way the Appellant herein could avoid liability against the judgment in the primary suit was by quashing or setting-aside the judgment in the primary suit. One wonders how the Appellant would do so given that it was not a party in the primary suit. While an insurer could truly apply to quash or set-aside the judgment in the primary suit through the insured in a case where the insurance policy is not repudiated, that is not the only way out for an insurer. The obtaining position in law is that even in the pendency of a judgment in a primary suit against an insured an insurer can still avoid liability upon satisfying the conditions in Section 10 of the Act without necessarily quashing or setting-aside the judgment in the primary suit.”

19. It was submitted that at this stage that respondent does not owe any money to the Petitioner herein since there is no monetary judgment in favour of the Petitioners to cloth them with the term creditor as envisaged under the Insolvency Act No 18 of 2015 in totality. The sums in any event are payable to third parties not being the Petitioners herein. In this regard the Respondents cited In Re Gilani Butchery Ltd[2004] eKLR the court stated that:-“In the case of New Travellers Chambers Ltd v Cleese and Green (1874) 70 LT 271 at p.272) Kekewich J. stated: “Of course the question whether this is a debt or not may possibly be tried by a Winding Up petition, but it has been said over and over again that the presentation of a Winding Up petition is not a convenient and often not a proper method of trying a disputed debt. If there is any reasonable ground for disputing the existence of the debt – if the question is not a mere question of quantum, but whether there is in fact a debt or not – a petition ought not to be presented and therefore the court ought to restrain the presentation of the petition.” I am persuaded by the aforesaid statements and principles and I do apply them in this case. The debt alleged in this case has not been proven and is uncertain until and unless the Agreement is interpreted and the disputed facts determined by a court of law in a civil trial. At this stage this court cannot say that there is no debt but if it exists it is reasonably, if not substantially, disputed. When it is clearly established that there is no debt, it follows that there is no creditor, that the person claiming to be such has no locus standi and that his petition is bound to fail (See Mann caseat p. 769).”

20. It was therefore submitted that the Petition is therefore a nullity ab initio and ought to be struck out with costs.

Petitioner/Respondent’s Submissions 21. On behalf of the Petitioner/Respondent, reliance was placed onsection 2 of the Insolvency Act which defines a creditor as follows:-“Creditor includes a person entitled to enforce a final judgment or final order.”

22. Thepetitioner cited the decision of Majanja J inX- plico Insurance Co. Ltd v Musyimi Paul Maingi; t/a Maingi Musyimi & Associates Advocates &another (2020) eKLR where he held that:-“My Interpretation of the meaning of Creditor under section 2 aforesaid is that it is not exclusive or limited to person entitled to enforce a judgment. It includes any other type of creditor.”

23. Further reliance was placed onInvesco Assurance co. Ltd v Nyamira Luxury Express Ltd & 2 others (2020) eKLR for the holding that:-“These debts are due and payable by the Debtor/Applicant on behalf of its Insured’s Nyamira Luxury Express Ltd, the Guardian Coach Ltd & Jeran Contractors Ltd jointly & severally as final judgments of the courts…Furthermore, the debts arise out of court judgments from various courts against the Insured’s of the Insurer Debtor. These judgments remain valid orders of the court as they are not set aside, varied, reviewed or appealed against to date.”

24. It was submitted that an Insured who obtains judgment against its insurer for the satisfaction of a judgment is a Creditor for purposes of the Insolvency Act. In the instant matter, it is not disputed that there are valid decrees in favour of the Petitioner in Civil Suits No. E163, E164, E165 & E166 of 2020 at the Chief Magistrate’s Court at Machakos in which the Respondent herein is obligated to satisfy the decrees in Civil Suits No. 692, 142, 364 &771 of 2018 at the Chief Magistrate’s Court at Machakos. The decrees, which have not been set aside, varied reviewed or appealed against, grant the Petitioner locus standi to file the petition. It was submitted that by settling the costs in Civil Suit No. E163, E164, E165 & E166 of 2020, the Respondents acknowledge the validity of the decrees therein and cannot then turn around and claim that on the primary finding of the court on their indebtedness in the primary suit, the decree doesn’t apply to them

25. It was reiterated that the filing of the Petition was not actuated by malice as there are unsatisfied decrees and the filing of Insolvency proceedings is one of the legal avenues of seeking satisfaction thereof.

Determinations 26. I have considered the application, the affidavits both in support of and in opposition to the application and the submissions filed. The circumstances under which insolvency proceedings are instituted have been set out by the courts in this jurisdiction. In Re Tanganyika Produce Agency LimitedHCMCC No 6 of 1957 [1957] EA 241, it was held that:“It is now well settled that a petition for winding up with a view to enforcing payment of a disputed debt is an abuse of the process of the court, and should be dismissed with costs… If it is shown that an alleged dispute is not a bona fide one the objection to the petition fails. Thus it is not uncommon for a company, after again and again begging for time for payment of a debt, to spring on the petitioner at the last moment the assertion that the debt is a disputed one. Such defence is naturally open to great suspicion and meets with no favour from the court…A winding up petition is not to be used as machinery to try common law action…A winding up order cannot be obtained by a person claiming unliquidated damages, his proper course being to change the claim for damages into a judgement and thus make himself a creditor; or by a judgement creditor who has attached a debt due from the company to his judgment debtor, his proper course being to obtain judgement in action and then petition.”

27. Similarly, it was held in Re Hoima Ginners Ltd (No. 2) Kampala HCCC No. 3 of 1964 [1964] EA 439 that:“A petitioning creditor seeking a winding up order founded on unliquidated damages should first establish with certainty what the quantum of damages is and must make himself a creditor by changing his claim into a judgement before he can petition. A winding up petition is not a legitimate means of seeking to enforce payment of a debt which is bona fide disputed by the company. A petition will be dismissed, and under circumstances may be stigmatised as a scandalous abuse of the process of the court.”

28. In this case the circumstances are that as a result of a road traffic accident involving a motor vehicle owned by thepetitioner which vehicle it is contended was insured by therespondent, various third parties obtained judgment against the Petitioner in Civil Suits No. 692,142,364 and 771 of 2018 at the Chief Magistrate’s Court at Machakos. According to the Petitioner, under the Insurance (Motor Vehicle Third Party Risks) Act, the Respondent was under a statutory obligation to settle the said judgement. However, the respondent failed to do so. Consequently, the Petitioner sued the Respondent in Civil Suits No. E163, E164, E165 and E166 of 2020 at the Chief Magistrates Court at Machakos seeking a declaration that the Respondents were bound to satisfy the decretal sum in Civil Suit Nos. 692,142,364 and 771 of 2018 and on July 30, 2021, judgment was entered that the Respondents were liable to satisfy the decretal sum as prayed.

29. In this case it is contended that the Petitioner has no locus standi to bring these proceedings since it is not a creditor under the Insolvency Act. It is not in doubt that for one to commence insolvency proceedings, one must show that he is a creditor since section 425(l) of the Act states that:-“An application to the court for the liquidation of a company may be made any or all of the following: (a) the company or its directors; (b) a creditor or creditors (including any contingent or prospective creditor or creditors); (c) a contributory or contributories of the company; (d) a provisional liquidator or an administrator of the company; (e) if the company is in voluntary liquidation-the liquidator.”

30. That an insurance company is under such obligation pursuant to section 10 of the Insurance (Motor Vehicle Third Party Risks) Act, is not in doubt. In the case of Ogada Odongo v Phoenix of EA Insurance Co Ltd Kisumu HCCC No. 132 of 2003, it was held that:“By an insurer issuing a policy of insurance, it automatically assures the rights of third parties. It simply means, the rights/obligation of the insured automatically transferred to the insurer unless it is proved otherwise…By covering third parties, rights, the insurance was in essence performing a statutory duty imposed by an Act of Parliament.”

31. Whereas Black’s law Dictionary which defines a creditors as one to whom a debt is owed, one who gives credit for money or goods also termed debtee, section 2 of the Act which defines “creditor” as including a person entitled to enforce a final judgment or final order. Accordingly, as was held by Majanja, J in X- plico Insurance Co. Ltd v Musyimi Paul Maingi; t/a Maingi Musyimi & Associates Advocates &another (2020) eKLR:-“My Interpretation of the meaning of Creditor under section 2 aforesaid is that it is not exclusive or limited to person entitled to enforce a judgment. It includes any other type of creditor.”

32. It is therefore clear that “creditor” for the purposes of the Insolvency Act is not restricted to a person who is entitled to enforce a judgement but includes any other type of creditor including a judgement creditor. In this case the petitioner filed a declaratory suit against the Respondent seeking orders that the Respondent was under a statutory obligation to settle the decrees that third parties had obtained against the Petitioner. The Petitioner is therefore a judgement creditor in the said judgements. For the purposes of the Insolvency Act, the Petitioner is a creditor and has all the rights bestowed on creditors by section 425(l) of the Insolvency Act to apply to the Court for the liquidation of the Respondent company where the Respondents neglect to settle the decrees in favour of the third parties of which they are statutorily bound to do. In Charles Makenzi Wambua v Africa Merchant Assurance Co. Ltd &another [2014] eKLR the court stated as follows:“The interested parties being persons covered under Section 4 (1) of the Act-Cap 405 Laws of Kenya, the liability of the defendant is preserved as against them and they could as well, sue the defendant by way of a declaratory suit to recover the sums due as per the decrees in their favor…However, the plaintiff has opted to carry that burden on their behalf. If the suit herein is determined in favor of the plaintiff, then the interested parties stand to benefit directly. They need not file any other declaratory suit against the defendant. For that reason therefore, time and resources, will also be saved for the interested parties. Therefore, no prejudice will be caused to them.”

33. In my view what the court was saying is that once an insured files a declaratory judgement against the insurer and obtained a judgement to the effect that the insurer is liable to settle the decree obtained by the third parties against the insured, the Insurer becomes liable to the third parties and there is nolonger any need for the third parties to sue the insurer. In effect such liability is an exception to the doctrine of privity of contract.

34. In my view, if the insurer can still successfully plead that the insured who has obtained a declaratory judgement against the insurer compelling the insurer to step into the shoes of the insured and settle the decrees against the insured cannot, where the insurer neglects to fulfil its statutory obligation, take insolvency proceedings, would render the judgement obtained by the insured against the insurer of no use. This is because the third party, not being a party to the proceedings may face some hurdles in enforcing the judgement in their own right so that the only viable avenue available is for the insured to enforce it himself. He can do this by either executing the same or by taking out insolvency proceedings the way the Petitioner has done in this case. To decide otherwise would render section 10 of the Insurance (Motor Vehicle Third Party Risks) Act a dead letter of the law. Courts of law ought to interpret statutes in a manner that gives effect to the intention of the legislature. The legislature’s intention cannot have been that section 10 of the Insurance (Motor Vehicle Third Party Risks) Actbe rendered in operational by making it easy for the insurers to evade their statutory obligations by adopting legal ingenuity or innovations.

35. In the premises, I find that the Petitioner has locus standi to commence these proceedings. Consequently, I find no merit in the Motion datedDecember 22, 2021which I hereby dismiss with costs.

36. It is so ordered.

Ruling read, signed and delivered in open Court at Machakos this 7thday of June, 2022. G. V. ODUNGAJUDGEIn the presence of:Mr Muumbi for Mr Malombo for the RespondentMr Kimeu for Mr Mburu for the PetitionerCA Susan