[2022] KEHC 18125 (KLR)

Ngungu v KPMG International Co-operative (Commercial Case E139 of 2019) [2022] KEHC 18125 (KLR) (Commercial and Tax) (3 June 2022) (Ruling)

Neutral citation: [2022] KEHC 18125 (KLR)

Republic of Kenya

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

Commercial and Tax

Commercial Case E139 of 2019

EC Mwita, J

June 3, 2022

Between

Richard Boro Ngungu

Plaintiff

and

Kpmg International Co-Operative

Defendant

Ruling

Introduction 1. This ruling disposes of two applications following the Court’s directions given on November 22, 2021 that the two applications be heard together. The first application is the notice of motion by the defendant, KPMG International Co-operative, (KPMG International) dated July 18, 2019. The application is brought under sections 1A, 1B, 3 and 3A of the Civil Procedure Act (the Act) and Orders 2 rule 15; 5 rules 21, 27, 28 and 51 rule 1 of the Civil Procedure Rules (the Rules). The application seeks to strike the suit by the plaintiff, Richard Boro Ndung’u, (Mr Ndung’u) dated May 23, 2019, or alternatively, the suit be dismissed with costs.

2. The motion is supported by the grounds on the face of the motion; the supporting affidavit sworn on the same date by Susan Walsh, a senior legal counsel with KPMG International; a supplementary affidavit sworn of November 6, 2019; written submissions dated 21st November 2019 and supplementary submissions dated June 26, 2020.

3. KPMG International asserts that it is a foreign entity registered in Switzerland with no presence in Kenya; that it is a co-operative with personnel located in a number of countries and has registered businesses in the Netherlands and in New Jersey, USA.

4. KPMG International argues that it has no office and does not operate in Kenya; that its presence in Kenya is through the operations of KPMG EA and KPMG Kenya. KPMG International also contends KPMG EA is an association of partnerships in Kenya, Uganda, Tanzania and Rwanda and is governed by the KPMG EA Umbrella Association Agreement.

5. KPMG International further argues that KPMG Kenya is a partnership constituted under the Laws of Kenya and is one of the local partnerships underlying the EA Umbrella Agreement. KPMG EA’s right to conduct business in Kenya under KPMG brand is derived from certain license agreements pursuant to which KPMG International has granted KPMG EA a non-exclusive right to use its marks. It maintains that it is a distinct entity from KPMG EA.

6. KPMG International asserts that this court has no jurisdiction to hear and determine Mr Ndung’u’s suit since it has no relationship, legal or otherwise, with him. It also denies that the emails sent by Mr Ndung’u’s advocates to Ms. Walsh on May 23, 2019 and June 21, 2019 constituted effective service on it as Ms. Walsh was not authorized to accept service on its behalf. KPMG International also denies that it had agreed on such mode of service.

7. In that regard, KPMG International maintains that Mr Ndung’u failed to obtain leave of court to serve summons out of jurisdiction and failed to comply with specific rules on effecting service on a non-commonwealth entity.

8. According to KPMG International the suit is frivolous, vexatious, scandalous and an abuse of the court process. This is because Mr Ndung’u’s claims have already been determined in an arbitral award dated 6th March 2019, made against certain parties and which Mr Ndung’u is currently enforcing. In the view of KPMG International, the arbitration proceedings relate to the same matters that are the subject of this suit.

9. It is KPMG International’s case that Mr Ndung’u has filed multiple proceedings relating to the matters as the present suit. These include, HCCC No 30 of 2017, Richard Boro Ndungu v KPMG EA and another and in the matter of an arbitration between Richard Boro Ndungu v KPMG EA and another. There is also a pending appeal, namely; HCCC Civil Appeal No E007 of 2019, KPMG EA and Another v Richard Boro Ndungu.

Response to First Application 10. This application is opposed through a replying affidavit sworn by Mr Ndung’u on September 26, 2019, and written submissions dated March 19, 2020.

11. Mr Ndung’u contends that prior to filing of the suit, his advocates sent a demand letter to KPMG International. KPMG International’s principal and legal counsel, Ms. Walsh responded through an email dated 2April 6, 2019. Mr Ndung’u’s advocates then sent Summons to Enter Appearance through the email address used by Ms. Walsh. But KPMG International denies service, thus seeks to have the suit struck out.

12. Mr Ndung’u further contends that since the Summons were sent to KPMG International in the manner that had been agreed between the parties and KPMG International participated in subsequent proceedings, it is precluded from denying service of Summons. He maintains that KPMG International has not demonstrated the prejudice suffered by being notified of existence of the suit in the manner it was. Its resistance is a tact to avoid a legitimate suit. Mr Ndung’u relies on Tropical Foods International andanotherv Eastern and Southern African Trade and Development Bank [2017] eKLR to support this proposition.

Second Application 13. The second application is the notice of motion dated March 16, 2020, by Mr Ndung’u, brought under Article 165 of Constitution; sections 1A, 1B and 3A of the Act; Order 5 rules 2, 21 and 22 of the Rules and the amendments thereto pursuant to Legal Notice Number 22 of February 26, 2020, leave to apply granted by the Court on March 10, 2020. The application seeks leave to serve Summons to Enter Appearance on KPMG International at either Zug, Baarerstrasse 12, C/o Stadlin Advokatur, 6300 Zug, Switzerland, or at such other address and in such manner as the Court shall direct. Mr Ndungu also prays that in the event the application is determined after May 30, 2020 (now past), the court should extend the validity of the Summons issued on May 31, 2019 for a further 12 months and issue such orders as it may deem fit and just in the circumstances.

14. The motion is premised on the grounds on its face; the affidavit sworn by Mr Ndung’u on March 16, 2020; skeletal submissions dated August 27, 2020 and reply to submissions by KPMG International dated October 2, 2020.

15. Mr Ndung’u asserts that KPMG International carries on business in Kenya pursuant to a license agreement. In the course of that business he was aggrieved and sought redress in the present suit. His case is that he is entitled to redress from KPMG International because it is a member of a KPMG entity through which it (KPMG International) carries on business.

16. Mr Ndung’u argues that in 2016, KPMG International sent one of its senior officers Mr Andrew Cranston to Kenya to handle the complaint he had raised. The core of Ndungu’s case is therefore based on the manner KPMG International reneged on its obligations to him through Mr Cranston.

17. According to Mr Ndung’u, the acts of omission and commission by KPMG International’s officer complained of in the suit took in Kenya and, therefore, the cause of action falls within the jurisdiction of this Court.

18. Mr Ndung’u submits that in determining an application under Order 5 Rule 21 of the Rules, the court ought to consider the oxygen principles under Article 165 of Constitution and sections 1A, 1B and 3A of the Act.

19. Mr Ndung’u asserts, therefore, that he has demonstrated that KPMG International is based outside the jurisdiction of this Court and for that reasons, the court should allow service of summons out of jurisdiction. He relies on Hakken Consulting Ltd & Another v Seven Seas Technologies andanother [2017] eKLR, that the jurisdiction of the High Court hinges on the provisions of Order 5 Rule 21 in so far as foreign defendants are concerned. Where any one of the indexed instances is met, jurisdiction may not be denied. Importantly, one of the reasons for allowing service to be effected out of jurisdiction should actually be shown to exist.

20. Regarding the mode of service, Mr Ndung’u states that service may be by way of internationally registered and recognized courier service provider, email or mobile enabled messaging applications, pursuant to amendments to Order 5 of the Rules through Legal Notice No 22 of February 26, 2020.

21. Mr Ndung’u again states that since KPM International being a Swiss based entity, the court may grant leave to serve summons by diplomatic channels under Order 5 Rule 29 of the Rules, which applies over and above all the other options on service. He asks the court to also consider allowing service through email and registered couriers besides granting leave to serve summons by diplomatic channels.

22. Lastly, Mr Ndung’u urges the court to extend the validity of the summons in the interests of justice. Ndungu argues that the Summons having been issued on May 31, 2019, they were valid for 12 months and he was entitled to move the court for extension of validity under Order 5 Rule 21 and leave to serve the Summons outside Kenya. He relies on Lenisi Akorile v Eldoret Express Co. Ltd [2019] eKLR.

Response by KPMG International

23. KPMG International’s response to this motion is through grounds of opposition dated May 8, 2020 and written submissions dated September 10, 2020

24. On whether the court should grant leave to serve out of jurisdiction, KPMG International submits that the motion is a nonstarter for several reasons. First, the motion overlooks the jurisdictional issue raised in its own motion, whether the court has jurisdiction to entertain the suit and whether the suit amounts to an abuse of the court process. KPMG International relies on Kagenyi v Musirambo [1968] EA 43 for the position that where a suit has been filed in a court without jurisdiction, it is a nullity.

25. Secondly, the motion is an improper attempt to seek leave to serve out of jurisdiction. KPMG International argues that this motion is an admission by Mr Ndung’u that its application is meritorious. KPMG International again asserts that this motion is an attempt to remedy retrospectively, failure by Mr Ndung’u to seek leave to serve outside jurisdiction as required under Order 5 Rule 21 of the Rules. KPMG International relies on Hakken Consulting case [supra] and Misnak International (UK) Ltd v 4MB Mining Limited c/o Ministry of Mining, Juba Republic of Southern Sudan & 3 others [2019] eKLR.

26. According to KPMG International, Mr Ndung’u having previously maintained that service of summons had been properly served, he is precluded from seeking leave to serve summons outside jurisdiction.

27. KPM International goes on to argue that Mr Ndung’u should have identified the party’s country of residence in the proceedings and cites Nanjibhai Prabhudas & Co. Ltd vs Standard Bank Ltd [1968] E.A. 670. KPMG International maintains that knowledge of the existence of a suit is not sufficient and unless a party is served with summons in the manner provided for in the rules, jurisdiction of the court is not invoked. In this respect, KPMG International relies Law Society of Kenya v Martin Day & 3 others [2015] eKLR.

28. Regarding conditional appearance, KPMG International relies on Evergreen Marine (Singapore), PTE Limited & Gulf Badar Group (Kenya) Limited v Petra Development Services Limited [2016] eKLR for the proposition that a defendant is well within his rights to enter conditional appearance to challenge the jurisdiction of the court. Entry of conditional appearance serves no other purpose save for raising a challenge as to the jurisdiction of the court.

29. With regard to the oxygen principles, KPMG International argues that invocation of the principle will not automatically compel the court to suspend procedural rules. It cites Nicholas Kiptoo Arap Korir Salat v Independence Electoral and Boundaries Commission and 6 others [2013] eKLR. It maintains that for public policy reasons, Courts are obliged to apply rules in a just, expeditious and affordable manner.

Determination 30. I have considered the twin applications, the responses and submissions. I have also considered the decisions relied on by parties. The first motion raises the question whether the suit should be struck out, while the issue in the second motion is whether the court should grant leave to serve Summons to Enter Appearance out of jurisdiction. Since the motions seek opposite orders, it will be appropriate to dispose of the latter motion seeking leave to serve first since that determination will have an implication on the outcome of the former motion.

Leave to serve out of jurisdiction 31. Mr Ndungu urges the court to allow service of Summons to Enter Appearance out of jurisdiction. This is because KPMG International is a foreign company based in Switzerland outside the court’s jurisdiction. He states that although summons had earlier been served by email, that service has been challenged for having been done without leave. Mr Ndungu now wants the court to grant leave to serve summons through either registered post, international courier service provider, email or other mode the court may allow, including diplomatic channel. He relies on Order 5 rule 29 of the Rules.

32. Mr Ndungu also urges the court to extend validity of summons for purposes of service. He relies on Order 5 rule of the Rules and the decision in Lenisi Akorile vs Eldoret Express Co. Ltd (supra)

33. KPMG International on its part urges the court to dismiss the motion on grounds that the motion has no merit as it has already challenged the jurisdiction of the court. KPMG International relies on among other decisions, Nicholas Kiptoo Arap Korir Salat v Independence Electoral and Boundaries Commission and 6 Others (supra) to argue that for public policy reasons, courts are required to apply rules in a just, expeditious and affordable manner.

34. I have considered the arguments by parties on this application. Order 5 rule 21 gives the court powers to allow a party to serve out of jurisdiction. It provides that service outside Kenya may be allowed by the court (e) if the suit is one brought to enforce, rectify, rescind, dissolve, annul, or otherwise affect a contract or to recover damages or other relief for or in respect of breach of a contract—made in Kenya, or made by or through an agent trading or residing in Kenya on behalf of a principal trading or residing out of Kenya.

35. The rule is plain that the court has discretion to allow a party to serve summons out of jurisdiction. This is a discretionary power that the court exercises and like all discretions, this discretion must be exercised judicially.

36. Mr Ndungu argues that KPMG International has connection with other entities operating in the country. He had a problem which KPMG International sent a representative to sort out but he was aggrieved by the manner the issue was handled and he instituted the present suit. The fact that KPMG International is resident outside jurisdiction of the court is not in dispute.

37. KPMG International does not deny that this court has powers to allow service of summons out of jurisdiction. The argument is that the summons to enter appearance was served by email without leave and on a person not authorized to receive summons on its behalf.

38. There is no denial that summons to enter appearance was sent to a representative of KPMG International. There is also no denial that that summons was received. This is so because after service, KPMG International entered appearance under protest dated and filed on 8th July 2020. Thereafter, KPMG International filed the first application, seeking to strike out this suit.

39. In the circumstances of this matter, I will first deal with the first application. This is because the outcome of that application will largely determine the fate of the second application. The question that the court has to decide is whether leave to serve summons outside jurisdiction should be granted.

40. In 2020, the rules were amended by introducing Order 5 rule 22B on service by Electronic Mail (emails). The rule provides as follows:1. Summons sent by Electronic Mail Service shall be sent to the defendant’s last confirmed and used E-mail address.2. Service shall be deemed to have been effected when the Sender shall receive a delivery receipt3. Summons shall be deemed served on the day which it is sent, if it is sent within the official business hours on a business day in the jurisdiction sent, or if it is sent outside of the business hours and on a day which is not a business day it shall be considered to have been served on the business day subsequent.4. An officer authorized to effect service shall file an affidavit of service attaching the Electronic Mail Service delivery receipt confirming service.

41. Mr Ndung’u states that Summons to Enter Appearance was sent by email to a representative of KPMG International through an email address that the representative had been using to communicate with him. The email was indeed received and, as already stated, KPMG International entered appearance under protest. There is, therefore, no firm denial by KPMG International that summons to enter appearance was not received. The argument, as I see it, is that no leave was granted for that service and the person who was served was not an authorized officer.

42. In Raytheon Aircraft Credit Corporation & Another v Air Al- Faraj Limited [2005] 2 KLR 47; [2005] eKLR, the Court of Appeal stated that:[T]he High Court will not assume jurisdiction in relation to any matter arising from the contract unless the contract is of the nature specified in Order V Rule 21 (e) of the Civil Procedure Rules, that is, inter alia, the contract is made in Kenya or if it is governed by the laws of Kenya or if a breach of contract is committed in Kenya. The High Court assumes jurisdiction over persons outside Kenya by giving leave, on application by a plaintiff to serve summons or notice of summons, as the case may be, outside the country under Order V Rules 23 and after such summons are served in accordance with the machinery stipulated therein…The record does not show nor is it contended that the respondent moved the High Court for leave to serve the first appellant outside the jurisdiction and that such leave was given…Thus, there cannot be any question that Raytheon was not amenable to the jurisdiction of the High Court and the objection to jurisdiction should have been allowed on this ground alone.(See also Fonville v Kelly III & others [2002] 1 EA 71; [2002] eKLR).

43. Addressing the issue of service of summons on a foreign defendant in Law Society of Kenya v Martin Day & 3 others [2015] eKLR, the court observed that it is not sufficient for a plaintiff to institute suit against a party. That party must be invited to submit to the authority of the court in order for the legal process of setting down the suit for trial to commence. The Summons must be served in the manner provided for by the rules to enable the defendant who has no registered office or business in Kenya to submit to the jurisdiction of the court. His knowledge of the existence of the suit is not sufficient enough to proceed against him.

44. In the above decision, the court was dealing with service of Summons under Order 5 rule 21 a different mode of service from that in rule 22B.

45. In the present case, Summons was served by email as allowed by the newly introduced amendment in rule 22B. This rule does not refer to rule 21 which requires that service be effected with leave of court. KPMG international has not denied that the email address used was the last known and used email address between its representative and Mr Ndung’u.

46. More importantly, the Summons was received and acted upon by KPMG International when it entered Appearance under protest., a clear indication that the Summons was indeed received. I do not agree with the argument by KPMG International that leave should have been granted before service was effected through email. Rule 22B was introduced in response to the challenges brought about by the Covid 19 Pandemic as an alternative to the then known mode of service under rule 21 and ease pressure on litigants as people worked largely from home. It is an independent mode of service not subject to rule 21. I am satisfied that Summons to Enter Appearance was served a required by the rules.

47. The other argument is that the person served was not an authorized agent or officer of KPMG International. Mr Ndung’u states that he was in constant communication with the person to whom the Summons was sent who was representing KPMG International. In John Akasirwa v Alfred Inai Kimuso (C.A. No 164 of 1999) (UR), the Court of Appeal held that proper service of summons to enter appearance in litigation is a crucial matter in the process whereby the court satisfies itself that the other party to litigation has notice of the same and therefore chose to enter appearance or not. Hence the need for strict compliance with Order 5 Rule 9 (1). The ideal form of service is personal service, it is only when the defendant cannot be found, that service on his agent empowered to accept service is acceptable.

48. The court of appeal was dealing with service of summons within jurisdiction. In the present case, summons to enter appearance was sent to an officer who was said to be acting on behalf of KPMG International and was in constant communication with Mr Ndung’u. KPMG International has not denied that the officer was acting on its behalf when communicating with Mr Ndung’u over the dispute that ended up in court and is the subject of the present suit. A proper reading of rule 22B, shows that it does not require one to serve a principal officer of a foreign defendant, as long as the Summons is sent by email to the defendant’s last known and used email address. It would be too onerous or burdensome to require a plaintiff to serve a principal officer of a foreign company whose principal officers it may be difficult to ascertain.

49. In any case, the purpose of service of Summons is to bring to a defendant’s attention that a suit has been brought against him or it to enable him respond to the claim filed against him.

50. In the circumstances of this case, I am satisfied that Summons to Enter Appearance was served as required by law and brought existence of the suit to the attention of KPMG International. I do not see the prejudice KPMG International has suffered by summons being served on its agents who was at all times in communication with Mr Ndung’u on its behalf. Holding otherwise, would render rule 22B redundant.

Extension of validity of Summons 51. Mr Ndung’u has also asked the court to extend the validity of the Summons to enable him serve once leave is granted. He relies on Order 5 rule 2 of the Rules, and the decision in Lenisi Akorile v Eldoret Express Co. Ltd (supra). The application is opposed by KPMG International. Having determined that Summons to Enter Appearance was properly served leaves this request/prayer unnecessary.

The first application 52. Having determined the second application as have, that summons to enter appearance was properly served, the issue is whether the first application should still be available for consideration. The answer is obviously in the negative. However, for completeness of the matter, I have to say something about this application

53. The first application seeks to strike out the suit for various reasons. These including that the court has no jurisdiction on account of the fact that KPMG International is not resident in Kenya; that the claim by Mr Ndung’u has been determined in arbitral proceedings and that there are other suits still pending among them, an appeal.

54. All I can say is that the issues raised in this application are matters of fact that require evidence to prove. They can only be determined in the suit and not in this application.

55. Furthermore, whether or not to strike out pleadings is an exercise of discretionary power which should be exercised in very clear cases. This is so because striking out pleadings is a draconian act that must only be resorted to in very rare, and the jurisdiction to strike out pleadings being discretionary, it must be exercised sparingly. If a party’s pleadings raise even onebona fide triable issue, the party should be given leave to defend (Postal Corporation of Kenya v I.T.Inamdar & 2others [2004] eKLR.

56. It must also be appreciated that a triable issue is not necessarily one that would ultimately succeed, but it need only be bona fide. (Olympic Escort International Co. Ltd & 2othersv Parminder Singh Sandhu &another[2009] eKLR).

57. In Yaya Towers Limited v Trade Bank Limited (In Liquidation)[2000] eKLR, the court stated that a plaintiff is entitled to pursue a claim in our courts however implausible and however improbable his chances of success. Unless the defendant can demonstrate shortly and conclusively that the plaintiff’s claim is bound to fail or is otherwise objectionable as an abuse of the process of the Court, it must be allowed to proceed to trial.

58. In D.T. Dobie & Company Limited v Joseph Mbaria Muchina &another [1980] eKLR, Madan JA, (as he then was) stated that:No suit ought to be summarily dismissed unless it appears so hopeless that it plainly and obviously discloses no reasonable cause of action, and is so weak as to be beyond redemption and incurable by amendment. If a suit shows a mere semblance of a cause of action, provided it can be injected with real life by amendment, it ought to be allowed to go forward for a court of justice ought not to act in darkness without the full facts of a case before it.

59. What flows from the above principles is that a court should be minded to sustain rather that strike the suit out. In the circumstances, there are no reasons for striking out the suit.

60. In the end, the two applications are dismissed with no order as to costs. The defendant is granted leave to file and serve its defence within 15 days from the dated of this ruling.

DATED SIGNED AND DELIVERED AT NAIROBI THIS 3RD DAY OF JUNE. 2022E C MWITAJUDGE