[2022] KEHC 17071 (KLR)

Panchal Trading (K) Limited v N.F Metals Corporation (Civil Suit 35 of 2020) [2022] KEHC 17071 (KLR) (15 July 2022) (Ruling)

Neutral citation: [2022] KEHC 17071 (KLR)

Republic of Kenya

In the High Court at Mombasa

Civil Suit 35 of 2020

MN Mwangi, J

July 15, 2022

Between

Panchal Trading (K) Limited

Plaintiff

and

N.F Metals Corporation

Defendant

Ruling

1. The application before me is a Notice of Motion datedNovember 8, 2021 brought under the provisions of sections 1A, 1B, 3 & 3A of the Civil Procedure Act, and Order 39 Rules 1, 2, 5 of the Civil Procedure Rules. The plaintiff seeks the following orders-i.Spent;ii.The defendant do deposit within (21) days or such other period as the court may order Kshs. 5,000,000/= as security for costs in favour of the plaintiff/applicant in Court during the pendency of this case;iii.In default of complying with order 2 judgment be entered against the defendant as prayed in the plaint and the defendant’s defence be dismissed with costs to the plaintiff/applicant;iv.Upon complying with prayer (2) above the suit herein be set down for hearing with a hearing date expeditiously and on priority basis; andv.Costs of the application.

2. The application is brought on the grounds on the face of it and is supported by an affidavit sworn on November 8, 2021by Rajender Kumar Premchand, the plaintiff’s director. In opposition to the application herein, the respondent filed a replying affidavit sworn by Atal Singal, the proprietor of the defendant herein.

3. The application herein was canvassed by way of written submissions. The plaintiff’s submissions were filed on March 3, 2022 by the law firm of Opulu & Company Advocates whereas the defendant’s submissions were filed by the law firm of Onyango Onunga Advocates on February 15, 2022.

4. Mr. Opulu, learned Counsel for the plaintiff submitted that the suit herein was filed by the plaintiff on June 9, 2020 against the defendant. That on July 1, 2020, the defendant entered appearance but failed to file a defence within the stipulated time, therefore judgment in default of defence was entered on 19th August, 2020. He further submitted that on 2nd November, 2020, the defendant filed an application to set aside the said interlocutory judgment but prior to the filing of the said application, the plaintiff had extracted a decree dated October 9, 2020 and was in the process of executing it.

5. It was submitted by the plaintiff’s Counsel that while in the process of executing the said decree, and after exercising due diligence to try and ascertain any known assets belonging to the defendant, the plaintiff realized that the defendant has no single asset in Kenya or East Africa. He stated that the defendant herein is a company carrying out business in India and has no assets in Kenya and the plaintiff is apprehensive that if judgment is entered against the defendant, the same will be a paper judgment and decree, since the plaintiff will have no assets to attach to recover costs of this suit.

6. Mr. Opulu submitted that all affidavits by the defendant have been sworn by Atal Singal with his address as Khevat No. 61/50, Khtoni No. 67, Opposite Price Dharam Kanta, 55 Feet Pali Gazipur Road, near Sohna Road, Nagla, Faridabad, Haryana-121004, India. He indicated that the defendant has no directors or representative in Kenya.

7. He submitted that the security for costs sought by the plaintiff is dismal compared to the amount sought in the plaint which the plaintiff is skeptical that it will be able to recover from the defendant. Mr. Opulu relied on the case of Kenya Education Trust Ltd v Katherine S.M. Whitton [2011] eKLR, where the Court of Appeal held that an award for security for costs is a discretionary remedy which can be granted if special circumstances permit.

8. He further submitted that the case law relied upon by the defendant entails parties who have deliberately taken action to avoid any process, obstruct or delay execution of a decree, whereas in this case, the defendant has no known assets in Kenya capable of being attached.

9. Ms. Onyango, learned Counsel for the defendant refuted the plaintiff’s claims and submitted that the defendant cannot be faulted for its lack of operations in Kenya considering that it was incorporated and undertakes its business in India, information which the plaintiff has been aware of since the commencement of this suit. She stated that the plaintiff’s assertion that the defendant’s defence is a sham is presumptuous since it raises triable issues that can only be determined upon hearing of the defendant’s case.

10. She relied on the case of Godfrey Oduor Odhiambo v Ukwala Supermarket Kisumu Limited[2016] eKLR, where the court noted that pursuant to the provisions of section 63 of the Civil Procedure Act and Rule 39 (1) and (5) of the Civil Procedure Rules, orders of attachment before judgment or an order to provide security may be granted where the respondent has deliberately taken action to avoid any process, obstruct or delay execution of a decree. She stated that the court further noted that the applicant must show that the action taken by the respondent has been taken with the sole aim of frustrating the applicant’s enjoyment of a decree or anticipated decree. Ms. Onyango contended that this has not been sufficiently proved by the plaintiff.

11. She submitted that the defendant has a bonafide defence with high chances of success and it should not be penalized to pay costs before the issues in court are ventilated at a full hearing.

ANALYSIS AND DETERMINATION. 12. I have considered the application filed herein, the grounds on the face of it and the affidavit filed in support thereof, the replying affidavit as well as the written submissions by Counsel for the parties. The issues that arise for determination are-i.Whether the application herein has been brought under the correct provisions of the law; andii.If the application herein is merited.

13. The plaintiff deposed that it had a business relationship with the defendant company dealing in exportation of metal and scrap metal but since serving the defendant with the pleadings in this suit, it has not been able to trace the defendant’s place of business, assets or physical address in Kenya. The plaintiff averred that the defendant is a foreign company based in India and it is neither registered nor has a physical address in Kenya.

14. It was stated by the plaintiff that the defendant does not operate within physical limits of the jurisdiction of this court. The plaintiff further stated that it has a liquidated claim against the defendant whereas the defence filed herein is on the face of it a sham, is evasive and discloses no triable issues to the claim. The deponent stated that should this suit be successful, the plaintiff will be unable to execute the decree to recover any decretal sum and the hefty and enormous amounts it has paid its Advocates and the attendant legal court fees.

15. The defendant in its replying affidavit deposed that the plaintiff’s claim that the defendant does not operate within the physical limits of the jurisdiction of thecourt is not a novel issue as the plaintiff was fully aware of this since it commenced the suit herein against the defendant. The defendant averred that it cannot be faulted for not having a physical address or assets in Kenya as it was incorporated in India and undertakes its business from there.

16. It was stated by the defendant that it has been cooperative and has been corresponding in this matter since the institution of this suit against it. The defendant further stated that the plaintiff has not sufficiently stated and/or proved that the defendant has deliberately acted in a way that will obstruct or delay execution of the anticipated decree.

17. The defendant averred that the defence filed herein raises triable issues that can only be determined upon hearing of the defendant’s case.

Whether the application herein has been brought under the correct provisions of the law 18. It is noteworthy that the application herein has been brought under the provisions of Order 39 Rules 1, 2, & 5 of the Civil Procedure Rules, 2010 which provides for arrest and attachment before judgment. However, looking at the orders sought by the plaintiff, one finds that the plaintiff seeks for an order for security for costs as provided under Order 26 Rule 1 of theCivil Procedure Rules, 2010. It is clear that the present application has been brought under the wrong provisions of the law.

19. From the pleadings before me, the defendant has not raised this issue. The parties herein did not submit on the same. Be that as it may, and in the interest of justice, this Court shall consider whether the fact that the application herein has been brought under the wrong provisions of the law is fatal.

20. Courts are called upon to do substantive justice to the parties by giving effect to the overriding objective of sections 1A and 1B of the Civil Procedure Act in the interpretation of its provisions and Rules which include; the just determination of the proceedings; efficient disposal of the dispute; efficient use of available judicial and administrative resources, and the timely disposal of the proceedings at a cost affordable to the respective parties. This was the position held by the court in Stephen Boro Gitiha v Family Finance Building Society & 3others CA 363/2009, where the Court of Appeal held inter alia:“The overriding objective overshadows all technicalities, precedents, rules and actions which are in conflict with it and whatever is in conflict with it must give way. If the often talked of backlog of cases is littered with similar matters, the challenge to the courts is to use the new “broom” of overriding objective to bring cases to finality, by declining to hear unnecessary interlocutory applications and instead to adjudicate on the principal issues in a full hearing if possible.”

21. It is my finding that the fact that the application herein has been brought under the provisions of Order 39 Rules 1, 2, & 5 of the Civil Procedure Rules, 2010 instead of Order 26 Rule, 1 of the Civil Procedure Rules, 2010 affects the form and not the substance of the application hence, the issue herein is one of procedural technicality, pursuant to the provisions of article 159(2)(d) of the Constitution of Kenya, 2010 and is therefore not a fatal mistake.

If the application herein is merited. 22. Order 26 Rule 1 of the Civil Procedure Rules, 2010 provides that-“In any suit the court may order that security for the whole or any part of the costs of any defendant or third or subsequent party be given by any other party.”

23. In considering an application for security for costs, courts are called upon to exercise their discretion judiciously so as to maintain a balance between parties to a suit, since the need for security for costs arises when a party is reasonably apprehensive that if one succeeds, one’s legal costs and/or fruits of the resultant judgment will not be paid by the losing party. In the case of Anitha Karuturi & another v CFC Stanbic Bank Limited & 4 others [2020] eKLR the Court held as follows-“Whether or not the provisions for security for costs are justified under the Constitution was considered by the Court of Appeal in Gatirau Peter Munya v Dickson Mwenda Githinji & 2 others(supra) where it was argued that an order for security for costs would impede the right of access to justice. The court stated as follows:“The rationale for security for costs is to ensure firstly, that a party is not left without recompense for costs that might be awarded to him in the event that the unsuccessful party is unable to pay the same due to poverty; secondly, it ensures that a litigant who by reason of his financial ability is unable to pay costs of the litigation if he loses, is disabled from carrying on litigation indefinitely except on conditions that offer protection to the other party. In Noor Mohamed Abdulla v Ranchhodbhal J Patel & another [1962] EA 448, it was held: -The order for security for costs in such a case is not directed towards enforcing payment of the costs as such, but is designed to ensure that a litigant who by reason of near insolvency is unable to pay the costs of the litigation when he loses, is disabled from carrying on the litigation indefinitely except upon terms and conditions which afford some measure of protection to the other parties.It is therefore imperative in consideration of an application for security of costs, for the court to balance the competing rights of the parties, that is the right to access to justice and the right to security for costs. article 24 (1) (d) of the Constitution, provides: -24 (1) A right or fundamental freedom in the Bill of Rights shall not be limited except by law, and then only to the extent that the limitation is reasonable and justifiable in an open and democratic society based on human dignity, equality and freedom, taking into account all relevant factors including-……………………..(d)the need to ensure that the enjoyment of rights and fundamental freedoms by any individual does not prejudice the rights and fundamental freedoms of others;” (emphasis added).

24. In the case of Barrack Ofulo Otieno v Instarect Limited [2015] eKLR, the court held that:“The discretion to order for security for costs is to be exercised reasonably and judicially by taking into consideration the circumstances of each case. Such matters as; absence of known assets within the jurisdiction of court; absence of an office within the jurisdiction of court; inability to pay costs; the general financial standing or wellness of a party; the bona fides of the party's claim; or any other relevant circumstance or conduct of the party. Such conduct will include activities which may hinder recovery of costs, for instance recent closer or transfer of bank accounts, and disposal of assets. The conduct of the adverse party or rather the applicant includes, filing of application for security for costs as a way of oppressing or obstructing the other parties claim.”

25. In the case before this court, the plaintiff contended that the defendant is a foreign company based in India, it is not registered in Kenya and has no physical address in Kenya. The plaintiff stated that the defendant has no assets or property within the physical limits of the jurisdiction of this Court and by extension Kenya, and none of the directors or members of the defendant resides in Kenya.

26. The plaintiff further stated that in the event that its suit will be successful, it will be unable to execute the decree so as to recover the decretal sum if any, the hefty costs and the attendant legal court fees. The defendant on the other hand averred that the defendant cannot be faulted for not having a physical address and/or assets in Kenya as it was incorporated in India and undertakes its business from there.

27. Notably, it is not disputed that the defendant herein is a company incorporated in India, with no physical address, property and/or assets in Kenya. Therefore, should the plaintiff be successful in its claim against the defendant herein, it would not be able to execute the resultant decree and recover the decretal sum if any, costs for its Advocate and the attendant legal court fees.

28. On the issue of the bonafides of the party’s claim, the plaintiff submitted that the defence filed by the defendant on the face of it is a sham, evasive and does not disclose any triable issues to the claim. The defendant on its part contends that its defence raises triable issues that can only be determined upon hearing of the defendant’s case. A perusal of the plaint and the statement of defence reveals that the plaintiff and the defendant had a business relationship whereby the plaintiff at the defendant’s request would supply scrap metal to the defendant company at their premises in India, thereafter, the plaintiff would issue the defendant with invoices which the defendant would honour by paying the plaintiff.

29. The plaintiff avers that it supplied scrap metals worth USD 2,418,564. 43 to the defendant and the defendant paid USD 1,942,413. 93 leaving an outstanding balance of USD 476,150. 50. The defendant on the other hand avers that the plaintiff made false promises to the defendant and took advance money in order to deceive the defendant and PMA Trading Co without even having the licenses or permissions from the concerned authorities to export the scraps to the defendant. The defendant claims that the plaintiff owes it USD 310,468. 00 In view of the foregoing, it is safe to conclude that indeed the defendant’s defence raises triable issues, therefore the defendant has an arguable defence which ought to be subjected to a hearing on its merits.

30. I am therefore satisfied that this is a case where the defendant company should provide security for costs. It is trite that in setting the amount, the Court can order any amount up to the full amount claimed by way of security, provided that it is more than simply a nominal amount but it is not bound to make an order of a substantial amount. The plaintiff’s claim against the defendant is for USD 476,150. 50. which is approximately Kshs. 56,709,524. 60 at the current exchange rate of Kshs. 119. 10 for one USD. Therefore, the sum of Kshs. 5,000,000. 00 on account of costs will not only be reasonable but also appropriate as costs in defending the matter herein.

31. The upshot is that the application dated November 8, 2021 has merits. The same is allowed in the following terms-a.The defendant is hereby ordered to deposit Kshs. 5,000,000. 00 into an interest earning bank account in the joint names of the Advocates for the parties herein, within thirty (30) days from today as security for costs in favour of the plaintiff in this matter;b.In default of compliance with the provision of such security, judgment be entered against the defendant as prayed in the plaint and the defendant’s defence shall be dismissed with costs to the plaintiff.c.Costs to the plaintiff.It is so ordered.

DATED, SIGNED AND DELIVERED AT MOMBASA ON THIS 15TH DAY OF JULY, 2022. RULING DELIVERED THROUGH MICROSOFT TEAMS ONLINE PLATFORM.NJOKI MWANGIJUDGEIn the presence of:Mr. Julius Maithya h/b for Mr. Opulu for the plaintiffMs Kanazi h/b for Ms Onyango for the defendantMr. Oliver Musundi – Court Assistant.