[2022] KEHC 15313 (KLR)

Real Time Company Limited v Equity Group Foundation & another (Civil Suit E175 of 2020) [2022] KEHC 15313 (KLR) (Civ) (10 November 2022) (Ruling)

Neutral citation: [2022] KEHC 15313 (KLR)

Republic of Kenya

In the High Court at Nairobi (Milimani Law Courts)

Civil

Civil Suit E175 of 2020

CW Meoli, J

November 10, 2022

Between

Real Time Company Limited

Plaintiff

and

Equity Group Foundation

1st Defendant

Kenya Covid-19 Fund

2nd Defendant

Ruling

1. For determination is the motion dated April 6, 2022 by Equity Group Foundation the 1st Defendant/Applicant seeking that the interlocutory judgment entered against it and all consequential order be set aside. The motion is expressed to be brought under Section 1A & 63 of the Civil Procedure Act (CPA) and Order 10 Rule 11 of the Civil Procedure Rules (CPR), among others. The grounds on the face of the motion are amplified in the supporting affidavit of Samuel Wamaitha who describes himself the legal manager of the 1st Defendant and duly authorized to depose to the matters therein.

2. The gist of his affidavit is that on February 10, 2022 the 1st Defendant filed a motion under Section 6(1) of the Arbitration Act dated February 9, 2022 seeking to refer the instant dispute for arbitration and subsequently on February 15, 2022 counsel on record for the 1st Defendant noted from the e-filing portal that Real Time Company Limited, the Plaintiff/Respondent, had filed a request for judgment prompting his letter dated February 15, 2022 to the Plaintiff’s advocate to inquire when the summons to enter appearance were served upon the 1st Defendant and that on February 16, 2022 counsel noted that the Plaintiff’s advocate had filed a further request for judgment against the 1st Defendant, which request was supported by an affidavit of service dated February 14, 2022. Thus, he sent a further letter dated February 18, 2022 to the Plaintiff’s advocate asserting that no proper service was effected and also appraised them of the existence of the pending motion for arbitration; that on March 28, 2022 when the 1st Defendant’s counsel checked the Judiciary e-filing portal he noted that the matter had been set down for formal proof on May 4, 2022, prompting his protest to the court vide a letter dated March 29, 2022 disputing jurisdiction to enter judgment. He discovered that interlocutory judgment had been entered as against the 1st Defendant on February 21, 2022.

3. He proceeds to depose that the 1st Defendant was not properly served with summons to enter appearance as required by the Civil Procedure Rules (CPR). That the 1st Defendant has a defence to the Plaintiff’s claim, but the dispute is subject to arbitration. He further asserts that the Plaintiff’s request for interlocutory judgment while it was aware of the pending arbitration motion amounts to an abuse of the court process and that by dint of Section 6(2) of the Arbitration Act, the interlocutory judgment is void and ought to be setting aside. The deponent points out that the Plaintiff’s assets are unknown and any execution resulting from judgment herein would be prejudicial to the 1st Defendant as it would not be in a position to recover any sums paid out to the Plaintiff.

4. The Plaintiff opposes the motion by way of a replying affidavit deposed by Lilian Awour Atho, described as a director of the Plaintiff and duly authorized to depose. She asserts that the judgment was regularly entered in default of appearance after summons were duly served upon the 1st Defendant on October 29, 2021. That by dint of Order 5 Rule 22B (1) and (2) of the Civil Procedure Rules, service of summons was properly effected upon the 1st Defendant through its last confirmed and used email address info@equitygroupfoundation.co.ke and a delivery receipt received on the same.

5. She contends that the Plaintiff was within its right to request for interlocutory judgment and that the 1st Defendant’s motion dated February 9, 2022 had not been served and in any event was filed two weeks after the request for interlocutory judgment had been lodged. The deponent further asserts that the 1st Defendant’s motion seeking to refer the matter to arbitration was overtaken by events upon entry of the interlocutory judgment being entered and pointed out that the 1st Defendant advocates correspondence with the Court was erroneously addressed to the Deputy Registrar Commercial and Tax Division rather than the Deputy Registrar Civil Division. Moreover, that the 1st Defendant has also not attached a draft defence while section 6(2) of the Arbitration Act does not apply to the matter at hand. She asserted that the motion is incurably defective and ought to be dismissed with costs.

6. The motion was canvassed by way of written submissions. Counsel for the 1st Defendant anchored his submissions on the provisions of Section 6(2) of the Arbitration Act and several decisions including Westmont Power Kenya Limited v Kenya Oil Company [2011] eKLR, and Kenya Broadcasting Corporation v National Authority for the Campaign against Alcohol and Drug Abuse[2015] eKLR to argue that the interlocutory judgment entered against the 1st Defendant is void as it ought not to have been entered in the first place when the arbitration motion was pending before the court. Regarding service of summons to enter appearance, he relied on Multiscope Consulting Engineers v University of Nairobi & Another [2014] eKLR and Total Kenya Limited v Supa Hauliers Limited[2003] eKLR to argue that the mode of service described in the affidavit of service is contrary to that envisaged in Order 5 of the Civil Procedure Rules. That Rule 22B of Order 5 of the Civil Procedure Rules allows a party to effect service through electronic mail and not through the Judiciary e-filing system and that the purported notification of service in the e-filing system referenced in the affidavit of service is merely an approval to serve electronically and not a confirmation of service. Thus, there has been no proper service of summons to enter appearance. The court was urged to set aside the interlocutory judgment.

7. Counsel for the Plaintiff for her part defended the interlocutory judgment. Citing the provisions of Order 10 Rule 9 & 10 of theCivil Procedure Rules, and the case of Kimani v Mc Connell [1966] EA 545 and Fidelity Commercial Bank Ltd v Owen Amos Ndungu & Another HCCC No 241 of 1998 counsel asserted that the judgment entered against the 1st Defendant was regular, as the said Defendant had been duly served with summons to enter appearance at their last known address using the judiciary e-filing service pursuant to Order 5 Rule 22B(1) & (2) of theCivil Procedure Rules but failed to enter appearance or file a defence within the stipulated time. She emphasized that the return of service cited the confirmation equivalent to a delivery report on successful service upon the 1st Defendant that was generated on October 29, 2021 via the Judiciary e-filling portal. Hence, summons was properly served and the resultant judgment was therefore regular. And in the circumstances, the court ought not to set aside the default judgment against the 1st Defendant’s which by indolence has deliberately sought to obstruct or delay the course justice.

8. Counsel cited several decisions including Pithon Waweru Maina v Thuku Mugiria [1983] eKLR, Phillip Keipto Chemwolo & Another v Augustine Kubende [1986] eKLR, and Sameer Africa Limited v Aggarwal & Sons Ltd [2013] eKLR to argue that the 1st Defendant has not demonstrated a reasonable defence with triable issues to justify setting aside a regular default judgment. With regard to the application of the provisions of Section 6(1) of the Arbitration Act, counsel relied on the dicta inUAP Provincial Insurance Company Ltd v Michael John BeckettHCCC No 1310 of 2001 and Nanchana Foreign Engineering Company Limited v Easy Properties (K) Ltd[2014] eKLR, among others to contend that the motion seeking to referral of the dispute to arbitration was a red herring as the mere existence of an arbitration clause does not necessarily mean that there exists a dispute that is subject to arbitration. Relying on Continental Butchery Limited v Nthiwa[1978] eKLR and Moniks Agencies v Kenya Airports Authorities[2019] eKLR counsel urged that should the court be inclined to allow the instant motion, it should impose a condition requiring the 1st Defendant to deposit the contract sum into court. The Plaintiff prayed for the dismissal of the motion.

9. The Court has considered the rival affidavit material and submissions in respect of the motion. The default judgment herein was entered against both Defendants, but it seemed that while the motion was filed by the 1st Defendant the prayer seeking the setting aside of the default judgment is not confined to the 1st Defendant alone. Nevertheless in view of the fact that the issues arising from the motion equally affect the two Defendants, the Court will consider the application as if made jointly by the two Defendants. The motion is expressed to be brought under Section 1A of the Civil Procedure Act (CPA) and Order 10 Rule 11 (CPR). The power of the court to grant or refuse an application to set aside or vary such judgment or any consequential decree or order, is discretionary. The discretion is also wide and unfettered, however, like all judicial discretion it must be exercised judicially and justly. The objective of the discretion that is conferred upon the court was spelt out in the case ofShah –vs- Mbogo and Another [1967] EA 116 as follows:“The discretion to set aside an ex-parte judgment is intended to be exercised to avoid injustice or hardship resulting from accident, inadvertence or excusable mistake or error but it is not designed to assist a person who has deliberately sought whether by evasion or otherwise to obstruct or delay the cause of justice.”

10. Order 10 Rule 11 of the Civil Procedure Rules upon which the 1st Defendant’s motion is anchored provides that: -“Where judgment has been entered under this Order the court may set aside or vary such judgment and any consequential decree or order upon such terms as are just.”

11. The principles in Shah –vs- Mbogo(supra) were amplified further in the judgment of Platt JA (as he then was) in Bouchard International (Services) Ltd vs M'Mwereria [1987] KLR 193, cited with approval by the same Court in Miarage Co Ltd v Mwichuiri Co Ltd [2016] eKLR. The passage reads as follows: -“The basis of approach in Kenya to the exercise of the discretion to be employed or rejected ... is that if service of summons to enter appearance has not been effected, the lack of an initiating process will cause the steps taken to set aside ex debito justiciae. If service of notice of hearing or summons to enter appearance has been served, then the court will have before it a regular judgment which may yet be set aside or varied on just terms. To exercise this discretion is a statutory duty and the exercise must be judicial. The court in doing so is duty bound to review the whole situation and see that justice is done. The discretion is intended so to be exercised to avoid injustice or hardship resulting from accident, inadvertence or excusable mistake or error, but is not designed to assist a person who has deliberately sought whether by evasion or otherwise to obstruct or delay the course of justice...A judge has to judge the matter in the light of all the facts and circumstances both prior and subsequent and of the respective merits of the parties before it would be just and reasonable to set aside or vary the judgment, if necessary, upon terms to be imposed. Hence the justice of the matter, the good sense of the matter, were certainly matters for the judge. It is an unconditional unfettered discretion, although it is to be used with reason, and so a regular judgment would not usually be set aside unless the court is satisfied that there is a defence on the merits, namely a prima facie defence which should go to trial or adjudication. The principle obviously is that, unless and until the court has pronounced a judgment upon the merits or by consent it is to have the power to revoke the expression of its coercive power, when that has been obtained only by a failure to follow any of the rules of procedure. ….. The judge before whom the application for setting aside is presented will have a greater range of facts concerning the situation after an inter partes hearing, than the judge who acts ex parte... Although sufficient cause for non-appearance may not be shown, nevertheless in order that there be no injustice to the applicant the judgment would be set aside in the exercise of the court’s inherent jurisdiction”.

12. Two fundamental questions falling for determination here are whether the Defendants were duly served with summons to enter appearance, and whether default judgment could be properly entered in this case in light of the provisions of section 6(2) of the Arbitration Act. And ultimately, the court will determine whether the default judgment herein is regular. Through its affidavit material, the 1st Defendant has vehemently denied service of summons and stating that the affidavit of service herein does not demonstrate proper service as contemplated under Order 5 of the Civil Procedure Rules. The Plaintiff on its part contended that by dint of Order 5 Rule 22B (1) and (2) of the Civil Procedure Rules, service of summons was properly effected upon the 1st Defendant through its last confirmed and used email address, namely info@equitygroupfoundation.co.ke and the 2nd Defendant via email address Muigai.kamau@equitybank.co.ke and a delivery receipt generated.

13. The purpose of the requirement for effective service of summons cannot be disputed. As stated by the Court of Appeal inGiro Commercial Bank Ltd (supra): -“Summons to enter appearance is intended to give notice to the parties sued of the existence of the suit and requires them, if they wish to defend themselves to, first of all enter appearance. The provisions relating to summons to enter appearance are based on a general principle that, as far as possible, no proceedings in a court of law should be conducted to the detriment of any party in his absence. Entry of appearance by a party therefore signifies the party's intention to defend. Under order 10 Rules 4, 5, 6 & 7, where a party fails to enter appearance after being served with summons, an interlocutory judgment may be entered against the party, provided the claim is for pecuniary damages or for detention of goods. In all other instances, where there is default of appearance, the plaintiff, is under Order 10 Rule 9 required to set the suit down for hearing by formal proof of the plaintiff’s claim.”See also Gemstaviv Limited v Kamakei Ole Karia & 5 others [2015] eKLR.

14. The Plaintiff’s request for interlocutory judgment was supported by the affidavit of service deposed by a counsel, Neddie Eve Akello. The deponent asserted at paragraph 2, 3, 4 and 5 that:-“2. That having instituted suit against the Defendants herein on 10th day of November 2020, I effectively took out summons for the Defendants to enter appearance and or file a defence to the suit and duly effected service of the same upon the Defendants individually herein.3. That on the 27th day of October 2021 at around 16. 48. 21 hours, I requested for the e-filing service of summons to enter appearance upon the Defendants on the addresses provided in accordance with Order 5 Rule 22B of the Civil Procedure Rules. (Annexed herewith and marked NEA 1 is a copy of the judiciary e-filing acknowledgement of filing of summons to the Defendant) .4. That the email addressed used are and info@equitygroupfoundation.co.ke for the 1st Defendant and Mungai.kamau@equitybank for the 2nd Defendant as per the contract and agreement between the parties herein.5. That I received a confirmation of successful service upon the Defendants together with the copy of the summons to enter appearance duly generated on 29th day of October 2021 still via e-filing portal. (Annexed herewith and marked NEA 2 is a copy of the judiciary e-filing acknowledgement of service to the Defendant delivery report)” (sic)

15. The Defendants had been sued as body corporates. The procedure for effecting service of summons on a corporation is prescribed under Order 5 Rule 3 of the Civil Procedure Rulesand the contents of the affidavit of service stipulated in Order 5 Rule 15 of the Civil Procedure Rules. Order 5 Rule 3 of the (CPR) provides that:-“Subject to any other written law, where the suit is against a corporation the summons may be served—(a)on the secretary, director or other principal officer of the corporation; or(b)if the process server is unable to find any of the officers of the corporation mentioned in rule 3(a)—(i)by leaving it at the registered office of the corporation.(ii)by sending it by prepaid registered post or by a licensed courier service provider approved by the court to the registered postal address of the corporation; or(iii)if there is no registered office and no registered office or physical address of the corporation, by leaving it at the place where the corporation carries on business; or(iv)by sending it by registered post to the last known postal address of the corporation.”

16. Order 5 Rule 15 of the same rules provides that:-"(1)The serving officer in all cases in which summons has been served under any of the foregoing rules of this Order shall swear and annex or cause to be annexed to the original summons an affidavit of service stating the time when and the manner in which summons was served and the name and address of the person (if any) identifying the person served and witnessing the delivery or tender of summons. The affidavit of service shall be in Form No 4 of Appendix A with such variations as circumstances may require.(2)….’’

17. Admittedly, this suit was filed in 2020 at the onset of the Covid-19 Pandemic in Kenya. In February of 2020 vide Legal Notice No 22 of 2022 the Civil Procedure Rules were amended to include the new Rules 22A, 22B & 22C to Order 5 of the CPR, thus introducing new modes of service. The relevant rule for purposes of this case Rule 22B which provides that; -(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 receives a delivery receipt.(3)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 and if it is sent outside of the business hours and on a day that is not a business day it shall be considered to have been served on the business day subsequent.(4)An officer of the court who is duly authorized to effect service shall file an Affidavit of Service attaching the Electronic Mail Service delivery receipt confirming service.’’

18. Previously, personal service in the first instance was considered ideal. The above amendments transformed the process of service of summons by introducing service by way of electronic mail services. As rightly asserted by the Plaintiff, at the height of the Pandemic, the judiciary leadership vide Gazette Notice No 3137 of 2020 published “Practice directions for the protection of Judges, Judicial officers, Judiciary Staff, Other Court Users and the General Public from the Risks associated with the Global Corona Virus Pandemic” . Paragraph 5 of the Directions was to the effect that;-“5. During this period, parties are directed, whenever possible and unless otherwise directed by the court, to serve court documents and processes through electronic mail services and mobile enabled messaging applications as provided for under Order 5 Rules 22B and 22C of the Civil Procedure Rules.”

19. Thus, to my mind, the question is whether the asserted service and return of service complied with the applicable rules of procedure. Order 5 Rule 3 (a) provides that service on a corporation should be effected on a principal officer of the corporation unless the process server is unable to trace such officers for service, in which event other options are provided for. The introduction of service of summons by electronic mail through Rule 22B of Order 5 in my view merely expanded the alternate modes of service but did not render Rule 3 (a) otiose. Thus, the two Rules read together provided for service in the first instance on a corporation through its principal officer either in person or by way of electronic mail or if such officer or his last confirmed and used email address could not be found by the process server, by electronic mail to the corporation’s last confirmed and used e-mail address. Of course, the other alternate modes of service in Rule 3 (b) were also available in the latter event.

20. Neddie Eve Akello who deposed the affidavit of service stated therein that she …. “requested for the e-filing service of summons to enter appearance upon the Defendants on the addresses provided in accordance with Order 5 Rule 22B of the Civil Procedure Rules “and cited the email addresses used for service in respect of the Defendants. She swore that she “received a confirmation of successful service upon the Defendants together with the copy of the summons to enter appearance duly generated on 29th day of October 2021 still via e-filing portal”. She exhibited as annexures “NEA-1” being an approval for E-service–acknowledgment and “NEA-2” an acknowledgement of filing of summons. Therefore, it was the Plaintiff’s contention that service of summons was duly effected using the Judiciary E-filing Portal.

21. First, it is evident from the affidavit of service that the Plaintiff served the “Defendants” (corporations) directly in the first instance. There is no reference in the affidavit to any prior attempt made to reach the principal officers of the said Defendants to effect service upon them by electronic mail. The alternate mode of service upon the corporation itself rather than its principal officers has therefore not been justified. In any event for the alternate service to be proper, Order 5 Rule 22B CPRrequires the service to be effected upon the defendant's last confirmed and used email address and that service shall be deemed to have been effected when the sender receives a delivery receipt to be attached to the affidavit of service of the officer of the court duly authorized to effect service. The Plaintiff’s annexures NEA- 1 and 2 are ex facie not electronic mail directed to the Defendants’ email addresses. Moreover, the contract or agreement that was the purported source of the Defendants’ email address was not attached to the affidavit to demonstrate whether it had been used for correspondence with the Plaintiff and or that the said address was Defendants’ last confirmed email address. To compound matters, the affidavit of service did not contain the sender’s delivery receipt as required by Rule 22B (4) of the Civil Procedure Rules.

22. Electronic service of summons as contemplated in Order 5 Rule 22B of the Civil Procedure Ruleswas intended to be effected between parties through electronic mail and not through the Judiciary E-filing System as appears to be what the Plaintiff attempted here. In the premises, while the Defendants evidently had notice of and filed notices of appointment and the arbitration motion in this suit, it cannot be said that there was proper service of summons to enter appearance upon the Defendants, in compliance with Order 5 Rule 3 as read with Rule 22B.

23. On the second issue, the provisions of section 6(1) and (2) of the Arbitration Act are clear:“(1)(1) A court before which proceedings are brought in a matter which is the subject of an arbitration agreement shall, if a party so applies not later than the time when that party enters appearance or otherwise acknowledges the claim against which the stay of proceedings is sought, stay the proceedings and refer the parties to arbitration unless it finds— (a) that the arbitration agreement is null and void, inoperative or incapable of being performed; or (b) that there is not in fact any dispute between the parties with regard to the matters agreed to be referred to arbitration.(2)Proceedings before the court shall not be continued after an application under subsection (1) has been made and the matter remains undetermined.”

24. It is not disputed that by the date of the entry of the interlocutory judgment against the Defendants, an application seeking referral to arbitration had been lodged by the Defendants. Inexplicably, that application had not been printed and placed on the physical file at the time of entry of judgment and was (judging from the hitherto physical sequence of material on file, now rearranged chronologically) apparently placed on the file after the motion herein was set down for hearing. Had the application been on the file, the Deputy Registrar of this Court would not have allowed the Plaintiff’s request for default judgment in light of the provisions above.

25. Thus, the entry of the default judgment in the circumstances was due to omissions by the registry to promptly print and place the arbitration motion on the file. Indeed, the motion must have been seen by the Plaintiff’s advocate on the e-filing portal as the she evidently accessed the portal severally to press for the entry of the default judgment. The default judgement runs afoul of the provisions of section 6(2) of the Arbitration Act, and it matters not that the Plaintiffs had not been served with the motion seeking referral to arbitration. For this reason and the fact that service of summons to enter appearance was not properly effected upon the Defendants, the default judgment against the two Defendants is irregular and must be set aside ex debito justitiae. However, as only the 1st Defendant appeared to participate in the motion, the court will award thrown away costs to the 1st Defendant alone.

26. The motion seeking referral of this suit to arbitration dated March 9, 2022 will immediately hereafter be set down for hearing.

DELIVERED AND SIGNED ELECTRONICALLY AT NAIROBI ON THIS 10TH DAY OF NOVEMBER 2022. C.MEOLIJUDGEIn the presence of:For the Applicant: Ms. Muthiani h/b for Mr Kiragu KimaniFor the Respondent: Ms. AkeloC/A: Carol