[2022] KEHC 11448 (KLR)

Roko Construction (Kenya) Limited v Riverside Square Properties LLP & another (Miscellaneous Application E537 of 2021) [2022] KEHC 11448 (KLR) (Commercial and Tax) (13 May 2022) (Ruling)

Neutral citation: [2022] KEHC 11448 (KLR)

Republic of Kenya

In the High Court at Nairobi (Milimani Law Courts)

Commercial and Tax

Miscellaneous Application E537 of 2021

A Mshila, J

May 13, 2022

Between

Roko Construction (Kenya) Limited

Applicant

and

Riverside Square Properties LLP

1st Respondent

Guaranty Trust Bank (Kenya) Ltd

2nd Respondent

Ruling

1. The Applicant filed a Notice of Motion dated 21st July 2021 under Order 40 Rule l and Order 51 of the Civil Procedure Rules 2010; Sections IA, 1B, 3A and 3B of the Civil Procedure Act Cap 21; Section 7 (l) Arbitration Act 1995 Laws of Kenya and Arbitration Rules 1997; The Application was supported by the annexed sworn affidavit of Derek Claassen who sought the following orders;a.An order be issued restraining the 2nd Respondent herein whether by itself, employees, servants and agents, assigns and/ or any other person whatsoever acting on its behalf and/ or under its mandate or instructions from making any payments arising from the performance bond Reference No. GU 12521 in the sum of Kshs.99, 359,858. 50 to the 1st Respondent in relation to ongoing construction on Riverside Drive Nairobi LR No. 209/4906 (PLOT C) pending the hearing and determination of this Application.b.An order be issued restraining the 2nd Respondent herein whether by itself, employees, servants and agents, assigns and/ or any other person whatsoever acting on its behalf and/ or under its mandate or instructions from making any payments arising from the performance bond Reference No. GU 12521 in the sum of Kshs.99, 359,858. 50 to the 1st Respondent in relation to ongoing construction on Riverside Drive Nairobi LR No. 209/4906 (PLOT C) pending the hearing determination of the intended arbitration.c.Any other or further orders and/ or directions as the Court may deem just, fit and expedient to issue.

2. The Applicant and the 1st Respondent entered into a construction contract whereby the 1st Respondent contracted the Applicant to undertake the construction of two fourteen (14) storey apartment buildings situate in the premium Riverside area and on Nairobi LR No. 209/4906 (Plot C).

3. It was a requirement of the contract that the Applicant avails to the 1st Respondent a performance security and the Applicant did avail the same in the form of a performance security bond Reference No. GU 12521 from the 2nd Applicant.

4. It was the Applicant’s case that it was surprised when two notices by the 1st Respondent dated 14th June 2021 and 22nd June 2021 were brought to its attention wherein the 1st Respondent raised concerns that the Senior Manager Mr. Derek had without notice left the country. The said notices were served on site and not upon the Senior Management of the Applicant. By the time the Applicant received the notices, it did not have sufficient time to respond to the same.

5. The project is very close to its conclusion and the 1st Respondent has not officially terminated the contract as per Clause 15. 2.2 of the contract, the calling for the payment of the performance is therefore premature.

6. The Applicant is in the process of commencing arbitration proceedings in accordance with the contract so as to get redress for the illegal, unlawful and fraudulent actions of the 1st Respondent.

Applicant’s Case 7. It was the Applicant’s case that the performance bond in this case was issued for the benefit of the Applicant as per the main contract. A performance guarantee/ bond is therefore a three- party agreement between the principal, the obligee and the surety in which the surety agrees to uphold, for the benefit of the obligee, the contractual obligations of the principal if the principal fails to do so.

8. The Applicant went on to state that the Courts have found that despite the lack of privity, the Applicant can approach the Court to issue an injunction against the Respondents herein. (Sinohydro Corporation Limited v GC Retail Limited & Another Civil Suit No. 487 of 2015).

9. The 1st Respondent alleged that the Applicant’s senior management had unceremoniously left the country without notifying the 1st Respondent. The Applicant argued that it informed the court that the said manager had abruptly travelled to South Africa for further treatment but had problems travelling back into the country due to a warrant of arrest that had been prematurely issued against him. The said warrant was duly lifted and the manager travelled back into the country only to find that the contract has been terminated.

10. It was therefore the Applicant’s submissions that the contract was illegally terminated and thus the calling of the payment of the performance bond was done illegally and fraudulently. It is in that regards that the Applicant is in the process of referring the mater to arbitration to deal with the issues of the illegal contract termination and the allegations raised by the 1st Respondent in its Replying Affidavit.

11. The Applicant’s main issue for its submissions was that it has fulfilled the requisite requirement needed for the issuance of an injunction as prayed. Injunctions are thus provided for under Order 40 of the Civil Procedure Rules and the principles guiding the granting a temporary injunction were well enunciated in the much-celebrated case of Giella v Casman Brown (1974) E.A 358.

12. The Applicant argued that it has established a prima facie case with a probability of success. The Applicant in its supporting affidavit as sworn by Mr. Derek Claassen has adduced sufficient evidence and/ or material which on the face of it should be sufficient for the temporary injunction to issue pending the arbitration process.

13. The sums involved in this application, that is, the sum of Kshs.99, 359,858. 50/= is a large sum of money and thus if this Application is not allowed and the performance guarantee is paid out by the 2nd Respondent to the 1st Respondent, the Applicant stands to suffer irreparable damages that cannot be salvaged by damages in the event the arbitration proceedings are in favor of the Applicant herein.

Respondents’ Case 14. The 1st Respondent submits that the lack of jurisdiction by this Court to hear and determine this matter is two-pronged and that although the present application by the Applicant has been brought under the provisions of Section 7 (1) of the Arbitration Act, 1995, Rule 11 of the Arbitration Rules 1997, Order 51 of the Civil Procedure Rules 2010 together with Sections 1A and 1B of the Civil Procedure Act, this Court is bereft of jurisdiction to hear and determine the dispute between the Applicant and 1st Respondent as no such dispute has been placed before it for determination. Certainly, the grievance by the Applicant as agreed between the parties under clause 20. 5 of the main contract can only be resolved by an arbitral tribunal and this court is not the forum.

15. As raised in the 1st Respondent’s Grounds of Opposition, this Court is devoid of jurisdiction to hear and determine the dispute between the Applicant and the 1st Respondent as no dispute has been referred to an Arbitral Tribunal and no Notice of Dispute has been issued to the 1st Respondent by the Applicant to warrant that this court exercises its authority of granting interim measures of protection of subject matter as provided by the Arbitration Act. It thus follows that the restraining order sought pending the intended arbitration is untenable in law.

16. It is trite law that a performance bond stands on a similar foot to a letter of credit and the person giving such a guarantee must honor it according to its terms unless there is notice of clear fraud which the guarantor has notice of. The Applicant has failed to provide any clear evidence of fraud by the 1st Respondent and more so, whether the 2nd Respondent has knowledge of it. Mere allegations and mentioning of fraud cannot suffice. Evidence of fraud must be clear both as to the fact of fraud and as to the 2nd Respondent’s knowledge.

17. The Applicant’s contention is that it had provided evidence of substantial work done, which the 1st Respondent hereby denies, and that the termination of the contract was solely based on the Applicant’s senior management leaving the country without notice. The 1st Respondent has since furnished evidence in its Replying Affidavit that indeed the Applicant defaulted in its contractual obligation. The Applicant having fled and abandoned the works left behind unpaid suppliers, sub-contractors and workers at the site in violation of Clauses 6. 1 (Payment of Staff and Labor) and Clause 6. 8 (Contractor’s Superintendence)

18. This being a matter with regard to interim orders against the payment of a performance bond, the 1st Respondent submits that the doctrines enounced under the classic Giella –vs Cassman Brown are not suited for this situation and that the court should proceed to determine this instant application on whether the Applicant has presented an arguable case to warrant the grant of an injunction against the Respondent.

19. The 2nd Respondent submitted that its role in the dispute is limited to the release of Kshs.99, 539,858. 50 to the 1st Respondent and cannot therefore comment on the nature of the relationship between the parties and the liability arising therefrom.

Issues For Determination 20. The court has considered the Application, Response and the written submissions by the parties herein and has framed only one issue for determination;a.Whether an injunctive order should issue against the 2nd Respondent pending intended arbitration proceedings;

Analysis_ 21. The granting of temporary injunction originates from Order 40 Rule 1 of the Civil Procedure Rules which provides;Where in any suit it is proved by affidavit or otherwise—(a)that any property in dispute in a suit is in danger of being wasted, damaged, or alienated by any party to the suit, or wrongfully sold in execution of a decree; or(b)that the defendant threatens or intends to remove or dispose of his property in circumstances affording reasonable probability that the plaintiff will or may be obstructed or delayed in the execution of any decree that may be passed against the defendant in the suit,the court may by order grant a temporary injunction to restrain such act, or make such other order for the purpose of staying and preventing the wasting, damaging, alienation, sale, removal, or disposition of the property as the court thinks fit until the disposal of the suit or until further orders.

22. This Court has noted with concern that the Applicant herein filed the present Application without filing a substantive suit. Section 2 of the Civil Procedure Act defines a suit as “suit” means all civil proceedings commenced in any manner prescribed.

23. Further, Order 3 Rule (i) (ii) of the Civil Procedure Rules provides that every suit shall be instituted by way of a Plaint. As a general rule a suit can only be instituted by way of a Plaint, Petition or an Originating summons. A Notice of Motion is not legally recognized as an originating process. A Notice of Motion can only be filed within a properly instituted suit.

24. This Court aligns itself with the sentiments of the Court of Appeal in the case of Geoffrey Ndungu Theuri v Law Society of Kenya [1988] eKLR where it held;“The appellant did not file a plaint and when his application came before Porter J on November 22, 1983, the learned judge dismissed the application on the ground that the court had no jurisdiction as no suit had been filed and he made an order for costs against the appellant. A little later the appellant tried to get the learned judge to review this order but the learned judge stuck to his guns. The appellant did eventually file a plaint and got his injunction but he was determined to fight the earlier orders. Hence this appeal.I have no doubt in my own mind that the learned judge was quite right in striking out the application and in refusing to review it. The mode of bringing civil suits is set out under order 4 rule 1 and order 36 in the case of originating summons. Order 39 rule 1 states:“1. Where in any suit it is proved by affidavit or otherwise-(a)…………..(b)……………….the court may by order grant a temporary injunction to restrain such act … as the court thinks fit until the disposal of the suit or until further orders.”The order specifically refers to a suit which is defined under section 2 of the Civil Procedure Actin these terms: “suit” means all civil proceeding commenced in any manner prescribed under the Civil Procedure Rules and an applicant is not entitled under order 39 of the Civil Procedure Rules to seek or obtain an order for injunctive relief against another party without filing a suit. The grossly abused section 3A of the Civil Procedure Actdoes not give the court the power to act without jurisdiction.”

25. In light of the above, the Court finds that the application is premature as the Arbitration proceedings have not been commenced and there is also no suit before this Court. In addition, the Applicant having failed to file any originating process in this matter the attempt to institute this suit by way of a Notice of Motion renders the entire application as defective and incompetent.

Findings And Determination 26. For the foregoing reasons this court makes the following findings and determination;i.The application is found to be incompetent and it is hereby struck out.ii.The applicant shall bear the costs of the application.

Orders Accordingly

DATED, SIGNED AND DELIVERED ELECTRONICALLY AT NAIROBI THIS 13TH DAY OF MAY, 2022. HON. A. MSHILAJUDGEIn the presence ofMr. Muhonja for the ApplicantKariri holding brief for Daliti for the 1st RespondentMwangi for the 2nd RespondentLucy----------------------Court Assistant