[2022] KEHC 11228 (KLR)

Swiss Deli Trade (Panama) Inc v Privamnuts EPZ Kenya Ltd (Civil Suit 8 of 2020) [2022] KEHC 11228 (KLR) (15 June 2022) (Judgment)

Neutral citation: [2022] KEHC 11228 (KLR)

Republic of Kenya

In the High Court at Embu

Civil Suit 8 of 2020

LM Njuguna, J

June 15, 2022

Between

Swiss Deli Trade (Panama) Inc

Plaintiff

and

Privamnuts Epz Kenya Ltd

Defendant

(FORMERLY MILIMANI COMMERCIAL COURT’S CASE NO. E263 OF 2019)

Judgment

1. The suit herein was commenced by way of a plaint dated August 25, 2019 and filed in court on the same date and wherein the plaintiff prays for judgment against the defendant for;-a.The principle sum of USD 602,000b.Costs of the suitc.Interest on (a) and (b) above from the date of filing the suit until payment in fulld.Any other just and equitable relief as this Honourable Court may deem appropriate.

2. The plaintiff’s case is that in the year 2016, it entered into trading agreements with the defendant for the supply of macadamia nuts but which trading agreements later changed focus from trading to financing. That on September 12, 2017, the plaintiff agreed to pre-finance the defendant on account of sale of macadamia to an entity known as Kingnuts and Raaphost BV for a sum of USD 221,678. 30 cts. That in pursuance of the said financing agreement, by a promissory note dated September 12, 2017, the plaintiff lent to the defendant a sum of USD 577,000 and which promissory note was set to mature on 31. 03. 2018 and security for the note was designated as 20% of the defendant’s share capital. It was its case that it lent the defendant a further sum of USD 25,000 vide a promissory note dated October 6, 2017 which was set to mature on October 13, 2017 and the security for the said note was designated at 5% of the defendant’s share capital. That the promissory notes matured on the aforesaid dates but in breach of the contract between the parties, the defendant has failed to honour the terms of the promissory notes and thus is now indebted to the plaintiff for the total sum of USD 602,000 being the outstanding sums for the two promissory notes.

3. It is in the premises of the above that, the orders described in paragraph 1 were sought.

4. The suit is defended vide a defense dated October 11, 2019 and filed in court on October 14, 2019. The defendant denied the existence of the pre-financing agreement; the existence of the promissory notes dated September 12, 2017 and October 6, 2017 and the maturity of the same; it further denied any breach of contract as there was no contract between the parties. In the same breadth, the defendant denied the jurisdiction of this court noting that it shall raise a preliminary objection and further, it denied the indebtness to the plaintiff as pleaded in the plaint and prayed that the suit herein be dismissed with costs.

5. It is of importance to note that the defendant also filed a preliminary objection dated October 11, 2019 on the grounds that the plaint herein offends the mandatory provisions of Order 4 rule 1 (4) of theCivil Procedure Rules, 2010; that this court lacks jurisdiction to hear and determine the plaintiff’s suit pursuant to section 15 of the Civil Procedure Act and further that, the suit is not only scandalous but also vexatious and frivolous.

6. The preliminary objection was heard and vide a ruling dated the June 2, 2020, the court upheld the preliminary objection and instead it ordered for the transfer of the suit to the High Court of Embu.

7. On the December 2, 2021, the suit proceeded for hearing and wherein each of the party’s tendered evidence and each of them called one witness to support their respective cases.

8. PW1, Mr Werner Albert Bossard stated that he is the president and director of the plaintiff herein. That the plaintiff is the manager of the offshore trading and financing of Swiss Deli Group, Niche Trading and Financial Group based in Swaziland and Panama.

9. It was his evidence that in the year 2016, the plaintiff and the defendant entered into trading agreement for the supply of macadamia nuts but in the year 2017, the plaintiff agreed to pre-finance the defendant on account of the sales of macadamia to an entity known as Kingnut & Raaphost BV for a sum of USD 221,678. 30 cts among other pre-financing agreements between the parties.

10. It was his further evidence that in pursuance of the financing agreement, by a promissory note dated September 12, 2017 the plaintiff lent to the defendant the sum of USD 577,000 which promissory note was set to mature on the March 31, 2018. The security for the note was designated as 20% of the defendants share capital. That subsequently, by a promissory note dated October 6, 2017, the plaintiff lent the defendant a further USD 25,000 which promissory note was set to mature on the October 13, 2017. The security for the note was designated as 5% of the defendant’s share capital.

11. It was his case that the promissory notes matured on the aforesaid dates but in breach of the contracts between the parties, the defendant has not honoured the terms of the promissory notes and has not made payments at all despite it making several promises to repaying the outstanding amounts which stands at USD 602,000.

12. In cross-examination he stated that the buyer in the agreement is (Kingnut & Raaphorst BV) and not the defendant but averred that the names of the directors are not shown and that the document is not sealed by any of the companies. He stated that he did not produce the pre-financing agreements referred in paragraph 3 of the plaint but he stated that he had them. It was his evidence that the total amount contained in the pre-financing agreement that was produced in court is USD 177,969. 96 cts and that there is no mention of USD 577,000 and USD 25,000 in that agreement.

13. On the promissory notes, he stated that they were signed by the defendants and witnessed by an advocate but they do not bear any seal. That he received the said notes via email but he did not get whatever was promised in those promissory notes. That he wrote to the defendant informing it that the promissory notes were dishonoured.

14. On the minutes dated September 20, 2016, December 30, 2015 and those dated December 5, 2015, he stated that they do not mention the plaintiff; they do not mention USD 577,000 and USD 25,000 and that they all do not mention the pre-financing agreement. On the email sent on the August 28, 2018, he stated that the same was authored by Patrick Mbogo wherein Patrick Mbogo agreed to refund the money owned to Jaap Klijn and himself the next day, but the same did not happen. He, however, admitted that the email was not addressed to the plaintiff nor to himself. He stated that though he had authority from the plaintiff to file the suit, he did not file the same in court.

15. In re-examination, he reiterated that he made the verifying affidavit under oath and in his capacity as the president and director of the plaintiff and he was authorized to do so and that all the email communication with the defendant were received by himself. That the agreement dated September 12, 2017 was not the only agreement made between the parties herein. Similarly, the promissory notes that were produced were not the only ones that were issued by the defendant to the plaintiff but they were the only ones that the defendant failed to pay.

16. The defendant on the other hand called Patrick Mukundi Mbogo who testified as DW1. He adopted his witness statement dated the October 25, 2021 wherein he denied that the defendant entered into trading agreements with the plaintiff as alleged. Further, he denied that promissory notes that were produced by the plaintiff were issued to it by the defendant or that they both matured on the dates stated in the plaint or at all.

17. Further, he denied that the defendant is indebted to the plaintiff to the tune of USD 602,000 being the outstanding sums from the two promissory notes as there was no contract between the parties and the defendant could not be said to have breached a contract that did not exist in the first place.

18. In cross examination, he stated that the parties to the pre-financing agreement dated September 12, 2017 are the defendant and the buyer (Kingnuts & Raaphorst BV), the nature of the transaction being that the defendant was supposed to ship macadamia nuts to Kingnuts and not the plaintiff and that the defendant did the shipment as per the agreement. Further that, the agreement did not indicate the names of the directors. That there is no indication that the promissory notes were served upon the plaintiff and that the minutes dated December 3, 2015, December 5, 2015 and those of September 20, 2016 have no relation with the case before the court. It was his evidence that the email dated September 20, 2018 was authored by himself as the CEO of the defendant and it was addressed to Jaap Klijn who is the CEO of the buying company that is referred to, in the pre-financing agreement and that he shipped the product. He denied that the demand letter was presented to him.

19. In cross examination, he stated that as the director of the defendant, he is authorized to enter into contracts on behalf of the defendant. He admitted that the promissory notes were in the letter head of the defendant and that the beneficiary was the plaintiff. He also admitted that the amounts indicated in the promissory notes dated September 12, 2017 and October 6, 2017 are USD 577,000 and USD 25,000 respectively and that they were given to the plaintiff. He further admitted that he was the author of the email dated September 26, 2018 and the same was addressed to Jaap Klijn and copied to Werner Bossard and it refers to the agreement where the plaintiff is the financier. He also admitted that the signature under debtor was signed by Werner Bossard and that the plaintiff was a party to the agreement but stated that the buyer is the one who was supposed to pay the plaintiff.

20. Parties proceeded to file submissions pursuant to the orders of February 14, 2022. The plaintiff framed two issues for determination to wit; whether the defendant is indebted to the plaintiff as claimed and who should pay the costs of the suit. On the first issue, it was submitted that the defendant was indeed indebted to the plaintiff to the tune of USD 602,000, that the same had been expressly admitted in the defendant’s email dated August 28, 2018 and that the said debt had not been disputed by the defendant. Reliance was placed on the cases of Choitram v Nazari(1984) KLR 372 andSavanna Cement Limited v New Age Developers & Construction Company Limited & Another (2019) eKLR. The plaintiff further submitted that it had proved its case to the required standards in law (balance of probabilities) and reliance placed on sections 107, 108 and 109 of the Evidence Act Cap 80 Laws of Kenya. On the second issue, it was submitted that the plaintiff was entitled to the award of costs as it had demonstrated to the court that the suit is merited.

21. On the part of the defendant, two issues were framed to wit; whether the suit offends the mandatory provisions of Order 4 Rule 1(4) of theCivil Procedure Rules 2010 and whether the plaintiff has established its case against the defendant. On the first issue, it was submitted that the suit herein offends the mandatory provisions of Order 4 Rule 1(4) of the Civil Procedure Rules 2010 which requires that where the plaintiff is a corporation, the verifying affidavit ought to be sworn by an officer of the company duly authorized under the seal of the company to do so. That in the instant case, the plaintiff did not attach any valid resolution of the company authorizing the institution of the suit and as such, the same is defective ab initio. Reliance was placed inter alia on the cases of Vista Holdings International Limited v Span Image (K) Limited (2012) eKLR and the case of Mohamed Suleiman Shee & Another v Suleiman Omari Chala & 2 Others (2018) eKLR. The defendant further submitted that despite it having raised the issue even prior to the hearing of the suit, the plaintiff did not rectify the omission and has never produced any valid resolution sanctioning the institution of the suit and thus the plaintiff is not properly before the court. Reliance in this regard was placed on the case of Republic v Registrar General & 13 others Misc Application No 67 of 2005 (2005) eKLR.

22. On the issue as to whether the plaintiff had proved its claim against the defendant herein, it was submitted that the plaintiff was not a party to the pre-financing agreement produced in court and further, the same does not mention the USD 577,000 and USD 25,000 as alleged. That the same was not sealed as is required by law. It was further submitted that there was no evidence that the said sum of USD 577,000 and USD 25,000 was ever released to the defendant as alleged. In relation to the Promissory notes, it was submitted that there was no evidence that the same were produced before the defendant in accordance with the provisions of Section 87 of the Bill of Exchange Act and therefore the defendant cannot be held liable. Reliance was placed on the case of Universal Bank Ltd v Double Whitesand Stationary & Printers and 2 Others HCCC No 561 of 1998.

23. On the minutes produced by the plaintiff, it was submitted that the same did not mention the plaintiff’s name but only the names of PW1 and not as a representative of the plaintiff and thus it cannot be said that he represented the plaintiff. Further, the email correspondences produced confirmed that indeed the defendant did not acknowledge at any time being indebted to the plaintiff as the email was not addressed to either the plaintiff or PW 1 but to another person and that there was no evidence to prove that the said monies were released to the defendant. That the claim being for special damages, the same ought to have been specifically pleaded and further strictly proved. Reliance was placed on the case of Savanna Development Co Ltd v Post & telecommunications Employees Housing Co-operative Society Limited (Civil Appeal No 160 of 1991) (unreported).

24. I have considered the pleadings filed herein, the evidence tendered and the rival submissions. In my considered view, the issues which this court is invited to determined are;-i)Whether the suit is defective by virtue of Order 4 Rule 1(4) of the Civil Procedure Rulesii)Whether the defendant is indebted to the plaintiff in the sum of USD 602,000

25. As to whether the suit is defective by virtue of Order 4 Rule 1(4) of the Civil Procedure Rules, the defendant submitted that the instant suit is defective ab initio for the reason that there was no resolution sanctioning the institution of the suit herein. That, the plaintiff did not remedy this defect despite the issue having been raised before and in the process of the hearing of the suit.

26. Order 4 Rule 1(4) provides for the particulars of a plaint. Rule 2 provides that a plaint shall be accompanied by an affidavit sworn by the plaintiff verifying the correctness of the averments contained in the plaint. Rule 4 provides that where the plaintiff is a corporation, the verifying affidavit shall be sworn by an officer of the company duly authorized under the seal of the company to do so.

27. I have perused through the pleadings herein and I note that in the verifying affidavit sworn on August 16, 2019, the deponent therein Werner Albert Bossard deposed that he is the president and director of the plaintiff herein and that he was duly authorized by the plaintiff to swear the verifying affidavit on its behalf. However, there is no authority authorizing the said deponent to swear the said affidavit.

28. The above provision has been subject to interpretation by the courts in a number of instances. In the case of Assia Pharmaceuticals v Nairobi Veterinary Center Ltd Hccc No 391 of 2000 which was quoted with approval in Timau Farmers Company Ltd & another v John Gathogo & 6 others [2016] eKLR the court held as thus;-“It is settled law that where a suit is to be instituted for and on behalf of a company there should be a company resolution to that effect .... As regards litigation by an incorporated company, the directors are as a rule, the persons who have the authority to act for the company; but in the absence of any contract to the contrary in the Articles of Association, the majority of the members of the company are entitled to decide even to the extent of overruling the directors, whether an action in the name of the company should be commenced or allowed to proceed. The secretary of the company cannot institute proceedings in the name of the company in the absence of express authority to do so; but proceedings started without proper authority may subsequently be ratified.”

29. In Kariuki Njoroge & 4 Others v Stephen Mugo Mutothori & 2 Others [2004] eKLR the court held as thus;-“The issue of authority and capacity to sue goes to jurisdiction. The applicants have submitted, and properly so, that a company can only sue in its own name with the sanction of its Board of Directors or under a resolution in general or special meeting. The Respondents have not shown this Court that they have been authorized to take out these proceedings in the name of the 5th Defendant or at all. It matters not whether or not they have certain legal rights that they would wish to enforce as beneficiaries under the relevant Trust deed. They must come to Court properly and with authority. ……..”

30. InSpire Bank Limited v Land Registrar & 2 others [2019] eKLR the Court of Appeal in appreciating the provisions of Order 4 Rule 1(4) of the Civil Procedure Rules held that;-“…………It is clear from the provision, which is stated in mandatory terms, that for a company to file suit, there must be a verifying affidavit sworn by an officer of the company stipulating that he or she is duly authorized under the company’s seal to verify the affidavit in respect of the suit. Such person would of necessity require to be authorized by a resolution of the Board of Directors or the members under seal of the company, in order for the suit to be instituted……………….It is essential to appreciate that the intention behind order 4 rule 1 (4) was to safeguard the corporate entity by ensuring that only an authorized officer could institute proceedings on its behalf. This was to address the mischief of unauthorized persons instituting proceedings on behalf of corporations, and obtaining fraudulent or unwarranted orders from the court. The company’s seal that is affixed under the hand of the directors ensured that they were aware of, and had authorized such proceedings together with the persons enlisted to conduct them. And where evidence was produced to demonstrate that a person was unauthorized, the burden shifted to such officer to demonstrate that they were authorized under the company seal. With this in mind, we dare say that the provision was not intended to be utilized as a procedural technicality to strike out suits, particularly where no evidence was produced to demonstrate that the officer was unauthorized…….”

31. Despite the issue as to lack of authority to sue or to swear the verifying affidavit having been raised by the defendant in the notice of preliminary objection dated October 11, 2019, the replying affidavit sworn on January 27, 2020, the plaintiff took no steps to ratify the suit. InKenya Commercial Bank Limited v Stage Coach Management Ltd (2014) eKLR, the court while citing with approval the cases of Leo Investments Limited v Trident Insurance Company Limited (2014) eKLR andRepublic v Registrar General & 13 others (2005) eKLR (where the Learned Judges held that a suit can be ratified by filing of the resolution after the suit has been instituted), Havelock J while upholding the preliminary objection and dismissing the suit held that;-“14. In this case, there has been no such ratification even after the Plaintiff, through its advocates or otherwise, became aware of the Preliminary Objection filed by the Defendant dated over a year ago now. In my view, the Plaintiff has been lackadaisical to say the least….”

32. Can this omission be said to be a procedural technicality? I am guided by the case of Royal Tulia Estate Ltd v Davidson Matano & 3 Others [2012] eKLR, a persuasive decision, in which the court held;“3. It appears from the plaintiff`s submissions that they perceived the objection as a mere technicality. Hence they relied on articles 23 (3) (20 of the Constitution, article 159(20 of the Constitution, Order 51 rule 10(2) Civil Procedure Rules and the overriding objective in the Civil Procedure Act. They also cited an authority, Christopher Keprotich v Daniel Gathua and others whose citation and decision was not supplied to the court. In short the plaintiffs asked the court to overlook the “technical” objection of the defendants and proceed to deal with the substance of the suit.4. In my considered view, the objections raised are not mere technicalities but matters of substance that go to the root of the case as they challenge the authority to bring the suit and hence its validity. It was held in the Bugerere case that “when companies authorise the commencement of legal proceedings, a resolution or resolutions have to be passed either at a company or Board of Directors` meeting and recorded in the minutes”.5. It is not enough that Claudio Banaglia who swore the verifying affidavit as a director of the plaintiff to cite the authority by his co-director to represent Royal Tula Estates Limited “in any matter filed in court” (See annexture CB1 to supporting affidavit sworn on April 14, 2011 by the said Claudio Banaglia. Indeed, in the circumstances of this case there is no evidence that Claudio Banaglia is duly authorised to swear any affidavit on the company`s behalf as he purports in the affidavits on record…….”

33. In the above premises, I therefore hold the view that the suit offends the provisions of Order 4 Rule 1 (4) of the Civil Procedure Act.Whether the defendant is indebted to the plaintiff in the sum of USD 602,000

34. It is clear that the plaintiff’s cause of action is premised on an alleged pre–financing agreement dated September 12, 2017 between the parties herein, in which the plaintiff agreed to pre-finance the defendant on account of sales of macadamia to Kingnuts & Raaphorst DV for a sum of USD 221,678. 30 cts among other pre-financing agreements.

35. That in pursuance of the said agreement, two promissory notes were issued and were set to mature on different dates as set out elsewhere in this judgment and the security for notes was designated at 20% and 5% of the defendant’s share capital.

36. The plaintiff has alleged that the promissory notes matured but the defendant failed to honour the terms of the promissory notes and has not made the payments totaling to USD 602,000.

37. The court has perused the pre-finance agreement that was produced in this case. The evidence adduced in court was that it was signed by the plaintiff and the defendant. A cursory look at the executory part of the agreement does not indicate who exactly signed the agreement on behalf of the parties to the same. The plaintiff and the defendant herein are limited liability companies who are legal persons in law capable of suing and being sued in their own right. It is trite that contracts entered into by a corporation aggregate with certain exceptions, must be made under seal. In the case herein, there was no seal and no evidence was adduced before the court to bring either the plaintiff or the defendant within the exceptions.

38. As already pointed out, the cause of action is on contract. In the law of contract, an aggrieved party to an agreement must prove that there was offer, acceptance and consideration. It is only where the three elements are available that an innocent party can bring a claim against the party in breach. [See William Muthee Muthami v Bank of Baroda (2014) eKLR]. In the case before the court, there is no evidence that has been adduced to connect the pre-financing agreement with the promissory notes and the amount claimed by the plaintiff. In his own evidence, PW1 stated that there were other pre-financing agreements that were entered into by the parties herein which were not produced in evidence. In the first instance, the agreement mentions a total of USD 177,969 whereas a total of USD 602,000 has been claimed in the plaint.

39. In a bid to explain and justify the amount claimed, the plaintiff has put a lot of emphasize on the promissory notes. The one dated September 12, 2017 is for USD 577,000 and was set to mature on March 31, 2018. During the hearing, an issue arose as to whether the promissory notes were given to the plaintiff. I note that the two promissory notes were produced by the plaintiff as exhibits and therefore it cannot be denied that, the same were given to it; secondly, it is clear that the same is made on the letter heads of the defendant and it is duly signed by DW1, Patrick Mukundi Mbogo and Rita Mukami Mukundi in their capacities as the managing director and operations director, of the defendant respectively. It is also not in doubt that it was given to the plaintiff as the lender of the principal sum of USD 577,000. The same is attested to, by Beth Ndorongo Advocate and a rubber stamp of the said firm of Advocates is affixed on the document. In view of the foregoing, I am of the considered view that the promissory note is a valid legal document binding the plaintiff and the defendant and thus, the defendant would be bound to pay the sum of USD 577,000 stated therein.

40. However, the evidence that was adduced before the court is at variance with the pleadings. In paragraph 4 of the plaint, the plaintiff states that the promissory notes were issued in pursuance of the financing agreement dated September 12, 2017. The plaintiff’s suit is anchored on that pre-financing agreement. The amount stated in the pre-financing agreement is USD 220,906. 83 cts out of which a total of USD 177,969. 96 cts had already been remitted to the defendant at the time the parties entered into the agreement. In the plaint, a total of USD 602,000 is claimed which is the total amount in the promissory notes. The plaintiff in paragraph 3 of the plaint referred to other pre-financing agreements but they were not produced in evidence if at all they exist. The plaintiff ought to have placed before the court sufficient evidence to link the promissory notes to the pre-financing agreement dated September 12, 2017 but unfortunately this was not done.

41. As regards the promissory note dated October 6, 2017, I note that the same was given to the plaintiff by DW1 Patrick Mukundi Mbogo wherein he undertook to pay the defendant USD 25,000. Though he signed the document as the Managing Director of the defendant, he undertook to pay the money in his personal capacity and he could therefore not bind the defendant.

42. The plaintiff seems to have put a lot of emphasis on the emails dated August 24, 2018 and that of August 28, 2018 and has argued that the defendant admitted owing the plaintiff the sum claimed in the plaint. I concur with the plaintiff that in the email dated August 24, 2018, PW1 talks of USD 602,000. The email is addressed to DW1 and Rita Mukundi but it does not mention the plaintiff or the defendant. Though the email of August 28, 2018 refers to a discussion between PW1 and DW1 wherein DW1 agreed to refund ‘the money’ owed to Jaap and PW1, the amount of the money has not been disclosed and again, the email does not mention the plaintiff as the entity that is owed the money. It would thus be erroneous for the plaintiff to submit that, the said email was an admission of the amount claimed in the plaint.

43. The plaintiff contended that the pre-financing agreement was done with the knowledge of Board of Directors of the defendant and referred the court to the minutes of December 30, 2015, December 5, 2015 and those of September 20, 2016. The court has perused through the said minutes and I note that the plaintiff has not been mentioned in any of those minutes; if anything, the discussions referred to therein, were between the defendant and PW1. Nowhere in those minutes is it stated that he was engaging in those discussions on behalf of the plaintiff. I therefore agree with the defendant that there is no correlation between those minutes and the pre-finance agreement or the promissory notes.

44. In the end, I find that the plaintiff did not prove his case on a balance of probability and I hereby dismiss the same with costs.

45. It is so ordered.

DELIVERED, DATED AND SIGNED AT EMBUTHIS 15TH DAY OF JUNE, 2022. L. NJUGUNAJUDGE…………………………………..….for the Plaintiff…………………………..……….for the Defendant