[2024] KEHC 11700 (KLR)

Tanzania National Roads Agency v Kundan Singh Construction Limited (In Receivership) & another (Civil Suit 8 of 2010) [2024] KEHC 11700 (KLR) (20 September 2024) (Judgment)

Neutral citation: [2024] KEHC 11700 (KLR)

Republic of Kenya

In the High Court at Mombasa

Civil Suit 8 of 2010

OA Sewe, J

September 20, 2024

Between

Tanzania National Roads Agency

Plaintiff

and

Kundan Singh Construction Limited (In Receivership)

1st Defendant

Kenya Commercial Bank Limited

2nd Defendant

Judgment

1. The plaintiff, Tanzania National Roads Agency, is a foreign based government agency established in Tanzania under the Executive Agencies Act, Cap 245 of the Laws of Tanzania. The defendants, on the other hand are limited liability companies registered in Kenya under the Companies Act, Cap 486 of the Laws of Kenya.

2. The plaintiff’s cause of action was elaborately set out in its Plaint dated 22nd March 2010. The Plaint was thereafter amended with the leave of the Court, resting with the Further Amended Plaint dated 24th May 2022. The plaintiff alleged that, on or about the 1st August 2007, it entered into a contract with the 1st defendant, Kundan Singh Construction Ltd (In Receivership), under the Conditions of Contracts for Works of Civil Engineering Construction, commonly referred to as Fidic Contract, 4th Edition, 1987, for the upgrading of the Mbeya-Chunya-Makolongosi Road; Section I: Mbeya-Lwanjilo (36KM). The contractual sum was Tanzanian Shillings 27,463,875,000/=.

3. It was a component of the Agreement that the 1st defendant would arrange for suitable Bank Guarantees on terms acceptable to the plaintiff. The plaintiff acknowledged, at paragraphs 7 of the Further Amended Plaint of 24th May 2022, that the 1st defendant provided three Bank Guarantees which met its approval, namely, one Performance Guarantee dated 1st August 2007 (hereinafter PG), which was to expire on 8th April 2011, and two Advance Payment Guarantees dated 6th September, 2007 (hereinafter APG-1 and APG-2), which were to expire on 11th January 2010.

4. It was further the assertion of the plaintiff that, in order to obtain the aforementioned instruments, the 1st defendant and its directors executed several documents by way of securities, namely:(a)Legal Charge over LR No. 336/108 in the name of Kundan Singh Construction Limited for Kshs. 250,000,000/=.(b)Legal Charge over LR No. 198885, 19886 and 19887 in the name of Vista Windows Limited for Kshs. 231,500,000/=.(c)Legal Charge over LR No. 194/48, Nairobi in the name of Kundan Singh Ubhi for Kshs. 50,000,000/=.(d)Debenture for Kshs. 600,000,000/= over the entire assets of the 1st defendant, Kundan Singh Construction Co. Ltd.(e)Guarantee and Indemnity by Highland Canners for Kshs. 2. 45 Billion supported by a Board Resolution.(f)Directors Guarantees and Indemnity for Kshs. 2,452,285,786/=.(g)Motor vehicles and log books registered in the joint names of the 1st and 2nd defendants and the respective transfer forms duly signed in blank.(h)Comprehensive insurance cover over the entire assets of the 1st defendant including assets being purchased, with the 2nd defendant noted as the loss payee.

5. The plaintiff averred that, prior to the respective expiry dates for the three instruments, the 1st defendant committed material breaches which went to the root of the contract; the particulars whereof were set out at paragraph 10 of the Further Amended Plaint. Consequently, the plaintiff invoked the provisions of Clause 63. 5 of the Conditions of Particular Application (COPA) and required a response from the 1st defendant. In reaction, the 1st defendant purported to terminate the contract by serving the plaintiff with a termination notice with effect from 12th May 2009, notwithstanding that it was itself in material breach.

6. At paragraph 12 of the Further Amended Plaint, the plaintiff explained that the validity or otherwise of the purported termination notice was the subject of international arbitration between the plaintiff and the 1st defendant; and was therefore not for determination by this Court. It however pointed out that, on the basis of the underlying dispute, the 1st defendant filed Milimani Commercial High Court Civil Case No. 164 of 2009: Kundan Singh Construction Limited v The Chief Executive, Tanzania National Roads Agency and Kenya Commercial Bank Limited (the Milimani Case); and that upon filing the Milimani Case, the 1st defendant proceeded to apply for and was granted a temporary injunction dated 12th March 2009 restraining Kenya Commercial Bank Ltd (the 2nd defendant) from paying the plaintiff the sums due on the PG, APG-1 and APG-2.

7. The plaintiff was aggrieved by this turn of events, contending that the effect of the order was to:(a)Bar the 2nd defendant from complying with the terms of PG, APG-1 and APG-2;(b)Bar the plaintiff from demanding payment as per the terms of PG, APG-1 and APG-2. (c)Remain effective pending the hearing and determination of the Milimani Case or further orders of the Court.

8. It was therefore the contention of the plaintiff that, by dint of the injunctive order, it was bound to comply with the court order, albeit under protest and therefore could not enforce any of the Guarantees. It averred that the parties filed their pleadings with a view of progressing the Milimani Case; and that in the course of time, the order of injunction lapsed and was therefore never extended beyond 8th October 2009. It thereupon took steps to issue demand notices dated 8th February 2010 for the three instruments, which the 2nd defendant declined to honour vide a letter dated 26th February 2010, contending that the said instruments had expired.

9. The plaintiff now posits that the defendants colluded to bar it from benefitting from APG-1 and APG-2 by filing the Milimani Case; by recording of the consent of 5th October 2009 in that suit without its knowledge; and by extending the consent order beyond January 2010. Accordingly, the plaintiff prayed for the following reliefs:(a)As against the 2nd defendant:(i)A declaration that the 2nd defendant is still bound upon demand by the plaintiff to honour the terms of the PG, APG-1 and APG-2. (ii)A mandatory order compelling the 2nd defendant to honour the demand notices by the plaintiff dated 8th February 2010 or any other subsequent demand by the plaintiff to the 2nd defendant in terms of PG, APG-1 and APG-2 in the total sum of USD 4,751,480. 86 and Tshs. 1,501,911,578/=.(iii)Interest at commercial rates from 8th February 2010 until payment in full.(b)As against the defendants jointly and severally:(i)A declaration that time does not run leading to the expiry of a guarantee where there is a court order prohibiting a party or parties in that suit from complying or implementing the terms of that guarantee.(ii)A declaration that the expiry date for APG-1 and APG-2 was postponed, and or generally enlarged pending further orders of the court in the Milimani Case.(iii)An order of rectification of the expiry date of APG-1 and APG-2 to include the 8th February 2010 to the date of determination of the suit.(iv)A mandatory order compelling the 2nd defendant to honour the three demands for PG, APG-1 and APG-2 dated 8th February 2010 by the plaintiff.

10. In the alternative, the plaintiff prayed that the two defendants be held jointly and severally liable for the damages suffered by it as a result of the breach of the PG, APG-1 and APG-2 agreement by the 1st defendant as set out below:(a)Refund of equivalent of USD 4,751,480. 86 and Tshs. 1,501,911,578/= paid to the 1st defendant by the plaintiff under the agreement.(b)General damages for breach of PG, APG-1 and APG-2. (c)Interest at commercial rates from 1st October 2007 to 8th February 2010 until payment in full.(d)Costs of the suit.

11. The 1st defendant denied liability to the plaintiff in the manner alleged or at all. It relied on its Statement of Defence dated 26th April 2010. It conceded that the three Bank Guarantees were provided in accordance with Clause 10. 1 of the Conditions of Particular Application (COPA), Part II of the Contract. It averred that various disputes arose under the contract, including disputes pertaining to wrongful non-certification by the engineer and delay in payments of certified sums; which disputes were referred to arbitration as expressly provided for under the contract. The 1st defendant pointed out that, as at the time of filing the Defence, the dispute was pending arbitration before the Arbitration Institute of the Stockholm Chamber of Commerce in Sweden.

12. The 1st defendant also averred that APG1 and APG2 had expired by effluxion of time on the 11th January 2010; and therefore that it was not legally possible for the Court to make the orders sought in Paragraph 22 of the Plaint. In other paragraphs of the Defence, the 1st defendant impugned the Plaint for offending the rules of pleadings and indicated that it would seek that the same be struck out in limine with costs.

13. The 2nd defendant likewise denied the plaintiff’s allegations. It filed its Amended Statement of Defence on 17th June 2022, contending that the plaintiff’s suit, as filed, is frivolous, vexatious and an abuse of the court process. While conceding that it is aware that the plaintiff entered into a contract with the 1st defendant for the upgrading of Mbeya-Chunya-Makolongosi Road; Section I: Mbeya-Lwanjilo (36KM). It asserted that it is not privy to the functions, duties and activities of the plaintiff and/or its dealings with the 1st defendant.

14. The 2nd defendant conceded that, on or about 1st August 2007, at the instance and request of the 1st defendant, it issued a Bank Performance Guarantee No. GOKE86046077250C to the plaintiff to pay any sum or sums not exceeding the total amount of Tshs. 2,746,387,500/= upon demand being made. It further conceded that it was an express term of the PG that it was subject to the Uniform Rules for Demand Guarantees, ICC Publication No. 458.

15. The 2nd defendant further confirmed that it furnished the other two instruments, APG-1 and APG-3, on 6th September 2007, but added that it did so on terms that were clear and unequivocal. Thus, the 2nd defendant contended that, since it has no privity of contract with the plaintiff, the plaintiff has no valid cause of action against it. The 2nd defendant made reference to the Milimani Case at paragraph 6 of its Amended Defence. It confirmed that it was served with an injunction restraining any payment in respect of the three instruments, which were extended from time to time. It however contended that the extensions were done with the full knowledge and consent of all the parties, including the plaintiff and its advocates.

16. According to the 2nd defendant, since the plaintiff failed to demand for payment for over 6 months upon the non-extension of the injunction, it is estopped from making the allegations set out in paragraphs 14 and 15 of the Plaint. Thus, the 2nd defendant asserted that the demand notices of 8th February 2010 were belatedly made after APG-1 and APG-2 had long expired. In the premises, the 2nd defendant vehemently denied that it is liable to the plaintiff as set out in the Further Amended Plaint and urged for the dismissal of this suit.

17. The parties were thereafter given an opportunity to present their evidence. The plaintiff called one witness, Mr. Kenan Komba. He is an Advocate of the High Court of Tanzania and the Principal Legal Counsel of the plaintiff. He adopted his witness statement dated 30th July 2020 as well as his Further Statement dated 24th May 2022.

18. In the principal statement dated 30th July 2020, PW1 stated that the plaintiff is a foreign based government executive agency established under the Executive Agencies Act, Chapter 245 of the Laws of Tanzania. He testified that on or about 1st August 2007, the 1st defendant entered into a contract with the plaintiff for the upgrading of the Mbeya-Chunya-Makongolosi Road; Section 1: Mbeya-Lwanilo (36 km) to bituminous road. The contract was drawn under the Conditions of Contracts for Works of Civil Engineering Construction, commonly known as Fidic Contract, 4th Edition. He produced a copy thereof as the Plaintiff’s Exhibit 5.

19. PW1 further stated that it was an integral component of the Agreement that the 1st defendant was to arrange for suitable Bank Guarantees on terms acceptable to the plaintiff. He confirmed that indeed the 1st defendant provided three Bank Guarantees through the 2nd defendant in the format agreed to and approved by the plaintiff. The three Bank Guarantees were produced by PW1 as the Plaintiff’s Exhibits 6, 7 and 8. They were to expire on 8th April 2011, and 11th January 2010, respectively.

20. PW1 also stated that it was within his knowledge that the 1st defendant filed High Court Civil Case No. 164 of 2009: Kundan Singh Construction Ltd v The Chief Executive, Tanzania National Roads Agency and Kenya Commercial Bank Ltd (the Milimani case) in which, as the plaintiff, it obtained an injunctive order on the 12th March 2009 restraining the 2nd defendant herein from honouring the Performance Guarantees. PW1 produced the pertinent documents as the Plaintiff’s Exhibits 10, 11, and 13 herein. He explained that, in their understanding, the plaintiff could not proceed to demand for payment in the face of the injunction issued in the Milimani Case.

21. Thus, PW1 confirmed that, by 11th January 2010 when APG-1 and APG-2 expired, the plaintiff had not made any demand for payment. PW1 further stated that between the 12th March 2009 and 11th January 2010 the Milimani Case was still pending and no further orders besides those of 12th March 2009 had been issued. PW1 added that it was not until the 8th February 2010 that the plaintiff issued two demands in relation to the Performance Guarantee marked Exhibit 6 and the Advance Payment Guarantee Exhibit 7. The two demand notices were produced herein as the Plaintiff’s Exhibits 13 and 14.

22. The plaintiff further adduced evidence through PW1 to demonstrate that the 2nd defendant replied to its demand by declining liability on the grounds that the two guarantees had expired. Hence, PW1’s testimony was that the plaintiff filed this suit with a view of having the 2nd defendant compelled to honour the terms of the three instruments; or in the alternative, to pay the aforementioned sum of USD 3,478,145. 93 and the amount of Tshs. 1,098,555,000/= with interest at commercial rates from 8th February 2010 until payment in full, together with costs of the suit.

23. In his further statement, PW1 stated that the contract dated 1st August 2007 had a provision under sub-clause 10. 1 which gave guidance for the provision of performance security. He therefore calculated the total amount due to the plaintiff on the 3 guarantees in foreign currency to be Kshs. 1,501,911,578/=. In support of the plaintiff’s case PW1 produced the Bundles of Documents dated 6th June 2022, marked the Plaintiff’s Exhibits 1 to 20.

24. On behalf of the 1st defendant, evidence was adduced by Opkar Singh Ubhi (DW1). He adopted his witness statement dated 12th October 2020 and produced the 1st defendant’s List and Bundle of Documents dated 12th October 2020 as exhibits herein. The testimony of DW1 was that the 1st defendant was placed under receivership on 18th February 2015 at the instance of the 2nd defendant, Bank of Africa and I & M Bank Limited. He produced a copy of Gazette Notice dated 5th August 2019 at page 2 of its Bundle of Documents to confirm the appointment of the current Receiver Manager, Kereto Marima. He similarly produced a copy of the authorization dated 12th October 2020 at page 3 of the 2nd defendant’s Bundle of Documents to show that he was authorized by the Receiver Manager to testify in this matter.

25. DW1 conceded that the plaintiff entered into a contract with the 1st defendant in respect of which it provided a Performance Guarantee and two Advance Payment Guarantees. DW1 also conceded that a dispute arose between the plaintiff and the 1st defendant in connection with the implementation of the subject contract; and that the dispute led to the filing of Milimani High Court Civil Case No. 164 of 2009. He explained that the suit was meant to afford the 1st defendant temporary relief while the actual dispute was undergoing arbitration.

26. DW1 confirmed that the arbitral award was published on 25th January 2012, and that thereafter an unsuccessful attempt made to enforce it in Mombasa High Court Miscellaneous Case No. 171 of 2012. A copy of the arbitral proceedings and Award were exhibited at pages 157 to 366 of the 2nd defendant’s Bundle of Documents. He explained that an appeal vide Mombasa Civil Appeal No. 38 of 2013 was similarly dismissed; and that an application for leave to appeal to the Supreme Court was yet to be determined.

27. It was therefore the evidence of the 1st defendant that it was not open to the plaintiff to re-litigate the issue of whether the 1st defendant acted in breach of contract as pleaded at paragraphs 11 to 22 of the Plaint. It was likewise the evidence of DW1 that the claims under the PG, APG-1 and APG-2 are not payable, granted that the plaintiff failed to comply with the conditions for payment. In particular, he stated that, for the 2nd defendant to pay, the plaintiff’s demand in writing needed to be accompanied by a written statement stating the fact that the contractor was in breach of its obligations under the contract; which the plaintiff failed to submit. DW1 also stated that the demand was made after the expiry of all the Guarantee instruments.

28. DW1 was categorical in his evidence that it is impossible to read the court order issued on 12th March 2009 in the Milimani Case as stopping the issuance of a demand by the plaintiff. He testified that the order merely stopped the 2nd defendant from paying any demand issued by the plaintiff. He added that the plaintiff is not justified in saying it had been stopped from making any demands; and that this is demonstrated by the fact that it went ahead and issued demands on 8th February 2010 notwithstanding that the injunction orders were still subsisting. He consequently prayed for the dismissal of this suit with costs.

29. The 2nd defendant relied on the evidence of its Senior Recovery Manager, Mr. Atunda Nyagaka (DW2). He adopted his witness statement dated 30th September 2020 and produced as exhibits the 2nd defendant’s List and Bundle of Documents dated 5th October 2020 (marked the 2nd defendant’s Exhibits 1 to 27).

30. DW2 confirmed that the plaintiff entered into a contract with the 1st defendant for the upgrading of Mbeya-Chunya-Makongolosi Road Project: Section 1: Mbeya-Lwanjilo (36 km). He further confirmed that, on 1st August 2007, at the instance and request of the 1st defendant, the 2nd defendant issued a Bank Performance Guarantee No. GOKE86046077250C to the plaintiff to pay any sum or sums not exceeding in total the amount of Tshs. 2,746,387,500/= on demand. The demand was to be in writing accompanied by a written statement alleging breach of contract by the 1st defendant. The instrument had an expiry date of 8th April 2011. A copy thereof was exhibited at pages 9 and 10 of the 2nd defendant’s Bundle of Documents.

31. DW2 further testified that, on 6th September 2007, at the instance and request of the 1st defendant, the 2nd defendant issued two Advance Payment Guarantees Nos. GOKE86046077398C and GOKE86046077397C to secure advance payments of Tshs. 1,098,555,000/= and USD 3,478,145. 00 respectively; which sums were paid by the plaintiff to the 1st defendant under the conditions of the contract. He explained that this was an irrevocable undertaking to repay the said amounts to the plaintiff on demand. The instruments had an expiry dates of 11th January 2010 and 10th January 2010, respectively. They were also exhibited as part of the 2nd defendant’s List and Bundle of Documents. (see pages 1, 2, 5 and 6 of the 2nd defendant’s Bundle of Documents).

32. Further to the foregoing, DW2 testified that he was aware of the 2nd defendant’s obligations and liability under the Bank Performance Guarantee and the two Advance Payment Guarantees. He explained that the said obligations arose under and were defined by reference only to the terms and conditions set out on the face of the instruments, as well as the Uniform Rules for Demand Guarantees, ICC Publication No. 458.

33. He also stated that he was aware that on 12th March 2009, the 1st defendant filed a suit against the plaintiff in which the 2nd defendant was enjoined, being Milimani HCCC No. 164 of 2009: Kundan Singh Construction Limited v Tanzania National Roads Agency & Kenya Commercial Bank Limited. He also confirmed that, in the same suit, the plaintiff obtained an interim injunction order restraining the 2nd defendant from making any payment in respect of the subject Guarantees. He however added that the order was extended from time to time by consent of all the parties.

34. According to DW2’s interpretation of the temporary injunction, the plaintiff herein was also prohibited from making any demands for payment on the said Guarantees pending further orders of the court. He therefore confirmed that no demand was made by the plaintiff at all while the Advance Payment Guarantees were valid; and that the plaintiff purported to make a demand on 8th February 2010 without submitting the original instruments or complying with the applicable terms of the Guarantees. He added that, in any case, the order of temporary injunction was still valid and therefore the 2nd defendant could not honour the demand for payment dated 8th February 2010 in the circumstances.

35. With reference to the Milimani Case, DW2 confirmed that the same was referred to arbitration as contemplated in the subject contract and that an Arbitral Award was published on 25th January 2012 in which all the issues in dispute between the parties concerning the contract and the Guarantees were determined save for the controversy in respect of the Performance Guarantee. Thus, the evidence of DW1 was that, since the dispute regarding the two Advance Payment Guarantees had been determined with finality, the same cannot be re-litigated in these proceedings.

36. In conclusion, the 2nd defendant denied that it was in breach of its obligations under the Performance Guarantee or in respect of the two Advance Payment Guarantees. It consequently prayed for the dismissal of the suit with costs.

37. In its closing submissions dated 14th April 2023, the plaintiff provided a summary of the case and addressed the legal and evidential burden of proof with reference to Muthia Macharia v Annah Mutua Ndwiga & another [2017] eKLR and Alice Wanjiru Kuhiu v Messiac Assembly of Yahweh [2021] eKLR. The plaintiff then proposed the following issues for determination:(a)What was the expiry date of PG, APG-1 and APG-2?(b)What was the effect of the filing of the Milimani Case and the Court order of 12th March 2009 on the expiry dates of the PG, APG-1 and APG-2? Did time toll as a result of the Milimani Case and if so, between which period?(c)Can the Court extend time for the validity of APG-1 and APG-2 to include the period lost when time tolled after the filing of the Milimani Case and the court order of 12th March 2009?(d)Did the plaintiff prove to the required standard that it issued valid demand notices in relation to the PG? If so, should the court find that the amount of Tshs. 549,277,500 and USD 1,735,336. 86 at the exchange rate of 1 USD to Tshs. 1,266. 10, which was the prevailing rate as at September 2007, is payable by the 2nd defendant?(e)Did the plaintiff prove to the required standard that it issued valid demand notices in relation to each or any of the APGs? If so, are the demand notices dated 10th February 2010 for APG-1 and APG-2 valid and payable?(f)From 8th October 2009 to 8th February 2010 did the actions by the defendants extending court order of 12th March 2009 to 25th February 2010 without the participation of the plaintiff herein, failing to serve the plaintiff with the court order and/or causing the court file in the Milimani Case to go missing amount to collusion to frustrate the plaintiff from issuing demand notices before 11th January 2010?(g)Are damages payable for breach of PG, APG-1 and APG-2?(h)Is interest payable for any money found due? If so, what rate and the period of payment?(i)What is the order as to costs?

38. Counsel for the plaintiff opted to argue the above issues in clusters. Hence, in respect of the 1st, 2nd, 3rd, 4th and 5th issues, the plaintiff submitted that, as regards the PG, the demand was made within time and therefore the sums guaranteed thereby are payable. The plaintiff urged the Court to take note of the variance between the expiry date as shown in the plaintiff’s Bundle (at pages 9 and 10 of the plaintiff’s Bundle of Documents and at page 67 of the 2nd defendant’s Bundle of documents. On the authority of Mwangi Ngumo v Kenya Institute of Management [2012] eKLR counsel urged the Court to construe any ambiguity in the PG against the maker, the 2nd defendant.

39. Regarding the nature of demand guarantees and the kind of contract created thereby, the plaintiff made reference to various authorities at pages 17 to 24 to augment its submission that the PG is valid and was properly called up by the plaintiff. At paragraphs 60 and 61, the plaintiff posited that the injunction issued in the Milimani Case was erroneously issued. The plaintiff relied on the decision of the Supreme Court of India in United Commercial Bank v Bank of India & Others. I however hasten to point out that this is an aspect that does not fall for consideration by this Court.

40. In relation to form, the plaintiff’s submission was that the three demands sent by it complied strictly with the Article 20(a) of the ICC Uniform Rules for Demand Guarantees, Publication No. 458 and therefore the it is entitled to the guaranteed sums. In the same vein, the plaintiff responded to each of the three grounds raised by the defendants for non-payment. Counsel pointed out that a bank guarantee is an independent and distinct contract between the bank and the beneficiary and is not qualified by the underlying transactions or the validity of the primary contract between the person at whose instance the bank guarantee was given and the beneficiary. The plaintiff relied on Ansal Eng. Projects v Tehri Hydro Dev. Corporation 1996 (Supp) ISJ (Banking) 523.

41. Counsel highlighted the plaintiff’s assertion that the existence of the court order issued in the Milimani Case is not a defence, but rather a reason not to pay; and that once that case came to a close on 6th June 2014, the 2nd defendant has no option but to pay. He made reference to several decisions including Gideon Omare v Machakos University [2019] eKLR, Teachers Service Commission v Kenya National Union of Teachers & 2 Others, Petition No. 23 of 2013 and Fred Matiangi, the Cabinet Secretary, Ministry of Interior and Co-ordination of National Government v Miguna Miguna & 4 others [2018] eKLR to underscore the importance of obeying court orders and justify the failure by the plaintiff in time.

42. Consequently, in respect of APG-1 and APG-2, the plaintiff pitched a case for the tolling of time between 12th March 2009 when the interim injunction was given in the Milimani Case and 8th February 2010 when the demand was made. The cases of James M. Hughes and Patti Hughes v Mahaney & Higgins Rober M. Mahaney & Hugh B Higgins 821 S.W. 2d 154 (1991) and James Maina Kinya v Gerald Kwendaka [2018] eKLR were cited in this regard.

43. In connection with issues 6 and 7, the plaintiff alleged collusion and frustration on the part of the defendants in an attempt to defeat its claim. It therefore submitted that, having established fault on the part of the defendants, damages are payable. A justification was made at pages 38, 39, 40, 41 and 42 of the plaintiff’s written submissions to the effect that, whereas the general principle is that courts do not normally award damages for breach of contract, there are exceptions such as when the conduct of the defendant is shown to be oppressive, high handed, outrageous, insolent or vindictive. The plaintiff relied on Delilah Kerubo Otiso v Ramesh Chander Ndingra [2018] eKLR.

44. As for issues 8 and 9, the plaintiff submitted that there should be compensation for withholding public funds all this while; and therefore that it ought to be paid costs of the suit together with interest at commercial rates from 8th February 2010 until payment in full. It relied on Ongata Works Limited v Attorney General [2017] eKLR, Lianard Holdings Limited v Kartar Singh Dhupar and Co. Limited [2018] eKLR and Ramji Ratma & Co. Ltd v Attorney General [2020] eKLR, all involving construction contracts.

45. It was therefore the submission of the plaintiff that it had proved its case on a balance of probabilities and is therefore entitled to the reliefs sought.

46. On its part, the 1st defendant relied on the closing submissions dated 22nd June 2023. It provided a summary of the case and proposed the following issues for determination:(a)Whether the three demands were, or can be deemed to have been made before the expiry of the PG, APG-1 and APG-2. (b)Whether the three demands were compliant with the format of a demand.(c)Whether either the 1st or 2nd defendant can be held liable for the amounts under the PG, APG-1 or APG-2 under any other basis.

47. Counsel for the 1st defendant, submitted that each of the three instruments required that any demand for payment be received by the 2nd defendant on or before their respective expiry dates; and therefore to the extent that the demand notices for APG-1 and APG-2 were issued almost a month after their expiry, the sums were not payable. Reliance was placed on Intex Construction Limited v Credit Bank Limited [2016] eKLR to support the argument that, even if the Milimani Case was explicit that the 1st defendant could not make a demand, such an order could not have the effect of suspending time under the guarantee.

48. It was further the submission of the 1st defendant that the Court has no power to free or extend time under a contract entered into between the parties. The 1st defendant relied on the case of Lalji Karsan Rabadia & 2 Others v Commercial Bank of Africa Limited [2015] eKLR for the proposition that courts of law should maintain the performance of contracts according to the intention of the parties, and not overrule any of their clearly expressed intentions.

49. On whether the three demands were compliant with the format, the 1st defendant submitted that it is the law for demand guarantees that a demand must strictly comply with the terms of the guarantee. In this regard, reliance was placed on Lalji Karsan Rabadia (supra) and Bulgrains & Co. Ltd v Shinhan Bank [2013] EWHC 2498 (QB) in urging the Court to find that, from the wording of the 3 demands, the plaintiff failed to adhere to the strict compliance rule. It was further pointed out that the demands were not accompanied by written statements as to breach.

50. Arguments were also made to demonstrate that the 1st defendant was not a party to the guarantee contract and for that reason cannot be accused of breaching it. According to the 1st defendant, all it was required to do was to request the 2nd defendant to give the guarantees to the plaintiff; which it did. Accordingly, it was the submission of the 1st defendant that it is not liable to the plaintiff in any way whatsoever. It therefore prayed for the dismissal of this suit with costs.

51. In its written submissions dated 27th June 2023, the 2nd defendant raised two preliminary issues for consideration upfront. The first point was whether the documents the plaintiff sought to rely on were produced as exhibits in this case. According to the 2nd defendant there is no indication in the court record that the documents were produced as required; and therefore that the same should be disregarded in their entirety. In support of this proposition, the 2nd defendant relied on Kenneth Nyaga Mwige v Austin Kiguta & 2 others [2015] eKLR, Finmax Community Based Group & 3 others v Kericho Technical Institute [2021] eKLR and Daniel Toroitich Arap Moi v Mwangi Stephen Muriiti & another [2014] eKLR.

52. The second issue raised by the 2nd defendant is a corollary to the first; and it is whether, in the absence of the plaintiff’s documents, it has any case against the defendants. On the authority of CMC Motors Group Ltd & another v Evans Kangethe Boro [2006] eKLR and Kenya Breweries Ltd v Kiambu General Transport Agency Ltd [2000] eKLR the 2nd defendant submitted that a written contract, which is what the Guarantee instruments are, cannot be proved by way of oral evidence.

53. The 2nd defendant concurred with the submissions of the plaintiff that court orders must be obeyed. The 2nd defendant was also in agreement with the plaintiff’s assertion that the injunction issued in the Milimani Case was issued in error. It nevertheless urged the Court to note that no attempt whatsoever was made by the plaintiff to vary and/or discharge the said interim injunction up until 6th June 2014 when the Milimani case was finally determined. It was therefore the submission of the 2nd defendant that the plaintiff was not aggrieved by the orders and that it indeed acquiesced to their existence by consenting to their extension from time to time. The case of Republic v Deputy Registrar High Court of Kenya, Eldoret & another [2013] eKLR was relied on by the 2nd defendant to buttress the argument that the right course is not to simply denounce an order, but to seek redress through the judicial process.

54. At pages 18 to 22 of its written submissions, the 2nd defendant addressed the issue of Performance Guarantees in general and their conditions for payment as set out in the ICC Uniform Rules for Demand Guarantees, Halsbury’s Laws of England and case law. On the basis thereof, the 2nd defendant urged the Court to find that none of the subject guarantees is payable. It relied on National Bank of Kenya Ltd v Pipeplastic Samkolit (K) Ltd & another [2001] eKLR and Pius Kimaiyo Langat v Co-operative Bank of Kenya Ltd [2017] eKLR for the proposition that a court of law cannot re-write a contract between the parties; and that the parties are bound by the terms of their contract unless coercion, fraud or undue influence are pleaded and proved.

55. The 2nd defendant also refuted the allegations of collusion between it and the 1st defendant and made copious submissions in this regard at pages 23 to 42 of its written submissions. On the basis thereof, it urged the Court to frown upon those allegations in so far as they were not proved. The 2nd defendant further reiterated its stance that the issue of the two Advance Payment Guarantees was determined with finality by way of arbitration and cannot therefore be ventilated afresh in this suit.

56. Reliance was placed on the doctrine of res judicata as set out in Section 7 of the Civil Procedure Act and elucidated in Communication Commission of Kenya & 5 others v Royal Media Services Ltd & 5 others [2014] eKLR, Independent Electoral & Boundaries Commission v Maina Kiai & 5 others [2017] eKLR and John Florence Maritime Services Ltd & another v Cabinet Secretary for Transport and Infrastructure & 3 others [2015] eKLR.

57. As regards the Performance Guarantee, the 2nd defendant reiterated its assertion that the same expired on 8th April 2011 and that at that time, the injunction issued in the Milimani Case restraining it from making any payments in respect thereof was still in place. It therefore submitted that it cannot shoulder any blame in any manner whatsoever regarding the expiry or non-payment of the Performance Guarantee.

58. As for the reliefs sought by the plaintiff, the 2nd defendant submitted that special damages must not only be specifically pleaded but also proved; and that to the extent that the plaintiff did not particularize the special damage component of its claim, the same does not lie. The 2nd defendant relied on the cases of Hahn v Singh [1985] eKLR, Jogoo Kimakia Bus Services Ltd v Electrocom International Ltd [1992] eKLR and Douglas Kalafa Ombeva v David Ngama [2013] eKLR to support its submissions in this regard, adding that general damages are not payable in a claim based on contract. Therefore, the 2nd defendant prayed for the dismissal of the plaintiff’s suit with costs.

59. I have given careful consideration to the pleadings filed herein by the parties, the evidence adduced in support thereof as well as the written submissions filed by learned counsel. The parties are in agreement that the plaintiff entered into a contract with the 1st defendant for the execution of the Upgrading of Mbeya-Chunya-Makongolosi Road Projecet: Section 1: Mbeya-Lwanjilo (36 kkm). A copy of the contract dated 1st August 2007 was exhibited at pages 119 to 547 of the plaintiff’s Bundle of Documents (marked the plaintiff’s Exhibit 20 herein).

60. It is also common ground that on the same date of 1st August 2007, the 2nd defendant issued a Bank Performance Guarantee No. GOKE86046077250C to the plaintiff committing to pay any sum or sums not exceeding the total amount of Tshs. 2,746,387,500/= upon demand being made and in accordance with the terms set out therein. The PG was to expire on 8th April 2011 and a copy thereof is to be found at pages 17 to 18 of the plaintiffs Bundle of Documents as well as pages 9 to 10 of the 2nd defendant’s Bundle of Documents (2nd defendant’s Exhibit 5).

61. In addition, the 2nd defendant issued two Advance Payment Guarantees, APG-1 and APG-2 on 6th September 2007. The first Bank Performance Guarantee No. GOKE86046077397C for USD 3,478,145. 00 was issued to the plaintiff at the request and instance of the 1st defendant. A copy thereof was exhibited at pages 19 and 20 of the plaintiff’s Bundle of Documents (marked the plaintiff’s Exhibit 6) and at pages 1 and 2 of the 2nd defendant’s Bundle of Documents (marked the 2nd defendant’s Exhibit 1).

62. The second Bank Performance Guarantee No. GOKE86046077398C was to secure an advance payment of Tshs. 1,098,555,000/= paid by the plaintiff to the 1st defendant and had an expiry date of 11th January 2010. A copy thereof was exhibited at pages 21 to 22 of the plaintiff’s Bundle of Documents (marked the plaintiff’s Exhibit 7) and pages 5 and 6 of the 2nd defendant’s Bundle of Documents (marked the 2nd defendant’s Exhibit 3).

63. The parties were in agreement that the three instruments were subject only to the terms and conditions set out therein as well as the Uniform Rules for Demand Guarantees, ICC Publication No. 458. They were therefore disparate and independent from the works contract between the plaintiff and the 1st defendant.

64. That a dispute arose between the plaintiff and the 1st defendant was also not in contention. The dispute gave rise to Milimani High Court Civil Case No. 164 of 2009: Kundan Singh Construction Ltd v Tanzania National Roads Agency & Kenya Commercial Bank Ltd (the Milimani Case). The Amended Plaint filed in that suit was exhibited at pages 27 to 53 of the plaintiff’s Bundle of Documents (marked the plaintiff’s Exhibit 9) and at pages 109 to 133 of the 2nd defendant’s Bundle of Documents (marked the 2nd defendant’s Exhibit 22). A perusal thereof reveals that the three instruments aforementioned also formed part of the dispute. Paragraphs 20 and 21 of the Amended Plaint filed in the Milimani Case reveals that, following the dispute over execution of the contract, the 1st defendant was apprehensive that the plaintiff would call in not only the Performance Guarantee but also the two Advance Payment Guarantees.

65. On the basis of the foregoing, the 1st defendant prayed for permanent injunction against the plaintiff herein as well as the 2nd defendant. In the interim, the 1st defendant sought and obtained interim injunction on the 12th March 2009. It is important to reproduce the orders for their full tenor and effect, given their conspicuous place, particularly Order No. 5, in these proceedings. It states:1. That this application be and is hereby certified urgent ad be heard ex parte in the first instance.2. That service be and is hereby dispensed with in the first instance.3. That the Applicant be and is hereby granted leave to serve the Summons and/or the Notice of Summons and the Application on the 1st Defendant through the Ministry of Foreign Affairs.4. That the 1st Defendant be and is hereby granted 21 days to Enter Appearance in the suit.5. That an injunction be and is hereby issued restraining the 2nd Defendant by its Directors, Officers or servants or agents or any of them or otherwise howsoever from paying to the 1st Defendant any demand for payment on the Bank Performance Guarantee No. GOKE86046077250C for TSHS. 2,746,387,500. 00 or any other sum and/or from paying to the 1st Defendant on the Bank Performance Guarantee No. GOKE86046077397C for USD 3,478,145. 00 and Bank Performance Guarantee No. GOKE86046077398C for TSHS. 1,098,555,000. 00 or any other sum pending the hearing and determination of this suit or further orders of the Court.6. That this application be served upon the Respondent for inter-partes hearing on 25th March, 2009…”

66. A copy of the Order was exhibited at pages 60 to 62 of the Plaintiff’s Bundle of Documents and marked the plaintiff’s Exhibit 11. The parties are in concurrence that the interim injunction was extended from time to time pending the hearing and determination of the application; and that the application was ultimately heard inter partes and determined on 1st October 2010. The ruling in that regard was exhibited at pages 79 to 118 of the plaintiff’s Bundle of Documents (marked as the plaintiff’s Exhibit 19 herein).

67. In addition to the foregoing, the parties are in agreement that, while the orders of 12th March 2009 were in place, the plaintiff purported to call in the Guarantees by issuing demand notices dated 8th February 2010. The demand notice for the PG was exhibited at pages 63 and 63B of the plaintiff’s Bundle of Documents, while the demand notices for APG-1 and APG-2 were exhibited at pages 64 to 68 of the plaintiff’s Bundle of Documents (marked the plaintiff’s Exhibits 12 and 13, respectively). It is not in dispute that the 2nd defendant declined to honour the demand notices. Vide its letter dated 26th February 2010 (at page 69B of the plaintiff’s Bundle of Documents), the 2nd defendant notified the plaintiff that:…we are unable to honour your demand.Your Demand Notices were received after the Guarantee expired. Kindly note that this is contrary to the Terms of the Guarantee as well as Article 19 of the Uniform Rules for Demand Guarantees, ICC Publication No. 458. Please be advised accordingly…”

68. It is vital to point out, at this stage, that the suit was initially challenged on the ground of sub judice. The defendants sought to have the instant suit struck out on account the Milimani Case. The record shows that the applications and preliminary objections were raised before Hon. Azangalala J. (as he then was) and that they were determined in a ruling delivered on 29th July 2010. The Court held:…With regard to the prayer for striking out of the suit, I have made the following observations. This suit is instituted by Tanzania National Roads Agency described as a foreign based Government Agency whereas in the Milimani case the 1st defendant therein is named as the Chief Executive Tanzania National Roads Agency…There is in essence no difference between the plaintiff herein and the defendant in the Milimani case. In my view the difference in the description of the plaintiff herein and the 1st defendant in the Milimani case does not cloud the fact that the two are urging the same cause. In substance there is in fact no difference between the two. In the premises, the plaintiff’s argument that it is not a party in the Milimani case is … not serious and is an attempt to found a basis for its parallel suit. The rest of the parties are the same save that the plaintiff herein is in reality the 1st defendant in the Milimani case.The foundation of the plaintiff’s action is enforcement of Bank guarantees. Those guarantees are expressly raised as issues in the Milimani case. A specific order is indeed sought in respect of the same guarantees in prayer 2 in the Milimani case. The rest of the reliefs sought herein flow from those guarantees. Being of that view, to my mind, the issues being litigated in this suit are being litigated in the Milimani case or should have been raised in the Milimani case…”

69. Therefore, the Court allowed prayer (d) of the application dated 30th March 2010 and ordered stay of these proceedings pending the hearing and determination of the Milimani Case. The Final Award of the arbitration shows that while the arbitral tribunal found that the parties owed each other certain sums of money, which could be set off, no specific award was made in respect of the Guarantees. Indeed, the balance due to the Employer (the plaintiff herein), was found to be Tshs. 2,653,609,085. 00

70. The proceedings for enforcement of the Arbitral Award were held in a separate matter, being Mombasa High Court Miscellaneous Application No. 171 of 2012. Accordingly, it is on record that on 19th July 2013 and 4th June 2014, the Milimani Court (Hon. Kamau, J.) was informed that the suit was essentially spent as all the issues raised therein were spent, save for costs. The proceedings of the Milimani Case therefore confirm that, on the 4th June 2014, the following order was recorded:After hearing the lengthy submissions by the parties, I hereby order that the plaintiff’s plaint dated 12/3/2009 and filed on the same date be marked as spent as the Arbitral Award was published on 25/7/2012…”

71. Thereafter, on the 6th June 2014, directions were given on costs and the matter marked closed. It is therefore surprising that the 2nd defendant should, in the circumstances, raise the issue of res judicata. It is also notable that the defendants raised the same issue herein vide their Notice of Motion dated 23rd June 2024. That application was heard and was the subject of the ruling dated 5th March 2015 by Hon. Kasango, J. The Court was explicit in its determination thus:I have considered the application, the affidavit evidence and their annextures and more importantly the pleading and I have formed the opinion that although the issues in both cases relate to the same contract, they are not entirely the same. But perhaps much more, the issue that will determine the Notice of Motion is that the Civil Case No. 164 of 2007 was not heard on merit. It was marked as closed by consent of the parties. This case would have been found to be res judicata if the issues raised in Civil Case No. 164 of 2009 had been determined. They were not…The end result therefore is that the Notice of Motion dated 23rd June 2014 is dismissed with costs to the Plaintiff.”

72. If the defendants were unhappy with that decision then the best option was to file an appeal. I therefore find the argument that this suit is res judicata untenable.

73. The other technical objection raised by the 2nd defendant was that since the plaintiff’s documents were not produced as exhibits, the suit must fail for lack of proof. According to the 2nd defendant there is no indication in the court record that the documents were produced as required; and therefore that the same should be disregarded in their entirety.

74. It is indeed the case that for documents to form part of the body of evidence for consideration by the Court, they must be formally produced as exhibits and marked as such. In Kenneth Nyaga Mwige v Austin Kiguta & 2 Others (supra) in which the central issue on appeal was the probative value, if any, of a document marked for identification but which was neither formally produced in evidence nor marked as an exhibit, the Court of Appeal held:The mere marking of a document for identification does not dispense with the formal proof thereof. How does a document become part of the evidence for the case? Any document filed and/or marked for identification by either party, passes through three stages before it is held as proved or disproved. First, when the document is filed, the document though on the file does not become part of the judicial record. Second, when the documents are tendered or produced in evidence as an exhibit by either party and the court admits the documents in evidence, it becomes part of the judicial record of the case and constitutes evidence; …Third, the document becomes proved, not proved or disproved when the court applies it judicial mind to determine the relevance and veracity of the contents – this is at the final hearing of the case…a document marked for identification only becomes part of the evidence on record when formally produced as an exhibit by a witness…we are of the view that the failure or omission by the respondent to formally produce the documents marked for identification being MFI 1, MFI 2 and MFI 3 is fatal to the respondent’s case. The documents did not become exhibits before the trial court; they had simply been marked for identification and they have no evidential weight…”

75. Likewise, in the case of Finmax Community Based Group & 3 others v Kericho Technical Institute (supra) the Court of Appeal reiterated its stance and held:…As part of that consent the parties were also emphatic that the accounts report would not be produced alongside the other documents but, instead they were to be “Marked for Identification” (MFI. 10).We understand this to mean that the respondent was to call a witness to prove the accounts report before they could be admitted in evidence. Up to the point the judgment was pronounced, the accounts report had not been produced.As way back in 1953, in the case of Des Raj Sharma vs. Reginam (1953) 19 EACA 310, it was recognized that the only distinction between “exhibit” and an article or a document “marked for identification” is that an “exhibit” is evidence which has been formally proved and admitted in evidence, while an exhibit “marked for identification” (MFI) is not part of the evidence before the court and cannot, therefore, be used as proof of any fact.Until a document “marked for identification” is formally produced, it is of very little, if any, evidential value. See Kenneth Nyaga Mwige vs. Austin Kiguta & 2 others [2015] eKLR.The report in question which we suspect was the genesis of the amount claimed by the respondent was not produced and appears not to be part of this record.…Having found that the respondent did not discharge its burden of proof, we need not consider the next and final ground….”

76. I have perused the record of the Court, and in particular the proceedings of 13th March 2023. It is evident that the documents were indeed produced as exhibits and duly marked as the plaintiff’s Exhibits 1 to 20 at page 147 of the handwritten proceedings. The date of the Bundle, reflected as 6th February 2022 in the proceedings of 13th March 2023, was corrected on 20th September 2023 at the instance of the plaintiff. Neither the 1st nor the 2nd defendants opposed that application for correction of the proceedings. It is noteworthy that counsel for the 2nd defendant, Mr. Nyachoti, was absent when PW1’s evidence in chief was taken, and that his brief was held by Mr. Kongere. It is plain therefore that he may have raised the issue in ignorance. That objection is accordingly dismissed as misconceived.

77. In view of the foregoing conclusion, the related argument by the 2nd defendant that the plaintiff sought to prove the contents of documents by oral evidence cannot stand and is accordingly similarly dismissed.

78. That said, and turning now to the merits of the case, I have given careful consideration to the issues proposed for determination by counsel for the parties and agree that they cover, albeit with overlaps, the issues in contest in this suit. The same can be summarized as follows:(a)Whether the 2nd defendant is still bound to honour the terms of PG, APG-1 and APG-2. (b)Whether the plaintiff is entitled to the reliefs sought.(c)Whether interest is due on the sums payable, and if so whether a justification has been made for payment of interest at commercial rates.(d)What order ought to be made on costs?

A. On whether the 2nd defendant is still bound to honour the terms of the Guarantees: 79. As has been pointed out herein above, the PG, the APG-1 and APG-2 were separate contracts executed between the plaintiff and the 2nd defendant, notwithstanding that they were issued at the instance of the 1st defendant. They are therefore distinct from the main works contract between the plaintiff and the 1st defendant. In Paget’s Law of Banking (12th Edition 2003) at page 730 the authors state:The principle that underlies demand guarantee is that each contract is autonomous. In particular, the obligations of the guarantor are not affected by the disputes under the underlying contract between the beneficiary and the principal. If the beneficiary makes an honest demand, it matters not that between himself and the principal he is entitled to payment. The guarantor must honour the demand…”

80. Hence, in Sinohydro Corporation Limited v GC Retail & another PARA 2016. eKLR, the court discussed the nature and effect of on-demand bank guarantees and the applicable principles, reiterating the aforestated position that a guarantee is payable on demand solely in accordance with its terms. I now turn attention to the instruments to ascertain whether the plaintiff has made out a case for payment:

a. The Bank Performance Guarantee No. GOKE86046077250C: 81. This instrument was issued to the plaintiff on the 1st August 2007 by the 2nd defendant at the instance of the 1st defendant. The 2nd defendant thereby irrevocably undertook to pay the plaintiff sums not exceeding Tshs. 2,746,387,500/= upon demand being made. It was an express term of the PG that it would be subject to the Uniform Rules for Demand Guarantees, ICC Publication No. 458. The PG was to expire on 8th April 2011.

82. A demand notice in respect of the PG was made by the plaintiff on 8th February 2010 on the ground that the 1st defendant had failed to perform the Works as agreed under the contract. A copy of the demand notice was exhibited at pages 63 and 63B of the plaintiff’s Bundle of Documents. There is no denying that the demand notice for the PG was made in time and therefore ought to have been honoured by the 2nd defendant.

83. The next question to pose is whether the PG was made in accordance with the terms set out therein and in the ICC Rules. In Trans Africa Assurance Co. Ltd v Cimbria (EA) Ltd [2002] 2 EA 627 (CAU) it was held:A performance bond has many similarities to a letter of credit and it has long been established that when a letter of credit is issued and confirmed by a bank, the bank must pay it if the documents are in order and the terms of credit are satisfied. Any dispute between a buyer and seller must be settled between themselves and the bank must honour the credit…A bank or institution giving a performance bond is therefore bound to honour it in accordance with the terms of the bond if it appears the papers are in order regardless of any dispute between the buyer and the seller arising from the contract in respect of which the bond was given. It is only excused where there is fraud of which it has notice.

84. Similarly, in Kamro Agrovet Limited v Ceva Sante Animale & others, Kisumu HCCC No. 45 of 2008, it was held:A performance guarantee was similar to a confirmed letter of credit. Where therefore a bank had given performance guarantee it was required to honour the guarantee according to its terms and was not concerned whether either party in the contract which underlay the guarantee was in default. The only exception to that rule was where fraud by one of the parties to the underlying contract had been established and the banks had notice of the fraud.”

85. One of the reasons proffered by the defendants for non-payment of the PG was that the Demand Notice was not compliant with the format. The 1st defendant relied on Lalji Karsan Rabadia & 2 Others v Commercial Bank of Africa Limited (supra) as one of the authorities in favour of strict compliance. The Court held:…the Courts of Law should maintain the performance of the contracts according to the intention of the parties; that they should not overrule any clearly expressed intention on the ground that Judges know the business of the people better than the people know it themselves.”

86. The defendants also referred to Bulgrains & Co. Ltd v Sinhan Bank [2013] EWHC 2498 (QB) wherein it was held that:On these authorities it seems reasonably clear that any discrepancy, other than obviously typographical errors, will entitle either the negotiating or issuing bank to reject. It is tempting to say that whether a bank is entitled to reject must surely depend on whether the discrepancy is really material…”

87. The crucial aspects of the PG that were allegedly disregarded by the plaintiff were set out thus:…upon receipt by us of your first demand in writing accompanied by a written statement stating the facts that the contractor is in breach of its obligations under the contract without your needing to prove or to show grounds for your demand or the sum specified therein…”

88. It was therefore the contention of the defendants that for a demand to be valid, it had to be accompanied by a separate written statement of the facts in support of the alleged breach. The 1st defendant made reference to the Cambridge English Dictionary for the definition of the word “accompany” and pointed out that it is defined therein as follows:to go along or in company with; join in action, to be or exist in association or company with, to put in company with; cause to be or go along; associate”.

89. It is significant however that the PG did not require a statement of facts in support of the alleged breach as posited by the defendants. It simply states that the demand would be accompanied by a written statement “stating that the Contractor is in breach of its obligation(s) under the Contract.” It further states that that the plaintiff did not have to prove or show grounds for the demand or the sum specified therein.

90. More importantly, the PG provided that it would be subject to the Uniform Rules for Demand Guarantees, ICC Publication No. 458. The defendants placed reliance on Article 20(a) thereof, which provides as follows:Any demand for payment under the guarantees shall be in writing and shall (in addition to such other documents as may be specified in the Guarantee) be supported by a written statement (whether in the demand itself or in a separate document or documents accompanying the demand and referred to in it)…”

91. The above provision is explicit that it is permissible for the supporting statement to be in the demand statement or in a separate document. It is noteworthy too that the PG exempted Sub-Article (ii) of Article 20, which provides that the statement accompanying the demand should state the respect in which the Principal is in breach. It is therefore not necessarily fatal that the plaintiff used the demand as the written statement. I am therefore satisfied that the demand notice for the PG, at pages 63 and 63B of the plaintiff’s Bundle, is compliant in every respect with the format envisaged by the parties and the ICC Uniform Rules for Demand Guarantees No. 458.

92. This must explain why the 2nd defendant responded to that demand notice, vide its letter dated 26th February 2010 (see page 69 of the plaintiff’s Bundle of Documents), by asking for the return of the original document to facilitate processing. That the plaintiff responded thereto and furnished the original document is evidenced by the letter dated 18th March 2010 (at pages 74 and 75 of the plaintiff’s Bundle of Documents). The plaintiff had every reason to expect payment shortly thereafter. I therefore agree with the position taken in Kamro Agrovet Limited v Ceva Sante Animale & Others (supra) that:…As to the fulfilment of the conditions incorporated in the guarantee the statement of the beneficiary shall be taken on its face value unless the contractor can establish the beneficiary’s stand is motivated by fraud, misrepresentation, deliberate suppression of material facts or the like of which would give rise to special equities in favour of the contractor. In absence of such elements the bank guarantee has to be honoured by the bank and the beneficiary cannot be restrained from enforcement.”

93. There is another letter dated 26th February 2010 (at page 69B of the plaintiff’s Bundle) by which the 2nd defendant declined to pay on the ground that the demand notices were received after the Guarantee expired, and that this was contrary to Article 19 of the Uniform Rules for Demand Guarantees. Although the second letter was not specific to the PG, it conveyed the 2nd defendant’s stance that all the demands were received after the expiry of the Guarantees. This cannot be true in the case of the PG that has on its face the date of 8th April 2011 as the expiry date.

94. Thus, the pith of the 2nd defendant’s case is that it was prohibited from honouring the PG by dint of the temporary injunction issued in the Milimani Case on 12th March 2009. There is no gainsaying that the 2nd defendant was indeed prohibited from honouring the Guarantees and the parties were in agreement that it would have amounted to contempt of court had the 2nd defendant ignored the order of the court in the Milimani Case. The interim orders were later confirmed on 1st October 2010 and lasted until 6th June 2015 when the Milimani Case was concluded and the file closed.

95. Needless to say that by the time the Milimani Case was concluded, the PG had long expired; hence the question to pose is whether, in the circumstances, the PG can still be honoured. In this connection I have given careful consideration to the submissions made herein by learned counsel for the parties. While the defendants insisted on strict compliance, the plaintiff urged the Court to consider that, in respect of the PG, the plaintiff was not to blame for the delay. While I agree with the defendants that the plaintiff could have sought variation or setting aside of the temporary injunction to facilitate payment, it is, in my considered view, blameless for having chosen to respect the orders of the Court. Consequently, it was to be expected that, at the conclusion of the Milimani Case, the 2nd defendant would pay up the sums guaranteed by the PG, by dint of the doctrine of tolling of time.

96. In this regard, I am persuaded by the decision taken in James M. Hughes and Patti Hughes v Mahaney & Higgins (supra) that:Where a person is prevented from exercising his legal remedy by the pendency of legal proceedings, the time during which he is thus prevented should not be counted against him in determining whether limitations have barred his right.”

97. Granted the foregoing circumstances, it is my considered view and finding that the PG is still payable, considering that the demand was made in time and in accordance with the terms of the PG and the conditions set out in the ICC Rules.

b. The Advance Payment Guarantees No. GOKE86046077397C and No. GOKE86046077398C: 98. In addition to the PG aforementioned, the 2nd defendant furnished the plaintiff with two Advance Payment Guarantees dated 6th September, 2007 (APG-1 and APG-2), which were to expire on 11th January 2010. Similar arguments were raised by the parties in respect of the two instruments as have been set out herein above in respect of the PG. It is noteworthy however that while the demand notice for the PG was submitted in time, the demands for APG-1 and APG-2 were not submitted until 8th April 2010, long after their expiry date.

99. Article 9 of the Uniform Rules for Demand Guarantees is explicit that:A demand shall be made in accordance with the terms of the Guarantee before its expiry…In particular, all documents specified in the Guarantee for the purpose of the demand, and any statement required by Article 20, shall be presented to the Guarantor before its expiry at its place of issue, otherwise the demand shall be refused by the Guarantor.”

100. The order of temporary injunction was directed at the 2nd defendant and therefore did not preclude the plaintiff from compliance. Indeed, as was pointed out by the defendants, the plaintiff had the liberty to move the court in the Milimani Case to vary, set aside or otherwise give directions before the expiry of APG-1 and APG-2. No such motion was presented by the plaintiff.

101. I note that the plaintiff alleged collusion between the defendants not only in the filing of the Milimani Case, but also in its prosecution, with a view of defeating its rights under the Guarantee instruments. These allegations were however not proved to the requisite standard. For instance, it was alleged by the plaintiff that the defendants caused the court file of the Milimani Case to disappear, and yet no evidence was presented to prove such disappearance of the court file. Not a single correspondence to the court over the allegation that the file went missing was exhibited. I am therefore in concurrence with the position taken in Noordin F. H. Rajabali v Kutubdin A. Khanbhai & 2 others [2006] eKLR that the courts take a serious view of disappearance of files and that counsel are under obligation to promptly bring such disappearances to the attention of the court for action. Had the plaintiff done so it would have had no difficulty in proving such a straightforward issue.

102. Needless to add that allegations of collusion, which entail fraudulent conduct, must be proved to a standard above the standard applicable to ordinary civil cases. In Moses Parantai & Peris Wanjiku Mukuru as the legal representative of the estate of Sospeter Mukuru Mbeere (deceased) v Stephen Njoroge Macharia [2020] eKLR, the Court of Appeal held:The appellants need to not only plead and particularize the fraud, but also to lay a basis by way of credible evidence upon which the Court would make a finding that indeed there was fraud in the transaction…Fraud is a quasi-criminal charge which must, as already stated, not only be specifically pleaded but also proved on a standard though below beyond reasonable doubt, but above balance or probabilities.”

103. As was pointed out in Arthi Highway Developers Limited v West End Butchery Limited & 6 Others [2015] eKLR:Fraud consists of some deceitful practice or willful device, resorted to with intent to deprive another of his right, or in some manner to do him an injury. As distinguished from negligence, it is always positive, intentional. As applied to contracts, it is the cause of an error bearing on a material part of the contract, created or continued by artifice, with design to obtain some unjust advantage to the one party, or to cause an inconvenience or loss to the other. Fraud, in this sense of a court of equity, properly includes all acts, omissions and concealments which involve a breach of legal or equitable duty, trust, or confidence justly reposed, and are injurious to another, or by which an undue and unconscientious advantage is taken of another”.

104. Hence the need for sufficient proof. In any event, the disappearance of the Milimani Case file was no hindrance to the plaintiff in making its demand in respect of APG-1 and APG-2 before their expiry date. In the absence of compliance with this pertinent requirement, the doctrine of tolling of time cannot come to the aid of the plaintiff. It is therefore my finding that, in the circumstances, there is no obligation on the part of the 2nd defendant to honour either APG-1 or APG-2.

B. Whether the plaintiff is entitled to the reliefs sought. 105. It bears repeating the reliefs prayed for by the plaintiff in its Further Amended Plaint filed on 26th May 2022, namely:(a)As against the 2nd defendant:(i)A declaration that the 2nd defendant is still bound upon demand by the plaintiff to honour the terms of the PG, APG-1 and APG-2. (ii)A mandatory order compelling the 2nd defendant to honour the damand notices by the plaintiff dated 8th February 2010 or any other subsequent demand by the plaintiff to the 2nd defendant in terms of PG, APG-1 and APG-2 to a total of USD 4,751,480. 86 and Tshs. 1,501,911,578/=.(iii)Interest at commercial rates from 8th February 2010 until payment in full.(b)As against the defendants jointly and severally:(i)A declaration that time does not run leading to the expiry of a guarantee where there is a court order prohibiting a party or parties in that suit from complying or implementing the terms of that guarantee.(ii)A declaration that the expiry date for APG-1 and APG-2 was postponed, and or generally enlarged pending further orders of the court in the Milimani Case.(iii)An order of rectification of the expiry date of APG-1 and APG-2 to include the 8th February 2010 to the date of determination of the suit.(iv)A mandatory order compelling the 2nd defendant to honour the three demands for PG, APG-1 and APG-2 dated 8th February 2010 by the plaintiff.

106. In the alternative, the plaintiff prayed that the two defendants be held jointly and severally liable for the damages suffered by it as a result of the breach of the PG, APG-1 and APG-2 agreement by the 1st defendant as set out below:(a)Refund of equivalent of USD 4,751,480. 86 and Tshs. 1,501,911,578/= paid to the 1st defendant by the plaintiff under the agreement.(b)General damages for breach of PG, APG-1 and APG-2. (c)Interest at commercial rates from 1st October 2007 to 8th February 2010 until payment in full.(d)Costs of the suit.

107. Granted my findings herein above, the suitable reliefs are largely those sought against the 2nd defendant. This is because the allegations of collusion were not proved. I have also found that non-payment of the PG was attributable solely to the temporary injunction order by the court in the Milimani Case for which the defendants were not to blame. Moreover, I have found that the plaintiff was at liberty to move the Milimani Court for variation of the order of injunction but opted not to. In any event, any allegations of collusion or fraud could have best been proved in the Milimani Case. Again, the plaintiff was content with the manner in which the suit was terminated, and thereby missed its opportunity to counterclaim damages and such other reliefs as were claimed herein against the two defendants jointly and severally.

C. Whether interest is due on the sums payable under the PG, and if so whether the same is payable at commercial rates as claimed: 108. Payment of interest is provided for in Section 26(1) of the Civil Procedure Act in the following terms:Where and in so far as a decree is for the payment of money, the court may, in the decree, order interest at such rate as the court deems reasonable to be paid on the principal sum adjudged from the date of the suit to the date of the decree in addition to any interest adjudged on such principal sum for any period before the institution of the suit, with further interest at such rate as the court deems reasonable on the aggregate sum so adjudged from the date of the decree to the date of payment or to such earlier date as the court thinks fit.

109. In Francis Joseph Kamau Ichatha v Housing Finance Company of Kenya Limited [2015] eKLR, Odunga, J. (as he then was) had occasion to summarize the three instances provided for in Section 26(2) of the Civil Procedure Act in which interest is awardable thus:a.Interest adjudged on the principal sum from any period prior to the institution of the suit. Here the court must first decide on the evidence, the question of awardability of this interest and then on the rate at which it is to be awarded if any;b.Interest on the principal sum adjudged from the date of filing the suit to the date of the decree, where, the court decides at its discretion, the rate of interest to be awarded; andc.Interest on the aggregate sum so adjudged from the date of decree to date of payment in full.

110. The rationale for an award of interest on the principal sum is to compensate a plaintiff for the deprivation of any money that is rightfully due to it through the wrong act of a defendant. Thus, in Lata v Mbiyu [1965] EA 392 it was held that:The award of interest on a decree for payment of money for a period from the date of the suit to the date of the decree is a matter entirely within the court’s discretion, by section 26 of the Civil Procedure Act but such discretion must, of course, be judicially exercised…It is clearly right that in cases where the successful party was deprived of the use of goods or money by reason of a wrongful act on the part of the defendant, the party who has been deprived of the use of goods or money to which he is entitled should be compensated for such deprivation by the award of interest.”

111. Hence, in Dipak Emporium v Bond's Clothing [1973] EA 553, it was held that:The court's right to award interest is based on Section 26(1) of the Civil Procedure Act which states that where and in so far as a decree is for the payment of money, the court may, in the decree, order interest at such rate as the court deems reasonable to be paid on the principal sum adjudged from the date of the suit to the date of the decree in addition to any interest adjudged on such principal sum for any period prior to the institution of the suit, with further interest at such rate as the court deems reasonable on the aggregate sum so adjudged from the date of payment or to such earlier date as the court thinks fit ... Where a person is entitled to a liquidated amount or to specific goods and has been deprived of them through the wrongful act of another person, he should be awarded interest from the date of filing suit. Where, however, damages have to be assessed by the court, the right to those damages does not arise until they are assessed and therefore interest is only given from the date of judgment."

112. There is no gainsaying therefore that pre-action or pre-judgment interest has to be pleaded and justification shown for awardability during the trial for the Court to have some basis for making such an award. This was the holding in the case of Sempra Metals Ltd v Inland Revenue Commissioners and Another [2007] 3 WLR 354 in which it was held that:In the nature of things the proof required to establish a claimed interest loss will depend upon the nature of the loss and the circumstances of the case. The loss may be the cost of borrowing money. That cost may include an element of compound interest. Or the loss may be loss of an opportunity to invest the promised money. Here again, where the circumstances require, the investment loss may need to include a compound element if it is to be a fair measure of what the plaintiff lost by the late payment. Or the loss flowing from the late payment may take some other form. Whatever form the loss takes the court will here, as elsewhere, draw from the proved or admitted facts such inferences as are appropriate. That is a matter for the trial judge."

113. In this instance, the plaintiff prayed for interest from 8th February 2010 and supported this claim by demonstrating that it made its demand for the sums guaranteed by the PG on that date. I am therefore satisfied that sufficient cause has been shown for the award of interest on the sums guaranteed by the PG from the 8th February 2010.

D. A comment on costs: 114. The proviso to Section 27(1) of the Civil Procedure Act, Chapter 21 of the Laws of Kenya is explicit that costs follow the event; the event herein being that the plaintiff is the successful litigant herein, albeit partially. Granted the nature of the dispute, and particularly the intervention by the Court in the Milimani Case for which the plaintiff is not to blame, it is my considered finding that the plaintiff is entitled to its full costs of this suit.

115. In the result, judgment is hereby entered for the plaintiff as against the 2nd defendant and orders given as hereunder:(a)A declaration be and is hereby given that the 2nd defendant is still bound to honour the terms of the Bank Performance Guarantee No. GOKE86046077250C.(b)A mandatory order be and is hereby given compelling the 2nd defendant to honour the demand notice by the plaintiff dated 8th February 2010 or any other subsequent demand by the plaintiff to the 2nd defendant in terms of Bank Performance Guarantee No. GOKE86046077250C in the sum of Tshs. 2,746,387,500/=.(c)Interest on the sum of Tshs. 2,746,387,500/= at the prevailing commercial rates from 8th February 2010 until payment in full.(d)Costs of the suit.It is so ordered.

DATED, SIGNED AND DELIVERED VIRTUALLY AT MOMBASA THIS 20TH SEPTEMBER 2024OLGA SEWEJUDGE