[2022] KEHC 11729 (KLR)

Three Gold B.V & another v Global Freight Management Limited & 6 others (Civil Case E632 of 2021) [2022] KEHC 11729 (KLR) (Civ) (13 May 2022) (Ruling)

Neutral citation: [2022] KEHC 11729 (KLR)

Republic of Kenya

In the High Court at Nairobi (Milimani Law Courts)

Civil

Civil Case E632 of 2021

DAS Majanja, J

May 13, 2022

Between

Three Gold B.V

1st Plaintiff

Bernhard Ten Brinke Holding Bv

2nd Plaintiff

and

Global Freight Management Limited

1st Defendant

George Fundu

2nd Defendant

Alfred Ochieng Opiyo T/A Ochieng Opiyo & Co., Advocates

3rd Defendant

Smart Ultra Vault Limited

4th Defendant

Sidian Bank Limited

5th Defendant

Absa Bank Kenya Plc

6th Defendant

Oringe Waswa & Opany Advocates

7th Defendant

Ruling

Introduction and Background 1. There are three applications before the court for determination seeking to strike out the suit and for security for costs.

2. First, is the 3rd defendant’s notice of motion dated June 28, 2021 made, inter alia, under order 26 rules 1 and 6 of the Civil Procedure Rules (‘’the Rules’’). He seeks an order for security of its costs. The application is supported by his affidavit sworn on June 28, 2021. It is opposed by the plaintiffs through the replying affidavit of Franciscus Johannes Maris Christina (Frank) Wijnen, a representative of the 1st plaintiff, sworn on July 8, 2021 and the replying affidavit of Bernhard ten Brinke, the Chief Executive Officer and 100 percent owner of the plaintiffs sworn on December 29, 2021.

3. Second, is the 7th defendant’s notice of motion dated July 7, 2021 made, inter alia, under order 26 rules 1 and 6 of the Rules. It also seeks an order for security for its costs and consequential relief. The application is supported by the affidavit of its Managing Partner Edward Oringe Waswa sworn on July 7, 2021. The plaintiffs have replied to this application through the replying affidavit of Bernhard ten Brinke sworn on December 29, 2021.

4. Third, is the 5th defendant’s notice of motion dated July 12, 2021 also made, inter alia, under order 26 rules 1 and 6 of the Rules. It seeks to have the plaintiffs’ plaint dated June 15, 2021 struck out for failing to disclose a reasonable cause of action as against it or in the alternative, the plaintiffs give security for its costs and consequential relief. The 5th defendant’s application is supported by the affidavit of its officer, Stella Kendi, sworn on July 12, 2021. It is opposed by the plaintiffs through the replying affidavit of Bernhard ten Brinke sworn on December 29, 2021.

5. Even though much of the facts giving rise to the present applications are disputed and not common, the plaint gives a glimpse of what the matter is all about. The plaintiffs are companies registered and carrying out business in the Netherlands. The plaintiffs claim that by a sale and purchase agreement dated December 21, 2020 (“the sale agreement”), the 1st plaintiff and the 2nd defendant acting through the 1st defendant entered into an agreement where the 1st plaintiff was to purchase approximately 500 kilograms of gold from the 2nd defendant acting through the 1st defendant at a commencement price of USD 42,000 per kilogram of gold.

6. The plaintiffs state that the parties to the sale agreement nominated the 3rd defendant to be the law firm whose role was to oversee the entire purchase process and receive funds. In that regard and on January 3, 2021, the 1st plaintiff’s representatives, Frank Wijnen and Ewout Haanstra, flew to Kenya to kick start the process of the gold purchase from the 1st and 2nd defendants with the facilitation of 3rd defendant as the escrow agent.

7. The plaintiffs aver that an escrow agreement dated January 9, 2021 (“the escrow agreement”) was executed between the 2nd plaintiff and the 3rd defendant where there was an express term that the 3rd defendant as the escrow agent, was not to release monies until he had received express written instructions from the 2nd plaintiff which instructions were to be further confirmed verbally by Mr Bernhard ten Brinke. Further, that the funds were only to be released by the 3rd defendant strictly on terms set out in the sale agreement.

8. The plaintiffs state that on January 11, 2021, the 2nd plaintiff transferred by SWIFT (reference number AB8xxxxxx3E03), a sum of USD 1,567,160 from its account number NL85 INGB 0007 xxxxx 45 held at ING Bank NV, Netherlands to the 3rd defendant’s account number 10xxxxx321 domiciled at the 5th defendant for purposes of facilitating customs payments for the gold. The plaintiffs aver that they made further payments to cater for smelting of the gold, change of ownership, storage of the gold and other payments and invoices in that regard were forwarded to the 1st plaintiff by the 1st defendant.

9. The plaintiffs claim that on diverse dates, the 2nd plaintiff, transferred various sums of money by way of SWIFT transfers from its said account number NL85 xxxxx45 held at ING Bank NV, Netherlands to account number 2017 domiciled at the 6th defendant bank and belonging to the 7th defendant who were acting on behalf of the 4th defendant. That in particular, on February 16, 2021 the 2nd plaintiff transferred by SWIFT transfer USD 4,600 to the said account, on 18th March 2021 a sum of USD 6,000 was transferred by SWIFT transfer to the said account, on April 13, 2021 a sum of USD 6,000 was transferred by SWIFT transfer to the said account and on May 14, 2021 a sum of USD 6,000 was transferred by SWIFT transfer to the said account.

10. The plaintiffs state that 1st plaintiff incurred costs in chartering a private plane on two occasions from Netherlands to Jomo Kenyatta International Airport with a view of collecting the first gold shipment of 500 kilograms but that the 1st defendant failed to deliver the initial gold shipment in accordance with the sale agreement. According to the plaintiffs, it later turned out that the defendants were acting in concert and in a well-coordinated enterprise to defraud the plaintiffs of USD 1,589,760. 00 under the pretext of a transaction for sale and purchase of gold hence they seek relief for fraudulent misrepresentation.

11. The parties filed written submissions and their counsel made brief oral submission in support of their respective positions. I propose to deal with the 5th defendant’s application first since it seeks to strike out the claim against it then deal with the applications for security for costs.

Striking Out The Claim As Against The 5th Defendant 12. In support of its application to strike out the suit against it, the 5th defendant states that the suit against it is premised entirely on the sale agreement and the escrow agreement and it is not a party to either of the said agreements. The 5th defendant avers that the plaintiffs’ remedy, if any, in so far as the alleged loss of the escrow funds in the hands of the 3rd defendant as has been alleged is concerned, should be against the said 3rd defendant. In the premises, it submits that the plaint does not disclose a reasonable cause of action against it and should be struck out.

13. In response to the 5th defendant’s plea to strike out its suit, the plaintiffs contends that the that the failure by the 5th defendant to detect and/or stop the suspicious movement of funds in the 3rd defendant’s account in line with the Central Bank’s Prudential Guidelines resulted into the loss by the plaintiffs. They aver that the plaint discloses a cause of action as against the 5th defendant and that the claim should proceed to trial.

14. The principles guiding the court in striking out a claim are now well settled. The power of the court to strike out a claim must be exercised with great circumspection and in clear and obvious cases. Further, where the claim can be saved by amendment, the court may grant leave. This principle is encapsulated in the following observation by the Court of Appeal in DT Dobie & Company (Kenya) Ltd v Muchina [1982] KLR 1 where it stated as follows:No suit ought to be summarily dismissed unless it appears so hopeless that it plainly and obviously discloses no reasonable cause of action and is so weak as to be beyond redemption and incurable by amendment. If a suit shows a mere semblance of a cause of action, provided it can be injected with real life by amendment, it ought to be allowed to go forward for a court of justice ought not to act in darkness without the full facts of a case before it.

15. The cause of action against the 5th defendant is encapsulated in para 18(e) of the plaint which alleges that it facilitated the fraud against the plaintiffs by failing to exercise diligence and skill required of a competent banker to restrain the swift movement of the monies sent by the plaintiffs to account number 010********916 held by the 3rd defendant hence the claim for damages. The 5th defendant’s case is that there is no privity of contract between it and the plaintiffs hence the claim should be struck out.

16. Despite the fact that there is no privity of contract between the 5th defendant and the plaintiffs, i agree with the plaintiffs that its cause of action is based on a breach of duty of care. It is correct that a bank may owe a duty of care to a third party as was held in Equity Bank (Kenya) Limited v Don Ogollah Riaro and another NRB CA Civil Appeal No 153 of 2017 [2019] eKLR. This is therefore a case that is not plain and obvious for striking out.

17. But that is not the end of the matter as the plea against the 5th defendant only states that the 5th defendant,“facilitated the fraud against the plaintiffs by failing to exercise diligence and skill required of a competent banker to restrain the swift movement of monies ….”In my view, this plea is insufficient, vague and embarrassing as it does not give full particulars of the 5th defendant’s conduct that would enable it defend itself much the less help the court determine any liability. For example, in its submissions counsel for the plaintiffs referred breach of Central Bank Prudential Guidelines but the plaint does not state how these were breached in order to render the 5th defendant liable.

18. Order 2 rule 15 allows the court to grant leave to the plaintiff to amend the plaint in the event the court declines to strike it out. This is an appropriate case where the plaintiffs should be ordered to provide full particulars of its case against the 5th defendant. In other words, I decline to strike out the plaintiffs’ case against the 5th defendant. This leaves the issue of security for costs which I shall consider with the other applications.

Security For Costs 19. The grounds upon which the 3rd, 5th and 7th defendants seek security for costs against the plaintiffs are common. They allege that the plaintiffs do not have any registered office in the country and no known assets within the court’s jurisdiction. They contend that if the suit against them fails, they may not recover their costs. The defendants also claim that the claim against them is misconceived, frivolous and has no prospect of success in respect of each of them.

20. The plaintiffs reiterate they have a bona fide cause of action as set out in the plaint. They contend that they have sufficient means to meet the any costs that may be ordered against them. They contend that the mere fact that they are not resident or otherwise Kenyan citizens or business is not a ground to order security and that the application for order for security for costs is indeed to drive them from the seat of justice.

21. The defendants’ applications are grounded on order 26 rule 1 of the Rules which provides that“In any suit, the court may order that security for the whole or any part of the costs of any defendant or third or subsequent party be given by any other party.”The parties have cited various authorities whose underlying principle is discretion. Indeed, the wording of this Rule connotes an element of discretion by the court in granting an order for security for costs.

22. In Saudi Arabian Airlines Corporation v Sean Express ServicesLtd [2014] eKLR, the court buttressed the importance of exercising discretion judiciously when it held as follows:(26)Yet again, the law is settled in this area that an order for security for costs is a discretionary one. Order 26 rule 1 of the Civil Procedure Rules actually confers discretion on the court, which is recognition that there may be many cases where a call for security for costs may be refused. In fact, even where a company is insolvent, the court would still refuse to order security to be lodged if circumstances do not support any lodgment of security. The discretion is, however, to be exercised reasonably and judicially by taking absolute reference to the circumstances of each case. Such matters as; absence of known assets within the jurisdiction of court; absence of an office within the jurisdiction of court; insolvency or inability to pay costs; the general financial standing or wellness of the plaintiff; thebona fides of the plaintiff’s claim; or any other relevant circumstance or conduct of the plaintiff or the defendant. And the list is not, and I do not pretend to make it exhaustive. In the latter category, conduct by the plaintiff will include activities which may diminish the chances of or makes recovery of costs very difficult, for instance recent close or transfer of bank accounts, close or minimizing of operations, and disposal of assets. And the conduct of the defendant includes, filing of application for security for costs as a way of oppressing or obstructing the plaintiff’s claim, for instance, where the defence is mere sham, or there is an admission by the defendant of money owing except there is deliberate refusal or delay to pay money owing or refusal to perform its part of the bargain.

23. The Court of Appeal in Mama Ngina Kenyatta and another v Mahira Housing Company CA Civil Application No NAI 256 of 2003 [2005] eKLR cited with approval the decision in Keary Developments v Tarmac Construction [1995] 3 All ER 534 which set out some pragmatic, though not exhaustive, factors which should guide the court in exercising its discretion whether to order security for costs as follows:(a)The court has a complete discretion whether to order security, and accordingly it will act in the light of all the relevant circumstances.(b)The possibility or probability that the plaintiff company will be deterred from pursuing its claim by an order for security is not without a more sufficient reason for not ordering security. It is implicit that a company may have difficulty meeting an order.(c)The court must balance the injustice to the plaintiff prevented from pursuing a proper claim against the injustice to the defendant if no security is ordered and at the trial the plaintiff’s claim fails and the defendant finds himself unable to recover his costs. The power must neither be used for oppression by stifling a claim particularly when the failure to meet that claim might in itself have been a material cause of the plaintiff’s impecuniosity, nor as a weapon for the impecunious company to put pressure on a more prosperous company.(d)The court will look to the prospects of success, but not go into the merits in detail.(e)In setting the amount it can order any amount up to the full amount claimed by way of security, provided that it is more than a simply nominal amount; it is not bound to make an order of a substantial amount.(f)Before refusing security the court must be satisfied that, in all the circumstances, the claim would be stifled. This might be inferred without direct evidence, but the court should also allow that external resources might be available.(g)The lateness of the application can properly be taken into account.

24. Turning to the facts of this case, there is no dispute that the plaintiffs are Netherlands registered corporations without any residency, assets or offices in Kenya and that these factors are making the defendants jittery and apprehensive about whether the plaintiffs will be able to pay costs should their suit fail. Whereas this apprehension is not unreasonable, it is however not decisive in determining whether the court ought to issue an order for security for costs as the court has to weigh other factors and circumstances in arriving at that decision.

25. In this case, I find that the plaintiffs have demonstrated that they are entities of means and I do not accept any suggestion that they could be incapable of paying such costs for reasons of financial instability or poverty. The Court of Appeal, in Westmont Holdings SDN BHD v Central Bank of Kenya NRB CA Civil Appeal (Application) No 37 of 2017 [2017] eKLR stressed that in an application for security for costs, an applicant ought to establish that the respondent, if unsuccessful in the proceedings, would be unable to pay costs due to poverty and that it is not enough to allege that a respondent will be unable to pay costs in the event that he is unsuccessful. Further, the onus is on the applicant to prove such inability or lack of good faith that would make an order for security reasonable.

26. From the cause of action and the depositions, the 5th defendant confirmed that the 3rd defendant received the sum of USD 1,567,126. 00 from the 2nd plaintiff. From this admitted evidence, I do not think that the sums of KES 7,690,272. 15 and KES 6,400,000. 00 demanded as security and which translates to about USD 135,000. 00 should be difficult for the plaintiffs to pay should their claim against the said defendants fail.

27. I have also gone through their plaint and I find that on a prima facie basis, there is a case that demands an answer from the defendants. It is not as threadbare as is being suggested by the defendants. Whether or not the defendants were involved in a conspiracy to defraud the plaintiffs by breaching the sale agreement and/or the escrow agreement or that the defendant banks were in breach of their fiduciary duties and duties of care are all matters of evidence which the plaintiffs are expected to surmount at the hearing of the case and not at this stage. What is clear now is that the plaintiffs appear to have a genuine and bona fide claim which should not be stifled by an order for security for costs.

Disposition 28. For the reasons I have set out above, I dismiss the 3rd defendant’s notice of motion dated June 28, 2021, the 5th defendant’s notice of motion dated July 12, 2021 and the 7th defendant’s notice of motion dated July 7, 2021 with costs to the plaintiffs save for the 5th defendant.

29. The plaintiffs are directed to supply to the 5th defendant particulars of para 18(e) setting out how, where and when the 5th defendant,“facilitated the fraud against the plaintiffs by failing to exercise diligence and skill required of a competent banker to restrain the swift movement of monies ….”within twenty-one (21) days from the date hereof.

DATED AND DELIVERED AT NAIROBI THIS 13TH DAY OF MAY, 2022. DS MAJANJAJUDGECourt Assistant: Mr M OnyangoMr Mburu instructed by Kago Mburu and Associates Advocates for the plaintiff.Ms Gitari instructed by Munyao, Kashindi, Muthama and Advocates for the 5th defendant.Mr Ochieng instructed by Gichamba and Company Advocates for the 3rd defendantMr Mola instructed by Mola Kimosop and Njeru Advocates for the 7th defendant.