[2023] KEHC 25890 (KLR)

Tumaz & Tumaz Enterprises Limited & 2 others v San Electricals Limited (Civil Appeal E068 of 2022) [2023] KEHC 25890 (KLR) (20 November 2023) (Judgment)

Neutral citation: [2023] KEHC 25890 (KLR)

Republic of Kenya

In the High Court at Kisumu

Civil Appeal E068 of 2022

RE Aburili, J

November 20, 2023

Between

Tumaz & Tumaz Enterprises Limited

1st Appellant

Mwal Mart Limited

2nd Appellant

Julius Mwale

3rd Appellant

and

San Electricals Limited

Respondent

(An appeal arising out of the Ruling & Order of the Honourable K. Cheruiyot in the Chief Magistrate’s Court at Kisumu delivered on the 9th June 2022 in Kisumu CMCC No. 457 of 2018)

Judgment

Introduction 1. The respondent herein San Electricals Limited sued the appellants for a principal sum of USD 31,320 being payments for supplies allegedly delivered by the respondents. The appellants filed their defence dated 19th August 2021 denying the allegations made by the respondents and put the respondent to strict proof.

2. Following the filing of the defence, the respondent filed an application dated 3rd September 2021 seeking that the appellants’ statement of defence dated 19th August 2021 be struck out for want of authority stating that the 3rd appellant Julius Mwale was not a director of the 1st appellant and therefore the authority to act and file documents on behalf of the 1st appellant was invalid, null and void.

3. The trial court found that the 3rd appellant was not a director of the 1st appellant and further that no resolution had been availed to show that the 3rd appellant had authority to act and file documents on behalf of the 1st appellant company.

4. Dissatisfied by the trial court’s ruling, the appellants filed the instant appeal videa Memorandum of appeal dated 4th July 2022 and filed on the 8th July 2022. The appellant raised the following grounds of appeal;a.The learned trial magistrate erred in law and in fact when he relied on the CR12 produced by the respondent which was in any event disputed while at the same time totally disregarding the CR12 adduced by the appellants showing that Julius Mwale is indeed the director of the 1st appellant company with authority to swear pleadings on behalf of the 1st appellant and thereby arrived at the wrong decision.b.The learned trial magistrate erred in law and in fact in disregarding the written authority and the Board resolution filed the appellants showing that the 3rd appellant had the authority to sign pleadings on behalf of the 1st appellant.c.The learned trial magistrate usurped the position of the trial magistrate and abused the inherent power of the court when he allowed an application on the basis of a highly contested issue and without oral evidence tested by cross-examination in the ordinary way.d.The learned trial magistrate infringed on the appellants’ right to fair hearing guaranteed under Article 50 of theConstitution when he failed to apply the relevant principles and practice correctly and exercised his discretion injudiciously by refusing to hear the case of both parties especially in light of the fact that the defence filed herein is not frivolous and raises triable issues thereby arrived at a decision that is unsustainable in law.e.The learned trial magistrate thoroughly misapprehended the provisions of Order 4 of the Civil Procedure Rules, 2010 by requiring the defendant file a written authority when no such authority is required under Order 7 of the Civil Procedure Rules and thereby arrived at the impugned decision.f.The learned trial magistrate failed to consider the fact that the said statement of defense dated 19th August 2021 was jointly filed by the appellants herein and the striking out the same affected the 2nd and 3rd appellants who were innocent bystanders in any event.g.The learned trial magistrate erred in law and fact in failing to appreciate the nature of the application presented before him and failed to exercise his discretion judiciously in determining the said application, and doing so;i.Failed to appreciate the effect of the ruling he delivered in the 9th June 2022ii.Failed to appreciate that he condemned the appellants unheard on the 9th June 2022, despite their opposition to the respondent’s application.iii.Misapplied the provisions of Order4 and Order 7 of the Civil Procedure Rules 2010h.The learned trial magistrate erred in law and in fact in purporting to elevate the provisions of Order 10 Rule 4 of the Civil Procedure Rules, 2010 and Sections 1A, 1B and 3A of the Civil Procedure Act over and above the provisions of Article 50 of the Constitution of Kenya, 2010. i.The learned trial magistrate erred in law and in fact by failing to strike a balance between the principle and the policy consideration when it comes to the application for striking out pleadings summarily.j.The learned trial magistrate erred in failing to consider, apply and uphold binding decisions of the Court of Appeal on the issues before him and thereby arrived at a wrong decision.k.The learned trial magistrate acted unreasonably and unfairly by delivering a ruling that is bad in law and contrary to public policy.

5. The parties filed submissions to canvass the appeal.

The Appellants’ Submissions 6. The appellant submitted that the law does not require a company or corporation to file written authority and/or board resolution when filing its statement of defence and thus the question as to whether the 3rd appellant was a director of the company or not should not have been an issue/factor to be considered.

7. The appellant submitted that the trial court misinterpreted the law when it struck out the Statement of Defence against the 1st appellant for lack of authority or rather that the authority had been given to the wrong person and that the court misapplied the provisions of Order 4 and Order 7 of theCivil Procedure Rules.

8. It was submitted that the court was unfair in rushing to strike out the statement of defence as against the 1st appellant and the same was a draconian step that should have been a last resort as was held in the case of Leo Investments Limited v Trident Insurance Company Limited [2014] eKLR.

9. The appellant submitted that the letter of authority or lack of it did not go to the substance of the suit to warrant striking out of the defence and the court should have applied substantive justice in the circumstance and granted the appellants an opportunity to be heard on its position and issues on merit as was held in the case of Blue Sky Epz Limited v Natalia Polyakova & Another [2007]eKLR.

10. It was submitted that parties are bound by their pleadings and the court ought to determine the application based on the matters pleaded therein and that since there was no prayer for striking out of the statement of defence, the court should not have made the said order.

The Respondent’s Submissions 11. On behalf of the respondent, it was submitted that having demonstrated that the 3rd appellant was not a director of the 1st appellant until the 2nd November 2022, he was, prior to that date incapable of instructing counsel to file pleadings on behalf of the 1st appellant for the singular reason that he was neither a director thereof nor had powers of the board of directors to do so.

12. It was further submitted that only directors of a company who are vested with the management and superintendence of a company’s affairs and may lawfully exercise its powers subject to its articles of association and the law as was held in the case ofShaw and Sons (Salford) v Shaw [1935] 2 KB 113.

13. The respondent’s counsel further submitted that the law does not require a board of directors to sit and resolve to defend an action like the one that gave rise to this appeal because any director, who is authorized to act on behalf of the company, unless the contrary is shown, has powers of the board to act on behalf of the board as was held by the Supreme Court of Uganda in United Assurance Co. Ltd v Attorney GeneralSCCA No. 1 of 1998 and adopted in the case of Fubeco China Fushun v Naiposha Company Limited and 12 others Civil Case No. 222 of 2012.

14. Counsel for the respondent submitted that they presented material before the trial court to demonstrate the contrary and thus by relying on material placed before it in form of the CR 12 certificate which demonstrated that the 3rd appellant was not a director of the 1st appellant and thus the trial court did not err in law and in fact by holding and finding that pleadings filed by the 3rd appellant purporting to be a director when in fact he was not, rendered them irregular.

Analysis and Determination 15. I have considered the record of appeal, the submissions by both parties’ counsel and the authorities cited. This is a first appeal and the duty of this court is to independently reappraise the evidence and draw our own conclusions. This court is guided by the threshold set by the Court of Appeal in Abok James Odera T/A A.J Odera & Associates v John Patrick Machira T/A Machira & Co. Advocates [2013] e KLR that:“This being a first appeal, we are reminded of our primary role as a first appellate court namely, to re-evaluate, re-assess and reanalyse the extracts on the record and then determine whether the conclusions reached by the learned trial Judge are to stand or not and give reasons either way.”

16. In my assessment, this appeal raises the following issue for determination; whether the failure to comply with Order 4 Rule 1 of the Civil Procedure Rules was fatal and whether the striking out of the statement of defence was warranted.

17. The appellants have taken issue with the finding of the trial court to strike out their defence for failure to comply with Order 4 Rule 1 of the Civil Procedure Rules. The 1st and 2nd appellants are described in the pleadings as corporate entities.

18. Order 4 Rule (1) sub-rule (4) and (6) of the Civil Procedure Rules provides as follows:“(4)Where the plaintiff is a corporation, the verifying affidavit shall be sworn by an officer of the company duly authorized under the seal of the company to do so.(6)The court may of its own motion or on the application by the plaintiff or the defendant order to be struck out any plaint or counterclaim which does not comply with sub-rule (2) (3), (4) and (5) of this rule.”

19. Under Order 9 rule 2(c) of the Civil Procedure Rules (2010), the recognized agent of parties by whom such appearances, applications and acts may be made or done are, in respect of a corporation is an officer of the corporation duly authorized under the corporate seal.

20. The question then is whether one Julius Mwale is, first, as contended by the respondent, a director of the 1st and 2nd defendants and secondly, whether he was an authorized officer under Order 4 Rule (1)(4).

21. The appellants and the respondent produced different CR12. The CR12 produced by the respondent did not show the 3rd appellant as a director of the 1st appellant but the CR12 produced by the appellant showed that the 3rd appellant was a director of the 1st appellant company. Of course it clear that the CR12 produced by the appellants was issued later, on the 2nd November 2021 while the one produced by the respondents was obtained on the 2nd September 2021, much earlier.

22. In the case of Spire Bank Limited v Land Registrar & 2 Others [2019]eKLRthe Court stated as follows regarding the import of Order 4 Rule 1(4):“It is essential to appreciate that the intention behind order 4 rule 1 (4) was to safeguard the corporate entity by ensuring that only an authorized officer could institute proceedings on its behalf. This was to address the mischief of unauthorized persons instituting proceedings on behalf of corporations, and obtaining fraudulent or unwarranted orders from the court. The company’s seal that is affixed under the hand of the directors ensured that they were aware of, and had authorized such proceedings together with the persons enlisted to conduct them. And where evidence was produced to demonstrate that a person was unauthorized, the burden shifted to such officer to demonstrate that they were authorized under the company seal. With this in mind, we dare say that the provision was not intended to be utilized as a procedural technicality to strike out suits, particularly where no evidence was produced to demonstrate that the officer was unauthorized.”

23. The 3rd appellant deposed that he was a director of the 1st appellant company as per the CR12 acquired on the 2nd November, 2021 while the respondent stated otherwise. I observe that from pleadings initiating the suit being a plaint dated 14th September 2018 before the trial court, it is the respondent who enjoined the 3rd appellant herein as a party. The respondent clearly described the 3rd appellant as the shareholder and director of the 1st and 2nd appellants herein. The respondent’s claim against the appellants was jointly and severally. In addition, among the documents filed by the respondent in support of its case against the appellants herein, are a letter dated 13th August, 2018 addressed to the 3rd appellant Daniel Mwale and described as Director, Tumaz and Tumaz Enterprises Limited and claiming for payment of USD 31,320 together with bank charges for a dishonoured cheques which was stopped by the drawer.It is not clear whether the respondent’s counsel was referring to the 3rd appellant herein as Daniel Mwale or to another different person.

24. However, the Business Agreement between the respondent and the appellants dated 5th April, 2018 was signed by Julius Mwale, Director, on behalf of the appellants herein, of the for supply of various electrical and construction materials.

25. Indeed, a director of the company is not just by name but by registration in the Company’s register. The CR12 obtained on 2nd November, 2021 is clear that the 3rd appellant was the director of the 1st appellant company.

26. The respondent also claimed that the 3rd respondent had no authority or company resolution to file defence on behalf of the 1st and 2nd appellants herein. That CR12 having been filed during the pendence of the proceedings, I find no reason why the trial court could not find that the 3rd appellant was a director and had the authority of the company to prosecute or defend the suit on behalf of the 1st appellant herein. Moreso, the 3rd appellant had been sued in his capacity as director of the co-defendants and this court does not understand at what stage the respondent came to the realization that it had sued a non-director and now wanted the defence as filed by a non-director or without authority struck out and judgment be entered for the respondent. That conduct on the part of the respondent was in my view, one of approbation and reprobating.

27. I hasten to add that the trial court could still have directed that the authority, if at all it was not filed, be filed as the suit was in its initial stages. This is because there is no legal requirement that the only person who can swear an affidavit on behalf of a company is a director. Order 4 Rule 1(4) and (6) of the Civil Procedure Rules is clear that an affidavit in such proceedings can be sworn by an officer of the company duly authorized under the seal of the company to do so and in addition, the authority can be filed at any time before the hearing of the suit.

28. InLeo Investments Ltd v Trident Insurance Company Ltd (2014) eKLR Odunga, J was in agreement with the decision of Kimaru J in the case of Republic vs. Registrar General and 13 Others Misc. Application No. 67 of 2005 [2005]eKLR where the court stated that:“…such a resolution by the Board of Directors of a company may be filed at any time before the suit is fixed for hearing as there is no requirement that the same be filed at the same time as the suit. Its absence is, therefore, not fatal to the suit.”

29. The learned Judge stated that failure to file a resolution authorizing filing of the suit does not invalidate the suit as the defect can be rectified by filing the resolution before the suit was heard. To hold otherwise would be to elevate procedural technicalities to a point where they would be an impediment to the administration of justice. Article 159 (2) (d) of the constitution. See also Livestock Research Organization v Okoko & another (Civil Appeal No. 36A of 2021) [2022] KEHC3302 (KLR) (29 June 2022) (Ruling).

30. Accordingly, I find and hold that the learned trial magistrate erred in finding that the 3rd appellant was not a director of the 1st appellant company and that he had no authority or resolution of the company to file documents on behalf of the 1st appellant company.

31. The next question is whether the striking out of the statement of defence was merited. The respondent made an application to have the statement of defence filed by the appellants struck out for want of authority. The appellants in opposing that application argued that the statement of defence raised triable issues and that the matter ought to have been allowed to proceed to full hearing.

32. The power of the trial court to strike out pleadings is provided for under Order 2 Rule 15(1) of the Civil Procedure Rulesas follows:“(1)At any stage of the proceedings the court may order to be struck out or amended any pleading on the ground that—B.it discloses no reasonable cause of action or defence in law; orC.it is scandalous, frivolous or vexatious; orD.it may prejudice, embarrass or delay the fair trial of the action; orE.it is otherwise an abuse of the process of the court, and may order the suit to be stayed or dismissed or judgment to be entered accordingly, as the case may be.”

33. This power is a discretionary power of the trial court. However, as rightly submitted by the appellants, striking out of pleadings is a draconian tool which must only be deployed by courts in the clearest of incidences. In my view, if a pleading raises a triable issue irrespective of whether it will succeed or not, the suit ought to be allowed to proceed to trial.

34. On the contrary, where a pleading is of no substance or ground, mere denial, fanciful and or is of some ulterior motive the court should not shy away from invoking its powers to strike out such a suit.

35. Invoking the power to strike out pleadings must be in adherence to the well laid down principles requiring that it be exercised sparingly and in clear and obvious cases. A pleading may only be struck out if the elements contained in Order 2 Rule 15(1)(a), (b), (c) and (d) of theCivil Procedure Rules are in existence. To buttress my views on this issue, I refer extensively to the case of D.T. Dobie & Company (Kenya) Limited v Joseph Mbaria Muchina & Another [1980] eKLR thus:“The court ought to act very cautiously and carefully and consider all facts of the case without embarking upon a trial thereof, before dismissing a case for not disclosing a reasonable cause of action or being otherwise an abuse of the process of the court. At this stage the court ought not to deal with any merits of the case for that 'is a function solely reserved for the judge at the trial as the court itself is not usually fully informed so as to deal with the merits "without discovery, without oral evidence tested by cross-examination in the ordinary way". (Sellers, L.J. (supra)). As far as possible, indeed not at all, there should be no opinions expressed upon the application which may prejudice the fair trial of the action or make it uncomfortable or restrict the freedom of the trial judge in disposing of the case in the way he thinks it right. If an action is explainable as a likely happening which is not plainly and obviously impossible the court ought not to overact by considering itself in a bind summarily to dismiss the action. A court of justice should aim at sustaining a suit rather than terminating it by summary dismissal. Normally a law suit is for pursuing it. 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.On the other hand, if there is a point of law which merits a serious discussion the court should be asked to proceed under order XTV" rule 2. ”

36. The power to strike out pleadings being a discretionary power, this Court is alive to the principle that as an appellate court, my interference with the exercise of judicial discretion is limited. For my intervention to be granted, I must be satisfied either that the lower court misdirected itself in some matter hence arrived at a wrong decision or that it is manifest from the case as a whole that the lower court was clearly wrong in the exercise of its discretion and that as a result there has been miscarriage of justice. The Court of Appeal reiterated these principles in Pithon Waweru Maina vs Thuka Mugiria[1983] eKLR where it was stated:“Thirdly the Court of Appeal should not interfere with the exercise of the discretion of a judge unless it is satisfied that the judge in exercising his discretion has misdirected himself in some matter and as a result has arrived at a wrong decision, or unless it is manifest from the case as a whole that the judge has been clearly wrong in the exercise of his discretion and that as a result there has been misjustice. Mbogo v Shah [1968] EA 93. ”

37. It is on this front and guided by the principles above that I must interrogate the exercise of discretion by the trial court. The manner in which a court ought to apply itself when invoking its discretionary power to strike out pleadings was highlighted by the Court of Appeal in Crescent Construction Co. Ltd v Delphis Bank Ltd [2007] eKLR as follows:“Be that as it may, in all cases brought under Order VI rule 13(1) (a), the court is obliged in law to look at no evidence i.e. no affidavit or any evidence from the bar in considering whether or not a plaint or a pleading raises a cause of action. The court must look at the pleadings only and not go beyond the pleadings. The predecessor to this Court stated in the case of Jevaj Shariff & Co. vs. Chotail Pharmacy Stores (1960) EA 374 as follows: “The question whether a plaint discloses a cause of action must be determined upon a perusal of the plaint alone, together with anything attached so as to form part of it, and upon the assumption that any express or implied allegations of fact in it are true.”This is proper because once the court incorporates evidence in its consideration of the pleading at this stage, then the aim of the rule which is to dispose of unnecessary and baseless litigation speedily will be defeated.” (Emphasis ours)

38. It is therefore trite that in considering whether a pleading raises triable issues, the court is mandated to stick to the pleadings and its accompaniments. In essence, pleadings should in themselves be capable of raising triable issues. This procedure is as well compatible with the rule that parties are bound by their pleadings. That which is not in the pleadings is not triable in the course of a case, although pleadings can be amended. Similarly, the pronouncements of the Court of Appeal in Raghbir Singh Chatte v National Bank of Kenya Limited [1996] eKLR also offer a useful guide on where the slippery line between mere denials and substantial denial. The Court stated as follows:“As regards the statement of the law as set out in Halsbury’s Laws of England, the particular passage referred to is as follows: “General denial insufficient. It is not sufficient for a defendant in his defence to deny generally the grounds alleged by the statement of claim, or for a plaintiff in his reply to deny generally the grounds alleged in a defence by way of counterclaim: each party must deal specifically with each allegation of fact of which he does not admit the truth, except damages. When a party in any pleading denies an allegation of fact in the previous pleading of the opposite party he must not do so evasively, but must answer the point of substance. However, it has become common practice to use in a defence a traverse in a general form, this merely puts the opponent to proof…” This rule enforces a cardinal principle of the system of pleadings, that every allegation of fact in a statement of claim or in a counterclaim must be traversed specifically, otherwise it is deemed to be admitted. It thus prescribes how the pleader should answer his opponent’s pleading, by providing that the penalty for not specifically traversing an allegation of fact is that it will be taken to be admitted, whether this was intended or not. The effect of a traverse, if properly pleaded, is that the party who makes the allegation has to prove it; the effect of an allegation which is treated as admitted is that the party who makes it need not prove it.”

39. Further, when dealing with a statement of defence, the Court of Appeal in Provincial Insurance Company of East Africa Limited now known as UAP Provincial Insurance Company Limited v Lenny M. Kivuti [1997] eKLR stated as follows:“In an application for summary judgment even one triable issue, if bona fide, would entitle the defendant to have unconditional leave to defend. See Kundanlal Restaurant v. Devshi & Company [1952] 19 E.A.C.A. 77. Also see Hasmani v. Banque du Congo Belge [1938] 5 E.A.C.A. 89. ”

40. Similarly, in Kenya Trade Combine Ltd v N. M. Shah [2001] eKLR, the Court of Appeal stated thus:“In a matter of this nature, all that a defendant is supposed to show is that a defence on record raises triable issues which ought to go for trial. We should hasten to add that in this respect a defence which raises triable issues does not mean a defence that must succeed.”

41. In this case, the respondent’s application for striking out the appellant’s statement of defence was pegged on ground that the defence filed on behalf of the 1st appellant was filed by someone who had no authority to do so. The appellants in their statement of defence denied receiving invoices for delivered goods from the respondent and claims of the respondent’s attempt to unjustly enrich itself at the expense of the appellants. From the above, I do not think that the whole suit was to be determined on the single issue of whether the 3rd appellant was authorised to raise the defence on behalf of the 1st respondent and therefore the issues raised in the defence ought to have been considered by the Court in a full trial.

42. For the foregoing reasons, I find that the trial court erred in striking out the defence. On the whole, I find this appeal meritorious. The ruling and order of the trial court delivered on the 9th June 2022 in Kisumu CMCC No. 457 of 2018 striking out the appellant’s statement of defence and entering a summary judgment against the 1st appellant is set aside and substituted with an order dismissing the respondent’s application dated 3rd September 2021 and reinstating the 1st defendant/appellant’s defence dated 19th August 2021.

43. As the main suit is still pending hearing and final determination, I hereby order that each party bear their own costs of this appeal.

44. The lower court record and this judgment to be remitted to the lower court upon extraction of decree forthwith.

45. This file is closed

46. I so order.

DATED, SIGNED AND DELIVERED AT KISUMU THIS 20TH DAY OF NOVEMBER, 2023R.E. ABURILIJUDGE