[2018] KEHC 9363 (KLR)

REPUBLIC OF KENYA

IN THE HIGH COURT OF KENYA AT NAIROBI

COMMERCIAL AND ADMIRALTY DIVISION

CIVIL SUIT NO. 150 OF 2015

YUKSEL ELEKTROTEKNIK SAN. VE TIC. LTD. STI..............................PLAINTIFF

VERSUS

CABLE AND CONNECTORS LTD...................................................1ST DEFENDANT

RAJU KHALSA..................................................................................2ND DEFENDANT

JUDGMENT

1. This case was fully heard by Justice Ochieng and on his transfer to the Kisumu High court, the responsibility of writing this judgment fell on me.

2. The Kenyan Government in the year 2013 ordered the shut down of the analogue television broadcasting and the switch over to digital television broadcasting. It is that decision that led to the parties in this matter to enter into a contract for the provisions by the plaintiff of Digital HD. Teletorial Receivers (receivers).

3. Yuksel Elektroteknik San Ve Tic Ltd STI (the plaintiff) is a company incorporated in the Republic of Turkey. Cables and connectors Ltd (the 1st defendant) is a company incorporated in the Republic of Kenya. Raju Khalsa (2nd defendant) is a director of the 1st defendant.

4. The plaintiff’s business is that of sale, supply and marketing electronical and electronic goods. The 1st defendant is in the business of retail of consumer electronics.

5. The plaintiff’s claim is that between March and June 2013, the 1st defendant requested on credit terms and was supplied by the plaintiff 10,000 receivers. Those receivers were for the value of USD 242,160. 00.

6. The plaintiff pleaded in this claim that the defendants by fraudulent misrepresentation induced it to supply those receivers on credit by providing a ‘comfort’ guarantee, and the 1st defendant’s cheque drawn in favour of the plaintiff for Ksh 20million.

7. The plaintiff further pleaded that the 1st defendant breached express term of the contract, by failing to pay the plaintiff the value of those receivers.

8. Further that due to the defendants’ fraudulent misrepresentation, the plaintiff incurred loss and damage.

9. The defendants denied the plantiff’s claim in their defence and pleaded that they did not order for the 10,000 receivers from the plaintiff and that the plaintiff supplied the same without an order being made and against the 1st defendant’s advice.

10. The defendants also pleaded that there was no written contract of supply of those receivers and that the alleged comfort guarantee was not intended to act as a consideration but as a letter in intent/comfort.

11. The defendants further pleaded that the 1st defendant and the plaintiff’s relationship was that of principal and agent.

12. The defendants by their defence sought the dismissal of the plaintiff’s suit.

PARTIES EVIDENCE

13. The plaintiff’s evidence was submitted by Mustafa Bahadir Silifke. He described himself as the foreign trade sale executive of the plaintiff, having been employed by the plaintiff in the year 2012/2013.

14. This witness testified that the transaction between the plaintiff and the 1st defendant, which is the subject of this suit, took place in the year 2013. That the transaction was overseen by his then collegue Zaffer who has since left the plaintiff’s employment.

15. The witness referred to the invoices dated 6th March, 2013in relation to 1,000 receivers and the other dated 9th September, 2013 for 9,000 receivers, which he stated were supplied to the 1st defendant.

16. The witness further stated that a cheque for ksh 20 million and a comfort guarantee were issued by the defendants as consideration to the plaintiff extending to the 1st defendant’s credit facility. That the said cheque was made with the defendant’s full knowledge that they were not in a position to honour the said cheque. That the plaintiff was induced by the defendants said fraudulent misrepresentation to supply the 1st defendant with the 10,000 receivers on credit terms.

17. The witness stated that the 1st defendant was in breach of an express term of a contract to pay the plaintiff for the receivers and that the 2nd defendant had caused the plaintiff loss and damage by fraudulent misrepresentation.

18. On being cross examined, the witness stated that he, globally, contracts with clients based on emails and phone calls. That there is no formal contract that he enters into with his clients. In that regard, the witness referred to the defendants oral order of 9,000 receivers.

19. The witness admitted in cross examination that the cheque issued to the plaintiff by the defendant was in kenya shillings. He also admitted that the plaintiff had not registered a company in kenya and that the plaintiff could not therefore use the cheque issued to it.

20. On being cross examined, the plaintiff’s witness stated that the defendants had not paid for the 10,000 receivers. That the defendants had paid and cleared those receivers at customs and had placed them in their warehouse. This witness in respect to the cheque issued by the defendant stated in evidence:

“the cheque was issued to us as a guarantee for the items which were going to be shipped. When we received the cheque, I believed that it was valid. It was given in good faith as a payment. If the defendant did not pay us, we thought we could use the cheque; that is why we accepted it. Later, we found out that the cheque was not honoured”.

21. The defence evidence was by the 2nd defendant. This witness stated that the 1st defendant company began trading with the plaintiff in the year 2012. At first, that the defendants were apprehensive of trading with the plaintiff because they were not sure of the quality of goods that the plaintiff was to supply. That the plaintiff therefore offered to send samples.

22. That the plaintiff and the defendants followed their dealings by signing a letter of understanding dated 5th November, 2012which created a binding agreement between them and the 1st defendant to act exclusively on behalf of the plaintiff as the plaintiff’s agent.

23. The witness stated that the plaintiff’s representative called Zaffer requested the defendants to sell the plaintiff’s receivers and that the defendants only agreed to sell on the plaintiff’s behalf the said receivers. That on 13th January, 2012, the defendant informed the plaintiff that the analogue switch off date had been postponed to October 2013.

24. That the plaintiff proceeded to develop the receiver boxes and sent the 1st defendant a sample which was sent to Communication Commission of Kenya (CCK) for testing and approval.

25. That the plaintiff insisted on sending 1,000 receivers on trial basis which the 1st defendant commenced selling. That the sale of those receivers was not very successful because of the postponement of the switch off date of analogue broadcasting.

26. On the comfort guarantee and the cheque, the witness stated that they were issued to the plaintiff at the instance of the plaintiff’s representative Zaffer, who informed the defendants that they would be shown to his bosess which would facilitate the plaintiff’s authorization of the defendant obtaining large volume of goods from the plaintiff.

27. The witness stated that the 1st defendant specifically informed the plaintiff’s representative that the 9,000 receivers were not to be developed because of the postponement of the switch off date. That the plaintiff despite being so informed proceeded to develop 9,000 receivers and shipped them to the 1st defendant on the allegation that the plaintiff had to ship them otherwise they would have been in trouble with the Turkish Custom authorities.

28. The witness stated that the 9,000 receivers were shipped at the plaintiff’s insistence and not on order by the defendants.

29. The witness concluded his evidence by stating that the 1st defendant company never had an agreement with the plaintiff for the purchase of receivers but that the receivers were sent on condition that the defendants would sell them on the plaintiff’s behalf. That the defendants would then remitt the proceeds of those sales less their commission. And further that the defendants accepted 1,000 receivers on trial basis and 9,000 receivers were developed by the plaintiff against the defendant’s instructions.

30. On the basis of that evidence, the defendants denied indebtedness to the plaintiff.

31. The defendant’s witness on being cross examined confirmed that the letter of understanding between the parties obligated the defendant to purchase products from the plaintiff. He also confirmed that the defendants accepted 1,000 receivers from the plaintiff and began to sell them. That in 3 months the defendant had sold 90 receivers and eventually 1,000 were sold. Defendant’s witness confirmed that the defendant received a further 9,000 receivers which it cleared at the port and stored them. That by the year 2015, there were 8,000 receivers in the defendants store. The witness in evidence then stated:

“I am not aware where the remaining units are currently....of the 10,000 units, we have not returned any to the plaintiff. We have not paid the plaintiff for the said 10,000 units....the consignment was worth USD 240,000”.

ANALYSIS AND DETERMINATION

32. Although the parties identified the issues for determination in this matter, on my consideration of the pleadings and the evidence I formed the view that the following issues fall for determination:

a. Did the 1st defendant order for 10,000 receivers, and if not, what effect does such non order have on the parties transaction?

b. If the 1st Defendant did order the 10,000 receivers, did the plaintiff supply 1,000 receivers to the 1st defendant?

c. Are the defendants liable and if so which of the defendants is liable?

33. Before delving into those identified issues, it is necessary to consider other issues raised by the parties which do not form part of the identified issues.

34. There is no suspicion in the plaintiff’s failure to call its former employee Zaffer as a witness. The evidence adduced by Mustafa, the plaintiff’s witness, relied on documents that eminated from the plaintiff’s company. That evidence in my view cannot be termed as hearsay. The defendants submission in that regard is rejected.

35. The relationship between the plaintiff and the 1st defendant was governed by the letter of understanding dated 5th November, 2012 signed by the plaintiff and the 1st defendant. It was stated in that letter that the plaintiff was the owner of the brand ‘Next & Nextstar’. The letter further stated that the 1st defendant would be the exclusive distributor of the plaintiff’s products within Kenya, East and Central Africa. The letter provided that the 1st defendant could only purchase the products of the stated brand from the plaintiff.

36. There is nothing in that letter of understanding that established that the 1st defendant was an agent of the plaintiff. It follows that the defendants submission that there was a principal and agent relationship is erroneous.

37. The 2nd defendant’s evidence in re-examination was to the effect that the plaintiff forwarded 9,000 receivers, because the plaintiff was obligated due to Turkey’s regulatory authority. That evidence is of no evidential benefit to the defendant because it was not put in cross examination of the plaintiff’s witness and it was not supported by any documentary evidence at all.

38. The plaintiff’s claim against the 2nd defendant fails because the plaintiff has not provided evidence that the 2nd defendant acted other than as the director of the 1st defendant.

39. The 2nd defendant signed the comfort guarantee and the cheque for ksh 20 million as the director of the 1st defendant. The 2nd defendant therefore cannot be personally liable for either the comfort guarantee or the cheque. The 1st defendant is a separate entity to the 2nd defendant; that distinction was discussed in Halsbury’s Laws of England /Fourth Edition at page 429 where it was stated:

“A company, not being a physical person, can only act either by resolution of its members in general meeting, or by its agents. It is not the agent of its member and a member as such is not the agent of the company, the company being a separate entity or legal person apart from its member, who are not even collectively, the company”.

40. Further, the plaintiff’s claim under that guarantee as against the 1st defendant fails because the 1st defendant could not guarantee its own debt where it is the principal debtor.

41. Further, it is this court’s finding that the 1st defendant’s presentation of the cheque of ksh 20 million does not amount to fraudulent misrepresentation. The presentation of that cheque is in my humble view an admission by the 1st defendant of its indebtedness to the plaintiff as provided under section 3 (1) of the Bill of Exchange Act Cap 27. Which provides:

“(1) A bill of exchange is an unconditional order in writing, addressed by one person to another, signed by the person giving it, requiring the person to whom it is addressed to pay on demand or at a fixed or determinable future time a sum certain in money to or to the order of a specified person or to bearer.”

42. In reference to the above section, in the case Leonard Mutua vs Kenwood Trading Co. Ltd [2005]eKLR the court held as follows:

“under the Bill of Exchange Act, Cap 27 laws of Kenya, a cheque is proof of debt and the burden lies on the drawer of the cheque to show that there was no consideration for the cheque. In view of failure by the defendant, to tender that evidence, then the cheque must be taken to be proof of the defendants indebtedness to the plaintiff.”

43. I shall now go back to the consideration of the issues identified above.

44. On the 1st issue, the court is required to determine whether the defendants ordered the 10,000 receivers and if not what such non ordering has on the transaction between the parties.

45. The 1st defendant through its witness admitted at the hearing that it ordered 1,000 receivers on trial basis. This is supported by the email of the 2nd defendant dated 12th April, 2013. By that email, the 2nd defendant, confirmed the 1,000 consignment had arrived and that he was in the process of clearing the same at the port.

46. The plaintiff’s representative on the same day responded by informing the 2nd defendant that 9,000 other receivers would be developed, on the 2nd defendant informing the plaintiff on how the market had responded to the receivers that had been sent previously.

47. From the email evidence referred to above, there is no evidence that the plaintiff insisted, as stated by the defendant, in sending the 1,000 receivers.

48. The 2nd defendant on further cross examination confirmed that when the 9,000 receivers were sent by the plaintiff the defendant cleared and paid the custom duty for them. That the defendant proceeded to place those receivers in their store.

49. Section 6 (1) of the Sale of Goods Act Cap 31 provides that an action lies for the sale of goods which has a value over two hundred pounds and upwards, where the buyer (in this case the 1st defendant) accepts part of the goods so sold, and actually receives them.

50. The 1st defendant actually received the 10,000 receivers and accepted them.

51. The defendants by their exhibit ‘RK6’, an email, intimated that an amicable settlement had been reached between the parties in regards to the receivers.

52. The 1st defendant through the evidence of the 2nd defendant confirmed that it had not paid the plaintiff for the 10,000 receivers and further confirmed that the value of those receivers was USD 240,000. It follows that the 1st defendant as provided under Section 36 of Cap 31 is deemed as having accepted the receivers. That section provides as follows:

“The buyer is deemed to have accepted the goods when he intimates to the seller that he has accepted them or when the goods have been delivered to him, and he does any act in relation to them which is inconsistent with the ownership of the seller, or when, after the lapse of a reasonable time, he retains the goods without intimating to the seller that he has rejected them.”

53. In response to the first issue, I respond in the positive. The emails exchanged between the parties show that the 1st defendant did order for the 10,000 receivers, accepted them and confirmed it was liable to pay for them. The 2nd defendant by email of 19th August, 2013, sent to the plaintiff’s representative Zaffer, acknowledged indebtedness to the plaintiff for the amount of USD 240,000. That is the amount that the 2nd defendant confirmed, under cross examination, it owed the plaintiff for the 10,000 receivers.

54. Even if the 1st defendant had not ordered the said receivers it would be deemed to have accepted them as provided under Section 36 of Cap 31.

55. The second issue has already been considered in the court’s consideration of the 1st issue. The 2nd issue required the court to interrogate whether the plaintiff supplied the 10,000 receivers.

56. The plaintiff’s witness refered to invoices for the amount of USD 242,160 which he stated was the amount owed by the 1st defendant. The 1st defendant did not provide a defence to that claim, indeed the 2nd defendant confirmed while under cross examination that the 1st defendant did not pay for those receivers.

57. It follows that the response to the 3rd issue identified above is that the first defendant is liable to pay the plaintiff for the 10,000 receivers.

58. In the end there shall be judgment as follows:

a. Judgment for the Plaintiff against the 1st Defendant for USD 242,160

b. The 1st defendant shall pay the plaintiff’s cost for this suit.

c. The suit against the 2nd defendant is dismissed with costs.

DATED, SIGNED and DELIVERED at NAIROBI this30thday of July2018.

MARY KASANGO

JUDGE

Judgment read and delivered in open court in the presence of:

Court Assistant....................Sophie

........................................... for the Plaintiff

........................................... for the Defendants