SANASI CONSTRUCTION LTD VS NBC LTD MISC

IN THE HIGH COURT OF TANZANIA (COMMERCIAL DIVISION) AT PAR ES SALAAM MISC. COMMERCIAL APPLICATION NO. 133 OF 2015 (Original Commercial Case No. 16 of 2014) SANASI CONSTRUCTION LIMITED APPLICANT VERSUS NATIONAL BANK OF COMMERCE LIMITED RESPONDENT RULING Mansoor, J: Date of Ruling- 3 1 s t JULY 2015 National Bank of Commerce “the Bank” filed a suit No. 16 of 2014 for repayment of the entire credit facility granted by it to Sanasi Construction Limited, “Sanasi” amounting to THz 1,265,867,220.96 as of 31st July 2013. 1 Against, this suit, Sanasi Construction Limited filed an application No. 133 of 2015 on 5th June, 2015, under Order 1 Rule 14 (1) and Section 95 o f the Civil Procedure Code “CPC” and prayed for the issue of a notice to M/ S Kharafi & Sons as a third party claiming that M/S Kharafi & Sons is liable to indemnify Sanasi Construction Limited for acts done by it causing liability to Sanasi Construction Limited. In the affidavit filed in support of the application, Sanasi Construction Limited alleged that the third party and Sanasi Construction Limited had entered into a sub contract in respect of the production, transport, placing compacting and finishing of the bituminous concrete surfacing. Sanasi pleaded that it was this sub contract that instigated Sanasi to apply for a facility to finance its working capital. Sanasi pleaded further that, it had used the facility to purchase the Asphalt Plant to meet the requirements of the construction agreement, and undertook to perform all the assigned works as agreed with the 3 rd party but the third party delayed the payments. Sanasi pleaded further that the 3 rd party had assured them timely payments but did not pay in time and this had caused them unable to service the credit facilities granted to them by the Bank. The Applicant/Sanasi thinks that it has a right to be indemnified by the 3 rd Party, M/S Kharafi & Sons. The Third Party procedure is applicable only to cases of contribution or indemnity. A right to indemnity exists where 2 there is an obligation either in a law or in equity upon one party to indemnify the other; From the facts of this application Sanasi and M/S Kharafi & Sons had entered into a sub contract. The Bank, the plaintiff in this matter has not been aware or made aware of the sub contract entered into between Sanasi and M/S Kharafi & Sons, and M/S Kharafi & Sons did not give any guarantee for repayment of the credit facilities extended to Sanasi and accordingly there was no relationship whatsoever between the Bank and M/S Kharafi & Sons, and the subject matter of the suit is only between the contracting parties and the reliefs are claimed only against Sanasi who are contracting party with regards to the Credit Facilities. Sanasi is now praying for other reliefs against M/S Kharafi & Sons, through this Application, for indemnification and contribution by Kharafi & Sons. Kharafi & Sons is not a party to the suit and they are not guarantors to the credit facility extended to Sanasi by the Bank. The subject matter between Sanasi and M/S Kharafi & Sons is a fresh subject matter, it is with regards to a sub contract agreement entered between them, and this raises a different cause of action altogether. Further, there is no power conferred on the Court to add parties who are not parties to the agreement in the loan advanced to the borrower, if that other party has not been involved in the borrowing as a borrower or a guarantor. If the Court shall allow 3 a Third Party Notice to issue to M/S Kharafi & Sons, it will be introducing a cross suit against it, to which the bank is not interested at all as it did not have anything to do with the sub contract entered between Sanasi and M/S Kharafi & Sons. The Court will be required to decide on a subject matter of a different case, as to whether the sub contract between the parties were valid, and whether or not there was a delay in paying Sanasi, and to what extent. Such procedure is not contemplated under the provisions o f Order 1 Rule 14 o f the CPC. The object and purpose o f the provisions o f the law is to avoid multiplicity of the proceedings and not to allow two forums simultaneously to proceed with the matter, but here the causes of action in the main suit, and in a suit brought by way of an application under Order 1 Rule 14, is different, and cannot be tried in one suit under the disguise of a procedure of a Third Party Notice. Sanasi is required to file a suit against M/S Kharafi & Sons for determination o f the issues o f whether the sub contract existed, and whether M/S Kharafi breached the agreement, and to what reliefs Sanasi or M/S Kharafi & sons is entitled against each other. Parties to the other suit shall be required to lead evidence to enable the Court to make a finding that indeed M/S Kharafi had entered into an agreement with Sanasi, and that there was a breach. After the rights of the parties have been determined by the Court o f law, then, M/S Kharafi & Sons could have been joined in this present suit as a Third Party liable to indemnify Sanasi in this suit or for contribution. It is only Sanasi and M/S 4 Kharafi who are bound by the sub-agreement as envisaged in the sub contract. There is nothing in the loan agreement between the Bank and Sanasi referring to M/ S Kharafi as being liable to pay the loan amount in case of default or that the payment o f the loan amount depends on the payments made by M/ S Kharafi & Sons to Sanasi. The third party who had entered into an agreement with Sanasi is not a necessary party to the dispute on repayment of the loan amount to the Bank. Therefore, the suit should be in respect of 'a matter' which the parties have a dispute and which comes within the ambit of credit facilities or agreements. Where, however, a cross suit is commenced "as to a matter" which lies outside the main suit on a different cause o f action and is also between some of the parties who are not parties to the loan agreement between the Bank and Sanasi, there is no question o f application of Order 1 Rule 14 of the CPC. This application indicates that there is an entirely different subject matter o f the suit between Sanasi and M/S Kharafi & Sons and this should be subject to another suit, different from the present one. To allow this application, would be laying down a totally new procedure not contemplated under the provisions o f Order 1 Rule 14 of the CPC. 5 Order 1 Rule 14 or Section 95 of the CPC cannot be resorted to for enjoining a party to the suit for indemnification purposes if the liability of that party towards the cause of action is not yet established as the cause of action between the Applicant, and the Third Party stands on a different footing. Further, for that purpose, the Court has to apply its mind to the condition contemplated under Order 1 Rule 14 of the CPC and the Court is required to follow the procedure prescribed under the Rule that the third party procedure is applicable only to cases of contribution or indemnity. A right to indemnity exists where there is an obligation either in a law or in equity upon one party to indemnify the other; this has not been established. As the rule in Order 1 rule 14 of the Civil Procedure Code it is to be observed that once a party is recognized as a third party, directions for contribution and indemnity against him follow as a matter of course, if such a claim is possible in the eyes of law. Before third party notice could issue, it is necessary to see whether the defendant is entitled to an indemnity or contribution from a third party. In this case, that right is to be established through a full blown case against the parties in a different suit. For the reasons stated above, there is no substance in this application and is, therefore, dismissed. There shall be no order as to costs since it was an exparte application. 6 DATED at DAR ES SALAAM this 31s t day of JULY, 2015 7