|Civil Suit 219 of 2012
|LAXMANBHAI CONSTRUCTION LTD V KIHINGO VILLAGE (WARIDI GARDENS) LTD & 2OTHERS
|04 Oct 2012
|High Court at Nairobi (Milimani Law Courts)
|Daniel Kiio Musinga
|LAXMANBHAI CONSTRUCTION LTD V KIHINGO VILLAGE (WARIDI GARDENS) LTD & 2 OTHERSeKLR
|The information contained in the above segment is not part of the judicial opinion delivered by the Court. The metadata has been prepared by Kenya Law as a guide in understanding the subject of the judicial opinion. Kenya Law makes no warranties as to the comprehensiveness or accuracy of the information
REPUBLIC OF KENYA
IN THE HIGH COURT OF KENYA AT NAIROBI
Civil Suit 219 of 2012
LAXMANBHAI CONSTRUCTION LTD…………………...............................………........ PLAINTIFF
KIHINGO VILLAGE (WARIDI GARDENS) LTD…..….................................…….…1ST DEFENDANT
CHRIS KABIRO T/A KABIRO NDAIGA & COMPANY ADVOCATES………..……2ND DEFENDANT
WAGEMA LIMITED………………………………...........................…………….….3RD DEFENDANT
1. This ruling is in respect of three applications, one by the plaintiff, one by the 2nd defendant and one by the 3rd defendant. The plaintiff has also filed an application for summary judgment against the 1st defendant but the same was not argued.
2. The plaintiff’s application dated 16th April, 2012 and amended on 4th May, 2012 seeks the following orders:
(b) Interim measures of protection be issued to restrain the 1st Defendant from transferring, alienating and or in any manner whatsoever dealing with the residual interest after effecting transfer of the sub leases created from LR. 3862, Kihingo, Kitsuru Nairobi to any person save the plaintiff.
(c) Interim measures of protection be issued to restrain the 1st Defendant from transferring, alienating, charging or in any manner whatsoever dealing with the 4 residential units being 5L; 15L; 32D and 41D erected on L.R. 3862, Kihingo, Kitsuru, Nairobi to any person other than the Plaintiff.
(d) Interim measures of protection be issued to restrain the 2nd defendant from parting with possession of certificate of title in respect to L.R. 3861/4 or in any manner transferring, alienating or charging the said parcel of land to any person other than the Plaintiff.
3. The application was brought under Section 7 of the Arbitration Act and was supported by affidavits sworn by Dhanji Laxmanbhai Raghwani, a director of the plaintiff.
4. In the initial affidavit Mr. Raghwani deposed, inter alia, that:
(i) Amount certified in interim certificates Kshs.300,876,008/=
(ii) Amount in the final account Kshs.121,451,706/=.
5. The second application by the plaintiff dated 15th May, 2012 seeks summary judgment against the 1st Defendant for the sum of Kshs. 300,876,008/= together with interest thereon as pleaded in the Plaint.
6. This application was brought under Order 36 Rule 1 and Order 51 of the Civil Procedure Rules, Section 1A, 1B & 3A of the Civil Procedure Act but as stated herein above the application was not argued.
7. The application by the 2nd defendant dated 2nd May, 2012 seeks the following orders:
2. The Court be pleased to enjoin Wagema Limited as the third Defendant to this Suit.
3. Pending the hearing and determination of this suit, a temporary injunction be issued restraining the intended third defendant by itself or through its officers, agents, servants and/or employees or any other person from selling, disposing of, leasing, transferring, charging, pledging, alienating, tampering with, altering or otherwise howsoever dealing with Land Reference Number 3861/4 Nairobi.
6. The costs of this application be borne by the plaintiff.”
8. The application was brought under Sections 1A, 1B, 3A and 63 (c) and (e) of the Civil Procedure Act, Cap 21 Laws of Kenya, Order 1 Rule 10, Order 40 Rule 1 and Order 51 Rule 1 of the Civil Procedure Rules, 2010.
9. The application was supported by an affidavit sworn by Chris Kabiro, the 2nd defendant, who deposed, inter alia, that:
10. The application by the 3rd defendant dated 14th June, 2012 seeks the following orders:
“1. For reasons to be recorded and on the grounds set out in the Certificate of Urgency, this matter be certified as urgent and service thereof be dispensed with and the matter be heard ex parte in the first instance in respect of prayer 2 herein.
2. The Honourable Court be pleased to set an urgent hearing date for this Application pending which hearing all and all further proceedings herein as against or in relation to Wagema Limited, the 3rd Defendant, be stayed.
3. This Honourable Court be pleased to set aside and/or vacate the Orders issued ex parte herein on or about 19th April 2012 and on or about 2nd May, 2012 affecting the 3rd Defendants’ property and title to L.R. No. 3861/4, Nairobi.
4. Honourable Court be pleased to set aside and/or vacate the Orders issued ex parte herein on or about 2nd May, 2012 which resulted in the joinder of Wagema Limited as the 3rd Defendant to this suit.
5. This Honourable Court be pleased to issue such other or further Orders and/or directions as it may deem just.
6. The costs of this Application be met by the Plaintiff and the 2nd Defendant herein jointly and/or severally.”
11. The application was brought under Sections 1A and 1B of the Civil Procedure Act, and Order 51 of the Civil Procedure Rules, 2010 and the inherent powers of this Honourable Court.
12. The application was supported by an affidavit sworn by James Ndung’u Gethenji, a director of the 3rd defendant. The application was made on grounds that:
13. The 1st defendant opposed the plaintiff’s applications through affidavits sworn by Ndung’u Gethenji, its Chief Executive Officer, who is also a director of the 3rd defendant. He stated, inter alia:
14. In an affidavit sworn by the 2nd defendant in response to the affidavits sworn by the plaintiff’s director, Mr. Rhagwani, and the 1st and 3rd defendant’s director, Ndung’u Gethenji, Mr. Kabiro stated, inter alia, that:
15. Ndung’u Gethenji did not agree with the final account prepared by the project consultants as shown in the supplementary affidavit of Mr. Raghwani. However, Mr. Raghwani contended that the final account was properly done. He added that the plaintiff had proposed to the 1st defendant that the matter be referred to arbitration in the event that the 1st defendant disputed any of the sums certified as due and payable. That was before the final account was done.
16. The 1st defendant responded by stating that since the final account had not been issued the request for arbitration was premature.
17. Responding to the 3rd defendant’s application, the plaintiff’s director stated that by June 2011 the defendant had suspended carrying out construction works at the 1st defendant’s residential project due to the fact that the 1st defendant had defaulted in paying certified payments. By a letter dated 6th June, 2011 the 1st defendant pleaded for time within which to pay the sums then due and owing. The plaintiff was reluctant to return to the site and continue work but only agreed when the professional undertaking of Kshs.185,000,000/= was given by the 2nd defendant.
18. Mr. Raghwani added that it is the directors of the 3rd defendant who incorporated the 1st defendant as a special purpose vehicle for the construction of the residential units. He added that the land and the capital was provided by the 3rd defendant.
19. He further stated that at the time the plaintiff sought an order to restrain the 2nd defendant from parting with possession of the certificate of title the plaintiff proceeded on the basis that the 1st defendant was the registered owner of the property but upon disclosure that the property was registered in the name of the 3rd defendant it became necessary to join the 3rd defendant as a party to these proceedings. Further, after the joinder of the 3rd defendant the 3rd defendant instructed the firm of Hamilton Harrison and Mathews Advocates and has also filed a number of affidavits in the suit. Various applications were argued in the presence of counsel for the 3rd defendant and some consent orders recorded.
20. All the parties filed their respective submissions supported by various authorities and took a considerable period of time to highlight the submissions. I will not attempt to summarize the submissions but will comment on the same in the process of my determination of the various applications herein.
21. I will now proceed to determine each of the three applications on record.
22. Although the plaintiff filed two applications Mr. Ngatia made submissions in respect of the first application seeking grant of interim protection measures. The application was premised on Section 7 (1) of the Arbitration Act which states as follows:
“It is not incompatible with an arbitration agreement for a party to request from the High Court, before or during arbitral proceedings an interim measure of protection and for the High Court to grant that measure.”
23. Initially the plaintiff filed this suit against the 1st and 2nd defendants only, claiming from the 1st defendant a sum of Kshs.300,876,008/= “being the outstanding amounts in respect of interim certificates nos. 43 (part); 44; 45; 46; 47; 48 and 49 and the interest thereon at commercial rate from 30th March, 2012 until payment in full”.
24. The plaintiff claimed as against the 2nd defendant a sum of Kshs.185,000,000/= being the value of the professional undertaking which he had issued to the plaintiff and interest thereon at commercial rates from 21st October, 2011 until payment in full.
25. It is not in dispute that there was a building contract between the plaintiff and the 1st defendant. It is also not in dispute that that agreement provided that in the event of any disputes between the plaintiff and the 1st defendant the dispute shall be referred to arbitration. There has indeed been an attempt to refer the disputes that have arisen between the two parties to arbitration. However, in the plaint and in the application the plaintiff did not indicate that the dispute had been referred to arbitration or that the parties were intending to do so. It is trite law that only parties to an agreement that contains an arbitration clause can refer a dispute arising in the performance of the contract to arbitration.
26. It is not clear whether the plaintiff’s application is properly brought under Section 7 of the Arbitration Act and it would appear to me that the plaintiff has filed a substantive suit for recovery of the amounts stated in the plaint. That view is buttressed by the fact the plaintiff has also filed an application for summary judgment against the 1st defendant seeking a sum of Kshs.300,876,008/=. The 1st defendant has so far not filed any defence to the plaintiff’s claim and the plaintiff may amend the plaint, if it so wishes.
27. That notwithstanding, I think the court ought to adopt a purposive view of the matter, taking into account the provisions of clause 45 of the agreement which deals with settlement of disputes since there is clear understanding between the plaintiff and the 1st defendant that any dispute that will arise during the performance of the building contract would be referred to arbitration. The 2nd and 3rd defendants cannot be involved in the intended arbitration since they were not parties to the agreement. However, the 2nd defendant claims indemnity from the 3rd defendant.
28. Article 159 (d) of the Constitution of Kenya, 2010 requires the court to administer justice without undue regard to procedural technicalities. Further, Article 159 (2) (c) requires the court to promote alternative forms of dispute resolution including reconciliation, mediation and arbitration, among others.
29. In any event, the plaintiff had formally requested the 1st defendant to concur in referring the issue of a final certificate to arbitration but the 1st defendant contended that the final certificate should be issued by his consultants before any dispute can be cleared. A final certificate has already been issued but the 1st defendant is not satisfied with the same. The 1st defendant further contends that the plaintiff did not finalize the project according to the contract specifications. That dispute can only be resolved by way of an arbitration.
30. The plaintiff has expended a substantial amount of its resources in putting up the houses and most of them have already been sold. Four of the high end residential houses being units no. 5L, 15L, 12D and 41D have not been sold. These houses are charged to the Commercial Bank of Africa. Mr. Ngatia submitted that plaintiff’s prayer for preservatory orders is subject to the subsisting rights of the said bank.
31. The houses in question are standing on LR No. 3862 but have been sold, except a few that are remaining and are charged to a bank. Their completion was made possible because of the professional undertaking given by the 2nd defendant to the plaintiff on instructions of the 1st and 3rd defendants. The undertaking was based on expected sale proceeds of LR No. 3861/4 belonging to the 3rd defendant. The 3rd defendant was not a party to the agreement between the plaintiff and the 1st defendant. However, there is privity of estate between the 1st and the 3rd defendants. Black’s Law Dictionary at page 1320 defines privity of estate as: “A mutual or successive relationship to the same right in property, as between grantor and grantee or landlord and tenant.” It is further defined as “the connection or relationship between parties, each having a legally recognized interest in the same subject matter (such as a transaction, proceeding, or piece of property); mutuality of interest”.
32. The 3rd defendant incorporated the 1st defendant as a special purpose vehicle for developing the said houses. The two companies have some common directors and there is sufficient evidence that the 1st and 3rd defendants often hold joint meetings of their board of directors. When the 2nd defendant was acting as the advocate for both the 1st and 3rd defendants he often sat in such board meetings and took minutes. That special relationship cannot therefore be denied.
33. The 3rd defendant provided the land and some of the capital used by the 1st defendant to develop the houses. I also accept the fact that the 2nd defendant was duly instructed by the directors of the 1st and 3rd defendants to give a professional undertaking to the plaintiff in the sum of Kshs.185,000,000/=. It is on the strength of that undertaking that the plaintiff returned to the site, having earlier abandoned the work, and continued with the project until he substantially finalized construction of the houses.
34. There is no evidence that the 1st defendant has other assets apart from the residential houses in issue. If the interim orders that were granted by this court are vacated the 1st defendant may sell the remaining houses and the plaintiff stands the risk of losing the money that has been expended in constructing the houses. I am satisfied that the claim by the plaintiff is justiciable.
35. The 1st defendant’s refusal to accept the final certificate that has been issued by the project consultants is not premised on substantive grounds. In KILLBY & GAYFORD LTD. v. SELINCOURT LIMITED 3 BLR 104, it was held that:
“So long as a certificate is good on the face of it and is within the authority given by the contract (to the architect) then it is in accordance with the conditions. It must be honoured.”
36. The final certificate that has been issued ought to be honoured and if there are any good grounds for resisting the same then the dispute ought to be referred to arbitration.
37. Pending reference of the dispute to arbitration the court ought to grant an interim measure of protection to the plaintiff as sought in the plaintiff’s application. See SAFARICOM LIMITED vs. OCEAN VIEW BEACH HOTEL LIMITED & OTHERS  eKLR. In WEERAWANSHA AND OTHERS v ATTORNEY GENERAL AND OTHERS  1 LRC 650 at page 652, it was held that:
“The object or purpose for which interim relief was granted was to prevent the injustice that would otherwise result to the party invoking the jurisdiction if the final relief obtained by him was of no avail since the impugned illegality had by then run its course to an extent that might be considered as irretrievable or irremediable.”
38. Turning to the application by the 2nd defendant, the same sought two main orders; joinder of the 3rd defendant into this suit and a temporary injunction to restrain the 3rd defendant from selling, disposing of, leasing, transferring or charging Land Reference Number 3861/4, Nairobi, pending hearing and determination of this suit. The first prayer was granted although the 3rd defendant has filed an application seeking to set aside that particular order. I shall deal with that issue later in the course of this ruling. As far as the 2nd defendant’s application is concerned, I will now consider the second prayer.
39. From the evidence on record, the 2nd defendant was instructed by the 3rd defendant to act on its behalf in the sale of Land Reference Number 3861/4, Nairobi. The sale was for the purposes of, inter alia, bailing out the 1st defendant by paying out liabilities incurred in developing the houses on Land Reference No. 3862, Nairobi. (a sub-division of LR. No. 27754).
40. The 2nd defendant drew the sale agreement dated 30th June, 2011. Following the 1st and 3rd joint Board of Directors’ meeting held on 19th July, 2011 where the 2nd defendant was present as the Secretary/Corporate Legal Advisor, the 2nd defendant was authorized to give a professional undertaking to pay the plaintiff a sum of Kshs.185,000,000/= from the proceeds of the sale of the said property.
41. The undertaking was therefore issued on behalf of the 3rd defendant. The 3rd defendant had entered into a Memorandum of Agreement with the 1st defendant in which the 3rd defendant had agreed to bail out the 1st defendant out of liabilities incurred in developing the houses on LR. NO. 3862, Nairobi. After all, the 1st defendant was a special purpose vehicle of the 3rd defendant incorporated for the specific purpose of developing the said houses.
42. The 1st and 3rd defendants purported to rescind the said Memorandum of Agreement but that was after the 2nd defendant had given his professional undertaking to the plaintiff. That act cannot absolve the 3rd defendant from liability as far as the 2nd defendant is concerned since the 3rd defendant was well aware that it had authorized the 2nd defendant to issue the undertaking.
43. When the plaintiff came to court on 19th April, 2012 it sought and obtained interim orders to restrain the 1st defendant from transferring, alienating, charging or in any manner whatsoever dealing with the 4 residential units being 5L, 15L, 32D and 41D. The 2nd defendant also sought and obtained an interim order restraining the 2nd defendant from parting with possession of the certificate of title in respect of L.R. No. 3861/4.
44. At the material time the plaintiff alleged that the 1st defendant was the owner of the aforesaid parcel of land. Mr. Ngatia later explained that the plaintiff was misled by the close relationship between the 1st and 3rd defendants.
45. The court has hereinabove explained why the ex parte orders of injunction were granted on 19th of April, 2012. Even though it has been demonstrated that LR No. 3861/4 is owned by the 3rd defendant the certificate of title is lawfully held by the 2nd defendant and there is need to preserve that property for reasons already stated. Further, I believe the 2nd defendant has a lien over that property. The ex parte orders issued on 19th April, 2012 cannot therefore be vacated.
46. Regarding the ex parte orders granted on 2nd May, 2012, Mutava, J. was satisfied that Wagema Limited is a necessary party to these proceedings and ordered that it be joined as a 3rd defendant. The 3rd defendant was also restrained from selling, disposing of, leasing, transferring, charging, pledging, alienating, tampering with, altering or otherwise howsoever dealing with LR No. 3861/4 pending inter partes hearing and determination of the application.
47. Mr. Oduol submitted that the court did not have jurisdiction to grant either of the aforesaid ex parte orders and the same ought to be set aside.
48. Counsel submitted that the court has jurisdiction to set aside any ex parte order. He cited the case of WEA RECORDS LIMITED vs. VISIONS CHANNEL 4 LIMITED & OTHERS  2ALL ER 589 where the court held as follows:
“As I have said, ex parte orders are essentially provisional in nature. They are made by judge on the basis of evidence and submissions emanating from one side only. Despite the fact that the applicant is under a duty to make full disclosure of all relevant information in his possession, whether or not it assists his application, this is no basis for making a definitive order and every judge knows this. He expects at a later stage to be given an opportunity to reveal his provisional order in light of the evidence and argument adduced by the other side, and, in so doing, he is not hearing an appeal from himself and in no way feels inhibited from discharging or varying his original order.”
49. I entirely agree with the holding in the aforesaid case. To my mind, it has never been in doubt that a judge has power to set aside an ex parte order given by either him/herself or another judge.
50. Although initially the plaintiff thought that LR No. 3861/4 belonged to the 1st defendant, as soon as it became clear that the property indeed belonged to the 3rd defendant an ex parte application was made to join the 3rd defendant to these proceedings. The orders were granted on 4th May, 2012. On 8th May, 2012 the 3rd defendant instructed Mr. Murugara and it was by consent agreed, inter alia, that the ex parte orders be extended until 22nd May, 2012. On subsequent dates the orders were again extended by consent and it was not until 14th June, 2012 when the application to set aside the ex parte orders was made through the firm of Ochieng, Onyang’o, Kibet & Ohaga Advocates who took over the conduct of the 3rd defendant’s case from Mr. Murugara. Mr. Murugara is still on record for the 1st defendant.
51. Whereas Mr. Murugara cannot be blamed for having severally consented to the extension of the ex parte orders, I am not persuaded that he all along believed that the orders had been wrongly obtained since he had been acting for both the 1st and 3rd defendants and was well aware of the circumstances that led to the joinder of the 3rd defendant.
52. Did the court have jurisdiction to allow the 2nd defendant’s ex parte application to join the 3rd defendant as a party to this suit? The answer to this question is easily provided by the provisions of Order 1 rule 10 (2) of the Civil Procedure Rules which state as follows:
“The court may at any stage of the proceedings, either upon or without the application of either party, and on such terms as may appear to the court to be just, order that the name of either party improperly joined, whether as plaintiff or defendant, be struck out, and that the name of any person who ought to have been joined whether as plaintiff or defendant, or whose presence before the court may be necessary in order to enable the court effectually and completely to adjudicate upon and settle all questions involved in the suit, be added.”(Emphasis supplied)
The words “either upon or without the application of either party” imply that the court has wide discretion when it comes to the need to join a person as a party to proceedings. The court can even make such an order on its own motion. In BENSON MWANGI WANGAI vs. IBRAHIM NDWIGA & ANOTHER  eKLR this court held that:
“Under Order 1 rule 10 (2) the court has unfettered discretion to order that any party who ought to have been joined either as plaintiff or defendant or whose presence before the court may be necessary in order to enable the court effectually and completely adjudicate upon and settle all questions involved in a suit be joined. It can even do so on its own motion.”
If the court, without any application can order that a person be joined as a defendant it can also make such an order in an ex parte application. If the person who has been so joined believes that the order ought not to have been made he can come to court and pray for setting aside of such an order.
53. If the court is satisfied that the order ought not to have been granted it can set it aside. But the court can also refuse to set it aside if it is convinced that the order was merited in the first place. See WEA RECORDS LIMITED vs. VISIONS CHANNEL 4 & OTHERS (Supra).
54. In fact upon grant of the ex parte orders aforesaid, Mutava, J. directed as follows:
“In the event that the said Wagema Limited will be inclined to contest the order of joinder, such challenge can be canvassed at the inter partes hearing of this application.”
When the application came up for inter partes hearing Wagema Limited did not contest the said orders but instead the orders were extended by consent.
55. I do not agree that the court did not have jurisdiction to make an ex parte order that Wagema Limited be joined as the 3rd defendant in this case. Even if the application had been argued inter partes, given all the facts that have now clearly been brought to the court’s attention with regard to the relationship between the 1st and 3rd defendants and their dealings with the 2nd defendant, the court would still have ordered that Wagema Limited be joined as a defendant to these proceedings.
56. Having taken into consideration all the issues and circumstances stated hereinabove, I find no merit in the 3rd defendant’s application and dismiss the same with costs to the plaintiff and the 2nd defendant. The orders sought by the plaintiff and the 2nd defendant are granted and the 1st and 3rd defendants shall bear the costs of the applications.
DATED, SIGNED AND DELIVERED AT NAIROBI THIS 4TH DAY OF OCTOBER, 2012.
Mr. Ngatia for the Plaintiff
Miss Gulenywa for Mr. Murugara for the 1st Defendant
Mr. Thuo for Mr. Regeru for the 2nd Defendant
Mr. Nyamunga for Mr. O. Oduol for the 3rd Defendant