Africa Eco-Camps Limited v Exclusive African Treasurers Limited [2014] KECA 208 (KLR)

IN THE COURT OF APPEAL

AT NAIROBI

(CORAM: NAMBUYE, MUSINGA &M’INOTI JJA)

CIVIL APPLICATION NO. 183 OF 2014

BETWEEN

AFRICA ECO-CAMPS LIMITED …………………………..APPLICANT

AND

EXCLUSIVE AFRICAN TREASURERS LIMITED …RESPONDENT

(Being an application for stay of execution pending the lodging, hearing and determination of an intended appeal from the decision of the High Court of Kenya at Nairobi Milimani Commercial and Admiralty division (Mabeya, J.) dated 5th March 2014

in

H. C. Milimani Commercial & Admiralty Division

Civil Case  No.378 of 2008)

**********************

RULING OF THE COURT

The applicant, Africa Eco-Camps Limited, was sued by the respondent, Exclusive African Treasurers Limited, in Milimani Commercial Court Civil Suit No. 378 of 2008.  The plaint is dated 7th July 2008 seeking a permanent injunction restraining the applicant whether by itself, its agents and/or servants from presenting, filing, advertising, publishing or taking any further or other steps whatsoever in any petition, suit or proceedings seeking to wind up the respondent;Kshs.298,591/=, damages; the costs of the suit, interest on (b) (c) (d) above at court rates, from the date of filing suit until payment in full; an order that pending the hearing and determination of the suit, the applicant be restrained whether by itself, its agents and/or servants from presenting, filing, advertising, publishing or taking further or other steps whatsoever in any petition, suit or proceedings seeking to wind up the respondent; and any other or further reliefs which the court deemed fit and just to grant.

The applicant defended the claim vide a defence dated 5th August 2008.  On 14th October 2011, with the consent of both parties, the suit was fixed for merit disposal on 5th December 2011.   On the date appointed for the hearing only the respondent and its counsel attended the court.  The learned trial judge being satisfied that there was no explanation for the applicant’s non attendance allowed the respondent to proceed ex-parte resulting in a merit judgment on 18th January 2012.

On 24th May 2013 before execution could be levied, the applicant took out a Motion on notice under sections 1A, 1B, 3A, 63(e), 34, 80 of the Civil Procedure Act, Order 9 rule 16, Order 12 rule 7, Order 21 rule 22 and Order XLIV of the Civil Procedure Rules and all enabling provisions of the law.  The Motion sought leave of court for new counsel to come on record for the applicant, an order for stay of execution of the decree and consequential orders emanating therefrom, an order to set aside the exparte judgment and the resulting decree unconditionally or as the court may direct, an order for review, variation, and or setting aside of the judgment therein and or further directions.   That application was based on the grounds in the body of the application and a supporting and a further affidavit of Azim Jiwa Rajwani sworn respectively on 24th May 2012 and 5th June 2012, and a supplementary affidavit of Sospeter Oluoch Mukhwana sworn on 27th June 2012.

The respondent opposed that application through the replying affidavit of Deepa Darbar sworn on 14th June 2012.  By a ruling dated 5th March 2014, the learned judge dismissed the application in its entirety. The applicant was aggrieved by the said dismissal and duly filed a notice of appeal under rule 75(2) of the Rules of this Court on 19th March 2014. On the basis of the said notice of appeal, the applicant took out a notice of motion under rule 5 (2) (b) of this Court’s Rules substantively seeking a stay of execution of the judgment and decree pending the lodging, hearing and determination of the intended appeal.   The grounds in support are set out in the body of the application and the supporting and further affidavit of Azim Rajwani.

In summary, Mr. Otieno, learned counsel for the applicant, asserts that the applicant is entitled to the relief sought as it has satisfied the necessary requirements, namely demonstration of an arguable appeal, which will be rendered nugatory if stay is not granted.

On the first limb aforesaid, Mr. Otieno argued that the intended appeal is arguable on the basis of the nine (9) grounds set out in the body of the application. It was contended that the learned judge failed to appreciate that the applicant’s non-attendance on the scheduled date was occasioned by the failure of its advocate, then on record, to notify it of the hearing date. It was further argued that the affidavit of Sospeter Mukhwana gave the explanation for non-attendance, which was plausible and un-rebutted. We were accordingly invited to hold that the applicant had been condemned unheard.  Mr. Otieno submitted further that the applicant was aggrieved by the learned judge’s failure to properly appreciate and apply the principles of assessment of damages at large, as well as those applicable in review and setting aside of exparte judgments. Learned counsel added that an arguable appeal is not one which must ultimately succeed and that a single arguable point will suffice for purposes of an order of stay of execution.

On whether the intended appeal would be rendered nugatory if stay of execution is not granted, Mr. Otieno argued that the respondent had failed to demonstrate ownership of any attachable property. Counsel added that the applicant was willing to abide by any conditions set by this Court regarding the order of stay of execution.

On case law, the applicant relied on this Court’s decision in National Industrial Credit Bank Ltd.  v. Aquinas Francis Wasike & another [2006] eKLR for the proposition that while the legal duty is on the  applicant to prove that an appeal would be rendered nugatory because of the respondent’s inability to pay back the decretal sum, it was unreasonable to expect the applicant to know in detail the resources owned by the respondent.   Counsel argued that all the applicant was expected to show is a reasonable suspicion that a respondent would be unable to pay back the decretal sum, after which the evidential burden shifted to the respondent to show its resources since that is a matter peculiarly within its knowledge.  This Court’s decision in the Kenya Revenue Authority and 2 others v. King–Bird (Kenya) Ltd [2014]eKLRwas cited for the proposition that the jurisdiction of the court under rule 5(2) (b) is discretionary based on establishment of an arguable appeal which would be rendered nugatory if stay was not granted.

Lastly, the decision in Freight in time Ltd v. Rosebell Wambui Muthee [2014] eKLRwas relied upon for the proposition that in order for an applicant under rule 5(2) (b) to succeed, both limbs must be satisfied.

The respondent opposed the application on the basis of the replying affidavit of Deepa Darbar sworn and filed on 9th September 2014. In summary, Mr. Sarvia, learned counsel for the respondent submitted that the applicant had not satisfied the requirements of rule 5 (2) (b) and should therefore be dismissed. Mr. Sarvia contended that the applicant’s intended appeal is not arguable because it sought to impugn the refusal by the learned judge to review and set aside the ex parte judgment whilst there was no appeal against the judgment delivered in January 2012;thatthe learned judge had merely exercised his discretion in refusing to allow the application for review and setting aside of the ex parte judgment; that he was satisfied that the applicant’s advocate had due notice of the hearing date; that it was not true as claimed by the applicant that aggravated damages were not pleaded as the plaint indicates otherwise; that the learned judge properly appreciated the principles applicable to review and setting aside of exparte judgments and that he had arrived at the correct conclusion in declining to review the judgment.  The alleged failure to appreciate existence of triable issues in the applicant’s defence, it was submitted, was a non-issue in an application for setting aside of an exparte judgment.  Merit of a defence or otherwise is relevant only in applications for striking out of pleadings, contended Mr. Sarvia.

On whether the intended appeal would be rendered nugatory, Mr. Sarvia asserted that it would not because the respondent had exhibited before the High Court its balance sheet for the year 2012 clearly demonstrating that it had assets and is a viable and on-going business with a high turnover. In the event of the intended appeal succeeding the respondent could easily refund the decretal sum.

Our jurisdiction under rule 5(2) (b) is original, independent and discretionary.  (See Githunguriv.  Jimba Credit Corporation Ltd No. (2) [1988] KLR 88.  It is a procedural innovation designed to empower this court to entertain interlocutory applications for preservation of the subject matter of the appeal where one has been filed or is intended.(See Equity Bank Ltd v. West Link NBO Civil Application No.78 of 2011 (UR).  The jurisdiction under rule 5(2) (b) only arises where the applicant has lodged a notice of appeal.  (See the Safaricom Ltd v. Ocean View Beach Hotel Ltd & 2 others, Civil Application No. 327 of 2009 (UR).

The conditions to be met before a party can obtain relief under rule 5(2)(b) have been crystallized by case law.  The applicant has to demonstrate, first, that the appeal or intended appeal is arguable.  By arguable, it does not mean an appeal or intended appeal which must succeed, but one which raises a bona fide issue worthy of consideration by the Court. (See Kenya Tea Growers Association & another v. Kenya Planters Agricultural Workers Union, Civil Application No. NAI 72 of 2001 (UR).

It is trite too that demonstration of the existence of even one arguable point will suffice.   (See Kenya Railways Corporation v. Edermann Properties Ltd.,  Civil Appeal No. NAI 176 of 2012 and Ahmed Musa Ismael v. Kumba Ole NTAMORUA & 4 others, Civil Appeal No.NAI.256 of 2013).

Lastly, both limbs must be demonstrated to exist before one can obtain relief under rule 5(2) (b). (See Republic v. Kenya Anti-Corruption Commission & 2 others [2009] KLR 31, and Reliance Bank Ltd v. Norlake Investments Ltd. [2012]1 EA 227 and Githunguri v. Jimba Credit Corporation (supra)).

We have applied the above principles to the rival arguments before us.  With regard to the first pre-requisite, we have considered the grounds that the applicant intends to canvass in the intended appeal and we are satisfied that they are arguable. The intended appeal is not frivolous.

Turning to the second consideration, Mr. Azim Rajwanideposes thus in paragraph 18, 19 and 20 of the supporting affidavit.

“18.  That the applicant stands to suffer immense loss in the event that the appeal succeeds as there is no guarantee that the amount claimed in the decree now standing at Kshs.2,674,637. 23 will be refunded to the applicant by the respondent.

19.    That I know of my own knowledge that the respondent’s majority share-holder one Brigitte Bosschaart is a British citizen, the respondent has no known assets within the jurisdiction of this court or the superior court and lacks the financial capacity to refund the decretal sum should the appeal ultimately succeed.

20.    That the applicant is able and willing to deposit the decretal sum in a joint interest bearing account while awaiting the determination of the appeal.”

As was observed by this Court in National Credit Bank Ltd.  v.  Aquinas Francis Wasike and another(supra), a legal duty is placed on the applicant to prove the allegation that its intended appeal will be rendered nugatory because the respondent will be unable to pay back the decretal sum should the applicant succeed on appeal.  This requirement is however not absolute.  It is qualified in that it is unreasonable to expect the applicant to know in detail the resources owned by a respondent or the lack of them.  Once the applicant expresses a reasonable fear that a respondent would be unable to pay back the decretal sum, the evidential burden shifts to the respondent to show what resources he has to satisfy the decree should the appeal succeed, since that is a matter likely to be peculiarly entirely within the knowledge of the respondent.

The respondent’s response to the applicant’s assertions is found in paragraphs 7 – 8 of the replying affidavit.  These read:

7.     THAT on the 23rd May 2012, upon knowledge of the existence of judgment against the applicant, the applicant immediately instructed its Advocate Mr. P. K. Njiru Advocate to apply and set aside the said ex parte Judgment.

8.     THAT I know of my own knowledge that on 24th of May 2012, the applicant through its advocates P. K. Njiru& Company Advocates filed a notice of motion application seeking to stay the execution of the decree, set aside the judgment and decree herein unconditionally and to review, vary or set aside the judgment obtained as a result of the ex-parte hearing therein.  Annexed hereto and marked “AR-4 are copies of the application supporting affidavits and the respondent’s response thereto.

The applicant’s response to the respondent’s response in the above two paragraphs is found in paragraph 3, and 4 of the further affidavit.  These read:

“3.    THAT in response to paragraph 7 of the replying affidavit sworn on behalf of the respondent aforesaid, I wish to reiterate that the respondent indeed lacks the financial capability to refund the decretal amount should the appeal subsequently succeed and as such it will be prejudicial to the applicant if the respondent were to proceed with execution during the pendency of this appeal.  I verily believe that is so for the following reasons:

a.     The respondent has not exhibited any bank statements or any recent balance sheet to show that it indeed conducts business totaling to US$350,000/- annually.  In the absence of such statement the averments at paragraph 7(a) are unfounded.

b.     The respondent is relying heavily on a Balance sheet for the year 2012 to prove its financial standing and yet we are now in September 2014.  The respondent has not exhibited any Balance sheet for the year 2013 to show that it indeed still enjoys the financial standing it enjoyed in the year 2012.  It is thus mere speculation to conclude that the respondent is well capable of refunding the decretal amount based on financial records of the year 2012.

c.      In any case, it comes out patently from looking at the alleged balance sheet for the year 2012 that the same were never filed with the Kenya Revenue authority and as such the authenticity of the said balance sheets is questionable.

d.     It has now come to my knowledge after conducting a search at the companies’ registry that indeed, since 2009, the respondent has not filed any annual returns with the Companies Registry and this further makes it impossible to ascertain the true financial position of the respondent and its ability to repay the decretal amount should this appeal ultimately succeed.  (Annexed hereto and marked AJR 1 (a) and (b) is a copy of the letter I wrote to the registrar of companies requesting for certain details concerning the respondent and my hand written results of the search.)

e.     Due to the omission above, it is likely that the respondent is now on the watch list of the Kenya Revenue Authority and should the decretal amount be released to the respondent, the Kenya Revenue Authority is likely to attach the respondent’s bank account to offset the respondent’s tax arrears.

4.     THAT in response to paragraph 7 (g), I know of my own knowledge that I instructed my advocates on record to appeal against the ruling of the Hon. Justice Ogolla wherein he had found that the respondent is in a stable financial position and to that end my advocate on record filed a notice of appeal and wrote a letter to the deputy registrar of the High court of Kenya requesting for typed proceedings for purposes of an appeal.  (Annexed hereto and marked AJR 2 (a) and (b) is a copy of the notice of appeal and the letter to the deputy registrar of the High court of Kenya).”

From the above two competing versions, it is evidentially clear that the respondent relies on the 2012 documentation filed with the Registrar of Companies to allay the applicant’s fears of its inability to refund the decretal sum should the applicant’s appeal succeed. The applicant still maintains that reference to the 2012 documentation does not operate to absolve the respondent from the obligation of demonstrating to us that it is still viable in 2014 as it was in 2012.  Also not rebutted is the applicant’s assertion that the main shareholder of the respondent is a Briton with unknown assets in Kenya and that existence of an office where the respondent carries on its business within this jurisdiction is not proof of existence of assets as the said office is rental premises.

In the Kenya Revenue Authority and 2 others v. King-Bird (Kenya) Ltd (supra) this Court declined to order stay of execution because the applicant did not demonstrate that the intended appeal would be rendered nugatory. The Court considered the evidence before it that the respondent was a viable trading company, a fact, which was admitted by the applicant; the respondent had previously paid Kshs 3,000,000. 00 demanded by the applicant; and that the respondent had duly complied with an order requiring it to deposit security of Kshs. 2,966,079. 00.

In the application before us, the documents relied upon by the respondent to show its viability cover the respondent’s 2012 audit period.   We appreciate they were accepted by Ogola, J. in his ruling of 27th June 2014 when declining to stay execution in the High Court. However before this Court the respondent could have provided its current records. In addition, the applicant has offered to deposit the decretal sum in an institution where in addition to earning interest, will be within easy reach of the party that is ultimately successful.

In the circumstance and for the reasons given above, we are satisfied the applicant has met the threshold for grant of conditional relief under rule 5 (2) (b).  We accordingly allow prayer (a) of the application dated 25th July 2014 and filed on 22nd July 2014 on condition that the decretal amount is deposited in an interest earning account in the joint names of advocates for both parties in a financial institution of their choice within 14 days of the date of this ruling, if the same is not already deposited in terms of this Court’s order of 22nd September 2014.

(2)  The costs of the application to abide the outcome of the intended appeal.

Dated and delivered at Nairobi this 28th day of November,  2014

R. N. NAMBUYE

JUDGE OF APPEAL

D. K. MUSINGA

JUDGE OF APPEAL

K. M’INOTI

JUDGE OF APPEAL

I certify that this is a

true copy of the original.

DEPUTY REGISTRAR