Benjoh Amalgamated Limited & Muiri Coffee Estate Limited v Kenya Commercial Bank Limited [2006] KECA 275 (KLR)

REPUBLIC OF KENYA

IN THE COURT OF APPEAL OF KENYA

AT NAIROBI

Civil Appeal No. 239 of 2004

BENJOH AMALGAMATED LIMTED ……..................................…1ST APPELLANT

MUIRI COFFEE ESTATE LIMITED …………................................2ND APPELLANT

AND

KENYA COMMERCIAL BANK LIMTED …….................................…RESPONDENT

(An Appeal from the judgment and Decree of the High Court of Kenya at Nairobi (Lenaola, Ag. J, Ag. J) dated 23rd July, 2004

in

H.C.C.C. No. 1576 of 1999

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JUDGMENT OF THE COURT

Sometime in 1988, Kenya Commercial Bank Ltd., the Respondent herein, lent some money to Benjoh Amalgamated Ltd., the 1st Appellant herein, and as security for the loan, the 1st Appellant, together with Muiru Coffee Estate Ltd., the 2nd Appellant, charged to the Respondent their two parcels of land known as L.R.NOS 12411/1 and 12411/2 and a support guarantee of K.shs.7,000,000/- was executed as was a third charge over land known as L.R.10075 Kiambu District.  The first two parcels i.e. L.R. No. 12411/1 and L.R. No. 12411/2 were in a place called Njabini and the loan advanced was to enable the 1st Appellant develop flower farming on the said parcels.  As is not unusual in such transactions, the parties fell out over the terms of the loan or loans advanced with the Respondent claiming that the 1st Appellant had failed to honour the terms of the loan repayment and the 1st Appellant for its part claiming  that the Respondent was itself in breach of the loan agreement(s) by  failing to disburse the full amount of the loan agreed to be advanced.  The Respondent gave notice to the two Appellants that it would enforce its security over the three parcels of land .  The reaction of the two Appellants to the threat to enforce the security was the filing of High Court Civil Case No. 1219 of 1992 and in that suit, the prayers which had been asked for were, and we set them out in full:-

“(a)  A declaration that the performance of the [said] contract between the 1st Plaintiff [1st Appellant] and the Defendant [the Respondent]  became without any fault on the part of the 1st Plaintiff impossible and the said contract was frustrated and the 1st Plaintiff thereby discharged from performance of the said contract and it would therefore be unjust and unconscionable for the Defendant to sell L.R. Nos. 12411/1 and 2 and 10075 Kiambu.

(b)  Alternatively a declaration that by withholding the balance of the monies applied for by the 1st Plaintiff at the time it did, it (the Defendant) was thereby in breach of the condition to be implied from the nature thereof, that it would not so withhold rest (sic) the 1st Plaintiff’s consideration in the transaction totally fails.

(c)  K.sh.13. 125 million

(d)  General damages for breach of contract.

(e)Interest at court rates.

(f)  Any other or further relief as thisHonourable Court would deem fit and just togrant.”

These prayers were made in an amended plaint dated 30th July, 1992 but earlier on by an application dated 14th March, 1992 the Appellants had sought, among other things, an order that

“……………………. the 1st plaintiff be allowed to sell L.R. Nos. 12411/1 & 2 aforesaid by Private Treaty to discharge its indebtedness to the Defendant.”

The affidavit in support of that application had been sworn by Samuel Kungu Muigai (P.W.1) who in the present case under appeal described himself as chairman of the 1st Appellant and a director of the 2nd Appellant.  In the said supporting affidavit, Kungu Muigai had sworn in paragraph 2 thereof that: -

“…………….. my company was advanced a sum of K.shs.9 million for a flower development project by the defendant.”

And in paragraph 5 it was averred that

“ ………………….. the flower project has not been doing well and we have not been able to service the loan.  As of to-day’s date the outstanding loan is about K.shs.15 million.”

There seems to be some confusion in the dates, but it is clear from the record that H.C.C.C. No. 1219 of 1992 was terminated by a consent order which was recorded on 4th May, 1992.  Paragraphs (a) and (b) of the consent order were in these terms:-

“(a) The Plaintiffs to pay the total outstanding sums, principal and interest to the Defendant on or before the 31st day of July, 1992.

(b) In default, the Defendant to be at liberty to proceed with the realization of the two securities.”

Needless to say, the Appellants failed to comply with the undertaking to pay the outstanding sums and on various occasions the Respondent attempted to realize its security but on every such attempt the Appellants filed suit seeking to restrain the Respondent from selling the lands.  One such suit was filed as far afield as the High Court at Nyeri.  All those suits ended or were terminated in favour of the Respondent but on 4th April, 1997, some five years after the original suit was filed and the consent judgment entered the two Appellants went back to Civil Case No. 1219 of 1992 and under Order 44 Rule 1 asked Githinji, J (as he then was) who had recorded the consent judgment to review or set aside the consent judgment.  The reasons for that application are not really relevant.  What is relevant is that Githinji, J heard the application, and by his order dated 31st October, 1997 allowed the same and set aside the consent judgment.  The present Respondent was aggrieved by the order of Githinji, J and appealed to this Court vide Civil Appeal No. 276 of 1997.  By its judgment dated and delivered on 10th March, 1998 the Court allowed the appeal, set aside the orders which Githinji, J had made and restored the consent judgment which had been entered on 4th May, 1992.  One would have thought that would be the end of the matter but not so the Appellants.

The Appellants once again returned to the High Court by way of High Court Civil Case No. 1576 of 1999 and in their plaint dated and lodged in the High Court on 6th August, 1999, the two Appellants once again prayed for:-

“(a)  A declaration that the Decree dated 4th May, 1992 inHigh Court  Civil Case No. 1219 of 1992 is ambiguousand unenforceable in law.

(b)A declaration that the plaintiffs are entitled to be provided with a statement of accounts to show the sums outstanding.

(c)An injunction against sale of L.R. No. 12411/1, L.R.12411/2 and L.R. 10075 Kiambu.

(d)  General damages.

(e)  Costs of this suit.”

The Respondent filed its defence dated 30th August, 1999 and in paragraph 2 of the defence it was pleaded that

“The Defendant states that this suit is res judicata, incompetent, bad in law and an abuse of the process of this Honourable Court and states that it will, at the appropriate stage, apply to this Honourable Court to strike it out.”

On 3rd November, 2000 the Appellants filed an amended plaint and in paragraph 7 (a) of the amended plaint, it was now pleaded for the first time that

“The Defendant’s Business Advisory Service made a report to the effect that the net profit for the project  (less loan by the Defendant, interest and all other costs and charges) would be a sum of Khs.863,317,998/-”

In paragraph 18 it was pleaded that

“As a result of the Defendant’s action of failure to fund the object (sic) for a second time the entire project collapsed.  The plaintiffs claim therefore is, inter alia special damages of K.shs.863,317,998/- being the projected  profit of the project.”

The only new prayer introduced in the amended plaint was the claim for K.shs.863,317,998/-.  The Respondent filed its amended defence dated 16th November, 2000 and the plea on the issue of the claim being  res judicata, incompetent, bad in law and an abuse of the process of the court was maintained.  The new claim for Kshs.863,317,998/- as  special damages was specifically denied.

This was the claim heard before Lenaola, Ag. J (as he then was) on various dates between 28th January, 2004 and 11th June, 2004.  The learned Judge heard evidence from Samuel Kungu Muigai (P.W.1) on behalf of the two Appellants and the evidence of Jotham Odero Munda (D.W.1) and Edward Mbeke Onyango (D.W.2) on behalf of the Respondent.  The parties then made lengthy submissions before the Judge and at the end of it all, he wrote a long and considered judgment dated and delivered on 23rd July, 2004.  The learned Judge dismissed the Appellants’ claim principally on two grounds, namely that the matter before him was res judicata, the issues raised having been finally determined in the consent order entered in H.C.C.C. No. 1219 of 1992, i.e. by the  consent judgment of 4th May, 1992 and secondly that the present suit was an abuse of the  process of the Court.  There were other findings based on the issue of limitation and on the merits of the case based on the evidence presented before the Judge by the witnesses called by the parties, but in our view, if the question of res judicata is determined in the way the learned Judge did, then of course all these other matters are really not relevant, though of course the learned trial Judge was perfectly right in determining them so that were the appeal to succeed on the issue of res judicata, the Court would still have his decision on the other issues.  The learned trial Judge is to be commended for taking that course.

The Appellants are aggrieved by the judgment of Lenaola, Ag. J and they come before this Court by way of an appeal.  The Appellants’ memorandum of appeal lodged in the Court on 29th October, 2004 contained a total of ten (10) grounds of appeal but at the commencement of the hearing, Mr. Wachakana, learned  counsel for the Appellants, abandoned Grounds 6, 7, 8 and 9 of those grounds.  The remaining six grounds argued before us were:-

“1.  THAT the contents of the approved decreein the suit are at great variance with thedecree filed by the appellants and theJudgment as there is a material omission inthe approved decree.

2.  That the learned trial Judge made afundamental error in law by consideringand  taking into account various extraneousmatters that were not before the court.

3. That the learned trial Judge made afundamental error in law by sitting as anAppellate court in  deciding matters alreadycanvassed and decided by the High Courtand the Court of Appeal.

4. That the learned trial Judge failed to appreciate and thus  totally misdirected himself in law when he held that the suit was bared (sic)  by the Limitation Act.

5. That the learned trial Judge therefore failed andmisdirected himself in law by taking into account thewrong period of contact (sic)  entered into by theAppellants and the Respondent herein in arriving atthe limitation of the contract.

10. The learned Judge made fundamental error in law by drastically differing with an earlier finding by the Honourable Court of  Appeal Number 276 of 1997. ”

We propose to deal with these grounds in the order in which they are listed.

We do not quite appreciate what the complaint in ground one (1) is.  If the contents of the approved decree in the suit are at great variance with the decree filed by the Appellants and the judgment as there is a material omission in the approved decree, then the blame for that variance can only be visited upon the Appellants who filed the appeal knowing well that such an omission existed.  If such an omission existed then it would follow that the decree incorporated in the record is defective and if the decree is defective, it would also follow that the whole record of appeal before us is incurably defective.  We are at a loss to understand why the Appellants should raise this complaint against their record.  In our view the complaint is unworthy of our consideration and we shall say no more about it.

On ground two, the complaint is that the learned trial Judge considered extraneous matters which were not before him. Elaborating on this point, Mr. Wachakana told us that the Judge dwelt too much on the character of the witness for the Appellants, i.e. Samuel Kungu Muigai.  As examples, we were shown the very opening paragraph of the judgment where the learned Judge says:-

“This suit is one of those that fall within the category of a relationship between a banker and a customer gone sour.  Sour is even mild because in evidence before me, it emerged that as a result of the despair arising from the subject matter of this suit one of the directors of the 1st plaintiff shot himself fatally.”

Next Mr. Wachakana drew our attention to a longer paragraph at page 235 of the record where the learned Judge says in his judgment:-

“As regards credibility of the 1st Plaintiff’s witness, I have looked at the record and  seen him in court.  I see a frustrated and desperate  man whose fortunes has not taken him where he intended.  His resilience is impressive yet pitiable.  I have no doubt that he is not a man intent on reaping where he did not sow.  He truly sowed and reaped nothing  but thorns that daily prick his conscience and finances.  His co-director shot himself in the head as a result of despair and his late father died before he could resolve the  problem that brought his company, the 2nd Plaintiff [2nd Appellant] into this sorry state.  These are matters that would heavily weigh on any man however strong.  Having said so, I am certain that the answer to his problems and those visited on the 1st and 2nd Plaintiff’s companies (sic) are matters that are not and cannot be properly addressed in the suit before me.  On law and fact the case must fail and I have stated why. The 1st plaintiff’s witness and prime mover of the suit may attract sympathy for his ordeal but shorn of that sympathy and this court applying its mind  to the issues before it has no choice but to put his crusade to an end as I shall shortly do.”

Next, we were shown the comments of the Judge at page 236 of his judgment where he says: -

“Often times parties in commercial transactions fall out to the detriment of one or both of them.  This case is a classic example of an entrepreneur  who with enthusiasm takes a loan, commences his project, falls out with his bank, engages in litigation which is settled mutually, is unable to keep his word, recommences litigation, all in a bid to stop sale of that prized item called land. …………………………”

Mr. Wachakana told us these passages contain extraneous matters  which the trial Judge was not called upon to adjudicate on and that the extraneous matters influenced the mind of the Judge in, for example, coming to the conclusion  that the case before him was an abuse of the process of the court.

We would broadly agree with Mr. Wachakana that trial judges must limit their comments to matters relevant to the case and to their decision on the issues raised.  That is the effect of this Court’s decision in  SHEIK t/a HASA HAULIERS V. HIGHWAY CARRIERS LTD.  [1982-88] KLR 306 which Mr. Wachakana cited to us.  In that case

“……………………… the Judge remarked about his own experiences with the appellant’s firm of advocates in other occasions and its “dilatory tactics”, “low level of efficiency and devotion of duty towards {its} clients.”  He also made observations on the possibility of a registered letter posted at Nairobi reaching Mombasa in less than five days, a matter on which no evidence had been adduced.”

On appeal, it was argued, among other things, that the judge had erred in considering extraneous matters and in acting on his hatred of the firm of lawyers to the appellant’s prejudice.  In allowing the appeal the majority of the Court (Gachuhi & Masime, JJ.A, Apaloo, JA dissenting) the Court held that

“ ………………………. The judge had introduced extraneous matters into his ruling and made derogatory remarks as to his  past knowledge of the firm of advocates representing the appellants.  He must have been influenced by those remarks in delivering his ruling …………………….”

and it was further held that

“Had the Judge not been carried away by his emotional conduct and had he considered the interest of the appellant independently from the conduct of his advocates and considering the authorities on the subject, he could have come to a different conclusion.”

Can the remarks of Lenaola, Ag. J be compared to those made by the judge in the case we have set out?  We have no hesitation in saying the remarks of Lenaola, Ag. J cannot be compared to and are nowhere near those of the judge in the SHEIKcase.  The remarks of Lenaola, Ag. J are based on what he read in the record before him, what he saw when the witnesses testified before him and his impression gathered from the whole case.  Mr. Wachakana did not point out to us any single remark of the learned Judge which can be said to have been false or not provable by evidence.  On the other hand, the remarks of the judge in the SHEIK case were based on his personal knowledge of the firm of advocates representing one of the parties and also on his own personal assumptions of the Postal system in Kenya.  We do not understand the majority decision in the SHEIKcase to mean that a judge is not entitled to express his own view on the evidence before him and also on the demeanour and appearance of the witnesses who have testified before him.  We are not aware of the existence of any such rule and we reject the Appellants’ contention that the learned Judge made a fundamental error in law by considering and taking into account various extraneous matters.  The views expressed by the Judge were  fully justified by the  record and the evidence before him and we refuse to interfere with his decision on the basis of that complaint.

We now come to the third ground which complains that the learned Judge acted as an appeal court on matters which had been decided by the High Court and the Court of Appeal.

In respect of matters canvassed before and determined by the High Court, we understood the Appellants to be referring to the ruling of Mbogholi-Msagha, J dated 25th February, 2000.  That ruling was made on an application filed by the Respondent in the suit the subject matter of this appeal and the application was brought under Order 6 Rule 13(1) (b) and (d) of the Civil Procedure Rules and under sections 3Aand 7of the Civil Procedure Act.  It was brought on the grounds that the Appellants had filed five previous suits against the Respondent and the issues in H.C.C.C. No. 1576 of 1999 were directly and substantially in issue in the previous suits, all of which had been determined.  It was also contended before Mbogholi-Msagha, J that H.C.C.C. No. 1756 of 1999 was in any case time-barred. By his ruling of 25th February, 2000 the learned Judge  refused to strike out the plaint filed by the Appellants and we now understand  the Appellants to be saying that the  twin issues of whether the suit was res judicata or was an abuse of the process of the court was determined by the order of 25th February, 2000 and there having been no appeal to this Court from the determination of 25th February, 2000 those issues were conclusively determined as between the parties and were, accordingly, not available to them for agitation before Lenaola, Ag. J.  In purporting to rule on those issues again, Lenaola, Ag. J arrogated unto himself the power of an appeal court over the decision of Mbogholi-Msagha, J.

At its face value, this contention looks unanswerable but when all the circumstances of the whole case, including the ruling of 25th February, 2000 are taken into account, we find that it is not really such a serious contention.  The ruling dated 25th February, 2000 which we have on record is a bit faded and difficult to read. We have tried as best we could to read and understand its tenor and in our view all that which was decided in the ruling was that the Appellants had raised triable issues in their amended plaint and that the question of whether the issues were res judicata, whether the case was an abuse of the court process, whether the suit was time barred and so on were left by Mbogholi-Msagha, J to go to trial and be determined during the trial.  Nowhere in the six pages of the ruling did he specifically find and conclude that H.C.C.C. No. 1576 of 1999 was not res judicata or that it was not an abuse of the process of the court or that it was not  time-barred.  Mbogholi-Msagha, J left all these things to be determined during the trial and it is not surprising that once again those issues were fully argued before Lenaola, Ag. J without anybody raising any objection to their being canvassed before him.  We are satisfied that Mbogholi-Msagha , J  having left those issues to go to  trial , Lenaola, Ag. J was perfectly entitled to hear and determine them and in doing so, he was not exercising appellate jurisdiction over the decision of Mbogholi-Msagha , J.  We do not know and do not see what  issues had been determined  by the Court of Appeal and were again determined differently by Lenaola, Ag. J.  Ground 3 of the grounds of appeal must also fail.

As an auxiliary issue to ground three which we have rejected, the learned trial Judge found as a fact that H.C.C.C. No. 1576 of 1999 was res judicata.  It is to that issue we now turn to consider.

Res judicata is aptly put in section 7 of the Civil Procedure Act:-

“No court shall try any suit or issue in which the matter directly and substantially in issue has been directly and substantially in issue in a former suit between the same parties, or between parties under whom they or any of them claim, litigating under the same title, in a court competent to try such subsequent suit or the suit in which such issue has been subsequently raised, and has been heard and  finally decided by such court.”

The prohibition against hearing a matter or issue which is considered to be res judicata is in absolute terms:-

“No court shall try …..”

The section gives various explanations as to the meaning of section 7 and we venture  to quote some of those explanations.

“Explanation  (1)  The expression “former suit”

means a suit which has been decided before the suit in question whether or not, it was instituted before it.

Explanation (3)  The matter above referred to (in Explanation 1) must in the former suit have been alleged by one party and either denied or admitted expressly or impliedly, by the either.

Explanation (4)  Any matter which might and ought to have been made a ground of defence or  attack in such former suit shall be deemed to have been a matter directly and substantially in issue in such  suit.”

In his 37 page judgment the learned trial Judge set out the historical background of the dispute between the parties and came to H.C.C.C. No. 1219 of 1992 which marked the beginning of the court battles between the parties.  The learned Judge set out the reliefs which had been claimed in No. 1219 of 1992 and finally considered the undisputed fact that No. 1219 of 1992 was terminated by the consent judgment of 4th May, 1992.  It does not mean that a matter can only be treated as res judicata if a trial is held.  As is clear from Explanation (3) a matter can be admitted, expressly or impliedly, and when that happens, res judicata becomes immediately applicable.  It would be an exercise in  futility to hold a trial in respect of an issue which has been admitted.  So the consent judgment of 4th May, 1992 once it was restored by the Court of Appeal was to be treated as the judgment  of the Court in H.C.C.C. No. 1219 of 1992.

Having set out that history, the learned Judge then set out the claims of the Appellants made in H.C.C.C. No. 1576 of 1999 and he found that the parties to the two suits were the same , that the subject matter of the dispute  was the same and that the issues involved in the case before him had been determined by a court of competent jurisdiction which had entered the consent judgment of 4th May, 1992.  As to the claim for special damages of Kshs.863,317,998/- the learned Judge was  of the view that it ought to have been included in the determined suit No. 1219 of 1992 and was accordingly covered by Explanation (4) in section 7 of the Civil Procedure Act.  Having dealt with various authorities touching on the matter, authorities such as KULOBA’s “Judicial Hints on Procedure, Vol. 1, 1984, KAMUNGE & OTHERS V PIONEER GENERAL ASSURANCE SOCIETY LTD [1977] EA 263 at pg. 265” the learned Judge concluded as follows on the issue of res judicata.

“It does not matter that the judgment was by consent and not on merit after trial.  It is as binding as if the judgment was one after  evidence had been called.

I have  attempted earlier to show that the net  effect of the  consent order was to put to rest all questions as regards the dispute between the parties and res judicata can be properly invoked as  I hereby do.  Accordingly I uphold the objection contained at paragraph 24 of the Amended Defence dated 16th November, 2000 that the plaintiffs herein are  estopped from relitigating on matters previously raised in H.C.C.C. No. 1219 of 1992 and the subsequent suits.”

We have already rejected the Appellants’ contention that the issues of res judicata, abuse of process of court, and limitation had been resolved in the ruling of Mbogholi-Msagha, J.  On the issue of res judicata, we cannot find any possible reason which would justify our interfering with the learned Judge’s conclusions.  He appreciated the correct legal position with respect to that issue and in our view he was right to conclude that the only issue which was raised by the suit before him was the claim for special damages.  That claim, in our view, and we agree with the Judge on it, ought to have been raised in the first suit.  In any case, even in the first case, there was a claim for Kshs.13. 125 million paragraph (c) and a separate claim for general damages (paragraph (d).  We take it that the claim for Khs.13. 125 million was either special damages or was in the nature of special damages.  So there was a claim for special damages even in the first suit, i.e.  No. 1219 of 1`992; there was also a claim for special damages in No. 1576 of 1999; the only difference was the amount claimed in each case.  That could not take the claims in No. 1576 of 1999 outside the purview or operation of the doctrine of res judicata.  On our part, we are satisfied the learned trial Judge came to the correct and the only possible conclusion on the issue of res judicata, based on the material placed before him.

Having held that all the issues raised in H.C.C.C.  No. 1576 of 1999 were res judicata we do not think it is necessary for us to consider whether that suit was an abuse of the process of the court and whether it was filed outside the period of limitation.  In any case a party who brings for the decision of the court matters which have already been determined can truly be said to be abusing the process of that court.  And whether the suit was brought within or outside the limitation cannot really matter; the issues raised in it having been previously determined, no court was entitled to try those issues again.

We have said enough, we think, to show that this appeal cannot succeed.  We think the Appellants will not like it but we also must point out to them that irrespective of how many cases they may wish to bring on the same issues, the answer will and can only be one and they already know what the answer shall be.  This appeal fails and we order that it be and is hereby dismissed with costs thereof to the Respondent.

Dated and delivered at Nairobi this 31st day of March, 2006.

R.S.C. OMOLO

………………………

JUDGE OF APPEAL

P.N. WAKI

………………………

JUDGE OF APPEAL

W.S. DEVERELL

………………………

JUDGE OF APPEAL

I certify that this is a

true copy of the original.

DEPUTY REGISTRAR.