Corrugated Sheets Limited v Varsani Merchandise Limited [2022] KEHC 1623 (KLR) | Setting Aside Ex Parte Judgment | Esheria

Corrugated Sheets Limited v Varsani Merchandise Limited [2022] KEHC 1623 (KLR)

Full Case Text

REPUBLIC OF KENYA

IN THE HIGH COURT OF KENYA AT ELDORET

CIVIL SUIT NO. 13 OF 2019

CORRUGATED SHEETS LIMITED..................................PLAINTIFF/RESPONDENT

VERSUS

VARSANI MERCHANDISE LIMITED..............................DEFENDANT/APPLICANT

RULING

Introduction & Background

1.  The defendant/applicant filed an application dated the 9th of August 2021 seeking, inter-alia, the following orders;

a) That there be a stay of execution and or further execution of the orders emanating from the judgement of the Honourable Court delivered on 5th February 2020 and all subsequent proceedings pending the hearing and determination of this application inter-parties

b) That the ex-parte hearing and resultant judgement delivered on 5th February 2020 be set aside and the matter be heard on merit

c) That upon granting of prayer (a) and (b) above, leave be granted to the defendant/applicant to enter appearance and file and serve his defense upon payment of the requisite fees

d) That costs be provided for.

2.  The brief background to the suit is that on the 5th of February 2020, the court delivered ex-parte judgement in favour of the plaintiff/respondent for the amount of Kshs 21,479,496. 47/= together with costs of the suit and the interest thereon.

3.  Aggrieved by the said judgment, the defendant/applicant herein filed the instant application dated the 9th of August 2021 seeking stay of execution of the decree pending the hearing and determination of the said application inter-parties. Vide a supporting affidavit of Ian Makotsi, counsel for the applicant sworn on even date, counsel contended that he was never served with any hearing date with regard to the suit and was unaware of the existence of the suit until the 6th  August 2021 when the applicant sent him a copy of the ruling on bill of costs dated 6th August 2021 emanating from the suit.

4.  Counsel averred that this prompted him to proceed to court to peruse the file only to find that the matter proceeded ex-parte and judgement delivered without his client being afforded an opportunity to be heard. Counsel Makotsi further averred that the applicant was never served with any court document nor made aware of the existence of the same save for the ruling on the bill of costs. Counsel argued that having perused the plaint, the plaintiff/respondent’s case is frivolous, vexatious and that the applicant should be granted an opportunity to respond by putting in his defense since he has an arguable case.

5. In addition, Mr. Devshi Varsan, a director of the applicant’s swore an even affidavit dated in which he averred that the allegations raised by the Plaintiff/respondent are incorrect and amount to deliberate omission of materials facts. In particular, Mr. Varsan deponed that the respondent failed to disclose that they had been paid a sum of Kshs 4. 1 million towards offsetting a balance due to them. He reiterated that the defendant was never served and that the court should grant them an opportunity to defend the suit. Finally, Mr. Varsan observed that the company stands to suffer serious financial loss and damage, if the court failed to grant the orders sought.

The Response

6.  The application was opposed by the plaintiff/respondent through a reply sworn on the 24th of August 2021 by one Harish Patel, a director in the Respondent’s company.  Mr. Patel averred that the respondent had been duly served noting that Mr. Devshi Karsan Varsan, the majority shareholder and director of the applicant, had been personally served with summons to enter appearance on the 10th of May 2019 by one Joyce Nelima Pepela, a duly authorized process server. In addition, Mr. Patel averred that the applicant/defendant was a customer of the respondent/plaintiff and as of 2019, the defendant/applicant was indebted to the respondent/plaintiff to the tune of Kshs 21,479,496. 47/=.

7.    Mr. Patel further averred that after service, Mr. Varshan in his capacity as a director of the applicant/defendant made an offer to the plaintiff/respondent to transfer the maisonette he had developed in Eldoret -title number Eldoret Municipality Block 8/563 (A3) Kenit Estate- a 5-bedroom maisonette, in settlement of the outstanding balance but on condition that the respondent paid him Kshs 5,000,000 such that it amounted to an offer to sell the maisonette for Kshs 27,000,000/=.

8.   The respondent averred that in response to this offer, they requisitioned a land valuer-Royal Valuers Limited, who carried out a valuation of the property and issued a report dated 3rd June 2019 putting the value of the property at only Kshs. 22,000,000/=. Following the said valuation, the plaintiff declined Mr. Varshani’s offer whereby Mr. Varsani undertook to sell the property himself and liquidate his company’s indebtedness to the plaintiff/respondent.

9.   In this regard, the plaintiff averred that Mr. Varsan transferred a sum of Kshs 3,000,000/=, Kshs 600,000/= and Kshs 500,000/= on diverse dates between December 2019 and August 2020 but has failed to pay the entire debt amount. It was Mr. Patel’s view that the payment of Kshs 4,100,000 is an admission of the applicant’s indebtedness to the respondent.

10.  The respondent noted that the draft defence does not raise any triable issues as the applicant was supplied with goods but failed to pay for them. Finally, Mr. Patel averred that the applicant/defendant is a flight risk since it has closed down its business and the whereabouts of its assets remain unknown and the court should therefore dismiss the application in toto.

11.   As directed by court, the matter was canvassed by way of written submissions and parties filed their respective submissions.

Analysis & Determination

12.  Having carefully considered the pleadings, submissions and annextures of the parties, I find that the issues raised can be condensed to a single issue for determination and that is whether the applicant has met the threshold for setting aside of the default judgement delivered on the 5th of February 2020.

13.  The applicant’s main contention is that it was never served with any summons to enable it defend the suit. This is the thrust of its application. Furthermore, the applicant submitted that its draft defense raises triable issues which ought to proceed to trial for adjudication. It was the applicant’s position that it disputes the indebtedness to the respondent as regards the decretal amount and that if the court does not set aside the impugned judgement, it stands to suffer substantial loss as it may end up paying an amount that has been exaggerated.

14.   On the other hand, the respondent submitted that the application has no merit at all. It submitted that the application has been brought to delay justice. The respondent’s main argument is that the plaintiff was duly served but failed to enter appearance resulting in the default judgement. Furthermore, it is the respondent’s position that the applicant is indebted to it in the amount of Kshs 21,479,496/= and that the actions of Mr. Varshan, to pay some amounts to the respondent, constitutes sufficient proof that the applicant is well aware of its indebtedness to the respondent.

15.   Order 10, of the Civil Procedure Rules, 2010, addresses the issue of consequences of non-appearance, default of defence and failure to serve by a party.  Order 10, rule 4 empowers courts to enter interlocutory judgment in cases where the plaint is drawn with a claim for pecuniary damages only or for detention of goods with or without a claim for pecuniary damages.  On the other hand, rule 9gives the Plaintiff the leeway to set down a suit for hearing where no appearance is entered for other suits not provided for by this Order.

16.   Order 10, rule 10 provides that in cases where a defendant has failed to file a defence, rules 4 to 9 shall apply with any necessary modification. Rule 11 empowers the court to set a side or vary a judgment that has been entered under Order 10. In particular, Order 10 rule 11 provides:

“where the Judgment has been entered under this order, the Court may set aside or vary such Judgment and any consequential decree or order upon such terms as are just.”

17.  Courts therefore have the discretionary power to set aside ex parte judgment with the main aim being that justice should prevail. This discretion is wide but, it must be exercised judiciously. In the case of Departed Aseans Property Custodian Board vs Issa Bakuya The Supreme Court of Uganda in Civil Appeal No. 18 of 1991 it was held that:

“An application to set aside an ex-parte Judgment cannot succeed if no good or substantial reasons are given to justify the setting it aside.”

18.  The above indicates that the court must be satisfied that there exist substantial reasons to justify the setting aside of the judgement. One of the ways that enables court to find whether there are substantial reasons to set aside a judgement is by making reference to the defendant’s draft defence to the plaint and accompanying witness statements before proceeding to give its ruling as to whether the applicant’s defence raises triable issues.

19. The above position was reiterated by Court in Patel vs East Africa Cargo Handling Services Ltd [1974] E.A. 75 where William Duffus, P. while considering the principles for setting aside of an ex parte judgment stated; -

“The main concern of the court is to do justice to the parties and the court will not impose conditions on itself to fetter the wide discretion given it by the rules. I agree that where it is a regular judgement as is the case here the court will not usually set aside the judgement unless it is satisfied that there is a defence on the merits. In this respect defence on the merits does not mean, in my view, a defence that must succeed, it means as Sheridan, J. put it "a triable issue" that is an issue which raises a prima facie defence and which should go to trial for adjudication”

20.   I am in agreement with the above dictum. I could thus use my discretion to set aside the judgement if I am satisfied that the defendant has a defence that raises triable issues. In this regard, the applicant/defendant has attached a draft defence in its application dated the 5th of August 2021. I have gone through it.

21. The main contention is the amount of indebtedness that the applicant/defendant owes the plaintiff/respondent. There is no denying that the applicant/defendant indeed owes the respondent/defendant. This is the reason I believe the applicant made partial payments on diverse dates to the respondent/plaintiff. In fact, the defendant admits this in its draft statement of defence. However, what is in dispute is the amount of money that the applicant owes the respondent. Whereas the respondent/plaintiff says it is Kshs 21,479,496. 47/= as of 2019, the defendant submitted that the amount is exaggerated but offered no explanation as to what he estimates to be the amount owed to the plaintiff/respondent.

22.  In addition, the defendant denies the existence of a legally binding contract to supply the respondent/plaintiff assorted hardware materials. It was his position that the same were supplied through a running account. In the same vein, the defendant/applicant denies ever being an agreement between them to the effect that payment was to be done strictly within the timelines agreed upon. Finally, the applicant denies any responsibility as regards any loss suffered by the respondent.

23. My view, after assessing the draft defence is that it raises triable issues that would enable me exercise my discretion to set aside the judgment herein. Taken altogether, the defence raised against the plaintiff’s claim, raises triable issues of fact and law that are fit for trial by this court. The significance of the defendant’s written statement of defence is the fact that it avers and contends to the existence of the express terms and conditions and breach thereof.  The defendant further in the pleadings deny violating any terms of the contract and specifically express terms and conditions as regards payment within the set timelines. Furthermore, the defendant/applicant denies being indebted to the plaintiff/respondent in the manner the plaintiff/respondent alleges especially the amount owed.

24.  All these issues require trial to establish the true position and amount of debt in question.

25.   In this regard, I am guided by the decision of Uganda Court in Libyan Arab Bank vs Intrepol Ltd (1985) HCB where the Court held:

“In its written statement of defence, it was clear that the defendant denied being indebted to the plaintiff in the manner alleged by the plaintiff in the plaint.  This was perfectly proper defence to raise against the plaintiffs claim which raised triable issues of fact and Law fit for trial by this Court.”

26.   As noted above, these triable issues need not succeed. For as long as a pleading raises a triable issue even if at the end of the day it may not succeed, then the suit ought to go to trial.

27.   In the foregoing, I am inclined to grant the applicant/defendant, the order sought. Consequently, the application dated 9th August 2021 is hereby allowed and orders granted as hereunder:

a. That the ex-parte hearing and resultant judgement delivered on 5th February 2020 together with all consequences arising therefrom be and is hereby set aside and the matter be heard on merit.

b. That the applicant/defendant shall enter appearance and file its defence to the suit within 7 days from the date of this ruling.

c. The hearing of the suit on its merit shall be on priority.

d. That the costs of the application shall be costs in the cause.

DATED, SIGNED AND DELIVERED AT ELDORET ON THIS 8TH DAY OF MARCH 2022.

E.K. OGOLA

JUDGE