Delphis Bank Limited (Now Oriental Commercial Bank Limited v Channan Singh Chatthe, Satwant Singh Chatthe, Sukhwinder Singh Chatte, Raghbir Singh Chatthe (All T/A Channan Agricultural Contractors), Charanjit Singhhayer & Rajnikant Karsandas Somaia [2014] KECA 817 (KLR)

REPUBLIC OF KENYA

IN THE COURT OF APPEAL

AT KISUMU

(CORAM:  GITHINJI, AZANGALALA & KANTAI, JJ. A)

CIVIL  APPEAL NO.  179   OF 2008

BETWEEN

DELPHIS BANK LIMITED(nowORIENTAL COMMERCIAL BANK LIMITED...................................APPELLANT

AND

CHANNAN SINGH CHATTHE ..............................................................1st RESPONDENT

SATWANT SINGH CHATTHE................................................................2nd RESPONDENT

SUKHWINDER SINGH CHATTE...........................................................3rd RESPONDENT

RAGHBIR SINGH CHATTHE (all t/aCHANNANAGRICULTURAL CONTRACTORS......4th RESPONDENT

CHARANJIT  SINGH HAYER …............................................................. 5th RESPONDENT

RAJNIKANT KARSANDAS SOMAIA........................................................6th RESPONDENT

(Appeal from a Judgment  of the High Court of Kenya at

Kisumu  (Tanui,  J)  dated 4th May,  2005

in

KISUMU  HCCC  No.  164  OF 2003

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

JUDGEMENT OF THE COURT

This appeal is closely intertwined with Civil Appeal Nos 180 and  273 both of 2008 all filed at Kisumu.   The facts and the events that took place before B. K. Tanui, J (as he then was) when the original suit came for hearing before him on 4th May, 2005 are related and similar.  The Notice of Appeal in respect of this appeal states in part:-

“TAKE NOTICE that the Defendant herein, THE DELPHIS BANK LIMITED (NOW ORIENTAL COMMERCIAL BANK LIMITED) being dissatisfied with the decision of the Honourable Justice Tanui, given at the High Court, Kisumu on the 4th day of May, 2005, by which he directed that the Defendant does adduce evidence first, intends to appeal to the Court of Appeal against the whole of the said decision.”

The Notice of Appeal in respect of Civil Appeal No. 180 of 2008 states in part:-

“TAKE NOTICE that the Defendant herein, THE DELPHIS BANK LIMITED (NOW ORIENTAL COMMERCIAL BANK LIMITED) being dissatisfied with the decision of the Honourable Justice Tanui, given at the High Court, Kisumu on the 4th day of May, 2005, by which he allowed L. G. Menezes Advocate to participate in the proceedings in High Court Civil Case No. 164 of 2003, intends to appeal to the Court of Appeal against the whole of the said decision.”

And the Notice of Appeal in respect of Civil Appeal No. 273 of 2008 states in part:

“TAKE NOTICE that the Defendant herein, THE DELPHIS BANK LIMITED (NOW ORIENTAL COMMERCIAL BANK LIMITED) being dissatisfied with the decision of the Honourable Justice Tanui, given at the High Court, Kisumu on the 4th day of May, 2005, by which he Dismissed the Defendant's Counterclaimwith Costs, intends to appeal to the Court of Appeal against the whole of the said decision.”

When the three appeals came for hearing before us counsel for the parties did not agree to a consolidation of the same but only agreed to consolidate the other two appeals at the conclusion of the hearing of this appeal.  We observe here that it would have saved a lot of time for the parties, their counsel and judicial time if all the appeals arising from the same suit, the same facts and the same decision  had been consolidated to be heard together and lead to delivery of one consolidated judgement.  That is all we shall say in respect of that issue.

By a plaint filed at the High Court of Kenya, Kisumu, on 3rd December, 2003 the 1st  to 4th respondents Channan Singh Chatthe, Satwant Singh Chatthe, Sukhwinder Singh Chatthe and Raghbir Singh Chatthe trading as Channan Agricultural Contractors(the original plaintiffs) sued the appellant Delphis Bank Limited (Now Oriental Commercial Bank Limited) (“the original defendant”) where various averments were made.   These were in sum to the effect that on  or about the 7th day of  July, 1998 the plaintiffs, at the request of the defendant, executed an instrument of charge wherein a parcel of land South Wanga / Lureko / 1892 owned by the plaintiffs was charged to the defendant in consideration of a loan to Kibos Sugar Industries of Kshs. 22,000,000/=.

It was averred that after registration of the said charge the defendant falsely and fraudulently misrepresented to the plaintiffs that the defendant, at the request of the said Kibos Sugar Industries, had made advances  and granted to the said entity financial facilities of Kshs. 40,000,000/= and that the said facility was secured by the said charge.  Various particulars of  alleged fraudulent representation were made and the plaintiffs averred that acting on the same they paid a sum of Kshs. 3,750,000/= to the defendant.  It was also alleged that over time upto the year 2003 the plaintiffs discovered that the said Kibos Sugar Industries had not made any loan application to the defendant and that no loan had been advanced and that the plaintiffs had in the premises been defrauded by the defendant.  Particulars of this second alleged fraud were duly set out.  For all these the plaintiffs prayed for:

“(a)         A  declaration that the charge registered against land parcel number South Wanga/Lureko/1892 is null and void in law.

(b) A declaration that there was no consideration for the charge created over land parcel number South Wanga/Lureko/1892 in favour of the Defendant.

(c)  A declaration that the Plaintiffs are entitled to a discharge of the charge registered against land parcel number South Wanga/Lureko/1892.

(d) An order directing the Defendant to execute a discharge of charge of the charge registered against land parcel   number South Wanga/Lukero/1892.

(e)  Payment of the sum of Kshs. 3,750,000/= and interest hereon at court rates since October 1999 to date of          payment.

(f)  Cost of the suit

(g) Any other or further relief as this court may deem just and fit to grant.”

The defendant filed a statement of defence and counter-claim where every allegation in the plaint was denied admission being only on formal averments in the plaint.   Three new parties were introduced to the suit by the defendant as defendants to the counter-claim.   The defendant averred in its defence  inter alia that in the year 1997 the third plaintiff and one Sarnagar Singh Hayer who traded as Kibos Sugar Industries (“Kibos”) applied to the defendant for a loan of Kshs. 40,000,000/= which was granted.   The two individuals were to execute  guarantees for due payment of the said loan but the defendant disbursed the loan before either the guarantees or a legal charge was created.   It was further alleged that the said Kibos Sugar Industries failed to service the loan which stood at Kshs. 66,000,000/= as at 30th June, 1998 and that as a consequence the two individuals as partners  of Kibos agreed to execute legal charges in respect of three parcels of land South Wanga /Lureko/1892, Kisumu Municipality / Block 11/119 and Kisumu Municipality/Block 12 /288 which was duly done.

It was further averred in the defence and counter- claim that Kibos continued defaulting in servicing the loan and that its said partners and another person Rajnikant Karsandas Somaia proposed to the defendant that the loan be restructured.   This allegedly led to an arrangement where Kibos was to be dissolved as at 30th September, 1999  and the loan which stood in the defendants books at Kshs. 68,568,705/= be split in the following shares:  Charanjit Singh Hayer Kshs. 19,908,507/=, Raghbir Singh Chatte taking over similar sum and Rajnikant Karsandas Somaia to take over Kshs. 28,751,691/= with the existing securities remaining in place.

The defendant averred that the said persons did not meet their part of the agreement and were therefore indebted to the  defendant accordingly and the suit should be dismissed.

The counter-claim was against Charanjit Singh Hayer, Raghbir Singh Chatthe and Rajnikant Karsandas Somaia and claimed the sums stated above against them.

The original plaintiffs filed a reply to Defence and Defence to counter-claim where the counter claim was  denied.   The defendants to the counter claim also filed defence denying the counter claim.   The first defendant to the counter-claim went a step further – he filed a counter-claim of his own where he alleged  that he was falsely misled by the original defendant and had executed a charge in favour of the original defendant for Kshs. 22,000,000/= in respect of his parcel of land Kisumu Municipality /Block 11/119.   The averments in this counter-claim are not dissimilar to the averments in the plaint.   It was therefore prayed that a sum of Kshs. 3,750,000/= paid to the original defendant be paid back; that there be an order declaring the charge over the said parcel of land to be  invalid and the same be discharged.

The third defendant to the counter-claim was not left behind.  He also filed a counter-claim like the first defendant to the counter-claim and prayed for a refund of Kshs. 12,316,334/=; an order declaring that the charge registered over Kisumu Municipality / Block 12/288 be declared invalid and the same be discharged.

The original defendant filed replies to defences to the counter-claims and denied the same.

Parties agreed by consent that the issues for determination in the whole suit were the following:

“AGREED ISSUES

1. Did  the partners of Kibos Sugar Industries ever apply for any financial accommodation from Delphis Bank Limited?

2. Was any such facility ever given to the partners of Kibos Sugar Industries?

3. If so, what are the particulars of such financial accommodation facility?

4. Did the partners of Kibos Sugar Industries ever request/authorize /permit/mandate or instruct Delphis Bank     Limited to disburse the sum of Kshs 40,000,000/= or any other sum to Dolphin  Management Services Ltd or to          anyone else?

5. If so, when and in what manner are such instructions given?

6. Are the charges registered against land parcels number South/Wanga/Lureko 1892, Kisumu Municipality Block 12/288 and Kisumu Municipality Block 11/119 null and void   for:-

(a) Fraudulent misrepresentation

(b) Lack of consideration

7. Was there any valuable consideration for the charges created against the above three properties in favour of       Delphis Bank Limited?

8. Are the charges registered against the above three properties valid and enforceable?

9. Should the Delphis Bank Limited be ordered to discharge the charges registered against the three properties above described registered in the names of Rajnikant Karsandas Somaia, Charanjit Singh Hayer and Raghbir Singh Chatthe respectively, unconditionally?

10. Is the Bank entitled to recover any monies from Mr. Rajnikant Karsandas Somaia, Mr Raghbir Singh Chatthe     and Mr. Charanjit Singh Hayer, respectively?

11. Is Mr. Rajnikant Karsandas Somaia, Mr. Raghbir Singh Chathe and Mr. Charanjit Singh Hayer entitled to any    repayment /refund from the Delphis Bank Limited with interest?

12. Did the partners of Kibos Sugar Industries apply to Delphis Bank Limited for the restructuring of any loan and / or facility?

13. Did Kibos Sugar Industries of the one part, Delphis Bank Limited of the second part and Mr. Rajnikant Karsandas Somaia, Mr. Raghbir Singh Chatthe and Mr. Charanjit Singh Hayer on the third part agree that the purported liability of Kibos Sugar Industries should be apportioned between Mr. Rajnikant Karsandas Somaia, Mr. Raghbir Singh Chatthe and Mr. Charanjit Singh Hayer?

14. If yes, on what terms and conditions?

15. Was the said proposed transaction ever crystallized?

16. If it was not crystallized, did Mr. Rajnikant Karsandas Somaia, Mr. Raghbir Singh Chatthe and Mr. Charanjit   Singh Hayer become liable to settle any sums allegedly due to Delphis Bank Limited from Kibos Sugar Industries........?

That was the status of these rather heavy pleadings and issues when the suit came for hearing on 4th May, 2005 as has already been seen.

As this appeal relates only to that part of the learned Judges' decision where he directed the appellant to adduce evidence first, we shall refer only to that part of the decision relating to this issue

On the suit being called to hearing Mr. Wasuna, learned counsel for the third defendant to the counter-claim, raised an application under Order 17(3)(1) Civil Procedure Rules arguing that as the original defendant had counter-claimed and introduced new parties to the suit that defendant had more issues to prove than other parties to the suit and should therefore take the right to begin.    Counsel for that defendant (the appellant) objected to the application arguing that not only had she been ambushed by the application but that the plaintiffs retained the right to begin and could not shift that burden.

Counsel for all other parties supported the application.   The learned Judge decided:

“Order on direction:

It is clear that the pleadings in this case have raised a bit of complexity of the manner in which the trial should be conducted.   There is a dispute as to who should begin.

The defendant having averred that the charges sought to be challenged by the plaintiffs are valid and has counter-claimed against two others including one plaintiff.   I order that the defendant is to begin.

B. K. TANUI/JUDGE

MURIU – I pray for leave to appeal.

MENEZES – I oppose the application.  If there is to be an appeal it will not be of any assistance to the defendant.   Nothing has been taken from the defendant and nothing has been gained by the plaintiff.  Whichever way the appeal may fail (fall), it will not be of any use.

The leave sought is merely to gain time by the defendant.

B. K. TANUI/JUDGE

ORDER – Leave is granted to the defendant to file the  appeal against the ruling.

B. K. TANUI /JUDGE.”

Matters did not end there.

Counsel for the appellant applied for adjournment and a stay of proceedings for seven (7) days to enable her to file a formal application.   This application was opposed by all counsel for the other parties and the learned Judge rejected the application ordering that the matter proceed to hearing.   These are issues subject of the related appeals.  Suffice to say here that it would appear from the record that the court then rose resuming for the afternoon session when counsel for the appellant was not present in court.  An application for the defendants counter-claim to be dismissed was allowed and the plaintiffs then proceeded with the case against the defendant and the case was concluded.

As the appeal relates largely to the exercise of discretion by the learned Judge we remind ourselves of the circumstances in which this court will interfere with the exercise of a discretion of a trial Judge.   This was considered by the predecessor of this Court in Mbogo v Shah [1968] EA 93 which has been applied in many decisions of this Court.  It was held:

“I think it is well settled  that this court will not interfere with the exercise of its discretion by an inferior court unless it is satisfied that its decision is clearly wrong, because it has misdirected itself or because it has acted on matters on which it should not have acted or because it has failed to take into consideration matters which it should have taken into consideration and in doing so arrived at a wrong conclusion.”

Six (6) grounds of appeal are taken in the Memorandum of Appeal drawn by the appellants counsel M/s Njoroge Regeru and Company Advocates.   They are:

“1.        THAT the Learned Judge erred in law by granting the order sought in the oral application to the effect that the Appellant do adduce its evidence first when it was clear that the application had been made in contravention of the express requirements of Law.

2. THAT the Learned Judge erred in Law by finding that the Defendant had a larger burden of proof as compared to the Plaintiffs.

3. THAT the Learned Judge misdirected himself by proceeding with the trial ex-parte when he had already        granted leave to appeal against his Ruling on the manner in which the trial should proceed.

4. THAT the Learned Judge erred by exercising his discretion against the Applicant and denying the applicant     an adjournment and a temporary stay of proceedings and thereby occasioning a miscarriage of justice.

5. THAT the Learned Judge erred in Law and in fact by finding the Applicant's case unmeritorious and dismissing     the same with costs.

6. THAT in all the circumstances of the case the Learned Judge failed to do Justice before him.”

Miss Julie Soweto Aullo, learned counsel for the appellant, submitted before us that the application made for the defendant to begin was irregularly made as it should have been made by Motion and its being made orally ambushed the appellant and its counsel.   Counsel submitted that the learned Judge erred by giving leave to appeal and then refusing a stay of proceedings to allow the intended appeal to be filed and determined and also refused the appellants application for adjournment.  Counsel submitted further that it was always the plaintiff who had a duty to adduce evidence first and referred us to Order 17 (1) and (3) Civil Procedure Rules arguing that the same had to be read together to give the provision its full meaning and import.

Mr. P. Karanja, learned counsel for the 1st, 2nd, 3rd and 4th respondents in opposing the appeal submitted that the Judge had properly exercised his discretion in ordering that the appellant be the party to begin and the decision of the judge should  not be disturbed.

Mr. L. G. Menezes, learned counsel for the 5th respondent submitted that because the pleadings were heavy where the appellant had not only filed a counter-claim but also introduced new parties who also filed counter-claims the learned Judge was right to order that the appellant begin.   Counsel submitted that we should not interfere with exercise of discretion by the trial court.

Mr. W. Gichaba, learned counsel for the 6th respondent argued that by filing a counter-claim the appellant became a plaintiff and it was not wrong to make the order that was made.

Order 17 (1) to (3) Civil Procedure Rules (now Order 18 in the amended version) provides that:

“1.     The plaintiff shall have the right to begin unless the defendant admits the facts alleged by the plaintiff and contends that either in point of law or on   some additional facts alleged by the defendant the plaintiff is not entitled to any part of the relief which he seeks, in which case the defendant shall have the  right to begin.

2.       (1)  On the day fixed for the hearing of the suit, or on any other day to which the hearing is adjourned, the party having the right to begin shall state his case and produce his evidence in support of the issues which he is bound to prove.

(2)The other party shall then state his case and produce his evidence, and may then address the court generally on the case.   The party beginning may then reply.

(3)After the party beginning has produced his evidence then, if the other party has not produced and announces that he does not propose to produce evidence, the party beginning shall have the right to address the court generally on the case; the other party shall then have the right to address the court in reply, but if in the course of his address he cites a case or cases the party beginning shall have the right to address the court at the conclusion of the address of the other party for the purpose of observing on the case or cases cited.

(4)              The High Court may in its discretion limit the time allowed for addresses by the parties or their advocates.”

Rule 1 therefore requires that for there to be a change in the normal position that the plaintiff has the right to begin it has to be shown that the defendant has admitted the facts alleged by the plaintiff.

The same provision contained in the amended Civil Procedure Rules – now Order 18 – is in clearer terms.   It provides:

“The plaintiff shall have the right to begin unless the court otherwise orders.”

Which is to say that when a matter is called to hearing it is the plaintiff who shall begin giving testimony unless there are circumstances that cause a change  in that ordinary course of conducting a trial in which case the court may direct the other party to begin.

Mulla on The Code of Civil Procedure Volume 2 of the 16th Edition has discussed the issue on hearing of suits and examination of witnesses.  On a provision in the Indian Code similar to Order 17 of our Code he states:

“1.  RIGHT TO BEGIN

The right to begin is to be determined by the rules of evidence.  As a general rule, the party on whom the burden of proof rests should begin.  Sections 101 – 14 of the Indian Evidence Act 1 of 1872 deal with burden of proof.   Section 102 of the Act provides that the burden of proof lies on that party who would fail if no evidence at all were given on either side.   It is well settled law that a person who sets the law in motion and seeks a relief before the court, must necessarily be in a position to prove his case and get relief moulded by the law.   In no case, the plaintiff can be allowed any undue advantage over the defendant, whatever may be the position or stand the defendant takes, for the very reason that the defendant is expected to answer the claims and allegations made  by the plaintiff in the suit.”

Chapter IV of the Evidence Act Chapter 80 Laws of Kenya on “Production and Effect of Evidence” provides inter alia that the party who wishes a court to give judgement in its favour regarding any legal right or liability dependent on existence of facts which that party asserts must prove that those facts exist.   It further provides that the burden of proof in suits or proceedings lies on the person who would fail if no evidence at all were given on either side.

The general rule is that when the burden lies on the plaintiff it is improper to examine the witnesses of the defendant in the first instance followed by those of the plaintiff.  And even where the defendant admits only some of the facts alleged by the plaintiff it does not give him the right to begin.

It was alleged at paragraph 4 of the plaint that the plaintiffs, at the request of the defendant, executed a charge where the plaintiffs charged their parcel of land as security for a loan advanced by the defendant to Kibos Sugar Industries.  At paragraph 5 of the Plaint it was alleged that the defendant, subsequent to registration of the said charge, fraudulently misrepresented to the plaintiffs that it (the defendant) had advanced a sum of money to the said Kibos.  At paragraph 6 of the plaint it was alleged that the plaintiffs acted on the alleged misrepresentations and fraudulent acts and partly repaid the loan.

The appellant at paragraph 1 of the statement of defence denied each and every allegation in the plaint save what the appellant expressly admitted.  At paragraph 2 of the defence the appellant admitted the contents of paragraphs 1 and 2 of the plaint because these paragraphs were merely descriptive of the parties to the suit.

Paragraph 3 of the defence stated that paragraph 3 of the plaint was essentially correct.   This paragraph of the plaint states that at the material time the plaintiffs were trading in a stated partnership name which partnership owned a parcel of land.

All other paragraphs of the defence directly denied the averments in the plaint or responded to them in the negative.

In “Agreed Issues”the issues raised for determination of the court were picked from the pleadings.

As has already been seen the plaintiffs alleged in the plaint that they executed a charge in favour of the defendant to secure a loan advanced to Kibos and that there were fraudulent representations by the defendant.   These are material facts covering most of the agreed issues.   Can it be said in the premises that the defendant had admitted the facts alleged by the plaintiffs to such an extent that it shifted the burden to the defendant to be ordered to begin?

When the suit was called for hearing counsel for the 3rd defendant to the counter-claim made the application for the appellant to be ordered to tender evidence first.   This application was made orally and the reasons given were that there were two substantive issues which arose in the suit which were stated to be:

“(1)       Validity or otherwise of 3 charges over 3 properties that     the bank seeks to realize securities against my client   among others.   The bank has to prove  that the charges    are valid.

(2)         The claim for debts as owing to the bank by 3 defendants to the counter-claim.”

We have already observed in this judgement that there were 16 issues agreed as issues to be determined by the court  in the whole suit.

No prior or any notice had been given that an application as was made would be made for the appellant to begin.   And when it was made counsel for the appellant objected to it claiming that she had been ambushed and that the application should have been made by motion.   The  learned Judge allowed the application  ordering the appellant to begin.   The learned Judge further granted leave to the appellant to appeal his decision but refused an application for stay of  proceedings pending appeal ordering that the matter do proceed to trial.

The only material placed before the learned Judge in the application by learned counsel for the 3rd defendant to the counter-claim was that there were only 2 issues to be determined in the suit.

The learned Judge in ordering the appellant to begin merely stated that:

“... the defendant having averred that the charges sought to be challenged by the plaintiff are valid and has counter-claimed against two others including one plaintiff.  I order that the defendant is to begin.”

In the circumstances of the case before the learned Judge where it was not demonstrated in any way at all that the appellant had admitted any part of the plaintiffs case and where the application was made without any notice and was clearly an ambush on counsel for the defendant the learned Judge with due respect to him  was clearly in error to reverse the ordinary way of conducting civil proceedings to order the appellant to begin.  And having given the appellant leave to appeal we are of the considered opinion that the learned Judge in the circumstances exercised his discretion erroneously in refusing the application for stay of proceedings.  Limited time should have been given to allow the appellant to challenge the decision that had put it at a distinct disadvantage.  We note, indeed, that a stay of the proceedings was granted by this Court in Civil Application No. 136 of 2005.

Counsel for the appellant did not press the prayer for the suit to be transferred to Nairobi.  This was a correct decision and nothing more need be said on that issue.

We think we have said enough to show that the learned Judge again with due respect exercised his discretion wrongly and we  are entitled to interfere with the way it was exercised.  We allow the appeal  and set aside that part of proceedings that took place on 4th May, 205 by which it was ordered that the appellant adduce evidence first.  We award costs of the appeal to the appellant.

Dated and Delivered at Kisumu this   21st  day of   February,  2014

E. M. GITHINJI

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JUDGE OF APPEAL

AZANGALALA

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JUDGE OF APPEAL

S. ole  KANTAI

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JUDGE OF APPEAL

I certify that this is a true copy of the original.

DEPUTY REGISTRAR