Entreprise Generale Malta Forrest v Isolux Ingeneria S.A & another; Transmission Co Ltd (Garnishee) [2023] KEHC 25163 (KLR)

Entreprise Generale Malta Forrest v Isolux Ingeneria S.A & another; Transmission Co Ltd (Garnishee) (Civil Suit 350 of 2017) [2023] KEHC 25163 (KLR) (Commercial and Tax) (10 November 2023) (Ruling)

Neutral citation: [2023] KEHC 25163 (KLR)

Republic of Kenya

In the High Court at Nairobi (Milimani Commercial Courts Commercial and Tax Division)

Commercial and Tax

Civil Suit 350 of 2017

FG Mugambi, J

November 10, 2023

Between

Entreprise Generale Malta Forrest

Plaintiff

and

Isolux Ingeneria S.A

1st Defendant

Data Concursal SLP

2nd Defendant

and

Transmission Co Ltd

Garnishee

Ruling

1. Through a Notice of Motion dated 29th March, 2021, brought under Order 23 Rule 1, 3 and 4 of the Civil Procedure Rules and Section 1A, 1B, 3A and 63(e) of the Civil Procedure Act, the applicant seeks the following orders:i.That all debts owing from the interested party (the garnishee) to the 1st defendant be forthwith attached to satisfy the principal balance of the decretal sum amounting to Kshs. 307,131,756. 26/= together with accrued interest thereon at the rate of 25% per annum in terms of the Consent Order given on 6th October 2017. ii.That the garnishee be ordered to appear in court on such date as may be appointed by this honourable court and show sufficient cause why it should not be ordered to pay to the plaintiff/decree holder the said outstanding principal sum of Kshs. 307,131,756. 26/= together with all accrued interest thereon at the rate of 25% per annum amounting to Kshs. 257,569,946. 83/= as at 19th March 2021 and future interest to be accrued thereon.iii.That an order be issued directing the garnishee to forthwith pay the plaintiff the said outstanding principal balance of the decretal sum amounting to Kshs. 307,569,946. 83/=, accrued interest thereon amounting to Kshs. 257,569,946. 83/= as at 19th March 2021 and any future interest thereon at the rate of 25% per annum until payment in full.

2. The application is premised on the grounds on the face of it and supported by the affidavit and supplementary affidavit sworn by Jonathan Van Eetvelde,the Business Controller of the applicant as well as the submissions and supplementary submissions filed herein. In response, the garnishee (KETRACO) filed a replying affidavit sworn by Eng. Anthony Wamukota,the General Manager in charge of Design and Construction at KETRACO, on 8th September 2021 and written submissions dated 20th September 2021.

3. The background to this application is that on 30th December 2011, the 1st respondent entered into a contract for Engineering, Procurement and Construction (EPC) of the transmission line between Loyangalani and Suswa Substations with KETRACO. Through the Works Contract of 25th January 2016, the 1st respondent subcontracted the plaintiff to perform the works and services on its behalf. Although the plaintiff executed substantial works under the contract, the 1st respondent delayed in payments, precipitating to this suit. The plaintiff’s claim against the 1st respondent is for Kshs. 1,154,996,303. 32.

4. Eventually, on 14th August 2017, the 1st respondent filed for bankruptcy in Spain, and the 2nd defendant, was appointed as the as the Insolvency Practitioner and the single receiver. Following the bankruptcy proceedings KETRACO terminated the EPC Contract. On 6th October, 2017, the applicant and the 1st respondent compromised the suit and a consent order dated 9th October, 2017 was adopted by the Court. The 1st respondent assigned the monies due to them from KETRACO, in favour of the applicant. The applicant now seeks to enforce Orders 5 to 8 of the consent order as against KETRACO.

5. KETRACO’s case is that it had no contractual relationship with the 1st respondent and as such it is not liable to pay the monies demanded by the applicant. KETRACO relies on clauses 4. 5, 15. 2(h), 15. 3 and 15. 4 of the contract in support of this averment. It was further stated that KETRACO is a stranger to the suit and was not involved in the negotiations leading to the consent orders neither was it contacted to confirm availability of the subject funds.

6. KETRACO states that in any case, payment of any monies to the 1st respondent would have been subject to a joint audit which was yet to take place owing to the insolvency proceedings against the 1st respondent. An audit carried out by KETRACO revealed that the 1st respondent owed KETRACO owing partly to the fact that KETRACO had to engage with another EPC Contractor to complete the project, at a cost of 119,350,729. 76 euros.

7. The applicant impugns the veracity and substance of the worksheet report produced by KETRACO, stating that it was prepared unilaterally and that it is not sufficient to discharge the burden of proving that it is owed by 1st respondent.

8. The bottom line therefore is that KETRACO denies that it owes 1st respondent any debt that is capable of assignment and in any case the 1st respondent had not instituted any claim for alleged monies due.

9. Through a ruling dated 24th September 2020, Okwany’ J, allowed KETRACO to be enjoined as an interested party to these proceedings but declined to set aside the consent judgment orders No. 5 to 8 on the basis that the consent order was binding on the parties and could only be set aside by consent of the said parties. KETRACO filed a Notice of Appeal against that decision which according to the applicant, had not yet been prosecuted.

10. KETRACOfurther notes that the 1st respondent had no capacity by law to engage in negotiations as it was undergoing bankruptcy proceedings. Section 560(1)(d) of the Insolvency Act (hereinafter the IA) provides that leave is required to commence or continue proceedings against a company under administration. This had not been followed.

11. The 2nd respondent opposed the application by way of a preliminary objection (PO) dated 11th February 2022. The same was on the grounds that, in view of the order of 29th October 2018 by Kasango, J in Nairobi HCC Insolvency Petition No. E009 of 2018 recognizing insolvency proceedings in Ordinary Insolvency Proceedings 700/2017 in Spain, in Commercial Court No. 1 of Madrid in respect of 1st respondent, all suits against 1st respondent stand stayed. This was pursuant to the provisions under Section 720 as read with Part 22 of the Fifth Schedule of the IA.

12. The respondents filed their written submissions dated 27th April 2022 in respect of the application of 29th March 2021. KETRACO filed a further replying affidavit sworn by Lydia Wanja, the Manager Legal Services and written submissions in support of the preliminary objection. highlighting the provisions of the IA as relates to cross boarder insolvencies and particularly sections 5, 22, 428(1) and 428(2).

13. The applicant opposed the said preliminary objection by way of Grounds of Opposition dated 8th April 2022 and submissions dated 21st October 2021 and 8th April 2022. The grounds were that the said objection raised factual issues and since the suit was at the execution stage and the application sought to enforce the judgement against KETRACO only and not against 1st respondent, a stay order was not available to the 1st respondent.

Analysis and Determination 14. I have carefully considered the pleadings and the rival submissions by all the parties. As I have earlier stated, they relate to the application dated 29th March 2021 as well as the Notice of Preliminary Objection dated 11th February 2022. I shall prioritise the preliminary objection because of the obvious effects of the same on the application.

15. I find it necessary to refer to the locus classicus case of Mukisa Biscuit Manufacturing Co. Ltd v West End Distributors Ltd, [1969] EA 696, where the East African Court of Appeal held as follows:“A Preliminary Objection consists of a point of law which has been pleaded, or which arises by clear implication out of the pleadings, and which if argued as a preliminary point may dispose of the suit. Examples are an objection to the jurisdiction of the Court, or a plea of limitation, or a submission that the parties are bound by the contract giving rise to the suit to refer the dispute to arbitration....A Preliminary Objection is in the nature of what used to be a demurrer. It raises a pure point of law which is argued on the assumption that all the facts pleaded by the other side are correct. It cannot be raised if any fact has to be ascertained or if what is sought is the exercise of judicial discretion. The improper raising of Preliminary Objections does nothing but unnecessarily increase costs and, on occasion, confuse the issues, and this improper practice should stop.”

16. Applying the above threshold to the present circumstances, I am satisfied that the notice of preliminary objection satisfies the threshold set out in the Mukisa case. The bankruptcy proceedings are not controverted and the pleadings relating to the said proceedings form part of the record before the Court. The legal question relates to the effect of recognition of foreign bankruptcy proceedings to the proceedings before the court.

17. The Order dated 29th October 2018 by Kasango J, in IP E009 of 2019, Data Concursal SLP V Isolux Ingeniera, which recognized foreign insolvency proceedings reads thus:“Thatthe proceedings in ordinary Insolvency proceedings 700/2017 in Spain in commercial court No. 1 of Madrid, in respect of the debtor be and are hereby recognised as foreign main proceedings.”

18. The IA provides an elaborate framework for the recognition and enforcement of foreign insolvency proceedings. Section 22 of the Fifth Schedule to the IA provides for the effects of recognition of a foreign main proceeding which are that:“(a)The commencement or continuation of individual actions or individual proceedings concerning the debtor's assets, rights, obligations, or liabilities is stayed;(b)Execution against the debtor's assets is stayed; and(c)The right to transfer, encumber or otherwise dispose of any assets of the debtor is suspended.”

19. 1st respondent did not dispute the recognition of the foreign insolvency proceedings. The argument that the suit is at the execution stage and therefore should not be affected is untenable going by section 22(b) of the Fifth Schedule above. So too is the argument that the application herein seeks to enforce the judgement against KETRACO only and not against the 1st respondent.

20. The point is that if there is any money that is due to the 1st respondent from KETRACO, that forms part of the assets and estate of the 1st respondent that is available for distribution amongst its creditors. The objective of insolvency proceedings must be understood against the objective of achieving a better, orderly and efficient outcome for the creditors as a whole by ensuring optimal administration and distribution of a debtor’s assets. For this reason, the assets and liabilities of the 1st respondent are vested in the foreign representative.

21. Having said this, I find and hold that the application dated 29th March 2021 is devoid of merit. It is dismissed with costs. On the converse, the preliminary objection dated 11th February 2022 is merited and the same is upheld.

DATED, SIGNED AND DELIVERED IN NAIROBITHIS 10TH DAY OF NOVEMBER 2023. F. MUGAMBIJUDGE