Haco Industries Limited & Societe Bic v Doshi Iron Mongers Limited & Kenya Bureau of Standards [2022] KEHC 1764 (KLR)

REPUBLIC OF KENYA

IN THE HIGH COURT OF KENYA AT MOMBASA

CIVIL SUIT NO.108 OF 2006

HACO INDUSTRIES LIMITED.............................................1ST PLAINTIFF

SOCIETE BIC...........................................................................2ND PLAINTIFF

-VS-

DOSHI IRON MONGERS LIMITED................................1ST DEFENDANT

KENYA BUREAU OF STANDARDS................................2ND DEFENDANT

JUDGMENT

1. By way of history, the plaintiffs filed a plaint on 24/05/2006 against the defendants. That plaint was however dismissed on 15/07/2015 for want of prosecution. What is now before the court for determination is the 1st defendant’s counterclaim dated 15/06/2016 in which the 1st defendant (hereinafter referred to as the counter claimant) seeks refund of the settlement sum of Kshs15,000,000 paid to the plaintiffs, Kshs 440,800 being legal costs incurred in defending criminal case No.2158 of 2002, Kshs 250,000 being legal costs incurred in criminal case No.3454 of 1996, general damages for breach of the settlement agreement and costs plus interest.

2. The counter claimant pleads that on 20/02/2002, they entered into a settlement agreement with the plaintiffs, who expressly agreed to fully discharge the counter-claimant from all past, present or future liability with regard to the parties called “the 1996 products”. Pursuant to the said settlement agreement, the parties expressly agreed to refer disputes arising therein to arbitration. The plaintiffs however breached the said agreement when they instituted criminal charges against the counter-claimant in 1996 and 2002. As a result of the plaintiffs’ breach of the said agreement, the counter-claimant alleges having suffered loss and damage.

3. In their reply to defence and counterclaim dated 03/04/2017, the plaintiffs not only deny entering into the settlement agreement with the counter-claimant, but also the very existence of such an agreement or that it was breached by the plaintiff pushing two criminal cases against the counter-claimant. In brief, the plaintiff denied the claim in the counter-claim in its entirety and put the counter-claimant to very strict proof thereof.

4. At the trial, the counter-claimant called 1 witness with the plaintiffs calling none. Ashok Labhshanker Doshi, the counter-claimant’s director, testified as Pw1 and stated that he and counter-claimant were charged with the offence of supplying counterfeit goods in Criminal case No. 3454 of 1996, which charges were subsequently dropped. On or about 20/02/2002, they entered into a settlement agreement with the plaintiffs, under which agreement the sum Ksh.15,000,000 was paid to the plaintiffs for their claim of infringement of trademark and passing off. Under clause 6(1)(a) of the agreement, the plaintiffs released and forever discharged the counter-claimant from all present and future payment claims, demands and/or any liabilities in connection with the infringement of the registered trademarks belonging to the plaintiffs. According to him, they were absolved from any liabilities that may arise as a result of their possession, manufacture, processing, packaging, distribution, buying, selling, exportation, trade or other dealing in any goods and products manufactured by the 1st plaintiff. Pursuant to that agreement, the plaintiffs expressly agreed that the counter-claimant shall be fully discharged from all past, present or future liability with regard to the 1996 products.

5. Despite the express terms and undertaking discharging the counter-claimant from liability, the plaintiffs on 27/08/2002 instigated another criminal case No.2158 of 2002, for the same offence. It was his evidence that the goods which were the subject of the said Criminal case No.2158 of 2002 were the same 1996 products. The counter-claimant was obligated to destroy all counterfeits save for the 1996 products as described in the settlement agreement. Yet again in 2006, another complaint was made and charges brought against the counter-claimant over the same 1996 products, thus prompting them to commence Judicial Review proceedings. The judicial review proceedings ended in their favour and the goods were released as evidenced by the letter dated 26/05/2006.

6. The witness blamed the plaintiffs for breaching the settlement agreement, as a result of which the counter-claimant suffered loss and damage in defending the subsequent criminal cases and they thus considered the agreement breached hence their entitlement to the consideration paid. He exhibited and produced the documents listed in the bundle of documents filed on 25/01/2019 in support of their case as PExhibit 1-6. Their claim is therefore for compensation in damages for breach of contract, special damages for the sums paid as consideration on the agreement as well as the legal fees incurred in defending the criminal cases.

7. In cross examination, he stated that the counter-claimant was found in possession of the counterfeit goods in 2001. He stated that although they were acquitted in criminal case No. 3454 of 1996, there was no order for release of the products. He went on to state that there was no agreement between the plaintiffs and himself not to be charged in the event of being found with counterfeit goods. He stated that the charges in 1996 and 2002 related to the 1996 products. He confirmed that the court documents showed that in both criminal cases, the complainant was the weights and measures department but added that plaintiffs’ representatives were present at the time of seizure.

8. In re-examination, he stated that the 2001 goods were destroyed before the agreement was executed. As at that time, the 1996 products were in his warehouse but under seizure notice in situ. He maintained that the goods in the two charges were from the same lot and denied the existence of any dispute as to importation of the goods from the plaintiffs.

9. As intimated before, the defendant offered no evidence and the parties were directed to file and serve written submissions which were filed respectively on 23/10/2020 and 12/11/2020.

10. The counter-claimant, in its submissions reiterated that it had proved its case to the requisite standards and was thus entitled to the prayers sought. It maintained that the two charges in the cases subsequent to the settlement agreement referred to the 1996 products and that clauses 1(1) (g) and 1(1) (l), 5 of the agreement exempted the 1996 products and allowed the counter-claimant to keep them. To the counter-claimant, the 1996 products having been exempted from destruction, there was nothing illegal with the counter-claimant being found in possession thereof on 23/08/2002 and therefore here was no basis for charging the counter-claimant again in 2002, as the goods were the same ones exempted by the agreement.

11. On the legal requirement that special damages be specifically pleaded and strictly proved, it was submitted that although no receipts were produced to specifically prove payment of the legal costs incurred in both cases, there was no dispute on the counter-claimant’s representation by counsel and that in the absence of any contrary evidence from the plaintiffs, the counter-claimant’s case was uncontroverted. The net effect of the submissions was that upon payment of Kshs15,000,000, the counter-claimant was forever discharged from present and future claims in respect of infringements or breaches that had arisen prior to the date of the agreement and concerning the 1996 goods. The plaintiffs are blamed for breaching the agreement when they lodged the complaint, which led to the counter-claimant being charged contrary to the settlement agreement. It was concluded that the plaintiffs ought to refund the monies pleaded in the counterclaim, for their failure to comply with the agreement. The counter-claimant relied on the cases of Jubilee Insurance Company of Kenya Ltd v Zahir Jiwan & anor (2017) eKLR,in support of its position that special damages can be proved without necessarily producing receipts if there is credible evidence led to the satisfaction of the court. For its case, it was pointed out that the receipts could not have been traced and produced due to lapse of time.

12. On their part, the plaintiffs submitted that the 1996 products and the 2002 goods were vastly different, in terms of quantity and packaging. It was argued that the counter-claimant had failed to prove by way of receipts the special damages it claimed. In denying having had a hand in criminal case No.2158 of 2002, the plaintiffs submitted that the mandate of instituting criminal charges was solely on the DPP. Their position was that the counterfeit goods found in possession of the counter-claimant on 23/08/2002 were not covered under the agreement; therefore the criminal charges in relation thereto were legal and further that the agreement was in respect of one identified case of infringement occurring on 02/10/2001 only. It was concluded that the counter-claimant’s suit should be dismissed. The plaintiffs relied on the cases of Kelly Kases Bunjika v ODPP & anor (2018) eKLR, Victor Mabachi & anor v Nurtun Bates Limited (2013) eKLR andgrace Kanini Muthini(2000) eKLRin support of their submissions and for the proposition of the law when the high court would terminate criminal prosecutions and that where the court is faced with two probabilities, it decides on a balance of probabilities.

13. Having considered the evidence on record and the rival submissions of the parties, I discern the issue for determination to be whether the plaintiff did breach its obligations under the settlement agreement and therefore if the counter-claimant is entitled to the prayers sought in the counterclaim.

14. To determine that issue, one must carefully analyze the contents of the settlement agreement between the parties and establish what it was that the parties agreed to do and what they committed to refrain from doing.

15. From the documents filed by both sides and the evidence led including that extracted in cross-examination, it is beyond debate that there was indeed an agreement called SETTLEMENT AGREEMENTdated the 20. 02. 2002 duly signed on behalf of all the parties and witnessed by respective lawyers. From the word go therefore, the defence to the counter-claim that no such agreement ever existed cannot be true but must be the kind called a bare denial of just general traverse.

16. The other undisputed and common facts in the matter are that the counter-claimant was found in possession of Bic Ball Pens which were allegedly counterfeit and meant to pass off as the products produced and protected by trade mark “BIC”.As a result of the find, the 1st counter claimant and its directors were charged in Criminal case No. 3454 of 1996 but were ultimately acquitted.

17. After the acquittal, the counter-claimant and the plaintiffs entered into a settlement agreement dated 20/02/2002 which the counter-claimant contends, the plaintiffs expressly allowed it to keep in its possession the goods which were subject of Criminal case No. 3454 of 1996 and referred to as the 1996 products in the said agreement. In consideration of the plaintiffs forbearing their right under the trade mark and in law, the counter-claimant paid the plaintiffs a sum of Kshs15,000,000 as compensation on the understanding that, the plaintiffs would not lodge a complaint based on the 1996 products. This payment other than the denial in the Reply to defense and defence to counterclaim has not been meaningfully challenged yet the agreement produced at trial without protestation acknowledges the payment.

18. What comes out clearly from that settlement agreement is that criminal case No. 3454 of 1996 was instituted way before the said agreement was entered into and that the agreement was intended to settle the dispute related to those proceedings. It is also evidently clear that the said agreement was in regard to the 1996 products only for which the counter-claimant was being released and discharged from all claims in consideration of the agreed payment. A reading of clauses 5 and 6 of the agreement shows that the said agreement fully discharged the counter-claimant against claims arising from the 1996 products only.

19. The 1996 products have been defined to mean “those goods or products the subject of criminal case No.3454 of 1996(chief magistrates court Nairobi) and listed in the fourth schedule of the said agreement to be “176 cartons each containing 72 boxes with each box holding 50 ballpoint pens. This determination must establish which goods founded the subsequent prosecution for it to establish whether or not there was a breach of the agreement.

20. Civil cases must be determined on the basis of evidence led and upon the known standards of proof which remain at balance of probabilities. That standard dictates that where the court is faced with two rival positions of evidence, it decides the matter on the basis of which of the two versions is more probable. In this matter, the defendant offered no evidence to challenge the counter claimants’ position that the charges brought subsequent to the agreement were in fact grounded on the 1996 goods which were exempt from such pursuit. That evidence stood uncontroverted and it is the only evidence the court must rely upon to come to a decision. Applying the standard of proof on the basis of preponderance, I do find that there is no other evidence that the 1996 goods were not the foundation of the 2002 prosecutions.

21. Viewed the other way, is there a reason to invite the probability that the goods could have been any other goods apart from the 1996 goods? The answer to this question must be a resounding no. No because, there was no pleading by the plaintiff that the prosecution was justified on account of goods not covered by the agreement. As said before, the Reply to Defense and Defence to Counterclaim was limited to denying the allegations made without mounting a distinct defense. Because parties are bound by pleadings and no evidence contrary to the pleadings filed is admissible, there was no room for the plaintiff to lead evidence that could have persuaded the court that the prosecution was on goods not covered by the agreement. Accordingly, I do find that when the plaintiff sought in cross examination to elicit evidence that the goods upon which the complaints were brought were outside the agreement, it was acting in vain by seeking to introduce the evidence not supporting its pleadings on record.

22. Based on the foregoing analysis and findings I do find that the plaintiff did breach the agreement with the counter claimant. With established breach, the next question is whether there are remedies that are available for grant to the Counter-claimant.

23. I have found that there has not been a challenge that there was payment of Kshs 15,000,000 by the counter-claimant to the plaintiff as a consideration for the plaintiff to forbear insisting on its rights under the registered trade mark and law in general. I have also found that there was a breach of the agreement by pressing the subsequent charges. Those two findings lead me to the other inevitable finding that there was a failure of consideration on the part of the plaintiff for which reason the counter-claimant is entitled to restitution. The court in Kenya Commercial Bank v Philip Odongo Kabita T/A Odongo Kabita Valuers [2002] eKLR,had this to say about restitution:

“Whether the claim be in tort or in contract,restitutio in integrumis the guiding principle in law. The plaintiff should be restored to the same position as he would have been had the breach of contract or tort complained of not occurred.”

24. Having restituted the counter-claimant the claim for general damages must fail and is thus dismissed. It fails because the law is trite that in claim for contracts the aim is to restitute the claimant and no more. In Consolata Anyango Ouma v South Nyanza Sugar Co. Ltd (2015)eKLR,the court stated as follows:

“As a general principle, the purpose of damages for breach of contract is, subject to mitigation of loss, the claimant is to be put as far as possible in the same position he would have been if the breach complained of had not occurred. This is principle is encapsulated in the Latin phraserestitutio in integrum(see Kenya Industrial Estates Ltd v Lee Enterprises Ltd NRB CA Civil Appeal No. 54 of 2004 [2009]eKLR, Kenya Breweries Ltd v Natex Distributors Ltd Milimani HCCC No. 704 of 2000 [2004] eKLR). The measure of damages is in accordance with the rule established in the case of Hadley v Baxendale (1854) 9. Exch. 341 that the measure of damages is such as may be fairly and reasonably be considered arising naturally from the breach itself or such as may be reasonably contemplated by the parties at the time the contract was made and a probable result of such breach (see Standard Chartered Bank Limited v Intercom Services Ltd & Others NRB CA Civil Appeal No. 37 of 2003 [2004] eKLR). Such damages are not damages at large or general damages but are in the nature of special damages and they must be pleaded and proved.

25. Having pressed for the subsequent prosecution in breach of its contractual obligations, I do find that the plaintiff would be unjustly enriched if allowed to keep the consideration it received for the breached agreement. I find that justice demands that it effects a refund of the said consideration.

26. On the claim for costs incurred in defending the two prosecutions, I do agree with the plaintiff that the same take the form of special damages and thus must be strictly proved having been specifically pleaded. However, strict proof does not mean proof by way of receipts or documents only. It is enough that credible evidence be lead to the satisfaction of the court that the witness said the truth. I did take the evidence and observed PW1 lead that evidence. Pw1 struck me as honest and was never shaken in cross-examination. Based on that position, I take guidance from the court of appeal in Jubilee Insurance Company’s case (supra) that where no receipts are available, other cogent form of evidence is acceptable to prove the case. In addition, I have looked at the proceedings exhibited by both sides and noted that indeed an advocate was retained. I am equally prepared to take judicial notice that the advocate shown to have been employed is a senior one and looking at the sums claimed, I find the same to be reasonable and not exaggerated. I find no reason to disbelieve the counter claimant that it indeed incurred legal fees in the sums claimed.

27. In conclusion, I find that the counter claimant has proved its case against the plaintiff and therefore I do enter judgment as prayed in the counter-claim as follows; -

a) Kshs 15,000,000 being the sum paid to the plaintiff pursuant to the breached agreement.

b) Kshs 690,800 being the legal fees incurred by the counter- claimant to defend the two criminal cases.

c) Costs of the suit be taxed or agreed.

d) Interests at court rates on the liquidated sums from the date of the suit till payment in full.

DATED, SIGNED AND DELIVERED AT MERU THIS 9TH DAY OF MARCH 2022

Patrick J.O Otieno

Judge

In presence of

Mr. Etuusa for the plaintiff/defendant in C/C

Miss Kinura for the counter claimant/ defendant

Patrick J.O Otieno

Judge