Kenya Broadcasting Corporation v National Authority for The Campaign Against Alcohol and Drug Abuse (NACADA) [2015] KEHC 2645 (KLR)

REPUBLIC OF KENYA

IN THE HIGH COURT OF KENYA

AT NAIROBI

CIVIL CASE NO.  209 OF 2015

KENYA BROADCASTING CORPORATION ………..……….PLAINTIFF

VERSUS

NATIONAL AUTHORITY FOR THE CAMPAIGN AGAINST

ALCOHOL AND DRUG ABUSE (NACADA) ……….………DEFENDANT

RULING

By a plaint dated 9th June  2015  the plaintiff Kenya Broadcasting Corporation  instituted  this suit against  the defendant  National  Authority  for  the campaign against Alcohol and  Drug Abuse  seeking to recover  a  liquidated  sum of kshs 47,792. 000 being an  amount  due and  owing on a contract dated  4th June  2014  in which the plaintiff  is alleged  to have agreed  to facilitate the airing of some items  under the silver sponsorship  of the world cup, carrying messages  of the defendant.

The plaintiff also claimed for damages for breach of contract, costs an interest.  Upon receipt of summons to enter appearance and plaint, the defendant  did on 2nd  July 2015, by a Memorandum  of Appearance  dated 1st  July 2015 enter an appearance  to the summons.  No defence was filed.

On 16th July 2015, the defendant did file a Chamber Summons dated the same day seeking orders that:

The suit be stayed pending its determination through arbitration as provided for in the space order that was entered into between parties to the suit herein.

That the dispute between the parties be referred to arbitration.

That the defendant be at liberty to apply for such further or other orders and or directions as the court may deem fit and just to grant in the circumstances.

That cots of the application be provided for.

The application acknowledged  that indeed  the plaintiff  and the defendant signed  a space order  dated 4th June 2014  for a consideration of 47,792,000 wherein  the defendant  engaged  the plaintiff to provide  media  buying and production services.  On  the airing  of some items  under the silver sponsorship of the world cup which  space  order, clause  3. 13 thereof provided  for settlement  of disputes  between  the parties  by reference  to arbitration.  The defendant  accused the plaintiff  of moving to court  over the dispute  instead  of settling  it through ADR and urged  the court to stay  these proceedings pending  settlement  through arbitration as per the space  order clause.

That application was never served upon the plaintiff’s counsel and neither did the defendant fix any hearing date for its consideration by the court and disposal.

On 31st July 2015, the plaintiff’s counsel filed a request  for interlocutory  judgment  under Order 10 Rule  10 of the Civil Procedure  Rules  for the liquidated  claim of  kshs 47,792,000 and asked  the Deputy Registrar  to list the matter  for  formal proof  on the unliquidated damages claimed, which  judgment  in default  of defence  was entered on 3rd August  2015  and on 6th August  2015  the plaintiff requested for a date for  formal proof hearing.

It was then on 17th August  2015  that the  defendant vide an application dated the same day  2015  sought under certificate of urgency, leave to be heard  during the vacation and also filed an application  seeking for  orders setting aside the  interlocutory judgment  entered on 3rd August 2015 against it.  The defendant  also sought  stay of these proceedings  pending  hearing and determination  of the application for setting aside  judgment  and for an  order that the application  seeking   to refer the dispute herein  to arbitration dated 16th July 2015 be heard and determined on its  merits.

The application is supported by grounds on the face thereof and supporting affidavit sworn by Kevin Wakwaya advocate.  According to the defendant, the  interlocutory  judgment  entered was irregular  since there was a pending  application on record  at the time  of entry of the  said interlocutory judgment  and that they only  learnt of  it when  they were  trying to fix a hearing date  and that  it is trite that  no judgment  can be entered if and   when there is  a pending  application on  the court  record and  that since  the suit  was scheduled  for  formal proof  hearing on 5th October  2015, if the  same is allowed  to proceed it will greatly  disadvantage the defendant  as it will be condemned  to  pay to the  plaintiff liquidated damages claimed  without  having been given a chance to defend  the claim against  it, which decree would be based  on an irregular  judgment thereby  infringing  on the defendant’s constitutionally   protected  right to a  fair  trial.

The defendant urged the court to   exercise its power and discretion to set aside interlocutory judgment entered in default of defence for the ends of justice to be met.  The affidavit if Kevin Wakwaya advocate for the defendant reiterated the grounds upon which the application was predicated.

The respondent/plaintiff opposed the application by the defendant/applicant.  It filed grounds of opposition dated 2nd  September 2015 contending  that :

The application is incompetent, bad  in law, and  an abuse   of the court process; the application dated 16th July 2015 contravenes the Arbitration Act as  it was not presented  together  with the  Memorandum of Appearance  hence it is statute  barred;

there  is no  existing  arbitration agreement between  the plaintiff and  defendant; there is  no real dispute  requiring  referral  to arbitration as the defendant’s  indebtedness to the plaintiff is not denied;

the application herein is a delaying ploy to delay the determination  of the matter;

and  that the  defendant had not demonstrated  sufficient  cause or grounds s upon which the  court can or should  grant the  orders sought.

The plaintiff also relied on replying affidavit sworn by Paul Jilani on 3rd September 2015 giving a vivid history of the matter.  Parties advocates canvassed the application by way of oral submissions before me on 10th September 2015. Mr Wakwaya advocate for the defendant/applicant submitted, reiterating the contents of the application, supporting affidavit and grounds on support of the application.  He submitted that the  interlocutory  judgment  as entered  was irregular as there  was pending an application dated 16tth July 2015  filed by  the defendant  and that this court  cannot countenance  an irregular  judgment.

Further, it was submitted on behalf of the defendant that since there was the application challenging jurisdiction of the court, that application ought to have been   considered   before entering judgment.  He relied on the case of West Mont Power (K) Ltd V Kenya Oil CompanyLtd CA 154/2003 where the Court of Appeal held that Section 6 of the Arbitration Act does not permit parallel proceedings before a court and an arbitrator.  He  also relied  on the case of  Mlink Communication Ltd V Communications Commission of Kenya  & Telkom(K) Ltd which also espoused  the above  position in Westmont  Power case(K) Ltd.

In  Mr Wakwaya’s submissions, he  emphasized   that every party has a right  to be heard on  a matter  that affects  them, and therefore  judgment  must be  set aside  to facilitate  the interpartes hearing  of the pending application  for referral  of the suit  to an  arbitrator  as per the arbitration  agreement.  He submitted that justice will only be served if the application herein is allowed.

In opposition, and  relying  on the  filed grounds of objection  and replying   affidavit  of Mr Paul Jilani, the plaintiff’s counsel Mr  Ogetto submitted that the  application for referral of the matter  for arbitration  was filed 14 days  after entering  an appearance  which is  contrary to Section  6(1) of the Arbitration Act.  That  the above  provisions  mandated  that a party invoking arbitration provisions  in an agreement  must file the referral application on the same day as the Memorandum of Appearance hence, the application dated  16th July 2015  was  void ab initio.

Further, that the application  was never  served upon the respondents  and therefore  they were never  aware of its existence  as at 31st July 2015  when they  filed their  request  for  judgment.  The said application was allegedly served on 12th August 2015 several days after the judgment had been entered.

Mr Ogetto maintained that  the judgment entered in default  of defence  was regular  contrary to the defendant’s  assertions  since there  was no  competent  application on record  that would have precluded the court from entering such judgment as requested .  In his view, setting aside of exparte judgment is a discretionary power, and therefore this court should not merely set aside judgment on account that there was an application pending.

In addition, Mr Ogetto submitted that  in considering  whether  or not  to set  aside the exparte  interlocutory  judgment, this  court should also  consider  the merits of and competence of the application on record  and the  basis upon which the  defendant  wishes to have the  judgment  set aside, contending  that the alleged  fact that  there is  an arbitration  agreement  between  the parties  in itself  was not sufficient as no such agreement  was in court since the annexed document was an unsigned/unexecuted by the defendant  hence the defendant cannot rely on an agreement  that it  had not signed.  Reliance   was placed  on the case of Charles Njogu Lofty V Bedouin Enterprises  Ltd (2005) e KLR  wherein the Court of Appeal held that even if  the condition set out in Section 6(1)  of the Arbitration Act  were satisfied, the court  would still be entitled  to reject  an application for stay of proceedings  and referral  thereof  to arbitration  if the  application  to do so was not made at  the time of entering an appearance, or if no appearance was entered, at  the time of filing any pleading  or at the time of taking  any step in the proceeding.

The plaintiff’s counsel also relied on the case of Eunice Soko Mlagui V Suresh Parmar (2013) e KLR wherein the High Court elaborately interpreted the words used in Section 6(1) of the Arbitration Act

“Not later than the time when that party enters appearance or otherwise acknowledges the claim against which the stay proceedings is sought…..”

On  the issue of an unsigned agreement not being a proper  basis  for establishing  an arbitration  clause, the plaintiffs counsel  relied on  the case of  George Ngatiri t/a Naivasha Millers  1987 V Naphtah J.N.  Mureithi & Another (2005) e KLR where  the court rejected a document  stating that it could not be described  as a binding  agreement between the parties  to it as it was not signed  by the plaintiff  since it lacked the essentials  and basic ingredients  of a valid contract, in that it  must be signed  by all the parties to  the contract.

In Mr Ogetto’s view, the application herein is intended to delay  resolution of the matter as there  was  no issue  that could be  referred  to arbitration, relying  on  the holding  by Honourable Justice  Gikonyo in Telkom (K) Ltd V Rapid Communication  Ltd (2015) e KLR.

On the authority of Westmont (K)  Power Ltd (supra) Mr Ogetto submitted  that it was distinguishable. That in that  particular  case, there was  a valid arbitration agreement  unlike  in the present case as  such there  was no basis for this court to exercise  its discretion in favour of the  defendant/applicant.

In a brief rejoinder, Mr Wakwaya  contended that the plaintiff’s  counsel had  jumped  the gun in  the matter  before  court and submitted  on the merits of the application for  referral  of the matter  to arbitration.  He submitted that the defendant could not file defence where it wished to rely on the arbitration agreement, citing the case of Mlink Communications(suprs).  Further, that the futility of referral to arbitration or the application for referral being time barred could only be urged in that application.

In Mr Wakwaya’s view, there is no discretion to be exercised where the judgment   entered is irregular like in this case and that under Order 10 Rule 11 of the Civil Procedure Rule, this court can set aside judgment on terms that are just.  He  stated that  they had not served  the application because they had  not filed it  under certificate of urgency and as it had  no date but  that notwithstanding, that this court had not  determined  the competency of that application for  referral hence the  judgment  as entered was irregular.  Mr Wakwaya dismissed the authorities relied on by the plaintiff’s counsel for reasons that they all touched on the substance of the application for referral and not on the merits   of the application for setting aside of interlocutory exparte judgment.

Determination

I have  carefully  considered  the application  by the defendant  for setting aside  of exparte judgment entered against  it on 3rd  August 2015, the grounds thereof, the supporting affidavit, grounds of opposition, replying  affidavit, the rival submissions  by the respective  parties advocates and the authorities  relied on.

I have also considered the law applicable   in this case.

The only issue for my determination  is whether  the defendant  has  made  out a case for  the exercise  of this courts discretion to set aside  exparte  interlocutory  judgment entered  on 3rd August  2015 .  Ancillary to that  main issue  are other key questions  that  this court  must answer  and  among  them, is whether  the judgment entered  against  the defendant  was  regular.

The law  applicable  for setting aside exparte  interlocutory  judgment  in default  of appearance  or defence  is Order  10 Rule 11 if the  Civil Procedure Rules in addition, the power to set aside an exparte default judgment is a discretionary power exercised with the main aim of doing justice between the parties.

In Philip Kiptoo Chemwolo and Mumias Sugar Company Ltd V Augustine Kubede (1982-1988) KAR page 1036, the Court of Appeal while dealing with an appeal against refusal to set aside exparte judgment in default stated:

“ The  court has unlimited  discretion  to set aside  or vary a judgment  entered  in default of appearance  upon such terms  as are just  in the light of  all facts and circumstances  both prior  and subsequent  and of the respective  merits  of the parties.  Kimani V MC Conmell  (1966) EA 545 where a  regular judgment  had been  entered the court would  not usually  set aside the judgment  unless it was satisfied that  there  is a triable  issue”.

In Jomo Kenyatta University of Agriculture  and Technology  V Musa Ezekiel Oebal (2014) e KLR CA  217/2009, the Court  of Appeal stated   that the  object of  clothing the court with  discretion to  set aside  judgment  obtained  exparte  has been pronounced in many decisions   and sampled  the following: “ To avoid  injustice  or hardship resulting  from accident, inadvertence  or  excusable  error, but  not to assist  a person who has  deliberately sought ( whether by evasion or otherwise) to obstruct  or delay the cause of justice ………..”  See Shah V Mbogo & Another (1967) EA 116.

In Patel V EA Cargo Handling Services Ltd (1974) EA 75 William Outfus P at page 76 stated:

“The main concern of the court is to do justice to the parties, and the court will not impose conditions in itself to fetter the wide discretion given to it by the rules.  I agree that where  it is a  regular judgment  as is the  case here, the court  will not usually set aside  the judgment  unless it is  satisfied  that there is a defence on the  merits.  In this respect defence on 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”.

I Sebei District Administration V Gasyali & others (1968) EA 300 Sheridan J remarked:

“The nature of the action should be considered.  The defence  if one has been brought to the notice of  the court, however irregularly, should be considered, the question as to whether  the plaintiff can reasonably  be compensated  by costs for any delay  occasioned should be considered  and finally, I think, it should always  be remembered  that to deny the subject  a hearing should be  the last resort  of the court” Emphasis added

Overall, the effect of those pronouncements in the above decisions  is that  where  a defendant raises  a reasonable defence  to the plaintiffs  claim and the  defendant has not been privy to  obstruction of justice, the court should  exercise  its discretion in favour of the  defendant, even where the  judgment  entered is regular.

Applying those principles  to this case, it is not  in dispute  that  summons  to enter appearance  were served upon the defendant  who  entered  an appearance  on 2nd  July 2015.  Later on 16th July 2015, the  defendant  filed  a chamber  summons pursuant  to Section 6(1) of the Arbitration Act, Rule 2  of the Arbitration Rules and Section 3A of the Civil Procedure  Act  seeking stay of proceedings / suit  pending its determination   through  arbitration as provided for in the space order that  was signed  between the parties  to the  suit  and that  the dispute be referred  to arbitration.

However, the said application was never served upon the plaintiff and no date was fixed for its hearing and disposal.

On 31st July 2015, the plaintiff, unaware  of the pending filed application, requested  for judgment  for a liquidated  sum of kshs  47,792,000 and interlocutory  judgment  on the prayer for general damages for breach of contract  which judgment  was entered on 3rd August  2015  and a date  for formal proof  hearing sought   and obtained.

Upon learning of the interlocutory judgment, the defendant, filed  this  application seeking to set it  aside and urging  that the  same  was irregularly entered  against  them.  Further, that since  their application   for stay of proceedings  and for  referral of the dispute  to arbitration  was on record, the  Deputy Registrar   should not have entered  judgment in default of defence  since the  defendant could not have filed  a defence where it was relying on arbitration agreement.  The plaintiff on the other hand  maintains  that the judgment  as entered  was regular  as the  application  dated 16th July 2015  was void ab initio  and could not  have precluded the Deputy Registrar  from entering    judgment  against the  defendant  since  it was time  barred  for not being filed  together with the Memorandum of Appearance and secondly; that there was no such  valid arbitration agreement  binding  upon  the parties or even a dispute capable  of being  referred  to arbitration.  The plaintiff  contends that  the purported  annexed  agreement  is not signed by the defendant  and further, that  the defendant’s indebtedness to the plaintiff has  never been denied hence it  would  be a futile attempt to set aside  the judgment only to achieve  nothing but delayed justice  for the plaintiff.

In view of the above  rival position, this court  must therefore  determine whether  the judgment  entered  on 3rd August   2015  was regular  and if so, what orders should  this court  make.

As stated  above, the defendant  contends  that the interlocutory judgment  entered  was irregular  since there was a pending  application for stay of suit and for  referral of the dispute to arbitration   whereas  the plaintiff maintains that  the judgment  entered was regular  since there  was nothing  that precluded  the Deputy Registrar  from entering judgment  as  the application  was filed out of  time  contrary to Section 6(1) of the Arbitration Act  and that there  was no such  arbitration  agreement .

To determine the above issue, the case of WestmontPower (K) Ltd V Kenya Oil Company Ltd (supra) is instructive.  In that case, the High Court refused to set aside interlocutory judgment entered when the application for stay of suit and for referral of the dispute to arbitration was pending.

The learned Judge  was of the view  that as  the application for referral to arbitration and stay of suit  had been made  after the time  stipulated under Section 6(1)  of the Arbitration Act, the  court had  no jurisdiction  to refer the matter to an  arbitrator  and that it   would have  been an exercise  in futility  to set aside  judgment.

On appeal, the Court of Appeal S.E. Bosire, P.N Waki and Alnashir Visram JJA reversed the High Court order and held that:

“Weare unable to agree with Mr Esmail’s proposition that it was incumbent upon the appellant to demonstrate that he had a good defence to the claim for the exparte judgment to b set aside.  There is  no question here  of the  appellant  wanting to, or  being subjected to, the filing of a defence, when  the appellant says clearly that the  parties are subject to an arbitration  agreement and have chosen to  resolve  their dispute  in a different  forum .  That   was the only issue  that the  superior court   was obliged to determine, that is, whether  the matter  was one that ought  to  be referred  to arbitration, but it  chose  to ignore the application dated 13th March 2002, and entered  exparte judgment.  We repeat that this court said in the case of Omino V Lalji Meghji Patel & Company Ltd ( 1995-1998) IEA 264 that when  an application  under Section 6(1) of the Act  is made by a party to an arbitration  agreement, it is  incumbent  upon the court  to which  such  application  is made to deal with  it so as to  discover whether  or not a dispute  or difference  arises  within the  arbitration agreement  and if it  does, then it is for  the opposing  party  to show  cause  why effect  should not  be given to the  agreement…….

We would  emphasize  strongly  that it was incumbent upon the Learned Judge  to allow the application for referral to arbitration dated 13th March 2002 to be heard  on its  merits and that could only be  possible if the  exparte  judgment  was vacated.  It is in dealing with that application that Mr Esmail’s other arguments such as the application being time barred, and the futility of referral to arbitration, could have been ventilated.  However in taking   the course he did, the learned Judge denied the appellant the opportunity to be heard on its application, and condemned it unheard.  The exercise if judicial power imposes upon a court the duty to hear both sides on merit.  It was wrong, in our judgment, for the Learned Judge not to have set aside the exparte judgment in the face of an undetermined application to refer the matter to arbitration”.

Following the above decision, the Court of Appeal allowed the appeal, set aside exparte  judgment  entered  against  the appellant  and ordered  the appellant’s  application  under Section 6(1) of the Arbitration Act dated 13th March 2002  be set  down for hearing in the superior  court.

In my humble view, the above decision of the Court of Appeal  dealt with a situation that is in pari materia  as the case before  me, albeit  the plaintiff  contended  that  the above Court of Appeal decision is distinguishable  from this case as there was an arbitration  agreement  in that case  unlike  in the instant  case and  that there is no dispute  herein capable  of being  referred to arbitration. I beg to differ.

In my view, the issue of  whether  or not  the annexed space order  is valid, or whether  there is a dispute  capable of being  referred to arbitration  is one  that  has  to be determined  in the pending  application  dated  16th July 2015  on merit .  In my  view, that application does not  serve  as a ‘defence’ to the plaintiff’s claim and therefore it  would be erroneous  for this court to  delve into its merits or demerits, especially, with hindsight  that both  parties  are in agreement  that there  was a contractual relationship between them giving  rise to the  present  cause of action.  In addition, whether  the application  filed on 16th July 2015  was filed out of  time and hence the  futility of considering  it, or whether there is  a dispute  capable  of referral to arbitration is a matter that  can  only be canvassed  in the  application filed on 16th July 2015  by the defendant/applicant herein.

I am also in agreement  with the decision in Niazons (K) Ltd v Chira Road  & Bridge Construction (K)(2001) 2 EA  302and add that once  a defendant  files  an application for  stay of  suit and seeks for  referral of the matter  for arbitration, he/she  is not expected to file a defence  to the claim, until or unless the court  determines that application dismissing  it  thereby paving way for an opportunity  to file defence.  This is, however, not to say that the application for stay of suit   or for referral to arbitration is perse arbitration proceedings.  It is an attempt to refer the matter to arbitration, which at the end of it all, the defendant must satisfy the court that the proceedings are arbitrable, to warrant an order of the court in its favour.

It is  for the above reasons that I find that the interlocutory  judgment  entered  against  the  defendant on 3rd August 2015  in default  of defence was  improper, and I would proceed  to set it  aside  exdebito  justiciae  to pave  way for the setting down for hearing the defendant’s application  filed on 16th July 2015 interpartes.

I appreciate  the authorities  relied  on by the plaintiff’s  counsel  in his  submissions  but I concur with Mr Wakwaya that in all those decision, the courts were considering the merits  of an application for referral of  the matter to arbitration, and  not  whether  or not interlocutory judgment  could be entered  when an application  seeking  stay of suit  and referral to arbitration  was  pending  on record  and therefore  distinguishable  from the circumstances  of this case.  The said authorities will indeed serve useful purpose when considering the application dated 16th July 2015.  This court is conscious  of the need  to  dispense  justice without undue  delay  and without  undue  regard  to  technicalities  as espoused  in Article  159 of the Constitution.  Nonetheless, it must  indeed  act  within the  confines of the law and guard  against  the temptation  to dispense  justice through short cuts  which are  wrong cuts which are likely to deny justice to a party.  It would  be a traversity  of justice, in my  view, if a court  of law would  refuse to hear a party on a  pending application merely because  it lacked  merit  without first hearing  both parties  on its merits  and  demerits  and or dispensing  with it  as provided  for by law.  To deny the subject   a hearing should be the last resort of a court.  I also find that no prejudice will be occasioned to the plaintiff if the exparte judgment   is set aside.

In the end, I allow  the application for setting aside of the exparte  interlocutory  judgment   entered  on 3rd  August  2015  and  all consequential orders  and order  the application  for stay of proceedings heard on the same day when this suit  was to be heard  on formal proof.  The plaintiff is granted leave to file and serve a replying affidavit/grounds of opposition within 7 days from the date hereof.

Costs are in the discretion of the court   and in any event to the successful party.  However, in this case, the defendant filed an application for stay of proceedings /referral of suit to arbitration and retreated to slumber.  They never served the plaintiff with the said application and neither did they fix a hearing dated.  They were awoken by the plaintiff’s vigilance to have their suit prosecuted.  Parties cannot be allowed to use the court for archiving of their disputes. When parties approach the seat of justice, it is for the purpose of resolving disputes justly, fairly and expeditiously.

In this case, the defendant  failed  to act  with alacrity  which  in my  view would delay justice  and  create the so called  back log unnecessarily.  In the premises, I decline to grant them costs of this application.  I order that the defendant bears the costs of the application dated 17th August 2015, which are awarded to the plaintiff.

Dated, signed and delivered in open court at Nairobi this 16th day of September 2015.

R.E ABURILI

JUDGE

16. 9.2015

Coram R.E. Aburili J

C.A. Adline

Mr Kulecho holding brief for Wakwaya for defendant/applicant

Miss Gekone for plaintiff /respondent

Court-   Ruling read and delivered in open court as scheduled.

R.E. ABURILI

JUDGE

16/9/2015

Court- Ruling to be typed and copies availed to parties’ advocates upon payment of requisite fees.

R.E. ABURILI

JUDGE

16. 9.2015