Kenya Hydraulics Limited v Ocean Engineering Works Limited & another [2022] KEHC 12269 (KLR) | Oral Contracts | Esheria

Kenya Hydraulics Limited v Ocean Engineering Works Limited & another [2022] KEHC 12269 (KLR)

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Kenya Hydraulics Limited v Ocean Engineering Works Limited & another (Civil Case E064 of 2020) [2022] KEHC 12269 (KLR) (Commercial and Tax) (6 May 2022) (Judgment)

Neutral citation: [2022] KEHC 12269 (KLR)

Republic of Kenya

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

Commercial and Tax

Civil Case E064 of 2020

A Mshila, J

May 6, 2022

Between

Kenya Hydraulics Limited

Plaintiff

and

Ocean Engineering Works Limited

1st Defendant

Mohamed Shiraz Adam

2nd Defendant

Judgment

Background 1. The Plaintiff filed the Plaint dated 4th March 2020 and stated that at the behest and directions of the 2nd Defendant, the Plaintiff supplied the 1st Defendant with various hydraulic and pneumatic products for a consideration. The supplies were made on diverse dates between 15th May 2017 and 29th May 2018. The plaintiff raised a total of twenty-seven (27) invoices for the deliveries.

2. The Defendants issued a total of six (6) postdated cheques dated 28th April 2018 for a total sum of Kshs 5, 651,000/- towards partial settlement of the invoices including the accrued interest that had been issued up to 11th April 2020. However, all the cheques were dishonored by the bank due to insufficient funds in the 1st Defendant’s bank account and the Plaintiff incurred charges of Kshs 600/= for each Cheque totaling to Kshs 3, 600/-.

3. The Goods were supplied on condition that each invoice was payable on demand and in default, the principal sum on the invoice accrued interest at a compounded rate of 2%. The principal sum has been outstanding since 2018 and as at August 2019 the interest was Kshs 7, 387,145. 75/=.

4. The Plaintiff prayed for Judgment against the Defendants jointly and severally as follows: -a)Payment of Kshs 14, 335,739/= being the principal amount/=.b)Payment of Kshs 7, 387,145. 75/- being Interest accrued as 29th August 2019;c)Payment of Kshs 3, 600/- being bank charges for the dishonoured Cheques,d)Interest on (a) and (c) above from the time of filing of this suit till payment in full at court’s rate.e)The costs of this suit.

5. The Defendants filed their Statement of Defence dated 8th July 2020 and the 2nd Defendant averred that there is no cause of action against him as the 1st Defendant is a separate and independent legal entity from himself.

6. Further, the Defendants stated that at no point did they request and/or instruct the Plaintiff to supply hydraulic and pneumatic products in the period between 15th May 2017 and 29th May 2018. That without prejudice, the cheques issued if any, were not in any way issued towards the settlement of the invoices.There was no agreement and/or contract for any supply and any condition in regards to any payment of invoices or interest to be accrued on the invoices.

7. Defendants prayed that the Plaintiffs suit against them be dismissed with costs.

Plaintiff’s case 8. In its submissions, the Plaintiff maintained that the orders for goods were placed via phone calls. The Defendant's witness misrepresented facts by saying to the court the orders were via written orders on email. This position was never supported with evidence.

9. The existence of contractual business relationship between the parties, based on trust and mutuality was neither denied nor disputed by the Defendant. This is enough evidence of the fact the goods were ordered for and supplied by Plaintiff to the Defendant, via orders placed on phone by the Defendant.

10. The Plaintiff submitted that there was a valid contract for supply of the goods whose orders were made orally on phone by the Defendant. The assertion that the contract was written and that goods were supplied via written orders placed on email is fatally unsubstantiated and there is no evidence to support the same. It is an attempt by the Defendant to lie to the court and defeat the cause of justice.

11. The issuance of the bad cheques and failing to make them good is prima facie evidence for breach of the oral contract for the supply of the subject, which contract was based on a relationship of trust and good faith.the dishonoring of the cheques issued to the Plaintiff constitutes a breach of the contractual agreement. This position was observed in C Mehta & Co LtdvStandard Bank Ltd, I-ICC No. 586 of 2009; where the defendant was found liable for breach of contract mainly because it had refused to honor four cheques issued by the plaintiff on grounds of insufficient funds in the plaintiff's account while in truth the account had sufficient funds to pay three of the four cheques.

12. The Defendants have not only failed to prove on a balance of probabilities that there was no contract between themselves and the Plaintiff but also breached the terms of their contractual agreement.

13. Having proved the existence of an oral contract for the supply of the subject goods and having proved the breach on the part of the Defendant by issuing bad cheques and failing to make them good, it was the Plaintiff’s submission that it has proved its case on a balance of probabilities and is therefore entitled to the prayers sought for in the plaint.

Defendants’ case 14. The Defendant stated that the suit was not proper before the Court as the suit was instituted without the company resolution to institute the same or authorizing PW1 to give evidence or appointing the Plaintiff’s advocates on record to represent them in the matter. The Defendant relied on the case of Kenya Commercial Bank Limited v Stage Couch Management Ltd [2014] eKLR where the court held that a company could not institute a suit without a company resolution or authority.

15. It was the Defendant’s submissions that by submitting invoices which are not stamped or acknowledged in writing as received and in the absence of delivery notes, the Plaintiff failed to prove that there was no contract between them and the Defendant. Further, the Plaintiff failed to prove that there were any supplies delivered to the Defendant company. In the case of William Muthee Muthami vs Bank of Baroda[2014] eKLR the court stated that for a contract to be valid under the law of contract, it must be proved that there was offer, acceptance and consideration. The Plaintiff did not prove any contractual relationship between the parties in respect to the cause of action in this suit.

16. It was the Defendant’s argument that the Plaintiff is not entitled to any principal amount as alleged as it failed to prove that there was any contractual relationship or that it supplied any of the goods to the Defendant Company. A production of invoices which are not stamped or receipt acknowledged by the Defendant and in the absentia of delivery notes duly stamped and/or acknowledged by the Defendant, the Plaintiff failed to prove its case.

Issues for determination 17. After considering the Plaint, Defence and the written submissions by the parties the following issues are for determination;a.Whether the suit is properly before the Court?b.Whether there was a valid contract between the parties?c.Whether the Plaintiff is entitled to the prayers sought?

Analysis Whether the suit is properly before this court? 18. The Defendant stated that the suit was not properly before this Court as the suit was instituted without the company resolution to institute the same or authorizing PW1 to give evidence or appointing the Plaintiff’s advocates on record to represent them in the matter.

19. Order 4 rule 1(4) of the Civil Procedure Rules provides as follows: -“1(4) Where the plaintiff is a corporation, the verifying affidavit shall be sworn by an officer of the company duly authorized under the seal of the company to do so.”

20. The issue of whether it is mandatory to file alongside the Plaint a resolution of a Company under seal authorizing the Plaintiff’s advocates to file the suit on behalf of the Company has now been settled by the court. In the case of Space Geo Enterprises Limited vs. Kenya National Highways Authority [2019] eKLR, the Court held as follows:

“Clearly from the foregoing provision, nowhere is it required that the authority given to the counsels instituting suit be filed. Of course, if a suit is filed without a resolution of a corporation, it may attract some consequences. The mere failure to file the same with the plaint does not invalidate the suit.” 21. In the case ofLeo Investments Ltd v Trident Insurance Company Ltd [2014] eKLR the court found that the mere failure to file the resolution of the Corporation together with the Plaint did not invalidate the suit and the Court associated itself with the decision of Kimaru J. in the case ofRepublic vs. Registrar General and 13 OthersMisc. Application No. 67 of 2005 [2005] eKLR where it was held:-“…such a resolution by the Board of Directors of a company may be filed at any time before the suit is fixed for hearing as there is no requirement that the same be filed at the same time as the suit. Its absence is, therefore, not fatal to the suit.”

22. The same position was reiterated in the case of Spire Bank Limited versus Land Registrar & 2 others [2019] eKLR where the Court of Appeal stated as follows: -“…It is essential to appreciate that the intention behind Order 4 Rule 1 (4) was to safeguard the corporate entity by ensuring that only an authorized officer could institute proceedings on its behalf. This was to address the mischief of unauthorized persons instituting proceedings on behalf of corporations, and obtaining fraudulent or unwarranted orders from the court. The company’s seal that is affixed under the hand of the directors ensured that they were aware of, and had authorized such proceedings together with the persons enlisted to conduct them. And where evidence was produced to demonstrate that a person was unauthorized, the burden shifted to such officer to demonstrate that they were authorized under the company seal. With this in mind, we dare say that the provision was not intended to be utilized as a procedural technicality to strike out suits, particularly where no evidence was produced to demonstrate that the officer was unauthorized.”

23. In view of the above, it is clear that it is sufficient for the authorized person to depose that he or she was duly authorized, but in the event of a complaint that such person was unauthorized, it was up to the disputing party in this case the Defendant to demonstrate with evidence that the deponent did not have the requisite authority.

24. However, on perusal of the pleadings the Court notes that the issue of failure to file resolution on authority to file suit was not raised in defence. The issue has been raised in submissions; if this issue had been raised in defence or if the Defendant had filed Preliminary Objection, the plaintiff would have addressed the court on it.

25. It is the Court’s view that parties are bound by their pleadings; this court is persuaded that the absence of the resolution not fatal to the suit; and is further satisfied that the suit is properly before this court.

Whether there was a valid contract between the parties? 26. It was the Plaintiff’s case that the contract between the parties was oral and based on good faith. The Plaintiff maintained that the orders for goods were placed via phone calls. On the other hand, the Defendant acknowledged that the parties had done various business and transactions together and that the Plaintiff had been delivering hydraulic and pneumatic products to the company. The existence of a contract for the supply of goods is therefore not denied.

27. According to Black’s Law Dictionary, 8th Edition –“The term “contract” has been used indifferently to refer to three different things –(i)the series of operative acts by the parties resulting in new legal relations;(ii)the physical document executed by the parties as the lasting evidence of their having performed the necessary operative acts and also an operative fact as itself;(iii)the legal relations resulting from the operative acts, consisting of a right or rights in personam and their corresponding duties, accompanied by certain powers, privileges, and communities. The sum of these legal relations is often called “obligation” William R. Anson – Principles of the Law of Contract”

28. It is common cause and trite law that not all agreements need be in writing. An agreement will be deemed duly formed and binding where the consideration is present and accepted having been offered. An agreement need not be in any special form or in writing unless statute expressly provides for it: refer to the Law of Contract Act (Cap 23), the Hire Purchase Act (Cap 507), the Bills of Exchange Act (Cap 27) and the Marine Insurance Act (Cap 390).

29. Section 3(1) Law of Contract Act does not make all contracts void and unenforceable if they are not reduced into writing. Oral agreements supported by credible evidence can be and are enforceable.

30. It is not in dispute that the parties were in a business relationship that subsisted for a long time and their business engagements were based on good faith between themselves. The Defendant acknowledged that this was the nature of their business relationship.

31. This court is satisfied that a valid contract existed between the parties.

Whether the Plaintiff is entitled to the prayers sought? 32. The Plaintiff stated that the orders for goods supplied were placed via phone calls. To support its case, the Plaintiff produced documents (pages 1-34 documents annexed to the Plaint) to prove that goods were supplied to the Defendant and the Defendant issued six postdated cheques towards partial settlement of the invoices.

33. DW1 also testified that orders were made through a written request and that the cheques issued were for the goods ordered that were never supplied. These averments were however not supported by any documents as the Defendant did not file any documents to support its case.

34. It is the Court’s view that both parties are in agreement that orders for supply of the said goods were made and the Defendant acknowledged that he issued cheques to that effect. The Plaintiff made the deliveries of the said goods despite the said cheques being dishonoured. It is therefore clear that goods were indeed supplied and the Defendant did not pay for the same.

35. On the issue of interest as claimed by the Plaintiff, there was no express or implied provision for payment of interest on unpaid invoices. A plain look at the face of the invoices does not show that there was a provision for the accrual of interest. The Plaintiff has thus failed to prove that it is entitled to the interest claimed.

36. From the foregoing, on a balance of probabilities, the plaintiff proved existence of a contract with the defendant and further proved amount owing as demonstrated by the documents filed and its testimony. The Defendant never adduced any evidence to controvert evidence adduced by the Plaintiff.

Findings and Determination 37. For the forgoing reasons this court makes the following findings and determinations;i.This court finds that the suit is properly before this court;ii.This court finds that a valid contract existed between the parties;iii.There shall be judgment for the plaintiff in the sum of Kshs 14,335,739/- and Kshs 3,600/- as set out in prayers (a) and (c) of the Plaint; with interest thereon at court rates;iv.The defendant shall bear the costs of this suit.Orders Accordingly.

DATED, SIGNED AND DELIVERED ELECTRONICALLY AT NAIROBI THIS 6TH DAY OF MAY, 2022. HON. A. MSHILAJUDGEIn the presence of;Mr. Ondieki holding brief for Mr. Shimaka for the defendantNo appearance for Mr. Ashitiva for the plaintiffLucy--------------------------Court Assistant