Kenya Orient Insurance Limited v Cargo Stars Limited, John Bosco Kimani & Mary Njoki Kimani [2017] KEHC 10081 (KLR)

REPUBLIC OF KENYA

IN THE HIGH COURT OF KENYA AT NAIROBI

MILIMANI LAW COURTS

COMMERCIAL & TAX DIVISION

CIVIL SUIT NO.459  OF 2013

KENYA ORIENT INSURANCE LIMITED........................PLAINTIFF

VERSUS

CARGO STARS LIMITED.....................................1ST DEFENDANT

JOHN BOSCO KIMANI........................................2ND DEFENDANT

MARY NJOKI KIMANI..........................................3RD DEFENDANT

RULING

[1]The Plaintiff herein, Kenya Orient Insurance Limited, filed this suit on 28 October 2013 against the three Defendants, Cargo Stars Limited, John Bosco KimaniandMary Njoki Kimani, praying for Judgment against them jointly and severally for Kshs. 7,161,767/=, together with interest and costs, in connection with a Transit Bond that the Plaintiff issued to the Commissioner of Customs Services on behalf of the 1st Defendant on 14 February 2006. The Transit Bond was for the purpose of facilitating the 1st Defendant's export business; and as security, the Plaintiff required and obtained Counter Guarantees and Counter Indemnities from the 2nd and 3rd Defendants as directors of the 1st Defendant to protect it against any claims by the Commissioner of Customs Services.

[2]It was further averred in the Plaint that it was an express term of the Transit Bond that the 1st Defendant would export the goods and/or merchandise within the period allowed by law; and that the 1st Defendant would provide satisfactory proof of exportation to the Commissioner of Customs Services. According to the Plaintiff, the Commissioner of Customs Services, did issue an Agency Notice in August 2012 demanding the payment by the Plaintiff of Kshs. 7,161,767/=on the basis of the Transit Bond, contending that the 1st Defendant had not complied with the terms of the Transit Bond; and that pursuant to that notice, the aforesaid sum of Kshs. 7,161,767/= was deducted from the Plaintiff's account at Family Bank on 3 October 2012. The Plaintiff accordingly filed this suit seeking indemnity from the Defendants, in the aforesaid sum of Kshs. 7,161,767/=, in accordance with the terms and condition of the General Counter Indemnity and Counter Guarantee Instruments that were executed by the Defendants in its favour.

[3]The court record shows that the Defendants were served with Summons to Enter Appearance and Plaint, and that on the basis of the Affidavit of Service sworn by Caroline Ambuso on 18 February 2014, a Default Judgment was entered herein on 20 March 2014 in the Plaintiff's favour and a Decree was thereafter drawn and issued on 16 April 2015. Thus, the Plaintiff was in the process of having its Bill of Costs dated 18 June 2015 taxed in readiness for execution when the 1st and 2nd Defendants filed the Notice of Motion dated 4 May 2016. That Notice of Motion is the subject of this Ruling. It was filed under Sections 1A, 3, 3A and 63(e) of the Civil Procedure Act, Chapter 21 of the Laws of Kenya and Order 10 Rule 11 as read with Order 51 Rule 1 of the Civil Procedure Rules, 2010 for the following orders:

[a]That the Default Judgment entered herein on 20 March 2014against the 2nd and 3rd Defendants be set aside and the 2nd and 3rd Defendants be granted leave to file their Statements of Defence;

[b]That such directions as the Court may deem fit be issued to  facilitate the filing of the Defence, the hearing and disposal of the suit;

[c]That pending the hearing and determination of Prayers [a] and[b] above, the Court be pleased to grant stay of execution of the Default Judgment and the consequent Decree; and to direct   that, on the date of the hearing of the application, Caroline Ambuso, the deponent of the alleged Affidavit of Service sworn on   18 February 2014, be present for cross-examination by the Applicants' Advocates on the contents of the said affidavit; and

[d]That the costs of the application be provided for.

[4]The application was premised on the grounds set out on the face thereof, and the Supporting Affidavit of sworn by the 2nd Defendant herein on 4 May 2016 to the effect that, in April 2016, the 2nd Defendant was served with Notice of Taxation dated 15 February 2016, and thereby got to know, for the first time of the existence of the Default Judgment dated 20 March 2014, as he had never been served with any pleadings or Summons to Enter Appearance by the Plaintiff. It was further the contention of the 2nd Defendant, whose affidavit is expressed to have been sworn on behalf and with the authority of the 3rd Defendant, is that the averments in the Affidavit of Service sworn by Caroline Ambuso on 18 February 2014 were untrue. In particular, the 2nd Defendant contended that:

[a]The cellphone number 0722****** alleged to belong to him in paragraph 3 of the Affidavit of Service does not belong to him, and that his cellphone number is 0722******.

[b]That he was not a director or shareholder of the 1st Defendant and therefore had no authority or capacity to accept service on its behalf and would not have accepted such service in    any case.

[c]That he had no instructions or authority to accept service on behalf of the 3rd Defendant who is an adult of sound mind and disposition and capable of handling her affairs.

[d]The deponent of the Affidavit of Service had not given or  provided the name or description of the alleged guard who is said to have identified the 2nd Defendant to her for purposes of service.

[e]The 2nd and 3rd Defendants are not aware of the current  existence or status of the 1st Defendant as they are not privy to its   operations.

[f]The Affidavit of Service does not identify the date of the alleged service.

[g]The Affidavit of Service did not attach the purported investigation.

[5]It was thus the contention of the 2nd and 3rd Defendants that their failure to file their defence was not deliberate, but was due to the Plaintiff's failure to effect service upon them as by law required; and that it would be in the interest of justice that they be allowed to file their Defence, a draft of which was annexed to the Supporting Affidavit of the 2nd Defendant. It was further averred that the setting aside of the Default Judgment would not prejudice the Plaintiff in any way, but would, if anything, cure an injustice against the 2nd and 3rd Defendants.

[6]The application was resisted by the Plaintiff, and to that end, a Replying Affidavit was filed herein on 16 August 2016, sworn by the Plaintiff's Assistant Claims Manager-Legal, Ms. Terry Maina. Her contention was that the Summons to Enter Appearance issued herein was validly served on the Defendants through the 2nd Defendant and an Affidavit of Service sworn by the Process Server, Caroline Ambuso and filed herein on 25 February 2014 as is required. According to the Plaintiff, it was illogical for the 2nd and 3rd Defendants to acknowledge service of the Bill of Costs and deny service of the Summons to Enter Appearance, given that the same means had been used to effect service of the two processes.

[7]It was further averred that the Affidavit of Service contained detailed information, disclosing the source thereof, as to how the 2nd Defendant was traced for service, the time and place of service and the name of the guard as well as the manner in which service was effected. It was noted that the 2nd Defendant did not deny that he owns Bosco House on Chemelil Road, Ngara; or the existence of the Transit Bond and the Guarantees and Indemnity Instruments that form the subject of this suit. Thus, it was the averment of the Plaintiff that Summons to Enter Appearance and Plaint were validly served; and that the allegations by the 2nd Defendant that cellphone number 0722****** does not belong to him are not only false but that it is also dishonest and inequitable for the 2nd Defendant to rely on such evidence in support of prayers for equitable relief. In this regard, the Plaintiff annexed transcripts of M-PESA telephone communication confirming that the 2nd Defendant was the subscriber of cellphone numbers 0722****** and 0722******; as well as copies of the Counter Guarantees that were executed by the 2nd and 3rd Defendants, and a list of outstanding transactions in respect of Transit Bond No. GBN1185/06.

[8]I have carefully considered the Notice of Motion dated 4 May 2016, the grounds upon which it was premised, the Affidavit filed in support and the annexures thereto, as well as the Replying Affidavit filed on behalf of the Plaintiff in opposition to that application. I have also given due consideration to the written submissions filed herein as well as the pleadings and the record of the proceedings herein. The application was filed pursuant, inter alia, to Order 10 Rule 11 of the Civil Procedure Rules, which provides that:

"Where judgment has been entered under this Order the court may set aside or vary such judgment and any consequential decree or order upon such terms as are just."

[9]Thus, there is no gainsaying that the Court does have the discretion to set aside or vary any default judgment so long as this is done upon such terms as are just on the basis of the evidence placed before the Court, and always bearing in mind the principle set out in the case of Mbogo vs. Shah [1968] EA 93 that the discretion is intended to be exercised "...to avoid injustice or hardship resulting from inadvertence or excusable mistake or error," but is not designed to assist a person who has deliberately sought whether by evasion or otherwise to obstruct or delay the course of justice.

[10]  It is also imperative for the Court to take a decision on whether the default judgment was regular or irregular. This distinction is significant for the reason that where the Court finds that the Judgment was irregular, then it ceases to have discretion in the matter but must proceed to set aside the default judgment ex debito justitiae. Thus, in the case of Fidelity Commercial Bank Ltd Vs. Owen Amos Ndung'u & Another, HCCC No. 241 of 1998 (UR), Njagi, J (as he then was) explained that:

"A distinction is drawn between regular and irregular judgments. Where summons to enter appearance has been served, and there is default in the entry of appearance, the ex parte judgment entered in default is regular. But where ex parte judgment sought to be set aside is obtained either because there was no proper service or any service at all of the summons to enter appearance, such a judgment is irregular, and the affected defendant is entitled to have it set aside as of right." (see also Abraham Kiptanui vs. Deplphis Bank Ltd & Another HCCC No. 1864 of 1991 (UR)

[11]  Similarly, in James Kanyiita Nderitu& Another vs. Marios Philotas Ghikas & Another [2016] eKLR, the Court of Appeal restated the distinction aforementioned as hereunder:

From the outset, it cannot be gainsaid that a distinction has always existed between a default judgment that is regularly entered and one, which is irregularly entered. In a regular default judgment, the defendant will have been duly served with summons to enter appearance, but for one reason or another, he had failed to enter appearance or to file defence, resulting in default judgment. Such a defendant is entitled, under Order 10 rule 11 of the Civil Procedure Rules, to move the court to set aside the default judgment and to grant him leave to defend the suit. In such a scenario, the court has unfettered   discretion in determining whether or not to set aside the default judgment, and will take into account such factors as the reason for the failure of the defendant to file his memorandum of appearance or defence, as the case may be; the length of time that has elapsed since the default judgment was entered; whether the intended defence raises triable issues; the respective prejudice each party is likely to suffer; whether on the whole it is in the interest of justice to set aside  the default judgment, among other. See Mbogo & Another v.Shah (supra), Patel v. E.A. Cargo Handling Services Ltd(1975) EA 75, Chemwolo & Another v. Kubende[1986] KLR 492and CMCHoldings v. Nzioki [2004] 1 KLR 173).

[12]The Court further stated that:

"In an irregular default judgment, on the other hand, judgment will have been entered against a defendant who has  not been served or properly served with summons to enter  appearance. In such a situation, the default judgment is set aside ex debito justitiae, as a matter of right. The court does not   even have to be moved by a party once it comes to its notice that the judgment is irregular; it can set aside the default judgment on its own motion. In addition, the court will not venture into considerations of whether the intended defence raises triable issue or whether there has been inordinate delay  in applying to set aside the irregular judgment. The reason why such judgment is set aside as of right, and not as a matter of discretion, is because the party against whom it is entered has been condemned without notice of the allegations against him or an opportunity to be heard in response to those allegations. The right to be heard before an adverse decision is taken against a person is fundamental and permeates our entire justice system. (See Onyango Oloo v. AttorneyGeneral [1986-1989] EA 456).

[13]Service of Summons is provided for in Order 5 Rules 6 and 7of theCivil Procedure Rulesare explicit thatservice of summons shall be made by delivering or tendering the duplicate thereof; and Rule 8(1) in particular envisages that:

"Wherever it is practicable, service shall be made on the defendant in person, unless he has an agent empowered to accept service, in which case service on the agent shall be   sufficient."

[14]  Accordingly, on the face of it, the Affidavit of Service sworn on 18 February 2014by the Process Server, Caroline Ambuso, which was filed herein on 25 February 2014, appears to show that the Defendants were duly served with Summons and Plaint in accordance with the provision aforementioned. She outlined the attempt she made to serve the 2nd Defendant on 27 November 2013 and made it clear that the intention was to serve the 2nd Defendant, not only in his capacity as a defendant herein but also as a director of the 1st Defendant, adding that she was relying on an investigation report by Wen Insurance Assessors. She further averred that although she was unable to personally meet and serve the 2nd Defendant that day, she communicated with him via his cellphone number 0722****** and secured an appointment for the following day.

[15]  It was further averred by the Process Server that, on the 28 November 2014, she went back to Bosco House, where the office of the 2nd Defendant was situated, and was able to  personally meet and serve him with the Plaint and Summons and the documents in support thereof; and that after reading the same, the 2nd Defendant accepted service,  not only on his own behalf, but also on behalf of the 1st Defendant and 3rd Defendant, save that he intimated to her that the 1st Defendant was no longer in existence. Thus, contrary to the protestations of the 2nd and 3rd Defendants, the Affidavit of Service discloses the date, time and place of service. It also discloses, at Paragraph 5 thereof, the name of the guard that confirmed the locusof service to be the office of the 2nd Defendant, noting that the 2nd Defendant did not displace the averments in connection with Bosco House.

[16]  It is also noteworthy that although he had expressed the intention to have the process server cross-examined on the contents of her affidavit, this was not followed through and no such cross-examination was undertaken. Accordingly, it must be presumed then that the Process Server's averments are indeed correct, in line with the decision of the Court of Appeal in Shadrack arap Baiywo vs. Bodi Bach [1987] eKLR,that:

"There is a presumption of service as stated in the process    server's report, and the burden lies on the party questioning it, to show that the return is incorrect. But an affidavit of the process server is admissible in evidence and in the absence of contest it would normally be considered sufficient evidence of the regularity of the proceedings. But if the fact of service is denied, it is desirable that the process server should be put   into the witness box and opportunity of cross-examination given to those who deny the service."

[17]I note that there was an attempt by the Plaintiff to rely on transcripts of M-PESA communication to confirm that the cellphone numbers 0722****** and 0722****** both belong to the 2nd Defendant, and therefore that the 2nd Defendant deliberately lied on oath when he denied that he is the subscriber of cellphone No. 0722******, and is thus not worthy of the Court's discretion. Whereas the said transcripts do confirm that the 2nd Defendant is indeed the subscriber of both cellphone numbers, it is manifest that the Plaintiff did not comply with the requirements of Section 106A(4) of the Evidence Act, Chapter 80of theLaws of Kenya, which is a prerequisite for the production of such evidence. Accordingly, I did not place much weight on the said averments.

[18]  In the light of all the matters aforestated, it is evident that the entry of default judgment herein was regularly done and therefore that the said Judgment is a regular Judgment for all intents and purposes. Nevertheless, whereas the Court would not normally set aside such a judgment, it does have the discretion to do so if sufficient cause is shown in that regard. It is instructive, therefore, that in Philip Keipto Chemwolo and Mumias Sugar Co. Ltd vs Augustine Kubende [1986] eKLR,the Court of Appeal expressed the following viewpoint:

“The discretion is in terms unconditional. The courts, however, have laid down for themselves rules to guide them in the normal exercise of their discretion. One is that where the judgment was obtained regularly there must be an affidavit of merits, meaning that the applicant must produce to the court  evidence that he has a prima facie defence...obviously the reason, if any, for allowing judgment and thereafter applying to set it aside is one of the matters to which the court will have regard in exercising its discretion. If there were a rigid rule that no one could have a default judgment set aside who knew at the time and intended that there should be a judgment signed, the two rules would be deprived of most of their   efficacy. The principle obviously is that unless and until the court has pronounced a judgment upon the merits or by consent, it is to have the power to revoke the expression of its coercive power where that has only been obtained by a failure    to follow any of the rules of procedure.”

[19]  The 2nd Defendant urged that they have a plausible defence to the claim which raises triable issues, a draft of which was annexed to the Supporting Affidavit. I have looked at that draft Defence, and one of the points emerging therefrom is that, the 2nd and 3rd Defendants are separate and distinct individuals from the 1st Defendant, and that they are neither shareholders nor directors of the 1st Defendant. However, at paragraph 8(iii) of the Supporting Affidavit, the 2nd Defendant conceded that they were directors of the 1st Defendant and only resigned as such on 8 January 2011. Paragraph 8 of the Plaint shows that the cause of action was predicated on the Transit Bond dated 14 February 2006, which was signed by the 2nd Defendant as such director and the Counter Guarantees in support thereof which were similarly signed by the 2nd and 3rd Defendants on 9 February 2006. The claim was therefore well founded as presented, notwithstanding that they later resigned as directors. It is notable that the Default Judgment is not impugned as against the 1st Defendant, and therefore the contention by the Plaintiff regarding its default in connection with the Transit Bond remains unassailed. Accordingly, the Counter Guarantees and Indemnities became operative from the date of such default, notwithstanding the alleged resignation by the 2nd and 3rd Defendant from the directorship of the Company.

[20]  The second issue raised in the draft Defence is that the Transit Bond and the Counter Guarantees are invalid, null and void as against the 2nd and 3rd Defendants for the reason that they were not executed at all or executed properly; and that they were not sealed or stamped by the Company. It is evident however that the Transit Bond was duly stamped and acknowledged by Kenya Revenue Authority. Besides, it is now trite that a person cannot be permitted to take advantage of his own default or omission to defeat a claim against him. In this connection, I would borrow the words of Lord Diplock in Cheall vs. Association of Professional Executive Clerical and Computer Staff (1983) 1 ALL ER that:

“This rule of construction, which is paralleled by the rule of law that a contracting party cannot rely upon an event brought about by his own breach of contract as having terminated a contract by frustration is often expressed on broad language as “A man cannot be permitted to take advantage of his own wrong.”

[21]   In the premises, it is my considered finding that service was duly effected and that the Default Judgment was regularly entered; and that no explanation was proffered as to why the Defendants did not file a Defence herein. It is further my view that the draft Defence raises no triable issues and therefore that no useful purpose would be served by setting aside the otherwise regular judgment. In the result, I would dismiss the Notice of Motion dated 4 May 2016 with costs.

It is so ordered.

DATED, SIGNED AND DELIVERED AT NAIROBI THIS 10TH DAY OF NOVEMBER, 2017

OLGA SEWE

JUDGE