Kipini Swahili Eco Lodge Limited & another v Tourism Finance Corporation & another [2022] KEHC 15431 (KLR)

Kipini Swahili Eco Lodge Limited & another v Tourism Finance Corporation & another (Civil Case 31 of 2016 & Environment & Land Case 342 of 2016 (Consolidated)) [2022] KEHC 15431 (KLR) (17 May 2022) (Ruling)

Neutral citation: [2022] KEHC 15431 (KLR)

Republic of Kenya

In the High Court at Malindi

Civil Case 31 of 2016 & Environment & Land Case 342 of 2016 (Consolidated)

SM Githinji, J

May 17, 2022

Between

Kipini Swahili Eco Lodge Limited

Plaintiff

and

Tourism Finance Corporation

Defendant

As consolidated with

Environment & Land Case 342 of 2016

Between

Anglo Swiss Bakery Limited

Plaintiff

and

Tourism Finance Corporation

1st Defendant

Kipini Swahili Eco Lodge

2nd Defendant

Ruling

1. Before court for determination is the Defendant/Applicant’s Notice of Motion dated 30th September 2020 brought under Section 3, 3A and 63 (e) of the Civil Procedure Act, Order 2 rule 15 and Order 40 rule 6(2) of the Civil Procedure Rules, 2010. The orders sought are as follows:1. That the Plaint is dated and filed on 24th November 2016 in Civil Suit No. 31 of 2016 and that dated and filed on 15th December 2016 in ELC No. 342 of 2016 be struck out with costs.2. The interlocutory injunctive orders on record be deemed lapsed and discharged with the corporation being at liberty to exercise its statutory power of sale in respect of Mombasa/BlockXX/195[sic].3. Alternatively, the Plaintiffs within fourteen [14] days do deposit in court as security a sum of Kshs. 50 million as condition to proceed further with the present suits failing which the Plaints be deemed as struck out with costs.4. Costs of this suit be awarded to the Defendant.

2. The application is premised on the grounds on the face of it and those in the supporting affidavit sworn on 30th September 2020 by John Karia, the Defendant/applicant’s head of legal services. In the said affidavit, Mr. Karia narrated the genesis of the present dispute. He deposed that sometime in the year 2010, the Defendant/applicant entered into a loan agreement with the Plaintiff herein; the loan amount being Kshs. 50,000,000; the advanced security being the property Mombasa/Block XX/155 (the suit property) registered to Anglo Swiss Bakery Limited (the Chargor) and a guarantee from one Omar Swaleh Sherman, a director of the Plaintiff herein. That after sometime, the Plaintiff defaulted in payment and have since neglected to make any further payments. To Mr. Karia, the present suit and interlocutory orders are being used by the Plaintiff as a shield to scuttle recovery of the loan and that in any case, the interlocutory orders have since lapsed by operation of law.

3. In response to the application, the Plaintiff filed a Replying Affidavit on 18th February 2021, sworn by Omar Saleh Said who admitted that the Plaintiff indeed borrowed the sum of Kshs. 50,000,000 from the Defendant/applicant for the purpose of developing an eco-lodge within the suit property. The said loan was to be repaid within a period of 10 years from the date of disbursement. That due to unforeseen security challenges construction was delayed, ultimately frustrating repayment of the loan. That notwithstanding, Mr. Omar added, that as at the time of swearing his affidavit, the Plaintiff had managed to offset a sum of Kshs. 34,000,000/- and continued to pay a monthly sum of Kshs. 400,000. According to him, disposing this suit as prayed by the Defendant/applicant will prejudice the Plaintiff.

4. On its part, the Plaintiff in ELC 342 of 2016 filed grounds of opposition dated 18th February 2021 wherein it averred inter alia that the application was belated, ill conceived, misinformed and tainted with mala fides; grossly incompetent, fatally defective, frivolous, vexatious and unmerited. The Plaintiff urged the court to dismiss the same.

5. The application was canvassed by way of oral submissions. Mr. Mogaka counsel for the Defendant/applicant relied on the grounds enumerated on the application and supporting affidavit. He submitted that the funds borrowed were public funds, and in the interest of the public, this court should find that there is no claim to warrant the suit to proceed on merit.

6. On her part, Ms. Nzamsa counsel for the Plaintiff argued that the prayers sought in the application are premature since the suit property has since been claimed by a 3rd Party. She added that security for costs was not necessary at this stage as there is no movable property and that the Plaintiff is capable of meeting costs. According to Ms. Nzamsa the threshold for granting the orders prayed have not been met.

Analysis and determination 7. Order 2 rule 15 and Order 40 rule 6 on which the application is anchored provides as follows:Striking out pleadings [Order 2, rule 15. ](1)At any stage of the proceedings the court may order to be struck out or amended any pleading on the ground that—a.it discloses no reasonable cause of action or defence in law; or(b)it is scandalous, frivolous or vexatious; or(c)it may prejudice, embarrass or delay the fair trial of the action; or(d)it is otherwise an abuse of the process of the court, and may order the suit to be stayed or dismissed or judgment to be entered accordingly, as the case may be.(2)No evidence shall be admissible on an application under subrule (1)(a) but the application shall state concisely the grounds on which it is made.(3)So far as applicable this rule shall apply to an originating summons and a petition.Lapse of injunction [Order 40, rule 6. ]Where a suit in respect of which an interlocutory injunction has been granted is not determined within a period of twelve months from the date of the grant, the injunction shall lapse unless for any sufficient reason the court orders otherwise.

8. It follows then that the sole issue for determination in this matter is whether the Plaint dated and filed on 24th November 2016 in Civil Suit No. 31 of 2016 and that dated and filed on 15th December 2016 in ELC No. 342 of 2016 disclose a reasonable cause of action.

9. In applications of this nature, the court only looks at the pleadings and does not go beyond them in order to establish whether the impugned pleadings raise a reasonable cause of action.

10. The principles which guide a court in the exercise of its discretion when considering an application under Order 2 rule 15 were enunciated inDT Dobie & Co (K) Ltd v Muchina [1982] KLR. In that case, the Court of Appeal when interpreting Order VI Rule 13 (1) of the repealed Civil Procedure Rules which is the equivalent of the current Order 2 Rule 15 defined the term “reasonable cause of action” to mean:“an action with some chance of success when allegations in the plaint only are considered. A cause of action will not be considered reasonable if it does not state such facts as to support the claim prayer. ….”

11. The court went further to define what constitutes a cause of action and held that a cause of action referred to an act on the part of the defendant which gave the plaintiff a cause of complaint. In the same case, Madan JA (as he then was) expressed himself as follows:“The court ought to act very cautiously and carefully and consider all facts of the case without embarking upon a trial thereof before dismissing a case for not disclosing a reasonable cause of action or being otherwise an abuse of the process of the court. At this stage, the court ought not to deal with any merits of the case for that is a function solely reserved for the judge at the trial as the court itself is usually fully informed so as to deal with the merits without discovery, without oral evidence tested by cross-examination in the ordinary way … no suit ought to be summarily dismissed unless it appears so hopeless that it plainly and obviously discloses no reasonable cause of action and is so weak as to be beyond redemption and incurable by amendment. If a suit shows a mere semblance of a cause of action, provided it can be injected with real life by amendment, it ought to be allowed to go forward ….”

12. Similarly, in Crescent Construction Co Ltd v Delphis Bank Limited, [2007] eKLR, the Court of Appeal emphasized the need for a court to exercise its discretion with utmost care when faced with an application such as the present one because needless to state, striking out pleadings is a draconian action which may have the consequences of slamming the door of justice on the face of one party without according it an opportunity to be heard. The Court of Appeal stated as follows:“However, one thing remains clear, and that is that the power to strike out a pleading is a discretionary one. It is to be exercised with the greatest care and caution. This comes from the realisation that the rules of natural justice require that the court must not drive away any litigant however weak his case may be from the seat of justice. This is a time-honoured legal principle. At the same time, it is unfair to drag a person to the seat of justice when the case purportedly brought against him is a non-starter.”

13. Guided by the above principles, I now turn to consider the merits or otherwise of the present application.

14. The Defendant/applicant argues that the Plaintiff’s suit does not disclose any cause of action against it since it [the Plaintiff] defaulted in payment of the loan and that it is only using the suits to delay recovery of the loan.

15. I did not have the opportunity to peruse the Plaint in ELC No. 342 of 2016. I have however perused the Plaint herein. It is undisputed that there was a loan facility granted to the Plaintiff. It is also evident that the Plaintiff defaulted in payment. It’s reasons for doing so was that the Defendant/applicant breached its obligations by failing to disburse the entire loan amount in one tranche and within 90 days of the date of the offer letter. This delay, according to the Plaintiff, in turn caused the delay in implementing the eco lodge project as security in the region began to deteriorate. The events that followed thereafter frustrated the Plaintiff’s ability to perform its obligations.

16. In my view, these allegations amount to an act on the part of the defendant which gave the plaintiff a cause of complaint as it was described in the case of DT Dobie & Co (K) Ltd [Supra]. Whether or not the Plaintiff’s allegations are merited is not for the Court to determine at this stage, but at the trial.

17. It is for this reason that I find striking out of the Plaints herein at this stage would amount to a draconian act. As to whether this court should discharge the interlocutory injunction orders, I equally do not find meaningful purpose for doing so as the suits given the foregoing finding subsists. I say so because the purpose of an interlocutory injunctions is to preserve the substratum of the suit pending trial.

18. Given the foregoing, my finding is that the notice of motion dated 30th September, 2020 lacks merit and is hereby dismissed.

19. Costs be in the cause.

20. We fix the matter for determination of the main suit.

RULING READ, SIGNED AND DELIVERED VIRTUALLY AT MALINDI THIS 17TH DAY OF MAY, 2022. ..............................................S.M. GITHINJIJUDGEIn the Presence of; -1. Mr Chege Advocte for the Plaintiff2. Mr Mogaka Advocate for the Defendant