LIFTING EQUIPMENT CO. LTD & MATERIAL HANDLING EQUIPMENT v GREGORY PRAGASSA & STOCKCARD INVENTORY LTD [1996] KEHC 5 (KLR)

REPUBLIC OF KENYA

IN THE HIGH COURT OF KENYA

AT MOMBASA

CIVIL CASE 449 OF1994

1.    LIFTING  EQUIPMENT CO. LTD  ................   FIRST  PLAINTIFF

2.    MATERIAL  HANDLING  EQUIPMENT....... SECOND  PLAINTIFF

VERSUS

1.  GREGORY PRAGASSA .................................  FIRST DEFENDANT

2.  STOCKCARD INVENTORY LTD .............  SECOND DEFENDANT

RULING

The  main suit was  fixed for  hearing  at the  annual call-over  in  February  1996  for  15. 5.96.    There  was  however  a  "Noticeof Preliminary  Objection"  to  the  Plaintiffs'  suit filed  on  8. 2.96.

It  was  in  these  words:-

"TAKE  NOTICE  that the  hearing  of this  suit on  12th  February,  1996  (sic)  the  Defendants shall raise  a  preliminary  objection  in  terms of paragraph  17  of the  Defendant's  defence that is  to  say  the  Plaintiffs'  claim  herein is  not legally  enforceable  the  same  having arisen  from  an  illegal  transaction  and  is against  public  policy".

Paragraph 17 of the  defence referred to   is  however  wider than stated.

I  will reproduce  it.

"17.   Without Prejudice  to  the  foregoing  and

in  the  alternative  the  Defendants  aver  that' the  business  transactions  of the  Plaintiff giving  rise  to  the  claim  herein  were  carried out  illegally  and  the  enforcement of the Plaintiffs'  claim  herein  would  be  contrary  to public  policy  in  that  at  all  material  times the  Plaintiffs  did  not  have  the  appropriate license  to  trade  and/or  otherwise  import or deal  with  the  goods  the  subject  matter  of the claim  herein  contrary  to,  inter  alia,  the  Trade Licencing  Act  (Cap.497)  Laws  of Kenya  and further  the  Plaintiffs  never  paid  income  tax or  submitted  the  income  tax  returns  and/or the  Plaintiffs  evaded  customs  and/or  excise duties  and  other  taxes  payable  in  respect of the  said  business  contrary  to  the  relevant 'provisions  of the  Law".

That was  the  point raised  and  argued  before  me  by Sureta  Chana

for the  Defendants  and  opposed  by  Mr.  Waiyaki   for the  Plaintiffs

on 15. 5.96.

A recap of the  background to  this  objection is  pertinent. It is  derived from  the  pleadings  and some  affidavit material on record since the  case  is  yet to  be  heard.

Lifting  Equipment Company  Ltd.   (LEC),  the  1st Plaintiff is  a  Kenyan company carrying on  business  in  Mombasa.    What business they  do  is  not clear.    But they say they  "sell goods".    And the nature  of the  "goods"  is  not specified.    The  Directors  of  LEC  in  their individual capacities  are  also trading.    They  do so  through the 2nd Plaintiff,  MATERIAL  HANDLING  EQUIPMENT  (MHE)  which  is  a business  name.    It is  described  as  a registered firm  carrying on business  in  Nairobi and other  places.    Their licensed  business  is "IMPORT"  and they carried it on in  Plot No.209/8181,  Masaba  Road, Nairobi.    It is  to these  Nairobi offices  that LEC says  it forwarded goods to  MHE for sale on  behalf of the two of them.    The  person given the responsibility of handling these  goods  at the  Nairobi end was  the  1st Defendant,   Gregory  Pragassa  (Pragassa).    He  is  said to have  been  an employee  earning  a  salary  and  in  addition  a  commission based  on  sales.    His  position  was  Senior  Sales  Officer  and  was  the only  employee  in  the  Nairobi office,  save  for  a typist.    LEC  would send  goods  to  him;  he  would sell to  LEC's  customers  at specified prices  and  then  account for  these  sales  to  LEC  and  MHE  less  his commission  monthly.

At some  point before  24. 6.1994  (for  this  is  when  Pragassasays  his  services  were  terminated  but  I.E.Csays  he  deserted)  Pragassaformed  a  Limited  Liability  Company  in  which  he   was  the  controllingshareholder.    This  is the  2nd  Defendant,  Stockcard Inventory  Ltd.,(SIL).   It is  then  alleged that Pragassa,  deceitfully  and fraudulentlystarted  diverting  the  goods  forwarded  by  LEC  for  sale   to  LEC'scustomers,  and  instead  sold  them  to  SIL  at throw-away  prices.    Thiscaused loss  to  LEC  and  MHE  to  the  tune  of Kshs. 1,262,383. 10  whichthey  seek  to  recover  from  Pragassa  and  SIL.    They  have other claimsof  a  general  nature.    LEC  and  MHE  do  not state  the  period overwhich  the  deceipt  and  fraud  was  committed.    But they remembersending  Pragassa  to  Nairobi  in  early  1991.    He  deserted the  officesin  June  1994  after  committing  the  said  frauds.    So  the  relevant periodis  between  early  1991  and  mid  1994.

Pragassa on  his  part denies  most of the  above  allegations including  the  allegation  that he  knows  SIL  or  that SIL  knows  or  has anything to  do  with  him.    They  are  mutual strangers  but share  the same  advocate.    He  however  admits  that he  was  an employee  of LEC as  a sales  officer  and  was  deployed to  Nairobi to  work for  LEC.    He denies  the  sales  commission  allegation,   as  he,   does  the  allegation that there  were  specific  customers  or specific  prices.    The  goods,  he says,  were  forwarded to  MHE  for  sale  to  the  general  public  and  all he  was  supposed to  do  was  to  make  monthly returns  accounting for the  sales  and the  moneys  realised.    These  goods  according to  Pragassa belonged to  MHE  and  not  LEC  who  had   no  interest,  title  or  property in them.

In  a   apparent about face,  Pragassa says  in  his  amended defence  that the  terms  of his  employment  did  not prevent him  from incorporating  any  company  or  carry  on  any  other  business.    This would  appear  to  be  an  admission that he  incorporated SIL  and  was carrying on  business  through  it.    There  would  otherwise  be  no  need of Pragassa  pleading  that  he  was  ready  to  return  the  goods  said  to have  been  fraudulently  sold  on  condition  that  LEC  and  MHE  purchase them  at the  same  prices  he  sold  them  at.

Pragassa then  drops  his  bombshell  at paragraph 17 cited above.   In  essence  he  says  even  if I  sold  these  goods  to  SIL  as  you allege  at throw-away  prices,  you cannot recover  the  money  because MHE  did  not  have  a  Trade "Licence  authorising  them  to  do  business when  I  sold  the  said  goods.    He  is  making reference  to the  period 1. 1.93  to  30. 6.94  1halfyears)  over  which  the  Miscellaneous  Occupation

Licence  under  Section  7  of the  Trading  Licensing  Act  and  the  General  Trade  Licence  under the  same   section  were not obtained.    These  two  had been obtained from  early 1991  when  Pragassa  was  deployed to open the  MHE  office  and  were renewed the  following  year  upto 31. 12. 92.

Further licences  were  obtained  after June  1994  when  LEC  discovered that they  had  not been taken out. Pragassa seems  to  be  the only one  who  knew  that the  transactions took  place over the  period  when there  were  no  licences,  hence the  plea of illegality. LEC  and  MHE can only suspect this  as  they  do  not plead the  period,  and  all they

see  is  a  deliberate  scheme  by  Pragassa  to  neglect the  renewal of

licences  which  was  his  duty,  so  that  he  could  defraud  them  and   make this  plea.    He  is  relying  on  an  illegality,  if such  it was that he committed himself in order to enrich himself at their expense.  As for other  alleged  non-payments  of taxes,  LEC  and  MHE  swear  that they have  nooutstanding  unpaid taxes  or  duties  and  if any they continue  to,  be  paid  and  will  be  paid  in  future  for  all  goods  dealt with  by  them.

Such  is  the  background  of conflicting  averments  on  which

I  am  asked to  draw  inferences  of fact  and  hold  that the  suit is  bad for  illegality.

Ms.   Chana  submitted  that it is  trite  law  that  a transaction which emanates  from  an  illegal source  is  void  and  any rights  thereto

are  unenforceable. She cited"THE_LAW_OF_CONTRACTS_IN_EAST_AFRICA

by  R.W.  Hodgin for  this  proposition.    The  illegality relied on is one

created  by  Statute  and  not  under  Common  Law.

The  latter is  said tooffend public  Policy.    That is  a  point taken in the  preliminary

objection but is  not supported  in the  submissions  of counsel.    As I

understand it,  the  sole  point is  that the  transactions  in  issue  were

carried on  by  someone  who  had  contravened  the  Trade  Licensing  Act

and cannot therefore  seek  the  assistance  of the  courts  on  that score.

That is  why  there  was  heavy  reliance  by  Ms.  Chana  on  the  case  of

HAMED BIN AWATHI BAALI  &  ANOR   VS.   HAM ED  BIN  SAID  BATWAHSAFF,

MSA  HCCC.21/1936.    This  concerned  The  Stock  Traders  Ordinance  (Cap.59)

where  there  was  a requirement of obtaining  a Stock  Traders  Licence

Which the  Plaintiff for  a  period  of time  did  not obtain.   It was  held

that he  could  not  recover  money  for the  goats  he  had sold over the

period.    The Judge  rejected  the  submission  that this  was  a  purely

Revenue  Ordinance  and found  that the  Ordinance:-

“…… Cap.59  was  enacted  for  many  other purposes  than  the  mere  collection  of revenue".

He  found  Public Policy and protection of the public “ as  the  purposes

for  which  the  ordinance  was  directed  at.    He  did  not have  the  benefit of the objects  and reasons  for  which the  Ordinance  was  enacted.    This appears  in the  Editorial Note to the report on that case  however:

"The  purpose  of the  above  Bill  is  two-fold  -Firstly  to  raise  some  additional revenue  and secondly  to  keep  some  control  by  means  of licences  over  stock  trading,  which  at present is  largely  in  the  hands  of Somalis".Of "course  we  have come  a long way since 1936  when the Judgesfindings  may  have  been correct within the  context of that Act  at the time.    It is  not  binding  on  me.The section  alleged to  have  been transgressed in this case is S.5 (l)  of the  Trade  Licensing  Act,  Cap.497.    It says  no  person shall conduct any  business  without a current license.    It has punitive measures  for that transgression.    But still,  transactions  carriet out over the  period  without  a  license  cannot  be  enforced.    Ms.   Chana cited  Cope -v-  Rowlands  (1836)  2  M  &  W  149  which  was  cited  with approval in the  Hamed  Baali case.    Even  if there  were  accounts  stated, in  Ms.   Chana's  submission,  no  money  would  be recoverable  under such  contract and the  loss  shall remain  where  it lies.    In support of this  she cited Issa  and Suleman -v-  Macheol &  Co.,  23(1)  KLR 12 decided in 1948.

In  her final submission,  there can only  be one  exception as  stated in the  Hodgin  book.    That is  where  one  party  can  sho'w that  he  was  not  as  guilty  as  the  other,  that he  was  not in  pari  delicto, the  court  may  assist  him.

And this  is  where  Mr. Waiyaki took the  matter  up.    He submitted that the  duty of obtaining the  Trade  Licenses  was on Pragassa who  was  the sole or  main employee  in that office.    Indeed he obtained the  licences  for the  first 1 1/2. Years or so.    Why  would  he not renew  the  licences  from  January  1993?    And  why  would  he  incorporate his  own company over this  period to  which  he  then sold the  goods  and banked the  money Asked  Mr.  Waiyaki.    He  submitted that Pragassa is  the  one  who committed the  illegality  and is  now  turning round to take  advantage  of it.    He  should  not be  assisted  by the  court.    How can  Pragassa  also  make  wild  allegations  of non-payment of taxes  and duties  without offering  any  evidence  to  prove  it?   All that his  clients want is  a  refund of money  pilferred  by their employee  which is  a simpledebt.    An employee ought to  account to  his  employer.    On  all these  accounts  it cannot be  said that the  parties  were  in  pari  delicto.

The  Plaintiffs  were  not aware of any illegality until Pragassa  deserted their employment.

At  any rate,  it  does  not follow  that just because  there were  no  licences,  then  the  property  in  the  goods  sold  over  the  period did  not  pass  to  the  purchasers.    Bona fide  purchasers  for  value are  protected.    He cited  Chitty on  Contracts,  Vol.1,  22nd  Edn. Paragraphs  880,  881,  882,  883  and 884  and  also  Halsbury's  Laws  of England,  4th  Edn.  Vol.9  in support of these  submissions.    He  also cited Singh -vs-  Ali,  [I960]  A.C. 167  where  the  general rule applicable  was  formulated thus:-

"In our  opinion  a  man's  right to  possess his  own  chattels  will  as  a  general rule  be enforced  as  against one  who,  without any  claim  of right,  is  detaining  them  or has  converted them  to  his  own  use,  even though  it  may  appear  either  from  the pleadings  or  in  the  course  of the  trial, that the  chattels  came  into  the  Defendant's possession  by  reason  of  an  illegal  contract between  himself  and  the  Plaintiff,  provided that the  Plaintiff  does  not seek  and  is  not forced  either  to  found  his  claim  onthe illegal contract or  to  plead  its  illegality in  order  to  support its  claim".

This  principle  also  accords  with the  decision in  Bow makers  Ltd -v- Barnet Instruments  Ltd.,  (1945)   K.B.  65.  So that,  in  Mr.  Waiyaki's view,  the  parties  were  not in  pari  delicto  as  the  Plaintiffs  were  not blameworthy  and  even  if they  were,  they  are  still entitled  to  recover as  they  are  not relying  onthe  illegality  to  recover  that  which  was undeniably  their  property  before  it  passed  on  to  the  Defendants jointly  and  severally.

My  sympathies  are  with  the  Plaintiffs'   advocates' counsel

and  I  agree  with  the  Law  Lords  in  the  Bowmakers  Ltd  Case  that:-

" Prima  facie  a  man  is  entitled  to  his  own property  and  it is  not  a  general  principle of law  that when one  man's  goods  have  got into  another's  possession  in  consequence  of some  unlawful  dealings  between  them,  the true  owner  can  never  be  allowed  to  recover those  goods  by  an  action".

If this  were  not the  case  many  a  person  would  be  able to rely on illegalities to enable  them  to  keep  both the  property  and the  money received for  it. This  would  be  against any sense of justice  or public  policy.

Take  this  case.    Although  Pragassa  has relied on illegality to  defeat the  claim  of the  Plaintiffs,  he  has  filed  a counter-claim  to recover the value of some  goods,  commissions  earned and loss  of income  for termination of employment.   He  even seems to  have  obtained  default judgment for  his  liquidated claim  since there  is  no  indication  that the  ex-parte  judgment recorded  on  11. 12. 95 has  been set aside.  If these  claims  were  valid  during the  period when  it is  alleged that licences  were  lacking,  why shouldn’t other claims?

At  all events  there  is  no  clear  evidence  as  to  whether the  parties  were  in  pari  delicto  as regards  the omission  to  take  out licences  and  whether  or  not the  Plaintiffs  paid  any  taxes  and  duties. These  are obvious  issues  which  have to  await evidence  and cannot be  tried on  a  preliminary objection.    Indeed there  are  clear  issues framed  by  both  parties,  under the  Summons  for  Directions  and these very  issues  were clearly for trial.

I  overrule  the  objection  and  award the  costs   to  the Plaintiff in  any event.

Order  accordingly.

Dated at Mombasa this 26th day of June 1996.

P.N. WAKI JUDGE