Ongata Works Limited v Attorney General [2017] KEHC 10036 (KLR)

REPUBLIC OF KENYA

IN THE HIGH COURT OF KENYA AT NAIROBI

MILIMANI LAW COURTS

COMMERCIAL & TAX DIVISION

CIVIL CASE NO. 690 OF 2012

ONGATA WORKS LIMITED........................................PLAINTIFF

-VERSUS-

THE ATTORNEY GENERAL.....................................DEFENDANT

RULING

[1]The Plaintiff herein, Ongata Works Limited, is a limited liability company incorporated in Kenya. It filed this suit on 1 November 2012 against the Attorney General by virtue of the provisions of the Government Proceedings Act, Chapter 40 of the Laws of Kenya, on behalf of the Ministry of Local Government (being a Ministry in the Government of Kenya) praying for Judgment against the Defendant for :

[a] Payment of the certified final account amounting to Kshs. 234,736,214. 69;

[b]Interest accrued from 1 December 2011 to 31 October 2012 amounting to Kshs. 55,351,151. 49;

[c]Interest on the delayed payment above at the Central Bank rates plus 3% points from the 1 November 2012 till payment in full;

[d]Costs of the suit;

[e]Interest on [a], [b] and [c] above at commercial rates from   the date of Judgment;

[f]Any other or further relief as the Court may deem fit to grant.

[2]The Plaintiff's cause of action was that, by a contract dated 9 March 2007 between the Plaintiff and the Ministry of Local Government, the Ministry of Local Government contracted the Plaintiff to construct the Muthurwa Hawkers Market in Nairobi for a contractual sum of Kshs. 611,665,376. 08, payable at the various stages of construction upon certification by Consultants of the Ministry of Local Government. It was further averred in the Plaint that the Plaintiff carried out the works pursuant to the said contract and completed the works on 25 March 2008; which works were handed over to the Ministry of Local Government on the same date; whereupon the facility was immediately opened for public use.

[3]It was further the averment of the Plaintiff that upon completion of the works as aforestated, it applied for the issuance of final accounts, and, after making the usual contractual calculations and measurements, the figure of Kshs. 234,736,214. 69 was finally agreed on as being due and owing from the Ministry of Local Government as at 31 October 2011; and that this was well over 3 years after the works were certified as defect-free. Accordingly, a Final Payment Certificate for the said amount was issued for payment, and was supposed to be paid within 30 days of the certification in accordance with Clause 23. 3 of the Contract; but that the Ministry of Local government had failed, refused and neglected to observe the terms of the contract.

[4]It was further averred that the contract provided for the payment of interest on any unpaid sums, and therefore, as at 30 October 2012, the interest due amounted to Kshs. 55,351,151. 49 and continued to escalate thereafter, thereby occasioning the Plaintiff loss and damage. After doing the best he could to have the matter resolved with the Ministry of Local Government, the Plaintiff resorted to filing this suit for relief. Thereafter, the matter was conclusively settled amicably and a Consent Judgment entered herein on 26 March, 2014. Thus, the principal amount of Kshs. 234,736,214. 69was paid on 15 June 2015, and the accrued interest of Kshs. 232,991,881. 00 was paid on 29 February 2017.

[5]The Plaintiff subsequently filed the application  dated 9 May 2017 under Sections 1B, 3A and 34(1)of the Civil Procedure Act, Chapter 21 of the Laws of Kenya and Order 49 Rules 1, 5 and 6of the Civil Procedure Act, 2010, seeking the following orders:

[a]That the Defendant be ordered to pay further interest on thedecretal sum from 12 May 2014 on the unpaid sums;

[b]That the amount of further interest be computed and a Certificate of Costs against the Government be issued;

[c]That the costs of the application be determined and added to       the sum due in the Certificate of Costs.

[6]The application was supported by the affidavit of the Plaintiff's Managing Director, Gibson G. Wambugu annexed thereto, which was sworn on 9 May 2017, in which it was deposed that this matter was compromised by consent and thereafter the costs were taxed and both the Decree and Certificate of Costs were extracted and served on the Defendant; but that the Defendant ignored the same. The Plaintiff was then constrained to file Judicial Review Application No. 193 of 2015 towards enforcement of the Decree; whereupon the Defendant was ordered to pay the amount stated in the Certificate of Costs. Accordingly, Kshs. 234,736,214. 69was paid on 26 June 2015 while Kshs. 232,991,818. 00 was paid on 29 February 2017. However, according to the Plaintiff the interest on the decretal sum and costs continued to accrue, such that as at 31 March 2017 the Defendant owed the Plaintiff Kshs. 198,715,448. 20 as per Annexure "GGW3"; and that since the Defendant had categorically stated that no further payments would be made to the Plaintiff, it is only just that the orders sought be granted. The Plaintiff added that the delay in paying the sums due had caused it loss and suffering since he obtained loans to finance the project which continued to attract interest and other penalties.

[7]The application was opposed by the Defendant vide the Grounds of Opposition dated 12 June 2017. According to the Defendant, the decretal sums herein were fully settled pursuant to the Judgment of Odunga, J on 17 May 2016 in Republic vs. Attorney Genral & Another Ex-parte Ongata works Limited [2016] eKLR, on the basis of the Certificate of Order Against the Government; and that since interest can only accrue on the outstanding principal amount, the application lacks merit and is bad in law, as it seeks to levy interest on interest in a manner that is inconsistent with public policy and the interest of justice. It was further the contention of the Defendant that the application has been filed in total disregard of Section 21(4) of the Government Proceedings Act, Chapter 40 of the Laws of Kenya. Moreover, it was contended, the Plaintiff had not demonstrated how it arrived at the sum of Kshs. 198,715,448. 20 that it claims herein.

[8]Directions having been given on 14 June 2017 for the parties to file and exchange written submissions, the parties canvassed the instant application through written submissions which were filed herein on  28 June 2017and 17 July 2017, respectively. The Plaintiff's submissions were that it is entitled to the sum of Kshs. 198,715,448. 20 on account of the Consent recorded herein on 13 March 2014 by which it was ordered that interest would accrue as pleaded in the Plaint; and therefore since the Defendant did not pay as agreed, interest had been accruing and continued to accrue. Counsel relied on the case of Highway Furniture Mart Ltd vs. Permanent Secretary Office of the President & Another [2006] eKLR in which it was held that:

"The justification for an award of interest on the principal sum is to compensate a Plaintiff for the deprivation of any money, or specific goods though the wrong act of a defendant."

[9]The Plaintiff's Counsel also relied on the cases of Barclays Bank Ltd vs. William Mwangi Ngaruki [2014] eKLR and Lwanga vs. gentenerary Rural Development Bank [1999] 1 EA 175 to support his submissions that, where the funds are wrongfully withheld by a Defendant, the Plaintiff would be entitled to compensation by way of an award of interest at  the  discretion of the Court pursuant to Section 26 of the Civil Procedure Act. According to Counsel, had the Defendant paid the decretal amount in time when the judgment was passed, the interest would not have accrued to the level now claimed. He submitted that on account of the delayed payment, the Plaintiff suffered loss and damage and is therefore entitled to recompense.

[10] The Defendant, on the other hand was of the view that the interest already paid on this contract is excessive and high enough; and that to allow an additional sum of Kshs. 198,715,448. 20 would  not only be unfair but also illegal. Counsel relied on the South African case of Roffey vs. Catterall, Edwards & Goudre (Pty Ltd 1977 (4) SA 494 wherein the High Court observed that the South African Constitution requires that its values be employed to achieve "...a balance that strikes down the unacceptable excesses of freedom of contract while on the other hand balancing the excesses of the freedom to contract." Counsel also relied on the cases of Anjeline Akinyi Otieno vs. Malaba Malakisi Farmers Co-operative Union Ltd [1998] eKLR; Margaret Njeri Muiruri vs. Bank of Baroda (Kenya) Ltd [2014] eKLRand East African Engineering Consultants vs. Municipal Council of Kisumu [1996] eKLR for the proposition that excessive interest is unconscionable and ought not to be countenanced; for such would be tantamount to "robbery" and therefore illegal. Accordingly, Counsel urged the Court to dismiss the Plaintiff's application with costs, arguing that it would not be in the public interest to pay the additional sum claimed by the Plaintiff.

[11]  The parties are in agreement that this suit has been settled and payment made in two tranches of Kshs. 234,736,214. 69 being the principal sum and Kshs. 232,991,881. 00,being the interest component. Thus, the single issue for determination herein is whether the Plaintiff's claim for additional interest in the sum of Kshs. 198,715,448. 20is justified. In this connection, the record is clear that the Plaintiff claimed interest that had accrued from 1 December 2011 to 31 October 2012 amounting to Kshs. 55,351,151. 49,as well as interest on the delayed payment above at the Central Bank rates plus 3% points from the 1 November 2012 till payment in full.

[12]  For the reason that the Defendant did not pay the sums due within a reasonable period of time, the Plaintiff applied for an order of Mandamus in Republic vs. Attorney General & Another, Ex Parte Ongata Works Ltd [2016] eKLR, in which Odunga, J held thus:

Although in the instant case, interest was pleaded, the amount of interest payable cannot be ascertained based on the material before me. Having considered the issues raised in this application, the order which commends itself to me and which I hereby grant is that the 2nd Respondent is hereby compelled to pay the ex parte applicant the sum of Kshs 467,728,032. 87 as appears in the Certificate of Order Against the Government issued in the said Civil Suit, less any sums already paid by the Respondents to the applicant.

[13]And in respect of the Certificate of Order, Section 21 (1) of the Government Proceedings Act provides:

“Where in any civil proceedings by or against the Government, or in proceedings in connection with any arbitration in which the Government is a party, any order (including an order for costs) is made by any court in favour of any person against the Government, or against a Government department, or against an officer of the Government as such, the proper officer of the court shall, on an application in that behalf made by or on behalf of that person at any time after the expiration of twenty-one days from the date of the order or, in case the order provides for the payment of costs and the costs require to be taxed, at any time after the costs have been taxed, whichever is the later, issue to that person a certificate in the prescribed form containing particulars of the order:

Provided that, if the court so directs, a separate certificate shall be issued with respect to the costs (if any) ordered to be paid to the applicant.”

[14]  Section 21 (3) of the Government Proceedings Act on the other hand provides:

“If the order provides for the payment of any money by way of damages or otherwise, or of any costs, the certificate shall state the amount so payable, and the Accounting Officer for the Government department concerned shall, subject as hereinafter provided, pay to the person entitled or to his advocate the amount appearing by the certificate to be due to him together with interest, if any, lawfully due thereon:

Provided that the court by which any such order as aforesaid is made or any court to which an appeal against the order lies may direct that, pending an appeal or otherwise, payment of the whole of any amount so payable, or any part thereof, shall be suspended, and if the certificate has not been issued may order any such direction to be inserted therein.”

[15]  The Certificate of Order for Costs against the Government issued herein pursuant to the aforesaid provisions confirms that the decretal sum of Kshs. 467,728,032. 87 was inclusive of costs and interest at the contract rate per annum of Kshs. 234,736. 214. 69. Hence, although the Plaintiff attached a Schedule to his Supporting Affidavit to support the sum now claimed by way of additional interest, there appears to be no basis for that additional sum of Kshs. 198,715,448. 20, granted that the principal sum had been paid in June 2015 and interest in February 2017. It is totally inexplicable why in the Schedule marked "GGW3" the Plaintiff now purports to claim interest on the aforesaid sums from June 2015 to 31 March 2017; and purport to compound the interest on that basis and account for the payments made only at the end of March 2017.

[16]  I note that the Plaintiff relied on Section 26 of the Civil Procedure Act, and the fact that, in its Plaint it prayed for interest, at commercial rates, on the Principal Sum as well as the interest claimed in Prayers 2 and 3, vide Prayer 5 thereof. Section 26(1)of the Civil Procedure Act merely provides that:

"Where and in so far as a decree is for payment of money, the court may, in the decree, order interest at such rate as the court deems reasonable to be paid on the principal sum  adjudged from the date of the suit to the date of the decree in addition to any interest adjudged on such principal sum for any period prior to the institution of the suit, with further interest at such rate as the court deems reasonable on the aggregate sum so adjudged from the date of payment or to such earlier date as the court thinks fit."

[17]  Accordingly, the Plaintiff had a Decree issued in its favour as follows:

[a] Principal amount..............................................Kshs. 234,736,214. 69

[b] Interest from 1/12/2011 - 31/10/2012. ..............Kshs....55,351,151. 49

[c] Interest from 1/11/2012 - 30/4/2014. ................Kshs..107,252,420. 50

It was on the basis of that Decree that the Certificate of Order for Costs against The Government was issued for a total sum of Kshs. 467,728,032. 87, which has since been paid in full. It is instructive that under Section 26 aforementioned, interest is only payable on the principal sum, unless otherwise ordered by the Court; and whereas the Plaintiff prayed for interest on interest in his Plaint, no justification was made for it. It is further instructive that Clause 23. 3 of the Contract between the parties it was only stated that:

"...The Employer shall pay the contractor the amounts specified by the Project Manager within 30 days of the date of issue of each Certificate. If the Employer makes a late  payment, the Contractor shall be paid simple interest on the late payment in the next payment. Interest shall be calculated on the basis of days delayed at a rate three points above the   Central Bank of Kenya's average rate for base lending prevailing as at the first day the payment becomes overdue."

[18]  It is evident then that the late payment was in respect of the sums certified due by the Project Manager, and therefore was pertinent to the principal sum as opposed to interest. Accordingly, the fact only that interest was claimed on interest in the Plaint and that the Consent Order adjudged that interest be paid as claimed in the Plaint, is not sufficient basis in my view for the Plaintiff to lay claim to additional sums that have been computed to include periods between June 2015 to March 2017 well after the principal amount was paid. In this respect, the Court of Appeal, in a more or less similar situation, in Anjeline Akinyi Otieno vs. Malaba Malakisi Farmers Co-operative Union Ltd [1998] eKLR, held that the excessive interest charged by the Respondent therein was "...obviously manifestly harsh, unconscionable, oppressive and so exorbitant that no reasonable court could conscientiously countenance it."

[19]  It is further evident that in computing the interest rate in its Annexure "GGW-3" the Plaintiff compounded the same, which is also unlawful, granted that the agreement provided for the payment of simple interest. In East African Engineering Consultants vs. Municipal Council of Kisumu Misc. Application [2008] eKLR, the Court was of the following viewpoint, which I entirely agree with:

"It appears that in its computation of interest the decree holder may have compounded the same. This is unlawful. The court ordinarily awards simple, not compound, interest unless there is a specific order to that effect. It is this aspect of compounding interest that has so ballooned an initial modest decretal sum to an amount that the judgment debtor may be finding hard to pay."

[20]  In the result therefore, I would agree with the Defendant that to allow the Plaintiff's application would not work against public policy but is also unwarranted in the circumstances hereof. Accordingly the Notice of Motion dated 9 May 2017 is hereby dismissed with costs.

Orders accordingly.

DATED, SIGNED AND DELIVERED AT NAIROBI THIS 6TH DAY OF OCTOBER, 2017

OLGA SEWE

JUDGE