Patronics Services Ltd v EPCO Builders Ltd & Proctor & Allan (E.A) Ltd [2021] KEHC 5836 (KLR)

REPUBLIC OF KENYA

IN THE HIGH COURT OF KENYA-MILIMANI

COMMERCIAL & TAX DIVISION

HIGH COURT CIVIL CASE 227 OF 2017

PATRONICS SERVICES LTD............................................ PLAINTIFF

VERSUS

EPCO BUILDERS LTD..............................................1ST DEFENDANT

PROCTOR & ALLAN (E.A) LTD.............................2ND DEFENDANT

RULING

PRELIMINARY OBJECTION

PLEADINGS

1.  The Plaintiff filed suit on 29th May 2017 against the Defendants for the claim which was/is based on the following facts;

By Sub- contract of 26th June 2014, supplemental to the main contract for building works between 1st & 2nd Defendants, the 1st Defendant subcontracted the Plaintiff to undertake electrical installation works on the Project.

The Contract provided that the procedure for originating and processing payment certificates was as in the Main Contract, the Architect would issue Interim Payment Certificate for completed works upon application by the Contractor and upon valuation by Project Quantity Surveyor.

On 1st April 2016 Interim Valuation Statement, No. 16 was issued by Project Quantity Surveyor and recommended 16th Interim Payment of Ksh33,663,414. 05/-; of this amount Ksh14,808,916. 59/- was apportioned to the Plaintiff.

On 17th October, 2016, the Project Quantity Surveyor, issued Further Interim Valuation Statement, No. 17 was issued by Project Quantity Surveyor and recommended 17th Interim Payment of Ksh 15,909,897. 29/-; of this amount    Ksh 13,240,417. 54 was apportioned to the Plaintiff.

After several demands of payment by the Plaintiff to Defendants, the amounts due and owing remained outstanding.

2. In Response, 1st Defendant filed Grounds of Opposition and application of 21st July 2017 seeking the Plaintiff’s Plaint be struck off as it was incurably defective, null and void abinitio.

3. The entire pleadings were in breach of Clause 31 of the Agreement & Conditions of Sub Contract for Building Works. The 1st Defendant filed Defence & Counterclaim on 21st March 2018.

4.  The Plaintiff/Applicant filed application on 9th October 2019 seeking judgment on admission be entered by the court against the 1st Defendant for Ksh 28,049. 334. 13/= with interest and costs. The Plaintiff/Applicant referred to admission as expressed in the 1st Defendant’s letter of 23rd February 2017, Paragraphs 13 & 15 of 1st Defendant’s Defence & Counterclaim and in light of the fact 1st Defendant has no defence with regard to Certificates 16 & 17.

PRELIMINARY OBJECTION

5.  The 2nd Defendant filed Preliminary Objection on 8th March 2021, on grounds,

a)  This Court lacks jurisdiction to hear and determine the matter since the Plaintiff has commenced this suit without exhausting the relevant dispute resolution mechanisms.

b)  The suit offends and contravenes Clause 31. 1 of the Agreement between parties of 26th June 2014, which requires that any dispute between the parties be referred to Arbitration.

c)  Clause 31. 1 of the Agreement confirms the Arbitration Agreement between the Plaintiff and the 1st Respondent.

d)  This suit is premature and not ready for litigation in Court.

6. The essence of a preliminary objection was defined by Law, JA and Sir Charles Newbold P.  in Mukisa Biscuits Manufacturing Co Ltd Vs West End Distributors (1969) EA 696.  At page 700, Law, JA stated that:

“The first matter relates to the increasing practice of raising points which should in normal manner, quite improperly be by way of preliminary objection. A preliminary Objection is in the nature of what used to be demurrer.  It raises a pure point of law which is argued on assumption that all facts pleaded by the other side are correct. It cannot be raised if any fact has to be ascertained or if what is sought is the exercise of judicial discretion.

….. a preliminary objection consists of a point of law which has been pleaded, or which arises by clear implication out of pleadings, and which if argued as a preliminary point may dispose of the suit.  Examples are an objection to the jurisdiction of the court or a plea of limitation or a submission that the parties are bound by the contract giving rise to the suit to refer the dispute to arbitration.”

7.  The Court record contains both online and physically, pleadings, proceedings, written submissions by the Plaintiff dated 11th May 2021 and 1St Defendant’s Submissions of 11th May 2021.

8.    On 17th March 2021, the 2nd Defendant who raised the Preliminary Objection, Ms Nyaga held brief for Mr Nyachoti who came on record. The Court granted the 2nd Defendant’s Counsel opportunity to file Notice of Appointment, pleadings and Written Submissions, then the Preliminary Objection which ought to be heard first to proceed on 17th May 2021.

9.  On 17th May 2021, the Respondents; Plaintiff & 1st Defendant highlighted submissions. The 2nd Defendant did not participate in Virtual Proceedings and did not file Submissions.

10.   The Court sought from Deputy Registrar to contact the 2nd Defendant on whether they were intent on pursuing the already filed Preliminary Objection. On 11th June 2021, the Deputy Registrar informed the Court that the 2nd Defendant advocates now on record had not filed any pleadings and former advocates were no longer on record.

11.  The Court record contains the Plaint filed by Plaintiff on 29th May 2017, 2nd Defendant’s Defense filed on 12th July 2017 which at paragraph 26 denied the Jurisdiction of the Court by virtue of Arbitration Clause in the Sub Contract and the suit herein was/is said to be premature. The 1st Defendant filed application on 21st July 2017 and sought the Plaint be struck off with Costs as the pleadings were/are in breach of the mandatory provisions of Clause 31 of the Agreement and Conditions of Sub Contract for Building Works. The Plaintiff through Grounds of Opposition of 15th September 2017, challenged the 1st Defendant’s application as it was not in compliance with Section 6(1) of Arbitration Act and that there was no dispute. The 1st Defendant sought leave which the Court granted to amend the Preliminary objection to include stay of proceedings. Instead, on 15th March 2018, the 1st Defendant filed Defense & Counterclaim.

12.  The Sub contract executed between the Plaintiff and 1st Defendant of 26th June 2014 at Clause 31. 1 provides;

“In any dispute, or difference shall arise between the Contractor and Sub Contractor, either during the progress or after the completion or abandonment of sub contract works, such dispute shall be notified in writing by either party to the other with a request to submit it to arbitration and to concur in the appointment of an Arbitrator within 30 days of the Notice.”

13.   There is an arbitration clause binding the Plaintiff and 1st Defendant as to their choice of forum of dispute resolution. Is there a dispute to be determined before the Arbitral Tribunal? The dispute in Court is for hearing and determination is the Plaintiffs claim against both 1st and 2nd Defendants.

14.  The suit herein is by Plaintiff against the 1st & 2nd Defendants over the same claim of Ksh 28,049,334. 13/-, Whereas there is an executed contract between Plaintiff and 1st Defendant with an Arbitration clause, it cannot bind the 2nd Defendant as it is not privy to the Sub contract.

15.  On the other hand, there is the Main Contract executed between the 1st & 2nd Defendant that prescribes Arbitration as dispute resolution mechanism under the Arbitration Clause. This Court was/is informed that the there are already existing arbitration proceedings between 1st Defendant & 2nd Defendant before Sole arbitrator Mr Walter Aggrey Odundo, FCIARB, where it is alleged that the Plaintiff’s claim is part of the 1st Defendant’s claim and there is real risk of 2 forums Arbitration and Court Proceedings arriving at dissimilar or even contradictory decisions.

16.  This Court considered the submissions by Plaintiff and 1st Defendant and finds as follows;

a)  There is an arbitration clause between the 1st Defendant and Plaintiff and the choice of forum is Arbitration.

b)  The 1st Defendant vide letter of 23rd February 2017 expressly admits to owing the Plaintiff Ksh 28,049,334. 13/-.

c)  In the Defence & Cross-claim filed on 13th March 2018 without leave of Court and past the statutory timeline, at paragraphs 13 & 15 clearly and unequivocally admitted indebtedness to the Plaintiff Ksh 28,049,334. 13/-.

d)  By letter of 21st May 2019, the 1st Respondent through its advocate on record admitted in writing that it was engaged in ongoing arbitration proceedings with 2nd Respondent and the amount due to the Plaintiff was not disputed.

e)  The 1st Defendant does not contest works carried out by the Plaintiff on site. The 2nd Defendant’s Architects certified works by Plaintiff and issued Interim Certificates 16 & 17 to confirm Plaintiff’s Performance.

17.   In the circumstances and totality of confirmed agreed facts there is no dispute between the Plaintiff and 1st Defendant to pursue Arbitration.

In Clearspan Construction (A) Limited vs East African Gas Co. Ltd [2008] eKLR, Where Justice Sergon had this to say;

“It is well settled that a defendant cannot succeed to obtain a stay by replying on an arbitration clause unless there is a dispute. I am convinced that a refusal to pay an outstanding debt cannot by any stretch of imagination amount to a dispute.

In UAP VS Michael John Beckett it was held;

“In our view, it is within the province of the court, when dealing with an application for stay of proceedings under section 6 of the Arbitration Act, to undertake an evaluation of the merits or demerits of the dispute. In dealing with the application for stay of proceedings and the question whether there was a dispute for reference to arbitration, Mutungi J. was therefore within the ambit of section 6 (1)(b) to express himself on the merit or demerit of the dispute. Indeed, in dealing with a section 6 application, the court is enjoined to form an opinion on the merits or otherwise of the dispute.”

18.  A Preliminary Objection is not the legal procedure to seek stay of proceedings under Section 6 of Arbitration Act for parties to pursue Arbitration.

19.  The Court finds that as between the Plaintiff and 1st Defendant, they have their choice of forum as arbitration but there is no dispute to pursue arbitration on by virtue of the admission elicited by correspondence and pleadings on record as considered above.

20. The 2nd Defendant’s Preliminary Objection by the 2nd defendant presumably filed by their former advocates on record and did not pursue it to its logical conclusion is hereby dismissed with costs for the following reasons.

a) The Plaintiff’s claim against the 2nd Defendant remains unresolved as the parties did not execute any contract and did not provide for arbitration to resolve disputes between them. The dispute between the Plaintiff and 2nd Defendant is within this Court’s jurisdiction in the absence of a valid contract executed by both parties that provides for Arbitration.

b) The ongoing Arbitration proceedings between the 1st & 2nd defendant do not/cannot bind the Plaintiff. The Plaintiff cannot enforce their Arbitral Award or claim from the said award as the Plaintiff is not privy to the original contract that housed the Arbitration Clause that provided for Arbitration between the parties. Secondly, obviously the Plaintiff is not party to these Arbitration proceedings.

21.  Conversely, the 2nd Defendant was/is not party to the contract between the Plaintiff and 1st Defendant.

22.   The Plaintiff’s claim against the 2nd Defendant cannot be safely dealt with in these Arbitration proceedings.

Therefore, the Plaintiff’s suit/claim against the 2nd Defendant remains live to be canvassed in Court.

DISPOSITION

23.  The Preliminary Objection by the 2nd Defendant dated on 8th March 2021 is dismissed with costs.

DELIVERED SIGNED & DATED IN OPEN COURT ON 14TH JUNE 2021. (VIRTUAL CONFERENCE)

M.W. MUIGAI

JUDGE

IN THE PRESENCE OF;

MS ODUOR H/B MR. NGUGI FOR PLAINTIFF

MR KAIRU FOR THE 1ST DEFENDANT

COURT ASSISTANT - TUPET