PIONEER HOLDINGS (AFRICA) LIMITED v INTRA AFRICA ASSURANCE COMPANY LTD [2008] KEHC 2403 (KLR)

REPUBLIC OF KENYA

IN THE HIGH COURT OF KENYA

AT NAIROBI (MILIMANI COMMERCIAL COURTS)

Civil Case 279 of 2006

PIONEER HOLDINGS (AFRICA) LIMITED……….…………….PLAINTIFF

VERSUS

INTRA AFRICA ASSURANCE COMPANY LTD……..……RESPONDENT

R U L I N G

The Plaintiff has filed this Chamber Summons application dated 24th August, 2006 in which it seeks to have the Defendant’s defence dated 22nd June 2006 struck out and that judgment be entered in favour of the Plaintiff against the Defendant as prayed for in the Plaintiff’s plaint dated 5th May, 2006.

The application is expressed to be brought under Order VI, rule 13 (1) (b) and 16of the Civil Procedure Rules and Section 3AofCivil Procedure Act.

There is one ground cited on the face of the Chamber Summons as the basis of the instant application.  The Plaintiff contends that the Defendant’s defence is frivolous as it consists only of a bare denial of the averments contained in the plaint and cannot possibly be sustained or be successful in resisting the Plaintiff’s claim against the Defendant in the suit in respect of which the Defendant has no valid or arguable defense.

The application is supported by the affidavit of ZOOL NIMJI.  The affidavit itself is dated 24th August, 2006.  It annexes several documents including a copy of the Construction Contract ‘ZN2’ and a copy of the Performance Bond, ‘ZN3’ which forms the core of the Plaintiff’s claim.

The application was strongly opposed. The Director of the Defendant Company swore a replying affidavit dated 16th October, 2006.  It annexes a bundle of documents including correspondences exchanged between the Plaintiff and the Defendant’s predecessors, Pioneer General Assurance Society Limited.

The facts of the case are not in dispute.

The Plaintiff entered into a Construction Contract with Megdev Construction Limited on 24th June, 1996 for construction of 15 flats in Ngara, Nairobi.  Four days later on 28th June, 1996, the Defendants Intra Africa Insurance Company Limited executed a Performance Bond in favour of the Plaintiff, in which the Bond was conditioned to be void only if the contractor, Megdev, duly performed its obligations under the Construction Contract.

The Date for Practical Completion of the Construction Contract was 24th June 1997.  However, that date was extended to 31st July, 1997 by agreement of the parties. The construction was however not completed until 3rd December, 1997.

The Plaintiff claims that since the construction was not completed until 3rd December. 1997, which was four months outside the Date for Practical Completion, Megdev failed to perform its obligation under the Construction Contract and that the Performance Bond executed by the Defendant remained alive, valid and enforceable.  The Plaintiff relies on the Performance Bond where it provides inter alia as follows:

“Now the condition of the above-written bond is such that if the said MEGDEV CONSTRUCTION LTD (CONTRACTOR) his/their executors, administrators, successors or assigns shall conform to the said agreement, then the above-written bond to be void otherwise to remain in full force.”

The Plaintiff avers that pursuant to that provision, it made a demand for the principle sum of Kshs.1,339,500/- plus interest, calculated in accordance with clause 22 as read together with the  Appendix to the Construction Contract. Clause 22 of the Construction Contract states:

“If the Contractor fails to complete the Works by the Date of Practical Completion stated in the appendix to these conditions or within any extended time fixed under Clause 23 of these Conditions and the Architect certifies in writing that in his opinion the same ought reasonably so to have been completed, then the Contractor shall pay or allow to the Employer a sum, calculated at the rate stated in the said appendix as Liquidated and Ascertained Damages for the period during which the Works shall so remain or have remained incomplete, and the Employer may deduct such sum from any monies due or to become due to the Contractor under the Contract.”

The Applicant contends that it was after the Respondent failed to pay the sum demanded that it filed this suit.

The application under consideration is an interlocutory application seeking entry of judgment through summary procedure.

Madan, JA. in an obiter in DT Dobie vs. Muchina [1982] KLR 1 observed:

“8. The power to strike out should be exercised only after the court has considered all facts, but it must not embark on the merits of the case itself as this is solely reserved for the trial judge.  On an application to strike out pleadings, no opinions should be expressed as this would prejudice fair trial, and would restrict the freedom of the trial judge in disposing the case.

9.  The court should aim at sustaining rather than terminating a suit.  A suit should only be struck out if it is so weak that it is beyond redemption and incurable by amendment.  As long as a suit can be injected with life by amendment, it should not be struck out.”

The caution expressed in the DT Dobie case, supra, is quite clear and important that in an application for striking out proceedings, the court must exercise its discretion with extreme caution and should refrain from making final findings of this case as this is reserved for the trial court. This is especially so because the court will have to decide on the application without the benefit of hearing oral evidence and also before discovery being done.

The Applicant has brought the application under rule 13(1) (b) of Order VIwhich means that it is claiming that the Defendant’s case is “scandalous, frivolous and vexatious”.  It was imperative for the Applicant to demonstrate the manner in which the Defendant’s defense was scandalous frivolous and vexatious.  I did not see any such an attempt.

The Supreme Court Practice 1997 Vol. 1 part 1 at paragraph 18/19/12, scandalous is explained in part as follows: -

“If degrading charges be made which are irrelevant, or if, though the charge is relevant, unnecessary details are given the pleading becomes scandalous.  If any unnecessary mater in a pleading contains any imputation on the opponent, or makes any charge of misconduct or bad faith against him or anyone else, it will be struck out, for then it becomes scandalous.”

In BULLEN and LEAKE and JACOB’S PRECEDENTS OF PLEADINGS 12th Ed. by IJ JACOB at page 144-145 scandalous pleadings are defined as follows:

“For this purpose, allegations in a pleading are scandalous if they state matters which are indecent or offensive or are made for the mere purpose of abusing or prejudicing the opposite party.  Moreover, any “unnecessary” or “immaterial” allegations will be struck out as being scandalous if they contain any imputation on the opposite party or make any charge of misconduct or bad faith against him or anyone else.  Again, if degrading charges are made which are irrelevant, or if, though the charge be relevant, unnecessary details are given, the pleading becomes scandalous.  One of the two defendants may apply to strike out scandalous passages from the defence served on him by the other.”

In addition frivolous or vexatious pleadings and actions are defined as follows:

“A pleading or an action is frivolous when it is without substance or groundless or fanciful and it is vexatious when it lacks bona fides and is hopeless or oppressive and tends to cause the opposite party unnecessary anxiety, trouble and expense.  Thus, a proceeding may be said to be frivolous when a party is trifling with the court or when to put it forward would be wasting the time of the court or when it is not capable of reasoned argument.  Against a proceeding may be said to be vexatious when it is or is shown to be without foundation or where it cannot possibly succeed or where the action is brought or the defence is raised only for annoyance or to gain some fanciful advantage or when it can really lead to no possible good.”

Considering the suggested meanings of scandalous, frivolous or vexatious pleadings given in these texts, it is quite obvious that the Applicant made no attempts to bring their application within the epithets cited on the face of the Chamber Summons.  The court cannot guess what the Applicant intended to show or establish against the Respondent in support of the said epithets.  Considering the grounds raised and the submissions by Counsel, there is nothing to establish, leave alone prove, that allegations made in the statement of defense are irrelevant, or bear unnecessary details, neither do they bear any imputation on the Plaintiff nor any charge of misconduct, or bad faith, to justify a funding that the defense was scandalous.

Likewise, on the grounds of being frivolous or vexatious, it was the Applicant’s duty to show that the Respondent’s defense was without substance or groundless or fanciful and that it lacked bona fide, was hopeless or oppressive. I noted that the Applicant has on the face of the application specified that it was relying on the ground that the defendant’s defense was frivolous. Was the Defendant’s defense frivolous?  It is not disputed that the Defendant puts forward three principal defenses to the plaintiff’s claim. These are:

Firstly, the Defendant avers that the Plaintiff’s claim being contractual is barred under Section 4 of the Limitation of Actions Act.

Secondly, the Defendant claims that the Plaintiff was itself in breach of it’s obligations owed to Megdev by failing to pay a sum of Kshs.600,000/-, and that as a consequence thereof, the Defendant is not liable under the performance bond and further that  any delay in completion of the construction by Megdev was caused by the Plaintiff’s own alleged breach.

Thirdly, the Defendant alleges, separately from the claim of limitation, that the Plaintiff’s claim is barred by laches.

Regarding the first issue of limitation the parties are not in agreement.  The Applicant’s argument is that time started running not from the time the demand to pay was made but from the time the Defendant refused to pay the amount demanded by the Plaintiff.  Mr. Sarvia for the Applicant relies on the Halsbury’s Law of England, 3rd Edition, andVol. 24 paragraph 386 where it stated:

“In an action for a breach of contract the cause of action is the breech.  Accordingly such an action must be brought within 6 years of the breach.”

Counsel also relied on paragraph 394 where it is stated:

“394 - Surety and creditor.  If the guarantee is to pay on demand, time runs only from a demand.”

Mr. Sarvia submitted that the Plaintiff’s cause of action arose when the demand to pay was made on the Defendant and the Defendant failed to pay, and further that before the demand was made, the Plaintiff could not sue.  Counsel submitted further that a demand was essential to activate the Defendants liability to pay.

It is the Respondent’s contention that at the time the demand for payment was made, which was 30th of June, 2005 the claim was statute barred under Section 4(2) of the Limitation of Actions Act.  Mr. Shah for the Respondent submitted that under paragraph 5 of the plaint the plaintiff avers that the Date of Completion of the Contract of Construction between it and Megdev was extended by agreement to 31st July, 1997. Counsel submitted that in paragraph 7, the Plaintiff averred that Megdev completed the works by 3rd December 1997.  Mr. Shah contended that it was clear from its pleadings that the plaintiff was aware of its “losses” by 3rd of December, 1997 and that going by that date, the Plaintiff’s claim against the defendant became time barred on 3rd of December 2003.  Mr. Shah pointed out that it is clear and cannot be gain said that a contract of indemnity, like the one in the instant case, is a contract and the time limit to sue on a breach of contract is 6 years as provided under section 4(2) of the Limitations of Actions Act.  Mr. Shah submitted that the liability of the defendant to the Plaintiff was not to arise if Megdev completed the contract, which he claims it did on 3rd of December 1997.  He relies on Halsbury’s law of England 3rd Ed. Vol. 24 Paragraph 393 which states as follows:

“393 – Contract of indemnity.  Upon a contract to indemnify, the statute runs form the time when the plaintiff is actually damnified, not from the time when the event happens which causes the loss.”

Mr. Shah relied on this text to contend that the Defendant became liable to the plaintiff on the 3rd of December, 1997, which was the date the plaintiff stood damnified.  That in the circumstances the plaintiff’s claim against the defendant is clearly statute barred.  In the same vein, Mr. Shah submitted, the defense of statute-bar is a complete defense and the question of striking out the defense does not arise.

Mr. Shah opposed Mr. Sarvia’s suggestion that the contract between the parties was an on demandbond and on that basis distinguished the cases relied upon by the Applicant.  This included the Text from the book Law of Guarantees by Andrews & Miller; the case of InRE: 1 Brown’s Estate Brawn v. Brown (1983) Ch.D 300 and the case of Bradford Old Bank vs. Sutcliffe [1918] 2 QB 833. Counsel for the Defendant/Respondent went on to suggest an interpretation for the term “Otherwise to remain in full force” as contained in the Performance Bond. Learned counsel argued that this term could only be interpreted to mean that the bond would remain in force until Megdev completed the agreement. Mr. Shah submitted that the agreement was actually completed albeit four months late. Mr. Shah reiterated that since the agreement between the parties was not an on demand bond the breach can only be interpreted to have occurred in 1997 and not 2005 when the demand was made.

Considering the submissions by Counsel, it is quite clear that material to determining the issue of limitation is the interpretation that will be had of the Performance Bond especially the clause set out herein above. As demonstrated, each party gave a divergent interpretation to the Performance Bond.  As already demonstrated in the D.T. Dobie case, supra, for an application to strike out pleadings, no opinion should be expressed as this would prejudice fair trial and would restrict the freedom of the trial judge in disposing the case.  The issue of limitation is a complex one and going by the divergent views of the parties in this case, it is a matter that should be determined at the trial stage.  This being an interlocutory application, it will be irregular for this court to embark on an interpretation of the Performance Bond in determining the intention of the parties as far as the limitation is concerned.  It is my considered view that this is a triable issue that should be considered during the trial of the case.

In the case of KenyaHorticultural Exporters [1977] Ltd. v. Page (trading as Osirua Estate) Kneller, Nyarangiand Gachuhi,JJAset out in this case the principles which the courts should apply in applications for summary judgment under Order XXXV.  They held as follows:

“1. As a general rule, in order for a defendant to be granted leave to defend, all that he has to show is that there is a triable issue of fact or of law and leave to defend will normally be given unconditionally except where a judge considers that there is ground for believing that the defence is a sham in which case he may exercise his discretion to impose conditions.”

The same principle is applicable to applications under Order VI rule 13(1), no evidence should be struck out if it raises triable issues.  In an English persuasive authority that was dealing with the striking out of the plaint under provisions similar to Order VI r. 13(1) of the Civil Procedure Rules, Sellers L.J. in the case of WEN LOCK vs. MALONEY AND OTHERS [1965] WLR 1238at page 1242 stated thus:

“This summary jurisdiction of the court was never intended to be exercised by a minute and a protracted examination of documents and the facts of the case in order to see whether the plaintiff really has a cause of action.  To do that is to usurp the position of the trial judge and to produce a trial of the case in chamber, on affidavits only without discovery and without oral evidence tested by cross-examination in the ordinary way.  This seems to me to be an abuse of the inherent power of the court and not a proper exercise of that power.”

On the issue of the limitation, going by the Defendant’s defence, is an issue which needs detailed consideration and since I cannot embark on a minute and protracted examination of documents and of the facts of the case in order to interpret the intention of the parties in the contract in issue, it is my view that it is matter that should be left for determination by the trial court.  On that basis alone, it sufficient to dispose of the application.  But I will make mention of the other two defences raised by the Defendant in this case.

The issue of the Plaintiff’s breach of the Construction Contract, Mr. Sarvia referred the court to the proviso in the Performance Bond which provides as follows:

“Provided always and it is hereby agreed and declared that the liability of us the said

INTRA AFRICA ASS. CO. LTD.  ………………(SURETY)

Under the above-written bond shall not in any way be discharged or impaired by reason of any breach (willful or otherwise) of the said agreement committed with or without the knowledge or consent of the said.

MEGDEV CONSTRUCTION LTD………….(CONTRACTOR)”

Mr. Sarvia submitted that the defence cannot succeed due to the very clear terms of the bond which excluded any discharge of the Defendant due to any liability of the Plaintiff.  Mr. Sarvia submitted further that even if the Plaintiff breached the Agreement, it was irrelevant in so far as the Defendant’s liability and the bond were concerned, since under the law the Performance Bond and the Construction Contract were two different contracts.  Mr. Sarvia relied on the case of Laws of Guarantee, supra.  He also relies on the case of Edward Owen Engineering Ltd. vs. Barclays Bank International Ltd. & Another [1978] 1 QB 159 for the preposition that the Defendant could not rely on alleged breach by the Plaintiff to avoid liability under the bond.

Mr. Shah on the other hand submitted that Delta Architects requested the Plaintiff to issue the second moiety of shs.600,000/- to Megdev but this sum was never paid by the Plaintiff to Megdev.  Mr. Shah submitted that the Plaintiff was trying to unjustly enrich itself by seeking payment from the Defendant.

The issue of the breach is pleaded under paragraphs 4, 5, 6 and 7 of the Defendant’s defence.  To determine this issue one has to interpret the Performance Bond and the Construction Contract.  The issue whether the Plaintiff’s conduct under the Construction Contract would affect its rights under the Performance Bond is a matter that needs to be determined at the trial.  This is also a triable issue that cannot be determined under this application.

The last issue raised by the defence was that of laches.  It was the Respondent’s submission that the Plaintiff was not entitled to sit on its laurels for 8 years before making the demand for payment on the guise that its right under the Performance Bond could only be activated once a demand for payment was made.  Mr. Shah submitted that the Plaintiff was guilty of laches and that his claim was also barred by laches.

Counsel relied on the meaning of laches as given in Oxfords Concise Law Dictionary 7th Ed. by Roger Bird where laches is defined inter alia as follows:

“Negligence or unreasonable delay in asserting or enforcing a right.  The equitable doctrine that delay defeats equities, or that equity aids the vigilant and not the indolent.  A court of equity has always refused its aid to steal demands, where a party had slept on its rights and acquiesced for a good length of time.  Nothing can call forth this court into activity but conscious, good faith and reasonable diligence; when this are wanting the court is passive and does nothing…”

Regarding laches Mr. Sarvia was of the view that since the time started running on the day the Defendant refused to make payment on demand by the Plaintiff, the delay involved was from the date the demand was made to the date the suit was filed.  Mr. Sarvia argued that there could not be any laches for the eleven (11) months and that this argument was self defeating and could not stand in a court of law.

The issue whether or not there was laches, just like the issue of limitation will need an interpretation of the intention of the parties under the Performance Bond.  This is also a matter that should be considered by the trial court and cannot be embarked on in an application of this nature.

Having come to the conclusions that I have in this application, I do find that the Defendant’s defence is not frivolous as alleged by the Applicant and that is raises triable issues which should be tried during the hearing of the suit.  For that reason, I find the application has no merit and consequently dismiss it with costs to the Respondent.

Dated at Nairobi this 23rd day of May, 2008.

LESIIT, J.

JUDGE

Read, signed and delivered, in the presence of:

Ms. Mwangi holding brief Mr. Sarvia for the Applicant

Mr. Otundo holding brief Mr. A.B. Shah for the Respondent

LESIIT, J.

JUDGE