Reynolds Construction (NIG) Limited v DM Enterprises Limited & another [2022] KEHC 10324 (KLR)

Reynolds Construction (NIG) Limited v DM Enterprises Limited & another (Civil Case E886 of 2021) [2022] KEHC 10324 (KLR) (Commercial and Tax) (13 May 2022) (Ruling)

Neutral citation: [2022] KEHC 10324 (KLR)

Republic of Kenya

In the High Court at Nairobi (Milimani Commercial Courts Commercial and Tax Division)

Commercial and Tax

Civil Case E886 of 2021

DAS Majanja, J

May 13, 2022

Between

Reynolds Construction (NIG) Limited

Plaintiff

and

DM Enterprises Limited

1st Defendant

Prime Bank Limited

2nd Defendant

Ruling

1. The 2nd defendant (‘’the Bank”) has moved the court, inter alia, under Order 26 rules 1, 4, 5 and 6 of the Civil Procedure Rules (“the Rules’’) seeking an order for security for costs and the consequential relief from the plaintiff. The application is supported by the affidavit of its Legal Manager in the Credit Department, George Mathui, sworn on March 14, 2022. The plaintiff opposes it through the replying affidavit of its Chief Accountant, Hosbon Onsembe, sworn on March 25, 2022. Both sides filed written submissions which I have considered.

2. The facts leading up to this case are set out in the Plaint. The plaintiff, as the main contractor for the Missing Link Roads and Non-Motorized Transport (NMT) facilities (Contract No. FED/2013/334-756) subcontracted by the 1st defendant to supply aggregate and precast concrete. According to their contractual arrangements, the plaintiff advanced the 1st defendant 30% of the sub-contract amount for mobilization which sum was to be recovered by deductions from Interim Payment Certificates based on work done and material supplied until completion of the contract. As a condition for the advance the 1st defendant was to obtain and did obtain Advance Payment Guarantees in the plaintiffs favour from the Bank. Once the Guarantees were obtained, the plaintiff advanced the 1st defendant KES. 167,391,816. 25. In due course, the plaintiff and the 1st defendant finalized their contract, reconciled their account leaving KES. 43,068,438. 00 which the plaintiff now demanded from the Bank. The plaintiff claims that the Bank failed to honour the Guarantees hence this suit.

3. The thrust of the Bank’s case in the application is that plaintiff is incorporated in Nigeria and has no known assets in Kenya. It argues that if the case fails it will be left without recourse as it will not be in a position to recover its costs. The Bank contends that the plaintiff’s conduct of filing the suit is unconscionable as it is the Plaintiff who breached its fundamental obligations of the contract and that its suit has no reasonable prospects of success. It points out that the Plaintiff seeks judgment on the basis of Advance Payment Guarantees that could be voided for breach of contract and non-payment of KES. 167,391,816. 225 yet it never paid the said sum into a designated account with the Bank.

4. The plaintiff opposes the application. It asserts that it has operated in Kenya for the last 30 years and has no intention to leaving the country. It adds that it is operating alongside its parent holding company, SBI International Holding (AG) which is incorporated in Switzerland and registered in Kenya as SBI International Holdings (AG) Kenya under the certificate of compliance REG. NO. F.4/2006. It further avers that it has a robust asset base comprising plant, machinery, inventory and cash amounting to KES. 4 billion and that it has a workforce of 250 employees on permanent, contractual and casual basis. It states that it has substantial work as a principal and sub-contractor on many road construction projects within the country.

5. In its deposition, the plaintiff sets out examples of road construction contracts it has executed with the Government of Kenya and Ministry of Transport, Infrastructure, Housing, Urban Development and Public Works through its road agencies, Kenya Rural Roads Authority and Kenya Urban Roads Authority. These include Rehabilitation and Upgrading of Imenti-Kionyo (T52/E779), Kionyo-Chogoria (D74) and Ndagane Loop (T51) Roads under Contract No. RD 0529 valued at KES. 3,502,806,461. 34 completed in 2013, Rehabilitation and upgrading of Meru-Marimba (D482), Marimba-Nkubu (D476) and Nkubu-Mitunguu (D475) Roads valued at KES. 3,232,399,768. 99 which was a five year contract commencing 2009. It states that it is currently undertaking the Missing Link Roads and Non-Motorized Transport (NMT) facilities (Contract No. FED/2013/334-756) valued at KES. 4,578,162,618. 04 which is still ongoing and which is the subject of ongoing Advance Payment Guarantees.

6. In their written submissions, the parties have cited various authorities to support their respective positions including Tasmac Limited v Roberto Macri and 4others [2014] eKLR, Moses Wachira v Niels Brunels and 2others [2015] eKLR, Shah andothers v Shah andothers[1982]eKLR,Alice Aloo Betty Were Thompson v Said Mohamed Said andothers [2014]eKLR and Wen Jie Li v Managing Director Nairobian andanother [2017] eKLR. The common thread running through these decisions is that the court has discretion to order security for costs. That discretion though, must be exercised judiciously taking into account a multiplicity of factors dependent on the facts of the case.

7. The Court of Appeal in Mama Ngina Kenyatta andanother v Mahira Housing Company CA Civil Application No. NAI 256 of 2003 [2005] eKLR cited with approval the decision in Keary Developments v Tarmac Construction [1995] 3 All ER 534 which set out a non-exhaustive list of factors which ought to guide the court in exercising its discretion whether to order security for costs as follows:a.The court has a complete discretion whether to order security, and accordingly it will act in the light of all the relevant circumstances.b.The possibility or probability that the plaintiff company will be deterred from pursuing its claim by an order for security is not without a more sufficient reason for not ordering security. It is implicit that a company may have difficulty meeting an order.c.The court must balance the injustice to the plaintiff prevented from pursuing a proper claim against the injustice to the defendant if no security is ordered and at the trial the plaintiff’s claim fails and the defendant finds himself unable to recover his costs. The power must neither be used for oppression by stifling a claim particularly when the failure to meet that claim might in itself have been a material cause of the plaintiff’s impecuniosity, nor as a weapon for the impecunious company to put pressure on a more prosperous company.d.The court will look to the prospects of success, but not go into the merits in detail.e.In setting the amount it can order any amount up to the full amount claimed by way of security, provided that it is more than a simply nominal amount; it is not bound to make an order of a substantial amount.f.Before refusing security the court must be satisfied that, in all the circumstances, the claim would be stifled. This might be inferred without direct evidence, but the court should also allow that external resources might be available.g.The lateness of the application can properly be taken into account.

8. There is no dispute that the plaintiff is incorporated in Nigeria. This alone is not sufficient to order security for costs. The cases cited by the parties show that the court has a duty to carefully balance the plaintiff’s right to have its case heard without undue impediment and for the Bank to be protected against the risk of difficulty in the recovery of costs from an impecunious plaintiff.

9. I hold that the Bank must go further than make a mere allegation that a company is incorporated abroad, it must establish that the company may not be in a position to settle its costs should the suit be unsuccessful. This may be by direct or indirect evidence. In this case and in response to the Bank’s allegation, the Plaintiff has placed before the court uncontroverted evidence of its dealings with the Government of Kenya and its agencies as I have outlined above. Evidently, the plaintiff cannot, on the basis of the evidence on record, be dismissed as a company that lacks the means to meet an order for costs as alleged by the Bank.

10. This finding alone should be sufficient to dispose of the case. As to whether the plaintiff’s case lacks bona fides, I can only state that the dispute between the parties revolves around Advance Payment Guarantees. While there are two positions on the matter, at this stage I cannot say that the suit is frivolous or lacks bonafides. The court will have the opportunity to interrogate the claim.

11. For the reasons I have stated, I dismiss the 2nd defendant’s application dated March 14, 2022 with costs to the plaintiff.

DATED AND DELIVERED AT NAIROBI THIS 13TH DAY OF MAY 2022. D. S. MAJANJAJUDGECourt Assistant: Mr M. OnyangoMr Ochieng instructed by Prof Albert Mumma and Company Advocates for the Plaintiff.Mr Mutua instructed by Mutua Waweru and Company Advocates for the 1st Defendant.Mr Wawire instructed by Wamae and Allen Advocates for the 2nd Defendant.