Sarovar Hotels Pvt Limited India v Placid View Properties Limited; A.F. Gross & Co. Advocates (Third party) [2022] KEHC 85 (KLR)

Sarovar Hotels Pvt Limited India v Placid View Properties Limited; A.F. Gross & Co. Advocates (Third party) (Miscellaneous Application 157 of 2017) [2022] KEHC 85 (KLR) (Commercial and Tax) (4 February 2022) (Ruling)

Neutral citation number: [2022] KEHC 85 (KLR)

Republic of Kenya

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

Miscellaneous Application 157 of 2017

A Mshila, J

February 4, 2022

Between

Sarovar Hotels PVT Limited India

Plaintiff

and

Placid View Properties Limited

Defendant

and

A.F. Gross & Co. Advocates

Third party

Ruling

1. The Applicant filed a Notice of Motion Application dated 6th August 2019 supported by the Affidavit of S. Raja sworn on the same date for orders that;a.The Court issues an order setting aside Order No. 5 under the Consent Order dated 10th July 2017 and filed in court on 11th July 2017. b.The Court issues an order that the Defendant forthwith pays to the Plaintiff the sum of USD 48, 500 plus interest thereon at court rates from 15th July 2017 until payment in fullc.The Court issues such orders as it deems fit to penalize the Defendant and its Directors for contempt of court for procuring the Consent Orders through false or fraudulent representations.

2. The Applicant argued that since 15th July 2017, the Respondent has had the benefit of the sum of USD 48,500 whilst misrepresenting to the Applicant that it was held in an escrow account. It is thus just that the court orders the amount to be paid to the Applicant forthwith and that it accrues interest at court rates from 15th July 2017 until payment in full.

3. Further, that the Respondent will not suffer any prejudice by grant of the orders prayed having conducted itself in a fraudulent manner in recording the afore-stated Consent Order.

4. The Respondent had filed a Chamber Summons Application dated 4th November 2019 seeking to join the Third Party to these proceedings and respond to claims by the Applicant. The Third Party filed the Replying Affidavit of Anthony Fredrick Gross dated 3rd February 2020 and stated that pursuant to the Arbitral Tribunal Order for Directions No. 8 issued on 29th June 2015. Both the plaintiff/applicant and the defendant/respondent consented to place in a joint escrow account at Chase Bank USD 97,000 remitted by the respondent.

Applicant’s Case 5. The Applicant submitted that the defendant/respondent sought leave to join A. F. Gross & Company Advocates as Third Party for purposes of providing an indemnity to it for the sum of USD 97. 000 covered by the Order No. 5 of the Consent Order dated 10th July, 2019. Order 1 Rule 15 of the Civil Procedure Rules 2010 allows such an Application within fourteen (14) days of close of pleadings.

6. In its application, without disclosing that there is already a Decree in existence, which it has partially satisfied, the Respondent by the ex-parte Application misled the Court into granting leave for A. F. Gross Advocates to be joined as a Third Party.

7. The leave obtained under such circumstances of material non- disclosure, and contrary to Order 1 Rule 15 of the Civil Procedure Rules 2010, is null and void ab initio and the Court should expunge from the record the Chamber Summons application dated 4th November, 2019, the Notice of Appointment of Advocates dated 3rd December, 2019 filed by Michuki & Michuki Advocates on instructions of A. F. Gross Advocates, and the Replying Affidavit of Anthony Fredrick Gross sworn on 3rd February, 2020.

8. Further, the Applicant submitted that the Application remains unopposed to-date as the respondent has neither filed any grounds of objection to oppose it on grounds of law, nor any Replying Affidavit to controvert the depositions of fact in the Supporting Affidavit. Therefore, both on legal grounds and factual evidence, the application is fit for granting as it is unopposed.

9. There is ample authority that a decree passed by a Court with the consent of the parties may in appropriate circumstances be challenged on grounds that it was obtained by fraud or mistake or misrepresentation or on any other reason which would persuade a court to vary or set aside the consent decree. The grounds to be considered are those upon which a court may void an agreement or contract between parties a was held by the Court of Appeal decisions in the cases of Brooke Bond Liebig Limited v Mallya, (1975] EA 266 (at page 269), and Flora N. Wasike vs Destimo Wamboko, (1988] eKLR (al pages 2 - 3).

10. In the present case, Order No. 5 of the Consent Order dated 10th July, 2017 was negotiated and agreed between the Plaintiff and the Defendant on the basis that USD 97,000. 00 was to be held in joint escrow account, and 50% thereof plus accrued interest thereon paid out to the Plaintiff, as part of the settlement of the Decree in installment payments.

11. The uncontroverted facts evidence that, whereas the Defendant may have availed the funds to its Advocates, the joint escrow account was never set up. The Applicant relied on the misrepresentation relating to the escrow account in entering into the Consent Order, to its detriment. These constitute sufficient grounds for the Court to set aside Order No. 5 of the Consent.

12. The Applicant is entitled to a setting aside of Order No. 5 of the Consent Order and to issuance of an order that the sum of USD 48,500. 00 plus accrued interest be paid to it in lump sum.

13. The Applicant urged the Court to grant prayers 1 and 2 of the Notice of Motion with costs and waived prayer 3.

Respondent’s Case 14. Although the plaintiff’s advocate raised the issue of joint mandate forms with the 3rd Party and the defendant’s Advocate after they were informed that the funds had been placed at Chase Bank, the matter was left in abeyance throughout the Arbitration proceedings.

15. The issue of the funds being placed at Chase Bank unilaterally never arose before the Arbitral Tribunal and therefore the plaintiff’s contention is an afterthought.

16. The Third Party further stated that Chase Bank was put under receivership on 7th April 2016 and all the depositor’s funds including the escrow herein were forthwith frozen. On 17th April 2018, SBM Kenya assumed certain deposits with respect to Chase Bank (in Receivership) and depositors were only to access 75% (payable in phases) of their funds with 25% being retained by KDIC at Chase Bank.

17. In the circumstances, the only funds available for disbursement to the parties as at 20th August 2018 was USD 42,946 with the moratorium balance of USD 33,066 (37. 5%) being retained by SBM and payable in three years in instalments of USD 11,022 per year from 20th August 2018.

18. Following the Defendant’s Advocates instruction on 12th April 2019, the Third Party disbursed USD 42, 946 to the Respondent on 23rd April 2019 leaving a balance of USD 33,066 being the moratorium funds. A further USD 11,022 is now available and there is no reason why the respondent cannot release to the applicant USD 42,946 paid to it on 23rd April 2019 which is enough to settle the applicant’s claim.

19. The respondent informed the Court on 27th October 2021 that it would rely on the Third Party’s Replying Affidavit and thus did not file any further documents.

Issues For Determination 20. After reading the Application, Replying Affidavit and the respective submissions filed herein this court finds the following issues for determination;a.Whether the Third Party Proceedings instituted by the respondent complete?b.Whether Order No. 5 of the Consent should be set aside on the grounds of misrepresentation and collusion?

Analysis 21. The respondent herein did not file any response to the present Application but instead filed a Chamber Summons Application dated 4th November 2019 seeking leave to join A. F. Gross & Company Advocates as Third Party for purposes of providing an indemnity to it for the sum of US$.97, 000 covered by Order No. 5 of the Consent Order dated 10th July 2017.

22. Order 1 Rule 15 (1) of the Civil Procedure Rules stipulates as follows;“Where a defendant claims as against any other person not already a party to the suit (hereinafter called the third party) —(a)that he is entitled to contribution or indemnity; or(b)that he is entitled to any relief or remedy relating to or connected with the original subject-matter of the suit and substantially the same as some relief or remedy claimed by the plaintiff; or(c)that any question or issue relating to or connected with the said subject-matter is substantially the same question or issue arising between the plaintiff and the defendant and should properly be determined not only as between the plaintiff and the defendant but as between the plaintiff and defendant and the third party or between any or either of them.He shall apply to the Court within fourteen days after the close of pleadings for leave of the Court to issue a notice (hereinafter called a Third Party Notice) to that effect, and such leave shall be applied for by summons in chambers ex parte supported by affidavit.”

23. The Respondent obtained leave of Court under the above mentioned provision of the law but failed to disclose to the Court that there was already a Decree in existence. The said Application ought to have been made within 14 days after the close of the pleadings.

24. Secondly, as was held in the case of; Kenya Commercial Bank vs Suntra Investment Bank Ltd (2015) eKLR,“In law, a third party is enjoined in a suit at the instance of the Defendant and through the set procedure under Order 1 Rule 15-22 of the Civil Procedure Rules. And, liability between the Defendant and the third party, but of course, after the Court is satisfied that there is a proper question to be tried as to liability of the third party and the Defendant and has given directions under Order 1 Rule 22 of the Civil Procedure Rules. The way I understand the law on third parties, such issues of third parties are issues triable only between the third party and the Defendant and cannot be a bona fide issue triable between the Defendant and the Plaintiff. On the basis of those legal reasons, even if the third party had been joined, which he has not, it is not a triable issue as all for purposes of liability between the Plaintiff and the Defendant.”

25. In light of the above, the Third Party Proceedings instituted by the Respondent are deemed to be incomplete and inconclusive as there were no further directions on apportionment of liability between the Third Party and the defendant/respondent. The applicant was also not privy to the Advocate-Client relationship between the respondent and the Third Party and the said proceedings can only be deemed as calculated to delay the execution of the Consent Order.

26. On whether Order No. 5 of the Consent should be set aside on the grounds of misrepresentation or collusion? Order No. 5 of the Consent Order dated 10th July 2017 provides as follows;5. THAT the funds in the sum of United States Dollars Ninety-Seven Thousand (USD 97,000. 00) still held in Escrow Account with Chase Bank Kenya Limited (In Liquidation) plus all interest accrued up-to the date of release shall be shared in equal proportions between the Claimant and the Respondent as and when released by the Bank. The net amount payable to the Claimant shall not be subject to any withholding tax deductions at all, the same having been deducted upon payment as per Order No. 2 above. The Respondent shall avail to the Claimant certified copies of the bank statement of the escrow account confirming the principal amount plus total interest accrued up to the date of payment of the funds by the Bank to the Claimant.

27. The Court of Appeal gave the grounds upon which consent judgment may be set aside in the case of Board of Trustees National Social Security Fund versus Micheal Mwalo [2015] eKLR as follows;“The judgment arose from a consent of the parties to the suit. The law pertaining to setting aside of consent judgments or consent orders has been clearly stated. A Court of law will not interfere with a consent judgment except in circumstances such as would provide a good ground for varying or rescinding a contract between parties. To impeach a consent order or a consent judgment, it must be shown that it was obtained by fraud, or collusion or by an agreement contrary to the policy of Court.” (emphasis mine).

28. In the instant case the Applicant has alleged that the Respondent obtained the above mentioned consent through fraudulent misrepresentation relating to the escrow account in entering into the Consent Order.

29. The principles that appertain to setting aside of a consent orders are well established in a line of cases including Brooke Bond Liebig vs Mallya (1975) EA 266 where Mustafa Ag. VP stated thus;“The compromise agreement was made an order of the court and was thus a consent judgment. It is well settled that a consent judgment can be set aside only in certain circumstances, e.g on grounds of fraud or collusion, that there was no consensus between the parties, public policy or for such reasons as would enable a court to set aside or rescind a contract. In this case the parties and their advocates consented to the compromise in very clear terms; they were certainly aware of all the material facts and there could not have been any mistake or misunderstanding. None of the factors which could give rise to the setting aside of a consent agreement existed.”

30. Similarly, in the case of Flora N. Wasike vs Destimo Wamboko [1988] eKLR Hancox JA cited Setton on Judgments and orders (7th edition) Vol 1 page 124, and reiterated that;“Any order made in the presence and with the consent of counsel is binding on all parties to the proceedings or action, and those claiming under them… and cannot be varied or discharged unless obtained by fraud or collusion or by an agreement contrary to the policy of the court…; or if the consent was given without sufficient material facts, or in general for a reason which would enable a court set aside an agreement.”

31. The Applicant averred that it received verbal communication that no escrow account was ever opened for the funds amounting to USD 97,000. The only conclusion to be drawn from this statement is that there was collusion as between the respondent and the Third Party in their failure to comply with the order as no escrow account was ever opened. The application was also unopposed and the Respondent did not controvert the dispositions in the Applicant’s Supporting Affidavit. This court is satisfied that the applicant has provided sufficient ground for the setting aside of the Consent Order No. 5 of 10th July 2017.

32. On the issue of accrued interest the Third Party shall be given the benefit of doubt due to the circumstances that arose as it is well within the knowledge of all the parties that Chase Bank went under receivership and the interest that would have accrued on the amount was seemingly frustrated.

Findings And Determination 33. In the light of the foregoing this court makes the following findings and determinations;i.The Plaintiff/Applicants application is found to be partially meritorious.ii.Order No. 5 of the Consent Order dated 10/07/2017 be and is hereby set aside and an order is hereby issued that the sum of USD 48,500. 00 be paid by the defendant/respondent to the applicant in lump sum.iii.There shall be no accrued interest payable.iv.The Respondent shall bear the costs of this application.Orders Accordingly.

DATED, SIGNED AND DELIVERED ELECTRONICALLY AT NAIROBI THIS 4thDAY OF FEBRUARY, 2022. HON. A. MSHILAJUDGEIn the presence of;Mrs. Mbugua holding brie for Mr. Rugo for the ApplicantMiss Letuya holding brief for Mr. Mingo for the RespondentLucy ---------------------------Court Assistant