Stainless Steel Products Limited v Vaghjiyani Enterprises Limited & Director General National Intelligence Service [2017] KEHC 4076 (KLR)

REPUBLIC OF KENYA

IN THE HIGH COURT OF KENYA AT NAIROBI

COMMERCIAL AND ADMIRALTY DIVISION-MILIMANI

HCCC NO.160 OF 2017

STAINLESS STEEL

PRODUCTS LIMITED….........................…PLAINTIFF/APPLICANT

VERSUS

VAGHJIYANI ENTERPRISES

LIMITED……................................1ST DEFENDANT/RESPONDENT

THE DIRECTOR GENERALNATIONAL

INTELLIGENCE SERVICE…......2ND DEFENDANT/RESPONDENT

RULING

This is a ruling on application dated 11th April  2017 brought under order 40 Rules 1 of the civil procedure Rules 2010 section 1A,1B and 3A of the civil procedure Act Cap 21 of the laws of Kenya. It seeks an injunction to restrain the effect and/or application of termination notices dated 28th march 2017 by the defendants by themselves ,servants, agents and/or anyone acting on their behest or otherwise howsoever from stopping the plaintiff/or his agents from performing their contractual obligation pending hearing and determination of this suit.

Grounds on the face of the application are that, the 1st and 2nd defendants entered into a contract for the development of National intelligence academy whereby the 1st defendant was appointed as the main contractor of the project. That following the said contract the 1st and 2nd defendants advertised two subcontract tenders for supply, delivery, installation, testing, and commissioning of kitchen laundry equipment and LP Gas installation works and the supply, delivery, installation, testing and commissioning of Gym equipment and installation works. That the plaintiff was subcontracted for the two subcontracts at price of 45,093,600 and 32,598,200 respectively. That the canteen equipment has been delivered and installed while the laundry under subcontract 1 and gym equipment under subcontract 2 have been ordered by the plaintiff and is in transit in readiness for delivery. The applicant has indicated that on 28th march 2017 the 1st defendant in breach of the two subcontracts issued improper and/or illegal notices of termination of the said contacts on account of nonperformance; that the plaintiff has invested heavily and drastic steps by the defendants would cripple the plaintiffs business.

The application is supported by the affidavit sworn by Minesh Chandaria on 11th April 2017. He averred that following the contract between the 1st and 2nd defendant for the development of Kenya National intelligence Academy, the plaintiff was subcontracted as stated above. He stated that the plaintiff has installed the kitchen and LP Gas equipment and equipment of the laundry and Gym have been ordered but are still on transit. He attributed delay to external factors such as shipping delays and importation bureaucracy which are in control of 3rd parties. He submitted that the applicant has taken every measure to ensure performance of the contracts and in the event that the alleged termination notices are not temporarily halted, the company stands to suffer serious substantial loss which at this point in time cannot be quantified. He averred that the applicant is a reputable manufacturer and supplier of stainless steel products and this termination of contract if left to stand may lead to reputational prejudice against it.He averred that the laundry equipment has been ordered and is in transit in readiness for delivery and installation. He further averred that the gym equipment has been ordered and is being shipped to Kenya. He averred that the defendants have unfairly, improperly and /or motivated by malice restrained the plaintiff/Applicant and its dully appointed representatives from being on the project site to enable them carry out installation works and testing of equipment. He averred that the defendants issued notices despite the fact that the applicant had completed a substantial part of the obligations under the contracts. He averred that the 1st defendant recalled performance bonds issued to the applicant by Mayfair insurance company of kshs 2,254,680 &1,629,910 for the 1st and 2nd subcontract respectively. He attached the bond to the affidavit. He added that subsequently the applicant informed the 1st defendant that the contracts had been substantially performed and that the remaining goods were in transit. He attached a copy of the letter dated 29th march 2017. He stated that the 1st defendant has failed to adhere to the procedure as set out in clause 30. 1 of each of the contracts which provide for certification by an architect in charge of the project that the company is in default. He averred that the company/applicant has always conveyed its commitment towards performing its contractual obligations and that by a letter dated 13th march 2017 the company offered to sublet part of the performance of the contracts. He attached a letter to that effect.

In response the 1st defendant filed replying affidavit sworn by Ramesh Valji Ramesh on 10th may 2017. He confirmed that the 1st defendant entered into the two subcontracts stated above with the plaintiff and that plaintiff has been unable to abide by contractual terms. He averred that notices were lawfully issued as outlined in clause30. 0 of the subcontracts. He further stated that as per the subcontracts, any dispute between the plaintiff and the 1st defendant has to be referred to arbitration and therefore this court lacks jurisdiction to entertain the plaintiff’s suit. He stated that the plaintiff is in effect urging this court to rewrite the contractual terms between parties when it is trite law that courts of law will not rewrite contracts between parties. He urged court to stay this proceedings and have the dispute placed before arbitration pursuant to the terms of the contract.

The 2nd  defendant filed replying affidavit dated 31st may 2017 sworn by Alphonce Okweto Nyagilo a senior quantity surveyor in the state department of public works and project manager of the 2nd defendant. He confirmed that the 2nd defendant entered into a contract with the 1st defendant of development of proposed National Intelligence Academy at a contract sum of kshs 1,907,198,445. 00; that the works comprised of class rooms, student hostels, an administration block and associated works such as kitchen, laundry and Gym equipment installation. He confirmed that thereafter the 1st defendant entered into the two subcontracts earlier stated with the plaintiff. He averred that in the course of project supervision it was found that the plaintiff was not performing its contractual obligations diligently which resulted in several warnings. He attached copies of minutes of meetings documenting the plaintiff’s non-performance of the subcontract. He averred that the plaintiff took over site on 19th August 2014 and was to complete works on or before the revised completion date of 13th march 2017.

He averred that on diverse dates in 2015, 2016 and 2017, the project manager and electrical & mechanical engineers Empaq limited expressed concerns during site meetings and wrote to the plaintiff  over lack of diligence  in the performance of the subcontracts. He averred that on 1st December 2016 plaintiff was informed in a meeting that some of the kitchen and laundry equipment did not to conform to contract specification and were therefore rejected; he added that on the same day the plaintiff indicated that some of the kitchen and laundry equipment were in the high seas. He averred that the plaintiff failed to supply the architects with their procurement schedule nor concede to site visit. He attached a letter dated 3rd November 2016. He added that plaintiff supplied catalogue for gym equipment whose models were rejected. He attached a letter dated 28th November 2106. He stated that despite being issued with 2 default notices plaintiff did not proceed with diligence nor produce documentary prove that they were in the process of performing the contracts. He averred that the 1st defendant proceeded to terminate the contracts in accordance with subcontract agreements. He stated that at the time of termination the plaintiff had not commenced performance of gym equipment works as by letter dated 13th march 2017 it indicated its intention to sublet the works to another firm and the bill of lading for gym equipment issued on 25th march 2017. He averred that despite long time frame in excess of 2 years the works done on kitchen was 19. 8% and gym 0. 9% whereas the other works were at 99% and the project is in the process of being handed over to the 2nd defendant. He added that the 2nd defendant stands to suffer irreparable damage due to plaintiff’s delay which has far reaching implications on its programs and operations besides undermining its overall discharge of its national security mandate. He stated that unless status quo order is vacated the 2nd defendant will not be able to make alternative arrangements for supply and installation of kitchen, laundry and gym equipment. He added that the plaintiff’s claim is a commercial nature and lies in damages and will not therefore suffer irreparable harm.

Counsels for the parties highlighted submissions filed on 28th June 2017.

Plaintiff’s counsel Submitted that the termination process is flawed in that the 1st defendant failed to issue a certificate for non-compliance through the architect before issuing termination notices. He submitted that purely based on the said flawed process the plaintiff has a primafacie case against the defendants. He submitted that the plaintiff has substantially carried out works by ordering goods from overseas and carried out substantial works on the site. He added that the plaintiff has expended a lot of money and engaged 3rd parties and terminating the contract at this stage will expose the plaintiff to numerous liabilities.

Counsel further submitted that there is potential breach of contract and it is trite law that breach of contract cannot be compensated by damages. He said a lot of evidence in this case can be tested through trial which cannot take place unless injunction is granted.

He finally submitted that a lot of steps have been taken to fulfil the contractual obligation in that goods are on transit and others in store. He said even request for supply of alternative goods has been ignored.

Counsel for the second defendant relied on principles in the case of giella vs. cassman Brown. She submitted that the plaintiff has failed to prove primafacie case. She said that the plaintiff granted contract with specific timelines and for a period of 3 years; they have not complied with contractual obligation. She submitted that at 94% of the contract period plaintiff had performed 19. 8% in the 1st subcontract, 0% in the 2nd subcontract and that the other works were at 85%.she argued that the plaintiff has not performed its contractual obligation to deserve protection by court. She said bill of lading came after notices had been issued. She said the plaintiff is delaying the whole project which was supposed to be handed over in March 2017 and commissioned in June. She submitted that the applicant is in breach of contract by failing to perform contractual obligation and therefore has no primafacie case. She said the due the delay by plaintiff the 2nd defendant cannot use the academy and the plaintiff do not deserve protection in equity as the balance of convenience fall on the 2nd defendant.

On the issue that damages cannot issue for breach of contract, she submitted that the contract allow quantification of works done and damages are therefore adequate remedy. She submitted that the plaintiff failed to respond to the ‘architect’s letters nor tried to mitigate their shortcomings. Counsel submitted that there are two instances where a contract is terminated one is where there is default and notice has been given;two where the architect certifies. She said one can be used without the other. She finally submitted that the plaintiff is enjoying

Status quo injunction which is highly prejudicial to the 2nd defendant as the academy is not in use as it should; and that injunction was issued without disclosure of facts.

I have considered the application and response by defendants. I have also considered rival submission by Advocates herein.

I wish to consider whether the application meet threshold set for grant of injunction as set out in the case of Giella vs Cassman Brown & co. LTD(1973)E.A pg. 358 as follows:-

1. Whether plaintiff has established prima facie case with probability of success

2. Whether damages are adequate remedy

3. Where does the balance of convenience lie?

It is not disputed that the 1st defendant entered into two subcontracts with the plaintiff. Each party says the other is in breach of the contracts. Plaintiff alleges that the termination was done without certification by an architect while the defendant says the contracts can be terminated either by certification by an architect or where there is default and notice has been given. Defendants attached minutes of meetings held. I note from the minutes of 18th October 2016 that works were to be completed on 28th September 2016. Time lapsed was 94%. work done was 73%.extension was given for 12 weeks taking it to 19th December 2016. It is indicated in the minutes that the plaintiff had not commenced any works in the Gym and was yet to share procurement plan despite several reminders. By a letter dated 3rd November 2016 AAKI Consultants wrote to the plaintiff for procurement schedule for imported goods and evidence of importation of equipment; they also requested the plaintiff to show them the alleged ongoing fabrication works in the plaintiff’s factory. I note from 2nd defendants annexures that the plaintiff was given default notice dated 1st march 2017 as per clause 30. 1 of the subcontract  the plaintiff  was required to perform its contractual obligations within 14 days. There is no indication of compliance. The contract was terminated on 28th march 2017 due to non-performance. It is evident that even after extension of time the plaintiff never demonstrated that it was ready to perform its contractual obligations. From the correspondence no procurement nor prove of goods having been ordered from overseas schedule was supplied as requested by the consultants. It is evident from record that the plaintiff was given opportunity to perform its contractual obligation but even at the expiry of contract period the plaintiff had not commenced the 2nd contract; further no progress was made after extension of time. There is no denial that default notice of 14 days was issued. I have perused clause 30. 1 it provides for issuance of architect’s certification after expiry of 14 days. I have not seen the architect’s certification. On the other hand, there is no doubt that the two subcontracts are far behind schedule and have held back completion of the whole project. It is clear that the plaintiff is in breach of the two contract and 2nd defendant stand to suffer more damage due to continued delay. There is no clear indication of commitment to performance on part of the plaintiff. From the foregoing I find that the plaintiff has not established a primafacie case. I also note from the contract that it provide for arbitration and quantification of work done. The plaintiff can therefore be adequately compensated once the arbitration process is complete if the arbitrator find for the plaintiff.

From the foregoing, I find that the balance of convenience tilts to the 2nd defendant. I therefore decline to grant orders sought. Parties herein to resolve the dispute through arbitration as provided in clause 31. 1of the subcontracts.

Costs in the cause.

Dated and Delivered  at Nairobi this 21stday of July  2017

………………………………

RACHEL NGETICH

JUDGE

IN THE PRESENCE OF

…………………………COURT ASSISTANT

…………………………COUNSEL FOR APPLICANT/PLAINTIFF

…………………………RESPONDENTS/DEFENDANTS