UAP Insurance Company Ltd v Toiyoi Investment Company Ltd [2014] KEHC 7449 (KLR)

REPUBLIC OF KENYA

IN THE HIGH COURT OF KENYA AT ELDORET

CIVIL CASE NO. 24 OF 2013

UAP INSURANCE COMPANY LTD….......................APPLICANT/PLAINTIFF

=VERSUS-

TOIYOI INVESTMENT COMPANY LTD...............DEFENDANT/RESPONDENT

RULING

On 9th October, 2013, the Plaintiff, UAP INSURANCE COMAPNY LIMITED ( who shall hereinafter be cited as “UAP Insurance”) filed a suit against the  Defendant, TOYOI INVESTMENTS LIMITED (hereinafter cited as “TOYOI”).

The said suit was substantially seeking to stop  TOIYOI from filing a Winding-Up Petition against UAP Insurance.

The  Plaintiff also filed an application for an interlocutory injunction to restrain the Defendant from filing or advertising the Winding-Up Petition against the Plaintiff.

This Ruling is in relation to the application for an interlocutory injunction.

The facts giving rise to the suit and to the application are largely uncontested. I  will set down the said facts, as I understand them.

(1)       UAP Insurance is an insurance Company carrying on the

business of providing insurance services in Kenya.

(2)       One  of the clients of  UAP Insurance is UCHUMI SUPERMARKETS LIMITED (hereinafter cited as “Uchumi”).

(3)       Uchumi were tenants at ELDO-CENTER, which was wholly owned by TOYOI.

(4)       On or about 11th December, 1998, a fire reportedly broke out at the Uchumi Supermarket premises, within  Eldo-Center.  The fire spread and engulfed other shops, offices and stores at the Eldo-Center.

(5)       A total of 34 law suits were filed against Uchumi, arising from the fire disaster.  One  of the suits, ELD HCCC NO. 164 OF 2000, was  taken  as the test case.  The  Plaintiff in that test case was TOYOI.

(6)       On 30th October, 2012, the High Court delivered its Judgment, in  favour of the Plaintiff (TOYOI).  The  Defendant was ordered  to compensate Toiyoi in the sum of Kshs 37,251,960/=.

(7)       Uchumi lodged an appeal to challenge the Judgment.

(8)       Whilst awaiting the hearing and determination of the appeal, Uchumi sought and  was granted an order for stay of execution.  The condition for the order of stay of execution was  that Uchumi should provide  an Insurance Bond  in the sum of Kshs 41,751,960/=.

(9)       After Uchumi secured the Bond, which was granted by UAP  Insurance, the latter negotiated with TOYOI, for a settlement.

The two parties negotiated a settlement in the sum of  Kshs 59,632,900/=.

(10)    After TOYOI signed the Discharge Voucher for the negotiated sum, UAP Insurance has failed to pay the sums due under the negotiated settlement.

(11)     TOYOI  issued a Statutory Notice dated 22nd August, 2013;  The said Notice was  for the Winding-Up of UAP Insurance, because  of  their failure to pay the sum of Kshs 59,632,900/=.

(12)    UAP  Insurance acknowledges the negotiated settlement,  but now insists that it  was founded on a MISTAKE.  UAP Insurance explains  that the MISTAKE was  its failure to obtain the consent and authority of UCHUMI,  before executing the negotiated settlement.

(13)    By a letter dated 17th September, 2013, UAP Insurance notified Toyoi that it had repudiated the negotiated settlement.

(15)    The UAP Insurance described the threat to have it wound-up as an  abuse of  the process of the court, because  it is a company whose assets are worth Billions of Kenya Shillings.

(16)    The UAP Insurance also point out that Toyoi are already holding a BOND of Kshs 40,000,000/=.

(17)    UAP Insurance has also executed  another Bond  in the sum of  Kshs 100,000,000/=.

The Notice of Toyoi's intention to wind-up UAP Insurance was pegged on the Discharge Voucher for the sum of Kshs  59,632,900/=.

Has the said Discharge Voucher Constituted a Contract between  Toyoi and UAP Insurance?

On a prima facie basis, the answer to that question  is in the affirmative.

The next question relates to whether or not the said contract was a basis sufficient to form the sound foundation for the winding-up Notice.

In principle, the terms of a contract do not, of themselves constitute a foundation for a Winding-Up Notice.  If one party to the contract breaches the said contract, the other party would, ordinarily, institute proceedings to enforce the said contract.

The Defendant appears to appreciate that position, because they have lodged a counter-claim against the plaintiff, seeking orders for Specific Performance of the contract.

Meanwhile, the Plaintiff has indicated that it had repudiated the contract.

Whether  or not the notice of repudiation would, in law, constitute actual repudiation, is a matter that will have to be determined by the trial court.

But whether or not the Plaintiff will be held to have repudiated the contract, I hold the considered view that the enforcement of a contract is through court proceedings.

Both parties are in agreement, that the process of winding-up a company should not be used for the purposes of collecting a debt.

It does appear to me that although the Defendant accepts that legal position, it was actually trying to force the Plaintiff  to pay the proceeds of the Discharge Voucher, through  the threat to wind-up the company.

At the moment, the plaintiff has demonstrated, on  a prima faciebasis, that its assets are worth much much more than what the Defendant says is due.  That  would suggest that the alleged impecuniosity of the company was untrue.

At the same time, the Defendant holds security, in the  form of Insurance Bonds.  Those  securities would become available immediately  after the appeal is determined, if such determination confirms the liability of UCHUMI.  In the circumstances, the  options  available  to the Defendant appear to be two-fold:-

(a)       The company could choose to pursue its counter-claim, and thus seek to enforce the terms of the Discharge Voucher; or

(b)       the company could have the appeal prosecuted, hoping that the Court of  Appeal would uphold the Judgment.

By specifying those options, I am not advising the Defendant on how to pursue its claims.  I am also not suggesting that those two options are necessarily the only avenues available to the Defendant.

The point that I am seeking to emphasize is that it does appear to me that the Defendant  acted prematurely by issuing the Notice to wind-up UAP insurance.  To that extent, the Plaintiff has demonstrated a prima facie case with a probability of success.

I also find that if the Petition to wind-up the company is filed, or its existence is published in the press or the Kenya gazette, the Plaintiff would suffer irreparable loss and damage.

The Plaintiff is an insurance company.  It relies on its reputation in order to do its business.  That  reputation is largely anchored on its perceived financial ability to come to the rescue of its client, upon the  occurrence of the insured event.  Any suggestion of financial weakness  on the part of the insurance company could well  spell its death-knell.  Therefore,  when it appears, that  the assets of the Plaintiff are so  very much more than would  be required to pay-off the Defendant, if the  liability  is later confirmed, it  is only proper that the relief sought be granted.  I do therefore grant an interlocutory injunction to restrain the Defendant from instituting winding-up  proceedings against  the Plaintiff until the suit herein is heard and determined.

The costs of the application  are awarded to the Plaintiff.

DATED, SIGNED AND DELIVERED AT ELDORET,

THIS  17TH  DAY OF  JANUARY,  2014.

…........................................

FRED A. OCHIENG

JUDGE.