Usafi Services Limited v Gelu Unicrafts Limited & 2 others [2024] KEHC 2364 (KLR)

Usafi Services Limited v Gelu Unicrafts Limited & 2 others (Civil Case 658 of 2007) [2024] KEHC 2364 (KLR) (Civ) (8 March 2024) (Judgment)

Neutral citation: [2024] KEHC 2364 (KLR)

Republic of Kenya

In the High Court at Nairobi (Milimani Law Courts)

Civil

Civil Case 658 of 2007

JN Mulwa, J

March 8, 2024

Between

Usafi Services Limited

Plaintiff

and

Gelu Unicrafts Limited

1st Defendant

Alex Sanaika Ole Magello

2nd Defendant

Lucy Muthoni Magello

3rd Defendant

Judgment

1. The Plaintiff’s claim against the defendants arose from a contract of sale entered between the plaintiff and the 1st defendant on 30/12/1998 for the sale and transfer to the plaintiff of land parcel known as plot No 67(a) situated off Suna Road in Woodley Estate within Nairobi county at a consideration of Kshs 4,000,000/= which was guaranteed by the 2nd and 3rd Defendants who were also directors of the 1st defendant.

2. The purchase price was to be paid in installments as appears in the plaint at paragraph 7. As at date of filing the suit the 1st defendant had paid part of the purchase price as scheduled leaving a balance of Kshs 3,615,540/= which amount the Plaintiff claims from the Defendants jointly and severally.

3. It is the Plaintiff’s claim that the contract having not been fully performed and the 1st defendant having failed to assign the lease of the suit property from the city council of Nairobi (Now Nairobi city county) and having not received any benefit or valuable consideration from the contract, the same has been frustrated and failed and as a result the plaintiff seeks refund of the sum paid to the 1st Defendant with interest as stated in the contract.

4. It is the plaintiffs further claim that the 2nd and 3rd Defendants being directors of the 1st Defendants and by their personal guarantees for the performance of the contract are expressly and/or impliedly jointly and severally liable and bound to the refund of the money paid.

5. The Plaintiff therefore prayed for judgment against the Defendants jointly and severally for:a.A sum of Kshs 3,615,540/= with interest at the rate of 30% from 30/12/1998 till payment in full.b.In the alternative to (a) above, specific performance to transfer plot No 67/9 Woodly Estate off Suna Road in Kangethe Estate to the plaintiffc.Costs of the suit.

6. The defendants entered appearance on 27/11/2007 through their Advocates J. M. Theuri & Associates but failed to file their defence.Upon request by the Plaintiff, the Deputy Registrar of this court entered interlocutory judgment against all the defendants for the sum claimed and directed that the award of interest and costs would await formal proof hearing of the suit.

7. Formal proof of the suit was conducted before Hon. Justice Waweru and on the 18/05/2012 Judgment was delivered as hereunder: -a.Judgment entered for the Plaintiff against Defendants jointly and severally for Kshs 3,615,540/= plus interest at 30% per annum from 15/04/2008 (date of interlocutory judgment) until payment in full.b.The Plaintiff will have costs of the suit.

8. However, by Application to set aside the interlocutory judgment dated 3/10/2012, upon hearing the same, the court (Hon. Waweru J) set aside the final judgment and allowed the defendants to participate in the hearing of the case on formal proof but declined to grant the defendants leave to file defences. This ruling is dated 14/02/2014.

9. Pursuant to the court’s ruling dated 14/02/2014 the 1st and 3rd Defendants participated in hearing of the suit. The court was informed that the 2nd Defendant had since died (in 2022) and no substitution had been made as the defendants did not deem it necessary.The formal proof hearing proceeded on the 17/07/2023 with the Defendant’s participation by their advocate, James Tugee and the Plaintiff being represented by Ms. Wanjiru Advocate.

Plaintiffs Case 10. PW1 was Geoffrey Chege Kimudi Advocate who relied fully on his witness statement on behalf of the plaintiff and his bundle of documents dated 17/01/2020. He was a director of the plaintiff, and confirmed having paid Kshs 3,615,540/- in various installments to the 1st Defendant in terms of the sale agreement, but that the lease was never registered in the plaintiff’s favour nor possession delivered and that the contract was never completed leading to the filing of the suit on 18/09/2007.

11. He testified that the claim was for breach of contract which judgment was entered against the Defendants jointly and severally on 15/04/2008 (Hon. Waweru J.) and that what was but remaining was determination of interest rates and costs as stated in the judgment dated 15/4/2008 as default had been established against all the defendants in the judgment.

12. Mr. Kirundi added that he was agreeable to interest being calculated at 30% per annum as opposed to 30% per month from the date of the interlocutory judgment as it was not set aside on Appeal by the Court of Appeal.

13. The Defendants by their submissions dated 11/10/2023 agreed with the Plaintiff on the court orders save on three issues; -1. The burden of proof on formal proof where there is interlocutory judgment and2. Where a party defaults in a contract, whether the innocent party has a duty to pay the agreed sum.

Analysis And Determination 14. Three (3) issues arise for determination: -1. Who should pay interest if the contract is frustrated by no fault of either party.2. What is the rate of interest envisaged in the sale agreement dated30/12/1998?3. Costs

15. The terms of the contract of sale agreement are stated at paragraphs 8, 9, 10, 17. At paragraph 8 of the plaint dated 18/09/2007, it is stated as follows: -“It was a term and condition of the said agreement that should the Agreement fail, the 1st defendant would refund all such money as may have been paid to it and to the Nairobi City Council towards the purchase price with interest at 30% per month from the date of the Agreement.”

16. Clause 1 (a) of the Sale Agreement dated 30/12/1998 provided that:“should the agreement fail due to no fault on the part of either party, the vendor will refund all such monies as may have been paid to it and to Nairobi City Council by the purchaser at the date of such failure with interest at the rate of 30% per month from the date hereof and directors of the vendor do hereby guarantee the refund plus interest by execution of these presents.”

17. The two directors of the vendor (1st Defendant) executed the sale agreement thereby guaranteeing the refund of the monies and interest should the sale agreement fail. These are the 2nd and 3rd Defendants.

Interest Rates On The Principle Sum 18. At the sale agreement and as pleaded by the Plaintiff interest would be payable at the rate of 30% per month from the date of default as per clause 10 of the sale agreement if default was by no fault of either party and that if default would be by the vendor interest would be payable by the vendor at 30% per month as envisaged in the sale agreement. The Plaintiff submitted that the default was by the Defendants. This fact has not been controverted by the Defendants as no defence was ever filed; meaning the interlocutory judgment remains as was pronounced by Justice Waweru J. I have also considered the Court of Appeal Judgment in Civil Appeal No 295 of 2014 (Appeal against the judgment of Waweru J. I have also considered the Court

19. It is trite that a court cannot rewrite a contract for parties. It can only interpret the terms of the contract if a dispute arises on any of the terms – Momentum Credit Limited v Kabuiya [2022] eKLR; Francis Mbaria Wambugu v Jijenge Credit Limited v Nairobi Channels Auctioneers [2020] eKLR.The Court of Appeal in Euromec International Limited v Shandong Taikai Power Engineering Co. Ltd [2021) eKLR cautioned courts against rewriting contracts for parties in a contract stressing that the principle that public policy demanded that contracts freely and consciously entered into had to be honored save for very peculiar circumstances when equity may be prepared to relieve a party from bad bargain as it held in Husamuddin Gulamhussein Pothiwalla Administrator, Trustee and Executor of the Estate of Gulamhussein Ebrahimji Pothiwalla v Kidogo Basi Housing Cooperative Society Limited and 31 others. This case is cited in the case County Government of Migori v Hope self Help Group [2020] eKLR.

20. The court finds no ambiguity in the sale agreement between the two antagonists herein. It clearly provides that Should default occur due to fault of either of the parties, all monies paid towards the satisfaction of the sale agreement, the party in default was to pay back money paid by the innocent party to accrue interest at was to pay back the money paid by the innocent party with interest at 30% per month.

21. The Defendants have not submitted that they were the innocent parties. Indeed no submission on why the sale contract was not completed by the Defendants despite the Plaintiff paying what had been agreed.

22. Having failed to complete the sale transaction by their failure to register the assignment of lease from the City Council of Nairobi to facilitate issuance of the Title Deed in the Plaintiff’s favour, the terms of the agreement in respect of the default clauses ought to be enforced in absence of any explanation to the contrary. Had the Defendant filed their defence or had the interlocutory judgment being set aside the defendants would not be in the predicament they find themselves in.

23. The Plaintiff has however softened its stance in respect to the payment of the applicable interest on the principal sum at 30% per month from date of the entry of interlocutory judgment to urge for payment at 30% per annum from date of entry of the interlocutory judgment. In the courts' view, this is a very good gesture that should be embraced by the defendants.

24. Nevertheless, the Defendants would not willingly accept the offer by the Plaintiff as it insists that default was not by the defendants and blames the drafters of the Sale Agreement at this late stage of the proceedings stating that the 30% per month interest at clause 10 of the agreement is based on nothing and therefore unconscionable.

25. Further the Defendants seem to argue that the court cannot grant the prayer on interest stating that the prayer is not sought in the plaint.At paragraph 8 of the plaint (cited above) penalty for default is well stated – being refund of the purchase price with interest at 30% per month from date of the agreement.At paragraph 11 (a) the plaintiff prays for: -a.A sum of Kshs 3,615, 540/= together with interest at the rate of 30% from 30th December, 1998 till payment in full. This is the date of the sale agreement.

26. The court finds that the parties mutually agreed to the penalty clause if default occurred by either of the parties or by no fault of either party.Consequently interest shall therefore be calculated and paid by the defendants jointly and severally on the principal sum of Kshs 3,615,540/= at 30% per annum from the date of the entry of interlocutory Judgment being the 15/04/2008 until payment in full.

27. On costs, it is trite that costs follow the event. see Section 27 of the Civil Procedure Act.

28. The court has not been urged to find otherwise as stated in the proviso thereto.In the end interest and costs of the suit shall be borne by the Defendants jointly and severally as stated above.Orders accordingly.

DATED SIGNED AND DELIVERED AT NAIROBI THIS 8THDAY OF MARCH, 2024. J. N. MULWAJUDGE