Automated Summary
Key Facts
The court ruled on an application by the defendant (China State Construction Engineering Corporation Kenya Ltd) to set aside an ex parte judgment and refer the dispute to arbitration. Key undisputed facts include: the defendant was served via substituted service (newspaper advertisement) under court order; the defendant's draft defense admitted part of the debt (Kshs.51,718,485/-) but disputed the remaining Kshs.18,308,074/-; the court found the service valid and the admitted debt unchallengeable, allowing the application only for the disputed amount. The arbitration clause in the 5/9/2018 contract was acknowledged but deemed inapplicable to the admitted debt.
Transaction Type
Construction contract
Issues
- Whether the draft defence raises triable issues regarding the disputed amount of Kshs.18,308,074/-, considering that the applicant admitted part of the debt (Kshs.51,718,485/-) and the court determined that only the contested portion warrants further proceedings.
- Whether the contract dated 5/9/2018 contains a valid arbitration clause (Clause 17) mandating referral of disputes to arbitration, and whether the applicant's failure to invoke this clause prior to filing a defence constitutes a waiver of the right to arbitration.
- Whether the defendant was duly served with summons and plaint via substituted service as sanctioned by the court on 6/6/2024, and whether the failure to enter appearance within the stipulated time constitutes a valid basis for setting aside the ex parte judgment.
Holdings
- The court found that the defendant was duly served with summons and plaint but failed to enter appearance within the stipulated time, as per Order 5 Rule 17(1) of the Civil Procedure Rules. The applicant did not challenge the substituted service, which was deemed regular and proper.
- The application to set aside the ex parte judgment was partly granted. The judgment on the admitted amount stands, but the contested portion is set aside, allowing the defendant to defend it. The court declined the prayer to refer the matter to arbitration and ordered the defendant to pay costs.
- The court determined that the defendant's admitted debt of Kshs.51,718,485/- does not require arbitration, as there's no triable issue. However, the disputed amount of Kshs.18,308,074/- remains in contention, and the applicant's invocation of the arbitration clause is considered an abuse of process to delay payment.
Remedies
- The defendant is ordered to pay all costs incurred in the application, including execution charges, as it is deemed responsible for the delay in proceedings.
- The defendant is granted unconditional leave to defend the contested portion of the claim (Kshs.18,308,074/-) within 14 days, either by filing a defence or paying court fees for the draft defence.
- The court partly allows the application by setting aside the ex parte judgment for the contested amount of Kshs.18,308,074/-, while the admitted amount of Kshs.51,718,485/- remains payable to the decree holder.
Contract Value
70026559.00
Monetary Damages
51718485.00
Legal Principles
- The enforceability of the arbitration clause in the contract was central to the case. The court acknowledged the contractual obligation to arbitrate disputes but ruled the applicant's invocation of arbitration was an abuse of process, as it failed to act timeously and partially admitted the debt, leaving no genuine dispute for arbitration.
- The court emphasized the constitutional right to a fair hearing, ruling that judgment entered without proper service violates the principle of natural justice. It found the defendant was condemned unheard due to irregular service procedures, necessitating the setting aside of the ex parte judgment to uphold procedural fairness.
Precedent Name
- UAP Provincial Insurance Co Ltd -vs- Michael John Beckett
- Samuel Mbugua -vs- Francis Kimani Njau
- Fina Bank Ltd -vs- Spares & Industries Ltd
- Fidelity Commercial Bank Ltd -vs- Thuranira Karani & Another
- Charles Kimani Teresia & Anor -vs- Peter Njoroge Kimani & Anor
- Corporate Insurance Co Ltd -vs- Nyali Beach Hotel Ltd
- Momanyi -vs- Hatimy & Anor
- Niazsons (K) Ltd -vs- China Roan & Bridge Corporation
Key Disputed Contract Clauses
Clause 17 of the contract dated 5/9/2018 mandates that all disputes between the parties be referred to arbitration. The court analyzed whether this clause remained enforceable given the defendant's failure to invoke it prior to filing a defense and the partial admission of the debt. It ruled the clause inapplicable to the admitted portion of the claim but acknowledged its existence for the contested amount.
Cited Statute
- Civil Procedure Rules
- Constitution of Kenya
- Arbitration Act
Judge Name
R.K. Limo
Passage Text
- This court finds that to the extent that the applicant partly admits the sum of Kshs.51,718,485/-, there is no triable issue for referral to arbitration even if the applicant had established the existence of an arbitration clause.
- This court from the foregoing finds that it is in the interest of justice... shall remain payable to the decree holder. Costs of this application inclusive execution charges incurred shall be paid by the defendant/applicants.
- This court finds that service of summons to the defendant was regular, proper and done in accordance with the law. The defendant was duly served with summons and plaint but failed due to undisclosed reasons to enter appearance and defence within the stipulated time as provided for under Order 6 Rule 1 of the Civil Procedure Rules.
Damages / Relief Type
- Compensatory Damages in the amount of Kshs.51,718,485/- for the admitted debt portion.
- Defendant ordered to pay costs of the application and execution charges.