INTRODUCTION AND BACKGROUND
1. Before the Court are two applications, namely, the Plaintiff/Applicant's Notice of Motion dated 16 th November 2023 and the 2 nd Defendant/Applicant's Notice of Motion dated 27 th September 2024.
2. The Plaintiff/Applicant's Notice of Motion dated 16 th November 2023 is brought pursuant to sections 1A, 1B, 3 and 3A of the Civil Procedure Act, Order 40 Rules 1 and 4 and Order 51 Rule 1 of the Civil Procedure Rules, together with all other enabling provisions of the law.
3. The application initially sought, inter alia, the following orders:
I. That the application be certified as urgent and heard ex parte in the first instance;
II. That pending the inter partes hearing of the application, the Court issue a temporary injunction restraining the 3 rd Defendant from honouring Letters of Credit Nos. 201010078851-N and 201010079397-S in favour of the 2 nd Defendant, due on 17 th November 2023 and 23 rd January 2024, respectively, so as to preserve the substratum of the application and the suit;
III. That pending the hearing and determination of the application, a temporary injunction issue restraining the 3 rd Defendant from honouring the said Letters of Credit;
IV. That pending the hearing and determination of the main suit, a temporary injunction issue restraining the 3 rd Defendant from honouring the said Letters of Credit; and
V. That the costs of the application be borne by the 1 st and 2 nd Defendants.
4. The first three prayers were subsequently spent, leaving prayer 4, namely, the prayer for a temporary injunction pending the hearing and determination of the main suit, as the substantive relief for determination. The Plaintiff's submissions expressly identify prayers (a), (b) and (c) as spent and prayer (d) as the substantive prayer remaining for determination.
5. The application is supported by the Supporting Affidavit of Santhosh Kumar, together with the annexures thereto. The Plaintiff's submissions further state that the application is supported by the affidavit of Isaac Maluki, a director of Shona EPZ Limited, who recounts an allegedly similar transaction involving the 1 st and 2 nd Defendants.
6. The Plaintiff's case is that the transaction giving rise to the Letters of Credit was tainted by fraud and that the Court should intervene under the recognised fraud exception to the autonomy principle applicable to Letters of Credit.
7. The application was initially allowed ex parte on 16 th November 2023, and the interim/status quo orders were thereafter extended from time to time. The Plaintiff's submissions indicate that the 2 nd and 3 rd Defendants entered unconditional appearance and that the orders maintaining the status quo were subsequently extended by consent.
8. The application was opposed by the Defendants through their respective responses and submissions.
9. In particular, the 2 nd Defendant opposed the application on the basis, inter alia, that the Letters of Credit were autonomous instruments which ought to be honoured upon compliance with their terms and that the Plaintiff had not established the circumstances necessary to justify interference with the same. The 2 nd Defendant also relied on the principle that disputes arising from the underlying contractual relationship ought to be resolved between the contracting parties and, where applicable, through arbitration.
10. The second application before the Court is the Notice of Motion dated 27 th September 2024, filed by the 2 nd Defendant/Applicant, San Eun Textile Co. Ltd. The application is brought pursuant to section 3A of the Civil Procedure Act, Order 10 Rule 11, Order 9 Rule 9 and Order 51 Rules 1 of the Civil Procedure Rules.
11. The 2 nd Defendant seeks, principally, the following orders:
I. That the application be certified as urgent and service thereof be dispensed with in the first instance;
II. That B & W Advocates LLP be allowed to come on record for the 2 nd Defendant in place of S. K. Muendo & Company Advocates;
III. That the interlocutory judgment entered against the 2 nd Defendant on 16 th April 2024, together with all consequential orders, be set aside;
IV. That the 2 nd Defendant be granted leave to file its Defence and a response to the Plaintiff's application dated 16 th November 2023 out of time; and
V. That costs be in the cause.
12. The prayer seeking certification of the application as urgent and the prayer for service to be dispensed with were interlocutory in nature and have since been spent. The substantive prayers that remain for determination are therefore the prayer allowing B & W Advocates LLP to come on record, the prayer seeking to set aside the interlocutory judgment and consequential orders, and the prayer seeking leave to file the Defence and response to the Plaintiff's application out of time.
13. The application is premised on, inter alia, the grounds that the 2 nd Defendant entered appearance through S. K. Muendo & Company Advocates after interlocutory judgment had been entered; that the delay in entering appearance and filing its Defence was occasioned by the complexities of instructing a Kenyan advocate while the 2 nd Defendant was domiciled in South Korea; and that leave is required for the change of advocates after judgment.
14. The 2 nd Defendant further relies on the fact that interim orders remain in force restraining the 3 rd Defendant from honouring the Letters of Credit, thereby exposing it to the risk of loss of lawful income.
15. The application is supported by the Supporting Affidavit of Kim J. Eon, the Director/Chief Executive Officer of the 2 nd Defendant. The deponent states that the 2 nd Defendant received service in late November 2023, thereafter embarked on the process of securing local legal representation and eventually appointed S. K. Muendo & Company Advocates in late May 2024. He attributes the delay in filing a Defence to the difficulties encountered in instructing Kenyan counsel from South Korea and maintains that the failure was not deliberate.
16. The deponent further states that the 2 nd Defendant was subsequently informed by its advocates that interlocutory judgment had already been entered against it. He maintains that the 2 nd Defendant has a meritorious Defence and should be afforded an opportunity to defend the suit. A copy of the draft Defence is annexed to the affidavit.
17. The application is opposed by the Plaintiff through the Replying Affidavit of Santhosh Kumar and its written submissions.
18. The Plaintiff maintains that the interlocutory judgment was regularly entered; that the 2 nd Defendant was served in November 2023 but delayed in taking steps to defend the suit; that its explanation for the delay is inadequate; and that the proposed Defence does not raise any bona fide triable issue.
PROCEDURAL HISTORY RELEVANT TO THE TWO APPLICATIONS
19. I find it is necessary, at the get-go, to note the subsequent procedural history concerning the preservatory/status quo orders.
20. The Plaintiff's application dated 16 th November 2023 was initially heard ex parte and interim injunctive orders were issued. The orders were subsequently extended by consent of the parties. On 23 rd October 2024, the Court discharged the preservatory/status quo orders. The Plaintiff challenged that decision before the Court of Appeal.
21. By an order dated 27 th January 2026, the Court of Appeal, by consent of the parties, set aside the orders of the High Court dated 23 rd October 2024 which had discharged the preservatory/status quo orders issued on 16 th November 2023. The matter was remitted to this Court for the parties to be heard on whether the preservatory/status quo orders should remain in force or be set aside. The appeal was marked as settled, with no order as to costs.
22. Accordingly, the issue concerning the status quo orders is presently before this Court pursuant to the express remit of the Court of Appeal, while the 2 nd Defendant's application seeks, separately, to regularise its position in the proceedings by changing advocates, setting aside the interlocutory judgment and obtaining leave to file its Defence and response to the Plaintiff's application out of time.
SUBMISSIONS BY THE APPLICANTS
23. The Plaintiff/Applicant and the 2 nd Defendant/Applicant filed separate applications and made submissions in support of their respective applications as well as in opposition to the application filed by the other party.
Plaintiff/Applicant's submissions on the Notice of Motion dated 16 th November 2023
24. The Plaintiff/Applicant submitted that its application dated 16 th November 2023 principally seeks an injunction restraining the 3 rd Defendant from honouring Letters of Credit Nos. 201010078851-N and 201010079397-S pending the hearing and determination of the suit. It submitted that the interim prayers had been spent and that the issue remaining for determination was whether the preservatory orders should continue.
25. The Plaintiff submitted that the application was premised on the fraud exception to the autonomy principle governing Letters of Credit. It contended that the 1 st Defendant had induced it to enter into a transaction for the manufacture of T-shirts, recommended the 2 nd Defendant as the supplier of fabric and represented that the fabric was of the requisite quality.
26. The Plaintiff stated that after it manufactured the T-shirts, the 1 st Defendant rejected them on purported quality grounds despite having previously approved the fabric. It maintained that the circumstances disclosed a fraudulent scheme involving the 1 st and 2 nd Defendants.
27. The Plaintiff relied on SAJ Ceramics Limited v HMS Bergbau AG & I & M Bank Limited [2018] KEHC 10148 (KLR) and submitted that fraud constitutes a recognised exception to the autonomy of a Letter of Credit and may justify intervention by the Court.
28. The Plaintiff further submitted that it had established a prima facie case and that it would suffer irreparable harm if the Letters of Credit were honoured. It contended that the 1 st and 2 nd Defendants were foreign entities and that recovery of the funds, once released, would be difficult. It therefore submitted that the balance of convenience favoured preservation of the funds pending determination of the suit.
29. The Plaintiff also relied on Safaricom Limited v Oceanic Beach Hotel Limited & 2 Others [2010] eKLR, CMC Holdings Ltd & Another v Jagua Land Rover Exports Ltd [2013] eKLR , as cited in Talewa Road Contractors Ltd v Kenya National Highways Authority [2014] eKLR, and Channel Tunnel Group Ltd v Balfour Beatty Construction Ltd [1993] AC 334 , on the principles governing interim measures of protection in aid of arbitration.
2 nd Defendant/Applicant's submissions on the Notice of Motion dated 27 th September 2024
30. The 2 nd Defendant/Applicant, in support of its application dated 27 th September 2024, submitted that the interlocutory judgment entered against it on 16 th April 2024 ought to be set aside and that it should be granted leave to file its Defence and response to the Plaintiff's application dated 16 th November 2023 out of time.
31. The 2 nd Defendant's first contention was that the interlocutory judgment was irregular because it was a foreign company and the Plaintiff had not obtained leave to serve summons outside the jurisdiction. It relied on Order 5 Rules 21, 22 and 25 of the Civil Procedure Rules and the decisions in James Kanyitta Nderitu & Another v Marios Philotas Ghikas & Another [2016] eKLR , Misnak International (UK) Limited v 4MB Mining Limited & 3 Others [2019] eKLR and Raytheon Aircraft Credit Corporation & Another v Air Al-Faraj Limited.
32. The 2 nd Defendant submitted that where a judgment is irregular, the Court ought to set it aside as a matter of right.
33. On the delay in filing its Defence, the 2 nd Defendant explained that it is domiciled in South Korea and had difficulties in securing appropriate Kenyan legal representation. It stated that it eventually instructed S. K. Muendo & Company Advocates in May 2024 and maintained that the delay was neither deliberate nor intended to obstruct the proceedings. It relied on Njoroge v Kimani [2022] KECA 1188 (KLR) on the principles applicable to an application for extension of time.
34. The 2 nd Defendant further submitted that its proposed Defence raises bona fide and triable issues. It denied the allegations of fraud, maintained that it had no knowledge of the dealings between the Plaintiff and the 1 st Defendant and asserted that it had supplied the goods but remained unpaid. It relied on Tree Shade Motors Ltd v D.T. Dobie & Another [1995–1998] 1 EA 324 , submitting that where a proposed Defence raises a triable issue, the Court should exercise its discretion in favour of allowing the defendant to defend the suit on its merits.
35. The 2 nd Defendant consequently urged the Court to set aside the interlocutory judgment, allow it to file its Defence and response out of time and permit its new advocates to come on record.
SUBMISSIONS BY THE RESPONDENTS
Respondents' submissions on the Plaintiff's Notice of Motion dated 16 th November 2023
36. In opposition to the Plaintiff's application for an injunction, the 2 nd Defendant submitted that the Plaintiff had failed to satisfy the established principles for the grant of an interlocutory injunction.
37. Relying on Giella v Cassman Brown (1973) EA 358 and Nguruman Limited v Jan Bonde Nielsen & Others [2014] eKLR , the 2 nd Defendant submitted that the Plaintiff was required to establish a prima facie case, demonstrate that it would suffer irreparable harm incapable of compensation by damages and, where necessary, satisfy the Court that the balance of convenience favoured the grant of the injunction.
38. The 2 nd Defendant submitted that the Plaintiff's complaint principally arose from the 1 st Defendant's rejection of the finished T-shirts and that the Plaintiff had not demonstrated any basis for attributing the 1 st Defendant's conduct to the 2 nd Defendant. It maintained that its role was limited to supplying the fabric and that there was no evidence of an agency relationship or other arrangement linking it to the alleged fraudulent conduct.
39. The 2 nd Defendant further submitted that the Plaintiff had not established irreparable harm because its alleged loss was essentially financial and could be quantified and compensated by damages. It therefore urged the Court to decline the injunction and dismiss the Plaintiff's application.
Plaintiff's submissions in opposition to the 2 nd Defendant's Notice of Motion dated 27 th September 2024
40. In response to the 2 nd Defendant's application to set aside the interlocutory judgment, the Plaintiff submitted that the judgment entered on 16 th April 2024 was regularly entered and that the 2 nd Defendant had not demonstrated sufficient grounds for the exercise of the Court's discretion in its favour.
41. The Plaintiff pointed out that the 2 nd Defendant admitted having been served with the proceedings in November 2023 and subsequently entered appearance through S. K. Muendo & Company Advocates on 22 nd May 2024. It further noted that counsel appeared before the Court and participated in the proceedings.
42. The Plaintiff therefore challenged the 2 nd Defendant's explanation for the delay. It submitted that approximately eleven months had elapsed between service and the filing of the application, while approximately five months elapsed after the appointment of advocates before the present application was filed. In its view, the explanation that the 2 nd Defendant was seeking Kenyan legal representation did not satisfactorily account for the entire period of delay.
43. The Plaintiff further submitted that the proposed Defence did not raise any bona fide triable issue. In particular, it contended that the Defence did not adequately answer the allegations of fraud which constituted the substratum of the suit.
44. The Plaintiff therefore submitted that setting aside the interlocutory judgment would be an injudicious exercise of discretion, particularly in view of the unexplained delay and the absence of a triable defence. It further invoked the constitutional and statutory requirement for the expeditious disposal of proceedings, relying on Articles 50 and 159(2)(a) and (b) of the Constitution and section 1B of the Civil Procedure Act.
45. The Plaintiff consequently urged the Court to dismiss the 2 nd Defendant's application.
Submissions on the status quo/preservatory orders
46. On the issue remitted by the Court of Appeal concerning the continuation of the preservatory/status quo orders, the Plaintiff submitted that the orders ought to remain in force. It contended that there had been no material non-disclosure regarding the foreign status of the 1 st and 2 nd Defendants.
47. The Plaintiff further submitted that although leave to serve the 2 nd Defendant outside Kenya had not been obtained, the 2 nd Defendant admitted service, entered an unconditional appearance and subsequently participated in the proceedings. Reliance was placed on Nanjibhai Prabhudas & Co. Limited v Standard Bank Limited [1968] EACA 5 and Kanti & Co. Ltd v South British Insurance Co. Ltd [1981] KECA 4 (KLR) in support of the proposition that an unconditional appearance amounts to a waiver of irregularities in service.
48. The Plaintiff maintained that discharge of the orders would expose the funds to dissipation and potentially leave it without an effective remedy, particularly given that the 2 nd Defendant is a foreign entity. It therefore urged the Court to maintain the status quo and preserve the funds pending the hearing and determination of the suit.
ISSUES FOR DETERMINATION
49. Having considered the pleadings, the two applications, the affidavits in support and in opposition thereto, the parties' respective written submissions and the order of the Court of Appeal dated 27 th January 2026, I find the following issues arise for determination:
a) Whether the 2 nd Defendant has satisfied the threshold for setting aside the interlocutory judgment entered and for leave to file its Defence and response to the Plaintiff's application out of time;
b) Whether the preservatory/status quo orders issued in the nature of interim injunctive relief should remain in force pending the hearing and determination of the suit; and
c) Who should bear the costs of the applications.
ANALYSIS AND DETERMINATION
50. Regarding the first issue , the 2 nd Defendant's application dated 27 th September 2024 principally seeks to set aside the interlocutory judgment entered against it on 16 th April 2024 and to obtain leave to file its Defence and response to the Plaintiff's application out of time. The application is premised, among other grounds, on the contention that the 2 nd Defendant is a foreign company and that no leave was obtained before summons were served upon it outside the jurisdiction.
51. The law on setting aside interlocutory judgement is provided under Order 10 Rule 11 of the Civil Procedure Rules as follows: -
“Where judgment has been entered under this order, the court may set aside or vary such judgment and any consequential decree or upon such terms as are just.”
52. When deciding whether to set aside interlocutory judgements, the courts are guided by established precedent such as the leading case of Patel v East African Cargo Handling Services Ltd [1974] EA 75 in which it was held that: -
“There are no limits or restrictions on the Judges discretion to set aside or vary an ex-parte judgment except that if he does vary the judgment, he does so on such terms as may be just. The main concern of the court is to do justice to the parties and the court will not impose conditions on itself to feter the wide discretion given to it by the Rules.”
53. The 2 nd Defendant submits that the Plaintiff failed to obtain leave for service of summons outside the jurisdiction as they are based in South Korea. They also accredit the delay in entering appearance and filing a defence to the complexities of hiring counsel in Kenya.
54. Order 5 Rules 21 through 29 of the Civil Procedure Rules provides the framework for service of summons outside the jurisdiction. Where a defendant is outside Kenya, the requisite leave and procedure for service outside the jurisdiction must be complied with. The 2 nd Defendant's position is that this was not done.
55. The Plaintiff does not dispute that leave was not obtained. Its response is that the 2 nd Defendant admitted initial service, subsequently entered an unconditional appearance through S. K. Muendo & Company Advocates and participated in the proceedings. It therefore submits that the irregularity was waived and that it would be contrary to substantive justice to allow the 2 nd Defendant to rely on a procedural defect after having submitted to the jurisdiction of the Court.
56. The Plaintiff relies on Nanjibhai Prabhudas & Co. Limited v Standard Bank Limited [1968] EACA 5 , where the Court recognised that an unconditional appearance may waive an irregularity in service. The Plaintiff also relies on Article 159(2)(d) of the Constitution and submits that the procedural misstep did not occasion prejudice because the 2 nd Defendant admittedly became aware of the proceedings, entered appearance and subsequently participated in them.
57. I agree with the Plaintiff that the subsequent conduct of the 2 nd Defendant is relevant. The evidence before the Court shows that the 2 nd Defendant admits having been served in November 2023 and subsequently entered appearance. The Plaintiff further demonstrates that counsel for the 2 nd Defendant attended Court and participated in proceedings concerning the interim orders.
58. However, the difficulty is that the interlocutory judgment was entered on 16 th April 2024, before the 2nd Defendant entered appearance on 22 nd May 2024. The question is therefore not merely whether the 2nd Defendant subsequently waived an irregularity, but whether, at the time the interlocutory judgment was entered, there had been proper service upon which the Court could properly enter judgment.
59. An irregular default judgment is distinguishable from a regular default judgment. Where a judgment is regularly entered, the Court exercises a discretionary jurisdiction in determining whether to set it aside. Where, however, the judgment is irregular because the defendant was not properly served, the Court will ordinarily set it aside as a matter of right. This position was enunciated by the Court in the case of James Kanyiita Nderitu & Another -vs- Marios Philotas Ghika & Another [2016] eKLR, where the Court of Appeal set out the criteria to be adopted when exercising the Courts jurisdiction to set aside a regular and an irregular ex-parte judgment as follows: -
“In a regular default judgment, the defendant will have been duly served with Summons to Enter Appearance, but for one reason or another, he had failed to enter appearance or to file defence resulting in default judgment. Such a defendant is entitled under Order 10 Rule 11 of the Civil Procedure Rules , to move the court to set aside the default judgment and to grant him leave to defend the suit. In such a scenario, the court has unfettered discretion in determining whether or not to set aside the default judgment and will take into account such factors as the reason for the failure of the defendant to file his Memorandum of Appearance or defence, as the case may be, the length of time that has elapsed since the default Judgement was entered, whether the intended defence raises triable issues, the respective prejudice each party is likely to suffer, whether on the whole it is in the interest of justice to set aside the default judgment, among others.
In an irregular default judgment, on the other hand, judgment will have been entered against a defendant who has not been served or properly served with Summons to Enter Appearance. In such a situation, the default judgment is set aside ex-debito justitiae as a matter of right. The court does not even have to be moved by the party once it comes to its notice. In addition, the court will not venture into considerations or whether the intended defence raised triable issues or whether there has been inordinate delay in applying to set aside the irregular judgment. The reasons why such judgment is set aside as of right, and not as a matter of discretion, is because the party against whom it is entered has been condemned without notice of the allegations against him or an opportunity to be heard in response to those allegations.”
60. I therefore find that the absence of leave to serve the 2nd Defendant outside the jurisdiction rendered the service upon which the interlocutory judgment was founded defective. The subsequent entry of appearance and participation in the proceedings cannot retrospectively validate a judgment that had already been entered without proper service.
61. I find that the delay by the 2nd Defendant in entering appearance and filing its Defence has been sufficiently explained. Further, upon perusal of the draft Defence and Counterclaim, I find that the same raises triable issues, thereby warranting the 2nd Defendant an opportunity to defend the suit and ventilate its claim on merit.
62. The second and more substantive question concerns the preservatory/status quo orders issued on 16 th November 2023. The Plaintiff's application sought, inter alia, to restrain the 3 rd Defendant from honouring Letters of Credit Nos. 201010078851-N and 201010079397-S. Interim orders were issued and subsequently extended on various occasions, including by consent of the parties.
63. The orders were thereafter discharged by this Court on 23 rd October 2024, prompting the Plaintiff to move the Court of Appeal. By consent, the Court of Appeal set aside the orders of 23 rd October 2024 and remitted the matter to this Court “for the parties to be heard on the question whether the said preservatory/status quo orders should remain in force or be set aside.” The Court of Appeal did not itself determine whether the injunctive relief should ultimately issue.
64. The question therefore before this Court is whether, on the material presently available, there is sufficient justification for maintaining the preservatory/status quo orders.
65. Although described as preservatory/status quo orders, their effect is injunctive, and the principles governing interlocutory injunctions are therefore applicable. In Giella v Cassman Brown & Co. Ltd [1973] EA 358 , the Court set out the requirements of establishing a prima facie case, demonstrating irreparable harm and, where necessary, determining the matter on a balance of convenience. These principles were reaffirmed in Nguruman Limited v Jan Bonde Nielsen & 2 Others [2014] eKLR as follows:
“...these are the three pillars on which rest the foundation of any order of injunction, interlocutory or permanent. It is established that all the above three conditions and stages are to be applied as separate, distinct and logical hurdles which the applicant is expected to surmount sequentially...”
66. The Plaintiff's case is founded on alleged fraud surrounding the transaction underlying the Letters of Credit. It contends that the 1 st and 2 nd Defendants were involved in a fraudulent scheme concerning the supply and subsequent rejection of the fabric and finished garments. The Plaintiff relies on SAJ Ceramics Limited v HMS Bergbau AG & I & M Bank Limited [2018] KEHC 10148 (KLR) on the recognised fraud exception to the autonomy principle governing Letters of Credit.
67. The 2 nd Defendant denies any involvement in fraud and maintains that its role was limited to supplying the fabric. These competing positions raise factual matters that are best determined at trial. At this interlocutory stage, however, I am satisfied that the Plaintiff has raised an arguable case concerning the circumstances surrounding the transaction and the alleged fraud. This is sufficient to warrant preservation of the subject matter pending trial, without amounting to a finding that fraud has been established.
68. As to irreparable harm, the Plaintiff contends that once the funds are released to the foreign 2 nd Defendant, recovery may be difficult and the suit may be rendered nugatory. While monetary loss is ordinarily compensable by damages, the potential difficulty of recovering funds already released in circumstances where fraud is alleged is a relevant consideration.
69. On the balance of convenience, preservation is preferable. If the orders remain in force and the Plaintiff ultimately fails, the Letters of Credit may still be honoured in accordance with their terms. Conversely, if payment is made and the Plaintiff ultimately succeeds, restoring the position may prove considerably more difficult.
70. I therefore find that the circumstances justify maintaining the preservatory/status quo orders. This determination is purely interlocutory and does not constitute a finding on the merits of the allegations of fraud.
71. On the issue of costs, Section 27(1) of the Civil Procedure Act vests the Court with discretion as to the award of costs, although the general rule is that costs follow the event. However, that principle is not inflexible.
72. In Jasbir Singh Rai & 3 Others v Tarlochan Singh Rai & 4 Others [2014] eKLR , the Supreme Court held that although there is eminent good sense in the principle that costs follow the event, it is “not an invariable rule” and that the ultimate consideration is the judicial discretion of the Court.
73. In the present case, the two applications produced different outcomes. The 2 nd
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1. Before the Court are two applications, namely, the Plaintiff/Applicant's Notice of Motion dated 16 th November 2023 and the 2 nd Defendant/Applicant's Notice of Motion dated 27 th September 2024.
2. The Plaintiff/Applicant's Notice of Motion dated 16 th November 2023 is brought pursuant to sections 1A, 1B, 3 and 3A of the Civil Procedure Act, Order 40 Rules 1 and 4 and Order 51 Rule 1 of the Civil Procedure Rules, together with all other enabling provisions of the law.
3. The application initially sought, inter alia, the following orders:
I. That the application be certified as urgent and heard ex parte in the first instance;
II. That pending the inter partes hearing of the application, the Court issue a temporary injunction restraining the 3 rd Defendant from honouring Letters of Credit Nos. 201010078851-N and 201010079397-S in favour of the 2 nd Defendant, due on 17 th November 2023 and 23 rd January 2024, respectively, so as to preserve the substratum of the application and the suit;
III. That pending the hearing and determination of the application, a temporary injunction issue restraining the 3 rd Defendant from honouring the said Letters of Credit;
IV. That pending the hearing and determination of the main suit, a temporary injunction issue restraining the 3 rd Defendant from honouring the said Letters of Credit; and
V. That the costs of the application be borne by the 1 st and 2 nd Defendants.
4. The first three prayers were subsequently spent, leaving prayer 4, namely, the prayer for a temporary injunction pending the hearing and determination of the main suit, as the substantive relief for determination. The Plaintiff's submissions expressly identify prayers (a), (b) and (c) as spent and prayer (d) as the substantive prayer remaining for determination.
5. The application is supported by the Supporting Affidavit of Santhosh Kumar, together with the annexures thereto. The Plaintiff's submissions further state that the application is supported by the affidavit of Isaac Maluki, a director of Shona EPZ Limited, who recounts an allegedly similar transaction involving the 1 st and 2 nd Defendants.
6. The Plaintiff's case is that the transaction giving rise to the Letters of Credit was tainted by fraud and that the Court should intervene under the recognised fraud exception to the autonomy principle applicable to Letters of Credit.
7. The application was initially allowed ex parte on 16 th November 2023, and the interim/status quo orders were thereafter extended from time to time. The Plaintiff's submissions indicate that the 2 nd and 3 rd Defendants entered unconditional appearance and that the orders maintaining the status quo were subsequently extended by consent.
8. The application was opposed by the Defendants through their respective responses and submissions.
9. In particular, the 2 nd Defendant opposed the application on the basis, inter alia, that the Letters of Credit were autonomous instruments which ought to be honoured upon compliance with their terms and that the Plaintiff had not established the circumstances necessary to justify interference with the same. The 2 nd Defendant also relied on the principle that disputes arising from the underlying contractual relationship ought to be resolved between the contracting parties and, where applicable, through arbitration.
10. The second application before the Court is the Notice of Motion dated 27 th September 2024, filed by the 2 nd Defendant/Applicant, San Eun Textile Co. Ltd. The application is brought pursuant to section 3A of the Civil Procedure Act, Order 10 Rule 11, Order 9 Rule 9 and Order 51 Rules 1 of the Civil Procedure Rules.
11. The 2 nd Defendant seeks, principally, the following orders:
I. That the application be certified as urgent and service thereof be dispensed with in the first instance;
II. That B & W Advocates LLP be allowed to come on record for the 2 nd Defendant in place of S. K. Muendo & Company Advocates;
III. That the interlocutory judgment entered against the 2 nd Defendant on 16 th April 2024, together with all consequential orders, be set aside;
IV. That the 2 nd Defendant be granted leave to file its Defence and a response to the Plaintiff's application dated 16 th November 2023 out of time; and
V. That costs be in the cause.
12. The prayer seeking certification of the application as urgent and the prayer for service to be dispensed with were interlocutory in nature and have since been spent. The substantive prayers that remain for determination are therefore the prayer allowing B & W Advocates LLP to come on record, the prayer seeking to set aside the interlocutory judgment and consequential orders, and the prayer seeking leave to file the Defence and response to the Plaintiff's application out of time.
13. The application is premised on, inter alia, the grounds that the 2 nd Defendant entered appearance through S. K. Muendo & Company Advocates after interlocutory judgment had been entered; that the delay in entering appearance and filing its Defence was occasioned by the complexities of instructing a Kenyan advocate while the 2 nd Defendant was domiciled in South Korea; and that leave is required for the change of advocates after judgment.
14. The 2 nd Defendant further relies on the fact that interim orders remain in force restraining the 3 rd Defendant from honouring the Letters of Credit, thereby exposing it to the risk of loss of lawful income.
15. The application is supported by the Supporting Affidavit of Kim J. Eon, the Director/Chief Executive Officer of the 2 nd Defendant. The deponent states that the 2 nd Defendant received service in late November 2023, thereafter embarked on the process of securing local legal representation and eventually appointed S. K. Muendo & Company Advocates in late May 2024. He attributes the delay in filing a Defence to the difficulties encountered in instructing Kenyan counsel from South Korea and maintains that the failure was not deliberate.
16. The deponent further states that the 2 nd Defendant was subsequently informed by its advocates that interlocutory judgment had already been entered against it. He maintains that the 2 nd Defendant has a meritorious Defence and should be afforded an opportunity to defend the suit. A copy of the draft Defence is annexed to the affidavit.
17. The application is opposed by the Plaintiff through the Replying Affidavit of Santhosh Kumar and its written submissions.
18. The Plaintiff maintains that the interlocutory judgment was regularly entered; that the 2 nd Defendant was served in November 2023 but delayed in taking steps to defend the suit; that its explanation for the delay is inadequate; and that the proposed Defence does not raise any bona fide triable issue.
PROCEDURAL HISTORY RELEVANT TO THE TWO APPLICATIONS
19. I find it is necessary, at the get-go, to note the subsequent procedural history concerning the preservatory/status quo orders.
20. The Plaintiff's application dated 16 th November 2023 was initially heard ex parte and interim injunctive orders were issued. The orders were subsequently extended by consent of the parties. On 23 rd October 2024, the Court discharged the preservatory/status quo orders. The Plaintiff challenged that decision before the Court of Appeal.
21. By an order dated 27 th January 2026, the Court of Appeal, by consent of the parties, set aside the orders of the High Court dated 23 rd October 2024 which had discharged the preservatory/status quo orders issued on 16 th November 2023. The matter was remitted to this Court for the parties to be heard on whether the preservatory/status quo orders should remain in force or be set aside. The appeal was marked as settled, with no order as to costs.
22. Accordingly, the issue concerning the status quo orders is presently before this Court pursuant to the express remit of the Court of Appeal, while the 2 nd Defendant's application seeks, separately, to regularise its position in the proceedings by changing advocates, setting aside the interlocutory judgment and obtaining leave to file its Defence and response to the Plaintiff's application out of time.
SUBMISSIONS BY THE APPLICANTS
23. The Plaintiff/Applicant and the 2 nd Defendant/Applicant filed separate applications and made submissions in support of their respective applications as well as in opposition to the application filed by the other party.
Plaintiff/Applicant's submissions on the Notice of Motion dated 16 th November 2023
24. The Plaintiff/Applicant submitted that its application dated 16 th November 2023 principally seeks an injunction restraining the 3 rd Defendant from honouring Letters of Credit Nos. 201010078851-N and 201010079397-S pending the hearing and determination of the suit. It submitted that the interim prayers had been spent and that the issue remaining for determination was whether the preservatory orders should continue.
25. The Plaintiff submitted that the application was premised on the fraud exception to the autonomy principle governing Letters of Credit. It contended that the 1 st Defendant had induced it to enter into a transaction for the manufacture of T-shirts, recommended the 2 nd Defendant as the supplier of fabric and represented that the fabric was of the requisite quality.
26. The Plaintiff stated that after it manufactured the T-shirts, the 1 st Defendant rejected them on purported quality grounds despite having previously approved the fabric. It maintained that the circumstances disclosed a fraudulent scheme involving the 1 st and 2 nd Defendants.
27. The Plaintiff relied on SAJ Ceramics Limited v HMS Bergbau AG & I & M Bank Limited [2018] KEHC 10148 (KLR) and submitted that fraud constitutes a recognised exception to the autonomy of a Letter of Credit and may justify intervention by the Court.
28. The Plaintiff further submitted that it had established a prima facie case and that it would suffer irreparable harm if the Letters of Credit were honoured. It contended that the 1 st and 2 nd Defendants were foreign entities and that recovery of the funds, once released, would be difficult. It therefore submitted that the balance of convenience favoured preservation of the funds pending determination of the suit.
29. The Plaintiff also relied on Safaricom Limited v Oceanic Beach Hotel Limited & 2 Others [2010] eKLR, CMC Holdings Ltd & Another v Jagua Land Rover Exports Ltd [2013] eKLR , as cited in Talewa Road Contractors Ltd v Kenya National Highways Authority [2014] eKLR, and Channel Tunnel Group Ltd v Balfour Beatty Construction Ltd [1993] AC 334 , on the principles governing interim measures of protection in aid of arbitration.
2 nd Defendant/Applicant's submissions on the Notice of Motion dated 27 th September 2024
30. The 2 nd Defendant/Applicant, in support of its application dated 27 th September 2024, submitted that the interlocutory judgment entered against it on 16 th April 2024 ought to be set aside and that it should be granted leave to file its Defence and response to the Plaintiff's application dated 16 th November 2023 out of time.
31. The 2 nd Defendant's first contention was that the interlocutory judgment was irregular because it was a foreign company and the Plaintiff had not obtained leave to serve summons outside the jurisdiction. It relied on Order 5 Rules 21, 22 and 25 of the Civil Procedure Rules and the decisions in James Kanyitta Nderitu & Another v Marios Philotas Ghikas & Another [2016] eKLR , Misnak International (UK) Limited v 4MB Mining Limited & 3 Others [2019] eKLR and Raytheon Aircraft Credit Corporation & Another v Air Al-Faraj Limited.
32. The 2 nd Defendant submitted that where a judgment is irregular, the Court ought to set it aside as a matter of right.
33. On the delay in filing its Defence, the 2 nd Defendant explained that it is domiciled in South Korea and had difficulties in securing appropriate Kenyan legal representation. It stated that it eventually instructed S. K. Muendo & Company Advocates in May 2024 and maintained that the delay was neither deliberate nor intended to obstruct the proceedings. It relied on Njoroge v Kimani [2022] KECA 1188 (KLR) on the principles applicable to an application for extension of time.
34. The 2 nd Defendant further submitted that its proposed Defence raises bona fide and triable issues. It denied the allegations of fraud, maintained that it had no knowledge of the dealings between the Plaintiff and the 1 st Defendant and asserted that it had supplied the goods but remained unpaid. It relied on Tree Shade Motors Ltd v D.T. Dobie & Another [1995–1998] 1 EA 324 , submitting that where a proposed Defence raises a triable issue, the Court should exercise its discretion in favour of allowing the defendant to defend the suit on its merits.
35. The 2 nd Defendant consequently urged the Court to set aside the interlocutory judgment, allow it to file its Defence and response out of time and permit its new advocates to come on record.
SUBMISSIONS BY THE RESPONDENTS
Respondents' submissions on the Plaintiff's Notice of Motion dated 16 th November 2023
36. In opposition to the Plaintiff's application for an injunction, the 2 nd Defendant submitted that the Plaintiff had failed to satisfy the established principles for the grant of an interlocutory injunction.
37. Relying on Giella v Cassman Brown (1973) EA 358 and Nguruman Limited v Jan Bonde Nielsen & Others [2014] eKLR , the 2 nd Defendant submitted that the Plaintiff was required to establish a prima facie case, demonstrate that it would suffer irreparable harm incapable of compensation by damages and, where necessary, satisfy the Court that the balance of convenience favoured the grant of the injunction.
38. The 2 nd Defendant submitted that the Plaintiff's complaint principally arose from the 1 st Defendant's rejection of the finished T-shirts and that the Plaintiff had not demonstrated any basis for attributing the 1 st Defendant's conduct to the 2 nd Defendant. It maintained that its role was limited to supplying the fabric and that there was no evidence of an agency relationship or other arrangement linking it to the alleged fraudulent conduct.
39. The 2 nd Defendant further submitted that the Plaintiff had not established irreparable harm because its alleged loss was essentially financial and could be quantified and compensated by damages. It therefore urged the Court to decline the injunction and dismiss the Plaintiff's application.
Plaintiff's submissions in opposition to the 2 nd Defendant's Notice of Motion dated 27 th September 2024
40. In response to the 2 nd Defendant's application to set aside the interlocutory judgment, the Plaintiff submitted that the judgment entered on 16 th April 2024 was regularly entered and that the 2 nd Defendant had not demonstrated sufficient grounds for the exercise of the Court's discretion in its favour.
41. The Plaintiff pointed out that the 2 nd Defendant admitted having been served with the proceedings in November 2023 and subsequently entered appearance through S. K. Muendo & Company Advocates on 22 nd May 2024. It further noted that counsel appeared before the Court and participated in the proceedings.
42. The Plaintiff therefore challenged the 2 nd Defendant's explanation for the delay. It submitted that approximately eleven months had elapsed between service and the filing of the application, while approximately five months elapsed after the appointment of advocates before the present application was filed. In its view, the explanation that the 2 nd Defendant was seeking Kenyan legal representation did not satisfactorily account for the entire period of delay.
43. The Plaintiff further submitted that the proposed Defence did not raise any bona fide triable issue. In particular, it contended that the Defence did not adequately answer the allegations of fraud which constituted the substratum of the suit.
44. The Plaintiff therefore submitted that setting aside the interlocutory judgment would be an injudicious exercise of discretion, particularly in view of the unexplained delay and the absence of a triable defence. It further invoked the constitutional and statutory requirement for the expeditious disposal of proceedings, relying on Articles 50 and 159(2)(a) and (b) of the Constitution and section 1B of the Civil Procedure Act.
45. The Plaintiff consequently urged the Court to dismiss the 2 nd Defendant's application.
Submissions on the status quo/preservatory orders
46. On the issue remitted by the Court of Appeal concerning the continuation of the preservatory/status quo orders, the Plaintiff submitted that the orders ought to remain in force. It contended that there had been no material non-disclosure regarding the foreign status of the 1 st and 2 nd Defendants.
47. The Plaintiff further submitted that although leave to serve the 2 nd Defendant outside Kenya had not been obtained, the 2 nd Defendant admitted service, entered an unconditional appearance and subsequently participated in the proceedings. Reliance was placed on Nanjibhai Prabhudas & Co. Limited v Standard Bank Limited [1968] EACA 5 and Kanti & Co. Ltd v South British Insurance Co. Ltd [1981] KECA 4 (KLR) in support of the proposition that an unconditional appearance amounts to a waiver of irregularities in service.
48. The Plaintiff maintained that discharge of the orders would expose the funds to dissipation and potentially leave it without an effective remedy, particularly given that the 2 nd Defendant is a foreign entity. It therefore urged the Court to maintain the status quo and preserve the funds pending the hearing and determination of the suit.
ISSUES FOR DETERMINATION
49. Having considered the pleadings, the two applications, the affidavits in support and in opposition thereto, the parties' respective written submissions and the order of the Court of Appeal dated 27 th January 2026, I find the following issues arise for determination:
a) Whether the 2 nd Defendant has satisfied the threshold for setting aside the interlocutory judgment entered and for leave to file its Defence and response to the Plaintiff's application out of time;
b) Whether the preservatory/status quo orders issued in the nature of interim injunctive relief should remain in force pending the hearing and determination of the suit; and
c) Who should bear the costs of the applications.
ANALYSIS AND DETERMINATION
50. Regarding the first issue , the 2 nd Defendant's application dated 27 th September 2024 principally seeks to set aside the interlocutory judgment entered against it on 16 th April 2024 and to obtain leave to file its Defence and response to the Plaintiff's application out of time. The application is premised, among other grounds, on the contention that the 2 nd Defendant is a foreign company and that no leave was obtained before summons were served upon it outside the jurisdiction.
51. The law on setting aside interlocutory judgement is provided under Order 10 Rule 11 of the Civil Procedure Rules as follows: -
“Where judgment has been entered under this order, the court may set aside or vary such judgment and any consequential decree or upon such terms as are just.”
52. When deciding whether to set aside interlocutory judgements, the courts are guided by established precedent such as the leading case of Patel v East African Cargo Handling Services Ltd [1974] EA 75 in which it was held that: -
“There are no limits or restrictions on the Judges discretion to set aside or vary an ex-parte judgment except that if he does vary the judgment, he does so on such terms as may be just. The main concern of the court is to do justice to the parties and the court will not impose conditions on itself to feter the wide discretion given to it by the Rules.”
53. The 2 nd Defendant submits that the Plaintiff failed to obtain leave for service of summons outside the jurisdiction as they are based in South Korea. They also accredit the delay in entering appearance and filing a defence to the complexities of hiring counsel in Kenya.
54. Order 5 Rules 21 through 29 of the Civil Procedure Rules provides the framework for service of summons outside the jurisdiction. Where a defendant is outside Kenya, the requisite leave and procedure for service outside the jurisdiction must be complied with. The 2 nd Defendant's position is that this was not done.
55. The Plaintiff does not dispute that leave was not obtained. Its response is that the 2 nd Defendant admitted initial service, subsequently entered an unconditional appearance through S. K. Muendo & Company Advocates and participated in the proceedings. It therefore submits that the irregularity was waived and that it would be contrary to substantive justice to allow the 2 nd Defendant to rely on a procedural defect after having submitted to the jurisdiction of the Court.
56. The Plaintiff relies on Nanjibhai Prabhudas & Co. Limited v Standard Bank Limited [1968] EACA 5 , where the Court recognised that an unconditional appearance may waive an irregularity in service. The Plaintiff also relies on Article 159(2)(d) of the Constitution and submits that the procedural misstep did not occasion prejudice because the 2 nd Defendant admittedly became aware of the proceedings, entered appearance and subsequently participated in them.
57. I agree with the Plaintiff that the subsequent conduct of the 2 nd Defendant is relevant. The evidence before the Court shows that the 2 nd Defendant admits having been served in November 2023 and subsequently entered appearance. The Plaintiff further demonstrates that counsel for the 2 nd Defendant attended Court and participated in proceedings concerning the interim orders.
58. However, the difficulty is that the interlocutory judgment was entered on 16 th April 2024, before the 2nd Defendant entered appearance on 22 nd May 2024. The question is therefore not merely whether the 2nd Defendant subsequently waived an irregularity, but whether, at the time the interlocutory judgment was entered, there had been proper service upon which the Court could properly enter judgment.
59. An irregular default judgment is distinguishable from a regular default judgment. Where a judgment is regularly entered, the Court exercises a discretionary jurisdiction in determining whether to set it aside. Where, however, the judgment is irregular because the defendant was not properly served, the Court will ordinarily set it aside as a matter of right. This position was enunciated by the Court in the case of James Kanyiita Nderitu & Another -vs- Marios Philotas Ghika & Another [2016] eKLR, where the Court of Appeal set out the criteria to be adopted when exercising the Courts jurisdiction to set aside a regular and an irregular ex-parte judgment as follows: -
“In a regular default judgment, the defendant will have been duly served with Summons to Enter Appearance, but for one reason or another, he had failed to enter appearance or to file defence resulting in default judgment. Such a defendant is entitled under Order 10 Rule 11 of the Civil Procedure Rules , to move the court to set aside the default judgment and to grant him leave to defend the suit. In such a scenario, the court has unfettered discretion in determining whether or not to set aside the default judgment and will take into account such factors as the reason for the failure of the defendant to file his Memorandum of Appearance or defence, as the case may be, the length of time that has elapsed since the default Judgement was entered, whether the intended defence raises triable issues, the respective prejudice each party is likely to suffer, whether on the whole it is in the interest of justice to set aside the default judgment, among others.
In an irregular default judgment, on the other hand, judgment will have been entered against a defendant who has not been served or properly served with Summons to Enter Appearance. In such a situation, the default judgment is set aside ex-debito justitiae as a matter of right. The court does not even have to be moved by the party once it comes to its notice. In addition, the court will not venture into considerations or whether the intended defence raised triable issues or whether there has been inordinate delay in applying to set aside the irregular judgment. The reasons why such judgment is set aside as of right, and not as a matter of discretion, is because the party against whom it is entered has been condemned without notice of the allegations against him or an opportunity to be heard in response to those allegations.”
60. I therefore find that the absence of leave to serve the 2nd Defendant outside the jurisdiction rendered the service upon which the interlocutory judgment was founded defective. The subsequent entry of appearance and participation in the proceedings cannot retrospectively validate a judgment that had already been entered without proper service.
61. I find that the delay by the 2nd Defendant in entering appearance and filing its Defence has been sufficiently explained. Further, upon perusal of the draft Defence and Counterclaim, I find that the same raises triable issues, thereby warranting the 2nd Defendant an opportunity to defend the suit and ventilate its claim on merit.
62. The second and more substantive question concerns the preservatory/status quo orders issued on 16 th November 2023. The Plaintiff's application sought, inter alia, to restrain the 3 rd Defendant from honouring Letters of Credit Nos. 201010078851-N and 201010079397-S. Interim orders were issued and subsequently extended on various occasions, including by consent of the parties.
63. The orders were thereafter discharged by this Court on 23 rd October 2024, prompting the Plaintiff to move the Court of Appeal. By consent, the Court of Appeal set aside the orders of 23 rd October 2024 and remitted the matter to this Court “for the parties to be heard on the question whether the said preservatory/status quo orders should remain in force or be set aside.” The Court of Appeal did not itself determine whether the injunctive relief should ultimately issue.
64. The question therefore before this Court is whether, on the material presently available, there is sufficient justification for maintaining the preservatory/status quo orders.
65. Although described as preservatory/status quo orders, their effect is injunctive, and the principles governing interlocutory injunctions are therefore applicable. In Giella v Cassman Brown & Co. Ltd [1973] EA 358 , the Court set out the requirements of establishing a prima facie case, demonstrating irreparable harm and, where necessary, determining the matter on a balance of convenience. These principles were reaffirmed in Nguruman Limited v Jan Bonde Nielsen & 2 Others [2014] eKLR as follows:
“...these are the three pillars on which rest the foundation of any order of injunction, interlocutory or permanent. It is established that all the above three conditions and stages are to be applied as separate, distinct and logical hurdles which the applicant is expected to surmount sequentially...”
66. The Plaintiff's case is founded on alleged fraud surrounding the transaction underlying the Letters of Credit. It contends that the 1 st and 2 nd Defendants were involved in a fraudulent scheme concerning the supply and subsequent rejection of the fabric and finished garments. The Plaintiff relies on SAJ Ceramics Limited v HMS Bergbau AG & I & M Bank Limited [2018] KEHC 10148 (KLR) on the recognised fraud exception to the autonomy principle governing Letters of Credit.
67. The 2 nd Defendant denies any involvement in fraud and maintains that its role was limited to supplying the fabric. These competing positions raise factual matters that are best determined at trial. At this interlocutory stage, however, I am satisfied that the Plaintiff has raised an arguable case concerning the circumstances surrounding the transaction and the alleged fraud. This is sufficient to warrant preservation of the subject matter pending trial, without amounting to a finding that fraud has been established.
68. As to irreparable harm, the Plaintiff contends that once the funds are released to the foreign 2 nd Defendant, recovery may be difficult and the suit may be rendered nugatory. While monetary loss is ordinarily compensable by damages, the potential difficulty of recovering funds already released in circumstances where fraud is alleged is a relevant consideration.
69. On the balance of convenience, preservation is preferable. If the orders remain in force and the Plaintiff ultimately fails, the Letters of Credit may still be honoured in accordance with their terms. Conversely, if payment is made and the Plaintiff ultimately succeeds, restoring the position may prove considerably more difficult.
70. I therefore find that the circumstances justify maintaining the preservatory/status quo orders. This determination is purely interlocutory and does not constitute a finding on the merits of the allegations of fraud.
71. On the issue of costs, Section 27(1) of the Civil Procedure Act vests the Court with discretion as to the award of costs, although the general rule is that costs follow the event. However, that principle is not inflexible.
72. In Jasbir Singh Rai & 3 Others v Tarlochan Singh Rai & 4 Others [2014] eKLR , the Supreme Court held that although there is eminent good sense in the principle that costs follow the event, it is “not an invariable rule” and that the ultimate consideration is the judicial discretion of the Court.
73. In the present case, the two applications produced different outcomes. The 2 nd
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