Background
1. The Plaintiff, China Railway No. 10 Engineering Group Company Limited, filed this suit on 12th November 2020 against the Defendants, Tilisi Developments Limited (1st Defendant) and Stanbic Bank Limited (2nd Defendant). The dispute stemmed from a construction and labor contract dated 26th June 2017 between the Plaintiff and the 1st Defendant. The disagreement involved the amount payable as final fees to the Plaintiff under the contract.
2. Contemporaneously with the Plaint, the Plaintiff also filed an application for interim injunctive reliefs to prevent the 1st Defendant from realizing a performance bond issued by the 2nd Defendant, claiming the amount was under dispute and should be determined through arbitration. The suit primarily served as an anchor for the Plaintiff's application for interim injunctive relief.
3. The Plaintiff alleged that the 1st Defendant unlawfully sought to recall the performance bond, which was intended to secure the contract, despite the existence of a contractual dispute. The Plaintiff argued that the matter fell under the arbitration clause in the contract and sought temporary orders to maintain the status quo pending the resolution of the dispute.
4. On 20th April 2021, the Plaintiff withdrew its application for injunctive reliefs, and the Court awarded costs of the application to the Defendants. Subsequently, the dispute was referred to arbitration before the International Chamber of Commerce (ICC) International Court of Arbitration, as provided under the contract.
5. Arbitration proceedings commenced on 20th May 2022 and culminated in a Final Award issued on 21st March 2023, in favor of the 1st Defendant. The award was recognized and adopted as a judgment of the High Court on 25th September 2023, in Miscellaneous Civil Application No. E042 of 2023.
6. Despite the conclusion of the arbitration proceedings, the Plaintiff did not withdraw the suit, prompting the 1st Defendant to file an application dated 12th February 2024, seeking to strike out the suit on the grounds that it had been overtaken by events.
7. In response, the Plaintiff, in its Replying Affidavit sworn by Liu Deyong on 24th September 2024, conceded that the suit should be struck out but requested that the Court make no order as to costs. The Plaintiff contended that the suit served its intended purpose by securing temporary relief and enabling arbitration and that no prejudice had been suffered by the Defendants.
8. On October 1, 2024, Justice Mabeya struck out the suit and directed all parties to file written submissions exclusively on the issue of costs. Subsequently, the Plaintiff filed their submissions dated November 8, 2024, while the 1st Defendant's submissions were dated November 6, 2024, and the 2nd Defendant's submissions were dated November 19, 2024.
Plaintiff’s Submissions
9. The Plaintiff submits that the award of costs is a discretionary matter under Section 27(1) of the Civil Procedure Act (Cap 21). While the general rule is that costs follow the event, the court has the authority to depart from this principle for good reason. The Plaintiff argues that, in the circumstances of this case, it is appropriate for the Court to order that each party bears their own costs.
10. The Plaintiff contends that the institution of this suit was necessary and done in good faith to prevent the 1st Defendant from unlawfully realizing a performance bond issued by the 2nd Defendant. The Plaintiff acted to safeguard its contractual interests while preparing for arbitration. The suit was filed to secure interim injunctive relief and was never intended to be prosecuted to full hearing once the arbitration process commenced.
11. On the issue of compliance with the dispute resolution mechanism, the Plaintiff emphasizes that it fully complied with the contractual dispute resolution mechanism by submitting the dispute to arbitration. The arbitration proceedings were duly concluded, and a Final Award was delivered on 21st March 2023, which was later recognized by this Honourable Court on 25th September 2023. This demonstrates the Plaintiff’s commitment to resolving the dispute through the agreed mechanisms, negating any claim of misconduct.
12. The Plaintiff submits that neither the 1st nor the 2nd Defendant suffered any prejudice as a result of the suit. The 1st Defendant did not file a defence to the substantive suit, and the 2nd Defendant had no direct stake in the dispute. The Plaintiff argues that the Defendants expended minimal resources in defending the matter, particularly because the suit never proceeded to the case management or hearing stage.
13. The Plaintiff asserted that the Defendants have already been compensated through prior cost awards. Specifically, when the Plaintiff withdrew its application for injunctive relief on 20th April 2021, the costs of that application were awarded to the Defendants. Additionally, the 1st Defendant was awarded costs through the arbitral proceedings. The Plaintiff submits that awarding further costs would amount to double compensation and would be unjust in the circumstances.
14. The Plaintiff relies on Article 159(2)(c) of the Constitution of Kenya, 2010, which encourages the use of alternative dispute resolution mechanisms and the promotion of reconciliation. The Plaintiff argues that since the parties have resolved their dispute through arbitration, awarding costs would only serve to strain relations and would contradict the constitutional mandate to foster amicable settlement of disputes.
15. The Plaintiff maintains that there was no misconduct or unreasonable delay on its part. The Plaintiff withdrew its interlocutory application in good faith and proceeded with arbitration as required by the contract. The Plaintiff further submits that it was the 1st Defendant who took no steps to conclude the matter after the arbitration, making it unjust to penalize the Plaintiff with costs.
16. The Plaintiff relies on judicial precedents, including DGM v EWG [2021] eKLR, where courts held that costs should not be used as a tool to punish parties but should serve to indemnify the successful party for legitimate expenses. The Plaintiff urges the Court to exercise its discretion judiciously and decline to award costs against it.
17. In conclusion, the Plaintiff prays that the suit be struck out with no order as to costs, arguing that this is the most just, equitable, and fair outcome in light of the unique circumstances of this case.
Defendants’ Submissions
18. The Defendants submit that the general rule under Section 27(1) of the Civil Procedure Act (Cap 21) is that costs follow the event unless the court, for good reason, orders otherwise. The Defendants argue that no sufficient reason has been presented by the Plaintiff to warrant a departure from this established principle. The Plaintiff's suit was struck out at the instance of the 1st Defendant, making the Defendants the successful parties entitled to costs.
19. The Defendants contend that the Plaintiff acted unreasonably by failing to withdraw the suit despite knowing that the matter had been referred to arbitration. The Plaintiff’s inaction prolonged the suit unnecessarily, causing the Defendants to incur legal expenses and expend time defending a case that had been overtaken by events. The Defendants emphasize that this conduct is inconsistent with the behavior of a diligent litigant and should not be excused.
20. The 1st Defendant submits that it took active steps to defend the suit by filing an application to stay proceedings and refer the matter to arbitration, filing affidavits in opposition to the Plaintiff's application for injunctive relief, attending court sessions, and eventually filing the application to strike out the suit. These actions involved considerable time and legal expenses, which the Plaintiff should rightfully compensate.
21. The Defendants argue that the Plaintiff had multiple opportunities to withdraw the suit but failed to do so, even after the arbitration proceedings commenced and concluded with an award in favor of the 1st Defendant. The Plaintiff only conceded to the striking out of the suit after the 1st Defendant initiated the application to strike it out. This pattern of behavior reflects negligence and indifference to the proper use of judicial resources.
22. The Defendants rely on the case of Jasbir Singh Rai & 3 others v Tarlochan Singh Rai & others [2014] eKLR, where the Supreme Court held that while costs are discretionary, the general rule that costs follow the event should not be departed from without justification. The Defendants argue that the Plaintiff has failed to demonstrate any good reason for the court to depart from this rule.
23. The Defendants further cited Farah Awad Gullet v CMC Motors Group Limited [2018] eKLR, where the Court of Appeal affirmed that successful parties should be awarded costs to indemnify them for expenses incurred in defending suits. The Defendants assert that they should be compensated for the legal costs and time expended in defending a claim that the Plaintiff allowed to linger unnecessarily.
24. The 1st Defendant submits that the Plaintiff’s argument that the Defendants suffered no prejudice is misplaced and asserts that Litigation is inherently costly, involving legal fees, time, and resources. That the Plaintiff's failure to withdraw the suit earlier forced the Defendants to continue participating in a matter that was no longer necessary, resulting in avoidable costs.
25. The Defendants argue that the Plaintiff’s reliance on Article 159(2)(c) of the Constitution to promote reconciliation does not override the statutory principle that costs follow the event. The Plaintiff’s conduct did not foster reconciliation but instead prolonged the dispute, necessitating further court involvement. Therefore, invoking reconciliation as a basis to avoid costs is unwarranted.
26. The Defendants contend that awarding no costs would unjustly enrich the Plaintiff by allowing it to evade responsibility for the legal expenses its actions caused. The Defendants have already borne the burden of defending the suit, and it would be inequitable to deprive them of costs without just cause.
27. The 2nd Defendant submits that it had no substantive role in the dispute between the Plaintiff and the 1st Defendant but was needlessly dragged into the proceedings. Despite clarifying its non-involvement, it was compelled to engage legal counsel and participate in proceedings, incurring unnecessary expenses that warrant compensation.
28. The Defendants rely on Joseph Gachagua & another v Alice C. Kalya & 4 others [2015] eKLR, where the court held that a successful party should not be deprived of costs unless their conduct contributed to the litigation. The Defendants assert that they did not contribute to the institution or prolongation of this suit and should therefore be awarded costs.
29. In conclusion, the Defendants pray that this Honourable Court upholds the principle that costs follow the event and awards them the full costs of the suit.
Analysis and Determination
30. Having carefully considered the submissions of the parties, the evidence on record, and the applicable law, the Court is now tasked with determining the issue of costs following the striking out of the Plaintiff’s suit.
24. Section 27(1) of the Civil Procedure Act provides the statutory basis for the award of costs:-
“Subject to such conditions and limitations as may be prescribed, and to the provisions of any law for the time being in force, the costs of and incidental to all suits shall be in the discretion of the court or judge, and the court or judge shall have full power to determine by whom and to what extent such costs are to be paid... Provided that the costs of any action, cause, or other matter or issue shall follow the event unless the court or judge shall for good reason otherwise order.”
25. The general principle is that the successful party is entitled to costs unless the court finds good reason to depart from this rule. The Supreme Court of Kenya, in Jasbir Singh Rai & Others v. Tarlochan Singh Rai & Others [2014] eKLR, stated:-
“The principle that ‘costs follow the event’ is not meant to punish the losing party but to indemnify the successful party for the expenses incurred in prosecuting or defending the suit. However, the court has discretion and may, for good reason, order otherwise.”
26. In the present case, the Plaintiff argues that the suit was filed in good faith and was necessary to prevent the unlawful realization of a performance bond. It contends that the suit served its purpose of securing interim relief and enabling arbitration, and thus no costs should be awarded against it.
27. While the Court accepts that the Plaintiff’s initial filing of the suit may have been justified, it notes that the Plaintiff failed to withdraw the matter after initiating arbitration proceedings.
28. The Court is guided by the decision in Morgan Air Cargo Limited v. Everest Enterprises Lmited [2014] eKLR, where it was held: -
“In exercising discretion, the court must balance the rights of both parties, taking into account their conduct and the outcome of the case. The discretion to deny costs must be exercised judiciously and not arbitrarily.”
29. In this case, the Plaintiff’s failure to act promptly and withdraw the suit, even after the arbitration concluded, reflects lack of diligence on their part. This conduct necessitated the 1st Defendant to apply for the suit to be struck out, thus leading to additional expenses for the 1st Defendant and the 2nd Defendant, who equally participated in the consequent proceedings.
30. However, as rightly submitted by the Plaintiff, the Court acknowledges that costs in respect of the prior proceedings had already been awarded to the Defendants following the withdrawal of the Plaintiff’s application for injunctive relief on 20th April 2021. The same applies to costs in respect of the arbitration proceedings, which had equally been awarded. Consequently, awarding full costs in respect of the suit would lead to the risk of possible double compensation, contrary to the principle of equity.
31. In Farah Awad Gullet v. CMC Motors Group Limited [2018] eKLR, the Court of Appeal emphasized:-
“Costs are meant to indemnify the successful party and not to punish the unsuccessful party. The award of costs should reflect fairness and proportionality in the circumstances of each case.”
32. Guided by the above facts and principles, the Court finds that the Defendants are entitled only to the Costs in respect of the Application dated 12th February 2023 by the 1st Defendant for striking out of the suit.
33. As pointed out above, it is the position of this court that costs in respect of the proceedings prior to the arbitration, and those of the Arbitration had been awarded in favour of the defendants. Awarding the same at this stage again would amount to double compensation to the Defendants and punishment to the Plaintiff, contrary to the spirit underlying Section 27 of the Civil Procedure Act and the existing judicial precedents.
34. In Morgan Air Cargo Limited v. Everest Enterprises Limited [2014] eKLR, the Court held:
“In determining costs, the court must balance the rights of the parties, the conduct of the parties, and the overall outcome of the case. The objective is to compensate the successful party while ensuring fairness in the circumstances of each case.”
35. Accordingly, the suit herein having been struck out on 1st October 2024 (by Mbeya J), pursuant to the Defendant’s Application dated 12th February 2024, the Order that I make now is that costs of the application dated 12.02.2024 be and is hereby awarded to the Defendants.
36. It is so ordered.
SIGNED DATED and DELIVERED IN VIRTUAL COURT
THIS 27TH DAY OF FEBRUARY 2025
ADO MOSES
JUDGE
In the presence of:
Moses – Court Assistant
..………. for the Plaintiff
………...for the 1st Defendant
………...for the 2nd Defendant