Background
1. This case arises from a contractual dispute between Longonot Place Limited (the Plaintiff) and Spire Bank Limited (the Defendant) regarding the enforcement of a performance guarantee. The Plaintiff had engaged Rupra Construction Company Limited on 7th December 2015 under a Joint Building Council Agreement (JBC Agreement) for renovation works on its property located at LR. No. 209/9523 Kijabe Street, Nairobi. As a condition of the contract, the contractor was required to procure a performance bond equivalent to 10% of the contract sum, which was issued by the Defendant on 5th January 2017, covering the period 1st January 2017 to 30th June 2017.
2. Following the contractor’s breach of the JBC Agreement, the Plaintiff terminated the contract and demanded payment under the performance bond guarantee on 20th March 2017. However, the contractor obtained a status quo order from the High Court in Nairobi HCC Misc. No. 155 of 2017 on 31st March 2017, restraining any payments under the bond. The parties later engaged in arbitration, leading to a ruling on 10th December 2020, confirming the Plaintiff’s lawful termination of the contract. The status quo order was lifted on 31st March 2022, yet the Defendant failed to honor the Plaintiff’s renewed demand for payment.
3. As a result, the Plaintiff filed this suit on 8th June 2022, seeking enforcement of the performance bond amounting to Kshs. 49,999,999.00, plus interest at 14 per cent, and costs.
4. The Defendant opposed the suit, arguing that the bond had expired on 30th June 2017 and was therefore unenforceable, further asserting that the status quo order prevented liability from attaching to it.
5. In response, the Plaintiff filed the present Application dated 29th July 2022, seeking to strike out the Defendant’s Statement of Defence on grounds that it consists of mere denials, raises no triable issues, and is intended to delay justice. The Plaintiff also argued that no memorandum of appearance was filed by the defendant, and therefore, the defence was irregularly filed.
6. The Defendant opposes the application vide its replying affidavit of 2nd September 2022, arguing that its Defence raises triable issues that should be determined at full trial.
7. The matter is now before this Honourable Court for determination on whether the Defendant’s Statement of Defence should be struck out or whether the case should proceed to full trial. The Application has been canvassed through written submissions, with the Plaintiff’s submissions dated 21st September 2022, while the Defendant’s submissions are dated 3rd November 2022.
Plaintiff’s/Applicant Submissions
8. The Plaintiff submits that the Defendant’s Statement of Defence should be struck out as it consists of mere denials and raises no triable issues. The Plaintiff argues that the Defence does not disclose a reasonable defence and is, therefore, an abuse of the court process. The Defendant’s failure to honor the unconditional performance guarantee despite a valid demand being made within the validity period renders the Defence untenable and unmeritorious.
9. The Plaintiff contends that the performance guarantee issued by the Defendant on 5th January 2017 was unconditional and obligated the Defendant to make payment upon first demand. The Plaintiff asserts that it validly demanded payment on 20th March 2017, well within the validity period of the guarantee, which was set to expire on 30th June 2017. However, the Defendant failed to honor its express obligation, necessitating the filing of this suit.
10. The Plaintiff submits that the Defendant’s primary argument, that the guarantee had expired by the time of enforcement, is misleading and unfounded. The Plaintiff argues that liability under the performance guarantee crystallized upon demand and could not be invalidated by the mere lapse of time. The Plaintiff relies on Kenindia Assurance Company Limited v First National Finance Bank Limited [2008] eKLR, where the Court held that a guarantor is bound to honor a demand made within the validity period, regardless of subsequent expiration.
11. The Plaintiff further contends that the Defendant’s reliance on the status quo order issued on 31st March 2017 is misplaced. According to the Plaintiff, the status quo order did not nullify the demand made on 20th March 2017 but merely suspended payment until further orders. Once the order was lifted on 31st March 2022, the Defendant’s obligation to pay was immediately reimposed. The Plaintiff submits that the Defendant cannot evade liability by citing the order as an excuse for non-payment.
12. The Plaintiff submits that the Defendant’s Statement of Defence is a sham as it does not raise any bona fide triable issues. The Defence consists of vague denials and misplaced arguments on expiration, which do not warrant a full trial. The Plaintiff relies on D.T. Dobie & Company (Kenya) Limited v Joseph Mbaria Muchina & Another [1980] eKLR, where the Court held that a Defence that is plainly hopeless and does not raise a genuine issue should be struck out to prevent unnecessary litigation.
13. The Plaintiff also submits that performance guarantees are independent and autonomous from the underlying contract. Any disputes between the Plaintiff and its contractor are irrelevant to the enforcement of the guarantee. The Plaintiff relies on Sinohydro Corporation Limited v GC Retail Limited & Another [2016] eKLR, where the Court held that a guarantor cannot rely on disputes in the underlying contract to evade payment under an unconditional performance bond.
14. The Plaintiff further submits that allowing the Defence to stand would prejudice the Plaintiff by delaying the enforcement of its rightful claim. The Defendant is using the Defence as a delaying tactic to frustrate the Plaintiff’s pursuit of payment. The Plaintiff relies on Globe Developers Limited v Mayfair Insurance Company Limited [2020] eKLR, where the Court held that a Defence intended to delay the inevitable enforcement of a valid bond should be struck out summarily.
15. The Plaintiff maintains that striking out the Defence is the only just and appropriate remedy in the circumstances. The Court has an obligation to ensure that its processes are not misused to frustrate legitimate claims. The Plaintiff urges the Court to strike out the Statement of Defence and enter Judgment in its favor as sought in the Plaint.
16. Further the Plaintiff submitted that the allegation by the Defendant/Respondent that the interim status quo order issued on 31.03.2017 rendered the guarantee unenforceable is not one of the issues raised in the Statement of Defence and cannot therefore be validly raised in the affidavit in response to the instant application.
17. The Plaintiff asserted that parties are bound by their pleadings and cited the Court of Appeal decision in the case of Independent Electoral and Boundaries Commission & another v Stephen Mutinda Mule & 3 others [2014] eKLR in support of the argument. The Plaintiff further submitted that in any event, the said status quo order, properly construed, only suspended payment but did not excuse the defendant bank from its obligation under the Bond.
18. It was further the Plaintiff’s submissions that the defendant failed to enter appearance in the suit as required under Order 6 Rule 2 of the Civil Procedure Rules. The Plaintiff asserted that the defendant’s filing of a Notice of Appointment in lieu of a Memorandum of Appearance cannot be deemed as proper appearance in the suit. Consequently, the Plaintiff prays in the alternative that the judgment be entered in default of appearance under Order 10, rule 4 of the Civil Procedure Rules.
19. Citing the Court of Appeal decision in the case of Nicholas Kiproo Arap Korir Salat v Independent Electoral and Boundaries Commission & 6 others, the Plaintiff asserted that the oxygen principles and those set under Article 159 of the Constitution, cannot be used to aid parties who have negligently disregarded the express provisions of the law, as the defendant herein.
20. In conclusion, the Plaintiff prays that this Court finds that the Defendant’s Statement of Defence raises no triable issues and should be struck out with costs to the Plaintiff; or in the alternative judgment in default of appearance be entered in its favour.
Defendant’s/Respondent Submissions
21. In response to the Plaintiff’s submissions that the did not validly enter an appearance in the suit, the defendant submitted that under Order 6, rule 3 (1), the purpose of entering appearance in a suit is to provide an address of service for the purposes of the suit. According to the defendant, the Notice of Appointment and the Defence which it filed in the suit provided the requisite details.
22. The defendant asserted that it properly entered appearance in the suit and, therefore, the Plaintiff’s claim for default judgment is misplaced. The Defendant contends that its Notice of Appointment of Advocates dated 5th July 2022 effectively communicated its participation in the proceedings and its address for service. The Defendant argues that, under Order 6 Rule 2(4) of the Civil Procedure Rules, a Defence containing the requisite information for service can be deemed as an appearance. The Defendant relies on Paragon Electronic Limited v Bamburi Special Products Ltd [2020] eKLR, where the Court held that a Notice of Appointment sufficiently serves the purpose of entering appearance and should not be disregarded on technical grounds.
23. Further, the defendant urged this Court to be guided by the need to do substantive justice as provided under Article 159(2) of the Constitution and dismiss the Plaintiff’s prayer for judgment in default of appearance.
24. Regarding the Plaintiff’s submissions that the defence was a mere denial, the defendant submitted that its Statement of Defence raises bona fide triable issues and should not be struck out. The Defendant argues that the striking out of a Defence is a drastic measure that should only be exercised in the clearest of cases where no reasonable Defence exists. The Defendant contends that it has set out substantive legal and factual issues that warrant a full trial and, therefore, the Plaintiff’s application should be dismissed.
25. The Defendant submits that the performance guarantee in question expired on 30th June 2017, and as such, any demand made thereafter is unenforceable. The Defendant argues that the Plaintiff’s claim is based on a guarantee that has long lapsed, and there is no legal basis for enforcing an expired instrument. The Defendant relies on Lagoon Development Limited v Beijing Industrial Designing & Research Institute [2015] eKLR, where the Court held that a performance bond must be enforced strictly in accordance with its terms and that any demand made outside the validity period is not binding on the guarantor.
26. The Defendant further submits that the Plaintiff’s reliance on a demand dated 20th March 2017 does not validate its claim, as the status quo order issued on 31st March 2017 effectively froze any action regarding the performance bond. The Defendant argues that by the time the order was lifted in 2022, the bond had long expired, and there was no obligation on its part to honor the claim. The Defendant contends that allowing the suit to proceed would be tantamount to rewriting the terms of the performance bond, contrary to the principle that courts should not interfere with contractual agreements.
27. The Defendant submits that it was not a party to the contract between the Plaintiff and its contractor and, therefore, cannot be held liable for disputes arising from that contract. The Defendant argues that its obligation was strictly limited to the terms of the performance guarantee, which had a defined validity period that expired in June 2017. The Defendant relies on National Bank of Kenya Ltd v Pipe Plastic Samkolit (K) Ltd [2002] eKLR, where the Court held that a contract is binding as per its terms and courts should not impose obligations beyond what was agreed by the parties.
28. The Defendant asserts that the status quo order did not extend the validity of the performance guarantee. The Defendant submits that the Plaintiff’s argument that the status quo order preserved its claim is legally untenable, as the Court did not make any express pronouncement extending the validity of the bond. The Defendant argues that the Court cannot, through subsequent litigation, retroactively extend the validity of an expired contract. The Defendant relies on Republic v Commissioner of Customs Services Ex parte Imperial Bank Limited [2015] eKLR, where the Court emphasized that guarantees have strict validity periods and do not survive beyond their expiration unless expressly renewed.
29. The Defendant further submits that its Statement of Defence raises substantive triable issues, including whether the Plaintiff’s claim was made within the validity period of the bond and whether the status quo order affected the enforceability of the guarantee. The Defendant asserts that a matter should only be struck out where it is plainly hopeless and does not disclose any reasonable cause of action or Defence. The Defendant relies on Olympic Escort International Co. Ltd & 2 Others v Parminder Singh Sandhu & Another [2009] eKLR, where the Court of Appeal held that a Defence should not be struck out if it raises even a single triable issue that requires judicial examination.
30. The Defendant submits that striking out its Defence would unjustly prejudice it, as it would be denied the opportunity to present its case fully. The Defendant asserts that it has a legitimate right to challenge the Plaintiff’s claim, particularly on the grounds that the guarantee had expired and that the demand was made years after its validity period. The Defendant relies on Mercy Karimi Njeri & Another v Kisima Real Estate Limited [2015] eKLR, where the Court held that the right to be heard is a fundamental principle of justice and should not be denied unless a Defence is entirely frivolous and vexatious.
31. The Defendant maintains that allowing this suit to proceed to trial is the only fair and just course of action. The Defendant argues that there are significant legal and factual issues that require full adjudication, including the impact of the status quo order on the guarantee, the validity of the Plaintiff’s demand, and whether the Defendant was still obligated to honor the guarantee after its expiration.
32. In conclusion, the Defendant prays that this Court finds Plaintiff’s application dated 29th July 2022 to be of no merit and dismiss the same with costs and allow the matter to proceed to full hearing.
Analysis and Determination
33. I have carefully analyzed and considered the Plaintiff’s application dated 29th July 2022, the Defendant’s Replying Affidavit, the parties’ submissions, and the authorities cited. The key issues for determination are whether the plaintiff’s application for default judgment is merited; and whether the Defendant’s Statement of Defence should be struck out for failing to disclose a reasonable defence and for being a mere denial of liability.
34. On the question of whether the defendant validly entered an appearance, the plaintiff submitted that no memorandum of appearance was filed by the defendant as required under Order 6 Rule 2 of the Civil Procedure Rules. While admitting that no memorandum of appearance was indeed filed, the defendant on its part was of the view that the details in the Notice of Appointment, together with that in its Statement of Defence dated 18th July 2022 satisfied the requirement of Order 6, rule 2(4) of the Civil Procedure Rules.
35. Order 6 of the Civil Procedure Rules provides as follows; -
“Order 6 – Appearance of Parties
1. Time for appearance (Order 6, rule 1)
Where a defendant has been served with summons to appear, he shall unless some order be made by the court, file his appearance within the time prescribed in the summons.
2. Mode of appearance (Order 6, rule 2)
1. Appearance shall be effected by delivering or sending by post to the proper officer a memorandum of appearance in triplicate in Form No. 12 Appendix A with such variation as the circumstances require, signed by the advocate by whom the defendant appears or, if the defendant appears in person, by the defendant or his recognised agent.
2. On receipt of the memorandum of appearance as required under subrule (1) the proper officer shall stamp and file the original and stamp the copies thereof with the court stamp showing the date on which they were received and—
(a). if they were delivered to the proper officer, he shall return the stamped copies to the person appearing, or
(b) if they were sent by post, he shall send one copy by post to the plaintiff’s address for service and one copy by post to the defendant’s address for service.
3. Where the defendant appears by delivering the memorandum of appearance as required under subrule (1) he shall within seven days from the date on which he appears serve a copy of the memorandum of appearance upon the plaintiff and file an affidavit of service.
4. Where a defence contains the information required by rule 3 it shall where necessary be treated as an appearance." [Emphasis added].
36. From the above provisions of the law, it is clear that while Order 6 Rule 2(1) prescribes that a memorandum of appearance should be filed in the manner prescribed (Form 12A Appendix A), the law provides for modification/variation as circumstances may require. In fact, Order 6, rule 2(4) provides that “where a defence contains the information required by rule 3, it shall where necessary be treated as an appearance.
37. In the present case, a Notice of Appointment of Advocates dated 5th July 2022 was filed on behalf of the defendant. Further, the defendant also filed its Statement of defence dated 18th July 2022. I have perused both the Notice of Appointment and the Statement of Defence and note that the details provided in the two documents contain the information required under Order 6, rule 3 of the Civil Procedure Rules, that is, “the addresses for service being the place of business within Kenya and postal address.”
38. Considering the above legal provisions and taking into account the need to do substantive justice as mandated under Article 159(2) of the Constitution, I decline the Plaintiff’s invitation to enter judgment in its favour on account of default of appearance by the defendant. I am guided by the decision on the case of Paragon Electronic Limited v Bamburi Special Products Ltd [2020] eKLR, where the Court held that a Notice of Appointment sufficiently serves the purpose of entering appearance and should not be disregarded on technical grounds. In particular, the Court in that case led as follows; -
“15. In any case under Order 6 rule 2 of the Civil Procure Rules, it is expressly stated that where a defence contains the information required by rule 3, it shall where necessary be treated as a memorandum of appearance.”
39. On the question of whether the defence should be struck out for disclosing no triable issue, the power to strike out pleadings is governed by Order 2 Rule 15(1) of the Civil Procedure Rules, which provides that:
“At any stage of the proceedings, the court may order to be struck out or amended any pleading on the ground that—
a) It discloses no reasonable cause of action or defence in law; or
b) It is scandalous, frivolous or vexatious; or
c) It may prejudice, embarrass or delay the fair trial of the action; or
d) It is otherwise an abuse of the process of the court, and may order the suit to be stayed or dismissed or judgment to be entered accordingly, as the case may be.”
40. The principles guiding the striking out of pleadings were well articulated in D.T. Dobie & Company (K) Ltd v Muchina [1982] KLR 1, where the Court of Appeal held:
“No suit ought to be summarily dismissed unless it appears so hopeless that it plainly and obviously discloses no reasonable cause of action and is so weak as to be beyond redemption and incurable by amendment.”
41. Similarly, in Blue Shield Insurance Company Ltd v Joseph Mboya Oguttu [2009] eKLR, the Court of Appeal emphasized that striking out a defence should only be done in clear and obvious cases, stating:
“The power to strike out pleadings should be exercised after the Court has considered all facts, but it must not embark on the merits of the case itself as this is solely reserved for the trial Judge.”
42. The rationale behind this cautious approach is that striking out a defence without a full trial amounts to denying a party the right to be heard, which is a fundamental principle of justice.
43. The Court in Madison Insurance Company Limited v Augustine Kamanda Gitau [2020] eKLR reaffirmed this principle by stating:
“If a suit shows a mere semblance of a cause of action, provided it can be injected with real life by amendment, it ought to be allowed to go forward for a court of justice ought not to act in darkness without the full facts of a case before it.”
44. The courts have therefore consistently held that striking out pleadings is a drastic and draconian measure that should be applied sparingly.
45. The Plaintiff argues that the Defendant’s Statement of Defence consists of mere denials and does not raise any triable issue. The Plaintiff also contends that the Defendant failed to properly enter appearance in the suit and, therefore, judgment should be entered in default.
46. The Defendant, on the other hand, asserts that it validly entered appearance and that its Defence raises serious issues for trial, particularly on whether the performance bond had expired before the Plaintiff’s demand and whether the status quo order affected its obligations.
47. The defendant raises the issue that the performance bond in question expired on 30th June 2017, and therefore, no valid claim can be made against it, and relies on among others the case of the Court of Appeal decision in the case of Kenindia Assurance Co Ltd v First National Finance Bank Ltd [2008] eKLR.
48. The defendant maintained that the question of whether the Defendant was obligated to honor the performance bond beyond its stated expiry date is not one that can be determined summarily. It is a substantial legal issue that requires full hearing and analysis.
49. The Defendant further submitted that one of the issues that needs determination at full trial is whether the status quo order that was issued in this case affected their liability despite the fact that they were not parties to the primary suit and was unaware of its implications at the time.
50. The Court of Appeal in Olympic Escort International Co. Ltd & 2 Others v Parminder Singh Sandhu & Another [2009] eKLR stated:
“A triable issue is not necessarily one that will succeed, but one that is bona fide and calls for adjudication.”
51. Further, in Mercy Karimi Njeri & Another v Kisima Real Estate Limited [2015] eKLR, the Court held:
“Where a defence raises even a single triable issue, the matter must be allowed to proceed to full hearing.”
52. In this case, having perused the parties' pleadings, both in this application and the respective primary pleadings, I am of the view that the defendant’s defence raises the following triable issues:
i. Whether the performance bond had expired and whether the Plaintiff’s demand was made outside the validity period.
ii. Whether the Defendant was bound by the status quo order issued in Nairobi High Court Miscellaneous Suit Number 155 of 2017.
iii. Whether the terms of the performance bond permitted enforcement beyond its stated expiry date.
53. These, in my view, are matters to be determined only at full trial, and striking out the Defence at this stage would amount to a miscarriage of justice. It suffices to add that a triable issue is not one which must succeed, but one which deserved further interrogation at full trial.
Deposition
54. Consequently, I make the following orders:
i. The Plaintiff’s application dated 29th July 2022 seeking to strike out the Defendant’s Statement of Defence/entry of judgment in default of appearance is hereby dismissed.
ii. The matter shall proceed to full hearing on its merits.
iii. Costs of this application shall be borne by the Plaintiff.
55. It is so Ordered.
SIGNED, DATED, and DELIVERED IN VIRTUAL COURT
THIS 20TH DAY OF MARCH 2025
ADO MOSES
JUDGE
In the presence of:
Moses – Court Assistant