NDOVU ESTATES LTD VS APA INSURANCE LTD AND ANOTHER

1. This ruling is in respect to two applications. The first application is the 1st defendant’s Notice of Motion dated 25th March, 2023 filed pursuant to the provisions of Order 42 Rule 6 and Order 51 Rule 1 of the Civil Procedure Rules, 2010, Sections 1A, 1B & 3A of the Civil Procedure Act, Cap 21 of the Laws of Kenya and all other enabling provisions of the law.  The 1st defendant seeks the following orders –
i) Spent;
ii) Spent;
iii) That there be a stay of execution of the aforesaid judgment pending the hearing and determination of the intended appeal; and
iv) That the costs of this application be provided for.
2. The 1st defendant’s application is premised on the grounds on the face of the Motion and is supported by affidavits sworn on 25th March, 2023 and 8th June, 2023, respectively, by Vinod Bharatan, the Chief Executive Officer of the 1st defendant and John Kigochi, the 1st defendant’s Chief Finance Officer.
3. In opposition thereto, the plaintiff filed a replying affidavit and a further affidavit sworn by Rajesh Vyas one of the plaintiff’s directors and Anne Halwenge Odwa, learned Counsel for the plaintiff on 19th April, 2023 and 28th April, 2023, respectively.
4. The 2nd application is the 2nd defendant’s Notice of Motion dated 27th March, 2023 brought under to the provisions of Order 42 Rule 6 & Order 51 Rule 1 of the Civil Procedure Rules, 2010 and Sections 1A, 1B, 1C & 3A of the Civil Procedure Act, Cap 21 Laws of Kenya.  The 2nd defendant seeks the following orders –
i) Spent;
ii) Spent;
iii) Pending the hearing and determination of the intended appeal to the Court of Appeal, this Honourable Court be pleased to grant a stay of execution of the judgment and decree of this Court delivered on 3rd March, 2023 and all consequential proceedings; and
iv) Costs of this application be provided for.
5. The application is premised on the grounds on the face of the Motion and is supported by affidavits sworn by Chris Masita, the 2nd defendant’s Legal Officer and Gabriel Mahugu the 2nd defendant’s Chief Accountant on 27th March, 2023 and 7th March, 2023 and 2nd May, 2023, respectively.
6. In opposition thereto, the plaintiff filed a replying affidavit and a further affidavit sworn by Rajesh Vyas one of the plaintiff’s directors and Anne Halwenge Odwa, learned Counsel for the plaintiff on 19th April, 2023 and 28th April, 2023, respectively.
7. Directions were given that both applications would be canvassed by way of written submissions. The 1st defendant’s submissions in support of the application dated 25th March, 2023 were filed on 12th June, 2023 by the law firm of Archer and Wilcock Advocates, whereas the plaintiff’s submissions in opposition to the application dated 25th March, 2023 were filed by the law firm of Nyairo & Company Advocates on 25th April, 2023. The 2nd defendant’s submissions in support of the application dated 27th March, 2023 were filed by the law firm of Hamilton, Harrison & Mathews Advocates on 8th May, 2023, whereas the plaintiff’s submissions in opposition to the application dated 27th March, 2023 were filed by the law firm of Nyairo & Company Advocates on 25th April, 2023.
Submissions with respect to the application dated 25th March, 2023.
8. Ms. Janmohamed (SC), learned Counsel for the 1st defendant cited the provisions of Order 42 Rule 6(2) of the Civil Procedure Rules, 2010 which provides for the conditions that must be satisfied for a party to be granted an order for stay of execution and submitted that the 1st defendant has demonstrated the substantial loss it stands to suffer in the event that an order for stay of execution is not granted.  She stated that the plaintiff has net assets of negative Kshs.531,757,001.00, which translates to the fact that the plaintiff has higher liabilities than assets. For this reason, Counsel stated that the plaintiff will not be in a position to refund any monies paid to it in the event the intended appeal succeeds.  She relied on the case of Felix Mochiemo Oindi v Gutonya Newton Mbogo [2018] eKLR to support her submissions. 
9. Senior Counsel stated that the instant application has been filed without any unreasonable delay as the judgment in the case that forms the subject of the appeal at the Court of Appeal was delivered on 3rd March, 2023 and that on 8th March, 2023, the Trial Court granted the 1st defendant a twenty-one days’ order for stay of execution.  It was stated by Ms. Janmohamed (SC) that the 1st defendant filed a Notice of Appeal against the said judgment on 14th March, 2023, whereas the instant application was filed on 25th March, 2023, which means that it was filed before the initial order for stay of execution elapsed.  She referred to the case of Nduhiu Gitahi v Warugongo [1988] KLR 621 and submitted that the 1st defendant is ready and willing to provide a bank guarantee from a tier 1 bank as security for such amount as the Court shall order.
10. Mr. Nyairo, learned Counsel for the plaintiff also cited the provisions of Order 42 Rule 6(2) of the Civil Procedure Rules, 2010 and contended that the 1st defendant has not met any of the conditions outlined in the said provisions.  He submitted that there has been delay in filing the application herein and the application should fail on this ground alone.  Counsel contended that the 1st defendant has not sufficiently demonstrated any loss that it will suffer if the application herein is disallowed.  He cited the Court of Appeal decision in Kenya Shell Limited v Benjamin Karuga Kibiru & another [1986] eKLR and stated that it is not enough for an applicant to allege substantial loss, as the same must be proved.
11. Mr. Nyairo indicated that the amount involved is shown on the decree and is capable of being refunded in the unlikely event that the 1st defendant’s appeal succeeds.  He contended that the 1st defendant has not demonstrated any likelihood of the appeal being rendered nugatory should this Court decline to grant the orders sought by the 1st defendant herein.  He stated that the plaintiff is financially sound and it has demonstrated that it is capable of refunding any amount paid by the 1st defendant in the unlikely event that the appeal succeeds, and as such, there is no justification for keeping the plaintiff out of enjoying the fruits of its judgment.
12. He submitted that the issue of security for the due performance of the decree is solely at the Court’s discretion to determine and not to be dictated by the party seeking orders for stay of execution. Counsel referred to the case of Joel Mutuma Kirimi & another v the Standard Digital & another [2020] eKLR and stated that the alleged bank guarantee referred to by the 1st defendant has not been attached to the 1st defendant’s supporting affidavit for the plaintiff and the Court to scrutinize its terms, the parties involved and gauge the financial soundness of the bank offering the said guarantee.
Submissions with respect to the application dated 25th March, 2023
13. Mr. Muihuri, learned Counsel for the 2nd defendant referred to the provisions of Order 42 Rule 6(2) of the Civil Procedure Rules, 2010 which provides for the conditions to be met for a party to be granted an order for stay of execution and the case of Tononoka Rolling Mills Limited v James Kilonzo Peter [2019] eKLR.  He submitted that the plaintiff has not discharged the evidential burden of proving that it is capable of refunding the decretal sum in the event the appeal is successful.  He stated that the 2nd defendant is apprehensive that should the judgment sum be paid to the plaintiff and the appeal succeeds, the 2nd defendant will be unable to recover the same.
14. He submitted that the application dated 27th March, 2023 has been filed without any unreasonable delay as the judgment was delivered on 3rd March, 2023 against the defendants, following which the 2nd defendant made an informal application for stay of execution which was granted for twenty-one days.  He stated that thereafter, the 1st defendant filed the application herein on 27th March, 2023. Mr. Muihuri relied on the case of Focin Motorcycle Co. Limited v Ann Wambui Wangui & another [2018] eKLR and stated that the 2nd defendant is ready to offer security for the due performance of the decree by depositing Kshs. 23,409,008 in a joint interest earning account with the plaintiff’s Advocate, and as a result, the plaintiff will be protected once the 2nd defendant provides security.
15. In responding to the application by the 2nd defendant, Mr. Nyairo learned Counsel for the plaintiff contended that the 2nd defendant has not met any of the conditions outlined under the provisions of Order 42 Rule 6(2) of the Civil Procedure Rules, 2010.  He submitted that there has been delay in filing the application herein thus it ought to fail on this ground alone.  Counsel also contended that the 2nd defendant has not sufficiently demonstrated any loss that it will suffer if the application herein is disallowed. He cited the Court of Appeal case of Kenya Shell Limited v Benjamin Karuga Kibiru & another (supra) and asserted that it is not enough for an applicant to allege substantial loss, as the applicant must go a step further to prove it.
16. Mr. Nyairo stated that the 1st defendant has not demonstrated any likelihood of the appeal being rendered nugatory should this Court decline to grant the orders sought, given that the decree in issue is a money decree which is quantifiable and capable of being refunded should the appeal to the Court of Appeal succeed. He further stated that the plaintiff is financially sound and it has demonstrated that it is capable of refunding any amount paid by the 2nd defendant in the unlikely event the appeal succeeds.  He posited that there is no basis for keeping the plaintiff out of enjoying the fruits of its judgment.  In regard to the issue of security for the due performance of the decree, Counsel contended that the 2nd defendant has not offered any security as it is unclear on whether the 50% of the decretal amount and the premium is to be paid to the plaintiff.
ANALYSIS AND DETERMINATION.
17. I have considered the two applications filed by the defendants, the grounds upon which they are anchored and the affidavits filed in support thereof.  I have also considered the replying and further affidavits by the plaintiffs as well as the written submissions by Counsel for the parties.  The issue that arises for determination is whether the defendants have met the conditions to warrant being granted an order for stay of execution pending appeal.
Application dated 25th March, 2023
18. In the supporting affidavit by the 1st defendant, it deposed that on 14th February, 2023 and 3rd March, 2023 this Court delivered a judgment against the defendants herein jointly and severally for Kshs. 50,000,000/= in general damages. That being aggrieved by the said judgment, it lodged a Notice of Appeal on 28th February, 2023 and 14th March, 2023 against it.
19. The 1st defendant averred that on the said 28th February, 2023 and 14th March, 2023, its Advocates on record also applied for copies of typed proceedings and the judgment delivered by the Court to facilitate in preparation of a Record of Appeal, but they have not received certified copies of the said proceedings and judgment as at the time of filing the present application.
20. The 1st defendant further averred that it has reasonable and justifiable apprehension that it will be unable to recover the decretal sum from the plaintiff in the event an order for stay of execution is not granted and the 1st defendant’s appeal is successful as the plaintiff’s assets and/or income are unknown. The 1st defendant indicated that it is ready and willing to provide a bank guarantee as security for stay of execution during the pendency of the intended appeal.
21. The plaintiff in its replying affidavit sworn by Rajesh Vyas deposed that the plaintiff is financially sound and capable of refunding any amount paid by the 1st defendant in the unlikely event the appeal succeeds as can be seen from the plaintiff’s report and financial statement annexed to his affidavit and the further affidavit sworn by Anne Halwenge Odwa on 28th April, 2023.
22. He averred that it stands to be prejudiced if the orders sought are granted in view of the fact that it took a loan facility on the strength of the representation made by the 1st defendant that it would pay the premiums for an insurance cover which was meant to protect it from loss as a result of crop failure, but due to the 1st defendant’s negligent action and breach of contract, it has borne the brunt of having to not only service a loan whose purposes it has yet to reap benefits from, but it has also been denied payment of Kshs.120,291,170.20 as compensation for the insurance cover it took.
23. The 1st defendant in its supplementary affidavit deposed that from the plaintiff’s report and financial statements for the year ended 31st December, 2021 annexed to the plaintiff’s replying and further affidavits, it is confirmed that the plaintiff is technically insolvent with a high gearing/debt ratio.
24. The 1st defendant averred that it is clear from the plaintiff’s financial statements that the working capital, that is current assets less current liabilities of the plaintiff is minus Kshs.36,454,902.00, which means that the current assets are not able to cover the current liabilities as and when they fall due.  It was deposed that the plaintiff has a net asset of minus Kshs.531,757,000/= which means that its liabilities are higher than the assets.
25. The 1st defendant contended that as a result of the above, the plaintiff is dependent on overdraft facilities to meet its working capital requirements, with cash and cash equivalents at minus Kshs.24,332,442.00.  It was stated by the 1st defendant that the plaintiff’s assets are subject to an All-Asset Debenture perfected in favour of Bank of Baroda (K) Ltd together with existing legal charges perfected over several immovable properties.  The 1st defendant added that the plaintiff’s motor vehicles are co-owned by the same bank.
26. The 1st defendant stated that it is clear from paragraph 14 of the plaintiff’s replying affidavit that the decretal sum once released to the plaintiff shall be utilized to offset a loan obligation to the detriment of the 1st defendant.
Application dated 27th March, 2023
27. In the supporting affidavit filed by the 2nd defendant it deposed that on 14th February, 2023 and 3rd March, 2023 this Court delivered judgment against the defendants herein jointly and severally for Kshs.50,000,000/=. That the 2nd defendant was also ordered to refund the premiums paid to the plaintiff. It averred that being dissatisfied with the said judgment, it filed a Notice of Appeal and requested for certified copies of typed proceedings.
28. It was stated by the 2nd defendant that it believes that the plaintiff will be unable to refund the decretal amount should the appeal in the Court of Appeal succeed. It further stated that it is willing to provide security of 50% of the decretal amount and the premium amount as a condition for grant of an order for stay of execution pending appeal and abide by whatever terms the Court deems fit to impose as security for the due performance of the decree.
29. The plaintiff in its replying affidavit sworn by Rajesh Vyas deposed that the plaintiff is financially sound and capable of refunding any amount paid by the 2nd defendant as can be seen from the plaintiff’s report and financial statement annexed to his affidavit and the further affidavit sworn by Anne Halwenge Odwa on 28th April, 2023, in the unlikely event that the appeal succeeds.
30. The plaintiff averred that it stands to be prejudiced if the orders sought are granted in view of the fact that it took a loan facility on the strength of the representation made by the 2nd defendant to pay the premiums for an insurance cover which was meant to protect it from loss as a result of crop failure, but due to the 2nd defendant’s negligent action and breach of contract, it has borne the brunt of having to not only service a loan whose purposes it has yet to reap benefits from, but it has also been denied payment of Kshs.120,291,170.20 as compensation for the insurance cover it took and whose premiums the 2nd defendant has held and reaped maximum monetary benefits since the year 2011.
31. The 2nd defendant in its supplementary affidavit deposed that from the plaintiff’s audited accounts for the year that ended 31st December, 2021, the plaintiff is not financially sound for the reason that its financial statements showed that the company had accumulated losses of Kshs.531,857,001.00 as a result of operating losses over the past years hence the going concern status of the company is based only on continued support from bankers and shareholders.
32. The 2nd defendant averred that the plaintiff has very large loan facilities of Kshs.339,550,000/= from Bank of Baroda, and that at the close of the books in 2021, the plaintiff had an overdraft of Kshs.24,300,000/= casting doubts as to the liquidity of the company.  The 2nd defendant added that the plaintiff has a negative net asset position as the payables exceed the receivables.
Whether the defendants have met the conditions to warrant grant of an order for stay of execution pending appeal
33. The principles that govern the grant of an order for stay of execution pending appeal are provided for under Order 42 Rule 6(2) of the Civil Procedure Rules, 2010 which state as follows -
“No order for stay of execution shall be made under sub rule (1) unless -
a) the court is satisfied that substantial loss may result to the applicant unless the order is made and that the application has been made without unreasonable delay; and
b) such security as the court orders for the due performance of such decree or order as may ultimately be binding on him has been given by the applicant.”

34. In determining an application for stay of execution pending appeal, Courts are under a duty to balance the competing interests of the parties taking into account the fact that an appellant has an undoubted right of appeal, whereas the respondent has a decree which he should not be obstructed from executing unless there is a good reason. In the case of Vishram Ravji Halai v Thornton & Turpin [1990] KLR 365, the Court of Appeal held that whereas the Court of Appeal’s power to grant an order for stay pending appeal is unfettered, the High Court’s jurisdiction to do so under Order 42 Rule 6 of the Civil Procedure Rules, 2010 is fettered by three conditions namely –
i) establishment of a sufficient cause;
ii) satisfaction of substantial loss; and
iii) the furnishing of security.
35. On 14th February, 2023 and 3rd March, 2023, the High Court entered judgment for the plaintiff against the defendants jointly and severally, for Kshs.50,000,000/= in general damages and the 2nd defendant was also ordered to refund the premiums paid to the plaintiff.  The decree in issue is a money decree, which means that this Court will not readily grant an order for stay of execution pending appeal unless it has been demonstrated by the applicants that the decree-holder is not financially sound hence it is incapable of refunding the decretal sum to the judgment debtor in the event the appeal is successful.
36. On whether the defendants shall suffer substantial loss in the event an order for stay of execution pending appeal is not granted, in the case of Kenya Shell Limited v Kibiru [1986] KLR 410, it was held as follows -
“It is usually a good rule to see if Order XLI Rule 4 of the Civil Procedure Rules can be substantiated. If there is no evidence of substantial loss to the applicant, it would be a rare case when an appeal would be rendered nugatory by some other event. Substantial loss in its various forms, is the corner stone of both jurisdictions for granting a stay. That is what has to be prevented. Therefore, without this evidence it is difficult to see why the respondents should be kept out of their money”. (emphasis added).
37. The defendants submitted that from the plaintiff’s report and financial statements for the year ended 31st December, 2021 annexed to the plaintiff’s replying and further affidavits, it is confirmed that the plaintiff is technically insolvent with a high gearing/debt ratio, thus if the decretal amount is paid out to the plaintiff, it will not be in a position to refund the said monies to the defendants if their appeals are successful, thus rendering the said appeals nugatory, and in turn cause the defendants substantial loss. The plaintiff on the other hand averred that it is financially sound and capable of refunding any amount paid by the defendants in the unlikely event that their appeals succeed, as can be seen from its report and financial statements.
38. In the case of Michael Ntouthi Mitheu v Abraham Kivondo Musau [2021] eKLR, the Court when allowing an application similar to the one before this Court  made the following observation –
“Where the allegation is that the respondent will not be able to refund the decretal sum the burden is upon the applicant to prove that the Respondent will not be able to refund to the applicant any sums paid in satisfaction of the decree. See Caneland Ltd. & 2 Others vs. Delphis Bank Ltd. Civil Application No. Nai. 344 of 1999.
The law, however appreciates that it may not be possible for the applicant to know the respondent’s financial means. The law is therefore that all an applicant can reasonably be expected to do, is to swear, upon reasonable grounds, that the Respondent will not be in a position to refund the decretal sum if it is paid over to him and the pending appeal was to succeed but is not expected to go into the bank accounts, if any, operated by the Respondent to see if there is any money there. The property a man has is a matter so peculiarly within his knowledge that an applicant may not reasonably be expected to know them. In those circumstances, the legal burden still remains on the applicant, but the evidential burden would then, in those circumstances, where the applicant has reasonable grounds which grounds must be disclosed in the application that the Respondent will not be in a position to refund the decretal sum if the appeal succeeds, have shifted to the Respondent to show that he would be in a position to refund the decretal sum. See Kenya Posts & Telecommunications Corporation vs. Paul Gachanga Ndarua Civil Application No. Nai. 367 of 2001; ABN Amro Bank, N.K. vs. Le Monde Foods Limited Civil Application No. 15 of 2002.”
39. In this case, the defendants in their supporting affidavits averred that they are apprehensive that the plaintiff will be unable to refund the decretal amount should their appeals in the Court of Appeal succeed. In response to this allegation, the plaintiff filed its report and financial statements for the year ending 31st December, 2021 annexed to its replying affidavit and further affidavit and asserted that it is financially sound and capable of refunding any amount paid by the defendants in the unlikely event their appeals succeed.
40. In a rejoinder, the 1st & 2nd defendants filed supplementary affidavits sworn by the 1st defendant’s Chief Finance Officer and the 2nd defendant’s Chief Accountant where they concurred that the plaintiff is technically insolvent with a high gearing/debt ratio. This is because the plaintiff’s working capital that is, current assets less current liabilities are minus Kshs.36,454,902.00, which means that the current assets are not able to cover the current liabilities as and when they fall due and the plaintiff has a net asset of minus Kshs.531,757,000/=, which means that the liabilities are higher than the assets.
41. The 1st defendant contended that as a result of the above, the plaintiff is dependent on overdraft facilities to meet its working capital requirements with cash and cash equivalents at minus Kshs.24,332,442.00. Furthermore, the plaintiff’s assets are subject to an All-Asset Debenture perfected in favour of Bank of Baroda (K) Ltd together with existing legal charges perfected over several immovable properties, and the plaintiff’s motor vehicles are co-owned by the same bank.
42. The above averments and/or allegations have neither been denied by the plaintiff nor has it offered an explanation and/or an interpretation of its report and financial statements for the year ending 31st December, 2021 that is contrary to the interpretation given by the defendants.  In light of the foregoing, I agree with Counsel for the defendants that from the evidence on record and the uncontested fact that the plaintiff’s balance sheet is unhealthy, it cannot be said that the plaintiff is financially sound and capable of refunding the decretal sum if paid by the defendants, in the event that the defendants’ appeals succeed.  For this reason, this Court finds that the defendants have demonstrated to the required standard that they stand to suffer substantial loss in the event the applications herein are not allowed.
43. Judgment in this matter was entered on 14th February, 2023 and 3rd March, 2023.  Thereafter, the defendants were granted an order for stay of execution for 21 days which was to elapse on or before 29th March, 2023. The applications herein were filed on 25th March, 2023 and 27th March, 2023 by the 1st and the 2nd defendants, respectively.  It is therefore evident that the said applications were filed during the pendency of the initial orders for stay of execution. As a result, I find that the applications herein were filed timeously and without any unreasonable delay.
44. It is evident from the defendants’ submissions and affidavits in support of their applications that they are ready to not only offer security, but also to abide by any terms that this Court will issue. In the case of Focin Motorcycle Co. Limited vs. Ann Wambui Wangui & another [2018] eKLR, it was stated that:
“Where the applicant proposes to provide security as the Applicant has done, it is a mark of good faith that the application for stay is not just meant to deny the respondent the fruits of judgment.  My view is that it is sufficient for the applicant to state that he is ready to provide security or to propose the kind of security but it is the discretion of the Court to determine the security.”
45. The upshot is that the applications dated 25th March, 2023 and 27th March, 2023 are merited and they are hereby allowed in the following terms -
i) That pending the hearing and determination of the intended appeal to the Court of Appeal, this Court hereby grants an order for stay of execution of the judgment and decree of this Court delivered on 14th February, 2023 & 3rd March, 2023;
ii) The defendants shall deposit the decretal sum in a joint interest earning account in the names of the Advocates for the parties within 30 days from the date of this ruling;
iii) In default of order No. (ii) above, the applications herein shall be deemed to have been dismissed; and
iv) Costs of the applications will abide the outcome of the Appeal.
It is so ordered.
DELIVERED, DATED and SIGNED at NAIROBI on this 6th day of October, 2023. Ruling delivered through Microsoft Teams Online Platform.
NJOKI MWANGI
JUDGE
In the presence of:
Ms Odwa h/b for Mr. Nyairo for the plaintiff
No appearance for the 1st defendant/1st applicant
Ms Nereah h/b for Mr. Muihuri for the 2nd defendant/2nd applicant
Ms B. Wokabi – Court Assistant.