Introduction and Background
1. The Defendants have filed a Notice of Motion dated 21.11.2022 primarily seeking an order to set aside a consent between the parties which was adopted as a judgment on 04.06.2021 and a decree issued on 19.10.2022 (“the Consent Judgment”) under, inter alia, section 80 of the Civil Procedure Act (Chapter 21 of the Laws of Kenya). They also seek consolidation of this suit with HC COMM No. E690 of 2021, Alice Wanjiku Kariuki and Africa Bel Air Ltd v Paramount Bank Limited and that the court grants the Defendants unconditional leave to file a defence herein. The Defendants further seek an order to bar and/or disqualify the law firm of Aguko Osman & Company Advocates (“Aguko Osman”) from acting for the Plaintiff in this suit or a related suit.
2. The application is supported by the grounds on its face, the 1st Defendant’s supporting affidavit and supplementary affidavit sworn on 21.11.2022 and 30.01.2023 respectively. It is opposed by the Plaintiff through the replying affidavit of its advocate, Gad Aguko sworn on 14.12.2022 and by the Bank through the replying affidavit of its Legal Consultant, Timothy Kimani sworn on 14.12.2022. The parties have also filed written submissions in support of their respective positions. These were supplemented by brief oral submissions.
3. A brief synopsis of the dispute is as follows. By an agreement dated 31.10.2013, the 2nd Defendant through the 1st Defendant entered into a contract with the Plaintiff for the construction of several apartments on a property; NAIROBI/BLOCK 27/567 (“the suit property”) and for a contract sum of Kshs. 929,229,881.24. The Plaintiff commenced this suit by the Plaint dated 01.03.2021 filed through Aguko Osman, claiming that as at 14.10.2020, the 2nd Defendant owed it Kshs. 266,965,153.00 in respect of the works done on the suit property.
4. According to the Plaintiff, the Defendants were in breach their obligation to pay the debt and that it could only recover the debt by exercising a contractor’s lien over the suit property. At all material time, the suit property had been charged to the Interested Party (“the Bank”) and was subject of a settlement agreement dated 25.11.2020 (“the Settlement Agreement”) between the 1st Defendant and the Bank. The Settlement Agreement arose out of a loan facility advanced to the Defendants by the Bank. The Plaintiff lamented that the 1st Defendant and the Bank entered into the Settlement Agreement without it and the 2nd Defendant despite the 1st Defendant’s knowledge of the Plaintiff’s interest in the suit property. The Plaintiff therefore sought an order, among others, that it is entitled to recover the amount owed to it by way of sale of the suit property by way of public auction alongside the Bank to recover its Kshs. 266, 965,153.00 on the ground that the market value of suit property was assessed at Kshs. 950 million which was sufficient to satisfy its debt and that of the Bank.
5. The Defendants filed their Statement of Defence dated 04.03.2021 on 10.03.2021 through the firm of Mauwa & Co. Associates Advocates (“Mauwa & Co.”). The Defendants admitted that they were indebted to the Plaintiff and the Bank and that they were endeavouring to pay both of them by entering separate and independent agreements. They however disputed the sum and level of indebtedness claimed by the Bank as no formula had been provided to them as to how those figures were arrived at and that part of the amount claimed included interest charged contrary to the in duplum rule. They stated that the Settlement Agreement was procured by undue pressure and was for a sum of Kshs. 405,000,000.00 which was the full and final settlement in respect of other loans facilities obtained by the Defendants and their associates. That the said amount was not only in respect to the Kshs. 90,000,000.00 charge as the Bank purported and that the said agreement was time bound for a period of 90 days.
6. When this matter came up for mention on 15.03.2021, counsel for the Defendants and the Bank entered a consent to the effect that the Bank was at liberty to sell the suit property by private treaty within 90 days from that date, in default of which the Bank was to be at liberty to exercise its statutory power of sale in accordance with the law.
7. Further negotiations yielded a consent dated 14.04.2021 executed by all parties that compromised the Plaintiff’s application dated 23.03.2021. The consent was adopted as an order of the Court on 16.04.2021 and when the matter was further mentioned on 04.06.2021, counsel for Plaintiff and the Bank affirmed the consent and stated that the suit was marked as settled on the following terms:
1) THAT the Plaintiff and the Defendants shall be at liberty to sell the suit property; NAIROBI/BLOCK 27/567 by private treaty within 90 days from 15th March 2021 in default of which the Interested Party shall be at liberty to exercise its statutory power of sale in accordance with the law without being requires to re-issue the requisite statutory notices save for the advertisement.
2) THAT upon such sale of NAIROBI/BLOCK 27/567, the Interested Party shall have the first priority to the proceeds of the sale and be entitled to recover Kenya Shillings Four Hundred and Ten Million Only (Kshs. 410, 000, 000/=), the Plaintiff shall have the Second Priority and be entitled to recover from the balance of the sale proceeds, Kenya Shillings Two Hundred and Forty Million Only (Kshs. 240, 000, 000/=), thereafter, the residue if any shall devolve to the 1st Defendant.
3) THAT, the said sum of Kenya Shillings Four Hundred and Ten Million Only (Kshs. 410, 000, 000/=) in respect of the Interested Party shall be paid within 90 days from the 15th March 2021.
4) THAT in default by the Plaintiff and the Defendants to comply with Clause 3 hereinabove, the Interested Party shall be entitled upon sale by public auction of the said NAIROBI/BLOCK 27/567 to recover the sum of Kenya shillings Five Hundred and Seventy-Six Million, One Hundred and Eighty, Four Hundred and Ninety-Nine and Ninety-Two Cents (Kshs. 576, 180, 499.92) together with accrued interest.
5) THAT upon receipts of the sum of Kenya Shillings Four Hundred and Ten Million Only (Kshs. 410, 000, 000/=) in accordance with Clause 3 or Kenya Shillings Five Hundred and Seventy-Six Million, One Hundred and Eighty, Four Hundred and Ninety-Nine and Ninety-Two Cents (Kshs. 576,180, 499.92) together with accrued interest in accordance with Clause 4 hereinabove, (whichever clause as shall be applicable in the circumstances), the Interested Party shall forthwith discharge the properties associated with the Defendants as per Clause 1.1.9 of the Settlement Agreement, namely Apartment B1 on Block A Dragon Apartments erected on LR No. 1870/V1/73, NAIROBI/BLOCK 5/96/10 (UNIT NO. 10, AND 313 ONE TEN THOUSANDTH SHARE IN THE COMMON PROPERTY), UNIT NUMBER 6C comprising of office Space on 6th Floor and 4 parking Bays (No. 16,17,36 & 57) at TRV Plaza erected on LR. NO 209/19567 in the name of SAWASAWA.COM LIMITED, House no.7 erected on LE No. 1870/V1/104 in the name of JAASI HOLDINGS LIMITED
6) THAT the terms of the consent herein shall apply to High Court Commercial E148 of 2021 Anne Muthoni Gakere & 3 Others vs Paramount Bank Limited
7) THAT each party bears its own costs of this suit
8. The aforementioned consent was adopted as the Consent Judgment. It is this Consent Judgment which the Defendants now challenge.
The Application
9. The thrust of the Defendants’ application is that the firm of Aguko Osman which represents the Plaintiff in this suit also represented them in conjunction with Mauwa & Co., in other matters and procured the Consent Judgment on the basis of conflict of interest and breach of trust. They claim that conflict of interest and breach of trust came to their attention when the 1st Defendant was served with the decree emanating from the Consent Judgment on 08.11.2022 by Aguko Osman.
10. The Defendants aver that their pleadings in this suit and the pleadings filed on behalf of the plaintiffs in a related matter; HCCOMM No. E148 of 2021, Anne Muthoni Gakere, Anthony Kagotho Kamay, Sawasawa Com Limited and Jassi Holdings Limited v Paramount Bank Limited though prepared by Aguko Osman, they were in the name of Mauwa & Co. The Defendants aver that they and the plaintiffs in HCCOMM No. E148 of 2021 had instructed, exchanged correspondence and paid legal fees to Aguko Osman.
11. The 1st Defendant depones that she was advised by Mr Gad Aguko that he would work closely with Mr Mauwa supposedly because two heads are better than one but that it turned out to be a strategy to pave way for Mr Aguko to take up the Plaintiff’s case. The Defendants contend that they were not involved in the negotiation that culminated in the Consent Judgment and that Aguko Osman, to whom they had entrusted confidential communication acted in a position adverse to them despite having been their advocates. The Defendants maintain that the Consent Judgment was procured by fraud or collusion since it was executed on the one hand by Mauwa & Co., acting for them but without the necessary approval and/or instructions while Aguko Osman which was acting for them but purported to act for their adversary, the Plaintiff, in breach of their fiduciary duty to them. In order to support its case, the Plaintiff annexed emails from Aguko Osman forwarding draft pleadings to the co-plaintiff in HC COMM No. E148 of 2021 and an invoice dated 07.04.2021 from Aguko Osman in respect of services rendered in the aforesaid case.
12. The Defendants state that there were no negotiations or consensus between the parties prior to recording the Consent Judgment and that they did not receive independent legal advice or that they received legal advice that was antithetical to their interests in what smacks of a noxious conspiracy to economically exploit the Defendants.
13. The Defendants are apprehensive that the Plaintiff will proceed with execution of the disputed amount of Kshs. 240,000,000.00 which amount is the subject of HC COMM No. E690 of 2021 to their detriment since the Consent Judgment is a nullity and void ab initio and is an illicit scheme that poses a huge danger to the Defendants who have lost their prime properties through the Bank’s unlawful auction.
The Plaintiff’s Reply
14. The Plaintiff opposes the application. Mr Aguko depones that when this suit was filed on 01.03.2021, his firm had no knowledge of the 1st Defendant or her associates. That upon filing, the pleadings were served immediately on the 1st Defendant and the other parties via email on 01.03.2021 at 10:00PM whereupon she wrote back acknowledging receipt of the pleadings at 10:44PM on the same day.
15. That when the matter was mentioned before court on 03.03.2021, Mr Aguko represented the Plaintiff, Mr. Maua represented the Defendants and Mr. Mumia represented the Bank. The Plaintiff thus states that even after service of the pleadings on the Defendants which they acknowledged receipt, it was clear that Aguko Osman were acting for the Plaintiff.
16. The Plaintiff avers that whilst this matter was filed on 01.03.2022, the emails relied on by the Defendants were sent to the Defendant and her associates by Mr Aguko on 19.05.2021 by which time the Consent Judgment had been recorded and the decree served on all parties on 20.04.2021 almost a full month earlier. Further, the emails relate to a different matter and not the present suit. The Plaintiff further states that apart from the Plaint and accompanying documents it filed, the other parties did not file any pleadings and the matter was concluded by the Consent Judgment.
17. The Plaintiff therefore contends that based on evidence, it cannot be claimed that its advocates prepared for them a Plaint or otherwise acted for them. The Plaintiff admits that Aguko Osman communicated with the Defendants and their associates but only to the extent of assisting them with the view to securing the interest of their client and that the Defendants and their associates sought the assistance of the firm and requested that they work as a team as the Bank was a stronger party in the case with its interest registered on all the suit properties
18. The Plaintiff contends that the Defendants cannot disown the Consent Judgment as they have recognised and admitted it in HC COMM E690 of 2021 which suit was filed after the Consent Judgment and after the suit property was sold by the Bank. The Plaintiff avers that in that suit, the 1st Defendant recognizes the amounts due to both the Plaintiff and the Bank as per the consent but only disputes the manner in which the Bank sold the suit property. Further, the Defendants did not challenge or seek to stay the Consent Judgment in the application filed in that case in July 2021. In addition, the 1st Defendant relied on correspondence between Aguko Osman and the Bank’s advocates in which correspondences, the firm was clear that they were pursuing the Plaintiff’s interests and that the Defendants had the opportunity to seek independent legal advice as they had instructed another firm of Advocates to represent them.
19. The Plaintiff maintains that the Defendants have not established any grounds to set aside the Consent Judgment as they were always aware of it, that they admitted indebtedness and have delayed in bringing this application.
The Bank’s Reply
20. The Bank opposes the application on the ground that the Defendants have not made out a case for the setting aside of the Consent Judgment. It states that during the negotiation period, parties were accorded ample opportunity and time to put in their proposals and counterproposals in order to come up with a final agreement before adoption by the court. That Mr Aguko of Aguko Osman appeared for the Plaintiff, Mr Maua of Mauwa & Co., for the Defendants and Mr Mumia of Mwaniki Gachoka and Company Advocates acted for the Bank. That prior to recording the Consent Judgment, they actively engaged in multiple negotiations and deliberated over the terms of consent and considered the best interests of their respective clients. The Bank avers that once the parties failed to comply with the Consent Judgment, it proceeded to exercise its statutory power of sale.
21. The Bank states that the Defendants have admitted that they appointed Mauwa & Co., to represent them in these proceedings and the subsequent proceedings; HC COMM No. E581 of 2021, HC COMM No. E148 of 2021 and HC COMM No. E690 of 2021. That the Defendants had knowledge of the collaborative dealings and engagements between their then Advocates and the Defendant's Advocates and that they willingly and voluntarily agreed to the arrangement for their collective benefit. Further and by the Defendants’ admission, it is a fact that the Defendants were well represented in the negotiations and conclusion of the Consent Judgment. The Bank maintains that Mauwa & Co., had, by their appointment in the matter, general authority to compromise the suit on the Defendants’ behalf.
22. The Bank contends that the court should take into account the conduct of parties since the recording the Consent Judgment and the excessive delay in making the application ought to be construed as an affirmation of the compromise. It adds that the Defendants’ application has been brought after an inordinate and unconscionable delay of 1 year and 6 months since the adoption of the Consent Judgment. The Bank concludes by stating that it has since sold the suit property pursuant to the terms of the Consent Judgment.
Analysis and Determination
23. From the pleadings and submissions, the Defendants seek to set aside the Consent Judgment and to have Aguko Osman & Co. Advocates barred from acting for the Plaintiff in this suit or a related suit. The basis for setting aside is that the Consent Judgment is that Aguko Osman & Co. Advocates are in breach of their fiduciary relationship of client and advocate by representing the Plaintiff yet they also represented the Defendants and their associates.
24. I have considered the depositions and particularly the correspondence between the parties. The Plaintiff is correct to note the email exchange between Aguko Osman. Advocates and the Defendants came after this suit was filed on 01.03.2021. The first email from Mr Aguko is dated 04.03.2021 to Ann Gakere of Sawasawa which is the date after this matter mentioned in court. The subject of the email is “letters of offer”. The email attached does not show the content of the email from Ann Gakere hence it is difficult to know the substance of the matter under reference. The is also an email dated 10.03.2021 from Ann Gakere to Aguko Osman whose subject is, “Instructions to represent” and it seeks representation of Ann Gakere, Anthony Kagotho, Sawasawa.Com Limited and Jassi Limited in relation to the properties owned by them. The subsequent emails dated 19.05.2021 relate to the exchange of pleadings which appeared to have been drafted by Mr Aguko. It is apparent therefore that while Aguko Osman was acting for Plaintiff, it did offer legal assistance or advice in drafting of pleadings which led to HC COMM No. E148 of 2021 as evidenced by the Interim Fee note dated 07.04.2021. Both cases were filed through Mauwa & Co. It is also apparent that at this time, the Defendants were aware that Aguko Osman were acting for the Plaintiff. Another email is dated 19.05.2021, where Mr Aguko informed the 1st Defendants that HC COMM No. E581 of 2021 had been filed and the he would attend court on 20.05.2021 before the judge.
25. As regards this suit, the evidence shows that from the outset, the parties’ representation was clear in the negotiations leading up to the Consent Judgment. Aguko Osman were explicit that they were representing the Plaintiff and not the Defendants who were represented by Mauwa & Co. Even after the Consent Judgment, the Defendants and their associates continued to correspond with Aguko Osman & Co., Advocates regarding HC COMM. No. E148 of 2021 and HC COMM E581 of 2021.
26. The totality of this evidence is that the Defendants were aware that Aguko Osman represented the Plaintiff and they took it upon themselves to instruct the firm so that the parties would take a common position against the Bank which had intimated that it would sell the suit property. This is confirmed by the fact that on 10.03.2023, the Defendants’ associates sought to instruct Aguko Osman to take up their matter against the Bank in respect of other properties. It is worth noting that this is the same date Mauwa & Co., filed the Defendants Statement of Defence.
27. This position is buttressed by the fact that in order to comply with the Consent Judgment, the Defendants engaged a prospective buyer, Sorahindi Investment Limited, in June 2021. As the Defendants were in breach of the Consent Judgment, the Bank sold the suit property whereupon the Defendants filed HC COMM No. E690 of 2021 on or about 15.07.2023 seeking to nullify the sale. At this point the Defendants would have challenged the Consent Judgment but they did not do so.
28. The fact that Aguko Osman acted for the Plaintiff and also acted or intended to act for the Defendants in other related matters involving associates of the Defendants does not automatically preclude it from continuing to act for the Plaintiff or for that matter lead to nullification of proceedings on account of conflicts of interest. There is no general rule that an advocate cannot act for one party in a matter and then act for the opposite party in subsequent litigation. The test which has been laid down in authorities applied by our courts is whether real mischief or real prejudice will in all human probability result as was held by the Court of Appeal in King Woolen Mills Limited and Another v Kaplan and Stratton Advocates [1990-1994] EA 244 and Delphis Bank Limited v Channan Singh Chatthe and 6 others NRB CA Civil Appl. No. 136 of 2005 [2005] eKLR. In the latter case, the Court cited with approval the following dictum of Browne-Wilkinson, VC in Supasave Retail Ltd v Coward Chance and others [1991] 1 All ER 668 that:
The English law on the matter has been laid down for a considerable period by the decision of the Court of Appeal in Rukusen v Ellis, Munday & Clarke (1912) 1 Ch. 831 …The law as laid down there is that there is no absolute bar on a solicitor in a case where a partner in a firm of solicitors has acted for one side and another partner in that firm wishes to act for the other side in litigation. The law is laid down that each case must be considered as a matter of substance on the facts of each case. It was also laid down that the court will only intervene to stop such a practice if satisfied that the continued acting of one partner in the firm against a former client of another partner is likely to cause ( …….) real prejudice to the former client. Unhappily, the standard to be satisfied is expressed in numerous different forms in Rukusens case itself. Cozens – Hardy M.R. laid down the test as being that a court must be satisfied that real mischief and real prejudice will, in all human probability result if the solicitor is allowed to act ……As a general rule, the court will not interfere unless there be a case where mischief is rightly anticipated.
29. Juxtuposing the aforesaid principle, I am unable to agree with the Defendants that Aguko Osman were conflicted or in any way breached any fiduciary duty or trust. It is apparent that the Defendants initially involved the firm in this matter after the Plaintiff had filed this suit in order to take a common front against the Bank which was intent on selling the suit property. At all material time and even in other cases filed by the Defendants and their associates subsequent to this suit, the Defendants instructed Mauwa & Co., to act for them. There is no scintilla of evidence that Mauwa & Co., did not protect their interests or was otherwise compromised when the Consent Judgment was reached. I would add that by acceding to the use of Mauwa & Co., as the advocates on record, the Defendants had effectively waived any conflict of interest. The correspondence between the parties shows that the terms of the Consent Judgment were entered into by three different firms of advocates representing the three parties and the Defendants, having been represented by presumably able counsel in the negotiations, cannot claim prejudice or mischief from Aguko Osman.
30. The principles upon which the court may set aside a consent order have been reiterated in many decisions of our superior court including Brooke Bond Liebig v Mallya [1975] EA 266, Flora N. Wasike v Destimo Wamboko [1988] eKLR and Kenya Commercial Bank Ltd v Specialised Engineering Co. Ltd [1982] KLR 485. In Brooke Bond Liebig v Mallya (Supra) Mustafa Ag. VP expressed the general principal as follows;
The compromise agreement was made an order of the court and was thus a consent judgment. It is well settled that a consent judgment can be set aside only in certain circumstances, e.g on grounds of fraud or collusion, that there was no consensus between the parties, public policy or for such reasons as would enable a court to set aside or rescind a contract. In this case the parties and their advocates consented to the compromise in very clear terms; they were certainly aware of all the material facts and there could not have been any mistake or misunderstanding. None of the factors which could give rise to the setting aside of a consent agreement existed.
31. Based on the material on record, I therefore find and hold that the Defendants have not established any grounds upon which the Consent Judgment should be set aside. They have not proved that Aguko Osman breached its fiduciary duty towards the Defendants since there was none in so far as this case is concerned. The Defendants dealt with the Plaintiff’s advocates knowing that they represented the Plaintiffs. I have also taken into account the fact that despite the Consent Judgment being recorded in March 2021, this application was filed in November 2022 bearing in mind that the part of the Consent Judgment was implemented by the sale of the suit property. In addition, the Defendants filed another suit challenging that sale. As a result, I hold that even if there was such a conflict of interest, the Defendants by their own conduct waived such a breach by their subsequent conduct. There is also no reason to restrain Aguko Osman from acting for the Plaintiff.
32. Turning to the issue whether its advocates, Mauwa & Co. had instructions to record the Consent Judgment, Harris J., in Kenya Commercial Bank Ltd v Specialised Engineering Co. Ltd [1982] KLR 485, observed that, “A duly instructed advocate has an implied general authority to compromise and settle the action and the client cannot avail himself of any limitation by him of the implied authority to his advocate unless such limitation was brought to the notice of the other side.” The Defendants do not dispute the fact that Mauwa & Co., were their advocates on record. Mr Maua was involved in the negotiations that led to the Consent Judgment and nothing from the entirety of the correspondence shows that the parties particularly the Bank had notice of any limitation of his authority to compromise the matter. This means that the parties were entitled to assume that the Defendants’ advocates had ostensible authority to bind their clients and hence the eventual consent bound the Defendants.
33. One final issue that warrants some comment is the contention by the Defendants that the amounts claimed in the Consent Judgment include interest that is contrary to the in duplum rule contained in section 44 of the Banking Act (Chapter 488 of the Laws of Kenya). The issue of indebtedness between the Bank and the Defendants had been dealt with in the Settlement Agreement. In their Statement of Defence, the Defendants admitted that they were indebted to both Plaintiff and the Bank and that they had entered in separate agreements to resolve their issue. I hold that since the issue of the Defendants indebtedness was admitted, the only issue was by how much which is a matter that the parties were free to agree on. In this respect, the following sentiments of Gachuhi JA., regarding settlements in William Karani and 47 Others v Wamalwa Kijana and 2 Others NKR CA Civil Appeals Nos. 43 and 153 of 1986(consolidated) [1987] eKLR, are apposite:
There is no limit or fore under which a consent can take so as to finalise the whole dispute. The doors of negotiations are very wide. One can bring in matters which were not in this pleading or leave out any matter or claim pleaded so long as the intention of the parties is to bring the whole dispute into finality.
34. I reject the argument that the Consent Judgment is unlawful. It is in fact consistent with the overall intention of the parties. It has now been partly performed by sale of the suit property and there are other suits concerning the sale and the issue of accounts. Let those suits proceed in accordance with the law otherwise the Consent Judgment remains on solid ground.
35. Since I have declined to set aside the Consent Judgment, the plea for consolidation of this case with HC COMM No. E690 of 2021, Alice Wanjiku Kariuki and Africa Bel Air Ltd v Paramount Bank Limited is refused.
Disposition
36. As the Defendants have not established any grounds for setting aside the Consent Judgment dated 04.06.2021, I now dismiss the application dated 21.11.2022. The Defendant shall bear the costs of the application.
DATED and DELIVERED at NAIROBI this 17th day of AUGUST 2023.
D. S. MAJANJA
JUDGE