INTRODUCTION
1. The Plaintiff herein filed an Application dated 3rd March, 2022 seeking the following orders (slightly paraphrased);
a) Spent
b) That an order be issued certifying that out of the principle sum of Kshs.33,508,340, the defendant has to date paid a sum of Kshs. 22,500,000 leaving a balance of Kshs. 11,008,340 in respect of the principle as due to the plaintiff.
c) That an order be issued that the outstanding sum of Kshs. 11,008,340 as at 31st January 2022 be released to the plaintiff
d) That a sum of Kshs. 31,888,793.15 computed and derived as constituting the interest component as per clause 3 (c) of the contract dated 29th July, 2015 be forthwith paid by the defendant as per the consent issued on 30th September, 2019.
e) The cost of the substantive suit and interest be ordered in favor of the plaintiff as per the consent dated 30th September, 2019
f) The costs of the Application be provided for.
2. The Application was based on the grounds set out on the face of the Application and the affidavit of sworn by one CRISPINO CHICANO OCHIENG a director of the plaintiff herein. Mr. Ochieng averred the plaintiff filed a suit against the defendant claiming a sum of Kshs. 33, 508,340.00 based breach of the contract dated 29th July, 2015 between the plaintiff and the defendant. he averred that that when the matter subsequently came up for hearing before Majanja J, the parties settled the same vide consent judgment dated 30th September, 2019 in which the parties agreed ;
a) That the principal sum of Kshs. 33,508,340 be paid to the plaintiff by the defendant in two instalment of Kshs. 20,000,000 and 13,508,304 respectively
b) That the 1st instalment of Kshs. 20,000,000 be paid to the plaintiff be paid within the financial year 2019-2020.
c) That the 2nd instalment of Kshs. 13,508,304 be paid to the plaintiff be paid within the financial year 2020-2021
d) That the other aspects of the contract dated 29th July, 2015 inclusive of simple interest contract and costs of the suit be negotiated and settled within the financial year 2020-2021
3. Mr. Ochieng further averred that it was a salient feature in the contract between the parties that the defendant was enjoined to pay an interest of 3% per day above the central bank base lending rate commencing 30 days after 27th July, 2015 when the invoice or contractual documents were handed over to the defendant for payment.
4. He contended that as at 31st January 2022, the defendant had only paid a sum of Kshs. 22,500,000 in respect of the principal sum and the balance due and outstanding to the plaintiff was Kshs. 11,008,340.00.
5. He also averred that the interest component due and payable todate as a result of the delayed payment, arbitrariness and sluggishness on the part of the respondent is Kshs. 31,888,793.15 as at 31st January, 2022 and that the interest accumulated and continues to accumulate until payment in full.
6. He decried that the defendant refused to make payment as per the terms of the consent and hence the suit herein .
7. In response to the Application the Defendant filed a replying affidavit sworn by Vincent Nyang’wara, an officer in the Defendant’s department of finance. Mr. Nyang’wara admitted that it was true that the parties entered into a consent which was adopted by this court on 30th September, 2023. Mr. Nyang’wara also conceded that it was true that part of the consent was yet to be honoured but denied that the outstanding unpaid debt stood at 11,008,340.00. He disclosed a sum close to 4,000,000 as was paid as evidenced by the payment voucher 6851TRD0011 which he annexed to his affidavit. He said that despite facing financial constraints, the defendant had made an effort to pay part of the outstanding sum . He urged the court to take judicial notice that the treasury was yet to issue direction any direction on how counties are supposed to settle pending bills which had become a problem to all of them. He undertook that the county government intended to clear the remainder of the balance by 31st September, 2024.
8. Regarding the issue of interest and costs of the suit Mr. Nyang’wara averred that it was clear in the consent Judgment and particularly in clause (d) that parties were to negotiate on the same but the talks have not taken place though the defendant has always been keen on the negotiations. He revealed that on 4th July 2023 this court directed the parties to meet at the office of the CECM Finance to negotiate on the issue but the Respondent did not appear as directed by the court. He however said that there was an informal arrangement between the advocates for both parties to resolve the issue of interest. He went on to aver that the contract between the parties under clause 12 provided for referral of any dispute to arbitration and pointed out that this court had on 8th May, 2019 by consent of the parties referred the matter to arbitration. He thus believes that the matter can still be resolved by a mutual consent of the parties or through an arbitration process as provided for in their contract.
9. Mr. Nyang’wara contended that if the defendant was to be forced to comply with clause 3(c) of the contract between the parties such a move will be against the provisions of section 102 of Public Finance Management Act as read together with Article 201 of the constitution of Kenya 2010 which provides that public money shall be used in prudent and responsible manner. Referring to the tabulation of interest presented by the Plaintiff, he argued that same was not supported by an affidavit of the maker and that the same was not supported by payment vouchers for the court to easily determine the delay in payment.
10. Mr. Nyang’wara also argued that the costs of this suit are yet to be determined by the deputy registrar of this court for the same to be due for recovery and thus the sum claimed is unsupported and thus the same should not be allowed.
11. Mr. Nyang’wara thus concluded that the orders sought in the Application were premature and urged the court to allow the parts to negotiate and come up with a way out of settling dispute between the parties.
12. On 12th February, 2024, directed that the Application be disposed of by way of written submissions. The plaintiff and defendant were thus directed to file and serve their written submission for consideration.
ISSUES OF DETERMINATION
13. Having considered the Application the annextures to the supporting affidavit, the replying affidavit together with the annexture and the able submissions filed by the parties herein. I find that the issues of determination are;
a) What is the outstanding balance of the principal sum ?.
b) Whether this court ought allow the parties to negotiate on the issue of interest and costs or refer the same to arbitration
c) On whether clause 3C of the contract charging the interest on the sum due at 3 % per day above the Central Bank base lending rates is enforceable
ANALYSIS AND DETERMINATION
What is the balance of the outstanding Principal sum ?
14. The Plaintiff claims as at 30th January, 2022, the outstanding debt was at 11,008,340. The defendant disputes this claim and proceed to aver that the sum had significantly reduced given that it had made a payment clause to 4,000,000 and reduced the debt to 7 million. In order to support his claim he produced a payment voucher. Even though plaintiff did not challenge the claim through a further affidavit a review of the payment voucher it clear that the payment was made on 12th May, 2023 more than a year later and the same was for Kshs. 5, 508, 340.00. This therefore means the debt has reduced by Kshs. 5, 508, 340.00. The outstanding principal sum todate is Kshs. 5,500,000 and not 11,008,340.00 as alleged by the applicant.
Whether the outstanding debt should be paid immediately
15. A reading of the consent judgment between dated 30th September, 2023 the parties it is outright that the contractual sum ought to have been paid within the 2020-2021 financial year meaning the same is long overdue for .. The defendant later undertook to pay the debt by 31st September, 2024, but defaulted . This court takes Judicial notice that the defendant is a Devolved Government and the Government Financial procedures apply to it. Ordering that the sum be paid immediately would be in vain due to the said procedures . The defendant is hereby directed that to ensure that the debt is paid within 60 days o from the date of this ruling.
Whether the issues of interest and costs ought to be referred to arbitration
16. . The instant application seeks enforcement of the consent Judgment dated 6th September, 2019 , the applicant submitted that Clause (d) of the consent Judgment was clear that the other aspects of the contract dated 29th July, 2015 inclusive of simple interest contract and costs of the suit be negotiated and settled within the financial year 2020-2021. Further that clause (e) provides that ‘’ incase clause (d) shall not have been resolved amicably within the said financial year 2020-2021 , each party be at liberty to apply ‘’. We are now in the financial year 2024 – 2025 which is far beyond the financial year 2020-2021 and yet the simple interest is yet to be negotiated and agreed on . Though the respondent seeks that the matter be referred to arbitration as per the agreement , as per clause (e ) of the consent dated 6.9.2019, the applicant is thus rightly before this court for it to make a determination on the issue of interest under section 26 of the Civil procedure Act as the time for negotiation and or arbitration is spent and the parties subjected themselves to the jurisdiction of this court vide clause (d )the consent dated 6.9.19 .
On whether clause 3C of the contract charging the interest on the sum due at 3 % per day above the Central Bank base lending rates is enforceable
17. The plaintiff guided by the clause 3 (c) of the contract entered between the parties in 2015 calculated the interest accruing at 3 % per day over the approved central bank lending rates and arrived at a figure Kshs. 31,888,793.15 as at 31st January, 2022 which he demands must be paid together with the outstanding debt. The respondent disputed this saying that the interest as proposed by the applicant offends and principle of prudent use of public resources under Article 201(d) of the Constitution which provides that ‘’public money shall be used in a prudent and responsible way; and’’
18. Article 227 (1) of the Constitution of Kenya provides that :-
227. (1) When a State organ or any other public entity contracts for goods or services, it shall do so in accordance with a system that is fair, equitable, transparent, competitive and cost-effective. Section 140 of the Public procurement and disposal Act provides that;- 140. Interest on overdue amounts and liquidated damages The following shall apply with respect to delayed performance and overdue amounts owed by a procuring entity and a contractor under a contract for a procurement — (a) unless the contract provides otherwise, the procuring entity shall pay interest on the overdue amounts; (b) the contractor shall be liable to liquidated damages for delayed performance; Public Procurement and Asset Disposal No. 33 of 2015 (c) the interest and liquidated damages to be paid under paragraph (a) and (b) shall be in accordance with prevailing mean commercial lending rate as determined by Central Bank of Kenya; and (d) the methods of computing interest liquidated and ascertained damages shall be as prescribed in the regulations.
20. The charging of interest on delayed payment is thus within the law, however the interest should be charged as per the Central Bank approved commercial lending interest rates . Paragraph 3 C of the agreement dated between the parties herein which provides for interest for delayed performance by the respondent at the rate 3 % per day of delay above the central bank base lending rates offends the provisions of Articles 201(d) & 227 (1) of the Constitution and Section 140 (c) of the PPDA. Though the courts generally cannot rewrite a contract between parties , this court cannot not shut it’s eyes and enforce illegal contracts as was held in the case of Heptulla v Noormohamed [1984] eKLR . This court has powers to intervene and stop implementation of a contract which is illegal. The said clause 3C is thus illegal , unreasonable ,oppressive and against the public policy on prudent use of public resources . I proceed to declare the said paragraph 3 C of the contract between the parties herein as null and void and thus unenforceable . I order that Interest on the delayed performance be charged at Central Bank approved rates .
21. On the issue of costs, the same clause of the consent Judgment is instructive that the same shall be a product of negotiations between the parties which negotiations never took place. Equally as argued by the Defendant, the Bill cost filed by the learned counsel filed by the Plaintiff’s learned counsel is yet to be taxed and as such the same cannot be said to be recoverable at this stage.
22. The ruling herein delayed as the court was not sitting on 24.10.24 when the court was not sitting and file got misplaced . My Sincere apologies to parties .
CONCLUSION
23. In the upshot, the application partially succeeds and I proceed to make the following orders in the interest of Justice :
a) Clause 3C of the agreement dated 29th July 2015 between the parties herein is declared as null and void .
b) The outstanding Principal sum owed by the defendant/ respondent to the plaintiff/ applicant is Kshs. 5,500,000 within 60 days from today th.
c) The Interest be calculated at the approved Central Bank Lending Rates on reducing balance from 27th August 2015 till payment in full.
d) Costs be assessed by the Deputy Registrar . Mention on 11.3.25 before Deputy registrar for directions on the Bill of costs.
e) Costs to the applicant .
f) It is so ordered.
Delivered virtually via teams platform in the presence of :-
MISS NYABOKE /HB FOR MR NYAMBEGA FOR THE APPLICANT
N/A FOR THE RESPONDENT
CA -OIGO
1. The Plaintiff herein filed an Application dated 3rd March, 2022 seeking the following orders (slightly paraphrased);
a) Spent
b) That an order be issued certifying that out of the principle sum of Kshs.33,508,340, the defendant has to date paid a sum of Kshs. 22,500,000 leaving a balance of Kshs. 11,008,340 in respect of the principle as due to the plaintiff.
c) That an order be issued that the outstanding sum of Kshs. 11,008,340 as at 31st January 2022 be released to the plaintiff
d) That a sum of Kshs. 31,888,793.15 computed and derived as constituting the interest component as per clause 3 (c) of the contract dated 29th July, 2015 be forthwith paid by the defendant as per the consent issued on 30th September, 2019.
e) The cost of the substantive suit and interest be ordered in favor of the plaintiff as per the consent dated 30th September, 2019
f) The costs of the Application be provided for.
2. The Application was based on the grounds set out on the face of the Application and the affidavit of sworn by one CRISPINO CHICANO OCHIENG a director of the plaintiff herein. Mr. Ochieng averred the plaintiff filed a suit against the defendant claiming a sum of Kshs. 33, 508,340.00 based breach of the contract dated 29th July, 2015 between the plaintiff and the defendant. he averred that that when the matter subsequently came up for hearing before Majanja J, the parties settled the same vide consent judgment dated 30th September, 2019 in which the parties agreed ;
a) That the principal sum of Kshs. 33,508,340 be paid to the plaintiff by the defendant in two instalment of Kshs. 20,000,000 and 13,508,304 respectively
b) That the 1st instalment of Kshs. 20,000,000 be paid to the plaintiff be paid within the financial year 2019-2020.
c) That the 2nd instalment of Kshs. 13,508,304 be paid to the plaintiff be paid within the financial year 2020-2021
d) That the other aspects of the contract dated 29th July, 2015 inclusive of simple interest contract and costs of the suit be negotiated and settled within the financial year 2020-2021
3. Mr. Ochieng further averred that it was a salient feature in the contract between the parties that the defendant was enjoined to pay an interest of 3% per day above the central bank base lending rate commencing 30 days after 27th July, 2015 when the invoice or contractual documents were handed over to the defendant for payment.
4. He contended that as at 31st January 2022, the defendant had only paid a sum of Kshs. 22,500,000 in respect of the principal sum and the balance due and outstanding to the plaintiff was Kshs. 11,008,340.00.
5. He also averred that the interest component due and payable todate as a result of the delayed payment, arbitrariness and sluggishness on the part of the respondent is Kshs. 31,888,793.15 as at 31st January, 2022 and that the interest accumulated and continues to accumulate until payment in full.
6. He decried that the defendant refused to make payment as per the terms of the consent and hence the suit herein .
7. In response to the Application the Defendant filed a replying affidavit sworn by Vincent Nyang’wara, an officer in the Defendant’s department of finance. Mr. Nyang’wara admitted that it was true that the parties entered into a consent which was adopted by this court on 30th September, 2023. Mr. Nyang’wara also conceded that it was true that part of the consent was yet to be honoured but denied that the outstanding unpaid debt stood at 11,008,340.00. He disclosed a sum close to 4,000,000 as was paid as evidenced by the payment voucher 6851TRD0011 which he annexed to his affidavit. He said that despite facing financial constraints, the defendant had made an effort to pay part of the outstanding sum . He urged the court to take judicial notice that the treasury was yet to issue direction any direction on how counties are supposed to settle pending bills which had become a problem to all of them. He undertook that the county government intended to clear the remainder of the balance by 31st September, 2024.
8. Regarding the issue of interest and costs of the suit Mr. Nyang’wara averred that it was clear in the consent Judgment and particularly in clause (d) that parties were to negotiate on the same but the talks have not taken place though the defendant has always been keen on the negotiations. He revealed that on 4th July 2023 this court directed the parties to meet at the office of the CECM Finance to negotiate on the issue but the Respondent did not appear as directed by the court. He however said that there was an informal arrangement between the advocates for both parties to resolve the issue of interest. He went on to aver that the contract between the parties under clause 12 provided for referral of any dispute to arbitration and pointed out that this court had on 8th May, 2019 by consent of the parties referred the matter to arbitration. He thus believes that the matter can still be resolved by a mutual consent of the parties or through an arbitration process as provided for in their contract.
9. Mr. Nyang’wara contended that if the defendant was to be forced to comply with clause 3(c) of the contract between the parties such a move will be against the provisions of section 102 of Public Finance Management Act as read together with Article 201 of the constitution of Kenya 2010 which provides that public money shall be used in prudent and responsible manner. Referring to the tabulation of interest presented by the Plaintiff, he argued that same was not supported by an affidavit of the maker and that the same was not supported by payment vouchers for the court to easily determine the delay in payment.
10. Mr. Nyang’wara also argued that the costs of this suit are yet to be determined by the deputy registrar of this court for the same to be due for recovery and thus the sum claimed is unsupported and thus the same should not be allowed.
11. Mr. Nyang’wara thus concluded that the orders sought in the Application were premature and urged the court to allow the parts to negotiate and come up with a way out of settling dispute between the parties.
12. On 12th February, 2024, directed that the Application be disposed of by way of written submissions. The plaintiff and defendant were thus directed to file and serve their written submission for consideration.
ISSUES OF DETERMINATION
13. Having considered the Application the annextures to the supporting affidavit, the replying affidavit together with the annexture and the able submissions filed by the parties herein. I find that the issues of determination are;
a) What is the outstanding balance of the principal sum ?.
b) Whether this court ought allow the parties to negotiate on the issue of interest and costs or refer the same to arbitration
c) On whether clause 3C of the contract charging the interest on the sum due at 3 % per day above the Central Bank base lending rates is enforceable
ANALYSIS AND DETERMINATION
What is the balance of the outstanding Principal sum ?
14. The Plaintiff claims as at 30th January, 2022, the outstanding debt was at 11,008,340. The defendant disputes this claim and proceed to aver that the sum had significantly reduced given that it had made a payment clause to 4,000,000 and reduced the debt to 7 million. In order to support his claim he produced a payment voucher. Even though plaintiff did not challenge the claim through a further affidavit a review of the payment voucher it clear that the payment was made on 12th May, 2023 more than a year later and the same was for Kshs. 5, 508, 340.00. This therefore means the debt has reduced by Kshs. 5, 508, 340.00. The outstanding principal sum todate is Kshs. 5,500,000 and not 11,008,340.00 as alleged by the applicant.
Whether the outstanding debt should be paid immediately
15. A reading of the consent judgment between dated 30th September, 2023 the parties it is outright that the contractual sum ought to have been paid within the 2020-2021 financial year meaning the same is long overdue for .. The defendant later undertook to pay the debt by 31st September, 2024, but defaulted . This court takes Judicial notice that the defendant is a Devolved Government and the Government Financial procedures apply to it. Ordering that the sum be paid immediately would be in vain due to the said procedures . The defendant is hereby directed that to ensure that the debt is paid within 60 days o from the date of this ruling.
Whether the issues of interest and costs ought to be referred to arbitration
16. . The instant application seeks enforcement of the consent Judgment dated 6th September, 2019 , the applicant submitted that Clause (d) of the consent Judgment was clear that the other aspects of the contract dated 29th July, 2015 inclusive of simple interest contract and costs of the suit be negotiated and settled within the financial year 2020-2021. Further that clause (e) provides that ‘’ incase clause (d) shall not have been resolved amicably within the said financial year 2020-2021 , each party be at liberty to apply ‘’. We are now in the financial year 2024 – 2025 which is far beyond the financial year 2020-2021 and yet the simple interest is yet to be negotiated and agreed on . Though the respondent seeks that the matter be referred to arbitration as per the agreement , as per clause (e ) of the consent dated 6.9.2019, the applicant is thus rightly before this court for it to make a determination on the issue of interest under section 26 of the Civil procedure Act as the time for negotiation and or arbitration is spent and the parties subjected themselves to the jurisdiction of this court vide clause (d )the consent dated 6.9.19 .
On whether clause 3C of the contract charging the interest on the sum due at 3 % per day above the Central Bank base lending rates is enforceable
17. The plaintiff guided by the clause 3 (c) of the contract entered between the parties in 2015 calculated the interest accruing at 3 % per day over the approved central bank lending rates and arrived at a figure Kshs. 31,888,793.15 as at 31st January, 2022 which he demands must be paid together with the outstanding debt. The respondent disputed this saying that the interest as proposed by the applicant offends and principle of prudent use of public resources under Article 201(d) of the Constitution which provides that ‘’public money shall be used in a prudent and responsible way; and’’
18. Article 227 (1) of the Constitution of Kenya provides that :-
227. (1) When a State organ or any other public entity contracts for goods or services, it shall do so in accordance with a system that is fair, equitable, transparent, competitive and cost-effective. Section 140 of the Public procurement and disposal Act provides that;- 140. Interest on overdue amounts and liquidated damages The following shall apply with respect to delayed performance and overdue amounts owed by a procuring entity and a contractor under a contract for a procurement — (a) unless the contract provides otherwise, the procuring entity shall pay interest on the overdue amounts; (b) the contractor shall be liable to liquidated damages for delayed performance; Public Procurement and Asset Disposal No. 33 of 2015 (c) the interest and liquidated damages to be paid under paragraph (a) and (b) shall be in accordance with prevailing mean commercial lending rate as determined by Central Bank of Kenya; and (d) the methods of computing interest liquidated and ascertained damages shall be as prescribed in the regulations.
20. The charging of interest on delayed payment is thus within the law, however the interest should be charged as per the Central Bank approved commercial lending interest rates . Paragraph 3 C of the agreement dated between the parties herein which provides for interest for delayed performance by the respondent at the rate 3 % per day of delay above the central bank base lending rates offends the provisions of Articles 201(d) & 227 (1) of the Constitution and Section 140 (c) of the PPDA. Though the courts generally cannot rewrite a contract between parties , this court cannot not shut it’s eyes and enforce illegal contracts as was held in the case of Heptulla v Noormohamed [1984] eKLR . This court has powers to intervene and stop implementation of a contract which is illegal. The said clause 3C is thus illegal , unreasonable ,oppressive and against the public policy on prudent use of public resources . I proceed to declare the said paragraph 3 C of the contract between the parties herein as null and void and thus unenforceable . I order that Interest on the delayed performance be charged at Central Bank approved rates .
21. On the issue of costs, the same clause of the consent Judgment is instructive that the same shall be a product of negotiations between the parties which negotiations never took place. Equally as argued by the Defendant, the Bill cost filed by the learned counsel filed by the Plaintiff’s learned counsel is yet to be taxed and as such the same cannot be said to be recoverable at this stage.
22. The ruling herein delayed as the court was not sitting on 24.10.24 when the court was not sitting and file got misplaced . My Sincere apologies to parties .
CONCLUSION
23. In the upshot, the application partially succeeds and I proceed to make the following orders in the interest of Justice :
a) Clause 3C of the agreement dated 29th July 2015 between the parties herein is declared as null and void .
b) The outstanding Principal sum owed by the defendant/ respondent to the plaintiff/ applicant is Kshs. 5,500,000 within 60 days from today th.
c) The Interest be calculated at the approved Central Bank Lending Rates on reducing balance from 27th August 2015 till payment in full.
d) Costs be assessed by the Deputy Registrar . Mention on 11.3.25 before Deputy registrar for directions on the Bill of costs.
e) Costs to the applicant .
f) It is so ordered.
Delivered virtually via teams platform in the presence of :-
MISS NYABOKE /HB FOR MR NYAMBEGA FOR THE APPLICANT
N/A FOR THE RESPONDENT
CA -OIGO