James Kariuki Kanyeki & another (The registered trustees suing on behalf of Kenya Railways Staff Retirement Benefits Scheme) v Blue Water Properties Limited & another
The bottom line
#Kenya's Environment and Land Court set aside a default judgment because the defendant was never properly served, joined the bank holding the property's charge, and kept the case in court instead of arbitration.
What this practically means
#Executive summary
#Questions the Court framed
#The issues the Court set itself to decide, in its own words.
- 1.Whether the Notice of Motion application dated 24th June, 2022 by the intended 2nd Defendant has merit to justify the Bank being joined in this suit
- 2.Whether the Notice of Motion application dated 22nd July, 2022 by the 1st Defendant meets the threshold for the setting aside of the Judgment delivered on 15th December, 2021
- 3.Whether the Court has jurisdiction to hear and determine this case or should it refer the matter to arbitration under Section 6 of the Arbitration Act of 1995
- 4.Whether the parties are entitled to the reliefs sought herein
- 5.Who will bear the costs of the two applications
Key legal issues
#Joinder of the Bank as a necessary party
The Bank, as chargee of a loan of over Kshs 2.27 billion secured on the suit property, demonstrated sufficient interest and was joined as 2nd Defendant
The court applied Order 1 Rule 10(2) and the Pravin Bowry/Deported Asians test: an applicant need only show an identifiable interest in the subject matter or that its presence is necessary for effectual adjudication. The charge over the suit property meant the judgment and cancellation of the lease entry would directly prejudice the Bank's security, making it a necessary party.
Setting aside the ex parte judgment of 15th December 2021
The judgment was irregular because proper service was not proved; it was set aside conditionally with leave to amend pleadings and file defences
The process server's affidavit did not indicate how the director of the 1st Defendant was identified, contrary to Order 5 Rule 15. Without proof of identification there was no proper service, hence no regular judgment. Even assuming regularity, the draft defence raised triable issues on proprietorship and rescission of the lease, warranting setting aside.
Jurisdiction versus the arbitration clause
The court retained jurisdiction and declined referral to arbitration because the joinder of the Bank introduced two distinct contracts with parties not uniformly bound by the arbitration clause
While Section 6 of the Arbitration Act permits stay where a party applies before entering appearance, the joinder of the Bank as chargee under a separate Charge contract meant not all parties were privy to the lease's arbitration clause. Referral would create a scenario where parties claim an arbitral clause not all are bound by; the court therefore declined referral.
Costs of the applications
Although both applications succeeded, costs were made costs in the cause given the matter proceeds to full trial
Applying Section 27(1) of the Civil Procedure Act that costs follow the event, the court nonetheless held that because the substantive suit is yet to proceed to full trial, the just order was costs in the cause, with throw away costs of Kshs 250,000 imposed on the 1st Defendant as a condition of the setting aside.
Legal principles established
#- An ex parte judgment entered without proper service is irregular and must be set aside as of right
- A process server's affidavit must state how the person served was identified; absent such identification service is not proved
- A chargee with a registered legal charge over the suit property is a necessary party whose joinder enables the court to effectually adjudicate on all questions
- An arbitration clause does not oust the court's jurisdiction, particularly where multiple contracts and non-signatory parties are involved
Court orders
#- 1.The Notice of Motion dated 24th June 2022 by the Intended 2nd Defendant allowed entirely
- 2.The Notice of Motion dated 22nd July 2022 by the 1st Defendant allowed partially, except the prayer to refer the dispute to arbitration
- 3.I & M Bank Limited joined as the 2nd Defendant and at liberty to file its Defence and accompanying documents
- 4.The Judgment delivered on 15th December 2021 set aside on conditions: Plaintiffs granted 14 days to amend the Plaint and serve; Defendants granted 14 days to file Defences and/or Counterclaims; Plaintiffs granted 7 days to file Reply to Defence and/or Counterclaim
- 5.Matter set down for hearing and final determination within 180 days commencing 28th September 2023, with pre-trial conferencing within 30 days of the ruling
- 6.1st Defendant directed to pay throw away costs of Kshs 250,000 to the Plaintiffs within 30 days, failing which the ex parte Judgment of 15th December 2021 shall be reinstated
- 7.Costs of the two applications to be in the cause
The bench
#One judgment of the whole court — no separate or dissenting opinions.
Wrote the judgment
- Jurisdiction invoked
- Articles 162(2)(b) and 159 of the Constitution; Sections 3 and 13 of the Environment and Land Court Act, No. 19 of 2011
Relief refused
#Referral of the dispute to arbitration under Section 6 of the Arbitration Act
Two distinct contractual instruments (Lease and Charge) over the same subject matter with parties not uniformly privy to the arbitration clause made arbitration unsuitable
Plaintiffs' request that Kshs 86,780,760 be deposited into a joint escrow account
The amount could not be substantiated or well computed, and the judgment had been set aside for hearing de novo
Costs
Costs of the two applications to be in the cause; 1st Defendant to pay throw away costs of Kshs 250,000 to the Plaintiffs within 30 days, failing which the ex parte Judgment shall be reinstated.
Quotable passages
#Verbatim from the judgment, each located to the page it appears on in the official PDF — so these can be cited and checked directly.
THAT the 2nd Defendant be and is hereby joined as a party to this suit and is at liberty to file its Defence and any other accompanying document.
THAT the Judgment of this Court delivered on the 15th December, 2021 is hereby set aside on the following conditions
THAT the 1st Defendant herein directed to pay throw away costs to the Plaintiffs for a sum of Kenya Shillings Two Hundred and Fifty Thousand (Kshs. 250, 000.00) within the next thirty (30) days of the delivery of this ruling failure to which the ex parte Judgment entered against them on 15th December, 2021 shall be reinstated
THAT the costs of the two applications to be in the cause.
In the absence of such identification even with the detailed affidavit of service, the Court is unable to find that there was proper service effected upon the Defendant herein.
The fact that Clause 19 ( 1) of the Lease Agreement makes provision for the matter to be referred to arbitration does not deprive the Court of the legal mandate to seize the matter whatsoever.
I am fully satisfied and proceed to find that the 2nd Intended Defendant a necessary party to this suit.
Issues in the judgment
#Lease date inconsistently stated as 2014 and 2018
Loan figure varies between Kshs 2,272,107,775.62 and 2972,107,775.62
Pre-trial conferencing date given as 2013 despite 2023 ruling
Loan amount left blank in the analysis section
Key timeline
#Practical implications
#Frequently asked questions
#Cite this brief
#Cite this brief
Caselaw, "James Kariuki Kanyeki & another (The registered trustees suing on behalf of Kenya Railways Staff Retirement Benefits Scheme) v Blue Water Properties Limited & another", Case Analysis (2023). Environment & Land Case E002 of 2021. Source: https://new.kenyalaw.org/akn/ke/judgment/keelc/2023/16497/eng@2023-03-21
Suggested citation format for research notes or client memos. Always verify the original judgment before relying on any point.