Leisure Lodges Limited v Patcham Holdings Limited & another [2016] KECA 790 (KLR)
The bottom line
#Kenya's Court of Appeal confirmed that exclusive foreign jurisdiction clauses in contracts must be honoured, throwing out a suit filed in Kenya in breach of one.
What this practically means
#Executive summary
#Key legal issues
#Laches in prosecuting interlocutory applications
The trial judge misdirected himself in finding the appellants guilty of laches; where a prior court order prescribed the sequence in which applications would be heard and had not been reviewed or appealed, the delay could not fairly be attributed to the appellants.
Nyamu J. had, in a ruling dated 8th May 2003, ordered that the applications be heard in a specified sequence, meaning the two applications could only be heard after disposal of an earlier application by Patcham Holdings Ltd. That order had not been reviewed or appealed. The six-year delay was therefore not the appellants' fault and no laches could be asserted against them.
Service out of jurisdiction and exclusive foreign jurisdiction clause
The cause of action, being a breach of trust arising out of the agency agreement governed by Liechtenstein law with exclusive Vaduz jurisdiction, could only be sustained in Liechtenstein; the leave to serve out of jurisdiction was wrongly granted and ought to have been set aside.
The plaint was founded on alleged breach of trust by Mr. Silvani under the agency agreement, not on tort or contract as such, so Order V Rule 21(e) and (f) did not apply. The agreement vested exclusive jurisdiction in the FL Landgericht, Vaduz. Following Raytheon v Air Al-Faraj, effect must ordinarily be given to such a clause unless strong reasons for suing elsewhere are shown, and none were demonstrated.
Mode of service of summons outside the Commonwealth
Service of summons on Numised A.G. in a non-Commonwealth country could only be effected through the diplomatic channel under Order V Rule 27; service by registered post was improper and a nullity.
Order V Rule 27(a) requires the notice to be sealed by the High Court and transmitted through the Minister for Foreign Affairs for transmission via diplomatic channels where service is to be effected in a non-Commonwealth country. Liechtenstein (and Switzerland) is not part of the Commonwealth, so Rule 23 did not apply and the registered post mode used was improper.
Striking out the plaint for disclosing no reasonable cause of action
The plaint disclosed no reasonable cause of action and ought to have been struck out, given the ouster of Kenyan jurisdiction and section 119 of the Companies Act prohibiting notice of trusts on the register.
The grievances arose from the agency agreement containing a clause ousting Kenyan jurisdiction. Further, Patcham Holdings Ltd sought declarations effectively recognising it as a shareholder on the strength of a trust over shares, contrary to section 119 of the Companies Act, as held in Vadag Establishment v Yashvin Shretta. The plaint was therefore obviously unsustainable.
Legal principles established
#- Where parties have bound themselves by an exclusive jurisdiction clause, effect should ordinarily be given to it unless the party suing in the non-contractual forum discharges the burden of showing strong reasons for suing in that forum.
- Service of summons on a person in a non-Commonwealth country outside Kenya may only be effected through the diplomatic channel under Order V Rule 27, and service by registered post is improper.
- Section 119 of the Companies Act prohibits entry of a notice of any trust on the register, and a beneficiary of a trust of shares does not acquire legal standing as a shareholder under the Companies Act.
- The power to strike out pleadings for disclosing no reasonable cause of action should be used sparingly and cautiously, and is exercisable only where the pleading is obviously unsustainable on its face.
Court orders
#- 1.The ruling and orders of Warsame, J. dated the 7th July 2008 be and are hereby set aside
- 2.The Notice of Motion application dated the 12th July 2002 by Numised A.G. seeking to set aside the ex parte leave to serve summons outside the jurisdiction be and is hereby allowed with costs
- 3.The Chamber Summons application dated the 28th January 2003 by Leisure Lodges Ltd seeking to strike out the plaint be and is hereby allowed
- 4.The appellants will have the costs of the appeals
- On appeal from
- High Court of Kenya at Nairobi
- H.C.C.C. No. 405 of 2002
- Jurisdiction invoked
- First appeal to the Court of Appeal against a ruling of the High Court (ruling and order dated 7th July 2008 in H.C.C.C. No. 405 of 2002)
Key timeline
#Practical implications
#Frequently asked questions
#Later judgments citing this (1)
#Judgments in the corpus that rely on this one. Where the Court said how it treated the authority, that is shown.
- Republic v Senior Resident Magistrate's Court, Tononoka, Mombasa, Ex Parte H L (Interested Party: F L)[2016] KEHC 4275 (KLR)15 Jul 2016
Cite this brief
#Cite this brief
Caselaw, "Leisure Lodges Limited v Patcham Holdings Limited & another [2016] KECA 790 (KLR)", Case Analysis (2016). Civil Appeal No. 203 of 2009 (consolidated with Civil Appeal No. 205 of 2009). Source: https://new.kenyalaw.org/akn/ke/judgment/keca/2016/790/eng@2016-02-12
Suggested citation format for research notes or client memos. Always verify the original judgment before relying on any point.