Legal Guides

Set-Off and Counterclaims in Kenya: Order 7 Pleading, Evidence and Trial

A set-off or counterclaim in Kenya allows a defendant to do more than deny the plaintiff’s case. Properly pleaded, it can reduce the amount recoverable by the plaintiff or produce an affirmative judgment for the defendant. Order 7 of the Civil Procedure Rules treats the counterclaim as a cross-suit, which means it needs its own material facts, evidence and remedies. A short paragraph saying that the plaintiff also owes money will rarely be enough.

The choice between set-off and counterclaim affects pleading, proof and case strategy. Set-off commonly answers a money demand with a measurable cross-demand. A counterclaim can seek damages, declarations, injunctions, accounts or other relief and may survive even when the plaintiff withdraws or loses the original suit. Both routes must remain within the court’s jurisdiction and must be served and defended as part of the pleadings.

What Order 7 rule 3 permits

Order 7 rule 3 of the Civil Procedure Rules permits a defendant to set off or set up by counterclaim any right or claim against the plaintiff. The claim may be for damages or another form of relief and may be independent of the plaintiff’s claim. The rule is deliberately broad, but it does not dispense with limitation, jurisdiction, parties, pleadings or evidence.

A counterclaim is not merely a reason why the plaint should fail. It asks the court to grant an order against the plaintiff. A defence might say that goods were defective and therefore no purchase price is due. A counterclaim may go further and claim the cost of replacement goods, lost income that is legally recoverable, interest and costs. The pleading must make clear which allegations are defensive and which support an affirmative judgment.

Kihara v Gituma t/a Dona Snacks & 2 others discusses the breadth of Order 7 rule 3 and the court’s power to decide whether a proposed counterclaim can conveniently be tried with the main suit. The provision does not require the cross-claim to arise from the identical transaction, but practical connection, jurisdiction and fairness remain important.

Set-off and counterclaim are related but different

Set-off is usually deployed where both sides assert money obligations and the defendant asks the court to balance them. If a supplier sues for KSh 4 million and the buyer proves a qualifying KSh 1 million set-off, the result may be a net KSh 3 million judgment. The exact availability of legal or equitable set-off depends on the relationship between the debts, the contractual terms and the relief claimed.

A counterclaim is wider. It is a cross-action that can yield judgment beyond the amount claimed in the plaint. If the buyer proves KSh 6 million in recoverable loss against the supplier’s KSh 4 million demand, the court may, subject to the evidence and law, dismiss or reduce the original claim and enter a net judgment for the defendant. A counterclaim can also seek non-monetary relief, such as a declaration about a contract or an injunction.

Do not label every complaint a set-off merely because money is involved. Identify whether the defendant seeks only to extinguish the plaintiff’s demand, a separate judgment, or both in the alternative. Check any contractual netting clause, arbitration clause, exclusive jurisdiction term, notice requirement or agreed limitation of liability before drafting.

The claim must fall within the court’s jurisdiction

Order 7 rule 3 does not expand the court’s subject-matter or monetary jurisdiction. A magistrate’s court cannot decide a counterclaim beyond the jurisdiction Parliament has given it. A land dispute must be placed before a court with jurisdiction over that dispute; an employment claim must follow the proper forum; and a contractual arbitration clause may require a stay application rather than trial of the counterclaim in court.

Jurisdiction should be tested at the outset, not after witnesses have testified. Record the monetary value, the legal nature of each remedy, where the cause arose, the parties’ status and any statutory forum. If the counterclaim would take the whole case beyond the present court’s competence, seek advice on transfer, amendment or separate proceedings before filing an incurable pleading.

Plead the counterclaim as a self-contained case

Order 7 rule 7 requires a defendant relying on grounds supporting a counterclaim to state specifically that the claim is made by way of counterclaim. Good drafting normally separates the defence from a clearly headed counterclaim, identifies the parties to it, pleads the material facts in numbered paragraphs and ends with precise prayers.

The pleading should state when the cause of action accrued, the contract or duty relied on, the breach or wrongful act, causation and the resulting loss. Special damages must be specifically pleaded and later strictly proved. If fraud, misrepresentation, breach of trust, illegality or undue influence is alleged, give the particulars required by the pleading rules instead of relying on general accusations.

Where interest is claimed, state the basis, rate and period. If an account is sought, identify the relationship and records that make an account necessary. If the relief is an injunction or declaration, frame the exact order. A vague request for “any other relief” cannot substitute for a pleaded substantive remedy.

Documents and evidence filed with the defence

Order 7 rule 5 provides for the material accompanying a defence or counterclaim. Depending on the claim, the filing should include the verifying affidavit, witness list, signed witness statements and copies of documents to be relied on at trial. Margaret Muthoni Wanyee v Mukenia Co-operative Society Limited explains that rule 5 mirrors the disclosure expected from a plaintiff and exists to prevent trial by ambush.

A commercial counterclaim file may require:

• the signed contract, schedules, purchase orders and variations;
• invoices, delivery notes, acceptance records and credit notes;
• bank statements, payment instructions and reconciliations;
• notices of breach, demand letters and responses;
• emails or messages showing instructions, admissions and objections;
• technical, quantity-surveyor, valuation or audit reports;
• a loss schedule tied to source documents;
• witness statements from persons who negotiated, performed or recorded the transaction;
• evidence of mitigation and replacement expenditure; and
• company resolutions or authority where capacity may be disputed.

Preserve native electronic records and the surrounding conversation, not isolated screenshots. For recurring accounts, produce a comprehensible ledger and explain opening balances, credits, interest and disputed entries. An expert report does not repair missing primary records. If a necessary document is held by the plaintiff or a third party, identify it early for disclosure or production directions.

Limitation and the date the counterclaim accrued

A counterclaim is not protected from limitation simply because the plaintiff sued first. Determine the applicable limitation period and the date when the defendant’s cause of action accrued. Contract, tort, land and statutory claims may have different periods and special notice requirements. A claim added by amendment can create an additional question about whether the new cause was already time-barred.

Prepare a dated chronology showing performance, breach, knowledge, demand, acknowledgment and payment. If relying on acknowledgment, disability, fraud, mistake or another statutory postponement, plead the supporting facts and preserve the evidence. Do not assume that ongoing correspondence automatically stops time.

Replying to a defence and counterclaim

The plaintiff becomes a defendant to the counterclaim and should answer it paragraph by paragraph. Order 7 rule 11 governs the reply to a defence and the defence to counterclaim. Read the served pleading immediately, calendar the applicable response date and check whether a default process may be available if no defence to counterclaim is filed.

The response should admit what is true, deny disputed facts specifically and plead any affirmative answer such as payment, release, accord and satisfaction, limitation, illegality, contractual exclusion, arbitration, res judicata or lack of jurisdiction. Attach the witness and documentary material required for the response and identify any application that must be made before trial.

If the counterclaim changes the factual scope of the case, the plaintiff may need to amend the plaint, join a necessary party or seek particulars. Our guide to amending pleadings in Kenya explains how timing, prejudice and consequential amendments affect that decision.

When the plaintiff can seek exclusion

Order 7 rule 12 allows a plaintiff to apply for a counterclaim to be excluded where it ought not to be disposed of in the pending suit. The application is not won merely by showing that the counterclaim is inconvenient to the plaintiff. The court considers whether combining the claims will fairly and efficiently resolve the dispute or instead cause confusion, delay, jurisdictional difficulty or prejudice.

Grounds may include an unrelated and complex controversy, a different mandatory forum, parties who cannot properly be bound, trial directions that would become unmanageable or a cross-claim that should be pursued separately. The applicant should identify the exact pleading, evidence and case-management consequence rather than simply asserting that the claim is “foreign” to the plaint.

A defendant opposing exclusion should prepare an issue map showing common documents, witnesses and legal questions, and explain the risk of inconsistent decisions if separate proceedings are required. An order under rule 12 is appealable as of right under Order 43, making a careful record important.

Striking out is different from excluding a counterclaim

Exclusion concerns whether a viable counterclaim should be tried in the same action. Striking out argues that the pleading is legally defective, scandalous, frivolous, vexatious, prejudicial, embarrassing or an abuse of the court process. The remedies and tests are different. A plaintiff should choose the application that matches the defect and avoid using a summary procedure to conduct a contested trial on affidavit.

If the problem is missing particulars or an unclear prayer, an amendment or particulars order may be proportionate. If the counterclaim discloses no sustainable cause, is plainly time-barred with no arguable answer, or is brought in a court without jurisdiction, a stronger dispositive objection may arise. See the guide to striking out pleadings under Order 2 rule 15.

What happens if the original suit ends

Order 7 rule 13 states that when the plaintiff’s suit is stayed, discontinued or dismissed, the counterclaim may nevertheless proceed. This follows from its status as a cross-suit. Ngolepus v Lonapa & another applies that principle: disposal of the plaint does not automatically extinguish a properly filed counterclaim.

A plaintiff considering withdrawal must therefore review the counterclaim and cannot assume the entire case will close. The defendant must also keep prosecuting the counterclaim: attend directions, file compliant evidence, serve hearing notices and prove the relief sought. Survival under rule 13 is not automatic judgment.

Settlement documents should address both the plaint and counterclaim expressly. State whether each is withdrawn, compromised or preserved, who pays costs, whether money is netted, which admissions are withdrawn and what consent orders the court should record. Ambiguous settlement language can leave one half of the suit alive.

Trial, judgment and netting the result

At case management, separate the issues on the plaint from those on the counterclaim and identify the overlap. The plaintiff bears the burden on the original claim; the counterclaimant bears the burden on the cross-claim. Admissions on one side do not necessarily prove the other. The court may hear the evidence together but should pronounce judgment on both claims and state any net sum and costs consequence clearly.

A party seeking early judgment should distinguish an admission from a contested set-off. A credible counterclaim may affect whether final judgment can be entered for the whole demand, while an unrelated or unproved assertion will not necessarily defeat a clear admission. The practical tests are addressed in our guides to judgment on admission and summary judgment in Kenya.

Prepare separate damages schedules and then a proposed net calculation. Deal with interest on each award, tax where relevant, costs, set-off dates and any conditional relief. Where different currencies or ongoing accounts are involved, propose a workable decree rather than leaving arithmetic disputes for execution.

Practical checklist before filing or responding

1. Identify whether the intended answer is a defence, set-off, counterclaim or combination.
2. Confirm the forum’s subject-matter, territorial and monetary jurisdiction.
3. Calculate limitation and any contractual or statutory notice period.
4. Plead material facts, special damages and particulars required by law.
5. State expressly that the claim is made by way of counterclaim.
6. Draft precise prayers capable of appearing in a decree.
7. File the verifying affidavit, witness list, statements and documents required by Order 7 rule 5.
8. Serve every affected party and record the response deadline.
9. Consider amendment, joinder, exclusion, arbitration or jurisdiction applications early.
10. Preserve electronic records and prepare a source-backed loss schedule.
11. At case management, separate original-claim and counterclaim issues.
12. Ensure settlement or withdrawal documents dispose of both sides expressly.

If you need to plead or defend a set-off or counterclaim in Kenya, send a civil-litigation advocate the plaint, draft defence, contracts, invoices, payment records, notices, correspondence, loss schedule and every existing court order. Early review can protect limitation, select the correct forum, produce a self-contained pleading and prevent a valuable cross-claim from being lost through missing evidence or an unclear prayer.