[2023] KEHC 27541 (KLR)

Fahari Building and Civil Engineering Limited v Attorney General (Sued on behalf of the Ministry of Interior and Coordination of National Government and the Director of Kenya School of Government) (Commercial Case 05 of 2020) [2023] KEHC 27541 (KLR) (17 November 2023) (Judgment)

Neutral citation: [2023] KEHC 27541 (KLR)

Republic of Kenya

In the High Court at Mombasa

Commercial Case 05 of 2020

F Wangari, J

November 17, 2023

Between

Fahari Building and Civil Engineering Limited

Plaintiff

and

The Hon Attorney General

Defendant

Sued on behalf of the Ministry of Interior and Coordination of National Government and the Director of Kenya School of Government

Judgment

1. In the Plaint dated 27th April 2016, the Plaintiff pleaded among others that:i.In May 2008, the Defendant awarded the Plaintiff a contract to erect conference facilities at an initial cost of Kshs. 59,666,650 and the contract was executed on 5/6/2008. ii.The Plaintiff completed all the works but the Defendant failed to pay the contractual amount in full.iii.The amount owing at the time of completion was Kshs. 9,138,427 and last moiety retention amount of Kshs. 3,416,552. 65.

2. The Plaintiff thus prayed for the following reliefsa.Kshs. 12,554,980. 25. b.Interest at 18% per annum from 20th February 2014 until payment in full.c.Costs.

3. The Defendant filed its Defence on 22nd August 2016 in which it denied the allegations by the Plaintiff and stated inter alia that:a.There was no outstanding claim under contract following the payment of Kshs. 80,737,173. 45 in full payment of services rendered.b.The last moiety retention of Kshs. 3,416,552 was not paid since the Client Inspection Team did not concur with the certificate making good defects issued by the Project Manager.

4. At the hearing the Plaintiff called PW1, who relied on her witness statement and the bundle of documents both dated 27th April 2016 to support the Plaintiff’s case. It was her case that the initial cost of construction was Kshs. 59,666,650 out of which the Defendant did not settle Kshs. 12,554,980. 25. It was her further testimony that a payment voucher for the final moiety retention of Kshs. 3,416,552. 60 was done by the Defendant on 21st May 2014 but the payment was never made.

5. On cross examination, it was her case that the contract was divided into two phases with a total amount of Kshs. 89,874,595. 96 and the Defendant had settled a total of Kshs. 80,736,168 leaving a balance of about Kshs. 9 Million.

6. The Court was also informed that works were fully done and a certificate was issued after the Defendant was certified with the work.

7. The Defendant closed their case without calling a witness.

Plaintiff’s Submissions 8. The Plaintiff filed written submissions dated 24th July 2023. It was submitted that where a partial payment is done in settlement of a debt, there is a clear admission of indebtedness by the Defendant and an allegation that the goods were not satisfactory is a mockery and makes the defense a sham. Reliance was placed on the case of Spin Knit Ltd v Subsahara Supplies Limited (2012) eKLR.

9. Both parties were allowed an opportunity to file written submissions. I have not had sight of the Defendant’s submissions.

Analysis 10. The Court has reviewed and considered the pleadings, testimonies, evidence produced by parties in support and opposition to their respective cases as well as the filed submissions and authorities.

11. The issue for determination in this case is whether the Defendant is in breach of the agreement made on 5th June 2008 as to entitle the Plaintiff to the reliefs sought.

12. The dispute thus revolves around breach of contract. It is clear that a valid contract has, in law, terms binding the parties thereto and which they are under duty and obligation to perform. Proof of performance or breach of contract is a matter civil law subject to a balance of probabilities.

13. This position was well summarized by Njugi, J as she then was in Taidy’s Restraurant v Gerfas Otieno Sammy t/a Nyanco Investment Contractors [2019] eKLR where she reflected the proper standard of performance of contracts as follows:“The plaintiff in a civil suit is required to prove his or her case on a balance of probability-see Kirugi & Anor. -vs- Kabiya & 3 others [1987] KLR 347. In the present matter, I am satisfied that the trial court properly reached the conclusion that the appellant had entered into a contract for the construction of a car park for the appellant, that the respondent had performed his part of the contract but the appellant had failed to pay the contractual sum, and it properly entered judgment for the respondent.”

14. Similarly, in the case of Pius Kimaiyo Langat v the Kenya Commercial Bank of Kenya Ltd [2017] eKLR the Court of Appeal restated its decision in William Muthee Muthami v Bank of Baroda [2014] eKLR to the effect that:“In the law of contract, the aggrieved party to an agreement must, in addition, prove that there was offer, acceptance and consideration. It is only when those three elements are available that an innocent party can bring a claim against the in breach.”

15. The Court proceeded to state:“Lord Clarke, in RTS Flexible Systems Ltd v Molkerei Aloi Muller GM BH [2010] I WLR 753 at [45], [2010] UK SC 14 put it this way:“The general principles are not in doubt. Whether there was binding contract between the parties and if so, upon what terms depends upon what they have agreed. It depends not upon their subjective state of mind, but upon a consideration of what was communicated between them by words or conduct, and whether that leads objectively to a conclusion that they intended to create legal relations and had agreed upon all the terms which they regarded or the law requires as essential for the formation of legally binding relations. Even if certain terms of economic or other significance have not been finalized, an objective appraisal of their words and conduct may lead to the conclusion that they did not intend agreement of such terms to be a precondition to a concluded and legally binding agreement.”(emphasis added)

16. Furthermore, the elements of a contract are set out in Halsbury’s Laws of England 4th (ed.) Re-Issue Vol. 9(1) paragraph 603 at page 340 as follows:“To constitute a valid contract (1) there must be two or more separate and definite parties to the contract; (2) those parties must be in agreement, that is, there must be consensus on specific matters (often referred to in the older authorities as ‘consensus ad idem’); (3) those parties must intend to create legal relations in the sense that the promises of each side are to be enforceable simply because they are contractual promises; (4) the promises of each party must be supported by consideration or by some other factor which the law considers sufficient. Generally speaking, the law does not enforce a bare promise.”

17. In the instant case, the existence and validity of contract is not a disputed matter and this court proceeds on the basis of the existence of a valid contract between the parties.

18. The Plaintiff pleaded that the Defendant owed it outstanding payments for the work done of Kshs. 12,554,980. 25 with interest at commercial rates. On the other hand, the Defendant contented in its pleadings that it had settled the entire amount and the last moiety retention of Kshs. 3,416,552/= was not paid since the Client Inspection Team did not concur with the certificate making good defects issued by the Project Manager.

19. Whereas the Appellant failed to call a witness, I acknowledge that the burden of proof still remains with the Plaintiff. The Court of Appeal in the case Charterhouse Bank Limited (under Statutory Management v Frank N. Kamau (2016) eKLR had occasion to consider the burden of proof of the plaintiff where the defendant failed to adduce evidence. The court stated in that case:-“We would therefore venture to suggest that before the trial court can conclude that the plaintiff’s case is not controverted or is proved on a balance of probabilities by reason of the defendant’s failure to call evidence, the court must be satisfied that the plaintiff has adduced some credible and believable evidence, which can stand in the absence of rebuttal evidence by the defendant. Where the defendant has subjected the plaintiff or his witnesses to cross-examination and the evidence adduced by the plaintiff is thereby thoroughly discredited, judgment cannot be entered for the plaintiff merely because the defendant has not testified. The plaintiff must adduce evidence, which in the absence of rebuttal evidence by the defendant convinces the court that on a balance of probabilities, it proves the claim. Without such evidence, the plaintiff is not entitled to judgment merely because the defendant has not testified.”

20. In the circumstances, the Court is called upon to analyze the total works that the subject contract anticipated to be done by the parties as weighed against the works that the Plaintiff completed so as to arrive at a decision as to whether the contract was breached, and by which party.

21. The Defendant averred that the entire contract amount was paid. The evidence produced by the Plaintiff showed that the Defendant has not paid the entire contract amount. The Plaintiff’s witness testified that the Defendant settled a total of Kshs. 80,736,168 out of the entire amount of 89,874,595. 96.

22. In its defence, the Defendant stated that it had paid a total amount of Kshs. 80,738,173. 45. the Defendant also stated that the moiety retention amount was not settled because the Client Inspection Team did not concur with the certificate making good defects issued by the Project Manager. The Defendant however did not lead any evidence as to who was entitled to make what extent of indulgence before payments to the Plaintiff would be cleared.

23. The court is guided by the case of Kenya Akiba Micro Financing Limited V Ezekiel Chebii & 14 Others [2012] eKLR where the court held that“Section 112 of the Evidence Act Chapter 80 of the laws of Kenya provides:-In civil proceedings, when any fact is especially within the knowledge of any party to those proceedings, the burden of proofing of disproving that fact is upon him……where a party has custody or is in control of evidence which that party fails or refuses to tender or produce, the court is entitled to make adverse inference that if such evidence was produced, it would be adverse to such a party’. The plaintiff cited the case of Kimotho –vs- KCB (2003) 1 EA 108 the court held that adverse inference should be drawn upon a party who fails to call evidence in his possession.

24. In discerning the legal effect of a certificate of completion in the circumstances of this case, I tend to agree with the Court’s reasoning in Cottingham Properties Limited v Tausi Assurance Company Limited & another; Chandreshkumar Madhubhai Babariya & 2 others (Third Party [2019] eKLR as follows:“Accordingly, even if the 2nd defendant had completed the works (which is vehemently denied), the 2nd defendant was still in default of the terms of the building contract by failing to complete the works within the time frame provided or extended under the terms of the contract. This act of default alone entitled the plaintiff to; (a) seek forfeiture of the bond and (b) damages against the 2nd defendant as quantified in the appendix to the building contract. Therefore, whilst the certificate of practical completion is evidence of completion of the works by the plaintiff, it was irrelevant for the purposes of the building contract.”

25. I note that the certificate of making good defects was issued on 21st May 2014 and is produced by the Plaintiff in evidence. It confirmed that the maintenance repairs were completed and release of retention and surety bond was advised. It was issued by the Ministry of Land, Housing and Urban Development and Public Works, the Defendant.

26. Therefore, the Defendant conducted itself in a manner to suggest ratification that the Plaintiff had substantially completed the contracted works and cannot turn around, without a genuine counterclaim, to claim otherwise.

27. Similarly, nothing was filed in Court to demonstrate that the Defendant demanded against the Plaintiff for the payment of works not done but paid for or calling upon the Plaintiff to rectify any defects within the requisite period of time, or at all.

28. From the final accounts and payment vouchers that the Plaintiff produced in Court and were not controverted by the Defendant, the existence of a debt is evident which confers an obligation on the part of the Defendant to settle under contract. As submitted by the Plaintiff partial payment to settle a debt is as a good as an admission of the debt. As was held by Majanja J in the case of Monarch Insurance Company Limited v Disney Insurance Brokers Limited [2021] eKLR,“After the last email, the Plaintiff wrote to the Defendant the demand letter dated 29th November 2019 referenced, “STATEMENT OF ACCOUNT & OVERDUE PREMIUMS ON YOU’RE A/C – KES 61,754,049. 72’’ In its response dated 10th December 2019, the Defendant stated in part, “We regret the inconvenience cause by the unbanked cheques and appreciate your patience on the same….” This letter confirms that the unbanked cheques were intended for settlement of the outstanding debt. In the same letter, the Plaintiff stated that it was planning to settle part of the debt by paying KES. 1,000,000. 00 every month commencing 22nd January 2020. I hold that this clear evidence that the Defendant was indebted to the Plaintiff.”

29. The Defendant has the opportunity to modify or amend interim certificates but not the final payment certificates. I say so because before processing the final payments certificates, the Defendant was deemed to have confirmed compliance on the part of the Plaintiff and cannot turn around to seek to adjust the payments in the final certificate.

30. This Court will not encourage parties to freely exercise their contractual duties and later turn around to reopen sealed deals without a reason that goes to the fundamental breach of the contract for this would amount to fettering the contractual freedom of the parties as was held in the case of Northern Regional Health Authority vs Derrick Crouch Construction Co Ltd (1984) 2 ALL 193.

31. The Doctrine of Estoppel is well captured under Section 120 of the Evidence Act which provides:-“When one person has, by his declaration, act or omission, intentionally caused or permitted another person to believe a thing to be true and to act upon such belief, neither he nor his representative shall be allowed, in any suit or proceeding between himself and such person or his representative, to deny the truth of that thing.”

32. The Plaintiff’s claim thus succeeds to the extent that the Plaintiff completed the contracted works but the Defendant did not fully pay the consideration under contract.

33. The Plaintiff however prayed for interest at commercial rates. I find no basis for this. Interest at commercial rates has to be proved. In the case of Intraspeed Logistics Ltd & 15 others v Commissioner of Police & another [2018] eKLR, the court stated as follows:“...The plaintiffs are entitled to interest but in the absence of proof of commercial rates they are only entitled to interest at court rates.”

34. It is also settled that simple interest on liquidated damages should commence from the date of filing the suit. In the celebrated Mukisa Biscuits Manufacturing Company Limited v West End Distributors Limited (1970) EA 469 the court stated as follows:“The principle that emerges is that where a person is entitled to a liquidated amount or to specific goods and has been deprived of them through the wrongful act of another person, he should be awarded interests from the date of filing suit. Where, however, damages have to be assessed by the Court, the right to those damages does not arise until they are assessed and therefore interest is only given from the date of the judgment.”

35. Similarly, in Jane Wanjiku Wambu v Anthony Kigamba Hato & 3 others [2018] eKLR, the court stated as follows:32. I have come to the conclusion that the Learned Trial erred by not adverting her mind to whether interest was payable on the liquidated sum she ordered the Respondent to pay to the Appellant. Had the Learned Trial Magistrate done so, she would have likely reached the conclusion that the Appellant was entitled to an award of interest at Court Rates from the time of filing the suit since she had already concluded that the Appellant was entitled to a liquidated amount which she had been deprived of by the actions of the Respondents. This is the predictable rule on award of interest on liquidated sums that has emerged from our Courts’ repeated application of Section 26 of the Civil Procedure Act. The cases cited above reached the conclusion that where a claim is for liquidate damages, unless there is good cause, the interest should be calculated from the date of filing the suit.

36. The upshot is that I make the following orders: -i.The Defendant shall pay Kshs. 12,554,980. 25/= to the Plaintiff being the outstanding balance under contract.ii.The Amount shall attract interest at court rates from the date of filing the suit.iii.The Plaintiff shall have the Costs of the suit.

It is so ordered.

DATED, SIGNED AND DELIVERED AT MOMBASA THIS 17TH DAY OF NOVEMBER, 2023F. WANGARIJUDGEIn the presence of:-Masore Advocate for the PlaintiffN/A by the DefendantBarile, Court Assistant