https://new.kenyalaw.org/akn/ke/judgment/kehc/2026/10444

**REPUBLIC OF KENYA** **IN THE HIGH COURT OF KENYA AT NAIROBI** **CIVIL APPELLATE DIVISION** **HCCSCA E051 OF 2025** **HENRY IRUNGU MWAURA** **T/A TRIPPLE ALPHA FEEDS…………………………………APPELLANT** **-VERSUS-** **SAMSON MUTHAMA GAKUMO…………………………..RESPONDENT** ***(****Being an Appeal against the ruling of Hon. Sylvia Wayodi, Adjudicator delivered on 1st August, 2024 in Thika Small Claims Court Case SCCCOMM E506 OF 2024)* **JUDGMENT** **Introduction** 1. This appeal arises from the Ruling of the Small Claims Court at Nairobi (Hon. Sylvia Wayodi, Adjudicator) delivered on 1stAugust, 2024 in **Small Claims Case No. E506 of 2024**, whereby the learned Adjudicator upheld the Respondent's Preliminary Objection dated 13th January 2024 and consequently struck out the Appellant's claim for want of jurisdiction. 2. At the heart of the appeal lies the question whether the dispute before the Small Claims Court was one founded upon employment and labour relations, thereby falling exclusively within the jurisdiction of the Employment and Labour Relations Court, or whether it was a civil claim for recovery of money allegedly collected, held and retained by the Respondent on behalf of the Appellant, thus falling within the jurisdiction conferred upon the Small Claims Court under **Section 12 of the Small Claims Court Act**. 3. The appeal equally raises the important question whether the Preliminary Objection satisfied the well-established legal threshold governing preliminary objections in Kenya, particularly where the objection was supported by an affidavit containing contested factual matters. **Background** 1. The record shows that on or about 1st August 2023, the Appellant employed the Respondent as a Regional Sales Representative responsible for marketing and selling animal feeds and raw materials. 2. According to the employment contract executed by the parties, the Respondent's duties included sourcing customers, consolidating their orders and coordinating deliveries using the Appellant's transport under the supervision of the Appellant. 3. The Appellant pleaded that although the Respondent was responsible for coordinating sales, he was expressly prohibited from receiving or handling customers' money unless expressly authorized by the Appellant's Director. 4. It was the Appellant's case that notwithstanding those express instructions, the Respondent proceeded to receive payments directly from various customers while other customers continued remitting payments through the Appellant's official M-Pesa Till Number. 5. The Appellant further alleged that following the Respondent's collection of customers' funds, substantial sums remained unaccounted for despite repeated demands for accountability. 6. The Appellant pleaded that on 27th November 2023 it requested the Respondent, through WhatsApp communication, to furnish particulars of outstanding customer balances. 7. The Respondent allegedly undertook to provide a comprehensive list of customers together with outstanding balances and further promised to collect and remit all outstanding sums by 10th December 2023. According to the Appellant, the promised remittance was never made. 8. Consequently, the Appellant convened a reconciliation meeting on 13th December 2023. During that meeting, the Appellant contended that reconciliation of accounts established that the Respondent had failed to account for Kshs.283,120 being customers' payments allegedly received on behalf of the Appellant. 9. The Appellant further alleged that during the reconciliation meeting the Respondent admitted receiving an additional Kshs.50,000 from customers, which he claimed to have utilized for fuel expenses, and Kshs.45,000 as salary advance. 10. The record further indicates that following the meeting, the Respondent authored a handwritten undertaking dated 13th December 2023 authorizing the Appellant to recover the salary advance by deducting Kshs.5,000 per week commencing January 2024. 11. The Appellant further pleaded that after subsequent communication, the Respondent supplied particulars of only fifteen customers. However, according to the Appellant, the information supplied proved unreliable because several customers lacked contact details, some denied owing the alleged balances, while one customer had already settled the account. 12. Faced with what it considered deliberate failure to account for company funds, the Appellant reported the matter to the police. The Appellant further pleaded that despite several meetings and demands, including those made through the police, the Respondent failed to account for the money allegedly collected. 13. Consequently, the Appellant instituted proceedings before the Small Claims Court seeking recovery of Kshs.388,120 being the aggregate of:- 14. ***Kshs.283,120 allegedly collected from customers and not remitted;*** 15. ***Kshs.50,000 utilized without authority as fuel expenses;*** 16. ***Kshs.45,000 taken as unauthorized salary advance;*** 17. ***together with costs and interest.*** **Proceedings before the Small Claims Court** 1. Before filing any response to the claim, the Respondent raised a Preliminary Objection dated 14th May, 2024. 2. The main ground of the objection was that the Small Claims Court lacked jurisdiction because the dispute emanated from an employment contract executed between the parties on 1st August 2023. 3. The Respondent contended that resolution of the claim necessarily required interpretation and enforcement of the employment contract, including issues relating to salary, facilitation, fuel allowance and employment obligations. 4. The Respondent therefore argued that the dispute fell exclusively within the jurisdiction established under **Article 162(2)(a) of the Constitution** and **Section 12 of the Employment and Labour Relations Court Act.** 5. The Preliminary Objection was accompanied by a Supporting Affidavit sworn by the Respondent, in which he deposed that he was employed by the Appellant under an employment contract, that his remuneration varied depending on the company's operations, that his terms of employment incorporated statutory labour rights, including annual leave, and that the dispute arose fundamentally from an employer–employee relationship. 6. The Appellant opposed the Preliminary Objection. It maintained that the claim before the Small Claims Court was not an employment dispute but rather a civil claim for recovery of money held and received by the Respondent on behalf of the Appellant. 7. The Appellant further contended that the Preliminary Objection offended the principles laid down in ***Mukhisa Biscuit Manufacturing Co. Ltd v West End Distributors Ltd [1969] EA 696*** because it relied upon disputed facts introduced through a supporting affidavit. 8. Following consideration of the parties' written submissions, the learned Adjudicator held that determination of the claim would inevitably require examination of the employment relationship, salary advances and employment obligations. 9. The Court thereafter, concluded that the cause of action was founded upon employment and labour relations and consequently fell outside the jurisdiction of the Small Claims Court by virtue of Section 13(5) of the Small Claims Court Act. The Preliminary Objection was accordingly upheld. **The Appeal** 1. Aggrieved by the ruling of the Small Claims Court, the Appellant lodged the present appeal vide a Memorandum of Appeal challenging the entirety of the decision of the learned Adjudicator. 2. The Appellant set out four grounds of appeal, which, in summary, fault the learned Adjudicator for; 3. ***finding that the Small Claims Court lacked jurisdiction to hear and determine a dispute relating to money allegedly held and received by the Respondent on behalf of the Appellant;*** 4. ***finding that the dispute constituted an employment and labour relations dispute falling exclusively within the jurisdiction of the Employment and Labour Relations Court;*** 5. ***failing to find that the Preliminary Objection was incompetent for introducing contested factual matters through a supporting affidavit; and*** 6. ***allowing the preliminary objection on grounds that the Respondent has a counterclaim for unpaid dues, which counter claim was not filed before the court.*** 7. The Appellant consequently prayed that this Court allows the appeal, sets aside the ruling delivered on 1st August 2024, dismisses the Preliminary Objection dated 13th January 2024, and remits the suit to the Small Claims Court for hearing and determination on its merits before a different Adjudicator. **Appellant's Submissions** 1. Pursuant to directions of this Court, the appeal was canvassed by way of written submissions. Learned counsel for the Appellant filed submissions urging this Court to allow the appeal. Counsel identified two broad issues for determination, namely: 1. ***Whether the Preliminary Objection met the legal threshold.*** 2. ***Whether the Small Claims Court possessed jurisdiction to entertain the claim.*** 3. On the first issue, counsel submitted that the Preliminary Objection offended the well-established principles enunciated in ***Mukhisa Biscuit Manufacturing Co. Ltd v West End Distributors Ltd [1969] EA 696***, wherein the Court held that ***a preliminary objection must raise a pure point of law and must proceed on the assumption that all facts pleaded by the opposing party are correct.*** 1. Counsel submitted that the Respondent's objection was not founded upon uncontested facts but was instead supported by an affidavit introducing disputed factual assertions regarding the nature of the employment relationship, salary, allowances and the surrounding circumstances giving rise to the claim. 2. According to counsel, once a preliminary objection requires a court to investigate facts or evaluate evidence, it ceases to be a true preliminary objection. The Appellant further relied upon the decision in ***Oraro v Mbaja [2005] eKLR***, where the High Court emphasized that ***a preliminary objection cannot be blurred with factual matters requiring proof through evidence.*** 3. Counsel argued that whether the monies claimed constituted salary advances, fuel reimbursements or money collected from customers remained highly contested factual questions incapable of determination through a preliminary objection. 4. On the issue of jurisdiction, counsel submitted that the learned Adjudicator fundamentally misapprehended the nature of the Appellant's claim. 5. It was argued that the Appellant had not instituted proceedings seeking declarations relating to employment, unpaid salary, wrongful dismissal, unfair termination, leave pay, gratuity, compensation, or any other relief arising under the Employment Act. Rather, counsel submitted that the Appellant's claim was one for recovery of specific sums of money allegedly collected by the Respondent on behalf of the Appellant and wrongfully retained. 6. Counsel submitted that such a claim squarely falls within **Section 12 of the Small Claims Court Act, particularly paragraph (b),** which confers jurisdiction upon the Small Claims Court in claims relating to money held and received. 7. It was submitted that the mere existence of an employment relationship between litigants does not automatically transform every dispute into an employment dispute. 8. Counsel maintained that the employment contract merely explained how the Respondent came into possession of the Appellant's funds and did not constitute the legal foundation of the cause of action. 9. The Appellant therefore urged this Court to find that the learned Adjudicator erred by concentrating on the background relationship between the parties instead of examining the true substance of the pleaded claim. 10. Counsel further submitted that the Respondent had not filed any counterclaim seeking employment benefits or unpaid dues. 11. Consequently, the learned Adjudicator erred by introducing issues relating to salary, leave and employment entitlements that were never pleaded before the Small Claims Court. The Appellant urged the Court to allow the appeal with costs. **Respondent's Submissions** 1. The Respondent opposed the appeal through written submissions. Learned counsel framed one principal issue for determination, namely whether the Small Claims Court possessed jurisdiction to entertain disputes arising from an employment contract. 1. Counsel submitted that jurisdiction is everything and without jurisdiction a court has no authority to undertake any further proceedings. Reliance was placed upon the celebrated decision of the Court of Appeal in ***Owners of the Motor Vessel "Lillian S" v Caltex Oil (Kenya) Ltd [1989] KLR***, where **Nyarangi JA** famously stated that jurisdiction is everything and without it a court must down its tools. 2. Counsel further relied upon **Article 162(2)(a) of the Constitution** **of kenya, 2010** which establishes the Employment and Labour Relations Court as a specialised superior court mandated to hear and determine disputes relating to employment and labour relations. 3. Reference was also made to **Section 12 of the Employment and Labour Relations Court Act** which vests exclusive jurisdiction in that Court over disputes arising out of contracts of employment. 4. The Respondent submitted that the entire dispute originated from an employment contract executed on 1st August 2023. 5. Counsel pointed out that the pleadings expressly pleaded the existence of the employment contract and detailed the Respondent's duties, salary, facilitation and obligations arising thereunder. 6. According to the Respondent, determination of whether the sums claimed constituted unauthorized salary advances, fuel allowances or monies recoverable from the Respondent necessarily required interpretation and enforcement of the employment contract. 7. Counsel further argued that **Section 13(5) of the Small Claims Court Act** expressly excludes claims founded upon employment and labour relations from the jurisdiction of the Small Claims Court. 8. Consequently, it was submitted that once the Small Claims Court appreciated that the dispute emanated from an employer-employee relationship, it correctly declined jurisdiction. 9. The Respondent further relied upon the Supreme Court decision in ***Samuel Kamau Macharia & Another v Kenya Commercial Bank Ltd & 2 Others [2012] eKLR***, for the proposition that a court can only exercise jurisdiction expressly donated by the Constitution or statute. 10. Reliance was also placed upon the Court of Appeal decision in ***Daniel N. Mugendi v Kenyatta University & 3 Others [2013] eKLR***, in which the Court underscored the constitutional mandate of specialized courts established under **Article 162(2) of the Constitution**. 11. Regarding the Preliminary Objection, the Respondent submitted that the objection raised a pure question of jurisdiction, which has consistently been recognized as a proper subject of a preliminary objection under the principles in ***Mukhisa Biscuit Manufacturing Co. Ltd v West End Distributors Ltd [1969] EA 696.*** 12. The Respondent therefore urged this Court to uphold the ruling of the learned Adjudicator, dismiss the appeal in its entirety and award costs to the Respondent. **Duty of a First Appellate Court** 1. This being a first appeal, the duty of this Court is well settled. It is obligated to reconsider, evaluate and analyse the evidence and the law that was before the trial court and draw its own independent conclusions while bearing in mind that it neither saw nor heard the parties testify. 2. The guiding principles were authoritatively stated by the Court of Appeal in ***Selle & Another v Associated Motor Boat Co. Ltd [1968] EA 123***, where the Court held that *a first appellate court is not bound necessarily to follow the findings of fact by the trial court but must reconsider the evidence, evaluate it itself and draw its own conclusions, making due allowance for the fact that it did not have the opportunity of seeing and hearing the witnesses.* 3. Similarly, the Court of Appeal reiterated the same principle in P**eters v Sunday Post Ltd [1958] EA 424**, observing that ***although an appellate court has jurisdiction to review the evidence in order to determine whether the conclusions reached by the trial court should stand, such jurisdiction should be exercised with caution.*** 4. In the present appeal, however, the Small Claims Court did not hear oral evidence. The impugned decision arose solely from a preliminary objection on jurisdiction. Consequently, this Court is in as advantageous a position as the trial court in interpreting the pleadings, the applicable constitutional and statutory provisions, and the relevant jurisprudence. 5. Having carefully considered the Record of Appeal, the rival submissions, the impugned ruling and the applicable law, I am of the respectful view that the following issues arise for determination: a. Whether the Preliminary Objection dated 14th May, 2024 met the legal threshold for a preliminary objection. b. Whether the learned Adjudicator correctly found that the Small Claims Court lacked jurisdiction to entertain the Appellant's claim. c. Whether the appeal is merited and what orders should issue. **Analysis and Determination** 1. I have carefully considered the Record of Appeal, the impugned ruling, the Memorandum of Appeal, the rival submissions by counsel and the applicable constitutional and statutory framework. In my respectful view, the appeal turns on the proper characterization of the dispute presented before the Small Claims Court and whether the learned Adjudicator properly upheld the Preliminary Objection on jurisdiction. 2. Before addressing the jurisdictional question, it is necessary to determine whether the Preliminary Objection itself met the legal threshold established by precedent. **Whether the Preliminary Objection Met the Threshold in Law** 1. The law governing preliminary objections in Kenya is now firmly settled. The locus classicus remains ***Mukhisa Biscuit Manufacturing Co. Ltd v West End Distributors Ltd [1969] EA 696***, where the court stated that: ***"A preliminary objection consists of a point of law which has been pleaded, or which arises by clear implication out of pleadings, and which if argued as a preliminary point may dispose of the suit."*** These principles have remained good law for over five decades and have repeatedly been reaffirmed by the superior courts. 1. In ***Oraro v Mbaja [2005] eKLR***, **Ojwang J** (as he then was) aptly observed that *a preliminary objection must not be blurred with factual details liable to be contested and proved through evidence. Where factual inquiry becomes necessary, the objection ceases to be a true preliminary objection.* 2. Similarly, the Court of Appeal in ***Independent Electoral and Boundaries Commission v Jane Cheperenger & 2 Others [2015] eKLR*** reiterated that***a preliminary objection may only be raised on a ‘pure question of law’. To discern such a point of law, the Court has to be satisfied that there is no proper contest as to the facts. The facts are deemed agreed, as they are prima facie presented in the pleadings on record.”*** 3. The Respondent's Preliminary Objection before the Small Claims Court was premised on want of jurisdiction. Ordinarily, jurisdiction is a pure question of law and may properly be raised through a preliminary objection. 4. However, the present objection did not stop at raising the legal issue of jurisdiction. The Respondent filed a Supporting Affidavit setting out factual matters relating to the nature of the employment relationship, salary, allowances, leave entitlement and other matters touching on the parties' contractual dealings. Those averments were not admitted by the Appellant. 1. Indeed, the Appellant's case was that the Respondent had unlawfully collected and retained customers' funds contrary to express instructions and that the dispute was unrelated to any claim for salary or employment benefits. Whether the monies in dispute constituted unauthorized salary advances, fuel reimbursements or customer payments remained a contested question of fact. 2. Equally disputed was whether the Respondent had admitted liability during the reconciliation meeting held on 13th December 2023 and whether he subsequently executed an undertaking authorizing recovery of the alleged salary advance. 3. Those matters plainly required proof through evidence. They could not properly be determined at a preliminary stage. 4. In my view, the learned Adjudicator ought to have confined herself strictly to the pleadings in determining whether the court possessed jurisdiction. To the extent that the court relied upon contested factual assertions contained in the Supporting Affidavit in reaching its conclusion, it departed from the strict parameters governing preliminary objections. 5. Nevertheless, the mere fact that the Preliminary Objection was accompanied by an affidavit does not automatically render it incompetent if the legal question raised can still be determined purely from the pleadings. 6. Consequently, the central issue remains whether, upon the pleadings alone, the Small Claims Court lacked jurisdiction. **Whether the Small Claims Court Had Jurisdiction** 1. The issue of jurisdiction is foundational. It is now trite that without jurisdiction a court has no authority to make one more step. The celebrated pronouncement of **Nyarangi JA** in ***Owners of the Motor Vessel "Lillian S" v Caltex Oil (Kenya) Ltd [1989] KLR*** remains the guiding authority: *"Jurisdiction is everything. Without it, a court has no power to make one more step. Where a court has no jurisdiction there would be no basis for a continuation of proceedings pending other evidence."* 1. The Supreme Court echoed the same principle in ***Samuel Kamau Macharia & Another v Kenya Commercial Bank Ltd & 2 Others [2012] eKLR***, where it held that *a court's jurisdiction flows either from the Constitution or statute and cannot be expanded through judicial craft or the consent of parties.* 2. It therefore becomes necessary to identify the true source of the Small Claims Court's jurisdiction. The Small Claims Court is established under the **Small Claims Court Act, No. 2 of 2016.** **Section 12(1)** thereof provides that, subject to the Act and any other written law, the Court has jurisdiction to determine civil claims relating to— 1. ***contracts for the sale and supply of goods or services;*** 2. ***contracts relating to money held and received;*** 3. ***liability in tort relating to loss or damage to property;*** 4. ***compensation for personal injuries; and*** 5. ***set-off and counterclaims under any contract***. Parliament, however, imposed express limitations upon that jurisdiction. 1. Of particular relevance is **Section 13(5) of the Act**, which provides that nothing in the Act shall be construed as conferring jurisdiction upon the Small Claims Court in matters concerning employment and labour relations. The learned Adjudicator relied principally upon this provision. 2. The question therefore is whether the Appellant's claim was one "concerning employment and labour relations." In answering that question, this Court must examine the pleadings as filed before the Small Claims Court. 3. It is settled law that jurisdiction is determined from the pleadings and the substance of the cause of action rather than the ingenuity of counsel's submissions. 4. A careful reading of the Statement of Claim shows that the Appellant pleaded that the Respondent, while serving as a Regional Sales Representative, collected money from customers contrary to express instructions. 5. The Appellant further pleaded that those monies were never remitted despite repeated demands. 6. The relief sought was a liquidated sum of Kshs.388,120 allegedly representing monies had and received by the Respondent for the Appellant's benefit. 7. The Statement of Claim did not seek unpaid salary, wrongful dismissal, unfair termination, payment in lieu of notice, leave pay, gratuity, compensation under the Employment Act, reinstatement, or any declaratory relief arising under labour legislation. 8. Equally, the Respondent had not filed a defence or counterclaim seeking employment dues. The existence of an employment contract was pleaded merely to explain the legal relationship through which the Respondent allegedly came into possession of the Appellant's funds. The employment contract therefore formed part of the factual background. It did not necessarily constitute the juridical foundation of the claim. 9. In determining jurisdiction, courts are required to look beyond the existence of a contractual relationship and identify the real substance of the dispute. 10. In ***Co-operative Bank of Kenya Limited v Patrick Kang'ethe Njuguna & 5 Others [2017] eKLR***, the Court of Appeal emphasized that ***jurisdiction should be determined by examining the predominant issue in controversy rather than merely the form in which pleadings are drafted.*** 11. Applying that principle, the predominant question before the Small Claims Court was whether the Respondent received specific sums of money belonging to the Appellant and failed to remit them. That issue, on its face, bears the hallmarks of a claim for recovery of money allegedly held and received. It is not transformed into an employment dispute merely because the parties happened to stand in an employer-employee relationship. 12. If the Respondent had been an accountant, cashier, sales agent, consultant or independent contractor entrusted with collection of the Appellant's funds, the nature of the cause of action would remain substantially the same. The legal inquiry concerns accountability for money allegedly received for another person's benefit. 13. In my respectful view, that inquiry falls squarely within **Section 12(1)(b) of the Small Claims Court Act.** The learned Adjudicator therefore fell into error by equating the existence of an employment relationship with the nature of the cause of action. 14. The proper question ought to have been whether adjudication of the pleaded claim required determination of rights and obligations created under employment law. On the pleadings before the court, I am unable to answer that question in the affirmative. **Whether the Dispute Fell Within the Exclusive Jurisdiction of the Employment and Labour Relations Court** 1. The Respondent has maintained throughout these proceedings that because the relationship between the parties was one of employer and employee, any dispute arising therefrom falls exclusively within the jurisdiction of the Employment and Labour Relations Court (ELRC). 2. There can be no quarrel with the constitutional position that the ELRC is a specialized superior court established under **Article 162(2)(a) of the Constitution** to hear and determine disputes relating to employment and labour relations. 3. Parliament gave effect to that constitutional mandate through the Employment and Labour Relations Court Act, whose **Section 12** confers upon that Court exclusive original and appellate jurisdiction in disputes relating to employment and labour relations. 4. The exclusivity of that jurisdiction has been affirmed by the superior courts on numerous occasions. In ***Daniel N. Mugendi v Kenyatta University & 3 Others [2013] eKLR***, the Court of Appeal emphasized that disputes whose gravamen falls within the constitutional mandate of the Employment and Labour Relations Court ought to be heard by that specialized court. 5. Likewise, in ***United States International University (USIU) v Attorney General & 2 Others [2012] eKLR***, the Court affirmed that employment disputes are reserved for the specialized court established under **Article 162(2)(a) of the Constitution** **of Kenya, 2010.** 6. The difficulty, however, lies not in identifying the constitutional jurisdiction of the ELRC but in determining whether every dispute involving an employer and an employee necessarily amounts to an employment dispute. 7. In my respectful view, the answer is no. Jurisdiction is determined not merely by the identity of the parties but by the substance of the dispute presented before the court. Were it otherwise, every contractual disagreement, every debt claim, every tortious claim or every proprietary dispute between an employer and an employee would automatically become an employment dispute, irrespective of the nature of the rights being asserted. 1. Such an approach would unduly expand the jurisdiction of the ELRC beyond that contemplated by the Constitution and statute. As the Supreme Court observed in ***Samuel Kamau Macharia & Another v Kenya Commercial Bank Ltd & 2 Others [2012] eKLR***, courts must exercise only the jurisdiction expressly conferred upon them by the Constitution or legislation. By parity of reasoning, courts should equally guard against enlarging the jurisdiction of specialized courts beyond their constitutional remit. 2. The dispute before the Small Claims Court was not one in which the Respondent sought enforcement of employment rights. Neither was it one in which the Appellant sought remedies under the Employment Act. 3. The Appellant did not allege wrongful absenteeism, misconduct warranting dismissal, breach of disciplinary procedures, redundancy, unfair termination, or any other issue whose resolution would require interpretation or application of labour statutes. 4. Instead, the Appellant pleaded that the Respondent had, contrary to express instructions, collected monies from customers on behalf of the Appellant and failed to remit those monies. That allegation, if ultimately proved, may give rise to civil liability independent of the employment relationship. 5. Indeed, the pleaded facts could, depending on the evidence adduced at trial, disclose causes of action in contract, restitution, conversion, breach of fiduciary duty or money had and received. Those are questions that can only be determined upon hearing evidence. 6. At the preliminary stage, the court was only required to determine whether the pleaded cause of action fell within the jurisdiction donated by **Section 12 of the Small Claims Court Act.** 7. In my view, it did. **Section 12(1)(b)** expressly grants jurisdiction over claims relating to money held and received. The phrase “money held and received” is broad enough to encompass claims where one party is alleged to have received money for the benefit of another and failed to account for or remit it. 8. The Appellant’s claim, as pleaded, falls squarely within that description. The learned Adjudicator reasoned that because determination of the dispute would require examination of the employment contract, the matter necessarily became an employment dispute. Respectfully, that reasoning conflates the factual background of a dispute with its legal character. 9. Courts routinely interpret contracts, correspondence, undertakings and commercial documents without thereby transforming the nature of the underlying cause of action. The mere fact that an employment contract may have to be referred to in order to understand the parties’ relationship does not, without more, render every subsequent dispute one relating to employment and labour relations. 10. In this case, reference to the employment contract would primarily serve to ascertain the Respondent’s duties and whether he had authority to receive customers’ funds. That exercise is incidental to the determination of the pleaded civil claim. It does not require adjudication of labour rights or obligations under the Employment Act. 11. The Respondent further argued that the Appellant’s pleadings referred to salary advances and fuel allowances, thereby bringing the matter within the realm of employment law. I am unable to agree. The pleaded reference to the alleged salary advance of Kshs.45,000 and fuel expenses of Kshs.50,000 formed part of the factual narrative explaining how portions of the alleged debt arose. 12. Whether those sums were genuinely salary advances, unauthorized withdrawals or lawful reimbursements are matters of evidence. Those questions cannot be conclusively determined on the basis of pleadings alone. More importantly, they do not alter the principal relief sought by the Appellant, namely recovery of an alleged debt. 13. It is equally noteworthy that the Respondent did not file a defence disputing the quantum claimed nor did he lodge a counterclaim seeking unpaid salaries, commissions, allowances or any other employment benefits. 14. Consequently, there was no competing employment claim requiring determination. The learned Adjudicator appears to have anticipated issues that had neither arisen on the pleadings nor been placed before the court for adjudication. Courts are bound by the pleadings of the parties. They cannot determine disputes that have not been pleaded nor grant relief founded upon matters not placed before them. The Supreme Court in ***Raila Amolo Odinga & Another v Independent Electoral and Boundaries Commission & 2 Others [2017] eKLR*** reiterated that *parties are bound by their pleadings and that a court should not determine matters falling outside those pleadings*. Applying that principle, the Small Claims Court ought to have confined itself to the claim presented before it. 15. Had the proceedings advanced to trial and evidence emerged demonstrating that the dispute substantially involved employment rights, the court would have been at liberty to revisit the jurisdictional question if necessary. At the stage the Preliminary Objection was raised, however, the pleadings disclosed a claim falling within **Section 12(1)(b) of the Small Claims Court Act.** 16. I therefore find that the learned Adjudicator erred in law in declining jurisdiction at that preliminary stage. That finding is sufficient to dispose of the substantive issue in this appeal. 17. Having reached that conclusion, it follows that the Preliminary Objection ought to have been dismissed and the dispute allowed to proceed to hearing on its merits, where the parties would have had the opportunity to tender evidence, produce documents, and be subjected to cross-examination. 18. It bears emphasizing that this Court expresses no opinion whatsoever on the merits of the Appellant’s claim or the Respondent’s defence. Whether the Respondent actually collected the alleged sums, whether he was authorized to do so, whether any admissions were made, and whether the Appellant is entitled to recover the sums claimed are issues reserved exclusively for the trial court after hearing evidence. 19. This Court’s determination is confined solely to the question whether the Small Claims Court possessed jurisdiction to entertain the claim as pleaded. 20. For the reasons set out above, I answer that question in the affirmative. **Disposition of the Grounds of Appeal** 1. Having carefully reconsidered the pleadings, the impugned ruling, the rival submissions, the applicable constitutional and statutory provisions and the authorities cited by the parties, I am persuaded that the appeal is meritorious. 2. Before concluding, it is necessary to briefly dispose of each of the grounds of appeal; 3. ***The first ground faults the learned Adjudicator for finding that the Small Claims Court lacked jurisdiction to hear and determine a dispute relating to money allegedly held and received by the Respondent. For the reasons already given, I find merit in this ground. The Appellant’s claim, as pleaded, was substantially one for recovery of a liquidated sum allegedly collected and retained by the Respondent on behalf of the Appellant. Such a claim falls within the jurisdiction conferred upon the Small Claims Court under Section 12(1)(b) of the Small Claims Court Act relating to claims for money held and received.*** 4. ***The second ground challenges the finding that the dispute constituted an employment and labour relations dispute. I likewise find merit in this ground. While it is common ground that an employer–employee relationship existed between the parties, the existence of that relationship did not, without more, convert every dispute arising between them into an employment dispute. The true character of a dispute is determined by the substance of the pleaded cause of action rather than merely by the relationship between the parties. In the present case, the pleadings disclosed no claim for unfair termination, unpaid wages, leave pay, gratuity, redundancy benefits or any other employment remedy. The principal relief sought was recovery of an alleged debt.*** ***The learned Adjudicator therefore misdirected herself in treating the employment relationship as determinative of jurisdiction without first examining the true nature of the claim.*** 1. ***The third ground concerns the competence of the Preliminary Objection. As already observed, a preliminary objection founded upon jurisdiction is ordinarily a proper point of law. However, where such objection is intertwined with disputed facts requiring evidentiary interrogation, the court must exercise caution lest it determines contested factual issues without the benefit of evidence. In the present matter, the Preliminary Objection was accompanied by a Supporting Affidavit introducing contested factual matters touching on salary advances, fuel expenses and the parties’ employment arrangements. Those issues were disputed by the Appellant and could only properly be resolved through evidence. While the existence of the affidavit did not, by itself, invalidate the Preliminary Objection, it underscored the fact that the jurisdictional issue could not be divorced entirely from contested facts. That being so, the safer course would have been to allow the matter to proceed to hearing, where the trial court would have been better placed to determine the true nature of the dispute on the basis of evidence. I therefore find merit in the third ground of appeal.*** 2. ***The fourth ground faults the learned Adjudicator for relying on matters that had neither been pleaded nor placed before the court, including an alleged counterclaim for employment dues. The record confirms that no counterclaim had been filed by the Respondent. Equally, there was no pleading seeking unpaid salaries, commissions or employment benefits. It is a cardinal principle of civil litigation that parties are bound by their pleadings and that a court should determine only those issues arising from the pleadings. A court ought not to speculate on potential claims that have neither been pleaded nor canvassed by the parties. To the extent that the learned Adjudicator appears to have been influenced by matters that were not properly before the court, she fell into error. I therefore find merit in this ground as well.*** **Conclusion** 1. This appeal illustrates the importance of distinguishing between the factual background giving rise to litigation and the legal nature of the cause of action itself. Although the parties herein stood in an employer–employee relationship, the Appellant’s pleaded claim was one for recovery of money allegedly received and retained by the Respondent on behalf of the Appellant. Such a claim, as pleaded, falls within the jurisdiction donated to the Small Claims Court by **Section 12(1)(b) of the Small Claims Court Act**. Whether the Appellant will ultimately succeed in proving that claim is an entirely different matter, one that can only be determined after the parties have adduced evidence and subjected that evidence to the ordinary processes of adversarial litigation. This Court is therefore satisfied that the learned Adjudicator erred both in law and in principle in declining jurisdiction at the preliminary stage. 2. Consequently, the impugned ruling cannot stand. Accordingly, and for the foregoing reasons, I make the following **Orders:** 1. ***The appeal is hereby allowed.*** 2. ***The Ruling and Order of the Small Claims Court at Nairobi by Hon. Sylvia Wayodi, Adjudicator delivered on 1st August 2024 in Small Claims Case No. E506 of 2024 are hereby set aside in their entirety.*** 3. ***The Preliminary Objection dated 13th January 2024 is hereby dismissed.*** 4. ***Small Claims Court Case No. E506 of 2024 is remitted to the Small Claims Court at Nairobi for hearing and determination on its merits before a different Adjudicator other than Hon. Sylvia Wayodi.*** 5. ***For the avoidance of doubt, this Court has not made any determination on the merits of the Appellant’s substantive claim, all issues of liability and quantum remaining open for determination by the trial court upon hearing the evidence.*** 6. ***The Appellant shall have the costs of this appeal.*** Orders accordingly. **DATED, SIGNED AND DELIVERED AT NAIROBI THIS 14TH DAY OF JULY, 2026.**  **L. P. KASSAN** **JUDGE** **In the presence of;** Mwema for the Appellant Buloma for Respondent Leonard – Court Assistant