[2017] KEHC 2977 (KLR)

REPUBLIC OF KENYA

IN THE HIGH COURT OF KENYA

AT BUSIA

CIVIL APPEAL NO. 30 OF 2015

KENINDIA ASSURANCE COMPANY LIMITED…………………….APPELLANT

VERSUS

NEW NYANZA WHOLESALERS LIMITED……………….……...RESPONDENT

[Being an Appeal from the Judgement and Decree of Honorable H. Ndung’u Chief Magistrate, dated 6th August 2015 in Busia C.M.C.C. No. 57 of 2014]

JUDGEMENT

1. On 6th August, 2015 H. Ndung’u, Chief Magistrate delivered judgement in Busia C. M. Civil Suit No. 57 of 2014 in which she awarded the Respondent, New Nyanza Wholesalers Ltd, Kshs.868,993. 20 against the Appellant, Kenindia Assurance Co. Ltd, in satisfaction of the decree in Busia H. C. C. C. No. 17 of 2000. The Appellant being aggrieved by the said judgement now appeals to this Court.

2. What was the Respondent’s claim before the Chief Magistrate’s Court? Let the plaint dated 29th January, 2014 speak for itself: -

“3. At all times material to this suit the Plaintiff was the registered owner of Motor Vehicle Registration Number KAE 384V while the defendant was the insurer of Motor Vehicle Registration Number KAD 891T owned by an entity known as ANNAN TRADERS LIMITED.

4. On or about 30th September 1999 the two motor vehicles aforesaid collided in a road traffic accident along NAIVASHA-NAKURU road in consequence of which the plaintiff’s Motor Vehicle was extensively damaged.

5. Arising from the said accident the plaintiff sued ANNAN TRADERS LIMITED vide BUSIA HCCC NO. 17 OF 2000 claiming both general and special damages which suit was compromised on liability on the instant defendant’s instructions.

6. The plaintiff states that the defendant herein as the insurer of Motor Vehicle Registration Number KAD 891T defended the said suit and substantially negotiated settlement thereof with the plaintiff and thereby suffered itself as responsible to settle the claim.

7. The plaintiff further states that on 10th October 2013 judgement was delivered in BUSIA HCCC NO. 17 OF 2000 by which the plaintiff was awarded a sum of Kshs.664,542. 20 plus interest thereon from the date the suit was filed i.e. 4th July 2000 and costs of the suit which were taxed on 22nd November 2013 at Kshs.204,451/=.

8. The defendant has however, failed, refused and or neglected to pay the said decretal sum and costs of the suit notwithstanding its statutory and contractual obligation with its insured to pay

9. The plaintiff’s claim against the defendant is therefore for a declaratory order directing the Defendant to pay the plaintiff the sum of Kshs.664,542. 20 plus interest thereon from 4th July 2000 till payment in full and costs of the suit amounting to kshs.204,451/= in satisfaction of the decree in BUSIA HCCC NO. 17 OF 2000.

10. The Plaintiff in the alternative claims payment of Kshs.664,542. 20 plus interest thereon from 4th July, 2000 arising as aforesaid plus costs taxed at Kshs.204,451/=.”

3. The Respondent’s plaint then concludes by asking for judgement against the Appellant for: -

“a) A declaration in terms of paragraph 9 above.

b) In the alternative payment of the sum claimed in paragraph 10 above.

c) Costs of this suit.”

4. The Appellant replied to the Respondent’s claim through a statement of defence dated 6th March, 2014. In the first instance, the Appellant denied each and every statement in the Respondent’s plaint.

5. The Appellant then proceeded to provide alternative defences to the claim as follows: -

“11. Purely without prejudice to the foregone, the defendant avers and pleads that the plaintiff’s suit does not disclose any reasonable cause of action against the defendant.

12. The defendant in further answer to the plaintiff’s claim pleads that there was no privity of contract in respect of the contractual relationship which existed between the defendant and the said Annan Traders Limited.

13. The plaintiff’s suit is therefore absolutely frivolous, vexatious and constitute a gross abuse of the process of the court.

14. The defendant shall prior to the hearing of this suit raise a preliminary objection and contend in limine that it has no contractual, statutory or moral obligation to settle or satisfy the decree in Busia HCCC NO. 17 of 2000 in law.

15. The plaintiff suit therefore must be struck out and be dismissed with costs to the defendant.

16. Further and absolutely without prejudice to the foregone, if, which is denied, the defendant issued such a policy, then the same covered and or was reasonably expected to cover only suing risks as are contemplated by the provisions of Section 5 (b) of the Insurance Motor Vehicle, Third Party Risks Act and were limited to liability incurred in respect of death or bodily injury to persons and not otherwise as pleaded in the plaint.”

6. The Appellant went ahead and prayed for the dismissal of the Respondent’s suit.

7. In reply to the defence the Respondent reiterated the contents of his plaint and at paragraph 4 averred that: -

“The plaintiff in answer to paragraph 16 of the defence states that the claim herein is not founded on The Insurance (Motor Vehicle Third Party Risks) Act Cap 405 Laws of Kenya and any reference thereto is a gross misapprehension of the cause of action.”

8. At the hearing of the case Mohamed Hersi Moge who identified himself as a director of the Respondent testified as PW1. His evidence was that their motor vehicle registration number KAE 384V Isuzu truck was parked along Nakuru-Naivasha Road when motor vehicle registration number KAD 891T Tata lorry belonging to Annan Traders Ltd lost control and hit it. Their motor vehicle sustained damages as a result of the accident. The Respondent subsequently sued Annan Traders Ltd in Busia H. C. C. C. No. 17 of 2000 resulting in the judgement that was the subject of the claim from which this appeal arises.

9. According to PW1, during the pendency of its claim against Annan Traders Ltd, the Appellant herein instructed counsel to appear for Annan Traders Ltd as they had insured the accident lorry. Subsequently, negotiations were entered into in which consent was arrived at on the questions of liability and quantum.

10. Attempts to execute the decree against Annan Traders Ltd were unsuccessful. The Respondent then turned to the Appellant asking it to pay the decretal sum but the Appellant refused hence the commencement of the claim against the Appellant. PW1 admitted during cross-examination that before the decree was drawn, the Appellant had instructed its counsel on record to withdraw from the matter.

11. Simon Kioko Mwanzia a legal officer with the Appellant testified as DW1. His evidence was that there indeed existed a valid insurance policy at the time of the accident issued by the Appellant in respect of Annan Traders Ltd’s ill-fated lorry. Upon cross-examination he admitted that the Appellant actually instructed an advocate to defend the claim by the Respondent against Annan Traders Ltd. Further, that judgement on liability was entered by consent but attempts to settle the matter out of court failed. He also stated that the Respondent’s claim was not based on Cap. 405. He admitted that the policy document issued to Annan Traders Ltd covered death or bodily injury to any person or damage to property.

12. After considering the evidence that was placed before her, the learned Magistrate concluded that the contract between the Appellant and Annan Traders Ltd was meant to benefit the Respondent. She also held that the Appellant having instructed counsel to represent Annan Traders Ltd was estopped from refusing to settle the Respondent’s claim against Annan Traders Ltd. The Magistrate then proceeded to enter judgement in favour of the Respondent.

13. The Appellant’s Memorandum of Appeal dated 24th August, 2015 has ten grounds of appeal. In my view all those grounds boil down to the question as to whether the judgement in question breached the principles of privity of contract and estoppel.

14. According to Sir Clement de Lestang V.P. inSelle & another v Associated Motor Boat Company Ltd & others [1968] E.A. 123at page 126, a first appellate court “must reconsider the evidence, evaluate it itself and draw its own conclusions though it should always bear in mind that it has neither seen nor heard the witnesses and should make due allowance in this respect.” Those are the principles to be applied in this appeal.

15. The Appellant submitted that the Respondent based its claim on a contract between itself and the Appellant and Annan Traders Ltd but never adduced any evidence showing how the Appellant’s contractual relationship with Annan Traders Ltd was extended to the Respondent. It is the Appellant’s case that the judgement against Annan Traders Ltd could only be enforced against that company and not the Appellant. The Appellant asserted that in the absence of a collateral contract or statutory obligation there was no way that it could be forced to settle a decretal debt against Annan Traders Ltd. Reliance was placed on the Court of Appeal decision in William Muthee Muthoni v Bank of Baroda [2014] eKLRin support of this argument

16. It was the Appellant’s case that evidence adduced to prove a claim must flow from and support the pleadings. The Appellant’s position is that the evidence adduced was not anchored on the pleadings which had expressly stated that the Appellant had statutory and contractual obligation with its insured to pay the claim.

17. In support of its assertion that a trial Court can only pronounce itself on the issues before it, the Appellant relied on the decision in Galaxy Paints Company Limited v Falcon Guards Limited, Civil Appeal No. 219 of 1998 (unreported).

18. The Appellant faulted the trial Court for not determining when the Appellant’s liability arose. According to the Appellant, there was need to determine whether liability arose on the date the insurance contract was entered into between the Appellant and Annan Traders Ltd, the date of the accident or the date of entry of judgement in Busia H. C. C. C. No. 17 of 2000. It was the Appellant’s proposition that without establishing the date of the cause of action arose, the trial Court could not have found it at fault as in our system of litigation there can be no liability without fault.

19. The Appellant contended that as the Respondent had clearly indicated that its claim was outside the Insurance (Motor Vehicle Third Party Risks) Act, Cap. 405 Laws of Kenya, there was no other statutory provision upon which the Respondent’s claim could be anchored.

20. Turning to the issue of contractual obligation, the Appellant asserted that there was nothing in the pleadings showing that the Respondent’s claim against it was based on any contract. The Appellant submitted that any claim based on contract was barred by statute as the suit ought to have been filed within six years from 30th June, 1999 when the cause of action arose.

21. On the question of the trial Court’s reliance on the doctrine of estoppel, the Appellant submitted that the Court’s decision was misguided as its instructions to counsel to act for Annan Traders Ltd had been withdrawn by the time the decree was extracted.

22. In summary, the Appellant’s case was that the pleadings and evidence were at variance and the trial Magistrate entered judgement in favour of the Respondent against the weight of the evidence.

23. The Respondent’s case was that its claim against the Appellant was not time-barred as it was enforcing a judgement delivered on 10th October, 2013. It was the Respondent’s case that the cause of action arose on the date of the delivery of judgement and as the suit before the trial Court was filed in January, 2014 there cannot be any basis for holding that its claim was filed outside the statutory period. Further, that the Appellant did not plead time bar as a defence as required by Order 2 Rule 4 of the Civil Procedure Rules, 2010. Also, that the issue of time bar is not even one of the grounds of appeal.

24. Turning to the question of privity of contract, the Respondent asserted that in the insurance contract between the Appellant and Annan Traders Ltd, the Appellant undertook to indemnify Annan Traders Ltd in the event of an accident arising out of the use of motor vehicle registration number KAD 891T against all sums, costs and expenses legally due from Annan Traders Ltd in respect of death or bodily injury to any person and damage to property.

25. As to whether the Respondent was entitled to sue the Appellant, the Respondent contended that it was entitled to do so as one of the exceptions to the rule of privity of contract was applicable in the circumstances of this case. Citing the already quoted decision of William Muthee Muthami, the Respondent contended that there was an express or implied term made for its (Respondent’s) benefit in the agreement between the Appellant and Annan Traders Ltd. The Respondent submitted that the Court should give effect to the intentions of the contracting parties and enforce their reasonable expectations as was stated by the Court of Appeal in Aineah Likuyani Njirah v Aga Khan Health Services, Civil Application No. 194 of 2009. It was the Respondent’s position that the contract between the Appellant and Annan Traders Ltd imposed liability upon the Appellant to settle claims by third parties arising out of claims covered by the insurance contract.

26. Finally, the Respondent asserted that the Appellant having instructed counsel to represent it in the trial indicated its interest in the suit and was therefore estopped from denying liability. Reference was made to Halbury’s Laws of England, 4th Edition Volume 16 (2) in support of this submission.

27. I will only cite two cases on the question of privity of contract. In William Muthee Muthami (supra) the Court of Appeal had this to say:-

“The nature of civil process is that only a person who has incurred loss as a result of another’s action can bring a claim for a legal or equitable remedy. The dispute may involve, as here, private law issues between individuals. 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 party in breach. It is elementary learning, that as a general rule, according to the common law doctrine of privity of contract, rights and obligations under a contract are only conferred or imposed on the parties to that contract. This doctrine was stated as long ago as 1861 by Wightman, J in Tweedle v Atkinson (1861) EWHCQBJ 57 in the following oft-cited words:-

“…. no stranger to the consideration can take advantage of a contract, although made for his benefit.”

28. The Court, however, pointed out that there are exceptions to the doctrine of privity of contract. The Court outlined those exceptions in the following words: -

“The appellant’s father did not bring himself within the well-known exceptions to the doctrine of privity of contract. For example, he did not demonstrate the existence of:

i. a collateral contract to the one in question in which he was a party,

ii. an agency relationship in which the appellant transacted on his behalf,

iii. a trust by which the appellant contracted and held the property in trust for him (the witness),

iv. an express provision or implied term in the agreement made for the benefit of the appellant’s father.

For these reasons, the appellant’s father was a third party, not known to the respondent. The appellant and his father in law and in fact are separate individuals. The power of attorney did not vest in him any right or obligation drawn from the agreement between the appellant and the respondent.”

29. Earlier in the decision in Aineah Likuyani Njirah v Aga Khan Health Services [2013] eKLR, the Court of Appeal had discussed in detail the privity of contract rule and the steps that have been made in England to reform it. The Court defined the privity of contract rule thus:-

“4. Privity of contract is a long-established part of the law of contract. In the earlier part of the last century, it was identified by Viscont Haldane LC as one of the fundamental principles of the English Contract Law. See Dunlop Pneumatic Tyre Co. Ltd v Selfridge & Co. Ltd. The essence of the privity rule is that only the people who actually negotiated a contract (who are privy to it) are entitled to enforce its terms. Even if a third party is mentioned in the contract, he cannot enforce any of its terms nor have any burdens from that contract enforced against him.”

30. After discussing the reforms made to the rule, the Court proceeded to identify the exceptions to the rule that have resulted from the reforms as:-

“11. There are now many exceptions to the privity rule, both at common law and in the statute books. They developed in an adhoc fashion as a response to specific situations where the courts or the legislatures ascertained a need to grant third parties the right to enforce a contract made for their benefit. Second, a third party should be able to enforce a term of contract when the contract expressly states that the third party has a right of enforcement, regardless of whether or not the contract benefits the third party. Third, the third party should have a right to rely on a term of a contract which excludes or limits the liability of the third party, provided that was the intention of the parties.

12. There is, however, an important distinction made between expressed and implied benefits which are enforceable under a contract by a third party. When a contract expressly benefits the third party, there is a presumption that the contracting parties intended the third party to have a right of enforcement. However, if the contract only impliedly benefits a third party, there is no such presumption, and the third party has no rights unless the contract expressly gives that third party a right to enforce the contract. This creates certainty for, and protects, contracting parties, in that third parties cannot enforce contracts which only incidentally benefit them unless the contract expressly states that they may do so.

13. These presumptions can be rebutted by the contracting parties (or rather, the promisor) if they can show that they did not intend for the third party to have any such right.”

31. Estoppel can also be invoked to defeat the privity of contract rule. This was stated by the Court of Appeal in Aineah Likuyani Njirah (supra) when it noted at paragraph 10 of its decision that some courts have carved out new exceptions to the rule by “making use of devices such as constructive trusts or estoppel to allow a third party to bring an action in a suitable case.”

32. Exceptions to the rule have also been achieved through provisions of the law. A good example in our jurisdiction is Section 10 of the Insurance (Motor Vehicles Third Party Risks) Act, Cap. 405 which compels an insurer to satisfy judgement obtained by a third party against a person insured by the policy.

33. The Appellant is indeed correct that the privity of contact rule can only be upstaged by established exceptions or statutory provisions.

34. The Respondent had testified that attempts to execute judgement in Busia H. C. C. C. No. 17 of 2000 against Annan Traders Ltd had failed as the said company had been liquidated. In England, there is a legal provision which allows a third party to sue the insurance company if the insured becomes bankrupt or has gone bust. This was noted by the Law Commission, (Law Com. No. 242) in its report titled Privity of Contracts: Contracts for the Benefit of Third Parties, Item 1 of the Sixth Programme of Law Reform: Law of Contract. At pages 31 to 32 of its report presented to Parliament in July 1996 the Commission stated that:-

“A contract of insurance may insure the policy-holder against liability to third parties. By section 1 of the Third Parties (Rights Against Insurers) Act 1930, where an insured becomes, inter alia, bankrupt or wound up, and before or after that time he incurs liability to a third party, the insured’s rights under the contract of insurance are transferred to the third party. In other words, the third party has a direct action against the insurer. However, the third party only has transferred to him the rights which the insured would have had.”

35. In our jurisdiction a similar provision is found in Section 15 of the Insurance (Motor Vehicles Third Party Risks) Act, Cap. 405.

36. Sections 10 and 15 of Cap. 405 would have neatly wrapped up this matter in favour of the Respondent. However, the parties were agreed that the said Act was not applicable to their dispute.

37. In arriving at her decision, the trial Magistrate relying on the contract between the insurer and the insured held that:-

“The New Nyanza Wholesalers Ltd was not party to the contract between the Defendant and Annan Traders Ltd but under the law of contract the plaintiff herein is a third-party beneficiary, a person who may have the right to sue on a contract despite not have originally been an active party to the contract.”

38. She therefore held that the Respondent was a beneficiary of the contract between the Appellant and Annan Traders Ltd, the insured. The Magistrate went ahead and cited Clause 1 of Section II of the policy document which provided that:-

“1. The Company will subject to the limits of liability indemnity the insured in the event of accident caused or arising out of use of motor vehicle or in connection with the loading or unloading of the motor vehicle against all sums including claimant’s costs and expenses which the insured shall become liable to pay in respect of:

(a) death of or bodily injury to any person

(b) damage to property.”

39. Reliance on the policy alone without recourse to Cap. 405 may not yield fruits for the Respondent. The privity of contract between the Appellant and the Annan Traders Ltd could only be ousted by invoking Cap. 405. However, the parties through their pleadings and evidence indicated that the said law was not applicable to this matter. The trial Court therefore acted in error by concluding that the contract between the Appellant and its insured was made for the benefit of the Respondent.

40. However, it is noted that the trial Magistrate did not base her judgement on the ouster of the privity of contract rule alone. She also relied on the doctrine of estoppel in arriving at her decision.

41. The learned authors of Halsbury’s Laws of England in Vol. 16 (2) at paragraph 1076 state that:-

“Common law estoppel by representation arises where a person has by words or conduct made to another a clear and unequivocal representation of fact, either with knowledge of its falsehood or with the intention that it should be acted upon, or has conducted himself that another would, as a reasonable person, understand that a certain representation of fact was intended to be acted upon, and the other person has acted upon such representation and thereby altered his position. In such circumstances an estoppel arises against the party who made the representation, and he is not allowed to aver that the fact is otherwise than he represented it to be. It seems that, in contrast to the position where promissory estoppel or proprietary estoppel arises, there is no additional requirement of unconscionability.” [Citations omitted].

42. At paragraph 1079 the authors state that:-

“In order for a common law estoppel by representation to arise, the person to whom the representation is made must have changed his position in some way to his detriment. In doing so, he must have relied on the representation, although that need not have been the sole cause of his change of position.” [Citations omitted].

43. Is the doctrine of estoppel applicable in this matter? The Appellant appointed counsel to defend the Respondent’s claim against the insured in Busia H. C. C. C. No. 17 of 2000. Subsequent to that representation, consent on apportionment of liability for the accident was recorded. In so doing, the Appellant represented to the Respondent that it had the capacity to meet any judgement that was to be entered against the insured. In reliance of the Appellant’s act, the Respondent acted to its own detriment by accepting to carry some blame for the accident. The Appellant could not therefore be allowed to go back on its word. It had by its own actions invited the Respondent into the contract it had entered into with the insured to meet claims for bodily injury or death and material damage suffered by third parties. The trial Court was therefore correct in applying the doctrine of common law estoppel in this matter.

44. There was another ground raised by the Appellant to the effect that judgement was entered against it yet there was no cause of action established by the Respondent. It is clear from my finding above that the doctrine of estoppel had upset the privity of contract between the Appellant and insured and the Appellant was thus liable to pay the Respondent by virtue of the contract between it and the insured. This ground of appeal therefore fails.

45. Finally, the Appellant faulted the trial Magistrate for not making a determination as to the time the cause of action arose. The Respondent’s answer to this argument is sufficient to dispose of this particular ground of appeal. The Respondent correctly pointed out that the Appellant did not plead this ground in the defence it filed at the trial Court and neither is the issue found in the grounds of appeal. The matter only cropped up in the Appellant’s submissions. Submissions are not pleadings and matters raised through submissions do not ordinarily merit the court’s consideration. I therefore find that this particular argument by the Appellant has no basis. It therefore fails.

46. The outcome of this appeal is that at the end of the day the trial Court reached the correct decision. The appeal therefore fails and the same is dismissed with costs to the Respondent.

Dated and signed at Malindi this 27th day of June, 2017.

W. KORIR,

JUDGE OF THE HIGH COURT

Dated, signed and delivered at Busia this 12th day of July, 2017.

K.W. KIARIE,

JUDGE OF THE HIGH COURT