[2023] KECA 1499 (KLR)

Kenya Institute of Curriculum Development v Nyamudhe (Civil Appeal 145 of 2019) [2023] KECA 1499 (KLR) (8 December 2023) (Judgment)

Neutral citation: [2023] KECA 1499 (KLR)

Republic of Kenya

In the Court of Appeal at Nairobi

Civil Appeal 145 of 2019

HM Okwengu, K M'Inoti & JM Mativo, JJA

December 8, 2023

Between

Kenya Institute of Curriculum Development

Appellant

and

Isaiah Okode Nyamudhe

Respondent

(Appeal from the judgement and decree of the Employment & Labour Relations Court of Kenya at Nairobi (Wasilwa, J.) dated 24th October 2016 in ELRCC No. 2242 of 2012 Cause 2242 of 2012 )

Judgment

1. The main issue in this appeal is whether the Employment and Labour Relations Court (ELRC), (Wasilwa, J.) erred in holding that the respondent, Isaiah Okode Nyamudhe had legitimate expectation that upon expiry of his fixed-term contract of employment with the appellant, the Kenya Institute of Curriculum Development, the contract would be renewed. The ELRC held that due to a Government circular that reviewed the mandatory retirement age of civil servants from 55 to 60 years, the respondent’s contract of employment was to continue until he attained the age of 60 years. Shorn of all semantics, this appeal turns on the interpretation of the contract of employment between the parties as well as the said Government circular dated March 20, 2009.

2. The brief background to the appeal is as follows. The appellant employed the respondent as a Records Management Officer II on renewable fixed-term contracts. For purposes of this appeal, the relevant contract of employment was entered into by the parties on 11th September 2008 for a fixed term of two years and four months starting on 1st September 2008 and terminating on 31st December 2010. That particular contract of employment did not contain any renewal clause. It is common ground that by 31st December 2010, the respondent would have attained the then mandatory retirement age of 55 years.

3. By Circular No. OP/CAB 2/7A dated March 20, 2009, the Government reviewed the mandatory retirement age for public service from 55 to 60 years with effect from April 1, 2009. As far as is relevant to this appeal, the circular provided as follows:““Employees serving on contract as at March 5, 2009 after attainment of the age of 55 years will continue to serve for the remainder of those contracts. Contracts expiring before the attainment of the age of 60 years will be renewed in accordance with the provisions of the contracts.Employees who had already received retirement notices or had their pension claims already prepared, but had not attained the age of 55 years as at 5th March 2009, will continue to serve until they attain the age of 60 years if they so wish.”

4. It is again common ground that as of March 5, 2009, the respondent had not yet attained the age of 55 years. On 9th July 2010, the respondent applied to the appellant in writing for renewal of his contract, citing the Government circular. By a letter dated 21st December 2010, the appellant declined to renew the respondent’s contract. Subsequently, on 6th January 2011, the respondent lodged an appeal, which the appellant rejected by a letter dated 8th April 2011.

5. On 6th November 2012, the respondent filed a claim in the then Industrial Court claiming that the appellant’s refusal to renew the contract of employment was “malicious, capricious, wrongful, unlawful, unfair and discriminatory and contrary to the terms and conditions of his employment as well as the operative Government policy and directives.” He pleaded that by virtue of the Government circular, he was entitled to renewal of his contract and to serve until he attained the age of 60 years. He added that by virtue of the circular and a loan which the appellant had approved and facilitated and the repayment of which ran beyond the retirement date of 31st December 2011, he had legitimate expectation that the appellant would renew his contract of employment. Accordingly, he prayed for a raft of reliefs, among them, immediate reinstatement; payment of his terminal dues, benefits, salary and allowances from the date of termination of the contract until reinstatement; in the alternative payment of the salary he would have earned until he attained 60 years of age; settlement by the appellant of his loan; damages for wrongful, unlawful and unfair termination and for injury to his reputation; costs and interest.

6. By its response dated 13th December 2012, the appellant admitted that the Government circular raised the mandatory retirement age from 55 to 60 years, but averred that the circular did not change the terms of the contract of employment between it and the respondent. The appellant further pleaded that the contracts of employment that were to expire before attainment of 60 years of age were not renewable automatically, but rather, in accordance with the terms of the contracts of employment. In the respondent’s case, the appellant further pleaded, the same was governed, not by the age of retirement, but by a two-year and four-months contract of employment running from 1st September 2008 to 31st December 2010.

7. The appellant denied having made any representation to the respondent that he would work until he attained the age of 60 and stated that the respondent had falsely altered the guaranteed loan amount of Kshs 350,000 to Kshs 850,000, so as to overshoot his contract of employment. In the alternative, the appellant averred that it declined to renew the respondent’s contract in exercise of its discretion because of poor performance, the particulars of which were pleaded. Lastly, the appellant pleaded that in the circumstances the case, the respondent had no legitimate expectation that the appellant would employ him until he attained the age of 60 years and that the respondent had frustrated payment of his terminal dues by failing to clear with the appellant.

8. The hearing preceded by submissions rather than viva voce evidence. After considering the matter, the ELRC held that the respondent had legitimate expectation that the appellant would renew his contract of employment in line with the Government circular. Further, the court found that the contract of employment could be terminated by either party giving three months’ notice or paying one-month salary in lieu of notice but, having failed to give the respondent three months’ notice that it would not renew his contract of employment, the appellant had created in him legitimate expectation that the contract would be renewed. In the court’s view, the respondent’s legitimate expectation that the contract would be renewed was bolstered by the fact that the appellant granted him a loan which was to run beyond the term of the contract of employment.

9. The ELRC concluded that the respondent’s contract of employment was renewable and that by dint of the Government circular, the contract was to be renewed automatically until the respondent attained 60 years of age. In that regard, the court delivered itself thus:““Having found as above, it is this court’s holding that the none(sic) renewal of claimant’s contract was in breach of a valid government circular and the same contract of service which made claimant have a legitimate expectation that his contract would be renewed automatically.”Ultimately, the court awarded the respondent Kshs 1,219,303. 80. made up of 3 months’ salary in lieu of notice of non- renewal of contract, 12 months’ salary as compensation for unlawful termination and gratuity. The court also awarded the respondent interest and costs of the claim.

10. The appellant was aggrieved and lodged the present appeal. Although in its memorandum of appeal the appellant set out some 12 grounds of appeal, in its submissions the appellant compressed them into three grounds, in which it faulted the ELRC for holding:i.that the Government circular created a legitimate expectation that the respondent’s contract of employment would be renewed automatically;ii.that the respondent had legitimate expectation of renewal of the contract of employment’ andiii.that the contract of employment required the appellant to give the respondent three months’ notice prior to termination.

11. On the first ground, Ms. Kimani, learned counsel for the appellant submitted that the circular did not make any provision on automatic renewal of contracts of employment and that the ELRC erred in holding that the circular could form the basis of a claim founded on legitimate expectation. Relying on the decision of the ELRC in Cleopatra Kama Mugyenyi v. Aidspan, [2016] eKLR, the appellant submitted that fixed term contracts cannot be renewed automatically.

12. On the second ground, which is closely related to the first, counsel submitted that save in limited cases where the employer has, through express promise or regular practice led the employee to believe that a fixed term contract of employment would be renewed, such contracts carry no expectation of renewal. In support of the proposition, the appellant relied on the decision of the ELRC in Teresa Carlo Omondi v. Transparency International-Kenya [2017] eKLR.// It was contended that the appellant had not made any representation or promise to the respondent that his contract of employment would be renewed and that the loan of Kshs 850,000, far from constituting evidence of representation by the appellant that it would renew the respondent’s contract of employment, was obtained by the respondent through falsification of documents, evidence of which the ELRC ignored. It was also urged that the decision maker as regards renewal of the respondent’s contract was the appellant’s council of governors rather that the Sacco society which approved the loan.

13. The appellant further submitted that the holding by the ELRC that failure to give the respondent three months’ notice that the appellant would not renew his contract created a legitimate expectation on his part that the contract would be automatically renewed, had no basis because the contract did not provide for such notice. The appellant relied on the decisions in Registered Trustees of the Presbyterian Church of East Africa & another v. Ruth Gathoni Ngotho-Kariuki [2017] eKLR, Minie Mburu v. Jamii Board Bank Ltd [2017) eKLR and SA Rugby Players Association & others v SA (Pty) Ltd & others [2008] 29 ILJ 2218 to bolster the argument.

14. On the last ground of appeal, the appellant submitted that the holding by ELRC that the appellant could not terminate the respondent’s contract without giving him three months’ notice, or paying one month’s salary was based on a misconstruction of the contract. It was contended that the respondent’s contract was terminated by effluxion of time which did not require any notice or payment in lieu of notice. Relying on Samuel Chacha Mwita v. Kenya Medical Research Foundation [2014] eKLR, counsel submitted that termination of a contract by effusion of time does not constitute a dismissal.

15. The appellant concluded by submitting that the ELRC erred by awarding the respondent gratuity which he had neither pleaded nor prayed for. For the above reasons the appellant prayed that the appeal be allowed with costs.

16. The respondent opposed the appeal on the basis of his submissions dated 14th September 2021. It was contended that the Government circular was binding on the respondent and that by approving a loan to the respondent which went beyond the date of the contract of employment, the appellant had created legitimate expectation in the respondent that indeed his contract would be renewed to cover the duration of the loan. The respondent relied on Attorney-General of Hong Kong v Ng Yuen Shiu [1971] 1 All ER 1148 and submitted that a person who aroused legitimate expectation was obliged to satiate the expectation.

17. The respondent added that if it was the appellant’s intention that the contract of employment should expire by effluxion of time, then it would not have permitted a loan whose repayment period went beyond the contract period. On the authority of the decision of ELRC in Njai Mutitu v. University of Nairobi [2020] eKLR, it was submitted that legitimate expectation that an employee’s contract would be renewed until retirement age could arise from length of service and the fact that the employer had previously renewed the employee’s contract of employment. In this case, it was contended, the respondent had been in the employment of the appellant for twenty years and that his legitimate expectation was strengthened when the appellant renewed the contracts of other employees in similar situation as the respondent.

18. On payment of gratuity, the respondent submitted that he had prayed for salary, allowances, terminal dues and benefits. He added that gratuity was a terminal due and therefore the court was justified in awarding gratuity. Accordingly, the respondent urged us to dismiss the appeal with costs.

19. As we turn to consider the merits of this appeal, it is apt to recall the duty of a first appellate court, which is to reconsider, the evidence that was before the trial court, assess it and reach its own conclusions, but always bearing in mind that the first appellate court has neither seen nor heard the witnesses. In Ramji Ratna & Co. Ltd v. Wood Products (Kenya) Ltd CA. No. 117 of 2001 this Court held thus:““A Court of Appeal will not normally interfere with a finding of fact by the trial court unless it is based on no evidence or on a misapprehension of the evidence or the Judge is shown demonstrably to have acted on wrong principle in reaching the findings he did. The Court of Appeal would hesitate before reversing the decision of a trial Judge on his findings on fact and would only do so if (a) it appeared that he had failed to take account of particular circumstance or probabilities material to an estimate of the evidence or (b) that his impression based on the demeanour of material witness was inconsistent with evidence in the case generally.”

20. Because the trial before the ELRC proceed on the basis of submissions, that court did not have the usual advantage of seeing and hearing witnesses.

21. As we indicated at the beginning of this judgment, this appeal turns on the interpretation of the Government Circular and whether there was any evidence on the basis of which it could have been concluded that through promise, conduct or representation, the appellant had created legitimate expectation in the respondent that his fixed term contract would be renewed until he reached the retirement age of 60 years. It cannot be gainsaid that interpretation of the circular or the contract is an exercise that entails establishing the intention of the parties as expressed in the language that they used in the said documents. It is not the business of the court to make the terms of a contract fairer or more reasonable if the intention of the parties is manifestly clear from the language used in the contract. (See Attorney General of Belize v. Belize Telecom Ltd [2009] 2 All ER 1127).

22. We have already set out the relevant part of the Government circular. A reading of the circular shows that it addressed three classes of workers. The first were those serving on contract as at 5th March 2009, having attained the age of 55 years. Those employees were to continue serving for the reminder of their contracts. The second class were employees whose contracts of employment were to expire before attainment of 60 years of age. Those contracts were to “be renewed in accordance with the provisions of the contracts.” The third and last class were employees who had already received retirement notices or whose pension claims had already been prepared, but they had not attained the age of 55 years as of 5th March 2009. Such employees were to continue to serve, if they so wished, until they attained the age of 60 years.

23. It is common ground that the respondent fell in the second class, namely employees whose contracts of employment were to expire before attainment of 60 years of age. Their contracts were not renewed automatically by the circular, but were to be renewed /in accordance with the provisions of their contracts. Therefore, to hold that the circular automatically renewed the respondent’s contract until he attained 60 years is to make utter nonsense of the language used in the circular, which the court will not countenance.

24. The last contract entered into between the appellant and the respondent was the contract from 1st September 2008 to 31st December 2010. It is worth noting that the previous contracts of employment between the appellant and the respondent expressly provided for renewal of the contract. For example, one of those agreements provided thus:““The term of employment of the employee is for a period of thirty months renewable on expiry, beginning from the 1st day of May 2005. ”

25. The contract entered into by the parties on 11th September 2008 did not have a similar provision for renewal of the contract. It merely provided:The term of employment of the employee is for a period of two years four months beginning from 1st September 2008 to 31stDecember 2010. ”

26. Whether the reason for failure to provide for renewal of this contract was the respondent’s expected attainment of the age of 55 years or for any other reason is not relevant. This is because the Government circular made it clear that renewal of the contracts of employment for those employees who had not attained 55 years of age, like the respondent, was to be “in accordance with the terms of the contract.” The contract in issue did not provide for renewal.

27. Accordingly, it is patently clear that the circular did to automatically renew the respondent’s contract until he attained the age of 60 years, as held by the ELRC, and secondly, the relevant contract of employment between the appellant and the respondent did not provide for renewal of the contract. In light of that, it is equally erroneous to hold, as the ELRC held, that the circular created a legitimate expectation that the appellant would renew the respondent’s contract. There was no basis for such expectation either in the circular or the contract of employment itself.

28. The next issue is whether the respondent created legitimate expectation that it would renew the respondent’s contract. In answering that issue in the affirmative, the ELRC relied on the fact that the appellant had previously renewed the respondent’s contract and also the loan which the respondent took, whose repayment went beyond the period of the contract.

29. The doctrine of legitimate expectation is firmly established in our jurisdiction. It arises when, by promise, representation or past practice, a public body or authority raises an expectation in a citizen that it is within its power to fulfil and will indeed fulfil to the citizen what it has represented. In Communication Commission of Kenya & 5 Others v. Royal Media Services & 5 Others [2014] eKLR, the Supreme Court enumerated the core tenets of legitimate expectation to include that the promise or representation in question is one that the pubic authority can competently and lawfully make; that it is reasonable; that there can be no legitimate expectation if the representation is contrary to clear provisions of the law; and that a public authority that has made a representation which in law it has no power to make is not barred or precluded from asserting the correct position in law.

30. As far as the circular and the contract of employment are concerned, we have established that they did not create any legitimate expectation in the respondent that the appellant would renew the contract of employment. The circular did not provide for automatic renewal of the contracts of employment until attainment of the age of 60. As for the contract of employment, it also did not create any legitimate expectation simply because it did not have a provision for renewal.

31. Other than the circular and the contract of employment, the respondent contends that the appellant created legitimate expectation by its practice of renewing the previous contracts of employment and by authorising a loan whose repayment ran beyond the date of expiry of the contract. It is contended that the renewal of previous contracts created in the respondent an expectation that his last contract would also be renewed.

32. The short answer to that argument is that those previous contracts expressly provided for renewal, whilst the last contract, the subject of this appeal, did not. A practice founded on contracts with different provisions cannot reasonably create legitimate expectation that a contract with totally different provisions will be treated the same way. But even if the appellant had previously renewed the respondent’s contract, that in and by itself cannot be the basis of legitimate expectation. In Transparency International-Kenya v. Teresa Carlo Omondi, CA No. 81 of 2018, this Court held that: -“We dare say that an automatically renewable fixed-term contract is a contradiction in terms, as it would subject the parties to an indeterminate employment contract. The respondent was under a fixed-term contract with a definite commencement date and termination date. There was no ambiguity created to create an expectation of contract renewal by the appellants issuance of a fixed-term contract.The contract terminated automatically when the termination date arrived. Whether a contract with a renewal clause will be extended or not,is an issue that is at the discretion of the employer and it cannot create alegal right under the doctrineof legitimate expectation.” (Emphasis added)(See also, Registered Trustees of the Presbyterian Church of East Africa & another v. Ruth Gathoni Ngotho [2017] eKLR). Turning to the approval of the respondent’s loan, we think there is considerable merit in the appellant’s complaint that the ELRC ignored clear evidence on record showing that the respondent had manipulated his loan application forms so that repayment of the loan would run beyond his fixed term contract. Thus, for example, there is a letter from Messers. Muthuri & Company Advocates dated 12th January 2011. Addressed to the appellant’s Director, it was written on behalf of Rebeca Nkirote and Christine Nyaga, who complained that they had guaranteed the respondent a loan of Kshs 350,000 only, but he had altered the loan application forms to obtain a loan of Kshs. 850,000. For that reason, they were requesting to pull out as the respondent’s guarantors. The two guarantors wrote a similar letter on 14th January 2011 in their personal capacities.

33. This evidence was admitted and was on record. Unfortunately, the court did not advert to it when it held that the grant of a loan running beyond the fixed term contract created legitimate expectation that the appellant would renew the respondent’s contract. In the circumstances of this appeal, it is a misnomer to talk of “legitimate” expectation when the alleged expectation was founded on the respondent’s own illegitimate and misleading conduct that otherwise constitutes fraud or some criminal offences. From the evidence on record, the grant of the loan was obtained most irregularly by the respondent and he cannot be allowed to benefit from his own mischief.

34. Lastly, we agree with the appellant that the court erred in holding that the appellant was obliged to give the respondent three months’ notice of intention not to renew the contract. Other than the fact that the contract did not contain such a clause, there would have been no need for notice in a fixed term contract which did not have a provision for renewal. Secondly, we agree that the ELRC badly conflated a contract that is unlawfully terminated and a contract that expires by effluxion of time. In this appeal, the fixed term contract provided how it could be terminated before it expired. That is when notice or payment in lieu of notice was required. However, no notice or payment was required when the contract ran its full term. It was a fundamental misdirection for the trial court to hold that the fixed term contract was unlawfully terminated and to award compensation for alleged unlawful termination.

35. On gratuity, the same was sufficiently pleaded and proved. The appellant was not taken by surprise and did not suffer any prejudice.

36. The upshot of the foregoing is that this appeal succeeds. We allow the same and set aside the judgment of the ELRC. The respondent is entitled to his gratuity under the last fixed-term contract upon clearing with the appellant. The appellant will have costs of the claim in the ELRC and in this appeal. It is so ordered.

DATED AND DELIVERED AT NAIROBI THIS 8TH DAY OF DECEMBER 2023. HANNAH M. OKWENGUJUDGE OF APPEAL......................K. M’INOTIJUDGE OF APPEAL......................J. MATIVOJUDGE OF APPEALI certify that this is a true copy of the originalSIGNEDDEPUTY REGISTRAR