[2015] KECA 396 (KLR)

IN THE COURT OF APPEAL

AT NAIROBI

(CORAM: KARANJA, SICHALE & KANTAI, JJ.A.)

CIVIL APPEAL NO. 118 OF 2009

BETWEEN

NESCO SERVICES LIMITED ………… APPELLANT

AND

KENCOM HOUSE LIMITED ….…….. RESPONDENT

(Being an appeal from the Judgment and Decree of the High Court of Kenya at Nairobi (Waweru, J.) dated 27thMarch, 2009 in HCCC No. 961 of 2001)

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JUDGMENT OF THE COURT

By the amended Plaint filed at the High Court of Kenya, Nairobi, on 1st April, 2003, the appellant, Nesco Services Limited sued the respondent,Kencom House Limited, in a claim based on a cleaning services contract entered by the parties on 1st September, 1994. By that contract the appellant was to provide cleaning services to the respondent at the respondent’s offices, the offices of Kenya Commercial Bank Limited and those of Kenya Commercial Finance Company Limited. It was claimed in the plaint that in November, 1995 the respondent had through coercion, threats and intimidation unilaterally imposed a 10% deduction of the monthly payments due from it to the appellant for services rendered to be remitted to Kenya Commercial Finance Company Limited to offset a debt owed to that company by a company called Ngoso General Contractors Limited and that the appellant had not authorized such action. It was further claimed that the appellant and the respondent had not altered the terms of the cleaning services contract and that Kenya Commercial Finance Company Limited and Ngoso General Contractors Limited were not parties to the contract or had privity to it. Also that the respondent threatened to terminate the appellant’s cleaning services contract if the appellant did not accede to the said deductions being made and that by 30th April, 2002 a sum of Kshs.3,115,946/80 had been deducted by the respondent and remitted to Kenya Commercial Financial Company Limited which sum was therefore claimed by the appellant and was the subject of the litigation.

The respondent delivered a defence where the appellants’ claim was denied. It was claimed in the defence that the appellant had a common Managing Director with the company called Ngoso General Contractors Limited and that the appellant held out in its transactions that its Managing Director had authority to represent both companies. Further, that the said company had borrowed money from Kenya Commercial Finance Company Limited, a subsidiary of Kenya Commercial Bank Limited, and after a default in payment of the same, the appellant’s Managing Director agreed to an arrangement where 10% of money earned on the cleaning services contract was to be deducted and remitted to Kenya Commercial Finance Company Limited to pay the said loan. It was also stated in the defence that the said arrangement was reduced into writing and was performed for a period of six years without any objection by the appellant and the respondent claimed that estoppel worked against the appellant which according to the respondent was precluded from disclaiming the agreement. The respondent therefore claimed in the defence that the appellant was using the concept of incorporation for an improper purpose and asked the court to lift the veil of incorporation and treat the appellant and the said company as such.

The suit was heard by Hatari Waweru, J., who in a Judgment delivered on 27th March, 2009 dismissed the same. That is what led to this appeal premised on the eight grounds of appeal set out in the Memorandum of Appeal drawn by counsel for the appellant. In the first ground the learned judge is faulted for taking a letter written by the appellant’s accountant as giving authority for the deductions of money due to the appellant from the respondent to pay a debt owed by the company called Ngoso General Contractors Limited to Kenya Commercial Finance Company Limited; the learned judge is faulted in the next ground for holding against the appellant when there was no resolution by the appellant to the respondent authorising the said deductions; the learned judge is also faulted for holding that two companies were sister companies when each was a distinct and separate legal entity; the learned judge is also faulted for not holding that the appellant had no privity of contract with the company called Ngoso General Contractors Limited and that the cleaning services contract was not varied; that the learned judge erred in making findings on issues not before the court and that indebtedness by Ngoso General Contractors Limited to Kenya Commercial Finance Company Limited had not been proved. For all these the appellant proposes the following orders by this Court on this appeal:

“(i) A declaration that the plaintiff was never party or privy to the contract between Ngoso General Contractors Limited and Kenya Commercial Finance Limited.

A declaration that the defendant was not entitled to deduct 10% or any other percentage of sums due from it to the plaintiff for services rendered to pay alleged indebtedness of Ngoso General Contractors Company Ltd to Kenya Commercial Finance Limited.

Judgment be entered for Kshs.3,115,946. 80 together with interest thereon at 36% per annum from 1/3/2001 until payment in full.

Costs in HCCC No. 961 of 2001 together with interest.”

This is a first appeal and we are duty bound to reevaluate the evidence. This Court has variously held that it is the duty of a first appellate court to do so. InMwanasokoni v Kenya Bus Services Limited(Mombasa) Civil Appeal No. 35 of 1985 (ur)Hancox, JA, speaking for the court, stated of the duty of a first appellate court:

“….Although this Court of Appeal will not lightly differ from theJudge at first instance on a finding of fact it is undeniable that we have the power to examine and re-evaluate the evidence on a first appeal if this should become necessary.”

Three issues were framed and agreed by the parties as the issues for determination before the learned trial judge. These were: whether the respondent was authorized by the appellant to deduct 10% of what was due to the appellant from the respondent on the cleaning services contract to offset the debt already referred to; secondly whether the letter of 22nd

November, 1995 from Kenya Commercial Finance Company Limited to the company called Ngoso General Contractors Limited bound the parties to the suit and finally whether the appellant objected to the said 10% deductions by the respondent. On all the issues the learned judge found that the appellants’ case failed.

Mr. Ambrose Weda,learned counsel for the appellant, in his address before us when this appeal came up for hearing on 7th July, 2015 principally adopted the written submissions which he had filed at the High Court of Kenya before the learned judge. He added that there was no authority given by the appellant for any deductions to be made as they were done and questioned the authority of an accountant employed by the appellant who wrote a letter authorizing deductions. The said letter, submitted learned counsel, was not a variation of the cleaning services contract entered by the parties to the litigation. In any event, added counsel, the deductions were disputed and could therefore not be made. And where did the learned judge find authority to hold that the appellant and Ngoso General Contractors Limited were sister companies when, according to counsel, such concept of sister companies was unknown to law? Counsel ended his submission by saying that without a company resolution given by the appellant the respondent could not carry out deductions as it had done.Mr. Geoffrey Muchiri, learned counsel for the respondent did not agree. He referred to a statement of agreed facts filed before the learned trial judge and oral testimony, where the appellants Managing Director had confirmed that the appellant and Ngoso General Contractors Limited had common personnel, operated from the same premises, shared telephone and postal address and were run and managed by the same Managing Director. Counsel further submitted that the appellant had not objected to deductions of money that were made for a considerable period of time and had not called a witness to testify on threats and coercion pleaded in the plaint. For all these the appeal be dismissed.

Mr. Weda, in a brief response, submitted that the appellant was entitled to the claim and interest of 36% which, according to him, was the interest applicable at the time.

We have considered the record of appeal including the Memorandum of Appeal, the submissions of counsel and the law.

In a detailed letter dated 21st November, 1995 by H.O. Nyamboki who wrote on behalf of Ngoso General Contractors Limited to the respondent the said person admitted that there was an indebtedness by the said company to Kenya Commercial Finance Company Limited and that:

“….. Given the position as stated by yourself and that we indeed wish to continue in our survival but without any prejudice at all, we are willing to cooperate with the KCB group and indulge in monthly deductions of a certain fraction (to be agreed) of our contract earnings and the same to be applied against KCFC claims against us until this matter is determined by the court or cleared the claims whichever is easier…..”

That letter was replied to the next day 22nd November, 1995 when the respondent confirmed an arrangement agreed on deduction of money from the appellant. The letter ended by requiring the appellant to sign to confirm the arrangement and Mr. H.O. Nyamboki executed the same on the same day.

On 16th July, 1998, J.W. Gathongo, who described himself as the appellant’s Company Accountant, wrote to Kenya Commercial Finance Company Limited as follows:

“Following discussions between your Mr. Mumo and our Mr.Nyamboki, this is to advise that we have today conceded to the demands by Kenya Commercial Finance Co. Ltd. to allow Kencom House Ltd. to deduct the sum equal to 10% of the value of Cleaning Services rendered to Kencom House Ltd. effective immediately and without any prejudice at all. The proceeds are to be applied against the loan account of Ngoso General Contractors Ltd. with KCFC. This arrangement is to remain in force until further notice by this company.”

In testimony before the learned judge H.O. Nyamboki, who stated that he was the Managing Director of the appellant and the other company Ngoso General Contractors Limited confirmed that he had authorized the respondent to deduct a percentage of earnings on the cleaning services contract to offset a debt owed to Kenya Commercial Finance Company Limited by Ngoso General Contractors Limited.

Of these letters the learned judge found:

“…..The plaintiff now says, through PW1, that this letter did not constitute due authority by the plaintiff for the deductions because there was no resolution by the board of directors of the plaintiff authorizing it. But how was the defendant to know that there was no such authority? In any event, the day-to-day financial management of a limited liability company is not usually in the hands of the board of directors. It is normally in the hands of the management. The board of directors is normally concerned with broad issues of policy of the company. It is not unreasonable to expect that a company accountant would be part of the management team of a limited liability company…..”

The position in law on the corporate identity and personality of a limited liability company has existed for many years. Salomon v Salomon & Co. Limited [1897] AC 22set out the principle that a company is a separate legal entity and thus a juristic person separate from its members.

But the issue before the learned judge was not, as the appellant now submits before us, whether the company called Ngoso General Contractors Limited was the same as the appellant. They were, of course, separate legal entities. The issue was instead whether the appellant could make binding undertakings on behalf of that other company.

The appellant submits that there was no company resolution to affect the cleaning services contract it had with the respondent. But whose responsibility was it to make such a resolution and present it to the respondent?

As we have shown in the various correspondences by the parties H.O. Nyamboki freely corresponded with the respondent or the other companies in the Kenya Commercial Bank Limited Group of Companies without drawing a distinction of which company he was representing. He made commitments as Managing Director of Ngoso General Contractors Limited which were binding on the appellant. Deductions were made on payments due on the cleaning services contract which went on for a considerable period of time without any protest. The commitment by the appellant’s company accountant in the letter referred to was binding on the appellant as it was done by a manager with authority to act on behalf of the appellant.

The learned judge was entitled, on the evidence and material placed before him, to find that the appellant had bound itself to meet obligations due to the respondent.

This appeal has no merit and we dismiss it with costs.

Dated and Delivered at Nairobi 25thday of September, 2015.

W. KARANJA

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JUDGE OF APPEAL

F. SICHALE

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JUDGE OF APPEAL

S. ole KANTAI

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JUDGE OF APPEAL

I certify that this is a true copy of the original.

DEPUTY REGISTRAR