[2022] KEHC 198 (KLR)

Njimbi Construction Co. Limited v Maiyan Holdings Limited & another (Civil Case 437 of 2014) [2022] KEHC 198 (KLR) (Commercial and Tax) (17 March 2022) (Judgment)

Neutral citation: [2022] KEHC 198 (KLR)

Republic of Kenya

In the High Court at Nairobi (Milimani Commercial Courts Commercial and Tax Division)

Commercial and Tax

Civil Case 437 of 2014

WA Okwany, J

March 17, 2022

Between

Njimbi Construction Co. Limited

Plaintiff

and

Maiyan Holdings Limited

1st Defendant

Athena Holdings Limited

2nd Defendant

Judgment

1. Through the plaint dated 3rd October 2014, the Plaintiff herein, Njimbi Construction Company Ltd, sued the Defendants seeking the following orders: -a.Kshs. 13,640,220b.Interest on (a) above at court rates.c.Any other remedy as the honourable court deems fit to grant.

2. The Plaintiff’s case was that through a contract executed on 10th February 2014, it agreed to carry out infrastructural works for Defendants at their Maiyan Development Phase 1 project in Laikipia County at an agreed contract sum of Kshs. 19,500,000. The Plaintiff claimed that the parties agreed that there would be variations to the work as required by the defendants at the agreed cost of Kshs. 13,640,220 all-inclusive.

3. The Plaintiff contended that it carried out all the initial works together with the variations to the agreed standards but that the defendants only paid Kshs. 18,968,799. 54 thereby leaving an outstanding balance of Kshs. 15,616,567. 33 thereby occasioning it loss and damage.

Defence and Counterclaim. 4. Through the statement of defence and counterclaim filed on 1st April 2015, the defendants admit that the plaintiff and the 1st defendant entered into the infrastructural contract for the sum of Kshs. 19,500,000 which contract was thereafter varied to Kshs. 24,151,548. They state that in breach of the terms of the said contract, the plaintiff not only failed to complete the work as agreed, but also did poor quality work thereby occasioning them loss assessed at Kshs. 18,856,858. 09.

5. The defendants admit that they paid the plaintiff a total sum of Kshs. 18,856,799. 54 but deny that there is an outstanding balance of Kshs. 15,616,567 as alleged by the plaintiff. They further state that the total value of the work carried out by the Plaintiff assessed at Kshs. 18,856,858. 09 only. They therefore contend that they made an overpayment of Kshs. 111,941. 45, which they now claim through the Counterclaim.

6. Through the counterclaim, the 1st defendant admits that it entered into the contract with the plaintiff and states that the contract contained a termination clause. That the termination clause was to the effect that the 1st defendant would be entitled to 20% of the value of the value of the works that remained unexecuted at the date of the termination in the event the plaintiff had not undertaken 50% of the works as at the time of such termination.

7. The 1st defendant’s case was that the plaintiff did not complete the works as agreed thereby leading to the termination of the contract in line with the terms of the contract. The 1st defendant adds that as at the time of the termination, the plaintiff had not undertaken 50% of the works despite having been paid Kshs. 18,968. 54.

8. The 1st defendant contends that upon termination of the contract, the 2nd defendant assessed the extent and quality of the finished work at Kshs. 18,856,858. 09 and discovered that it overpaid the plaintiff by Kshs. 111,941. 45. It further states that, as at the time that the contract was terminated, the value of the incomplete part of the works was Kshs. 5,294,690, which, going by the terms of clause 8. 4 of the contract, meant that it was entitled to 20% of such incomplete work that translates to Kshs. 1,058,938.

9. The 1st defendant therefore counterclaims the total sum of Kshs. 1,170,879. 50 together with general damages for breach of contract.

10. The defendants maintain that this court lacks the jurisdiction to entertain this suit as the contract contained an arbitration clause.

Reply to Defence and Defence to Counterclaim. 11. The plaintiff filed its Reply to Defence and Defence to Counterclaim on 20th April 2015 wherein it denies the defendants’ claim that the value of the initial and varied works was agreed at Kshs. 24,151,548. The plaintiff maintains that the assessed cost of the extended words and the initial contract sum was Kshs. 33,140,220.

12. The plaintiff maintains that the defendants did not issue it with any notice to correct any poor workmanship or issue any notice to terminate the contract as it had completed all the contracted works.

13. The plaintiff denies the allegations contained in the counterclaim and reiterates that the defendants did not pay for the varied works valued at Kshs. 13,640,220.

Oral and Documentary Evidence 14. The Plaintiff called three witnesses, namely; Francis Magothe (PW1), Robert Kinyua Wanjohi (PW2) and Lawrence Mutugi Njue (PW3). The witnesses relied on their Witness Statements and bundle of documents dated 8th November 2016.

15. The Defendants called two witnesses, namely: Walter Agutu (DW1) and Engineer James Mwangi (DW2), an expert witness. DW1 relied on his witness statement and Bundle of Documents dated 1st April 2015.

Plaintiff’s evidence 16. PW1 Mr. Francis Magothe the plaintiff’s Managing Director and Contractor adopted the contents of his witness statement as his evidence in chief and produced the plaintiff’s bundle of documents as exhibits. On cross-examination, he stated that the plaintiff was paid Kshs. 18. 9 Million but that the cost of the contract changed to Kshs. 32,609,020. 34 due to additional works. He conceded that variation to the terms of the contract could only be effected in accordance with the terms of the contract and that there was no agreement on the variation. He testified that he assessed the work that the plaintiff had done as at 23rd July 2014 and took measurements at the site in the company of a foreman and a surveyor. He stated that he did not have a surveyor’s or engineer’s report and that he confirmed that the amount of 32 Million was not agreed upon but that it was his estimate according to the measurements that he had taken. He maintained that the sum of Kshs. 33,140,220 appearing on the Reply to Defence and Defence to Counterclaim could be a typing error.

17. He confirmed that the demand letter sent to the defendants indicated that the amount due was Kenya shillings 34,585. 87 but that he changed the figure upon realizing that there was an error in the Bill of Quantities (BQ). He contended that the variations to the contracts were recorded during the site meetings but that the parties did not agree on the value of the variations.

18. On re-examination, he stated that was email correspondence to confirm the added works. He confirmed that the plaintiff was paid Kshs. 18,968,799. 64 out of the agreed contract sum of Kshs. 19. 5 Million and that’s there was therefore an outstanding balance on the main contract. He claimed that the defendant thereafter indicated that the total amount due to the plaintiff was Kenya shillings 24,151,000. He added that the plaintiff’s claim is for the sum of kshs. 13,640,220.

19. PW2 Lawrence Mutugi Njue, a Civil Engineer, testified that he advised the plaintiff on how to resolve its dispute with the defendants. He stated that at a site visit he attended in the company of PW1 and one Mr. Tim Hitchin, it was agreed that valuation of the works be carried out in the presence of representatives of both parties but that no such valuation was undertaken.

20. On cross-examination, PW2 testified that he got into the project on 27th October 2014, 24 days after the filing of the suit and that his testimony was based on what the plaintiff told him had transpired before the filing of the suit. He added that his role was to advise the plaintiff on the areas of the dispute that involved scientific civil engineering process. He recommended a resolution of the dispute through ground measurement, which was not done. He confirmed that the plaintiff did not present any scientific report to the issues that he had highlighted in his statement. He added that he proposed certain remedies to resolve the dispute but observed that the remedies required scientific analysis.

21. Engineer Mutugi testified that parties did not undertake joint measurements of the works and that no raw data was collected. He added that without measurements of the works, it was not possible to justify the amount claimed by the parties.

22. On further cross-examination, he stated that he could not testify on the quality of the words undertaken by the plaintiff.

23. On re-examination, he reiterated that the dispute could be resolved by visiting the site and taking measurements on the ground. According to PW2, the best approach would have been to go to the site and assess the work that had been done on the ground. His testimony was that at all attempts to assist the parties negotiate the matter did not bear any fruit.

24. PW3 Mr. Robert Kinyua Wanjohi, was the plaintiff’s site agent. He testified that he understood the contract to be a fixed contract for Kshs. 19. 5 Million. His stated that his role in the project was to ensure that the contract was implemented as agreed. He stated that the Plaintiff completed the construction works.

The Defendants’ Case. 25. DW1 Philip Agutu Awinda, the 2nd defendants Project Manager, testified that on or about 10th February 2014, the plaintiff and the 1st defendant entered into an agreement in which the plaintiff was to carry out construction work for the 1st defendant at the contract price of Kshs. 19. 5 Million. He confirmed that there were variations to the contract in respect to the scope of the project. That the variations involved the levelling of the training ground area, variation of earth work supporting the dam and water course, improvements to external access road and engineering. He estimated the total cost of the variation at Kshs. 18,856,858. 09 Million. He stated that the contractor was paid Kshs. 18,800,000 and that there was therefore a difference of 18,968,799. 54 which means that there was an overpayment of Kshs. 111,941. 45 which the contractor should reimburse to the client/1st defendant. His testimony was that under Clause 8. 4 of the contract the 1st defendant was entitled to the equivalent of 20% of the balance of the work not executed if the contractor terminated the contract and that in this case, the unexecuted work was valued at Kshs. 5,294,690.

26. According to DW1, the 1st defendant is entitled to Kshs. 1, 058,938 plus the overpayment of Kshs. 111,941. 45 thereby justifying the defendant’s total claim of Kshs. 1,170,879. 50.

27. On cross-examination, he stated that the contractor was no longer at the site at the time he joined the project.

28. As regards the payments made to the contractor, DW1 testified that the same was made at intervals based on the various certificates. He confirmed that there were variations to the scope of the contract that led to the reduction in scope of work mainly on the road network. He stated that the 2nd defendant assessed the total value of the work done at 18. 5 million.

29. DW1 stated that he did not know why or when the contract was terminated, the reasons for the termination, and the value/scope of the variations but added that the plaintiff was informed of the variations.

30. DW2, Mr. Jim Ritho Mwangi, an Engineer attached to the 2nd defendant, testified that sometime in 2013, the 1st defendant hired the 2nd defendant to work on a project in Laikipia and that his role was to design and supervise the roadworks in the development area. That he designed the road and consulted throughout the project but that he did complete works because the site was abandoned before completion. He produced a status report indicating the state of the work as at the time the contract was terminated. He testified that as at the time of the report, the contractor had disagreed with a client due to underpayment. He stated that most of the work was done but that the gravelling murram was not approved due to its poor quality.

31. On cross-examination, he testified that a dispute arose between the Contractor and the client before the termination of the contract but that he did not know how the actual termination happened. He confirmed that he was aware of the design changes by the architect, but added that he did not have the design changes and neither did he know who made the changes. He further confirmed that the role of the 2nd defendant was purely technical and entailed interpretation of the drawings, designs, supervision of work and advising the 1st defendant.

Issues for Determination 32. Parties canvassed their respective cases by way of written submissions. I have considered the pleadings filed herein, the written submissions and the authorities that the parties cited. I find the following issues fall for determination.i.Whether this court has the jurisdiction to hear and determine this suit.ii.Whether the suit should be struck out as against the 2nd defendant.iii.Whether there were variations to the contract and the cost, if any, of such variations.iv.Whether the Plaintiff was over paid by a sum of Kshs.111,941. 45v.Whether the plaintiff is entitled to sum of Kshs 13, 640, 220/- as claimed in the plaint.vi.Whether the 1st defendant is entitled to the prayers in the counterclaim

Jurisdiction 33. The defendants argued that in view of the existence of an arbitration clause in the parties’ agreement, this court lacks the jurisdiction to hear and determine the suit and that the matter ought to be referred to arbitration. The Plaintiffs did not respond to the challenge on jurisdiction.

34. I have perused Clause 11. 1 of the parties’ agreement and I note that the parties agreed as follows on settlement of disputes: -“Unless settled amicably, any dispute or difference which arises between the Contractor and the Client out of or in connection with the Contract, including any valuation or other decision of the Client, shall be referred by either party to adjudication in accordance with the Rules for Adjudication. The adjudicator shall be any person agreed by the parties. In the event of disagreement, the adjudicator shall be appointed in accordance with the Rules.”

35. Courts have taken the position that a party seeking referral to arbitration should make an application for the same at the time of entering appearance or before acknowledging the claim in question. The question of what constitutes an acknowledgement of a claim was discussed in the case of Eunice Soko Mlagui vs Suresh Parmar & 4 others [2017] eKLR, wherein the Court held that, the filing of a defence constitutes acknowledgment of a claim, within the meaning of the provisions of Section 6(1) of the Arbitration Act. The Court held that, the Defendants had already submitted to the jurisdiction of the Court and the matter could not therefore be referred to arbitration.

36. Guided by the decision in the above-cited case, I find that by filing their defence and counterclaim and further, by presenting their case during the hearing the defendants submitted to the jurisdiction of this court. I therefore find that it is too late in the day for the defendants to raise the issue of jurisdiction and that the matter is properly before this court for determination,

Striking out the suit against the 2nd defendant. 37. The 2nd Defendant submitted that the case against it should be struck out since it was not a party to the contract between the Plaintiff and the 1st Defendant. The plaintiff, on the other hand, submitted that it was able to show that the works belonged to the 2nd defendant and that the 1st defendant was the 2nd defendant’s agent.

38. Under the doctrine of privity of contract, only parties who executed the contract are bound by it. This means that a contract cannot be enforced against a party who was not party to it. In Savings and Loan (K) Limited vs Kanyenye Karangaita Gakombo and Another [2015] eKLR it was held that the doctrine of privity of contract postulates that a contract cannot confer rights or impose obligations on any person other than the parties to it and a contract cannot be enforced either by or against a third party.

39. In the present, a perusal of the contract dated 10th February 2014 reveals that only the 1st defendant and the Plaintiff signed it. In his testimony before this court, DW2 was categorical that his role in the entire contract was to provide technical advice to the 1st defendant. My finding is that the 2nd defendant had no direct to with the plaintiff in as far as the rights and obligations under the contract are concerned and cannot therefore be held liable under a contract that it was not party to. I therefore strike out the case against the 2nd defendant with no orders as to costs.

Variations to the Contract 40. It was not disputed that the initial contract price was Kshs. 19,500,000 and that there were variations to the contract. The main contest however, was the overall impact of the variations to the initial contract price. The Defendants’ case was that the variations had the effect of lowering the contract considerably. It was further the defendants’ case that the plaintiff was not entitled to the full initial contract price, as the construction works was not fully executed. On its part, the plaintiff contended that the total contract price, after variations, increased to Kshs.33, 140,220/-. According to the plaintiff, the variations to the contract had the effect of increasing the initial contract sum by Kshs. 13,640,220.

41. It is a cardinal principle of law that “he who alleges must prove”. This principle is captured under sections 107 to 109 of the Evidence Act which stipulate as follows: -“107 (1) whoever desires any court to give judgment as to the legal right or liability dependent on the existence of facts which he asserts must prove that those facts exist.(2)When a person is bound to prove the existence of any fact it is said that the burden of proof lies with that person. 108. The burden of proof in a suit or proceeding lies on that person who would fail if no evidence at all were given on the other side.

109. The burden of proof as to any particular fact lies on the person who wishes the court to believe in its existence, unless it is provided by any law that proof of that fact shall lie on any particular person.”

42. In the case of Stephen Wasike Wakho & Another vs Security Express Limited [2006] eKLR, the court stated as follows: -“A party seeking justice must place before the court all material facts which considered in light of the law would enable the court to arrive at the decision as to whether the relief sought is available. Hence the legal dictum he who alleges must prove.”

43. It was not disputed that the nature, amount and terms of the variations were not documented. In fact, PW1 testified that there was no written agreement on the variations. PW1 testified as follows concerning the variations: -“We only signed one contract we did not sign any other contract. There were additional works, however variation was to be done only in accordance with the contract. The price was valued at Kshs. 32,609,020. 34 from Kshs. 19. 5 million according to me. However, there was no agreement. I assessed the works in respect in July 2014. By then we had completed the works. The works are calculated during the construction phase. We have survey figures in my records to show how fraud was. I do not have any report by the surveyor. I also do not have the engineers report. I’m a qualified building engineer,”

44. Even though it was not disputed that there were variations to the original contract, the above extract of the testimony of PW1 reveals that the plaintiff did not have any documentary of the nature, extent and cost of the variations. PW2 was categorical that it was not possible to justify the amount claimed by the parties without assessing or measuring the work that had been done.

45. I find that by its own admission, the plaintiff did not present any documentary evidence to support its claim sum of Kshs. 13,640,220. It is trite that a claim for a liquidated sum of money or special damages must not only be pleaded but must also be specifically proved. This is the position that was adopted in the case of Jivanji vs Sanyo Electrical Co. Ltd (2003) 1 E.A. 98 where court of Appeal stated:-“It is now trite law that special damages must first be pleaded and then strictly proved………….”……………..It has time and again been held by the Courts of Kenya that claims for each particular types of special damages must be pleaded………….”

46. My finding is that there was no documentary evidence of the alleged agreement on variation by the alleged total of Kshs.13, 640,220/-. I am therefore not satisfied that the plaintiff proved its claim against the defendants to the required standards.

47. The Plaintiff did not produce any evidence to show that the parties agreed to vary the initial contract price by a total sum of Kshs.13, 640,220/- as stated at paragraph 9 of the Plaint.

48. The defendants maintained that the plaintiff’s claim was contradictory and marred with inconsistencies. The defendants pointed out the plaintiff’s claim as stated at paragraph 9 of the plaint is different from the amount claimed in the prayers. The defendants cited the case of Kenya Tourist Development Corporation vs Sundowner Lodge Limited [2018] eKLR, the court of appeal held that a claim that was contradictory and inconclusive not only fell short of specific pleading but also the test of strict proof. The court stated as follows; -“The problem, however, lay in the fact that the evidence tendered, such as there was, either failed to touch on the specific sums pleaded or was contradictory, inconclusive or speculative. This fell way short of the requirement not only of specific pleading but, also, indeed the more, strict proof. See Banque Indosuez vs. Dj Lowe & Co. Ltd [2006] 2KLR 208. Hahn vs. Singh [1985] KLR 716. That proof having lacked, the learned Judge was perfectly entitled to dismiss the huge claim”

49. The plaintiff conceded that the amounts stated at paragraphs 9, 11 and the prayers section of the plaint were different but stated that the difference arose from typographical errors. My finding is that the plaintiff had ample time, before the hearing of the case, to amend the plaint to indicate the correct amount claimed. Going by the adage that parties are bound by their pleadings, I find that the inconsistencies in the pleadings especially in respect to the total amount claimed is inexcusable and leads to the logical conclusion that the plaintiff did not discharge the burden of proving in this claim.

Counterclaim 50. The 1st defendant’s claimed the sum of Kshs. 111,941/45 being overpayment allegedly made to the plaintiff prior to its valuation after the termination of the contract. The 1st defendant’s case is that it terminated the subject contract under clause 8. 1 thereof when the plaintiff abandoned the construction site. In his report to court, DW2 was categorical that the plaintiff ‘abandoned the site citing cash flow problems due to underpayment.’25. The 1st defendant’s case was that Clause 8. 4 of the subject contract provided for payment equivalent to 20% of the unexecuted works of the contract upon termination under clause 8. 1 thereof. According to the 1st defendant, since the total varied contract price was Kshs. 24,151,548/55 and the total value of the works assessed as complete was Kshs 18,856,858/09, the unexecuted works amounted to Kshs 5,294,690/-. The 1st defendant claimed 20% of the value of unexecuted works which translates to Kshs. 1,058,938/= stated in the counterclaim.

51. My finding is that having found that no material was placed before this court to show the nature, extent and cost of the alleged variation to the contract, the 1st defendant cannot on one hand state that there was no of proof value of the variations and at the same time state that the amounted to Kshs. 24,151,548. 55. I further find that the circumstances that led to the termination of the contract are not clear as while the plaintiff claims that it completed the construction works, the 1st defendant claims that the work was abandoned before completion.

52. Regarding the 1st defendant’s claim for the alleged overpaid sum of Kshs. 111,941. 45, I find that the evidence on record shows that payments were made to the plaintiff against Certificates of Completion. This is to say that, at every stage, the 1st defendant confirmed that the work had been done before making the payment. I am, in the circumstances of this case, unable to find that the issue of overpayment could arise as has been alleged by the 1st defendant.

53. I similarly find that the claim for the sum of Kshs. 1,058,938 does not arise in the face of lack of proof that plaintiff terminated the contract.

54. In sum, I find that both the plaintiffs claim and the 1st defendant’s counterclaim were not proved to the required standards and the order that commends itself to me is dismiss both the plaint and counterclaim with no orders as to costs.

DATED, SIGNED AND DELIVERED VIRTUALLY AT NAIROBI THIS 17THDAY OF MARCH 2022. W. A. OKWANYJUDGEIn the presence of:Ms Gatuhi for Njagi for defendantsCourt Assistant: Sylvia