[2022] KEHC 10381 (KLR)

Nzoia Sugar Limited v Strategic Enterprenuers Ltd (Civil Appeal 152 of 2019) [2022] KEHC 10381 (KLR) (17 May 2022) (Judgment)

Neutral citation: [2022] KEHC 10381 (KLR)

Republic of Kenya

In the High Court at Eldoret

Civil Appeal 152 of 2019

EKO Ogola, J

May 17, 2022

Between

Nzoia Sugar Limited

Appellant

and

Strategic Enterprenuers Ltd

Respondent

Judgment

1. The appeal herein was filed by the appellant vide a memorandum of appeal dated the 25th of October 2019 against the Judgement and decree of the Hon. Charles Obulutsa CM, delivered on the 27th of September 2019 in Eldoret CMCC Number 406 of 2016.

2. The brief facts of the case is that the respondent herein lodged a suit in the lower court vide plaint dated the 7th of March 2012 claiming Kshs 10,784,000. 00 as loss of profit and 322 bags of sugar which it claimed were not supplied to them by the appellant herein. In particular, the respondent claimed that it had purchased 1600 bags of sugar from the appellant and paid Kshs 8,800,000. It was their case that the appellant supplied only 1278 bags and failed to supply the balance of 322 bags.

3. The appellant (then defendant), entered appearance on the 23rd of March 2012 and filed its defence on the 2nd of April 2012. The appellant stated in its defence that it did not enter into any sale contract with the respondent capable of enforcement in a court of law and further averred that if there was any contract, then its terms ought to have been set out in the respondent’s pleadings. Finally, the appellant averred that it sells sugar to any willing buyer at prices dictated by market forces and as such, the respondent could not seek preferential treatment.

4. The matter was set down for hearing where the respondent called two witnesses and the appellant called 1 witness.

Proceedings 5. PW1, Julius Mutua Ruchu testified on the 14th of March 2018 he was a retired Public Officer and a director of the respondent’s company. He testified that they paid the appellant Kshs 4,000,000 by RTGS and produced evidence of the said payment which was marked Pexh 2a and 2b. He further testified that they paid a further Kshs 4,000,000 which was confirmed by the appellant vide receipt 12th of August 2011 and also produced in court. This payment was for sugar- that is, 1600 bags of sugar packaged in 50 kgs bags. He testified further that not all sugar was supplied. On cross-examination, PW1 stated that it was not the first time they were purchasing sugar from the appellant as they had established a business relationship. He further noted that he claims loss of profit of Kshs 10 Million but admitted not to have given a breakdown of the loss.

6. On re-examination, PW1 stated that there was no written agreement between the two companies but noted that it was a mutual arrangement and that the appellant received money from the respondent and supplied the sugar as agreed. He reiterated however that not all bags of sugar were delivered to them despite payment.

7. PW2 Stephen Kamau Kiringi testified on the 22nd of August 2018 he was a certified public accountant and an auditor in Eldoret since 1994. His testimony was that he assessed loss of profit of goods not delivered to the respondent by the appellant and produced a report marked Pexh 14. He noted that he reviewed the purchase documents, sales report and gate pass before writing his report.

8. On cross, PW2 testified that he relied on documents given to him by the respondent herein which he noted indicated that he had ordered for 1600 bags of sugar but not all bags were delivered. He further testified that the loss of profit was Kshs 10,784,000. He also testified that there are errors in the report since the figures in the report were altered. On re-examination, PW2 noted that he did the assessments based on sales book which show the loss of purchases.

9. In response, the defence called a single witness DW1-Benard Were who testified on the 17th of April 2019 that he had worked with the appellant since 2010. He confirmed that the respondent purchased 1600 bags of sugar but that at the time of the purchase, the appellant had shortage. He testified that they issued notices to the public on price review. He confirmed that the respondent paid Kshs 8,809,000 and that after the review, the respondent was entitled to loss bags considering that only 1278 were supplied. On cross-examination, DW1 testified that indeed the respondent paid Kshs 4 million on 8. 8.11 and further payment of 800,000/- for which they issued receipts to acknowledge full payment. He also confirmed that the 2 receipts show that the payments were for a total of 1600 bags divided into 800 bags each. He also testified that there is no evidence that the appellant refunded any balance to the respondent and confirmed that they delivered 1278 bags which was 322 bags less what the respondent had paid for.

10. On re-examination DW1 testified that by the time the money was paid, the disclaimers by the appellant had already been issued. He noted that the disclaimers on prices reached the finance department on 27th of August 2011 and that the memos on price adjustment reached the respondent.

11. At the close of the defence case, the trial magistrate delivered his judgement on the 27th of September 2019 in favour of the respondent herein for delivery of 322 bags of sugar and payment of Kshs 1,296,500/= together with costs of the suit.

The Appeal 12. Being dissatisfied with the above decision of court, the appellant preferred the instant appeal raising 6 grounds of appeal namely:1. The learned trial magistrate erred in law and fact in allowing the plaintiff (respondent’s) suit without taking into consideration the entire evidence of the defendant (appellant), its witness and exhibit produced.2. The learned trial magistrate erred in law and fact when he failed to consider the overwhelming nature of the evidence that was produced by the defendant and its witness.3. The learned trial magistrate erred in law and fact by relying on wrong principles in allowing the respondent’s case.4. The learned trial magistrate erred in law and fact in arriving at the said decision by dwelling on irrelevancies and failing to consider the defendant’s pleadings and the evidence produced.5. The learned trial magistrate erred in law and fact when he failed to analyse the evidence on record and proceeded to give a judgement that was full of contradictions.6. The learned trial magistrate erred in law and fact when he considered the plaintiff’s testimony that was contradictory and based on speculations.

13. The court directed the appeal be canvassed by way of written submissions and parties have duly filed their submissions.

Determination. 14. The tenor of this appeal has to be considered within the well settled principles in the cases of Abok James Odera T/A A. J. Odera & Associates v John Patrick Machira T/A Machira & Co. Advocates [2013] eKLR, The Kenya Ports Authority v Kuston (Kenya) Ltd [2009] where in both decisions the predominant principles is:“On a first appeal the court should reconsider the evidence, evaluate it and draw its own conclusions, through it should always bear in mind that it has neither seen nor heard the witnesses and should make due allowance in that respect. Secondly, that the responsibility of the court is to rule on the evidence on record and not introduce extraneous matters not dealt with by the parties in the evidence.”

15. In this appeal, having considered the parties pleadings, submissions and annextures, I find two issues arise for disposal by this court. These are:a.Whether there was a valid contract between the appellant and the respondent and if so,b.Whether there was breach of the said contract by the appellant?

a. Whether there was a valid contract between the appellant and the respondent 16. In the case of Abdulkadir Shariff Abdirahim & another vs Awo Sharrif Mohammed [2014] eKLR the court held that: -“There is no general rule of law that all agreement must be in writing. The numerous benefits of a written agreement notwithstanding, all that the law requires is that certain specific agreements must be in writing or witnesses by some written note or memorandum. Section 3(1) of the Law of Contract Actis one such provision.”

17. The question then is what is a contract?

18. The Black’s Law Dictionary, 8th edition defines a contract as: -“An agreement between two or more parties creating obligations that are enforceable or otherwise recognizable at law.”

19. Flowing from the above, the basis of any suit in contract performance or non-performance is as per requirements in Subsection 3 of the Law of contract. Act(Cap 23 of the Laws of Kenya) which means that a party must show the following essential elements to a contract: An offer; an acceptance; any consideration and lastly an intention to create legal relations.

20. In this regard, I will refer to some persuasive decisions on contract formation. In G. Percy Trentham Ltd vs. Archital Luxfer Ltd[1993] 1 Lloyds Rep. 25 Lord Steyn stated as follows: -“…..it is important to consider briefly the approach to be adopted to the issue of contract formation… It seems to me that four matters are of importance. The first is that …. law generally adopts an objective theory of contract formation. That means that in practice our law generally ignores the subjective expectations and the unexpressed reservations of the parties. Instead the governing criterion is the reasonable expectations of honest men….. that means that the yardstick is the reasonable expectations of sensible businessmen. Secondly it is true that the coincidence of offer and acceptance will in the vast majority of cases represent the mechanism of contract formation. It is so in the case of a contract alleged to have been made by an exchange of correspondence. But it is not necessarily so in the case of a contract alleged to have come into existence during and as a result of performance. See Brogden v Metropolitan Railway [1877]2 AC 666; New Zealand Shipping Co ltd v A M Satterhwaite & Co ltd.[1974] 1 Lloyd’s Rep. 534 at p. 539 col. 1 [1975] AC 154 at p. 167 D-E; Gibson v. Manchester City Council [1979] 1 WLR 294. The third matter is the impact of the fact that the transaction is executed rather than executory. It is a consideration of the first importance on a number of levels. See British Bank for Foreign Trade Ltd v. Novinex [1949] 1 KB 628 at p. 630. The fact that the transaction was performed on both sides will often make it unrealistic to argue that there was no intention to enter into legal relations. It will often make it difficult to submit that the contract is void for vagueness or uncertainty. Specifically, the fact that the transaction is executed makes it easier to imply a term resolving any uncertainty, or alternatively, it may make it possible to treat a matter not finalized in negotiations as inessential. In this case fully executed transactions are under consideration. Clearly, similar considerations may sometimes be relevant in partly executed transactions. Fourthly, if a contract only comes into existence during and as a result of performance of the transaction it will frequently be possible to hold that the contract impliedly and retrospectively covers pre-contractual performance. See Trollope & Colls Ltd v. Atomic Power Constructions Ltd. [1963]1 WLR 33. ”

21. In RTS Flexible Systems Ltd vs. Molkerel Alois Muller GmbH & Co, KG (UK Production)(2010) UKSC14, [45] the Supreme Court of the United Kingdom stated that: -“…The general principles are not in doubt. Whether there is a binding contract between the parties and, if so, upon what terms depends upon what they have agreed. It depends not upon their subjective state of mind, but upon a consideration of what was communicated between them by words or conduct, and whether that leads objectively to a conclusion that they intended to create legal relations and had agreed upon all the terms which they regarded or the law requires as essential for the formation of legally binding relations. even if certain terms of economic or other significance to the parties have not been finalized, an objective appraisal of their words and conduct may lead to the conclusion that they did not intend agreement of such terms to be a precondition to a concluded and legally binding agreement.”

22. In Rose and Frank Co v J R Crompton & Bros Ltd[1923] 2 KB it was held that: -“To create a contract there must be a common intention of the parties to enter into legal obligations, mutually communicated expressly or impliedly.”

23. Legal authors in Chesire, Fifoot and Formstons, The Law of Contract, 14th Edition stated in pages 34 and 35 that: -“The first task of the plaintiff is to prove the presence of a definite offer made…. Proof of an offer to enter into legal relations upon definite terms must be followed by the production of evidence from which the courts may infer an intention by the offeree to accept that offer.”

24. Whereas the foregoing are only persuasive, they set out the correct legal principles applicable in contract law generally. Therefore, the approach by a court in considering whether a contract exists is an objective one as opposed to a subjective one. Caleb Onyango Adongo v Bernard Ouma Ogur [2020] eKLR.

25. As already noted above, the court in Abdulkadir Shariff Abdirahim & Another v Awo Sharrif Mohammed [supra], was of the position that there is no general rule of law that all agreements must be in writing. That is, there are situations where a contract may be implied from the conduct of the parties.

26. In this regard, the Court of Appeal in Ali Abdi Mohamed v Kenya Shell & Company Limited [2017] eKLR referred to the following persuasive decisions on implied contracts: -“…. In Lamb v. Evans [1893]1 Ch 218, Bowen LJ stated:The common law, it is true, treats the matter from the point of view of an implied contract, and assumes that there is a promise to do that which is part of the bargain, or which can be fairly implied as part of the good faith which is necessary to make the bargain effectual. What is an implied contract or an implied promise in law? It is that promise which the law implies and authorizes u to infer in order to give the transaction that effect which the parties must have intended it to have, and without which it would be futile.”Bingham LJ in The Aramis [1989] 1 Lloyd’s Rep 213 made some general observations about the circumstances in which a contract might be implied. At p.224 col. 1, he said:“As the question whether or not any such contract is to be implied is one of fact, its answer must depend upon the circumstances of each particular case - and the different sets of facts which arise for consideration in these cases are legion. However, I also agree that no such contract should be implied on the facts of any given cases unless it is necessary to do so; necessary that is to say, in order to give business reality to a transaction and to create enforceable obligations between parties who are dealing with the one another in circumstances in which one would expect that business reality and those enforceable obligations to exist.”Further,I do not think it is enough for the party seeking the implication of a contract to obtain “It might” as the answer to these questions for it would, in my view, be contrary to principle to countenance the implication of a contract from conduct if the conduct relied on is no more than consistent with an intention to contract than with an intention not to contract. It must surely be necessary to identify conduct referable to the contract contended for or at the very least, conduct inconsistent with there being no contract made between the parties to the effect contended for. Put another way, I think it must be fatal to the implication of a contract if the parties would or might have acted exactly as they did in the absence of a contract.”

27. The foregoing reveal several legal imperatives. They include that a contract may be in writing or implied, that whether a contract is in writing or is implied the elements of offer, acceptance and consideration must be proved; in implying a contract the conduct of the parties remains paramount; that an objective approach in contract interpretation is to be adopted; among others.

28. In this case there was no written contract. Therefore, thiscourt is enjoined to ascertain whether the pleadings, the evidence and the general conduct of the parties reveal any contract. If that tour yields in the affirmative, then a contract may be implied.

29. PW1 stated in his testimony particularly on cross-examination, that it was not the first time they were purchasing sugar from the appellant as they had established a business relationship and had done this previously. The same was not disputed by the appellant. In addition, DW1 testified that indeed the appellant had received a request of 1600 bags of sugar from the respondent. The same is confirmed from the exhibits Pex3. As a result of this, the respondent made payments totaling to Kshs 8,800,000 which are confirmed by Pexh 2a and 2b. These payments were accepted by the appellant and acknowledgement receipts issued thereof. Furthermore, DW1 confirmed that the appellant accepted the payment of Kshs 8,800,000 on diverse dates from the respondent for the supply of 1600 bags of sugar. DW1 further testified that they supplied 1278 bags of sugar being 322 shy of the order made by the respondent.

30. In my view therefore, the order for supply of 1600 bags of sugar constituted the offer made to the appellant by the respondent. The consideration was Kshs. 8,800,000 which was duly paid and received by the appellant. The appellant further supplied bags amounting to 1278 which in my view constitutes performance which connotes acceptance. If the appellant did not want to proceed with the contract, it could easily have rejected the order and refunded the money to the respondent but failed to do so and proceeded to perform its obligation albeit partly. I therefore note from the evidence on record before court that there was an offer, acceptance and consideration. A valid implied contract existed.

31. The first issue is therefore answered in the affirmative.

b. Whether there was breach of the contract 32. The question here is whether the appellant performed his part of the contract. Without belaboring this issue, it is clear that it did not. This was confirmed by none other than its own employee DW2 who stated that despite receiving payment of Kshs 8,800,000 for 1600 bags of sugar, the appellant only delivered to the respondent 1278 bags of sugar being 322 less than the ordered bags.

33. Furthermore, DW2 confirmed that no refund has been made to the respondent nor the balance of 322 bags delivered to the it. Quite the contrary, the appellant seem to suggest that through its disclaimers dated the 9th of August 2011 and March 30, 2011, it informed all its customers not to make payments since there was no sufficient stock and that it would therefore not accept any slip until further notice. The appellant also submitted that these disclaimers were issued before the respondent made payment for sugar.

34. However, this could not be further from the truth. For example, the RTGS transfers PEX2a and 2b shows that Kshs 4,000,000 was sent to the appellant on the 8th of August 2011, a day before the said disclaimers were issued. In addition, the appellant acknowledged receipt of the monies on the 12th of August 2011, 3 days after its own disclaimer that it wouldn’t accept any slip and in clear breach of its own disclaimer. It went further and accepted payment of Kshs 4,800,000 on the 26th of August 2011 once again against its own disclaimer not to accept any slip until further notice.

35. The above in my view lead only to one inescapable conclusion, that is, that the appellant accepted the above monies well aware that it had to supply 1600 bags of sugar to the respondent as per their agreed terms. The appellant therefore in failing to supply the total of 1600 bags of sugar despite accepting payments of the same was in clear breach of the terms of their contract.

36. Consequently, I find that there was breach of the contract by the appellant which entitles the respondent to damages.

37. On the issue of damages, in a case like this, one would normally look at the principles which influence exercise of discretion in making decisions on assessment of damages. One of such principles is found in British Weslinghouse Electric and Manufacturing Co. Ltd vs Underground Electric Railways Co. of London Ltd v {1912} A. C. 673 – at 688, Viscourt Haidane L. C. said:“I think that there are certain broad principles which are quite well settled. The first is that, as far as possible, he who has proved a breach of a bargain to supply what he contracted to get is to be placed, as far as money can do it, in as good a situation as if the contract had been performed.”

38. In the instant case, the learned trial magistrate granted the respondent damages amounting to Kshs 1,296,500 which was the amount the respondent lost for failure of the appellant to supply the remainder of 322 bags of sugar. This was confirmed by PW2.

39. The only reason to disturb the above would be on grounds that the trial magistrate misdirected himself on the law or facts or relied on wrong principles of law in awarding the same. I have not seen any evidence to suggest that the learned trial magistrate erred in awarding the same to the respondent. I therefore see no reason to disturb the same.

40. Consequently, I find no basis to disturb the lower court’s findings/decision and the same is hereby affirmed. In the foregoing, the appeal herein is dismissed in its entirety with costs.

DATED, SIGNED AND DELIVERED AT ELDORET THIS 17TH OF MAY 2022****E. K. OGOLAJUDGE