[2023] KEHC 23717 (KLR)

Top Steel Kenya Limited v Ruiru Feeds Limited (Civil Appeal E029 of 2022) [2023] KEHC 23717 (KLR) (18 October 2023) (Judgment)

Neutral citation: [2023] KEHC 23717 (KLR)

Republic of Kenya

In the High Court at Malindi

Civil Appeal E029 of 2022

SM Githinji, J

October 18, 2023

Between

Top Steel Kenya Limited

Appellant

and

Ruiru Feeds Limited

Respondent

(Appeal from the judgment of Hon. N.C Adalo (PM) dated 15th March, 2022 in Mariakani SPMCC No. E059 of 2020)

Judgment

CORAM:Hon. Justice S. M. GithinjiKimondo Gachoka & Co. Advocates for the Appellant/ ApplicantVictor Omburo & Co. Advocates for the Respondent 1. The appellant filed a memorandum of appeal dated April 8, 2022raising the following grounds of appeal; -1. That the learned senior resident magistrate erred in dismissing the above mentioned suit.2. That the learned senior resident magistrate erred in holding that the court must scrutinize the insurance policy between theplaintiff and the insurers.3. That the learned senior resident magistrate erred in law in concerning herself with the ground raised by the defendant in its written submissions that the contract between the plaintiff’s insurers and the plaintiff excluded the defendant from liability by the exception A (4) when that ground fell outside the scope and ambit of the pleadings exchanged in the above-mentioned suit as well as of the statement of issues filed by the defendant.4. That the learned senior resident magistrate erred in failing to hold that the settlement of the plaintiff’s claim between the plaintiff and its insurers was of no concern to the defendant and therefore the same could not be reopened for a by-purpose at its instance.5. That having held that the payment of Kshs. 1,683,252. 00 was honestly made by the plaintiff’s insurers in consequence of the policy granted by them and in satisfaction of the claim by the plaintiff, the learned senior resident magistrate erred in law in failing to hold that the defendant was not allowed to allege that the said payment was not strictly within the terms of the policy.6. That the learned senior resident magistrate erred in failing to appreciate that the goods were not containerized and therefore NB to Clause 3F of the defendant’s contract with the plaintiff (hereinafter referred to as the said contract) was of no relevance.7. That the learned senior resident magistrate erred in holding that the said contract excluded the defendant’s liability for the loss suffered by the plaintiff.8. That the learned senior resident magistrate should have held that the correct interpretation of Clause 8 of the said contract merely required the plaintiff to cater for goods in transit insurance and not that the defendant would not be liable under the said clause for the loss suffered by the plaintiff as a result of its driver’s connivance with others to steal the goods.9. That the learned senior resident magistrate erred in failing to appreciate that in order to escape from the consequences of the defendant’s driver’s wrongdoing, clear words were necessary and that the words contained in clause 8 of the said contract were not only clear but also were not in any way susceptible of one meaning only (i.e. the defendant’s driver’s deliberate act of wrongdoing).10. That the learned senior resident magistrate erred in failing to appreciate that the primary obligation accepted by the defendant (i.e. all security of goods) was stated by the express words in clause 3F of the said contract and that the said primary obligation was not only not excluded by clear words in clause 8 of the said contract but also they were not in any way susceptible of one meaning only (i.e. the defendant’s driver’s deliberate act of wrongdoing).

2. The brief facts leading to this appeal are that onNovember 18, 2020, the appellant filed a plaint dated November 12, 2020 before the subordinate court, through its insurer Mayfair Insurance Company Limited. The appellant sought judgment against the respondent under the doctrine of subrogation in the sum of Kshs. 1,683,252. 00/-. As per the plaint, the appellant’s claim arose out of a transportation contract dated 1st October 2017 between the parties herein. The respondent was to provide transport services for the appellant’s steel products.

3. Consequently, on November 11, 2017, a consignment of 27. 98 metric tons of TMT Bars of various shapes and sizes were loaded onto the respondent’s motor vehicle registration number KBK 583A/ZD7146 for transportation from Kwale County to Kasarani, Nairobi. In unexpected turn of events, the consignment was lost on transit allegedly through theft. The appellant averred that failure to deliver the consignment to its destination constituted a breach of contract to ensure security of goods in transit and expected delivery on the part of the respondent. The said breach caused the appellant losses to the tune of Kshs. 1,683,252. 00/-.

4. In its statement of defence dated March 23, 2021, the respondent admitted the above facts in so far as the existence of the contract and loading of the consignment into the motor vehicle is concerned. The respondent denied liability and averred that the appellant was responsible for the safety of the consignment in transit as per the terms of the contract. That the respondent agreed to take responsibility for security of the consignment but not the responsibility of risk for loss and insurance of the consignment on transit.

5. The respondent averred that under clause 8 of the contract, the appellant agreed to assume the risk for loss of goods in transit and was therefore precluded from recovery under the rules of subrogation.

6. At the hearing, each of the parties called two witnesses in support of their respective cases.

The Evidence 7. Emmanuel Ndenge Kadilo –PW1 upon instruction by Mayfair Insurance Limited, prepared the assessment and loss adjustment report datedJuly 9, 2018, which he produced as PEXH 6. As per the report, he assessed the loss at Kshs. 1,606,744/-. He added that the insurance paid him Kshs. 76,508/- for his services as evidenced by an invoice he exhibited as PEXH 7. PW1 told the court on cross-examination that he relied on the invoice from the appellant to ascertain the value of the goods lost.

8. Lawrence Kegicha Momanyi-PW2 a legal assistant at Mayfair Insurance Limited adopted his written statement dated November 26, 2021as evidence in chief and produced the appellant’s documents in their list of documents as PEXH 1-5, and 8-10. He told the court on cross-examination that it was the duty of the insurer to cover goods on transit. He confirmed that the insurance paid Kshs. 1,606,744/- for the loss. He added that after the incident, a claim form was filled on March 7, 2018approximately 3months after the incident occurred.

9. The witness testified on re-examination that the side of the vehicle was covered with canvas.

10. Patrick Wambua Mutomi –DW1 told the court that he worked as a turnman for the respondent. He adopted his written statement. He testified that on November 11, 2017, while transporting the consignment, the driver, one Ibrahim, stopped at Mariakani area to go home. After a short while, Ibrahim returned with some two men who also left. At that time, their boss called them to check on another vehicle stalled near Samburu area. Upon arrival at Samburu, the two unknown men joined them and the driver informed him that they would ferry them to Nairobi. They picked two more men at a different area. The driver also suggested to him that they sell the consignment, and on his refusal, he was beaten and dragged to an unconscious state.

11. Jamleck Gitonga Njeru –DW2 told the court that he is employed by the respondent as a transport manager. Similarly, he adopted his statement dated August 20, 2021as his evidence in chief and produced as exhibits the documents in the bundle of documents filed on July 21, 2021.

12. DW2 admitted that the appellant’s goods were lost on transit but he was unable to tell whether they were insured by Mayfair Insurance Limited. He added that goods were covered with canvas from the moment they left their origin.

13. This testimony marked the close of the defence case. On March 15, 2022, the trial court considered the evidence and submissions of the parties to arrive at the following conclusion;“28. From the foregoing I do find that though the defendant was a common carrier under common law, its contract with the plaintiff who was the consignor was limited by a contract between the two and to a greater extent now, by the contract between the insurer and the plaintiff. The terms of the former agreement excluded the defendant from liability of risk of loss and insurance and the latter by the exception A (4) which excluded compensation in the event there was theft, if goods were conveyed in an open top container. This court finds that the claim by the plaintiff under the doctrine of subrogation fails and proceeds to dismiss the suit in its entirety with costs to the defendant.’’

14. Parties agreed to canvass the appeal by way of written submissions. However, as at the time of writing this judgment, I did not find the respondent’s submissions.

The appellant’s submissions dated 17th May, 2023 15. Mr. Kishore Nanji, counsel for the appellant, identified two issues for determination namely; -1. Whether the respondent’s transportation contract with the appellant excluded the respondent’s liability for the loss suffered by the appellant - (to address grounds 1, 6, 7, 8, 9 and 10 of the memorandum of appeal).2. Whether in a subrogation claim (against a third party) the court ought to scrutinize the policy between the insurer and its insured -(to address grounds 1, 2, 3, 4 and 5 of the memorandum of appeal).

16. Regarding the first issue, Mr. Nanji submitted that the learned magistrate misinterpreted clause 8 of the contract. To him, the correct interpretation of that clause merely required the appellant to cater for goods in transit insurance and not that the respondent would not be liable for loss suffered by the appellant as a result of the respondent’s driver’s theft of the goods on transit. He added that since the trial court found that the respondent was a common carrier under common law, the respondent was under a duty to transport and deliver the goods securely.

17. Mr. Nanji added that one of the primary obligations accepted by the respondent was to provide security of goods as per clause 3F of the transportation contract. To him, since the goods herein were not containerized, the proviso to clause 3F was of no relevance.

18. Counsel placed reliance on the case of Kingsway Motors Limited v Corner Garage Transport Limited [2010] eKLR; East Africa Industries Limited v B. R Nyarangi[2009] eKLR; P.N Mashru Transporters Limited v Rayshian Apparels Limited [2016] eKLR; and some passages on interpretation of contract clauses and content of an exemption clause from Chitty on Contracts 23rd ED Vol 1 at page 726 paragraph 725 and 726.

19. On the second issue, Mr. Nanji relied on the case of Gahir Engineering Works Limited v Rapid Kate Services Limited and another[2018] eKLR and submitted that in a subrogation claim, all that is required is proof of existence of an insurance contract on a balance of probabilities, and that there is no need to produce the policy document for scrutiny. Counsel alleged that the insurance indeed crystalized the claim for the loss suffered, and it was enough to allow the subrogation suit. To him, the trial magistrate erred in requiring the production and scrutiny of the insurance policy document. Counsel further relied on the cases of Fox Henry Richard v Alban Mwaniki Njeru Mombasa HCCA No. 181 of 2021; Opiss v Lion of Kenya Insurance Company Civil Appeal No. 185 of 1991; Kipkebe Limited v Kericho Wholesalers Limited[2022] eKLR; and King v Victoria Insurance Company Limited.

20. Mr. Nanji added that the respondent remained a tortfeasor regardless of whatever arrangement that existed between the appellant and the Insurance Company/Insurer and could not go scot free or benefit from arrangements between the appellant and third parties. To buttress this point, counsel relied on the case of Margaret Kannes Muyanga v Jamal Abdulkarim Musa [2020] eKLR; andLeli Chaka Ndoro v Maree Ahmed and S.M. Lardhib [2017] eKLR.

21. To Mr. Nanji, the learned magistrate also misapprehended the evidence in finding that the vehicle had an open top, envisaged under the clause on Exception A 4 of the policy document, yet the evidence adduced was that the subject vehicle was covered with canvas. Counsel averred that this was not even an issue raised in the parties’ pleadings and it was therefore improper for the trial court to address the same as it was held in the case ofDaniel Otieno Migore v South Nyanza Sugar Co. Limited [2018] eKLR; and Antony Francis Wareham t/a AF Wareham and 2othersvKenya Post Office Savings Bank [2004] eKLR; and Tembo Investments Limited v Josephat Kazungu [2005] eKLR.

22. This being a first appellate court, it is my duty to re-evaluate, re-analyze and re-consider the evidence tendered at the trial court and arrive at my own conclusion bearing in mind that I did not see witnesses testifying and therefore give due allowance for that [See Abok James Odera t/a A.J Odera & Associates v John Patrick Machira t/a Machira & Co. Advocates [2013] eKLR]. Having done that, I adopt the issues for determination as follows; -i.Whether in accordance to the transportation contract, the respondent was liable for the loss suffered by the appellant in the given circumstances.ii.Whether the trial magistrate erred in relying on the insurance policy document to exclude the respondent from liability.iii.Whether the appeal is merited.

Analysis and Determination 23. It is a longstanding principle of law that parties to a contract are bound by the terms and conditions thereof and that it is not the business of the courts to rewrite such contracts. In Pius Kimaiyo Langat v Co-operative Bank of Kenya Ltd [2017] eKLR the Court of Appeal stated that: -“We are alive to the hallowed legal maxim that it is not the business of Courts to rewrite contracts between parties, they are bound by the terms of their contracts, unless coercion, fraud or undue influence are pleaded and proved.’’

24. In the present case, the existence of a transportation contract between the parties herein is not disputed. The contract is dated October 1, 2017. It follows therefore that the parties herein created a contract and that in the event of any dispute, it behoves the Court to interpret the contract in accordance with the known canons of interpretation stated in the case of Fidelity Commercial Bank Limited v Kenya Grange Vehicle Industries Limited [2017] eKLR as follows; -“In considering both the validity and tenure of the contract of guarantee, we find no better place to start than the Encyclopedia of Forms and Precedents, 4th Edn, Vol 9 page 761 para 25 where the principles of construction of guarantees were set out as follows;“The ordinary rules of construction applicable to all contracts also govern the contracts of guarantee. The whole agreement must, in the usual way, be considered, and the natural meaning given to the words used unless such meaning involves obvious absurdity. …So that where the intention of parties has in fact been reduced to writing, under the so called parol evidence rule, it is generally not permissible to adduce extrinsic evidence, whether oral or written, either to show the intention, or to contradict, vary or add to the terms of the document, including implied terms. Courts adopt the objective theory of contract interpretation, and profess to have the overriding aim of giving effect to the expressed intentions of the parties when construing a contract. This is what sometimes is called the principle of four corners of an instrument, which insists that a document's meaning should be derived from the document itself, without reference to anything outside of the document (extrinsic evidence), such as the circumstances surrounding its writing or the history of the party or parties signing it.’’

25. The relevant clauses of the Contract in this case are 3f and 8 which read;-3. Responsibility of transporterf. All security of goods [NB If seal of container is okay and it’s not tampered with, then the transporter will not be held responsible for any shortage of goods.]8. Risk of loss and InsuranceThe user will cater for the goods in transit. [git]

26. On the one hand, the appellant argues that the respondent ought to have been held liable by virtue of clause 3f; on the other hand, the respondent seeks to escape liability by dint of clause 8 above. The aforementioned provisions are quite clear and express. That one of the respondent’s responsibilities in that contract was to ensure security of the appellant’s goods. The proviso to that clause indicates as NB, in my view is an additional provision to cater for goods conveyed in a container. In this case not applicable since the goods were not in a container. The respondent’s primary duty therefore was to ensure that the goods were safely delivered. From the evidence on record, this did not happen.

27. Clause 8 on the other hand as I interpret it is that the appellant was to ensure that their goods were insured. This explains the relationship between the appellant and the Insurance Company, in this case Mayfair Insurance Limited. It must be noted that the fact the appellant’s goods were insured, does not eliminate the respondent from liability where it is established that the loss was occasioned by respondent. This is in spirit of the doctrine of subrogation which was the basis of the primary suit.

28. Discussing the doctrine of subrogation, Ogola J inSpeedag Interfreight [K] Limited v Lacheka Lubricants Limited & another [2021] eKLR expressed as follows; -“8. The principle of subrogation applies where there is a contract of insurance. If the “insured risk” takes effect and the insurer settles the insured’s claim, then the insurer is entitled to diminish the loss suffered by its insured by seeking compensation from the party who caused the loss. The assumption is that the loss would have accrued due to the acts of a third party. By the principle of subrogation, the insurer is put in the position of the insured and is entitled to claim compensation from the 3rd party tortfeasor. The extent of the compensation is not more than what has been paid to the insured.19. In the case of Egypt Air Corporation v Suffish International Food Processors (U) Ltd and another[1999] 1 EA 69 the Court defined the subrogation doctrine as follows:“The whole basis of subrogation doctrine is founded on a binding and operative contract of indemnity and it derives its life from the original contract of indemnity and gains its operative force from payment under that contract; the essence of the matter is that subrogation springs not from payment only but from actual payment conjointly with the fact that it is made pursuant to the basic and original contract of indemnity. If there is no contract of indemnity then there is no juristic scope for the operation of the principle of subrogation.”20. In “General Principles of Law” 6th edition (E.R. Hardy Ivamy”, the author states as follows at page 493:“In the case of all policies of insurance which are contracts of indemnity the insurers, on payment of the loss, by virtue of the doctrine of “subrogation’ are entitled to be placed in the position of the assured, and succeed to all his rights and remedies against third parties in respect of the subject-matter of insurance.Thus, subrogation applies to marine insurance policies and to many non-marine policies, e.g. a fire, motor, jewelry, contingency insurance providing cover against non-receipt of money within a given time, fidelity, burglary, solvency, insurance of securities, and an export credits guarantee policy. But it does not apply to life insurance nor to personal accident insurance, for these are not contracts of indemnity.”

29. The trial magistrate aptly discussed this doctrine and found that the insurance was right in claiming the said amount from the respondent under the doctrine of subrogation. The learned magistrate however reasoned that the insurance was not entitled to compensation by the respondent since the Insurance compensated the appellant contrary to the terms of the policy. That as per clause A under the head ‘exceptions’, the Insurance was not obligated in the first place to cover loss suffered as a result of theft or attempted theft of goods conveyed in any open-top or open-sided vehicle.

30. In my considered view, the learned trial magistrate misapprehended the evidence concerning the status of the goods. I say so because the evidence adduced by the respondent’s transport manager, DW2 was clear that the vehicle used to transport the goods, was covered with canvass. I have perused the insurance policy document, there is no outright definition of the term open-top or open sided vehicle. However, the plain meaning would be that the vehicle is uncovered either at the top or the sides, which was not the case herein.

31. In the circumstances, and bearing in mind that the compensation amount pleaded was proved as held by the trial court; I find the appeal merited.

32. The judgment of the subordinate court is therefore hereby set aside. Judgment is accordingly entered for the appellant against the respondent for the sum of Kshs. 1,683,252/- together with interests at court rates.

JUDGMENT READ, SIGNED AND DELIVERED VIRTUALLY AT MALINDI THIS 18TH DAY OF OCTOBER, 2023. ..................................S.M.GITHINJIJUDGEIn the Presence of; -1. Mrs Mulongo holding brief for Mr Naji for the appellant2. Respondent’s Advocate are absent