Background and Introduction
1. The plaintiff, through a plaint dated 7th March 2012, seeks judgment against the defendant for:
i. The sum of Kshs. 9, 435,998.20/-
ii. Interest on prayer (a) above at the rate of 30% p.a until repayment in full
iii. Costs of this suit together with interest
2. The dispute arises from a construction contract between the parties. It is the plaintiff’s case that around January 2010, the parties entered into an agreement where the plaintiff was engaged to construct a four-storey commercial building on LR No. 209/2452/1, Luthuli Avenue, Nairobi, for the defendant, at a contract price of Kshs. 41,000,000/=. The contract price was payable in full upon the issuance of a certificate of practical completion, and a certificate of handover, both to be issued by an independent architect. It was further agreed that upon successful completion, the defendant would issue a withholding tax certificate to the plaintiff.
3. The plaintiff claims that the works were duly completed, and both the certificate of practical completion and the certificate of handover were issued on 26th October 2010. However, the defendant refused to pay the outstanding contract balance amounting to Kshs. 8,492,032.20, and to issue the corresponding withholding tax certificate, the value of which the plaintiff quantifies at Kshs. 943,966/=. This is the background that precipitated this suit.
4. In response to the plaintiff’s claim, the defendant filed a statement of defence and counterclaim dated 5th April 2012. The defendant denies receiving a certificate of practical completion and alleges that the plaintiff breached the agreement by failing to properly complete the works, abandoning the around November 2010 and performing substandard work that did not meet agreed specifications.
5. The defendant asserts that corrective works had to be undertaken by a private contractor to render the building habitable. The defendant further states that if any certificate of practical completion was issued, it was fraudulent and invalid. Additionally, it is contended that all withholding tax certificates were duly issued, and payments made to the plaintiff totaled Kshs. 38,463,840.75, leaving no outstanding amounts. The defendant therefore denies any indebtedness to the plaintiff and denies liability for the amount claimed.
6. By way of counterclaim, the defendant seeks Kshs. 5,648,700/= in special damages, comprising the cost of hiring a private contractor amounting to Kshs 848,700/=, lost rental income for four months totaling to Kshs 4,640,000/=, and additional bank interest incurred of Kshs 160,000/=, as well as general damages. In the alternative, the defendant seeks a mandatory injunction compelling the plaintiff to rectify the defects and complete the construction within two months, or a set-off of any sums found due to the plaintiff. The defendant also prays for dismissal of the plaintiff’s suit with costs and interest.
7. The plaintiff filed a response to the defence and counterclaim dated 25th April 2012. The plaintiff denies the defendant’s assertion that the agreement was merely verbal. The plaintiff also expressly denies the allegations of breach, negligence, and substandard performance as well as the defendant’s claims of loss or damage. They have also challenged the basis of the alleged special damages, including claims related to hiring of a private contractor, loss of rent, and additional bank interest.
8. The plaintiff asserts that the defendant is not entitled to any counterclaim, damages, or injunctive relief as prayed, and reiterates that the defendant’s defence and counterclaim lack merit. Accordingly, the plaintiff prays that the defendant’s defence and counterclaim be dismissed with costs, and that judgment be entered in favour of the plaintiff as set out in the plaint.
9. During the hearing, the plaintiff called one witness, PW1, Mr. Premji Vishram Patel. The defendant called two witnesses; DW1, Mr. Shaukatali Kaderbhai and DW2, Mr. Rahim Ali Mohamed. The gist of their testimonies aligns with my summary of each parties’ pleadings. As such, I will not regurgitate the testimonies but will refer to them in my analysis that follows.
Analysis and Determination
10. I have considered the pleadings, the evidence adduced in court, the submissions as well as the authorities cited by counsel. The following issues arise for determination:
i. Whether a valid and enforceable contract existed between the plaintiff and the defendant.
ii. Whether the plaintiff duly performed its contractual obligations.
iii. Whether the defendant was in breach of contract by failing to pay the full contract sum.
iv. Whether the plaintiff is entitled to the claimed sum and reliefs sought.
v. Whether the defendant has established its counterclaim and is entitled to damages or equitable relief.
vi. Whether a valid and enforceable contract existed between the plaintiff and the defendant.
11. The plaintiffs claim against the defendant is one of breach of contract where the plaintiff faults the defendant for failing to complete the payment of the works performed by the plaintiff despite it finishing the project. In order to claim damages for breach of contract, the plaintiff must establish the existence of a contract first and foremost.
12. Both PW1 and PW2 testified that the agreement for the construction works was verbal. The Court of Appeal in Attorney General V Kabuito Contractors Limited, [2023] KECA 230 (KLR) cited with approval from the Supreme Court of Uganda in K Patel V Spear Motors Ltd, SCCA No. 4 of 1991 (1991)1 KALR 40 and reiterated that:
“Although it may seem abundantly clear that the elements are sufficiently certain, the real problem is overcoming the burden of proof. Where a person alleges the existence of an oral contract, that party has the burden of proving the assertion to the satisfaction of the court. In doing so, there will be an onus to highlight the key terms of the contract and to prove the existence of the essential elements….From the foregoing, an oral contract just as a written contract has to satisfy the requirements of a valid agreement such as offer acceptance, consideration and capacity to contract.”
13. In this case, beyond the parties’ mutual admission of the existence of a contract, the defendant also produced a letter dated 1st September 2009 from the plaintiff, addressed to the defendant. The letter outlined the scope of work, the contract sum of Kshs. 41,000,000/=, and the project duration of 52 weeks. Notably, the defendant did not dispute the contents or terms of this letter during the hearing.
14. Accordingly, I find that although no formal written contract was executed, both parties proceeded with performance based on agreed terms. This mutual conduct gave rise to a binding oral contract, underpinned by the established elements of offer, acceptance, consideration, and the intention to create legal relations.
i. Whether the plaintiff duly performed its contractual obligations:
15. The primary issue in dispute between the plaintiff and the defendant concerns the completion of the construction works. PW1 testified that the project was completed and handed over in October 2010. In support of this, he produced a Certificate of Practical Completion and a Certificate of Handover, both dated 26th October 2010 and signed by the architect, the client, and himself.
16. The defendant, through DW1, contested this position. He claimed that the plaintiff abandoned the site, left portions of the work incomplete, and delivered substandard workmanship. He further alleged that the certificates were signed under pressure from financiers and prospective tenants, rather than as a genuine reflection of completion. The defendant also accused the plaintiff of failing to meet the agreed specifications and timelines.
17. In evaluating these conflicting accounts, the central question is whether the Certificate of Practical Completion issued by the architect constitutes prima facie evidence of completion of the works. In this case, the defendant admitted to signing the certificate, which unequivocally states that: “the contract works are now complete to my satisfaction and are ready to be handed over to the employer.” This admission amounts to an acknowledgment of the validity of the certificate and, by extension, confirmation that the construction was completed. In such circumstances, the doctrine of estoppel applies, precluding a party from denying or contradicting their earlier representation or conduct.
18. By signing the completion certificate, the defendant effectively affirmed that the plaintiff had fulfilled its contractual obligations. Consequently, the plaintiff became entitled to the agreed contract sum. The defendant’s assertion that the certificate was signed under pressure lacks merit. The architect, as a professional engaged by the defendant, bore a duty to advise the defendant of the legal implications of issuing such a certificate. There is no evidence before this Court challenging the legality or authenticity of the completion certificate.
19. In light of the foregoing, I am satisfied that the plaintiff duly performed its part of the contract.
ii. Whether the defendant was in breach of contract by failing to pay the full contract sum:
20. The plaintiff claims an outstanding amount of Kshs. 8,492,032.20 together with Kshs. 943,966/= for withholding tax certificates, totaling Kshs. 9,435,998.20. The defendant disputes the amount, stating that Kshs. 38,463,840.75 was paid towards the contractual price and withholding tax was equally remitted.
21. The requirement to strictly prove special damages was underscored by the Court of Appeal in David Bagine V Martin Bundi, [1997] eKLR. The Court stated:
“It has been held time and again by this Court that special damages must be pleaded and strictly proved. We refer to the remarks by this Court in the case of Mariam Maghema Ali v. Jackson M. Nyambu t/a sisera store, Civil Appeal No. 5 of 1990 (unreported) and Idi Ayub Sahbani v. City Council of Nairobi (1982-88) IKAR 681 at page 684: "....special damages in addition to being pleaded, must be strictly proved as was stated by Lord Goddard C.J. in Bonham Carter vs. Hyde Park Hotel Limited [1948] 64 TLR 177 thus: “Plaintiffs must understand that if they bring actions for damages it is for them to prove damage, it is not enough to write down the particulars and, so to speak, throw them at the head of the court, saying, 'this is what I have lost, I ask you to give me these damages.' They have to prove it."
22. With regard to the issue of withholding tax, the defendant produced a letter dated 14th December 2010 from Odhiambo Ochieng & Company, Certified Public Accountants, stating that they held the original withholding tax certificates issued by Messrs General Hardware to CAT Enterprises Limited. However, beyond this letter, there is no evidence of actual remittance of the taxes to the Kenya Revenue Authority (KRA). DW1 admitted during cross-examination that the defendant withheld taxes on behalf of the plaintiff and allegedly forwarded the certificates to the plaintiff through their auditor. Nonetheless, DW1 conceded that no tax certificates had been produced or filed in court to substantiate this claim.
23. Similarly, while the plaintiff claims a sum of Kshs. 943,966/= in respect of withheld tax, no documentary evidence from the Kenya Revenue Authority or any other credible source was tendered to confirm that this amount was indeed due to KRA or that it was not remitted.
24. Turning to the claim for the balance of the contract sum, it is not in dispute that the agreed consideration for the construction was Kshs. 41,000,000/=. The defendant alleges to have paid Kshs. 38,463,840/=, while the plaintiff, in a letter dated 5th October 2011, acknowledges receipt of Kshs. 36,500,000/=. There is no documentation on record to support the defendant’s assertion of having paid the higher amount. Accordingly, I find the plaintiff’s position on the payments received to be uncontroverted and therefore established.
25. The plaintiff has further claimed Kshs. 3,210,000/= as interest and a total of Kshs. 2,155,874/= for extra works allegedly undertaken (comprising Kshs. 260,000/= and Kshs. 1,895,874/=). However, upon reviewing the record, I find no contractual or evidentiary basis for the claim for interest. Additionally, there is no sufficient proof that the extra works were expressly authorized by the defendant or that they formed part of the contractual scope.
26. In the result, while the plaintiff has demonstrated that a balance of Kshs. 8,492,032/= remained unpaid, this amount must be adjusted by excluding Kshs. 3,210,000/= claimed as interest and Kshs. 2,155,874/= in respect of unauthorized extra works. I therefore find that the amount proved and payable to the plaintiff is Kshs. 3,126,158/=.
iii. Whether the defendant has established its counterclaim and is entitled to damages or equitable relief:
27. The defendant has filed a counterclaim against the plaintiff seeking a sum of Kshs. 5,648,700/=, comprising: Kshs. 848,700/= allegedly paid to a private contractor; Kshs. 4,640,000/= claimed as loss of rental income for four months; and Kshs. 160,000/= in additional bank interest. The basis of the counterclaim is the defendant’s assertion that the plaintiff delivered substandard workmanship, necessitating remedial works and resulting in financial loss.
28. In support of its position, the defendant relied on a report prepared by Pinnacle Studios Architects, which purportedly identified various defects in the completed building. The plaintiff contested the credibility and evidential weight of the Pinnacle report, noting that it was compiled approximately six months after the issuance of the Certificate of Practical Completion and Handover. The plaintiff argued that by that time, the building was already occupied and that any subsequent deterioration or damage could not be attributed to it. Further, the plaintiff maintained that it bore no liability for defects arising post-handover.
29. I note that the Certificate of Practical Completion and Handover was signed by the project architect, the plaintiff, and the defendant. No contemporaneous objection was raised by the defendant as to the condition of the building at the time of handover, nor was the certificate subsequently revoked or contested. Moreover, there is no evidence demonstrating that the alleged defects in the Pinnacle report existed at the time of handover or that they were occasioned by the plaintiff’s negligence.
30. The guiding principle on proof of damages was aptly stated in Nizar Virani T/A Kisumu Beach Resort V Phoenix of East Africa Assurance Company Limited, [2004] 2 KLR 269, where the Court held:
“The degree of certainty and particularity of proof required depends on the circumstances and the nature of the acts complained of.”
31. In the present case, the defendant has not provided adequate evidence linking the alleged remedial costs or loss of rent directly to the plaintiff’s performance under the contract. No documentary proof was produced to support the alleged payment of Kshs. 848,700/= to a third-party contractor, nor was any formal agreement adduced to demonstrate that such services were procured.
32. The claim for loss of rental income is similarly speculative. The defendant did not demonstrate that tenants had been secured or that the loss was directly attributable to the plaintiff’s conduct. The issuance of a completion certificate transferred the risk of delayed occupation to the defendant. Regarding the claim for additional bank interest of Kshs. 160,000/=, there is no evidence that the plaintiff was privy to or contractually liable for the defendant’s financing arrangements. In the absence of a contractual indemnity clause, no liability can attach to the plaintiff for such losses.
33. In view of the foregoing, I find that the defendant has failed to establish its counterclaim on a balance of probabilities. The alleged claims are unsubstantiated and largely speculative. The counterclaim is accordingly dismissed.
Disposition
34. In view of the foregoing, I find that the plaintiff has established its claim against the defendant to the extent stated. Accordingly, it is hereby ordered that:
i. Judgment be and is hereby entered in favour of the plaintiff against the defendant in the sum of Kshs. 3,126,158/=, being the balance of the contract sum duly proved, less the unsubstantiated claims for interest and extra works.
ii. The defendant’s counterclaim is dismissed in its entirety.
iii. The plaintiff is awarded the costs of the suit and the counterclaim.
iv. Interest on the awarded sum shall accrue at court rates from the date of filing suit until payment in full.
DATED, SIGNED AND DELIVERED IN NAIROBI
THIS 22ND DAY OF APRIL 2025.
F. MUGAMBI
JUDGE