REPUBLIC OF KENYA
IN THE HIGH COURT OF KENYA AT MAKUENI
CIVIL CASE NO. E007 OF 2023
JULIUS KIMEU NDUULU………………………….………….…....PLAINTIFF
-VERSUS-
KENYA COMMERCIAL BANK LTD
(EMALI BRANCH)…………….………………….………………DEFENDANT
JUDGMENT
Introduction
1. The plaintiff’s case is that he was a customer of the Defendant up to 2020 and he applied for finance to modernize his library services to digital whereupon the Defendant approved a loan of kshs 150,000/=. That, in breach of the said approval, the Defendant failed to disburse the funds, which failure, impeded the Plaintiff from completing his project on time thus leading to loss of business and projected profits.
The Plaint
2. The plaint is dated 10/03/2023 and was filed on 23/05/2023. The Plaintiff averred that on or about 21/04/2020, he applied for a loan facility of kshs 150,000/= for purposes of expanding his library services to include on-line library services to pupils of primary schools, students of secondary schools and tertiary level institutions within Makueni County and beyond.
3. He averred that the loan application was at the onset of the Covid-19 pandemic s across the country and the resultant closure of learning institutions had catapulted the necessity of online learning platforms and he expected to cash in on this situation during the pandemic.
4. He averred that on 29/06/2020, the Defendant requested him to meet certain conditions which he fulfilled on 30/06/2020. He expected that the disbursement of the loan would follow that approval but it was not disbursed.
5. He averred that as a result of the intention to open the e-library, he had signed an Internet Connection Service Agreement with Safaricom as well as a Web-site Development contract with Aveat Systems on 19/02/2020. That, on 07/04/2020, he initiated discussions with the bank and submitted his loan application form. That on 29/04/2020, he inquired about the position of the loan application from the Bank Manager and on 30/04/2020, he received a message from the manager informing him that the loan was being worked on and that he would receive a response in a week’s time.
6. He averred that on 05/05/2020, the Credit officer in the company of another officer visited his library and took photos. That, on 21/05/2020, he made an enquiry but there was no response and upon complaining to the Defendant’s head office, he was told that the complaint would be responded to within 24 hours.
7. He averred that on 29/06/2020, he received a letter from the Defendant confirming that the loan had been approved on 07/05/2020 with certain conditions. That, on 30/06/2020, he visited the branch and complied with all the requirements. That, on 27/07/2020, he visited the branch and was handed a cancellation letter of the loan which had been approved earlier without giving any reasons for the cancellation.
8. He particularized the breach of contract as; ‘cancellation of the approved loan on 27/07/2020 without giving any grounds/reasons when the plaintiff has fulfilled on the requirements that were set out on the letter of 29/06/2020.’
9. The Plaintiff prays for judgment against the Defendant for;
a) Compensation for loss of business to be assessed by this Honorable court.
b) Compensation for loss of projected profits to be assessed by this Honorable court.
c) Damages to be assessed by this Honorable court.
d) Costs of the Suit.
10. Having failed to enter appearance or file defence, an interlocutory judgment was entered against the Defendant on 28/09/2023 and the matter proceeding for formal proof on 15/04/2024.
The Plaintiff’s case
11. Julius Kimeu Nduulu (PW1) adopted a witness statement dated 10/03/2023 as his evidence in chief and relied on his list of documents dated 10/03/2023 . He testified that he was seeking compensation for loss of business and loss of profit from KCB Bank. He testified that he had been operating a physical library from 2010 and in 2016, he became a customer of KCB-Emali. In his statement he reiterated the averments in the plaint set out herein above.
12. PW2 was Warren Odhiambo who testified that he is a certified Public Accountant with more than 10 years’ experience. That, he filed the forecasted financial statement for the years 2020 – 2025 as per the Plaintiff’s further list of documents dated 11/04/2024.
13. The Court sought a clarification on how the witness had arrived at the yearly projections for year one (2020) amounting to kshs 7,564,000/=. The court noted that the witness appeared not to understand what was happening.
14. PW2 referred court to page 4 of the estimated projections with regard to membership of secondary students. He testified that the changing figures of 750,1500,2250, 3000 represent the membership fee while the constant of forty is the number of amounts in the changing number and the constant of 50 is the enrollment fee. That, the number means the increase of students with respect to library membership. That, on library access (750 x 40 x 20), 750 is the number of students and 20 is the access fee.
15. He testified that he prepared the summaries at page 21 and the grand total is kshs 2,986,060/600. That, the projection on tax is 30% (895,818/180) which is subtracted from the lumpsum leaving a balance of 2,090,242/42. That, his computation is for membership access and library use for years 2020-2025. He testified that the estimates provided are reliable and can be relied on by court.
16. The Plaintiff closed his case at that juncture and subsequently filed submissions.
Submissions
17. The issues for determination were identified to be;
a) Whether the claim for loss of business was proved?
b) Whether the claim for loss of profit was proved?
c) Whether the Plaintiff is deserving of the costs of the suit.
18. On whether the claim for loss of business was proved, it was submitted that the Plaintiff is required to prove a difference between the position he is in (‘the breach position’) and the position he would have been in but for the breach (‘the non- breach position’). That, the breach position is a question of historical and actual fact and what happened, what was spent and what was received can be established with precision by the claimant on the balance of probabilities.
19. On whether the claim for loss of business was proved, it was submitted that the non-breach position is of its nature a hypothetical and proof of it is a different type of exercise, namely an approximation of how the Plaintiff would have operated and the situation he would have been in if the primary contractual obligations had been performed. Reference was made to the chapter on ‘Damages and Proof’, by Adam Kramer in the text Commercial Remedies: Resolving Controversies, 2017 Edition and reliance made on the case of Ratcliffe -vs- Evans [1892] 2 QB 524 where Bowen L.J. expressed himself as follows;
“The character of the acts themselves which produce the damage, and the circumstances under which these acts are done, must regulate the degree of certainty and particularity with which the damage done ought to be stated and proved. As much certainty and particularity must be insisted on, both in pleading and proof of damage, as is reasonable, having regard to the circumstances and to the nature of the acts themselves by which the damage is done. To insist upon less would be to relax old and intelligible principles. To insist upon more would be the vainest pedantry.”
20. It was submitted that the Plaintiff called a certified accountant who produced a report dated 09/05/2024 and filed an audited report dated 10/05/2024. That, the accountant certified that their brief was to look at a fair financial loss resulting from the cancellation of the loan based on documents and information availed to them by the Plaintiff. That, according to the expert witness, the computation was based on numbers calculations for the five-year period between September 2020 and December 2025. That, based on the generally accepted accounting principle, the net audited financial statements for the stated period amounting to Kshs. 2,090,242,420.00 is achievable in a real trading situation. That, the amount of claim is generated through the following method;
a) Membership fee = (P x R) Principal x Rate — where Principal is the number of pupils, students (enrolments) or schools. Rate is the amount of charge and this is payable once to get a membership number. School is treated as entity by itself.
b) Library Access Fee = (P x R x TJ — Principal x Rate x Time – where Principal is the number of pupils, students (enrolments) or schools. Rate is the amount of charge per daily access. Time is the number of days the library is accessed per month. All this is under document headed ‘Digital Library Membership and Online Access Fee".
c) Monthly progression Numbers = The rate at which each category of membership increases. September 2020 is when the school resumed after Covid - 19 Pandemic.
21. Reliance was placed on MSK Projects India (JV) Limited -vs- State of Rajasthan & Another (2011) 10 SCC 573 where the Indian Supreme Court stated that;
“a claim of expected profits is legally admissible on proof of the breach of contract by the erring party, as a reasonable expectation of profit is implicit in a works contract, and its loss has to be compensated by way of damages once the breach on part of the other party is established and estimations made on quantum of loss.”
22. Further reliance was placed on M/s. A.T. BrijPaul Singh & Ors. v. State of Gujarat, AIR 1984 SC 1703 where the Indian Supreme Court held that;
“Damages can be claimed by a contractor where the government is proved to have committed breach by improperly rescinding the contract and for estimating the amount of damages, court should make a broad evaluation instead of going into minute details. It was specifically held that where in the works contract, the party entrusting the work committed breach of contract, the contractor is entitled to claim the damages for loss of profit which he expected to earn by undertaking the works contract. Claim of expected profits is legally admissible on proof of the breach of contract by the erring party. It was further observed that what would be the measure of profit would depend upon facts and circumstances of each case. But that there shall be a reasonable expectation of profit is implicit in a works contract and its loss has to be compensated by way of damages if the other party to the contract is guilty of breach of contract cannot be gainsaid.”
23. It was submitted that a claimant should not be penalized for the uncertainty surrounding proof of loss of business and profits as a claim of special damages, especially where that uncertainty has been caused by the wrongdoing of the other party. Reliance was placed on Parabola Investment Limited & Another -vs- Browallia Cal Limited (2011) QB477 at 486 where Toulson LJ held;
“Some claims for consequential loss are capable of being established with precision (for example, expenses incurred prior to the date of trial). Other forms of consequential loss are not capable of similarly precise calculation because they involve the attempted measurement of things which would or might have happened (or might not have happened) but for the defendant’s wrongful conduct, as distinct from things which have happened. In such a situation the law does not require a claimant to perform the impossible, nor does it apply the balance of probability test to the measurement of the loss.”
24. It was submitted that where the quantification of loss involves a hypothetical exercise , the Court does not apply the same balance of probabilities approach as it would to the proof of past facts, but instead estimates the loss by making the best attempt it can to evaluate all the chances, great or small, taking into account all significant factors. Reliance was placed on Yam Seng Pte Ltd -vs- International Trade Corp. Ltd (20130 1 Lloyd’s Rep 526 [188] where Leggatt J. opined as follows;
“The court said in this task by what may be called the principle of reasonable assumptions – namely, that it is fair to resolve uncertainties about what would have happened but for the defendant's wrongdoing by making reasonable assumptions which if anything on the side of generosity to the claimant where it is the defendant's wrongdoing which has created those uncertainties.”
25. Reference was also made to McGregor on Damages at page 349 paragraph 10-002 where it is stated;
“Indeed, if absolute certainty were required as to the precise amount of loss that the claimant had suffered, no damages would be recovered at all in the great number of cases. This is particularly true since so much of damages claimed are in respect of prospective, and therefore necessarily contingent, loss…Generally, therefore, although it remains true to say that ‘difficulty of proof does not dispense with necessity of proof’, the standard demanded can seldom be that of certainty. Even if it is said that that the damage must be proved with reasonable certainty, the word ‘reasonable’ is really the controlling one, and the standard of proof only demands evidence from which the existence of damage can be reasonably inferred and which provides adequate data for calculating the amount………Further cases presenting this difficulty of showing the amount of profitable sales that would have been made by the claimant had there been no tort or breach of contract by the defendant have indicated that the claimant is assisted by the principle in the very old case of Armory v Dalamirie, which has today received a new lease of life, the principle being that the court is required to resolve uncertainties by making assumptions generous to the claimant where it is the defendant’s wrongdoing which has created those uncertainties.”
26. Reliance was made on Story Parchment Co. -vs- Paterson Parchment Paper Co. 51 S Ct 248 (1931) and Bigelow -vs- RKO Radio Pictures Inc 66S Ct 574 (1946) for the submission that the tradition of favoring the claimant in such circumstances has a long history in United States jurisprudence.
27. Further reliance was placed on the cases of Nizar Virani T/A Kisumu Beach Resort -vs- Phoenix of East Africa Assurance Company Limited Civil Appeal No. 88 of 2002 [2004] 2 KLR 269, Gulhamid Mohamed Ali Jivanji -vs- Sanyo Electrical Company Limited Civil Appeal No. 225 of 2001 [2003] KLR 425, Coast Bus Service Ltd -vs- Sisco E. Murunga Ndanyi & 2 Others, Civil Appeal No. 192 of 1992 and Jackson K Kiptoo -vs- The Hon Attorney General [2009] KLR 657 where it was held that:
“The degree of certainty and particularity of proof required depends on the circumstances and the nature of acts complained of.” However, I must
emphasize that the scope of the benefit to the claimant where there is such uncertainty in proving the non-breach position does not apply where there is evidence available which the claimant has not deployed. The claimant in addition is not given a free ride , the law still expects and requires the claimant to deploy the best evidence reasonably available to him , to enable the Court to make reasonable assumptions about what would have happened. Therefore, the requirement for strict proof of the special damages stated by this Court in National Security Fund Board of Trustees vs Sifa International Limited [supra]will still obtain, and the flexibility allowed to a claimant is in the manner and methods of proof that are employed, and may not necessarily be the traditional receipts and payment vouchers.”
28. Reliance was also placed on Ikumbu -vs- Wanjiru (Civil Appeal 157 of 2017) [2022] KECA81(KLR) where the court stated;
“Having laid the basis for the claim, we now proceed to address the prerequisites for sustaining a claim of this nature, being a special damage claim. We take it from the decision of this court in Hahn vs. Singh [1985] KLR 716 for the holding, inter alia, that special damages must not only be claimed specifically but must also be proved strictly, with a caveat that the degree of certainty and particularity of proof required depends on the circumstances and the nature of the act themselves. In this appeal, as we have already alluded to above, the respondent tendered evidence through PW2 a registered valuer . She admitted on oath that she did not have receipts to show the costs of the improvements. There was no further pressure for her to avail them. Neither did the appellant seek the court’s
authority to have these renovations valued by a valuer of his own choice. The trial Judge cannot therefore be faulted for allowing the same.”
29. It was submitted that for pecuniary losses, the normal policy of the law is to award such sum of money which will put the innocent party in the position which he or she would have been in had the contract been duly performed, as explained in McGregor on Damages Nineteenth Edition at paragraph 4-002 as follows: -
“Contracts are concerned with the mutual rendering of benefits. If one party makes default in performing his side of the contract, then the basic loss to the other party is the market value of the benefit of which he has been deprived through the breach. Put shortly, the claimant is entitled to compensation for the loss of his bargain. This is what may best be called the normal measure of damages in contract.”
30. As to whether the plaintiff is entitled to the costs of the suit, reliance was placed on Machakos ELC Pet No. 6 of 2013; Party of Independent Candidate of Kenya & Anor -vs- Mutula Kilonzo & 2 Others [2013] eKLR where the Court quoted the case of Levben Products -vs- Alexander Films (SA) (PTY)Ltd 1957 (4) SA 225 (SR) at 227 where it was held;
“It is clear from authorities that the fundamental principle underlying the award of costs is two-fold. In the first place the award of costs is matter in which the trial Judge is given discretion (Fripp vs Gibbon & Co., 1913 AD D 354). But this is a judicial discretion and must be exercised upon grounds on which a reasonable man could have come to the conclusion arrived at…In the second place the general rule that costs should be awarded to the successful party, a rule which should not be departed from without the exercise of good grounds for doing so.”
31. In conclusion, it was submitted that the Plaintiff is entitled to the Projected business loss, estimated profit in the sum of Kshs. 2,090,242,420/= and or any amounts the Courts seems just and fair in the circumstance, a sum of Kshs. 400,000/= for professional service offered by Warren & Associates (Certified Public Accountant(k) (Expert witness) as billed in the invoice dated 10/05/2024 and costs of the Suit.
32. Having looked at the pleadings, evidence on record and submissions, it is my considered view that the issues for determination are;
a) Whether there was a binding contract between the Plaintiff and Defendant.
b) If question (a) above is answered in the affirmative, whether the contract was breached and the consequences thereof.
Analysis& Determination
Whether there was a binding contract between the Plaintiff and Defendant
33. The letter dated 21/05/2020 (P. Ex 18) from the Plaintiff to the Defendant’s Branch Manager is worded as follows; “I received a call two days ago from madam Mbatha informing me that my application for financing has been approved but with some conditions. Would you be kind enough to put down in writing those conditions for me to address them?”
34. A letter from the Defendant (the bank) to the Plaintiff dated 29/06/2020 (P. Ex 21) informed the Plaintiff that his Boresha Biashara Loan Application of kshs 150,000/= had been approved on 07/05/2020 subject to the following conditions;
a) Provide adequate chattels to cover the exposure
b) Provide contacts for 3 referees on the application form
c) Co-borrower to sign on the application form and KYC documents.
Kindly note this being a micro-finance loan we require your spouse here-in referred to as co-borrower to give her consent by way of appending her signature on the application forms & subsequent bank documents which include the letter of offer.”
35. A letter from the bank to the Plaintiff dated 25/07/2020 (P. Ex 23) is worded as follows;
“Further to our letter dated 29 th June 2020, we wish to advice that your loan approved has been cancelled as long outstanding. We kindly advice you to source for a suitable guarantor and submit a fresh application for our consideration.”
36. The highlighted correspondence between the parties raises a question as to whether there was a binding contract, capable of being breached, between the parties. It is trite that the three essential elements of a valid contract are; offer, acceptance and consideration. In P.S Atiyah’s ‘ An Introduction to the law of contract (3 rd Edition)’ , a contract is explained as follows;
“(A)n offer is, in effect, a promise by the offeror to do or abstain from doing something, provided that the offeree will accept the offer and pay or promise to pay the ‘price’ of the offer…”
37. The Black’s Law Dictionary (9th Edition) defines the term ‘contract’ as follows; ‘A covenant or agreement between two or more persons,with a lawful consideration or cause’.
38. In William Muthee Muthami -vs- Bank of Baroda [2014] eKLR , the Court of Appeal (Kihara Kariuki, Ouko & J. Mohammed JJ.A) observed;
“In the law of contract, the aggrieved party to an agreement must, in addition, prove that there was offer, acceptance and consideration. It is only when those three elements are available that an innocent party can bring a claim against the party in breach.”
39. From the evidence in this case, it appears to me that at the time the bank cancelled the facility, the parties were still negotiating.
40. The plaintiff had applied for a loan. He did not have a copy of the loan application form.
41. He alleges that he received a phone call to the effect that his loan had been approved.
42. The bank had responded that his request for Boresha Biashara Loan of Ksh 150,000 was approved on 7 th May 2020 on certain conditions he was to comply with before the loan could be disbursed. The alleged call by one Mbatha was not supported by any official communication from the bank .
43. It is clear and it is clear from P. Ex 21 the letter of conditions was not complied with: the bank had not given a letter of offer to the Plaintiff which automatically means that there was no acceptance and consideration. P. Ex 21 also gave some conditions to be fulfilled by the Plaintiff which in essence would be the consideration in the contract. Chitty on Contracts, Vol. 1, General Principles (29 th Edition) defines consideration as follows: -
“The traditional definition of consideration concentrates on the requirement that 'something of value' must be given and accordingly states that consideration is either some detriment to the promisee (in that he may give value) or some benefit to the promisor (in that he may receive value).”
44. The Plaintiff claims that he fulfilled all the conditions given by the Bank but his protest letter dated 07/08/2020 (P.Ex 24) suggests otherwise as indicated by the following extract;
“The approved loan has since been cancelled as long outstanding. I do not understand what was difficult being asked to provide another suitable guarantor in good time until when the loan is cancelled necessitating fresh application yet am readily available and within reach. The branch had initially insisted on a signature by un-named co-borrower.”
45. The plaintiff did not comply. Further, the Plaintiff claimed that the co-borrower was unnamed yet it is clear from P.Ex 21 that the co-borrower was the Plaintiff’s spouse. It is evident that the guarantor provided by the Plaintiff was not satisfactory to the bank and the Plaintiff cannot insist that he had fulfilled all the conditions as that was not his decision to make.
46. There is also an undated letter at page 43 of the Plaintiffs list of documents which was written by the Plaintiff to the bank wherein he stated;
“…I have been informed that the facility has been approved but there is one condition requiring me to swear an affidavit which in my view can be withdrawn under the prevailing circumstances and again my thinking is that it has no effect on the performance of the facility in any way.”
This is yet another indication that the Plaintiff was not willing to comply with the conditions set out by the bank hence he cannot insist that he complied with all the conditions.
The plaintiff did not provide any evidence that he complied with the conditions set out by the bank to enable the bank disburse the loan and it is my view that on that basis the bank was entitled to cancel the loan.
47. The upshot is that the Plaintiff has not established, on a balance of probabilities, that there was an offer, acceptance and consideration. Consequently, there was no binding contract between the parties herein and no basis for the Plaintiff’s claim.
48. In short, the Plaintiff has no cause of action against the Defendant.
49. Issue (b) is moot as it is impossible to breach a non-existent contract.
50. However, I will say something about the evidence.
51. The plaintiff spent had a duty to establish his claim.
52. He spent a lot of time testifying on the works he undertook in expecting the said loan and the expenses he incurred. He also set out the projection of profits he could have made. According to the accountant he would have made on:
i. Year 1, 2020 Ksh 7,564,000
ii. Year 2, 2021 Ksh 176,437,600
iii. Year 3, 2022 Ksh 385,986,400
iv. Year 4, 2024 Ksh 806,653,600
v. Year 5,2025 Ksh 1,013, 427,000
Grand Total: 2,986, 060,600
I anxiously considered the evidence of PW2 who described himself as an auditor and certified public accountant. I have considered the formula he set out based on the number of students, enrolment fees, access fees and daily library use fees.
It was assumed that for example secondary schools the starting numbers would be as September, 750, October -1500, November 2250, December 3000multiplied by :, one off individual membership Ksh 50, daily access 40, It was also assumed for example that secondary schools would join as schools at a fee of Ksh 1000: That in September there would 4, October 8, November,12 and December, 16.
The same formula applied to the Primary Schools.
The witness gave no basis scientific, factual or otherwise for these projections other than figures on paper.
I go back to Ikumbu -vs- Wanjiru cited herein above where the court stated
“Having laid the basis for the claim, we now proceed to address the prerequisites for sustaining a claim of this nature, being a special damage claim. We take it from the decision of this court in Hahn vs. Singh [1985] KLR 716 for the holding, inter alia, that special damages must not only be claimed specifically but must also be proved strictly, with a caveat that the degree of certainty and particularity of proof required depends on the circumstances and the nature of the act themselves ( Emphasis mine)
53. It is evident from the evidence of PW2 that the plaintiff’s claim was for specific sums of money. He had set out the number of students, the registration and access fees and the schools membership fees . It was not for the assessment of court; he had already worked out what was due to him through PW2. He had a duty to prove each stated sum with evidence but that was not done. The plaintiff did not lay any factual basis for the claim. What was there to demonstrate the basis of the registration and access fees? Or that there would such an uptake of the alleged digital library services? No evidence was placed before the court other than figures.
54. The court raised the questions what was the basis for these amounts? The membership fees, the access fees? The plaintiff claimed that he had a library business upon which he was building this business. However, he did not produce any evidence to support the claim that he had a going concern that he wanted to launch into the digital space. There was no evidence as to the number of students/ institutions he already had as customers, and the income he was making at the material time to be able to tell the court that it was on that basis that he was projecting the profits he expected from the business. For example, the starting number of secondary students was set at 750. Did he already have that number as his clients? The initial Primary School membership was set at 500. Where was the evidence?
55. The plaintiff sought the modest loan of Ksh 150,000 to improve his library business, he needed to demonstrate that there was indeed a business, which upon the injection of these funds could bring in the super profits that PW2 claimed in his testimony.
56. There was a claim that PW2 was paid Ksh 400,000. No such evidence was placed before court.
57. In addition, PW2 the Auditor/ CPA did not appear certain of the figures he was throwing at court and when court asked for an explanation outside his reading of the figures, he could not explain the workings out. He created doubt as to his qualifications through his demeanor.
58. He did not lay any basis for the projections. Considering the fact that he was asking for Ksh 2,986, 060,600 he needed to place before court supporting evidence for this claim and I did not find any.
59. He did not demonstrate any knowledge of how a library business works and whether there was a business in existence upon which these funds ( the proposed loan) could be used to create the profits he laid out for the Plaintiff.
60. Hence, I did not find sufficient any grounding for the sums claimed by the plaintiff.
61. The
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IN THE HIGH COURT OF KENYA AT MAKUENI
CIVIL CASE NO. E007 OF 2023
JULIUS KIMEU NDUULU………………………….………….…....PLAINTIFF
-VERSUS-
KENYA COMMERCIAL BANK LTD
(EMALI BRANCH)…………….………………….………………DEFENDANT
JUDGMENT
Introduction
1. The plaintiff’s case is that he was a customer of the Defendant up to 2020 and he applied for finance to modernize his library services to digital whereupon the Defendant approved a loan of kshs 150,000/=. That, in breach of the said approval, the Defendant failed to disburse the funds, which failure, impeded the Plaintiff from completing his project on time thus leading to loss of business and projected profits.
The Plaint
2. The plaint is dated 10/03/2023 and was filed on 23/05/2023. The Plaintiff averred that on or about 21/04/2020, he applied for a loan facility of kshs 150,000/= for purposes of expanding his library services to include on-line library services to pupils of primary schools, students of secondary schools and tertiary level institutions within Makueni County and beyond.
3. He averred that the loan application was at the onset of the Covid-19 pandemic s across the country and the resultant closure of learning institutions had catapulted the necessity of online learning platforms and he expected to cash in on this situation during the pandemic.
4. He averred that on 29/06/2020, the Defendant requested him to meet certain conditions which he fulfilled on 30/06/2020. He expected that the disbursement of the loan would follow that approval but it was not disbursed.
5. He averred that as a result of the intention to open the e-library, he had signed an Internet Connection Service Agreement with Safaricom as well as a Web-site Development contract with Aveat Systems on 19/02/2020. That, on 07/04/2020, he initiated discussions with the bank and submitted his loan application form. That on 29/04/2020, he inquired about the position of the loan application from the Bank Manager and on 30/04/2020, he received a message from the manager informing him that the loan was being worked on and that he would receive a response in a week’s time.
6. He averred that on 05/05/2020, the Credit officer in the company of another officer visited his library and took photos. That, on 21/05/2020, he made an enquiry but there was no response and upon complaining to the Defendant’s head office, he was told that the complaint would be responded to within 24 hours.
7. He averred that on 29/06/2020, he received a letter from the Defendant confirming that the loan had been approved on 07/05/2020 with certain conditions. That, on 30/06/2020, he visited the branch and complied with all the requirements. That, on 27/07/2020, he visited the branch and was handed a cancellation letter of the loan which had been approved earlier without giving any reasons for the cancellation.
8. He particularized the breach of contract as; ‘cancellation of the approved loan on 27/07/2020 without giving any grounds/reasons when the plaintiff has fulfilled on the requirements that were set out on the letter of 29/06/2020.’
9. The Plaintiff prays for judgment against the Defendant for;
a) Compensation for loss of business to be assessed by this Honorable court.
b) Compensation for loss of projected profits to be assessed by this Honorable court.
c) Damages to be assessed by this Honorable court.
d) Costs of the Suit.
10. Having failed to enter appearance or file defence, an interlocutory judgment was entered against the Defendant on 28/09/2023 and the matter proceeding for formal proof on 15/04/2024.
The Plaintiff’s case
11. Julius Kimeu Nduulu (PW1) adopted a witness statement dated 10/03/2023 as his evidence in chief and relied on his list of documents dated 10/03/2023 . He testified that he was seeking compensation for loss of business and loss of profit from KCB Bank. He testified that he had been operating a physical library from 2010 and in 2016, he became a customer of KCB-Emali. In his statement he reiterated the averments in the plaint set out herein above.
12. PW2 was Warren Odhiambo who testified that he is a certified Public Accountant with more than 10 years’ experience. That, he filed the forecasted financial statement for the years 2020 – 2025 as per the Plaintiff’s further list of documents dated 11/04/2024.
13. The Court sought a clarification on how the witness had arrived at the yearly projections for year one (2020) amounting to kshs 7,564,000/=. The court noted that the witness appeared not to understand what was happening.
14. PW2 referred court to page 4 of the estimated projections with regard to membership of secondary students. He testified that the changing figures of 750,1500,2250, 3000 represent the membership fee while the constant of forty is the number of amounts in the changing number and the constant of 50 is the enrollment fee. That, the number means the increase of students with respect to library membership. That, on library access (750 x 40 x 20), 750 is the number of students and 20 is the access fee.
15. He testified that he prepared the summaries at page 21 and the grand total is kshs 2,986,060/600. That, the projection on tax is 30% (895,818/180) which is subtracted from the lumpsum leaving a balance of 2,090,242/42. That, his computation is for membership access and library use for years 2020-2025. He testified that the estimates provided are reliable and can be relied on by court.
16. The Plaintiff closed his case at that juncture and subsequently filed submissions.
Submissions
17. The issues for determination were identified to be;
a) Whether the claim for loss of business was proved?
b) Whether the claim for loss of profit was proved?
c) Whether the Plaintiff is deserving of the costs of the suit.
18. On whether the claim for loss of business was proved, it was submitted that the Plaintiff is required to prove a difference between the position he is in (‘the breach position’) and the position he would have been in but for the breach (‘the non- breach position’). That, the breach position is a question of historical and actual fact and what happened, what was spent and what was received can be established with precision by the claimant on the balance of probabilities.
19. On whether the claim for loss of business was proved, it was submitted that the non-breach position is of its nature a hypothetical and proof of it is a different type of exercise, namely an approximation of how the Plaintiff would have operated and the situation he would have been in if the primary contractual obligations had been performed. Reference was made to the chapter on ‘Damages and Proof’, by Adam Kramer in the text Commercial Remedies: Resolving Controversies, 2017 Edition and reliance made on the case of Ratcliffe -vs- Evans [1892] 2 QB 524 where Bowen L.J. expressed himself as follows;
“The character of the acts themselves which produce the damage, and the circumstances under which these acts are done, must regulate the degree of certainty and particularity with which the damage done ought to be stated and proved. As much certainty and particularity must be insisted on, both in pleading and proof of damage, as is reasonable, having regard to the circumstances and to the nature of the acts themselves by which the damage is done. To insist upon less would be to relax old and intelligible principles. To insist upon more would be the vainest pedantry.”
20. It was submitted that the Plaintiff called a certified accountant who produced a report dated 09/05/2024 and filed an audited report dated 10/05/2024. That, the accountant certified that their brief was to look at a fair financial loss resulting from the cancellation of the loan based on documents and information availed to them by the Plaintiff. That, according to the expert witness, the computation was based on numbers calculations for the five-year period between September 2020 and December 2025. That, based on the generally accepted accounting principle, the net audited financial statements for the stated period amounting to Kshs. 2,090,242,420.00 is achievable in a real trading situation. That, the amount of claim is generated through the following method;
a) Membership fee = (P x R) Principal x Rate — where Principal is the number of pupils, students (enrolments) or schools. Rate is the amount of charge and this is payable once to get a membership number. School is treated as entity by itself.
b) Library Access Fee = (P x R x TJ — Principal x Rate x Time – where Principal is the number of pupils, students (enrolments) or schools. Rate is the amount of charge per daily access. Time is the number of days the library is accessed per month. All this is under document headed ‘Digital Library Membership and Online Access Fee".
c) Monthly progression Numbers = The rate at which each category of membership increases. September 2020 is when the school resumed after Covid - 19 Pandemic.
21. Reliance was placed on MSK Projects India (JV) Limited -vs- State of Rajasthan & Another (2011) 10 SCC 573 where the Indian Supreme Court stated that;
“a claim of expected profits is legally admissible on proof of the breach of contract by the erring party, as a reasonable expectation of profit is implicit in a works contract, and its loss has to be compensated by way of damages once the breach on part of the other party is established and estimations made on quantum of loss.”
22. Further reliance was placed on M/s. A.T. BrijPaul Singh & Ors. v. State of Gujarat, AIR 1984 SC 1703 where the Indian Supreme Court held that;
“Damages can be claimed by a contractor where the government is proved to have committed breach by improperly rescinding the contract and for estimating the amount of damages, court should make a broad evaluation instead of going into minute details. It was specifically held that where in the works contract, the party entrusting the work committed breach of contract, the contractor is entitled to claim the damages for loss of profit which he expected to earn by undertaking the works contract. Claim of expected profits is legally admissible on proof of the breach of contract by the erring party. It was further observed that what would be the measure of profit would depend upon facts and circumstances of each case. But that there shall be a reasonable expectation of profit is implicit in a works contract and its loss has to be compensated by way of damages if the other party to the contract is guilty of breach of contract cannot be gainsaid.”
23. It was submitted that a claimant should not be penalized for the uncertainty surrounding proof of loss of business and profits as a claim of special damages, especially where that uncertainty has been caused by the wrongdoing of the other party. Reliance was placed on Parabola Investment Limited & Another -vs- Browallia Cal Limited (2011) QB477 at 486 where Toulson LJ held;
“Some claims for consequential loss are capable of being established with precision (for example, expenses incurred prior to the date of trial). Other forms of consequential loss are not capable of similarly precise calculation because they involve the attempted measurement of things which would or might have happened (or might not have happened) but for the defendant’s wrongful conduct, as distinct from things which have happened. In such a situation the law does not require a claimant to perform the impossible, nor does it apply the balance of probability test to the measurement of the loss.”
24. It was submitted that where the quantification of loss involves a hypothetical exercise , the Court does not apply the same balance of probabilities approach as it would to the proof of past facts, but instead estimates the loss by making the best attempt it can to evaluate all the chances, great or small, taking into account all significant factors. Reliance was placed on Yam Seng Pte Ltd -vs- International Trade Corp. Ltd (20130 1 Lloyd’s Rep 526 [188] where Leggatt J. opined as follows;
“The court said in this task by what may be called the principle of reasonable assumptions – namely, that it is fair to resolve uncertainties about what would have happened but for the defendant's wrongdoing by making reasonable assumptions which if anything on the side of generosity to the claimant where it is the defendant's wrongdoing which has created those uncertainties.”
25. Reference was also made to McGregor on Damages at page 349 paragraph 10-002 where it is stated;
“Indeed, if absolute certainty were required as to the precise amount of loss that the claimant had suffered, no damages would be recovered at all in the great number of cases. This is particularly true since so much of damages claimed are in respect of prospective, and therefore necessarily contingent, loss…Generally, therefore, although it remains true to say that ‘difficulty of proof does not dispense with necessity of proof’, the standard demanded can seldom be that of certainty. Even if it is said that that the damage must be proved with reasonable certainty, the word ‘reasonable’ is really the controlling one, and the standard of proof only demands evidence from which the existence of damage can be reasonably inferred and which provides adequate data for calculating the amount………Further cases presenting this difficulty of showing the amount of profitable sales that would have been made by the claimant had there been no tort or breach of contract by the defendant have indicated that the claimant is assisted by the principle in the very old case of Armory v Dalamirie, which has today received a new lease of life, the principle being that the court is required to resolve uncertainties by making assumptions generous to the claimant where it is the defendant’s wrongdoing which has created those uncertainties.”
26. Reliance was made on Story Parchment Co. -vs- Paterson Parchment Paper Co. 51 S Ct 248 (1931) and Bigelow -vs- RKO Radio Pictures Inc 66S Ct 574 (1946) for the submission that the tradition of favoring the claimant in such circumstances has a long history in United States jurisprudence.
27. Further reliance was placed on the cases of Nizar Virani T/A Kisumu Beach Resort -vs- Phoenix of East Africa Assurance Company Limited Civil Appeal No. 88 of 2002 [2004] 2 KLR 269, Gulhamid Mohamed Ali Jivanji -vs- Sanyo Electrical Company Limited Civil Appeal No. 225 of 2001 [2003] KLR 425, Coast Bus Service Ltd -vs- Sisco E. Murunga Ndanyi & 2 Others, Civil Appeal No. 192 of 1992 and Jackson K Kiptoo -vs- The Hon Attorney General [2009] KLR 657 where it was held that:
“The degree of certainty and particularity of proof required depends on the circumstances and the nature of acts complained of.” However, I must
emphasize that the scope of the benefit to the claimant where there is such uncertainty in proving the non-breach position does not apply where there is evidence available which the claimant has not deployed. The claimant in addition is not given a free ride , the law still expects and requires the claimant to deploy the best evidence reasonably available to him , to enable the Court to make reasonable assumptions about what would have happened. Therefore, the requirement for strict proof of the special damages stated by this Court in National Security Fund Board of Trustees vs Sifa International Limited [supra]will still obtain, and the flexibility allowed to a claimant is in the manner and methods of proof that are employed, and may not necessarily be the traditional receipts and payment vouchers.”
28. Reliance was also placed on Ikumbu -vs- Wanjiru (Civil Appeal 157 of 2017) [2022] KECA81(KLR) where the court stated;
“Having laid the basis for the claim, we now proceed to address the prerequisites for sustaining a claim of this nature, being a special damage claim. We take it from the decision of this court in Hahn vs. Singh [1985] KLR 716 for the holding, inter alia, that special damages must not only be claimed specifically but must also be proved strictly, with a caveat that the degree of certainty and particularity of proof required depends on the circumstances and the nature of the act themselves. In this appeal, as we have already alluded to above, the respondent tendered evidence through PW2 a registered valuer . She admitted on oath that she did not have receipts to show the costs of the improvements. There was no further pressure for her to avail them. Neither did the appellant seek the court’s
authority to have these renovations valued by a valuer of his own choice. The trial Judge cannot therefore be faulted for allowing the same.”
29. It was submitted that for pecuniary losses, the normal policy of the law is to award such sum of money which will put the innocent party in the position which he or she would have been in had the contract been duly performed, as explained in McGregor on Damages Nineteenth Edition at paragraph 4-002 as follows: -
“Contracts are concerned with the mutual rendering of benefits. If one party makes default in performing his side of the contract, then the basic loss to the other party is the market value of the benefit of which he has been deprived through the breach. Put shortly, the claimant is entitled to compensation for the loss of his bargain. This is what may best be called the normal measure of damages in contract.”
30. As to whether the plaintiff is entitled to the costs of the suit, reliance was placed on Machakos ELC Pet No. 6 of 2013; Party of Independent Candidate of Kenya & Anor -vs- Mutula Kilonzo & 2 Others [2013] eKLR where the Court quoted the case of Levben Products -vs- Alexander Films (SA) (PTY)Ltd 1957 (4) SA 225 (SR) at 227 where it was held;
“It is clear from authorities that the fundamental principle underlying the award of costs is two-fold. In the first place the award of costs is matter in which the trial Judge is given discretion (Fripp vs Gibbon & Co., 1913 AD D 354). But this is a judicial discretion and must be exercised upon grounds on which a reasonable man could have come to the conclusion arrived at…In the second place the general rule that costs should be awarded to the successful party, a rule which should not be departed from without the exercise of good grounds for doing so.”
31. In conclusion, it was submitted that the Plaintiff is entitled to the Projected business loss, estimated profit in the sum of Kshs. 2,090,242,420/= and or any amounts the Courts seems just and fair in the circumstance, a sum of Kshs. 400,000/= for professional service offered by Warren & Associates (Certified Public Accountant(k) (Expert witness) as billed in the invoice dated 10/05/2024 and costs of the Suit.
32. Having looked at the pleadings, evidence on record and submissions, it is my considered view that the issues for determination are;
a) Whether there was a binding contract between the Plaintiff and Defendant.
b) If question (a) above is answered in the affirmative, whether the contract was breached and the consequences thereof.
Analysis& Determination
Whether there was a binding contract between the Plaintiff and Defendant
33. The letter dated 21/05/2020 (P. Ex 18) from the Plaintiff to the Defendant’s Branch Manager is worded as follows; “I received a call two days ago from madam Mbatha informing me that my application for financing has been approved but with some conditions. Would you be kind enough to put down in writing those conditions for me to address them?”
34. A letter from the Defendant (the bank) to the Plaintiff dated 29/06/2020 (P. Ex 21) informed the Plaintiff that his Boresha Biashara Loan Application of kshs 150,000/= had been approved on 07/05/2020 subject to the following conditions;
a) Provide adequate chattels to cover the exposure
b) Provide contacts for 3 referees on the application form
c) Co-borrower to sign on the application form and KYC documents.
Kindly note this being a micro-finance loan we require your spouse here-in referred to as co-borrower to give her consent by way of appending her signature on the application forms & subsequent bank documents which include the letter of offer.”
35. A letter from the bank to the Plaintiff dated 25/07/2020 (P. Ex 23) is worded as follows;
“Further to our letter dated 29 th June 2020, we wish to advice that your loan approved has been cancelled as long outstanding. We kindly advice you to source for a suitable guarantor and submit a fresh application for our consideration.”
36. The highlighted correspondence between the parties raises a question as to whether there was a binding contract, capable of being breached, between the parties. It is trite that the three essential elements of a valid contract are; offer, acceptance and consideration. In P.S Atiyah’s ‘ An Introduction to the law of contract (3 rd Edition)’ , a contract is explained as follows;
“(A)n offer is, in effect, a promise by the offeror to do or abstain from doing something, provided that the offeree will accept the offer and pay or promise to pay the ‘price’ of the offer…”
37. The Black’s Law Dictionary (9th Edition) defines the term ‘contract’ as follows; ‘A covenant or agreement between two or more persons,with a lawful consideration or cause’.
38. In William Muthee Muthami -vs- Bank of Baroda [2014] eKLR , the Court of Appeal (Kihara Kariuki, Ouko & J. Mohammed JJ.A) observed;
“In the law of contract, the aggrieved party to an agreement must, in addition, prove that there was offer, acceptance and consideration. It is only when those three elements are available that an innocent party can bring a claim against the party in breach.”
39. From the evidence in this case, it appears to me that at the time the bank cancelled the facility, the parties were still negotiating.
40. The plaintiff had applied for a loan. He did not have a copy of the loan application form.
41. He alleges that he received a phone call to the effect that his loan had been approved.
42. The bank had responded that his request for Boresha Biashara Loan of Ksh 150,000 was approved on 7 th May 2020 on certain conditions he was to comply with before the loan could be disbursed. The alleged call by one Mbatha was not supported by any official communication from the bank .
43. It is clear and it is clear from P. Ex 21 the letter of conditions was not complied with: the bank had not given a letter of offer to the Plaintiff which automatically means that there was no acceptance and consideration. P. Ex 21 also gave some conditions to be fulfilled by the Plaintiff which in essence would be the consideration in the contract. Chitty on Contracts, Vol. 1, General Principles (29 th Edition) defines consideration as follows: -
“The traditional definition of consideration concentrates on the requirement that 'something of value' must be given and accordingly states that consideration is either some detriment to the promisee (in that he may give value) or some benefit to the promisor (in that he may receive value).”
44. The Plaintiff claims that he fulfilled all the conditions given by the Bank but his protest letter dated 07/08/2020 (P.Ex 24) suggests otherwise as indicated by the following extract;
“The approved loan has since been cancelled as long outstanding. I do not understand what was difficult being asked to provide another suitable guarantor in good time until when the loan is cancelled necessitating fresh application yet am readily available and within reach. The branch had initially insisted on a signature by un-named co-borrower.”
45. The plaintiff did not comply. Further, the Plaintiff claimed that the co-borrower was unnamed yet it is clear from P.Ex 21 that the co-borrower was the Plaintiff’s spouse. It is evident that the guarantor provided by the Plaintiff was not satisfactory to the bank and the Plaintiff cannot insist that he had fulfilled all the conditions as that was not his decision to make.
46. There is also an undated letter at page 43 of the Plaintiffs list of documents which was written by the Plaintiff to the bank wherein he stated;
“…I have been informed that the facility has been approved but there is one condition requiring me to swear an affidavit which in my view can be withdrawn under the prevailing circumstances and again my thinking is that it has no effect on the performance of the facility in any way.”
This is yet another indication that the Plaintiff was not willing to comply with the conditions set out by the bank hence he cannot insist that he complied with all the conditions.
The plaintiff did not provide any evidence that he complied with the conditions set out by the bank to enable the bank disburse the loan and it is my view that on that basis the bank was entitled to cancel the loan.
47. The upshot is that the Plaintiff has not established, on a balance of probabilities, that there was an offer, acceptance and consideration. Consequently, there was no binding contract between the parties herein and no basis for the Plaintiff’s claim.
48. In short, the Plaintiff has no cause of action against the Defendant.
49. Issue (b) is moot as it is impossible to breach a non-existent contract.
50. However, I will say something about the evidence.
51. The plaintiff spent had a duty to establish his claim.
52. He spent a lot of time testifying on the works he undertook in expecting the said loan and the expenses he incurred. He also set out the projection of profits he could have made. According to the accountant he would have made on:
i. Year 1, 2020 Ksh 7,564,000
ii. Year 2, 2021 Ksh 176,437,600
iii. Year 3, 2022 Ksh 385,986,400
iv. Year 4, 2024 Ksh 806,653,600
v. Year 5,2025 Ksh 1,013, 427,000
Grand Total: 2,986, 060,600
I anxiously considered the evidence of PW2 who described himself as an auditor and certified public accountant. I have considered the formula he set out based on the number of students, enrolment fees, access fees and daily library use fees.
It was assumed that for example secondary schools the starting numbers would be as September, 750, October -1500, November 2250, December 3000multiplied by :, one off individual membership Ksh 50, daily access 40, It was also assumed for example that secondary schools would join as schools at a fee of Ksh 1000: That in September there would 4, October 8, November,12 and December, 16.
The same formula applied to the Primary Schools.
The witness gave no basis scientific, factual or otherwise for these projections other than figures on paper.
I go back to Ikumbu -vs- Wanjiru cited herein above where the court stated
“Having laid the basis for the claim, we now proceed to address the prerequisites for sustaining a claim of this nature, being a special damage claim. We take it from the decision of this court in Hahn vs. Singh [1985] KLR 716 for the holding, inter alia, that special damages must not only be claimed specifically but must also be proved strictly, with a caveat that the degree of certainty and particularity of proof required depends on the circumstances and the nature of the act themselves ( Emphasis mine)
53. It is evident from the evidence of PW2 that the plaintiff’s claim was for specific sums of money. He had set out the number of students, the registration and access fees and the schools membership fees . It was not for the assessment of court; he had already worked out what was due to him through PW2. He had a duty to prove each stated sum with evidence but that was not done. The plaintiff did not lay any factual basis for the claim. What was there to demonstrate the basis of the registration and access fees? Or that there would such an uptake of the alleged digital library services? No evidence was placed before the court other than figures.
54. The court raised the questions what was the basis for these amounts? The membership fees, the access fees? The plaintiff claimed that he had a library business upon which he was building this business. However, he did not produce any evidence to support the claim that he had a going concern that he wanted to launch into the digital space. There was no evidence as to the number of students/ institutions he already had as customers, and the income he was making at the material time to be able to tell the court that it was on that basis that he was projecting the profits he expected from the business. For example, the starting number of secondary students was set at 750. Did he already have that number as his clients? The initial Primary School membership was set at 500. Where was the evidence?
55. The plaintiff sought the modest loan of Ksh 150,000 to improve his library business, he needed to demonstrate that there was indeed a business, which upon the injection of these funds could bring in the super profits that PW2 claimed in his testimony.
56. There was a claim that PW2 was paid Ksh 400,000. No such evidence was placed before court.
57. In addition, PW2 the Auditor/ CPA did not appear certain of the figures he was throwing at court and when court asked for an explanation outside his reading of the figures, he could not explain the workings out. He created doubt as to his qualifications through his demeanor.
58. He did not lay any basis for the projections. Considering the fact that he was asking for Ksh 2,986, 060,600 he needed to place before court supporting evidence for this claim and I did not find any.
59. He did not demonstrate any knowledge of how a library business works and whether there was a business in existence upon which these funds ( the proposed loan) could be used to create the profits he laid out for the Plaintiff.
60. Hence, I did not find sufficient any grounding for the sums claimed by the plaintiff.
61. The
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