'1. The plaintiff vide a plaint dated 9th May 2016 instituted this suit seeking judgment against the defendant for -
i) Kshs.139,471,809.70;
ii) Interest at the rate of 24% p.a from 18th June 2014 until payment in full; and
iii) Costs of this suit.
2. The plaintiff’s case is that the defendant was the main contractor for the rehabilitation and upgrading of the Nairobi - Thika Road (A2) under Contract No. RD 0530 Lot 1; Nairobi City Arterial Connectors with the Kenya National Highways Authority (KeNHA). That by a Contract Agreement dated July 2011, the defendant sub-contracted the plaintiff to relocate water and sewerage facilities and undertook to pay the plaintiff based on Engineer’s certification and payments received from KeNHA. The plaintiff averred that it executed and handed over the works which were certified by the Engineer on 18th June 2014 at Kshs.326,777,632.64. It further averred that prior to the said certification, the defendant had paid the plaintiff Kshs.177,277,232.00, thus after contractual deductions of Kshs.18,909,569.75, the balance due to it from the defendant was Kshs.130,596,830.89.
3. The plaintiff contended that during the period of the contract, the defendant delayed payments due to it, and since the contract terms between the plaintiff and the defendant provided for interest on delayed payments, the Engineer also certified Kshs.8,874,978.88 as accrued interest for delayed payments, making the total certified sum Kshs.139,472,809.77. The plaintiff’s contestation is that despite certification, the defendant failed to pay on grounds that the amount demanded was not included in the main contract’s payment certificate. The plaintiff asserted that it was the defendant’s obligation to ensure inclusion, and that the defendant admitted the principal debt and part of the interest in a letter dated 12th October 2015, but has still failed to settle it.
4. In opposition to the plaintiff’s suit, the defendant filed a statement of defence dated 4th July 2016 which was subsequently amended on 5th May 2022. The defendant denied all the averments in the plaintiff’s plaint. It averred that payment to the plaintiff was expressly conditional on certification by the Project Manager Nairobi Water & Sewerage Company and Consulting Engineering Services (CES) Limited, as Resident Engineers/Agents of the third party. The defendant asserted that it is only after certification that the plaintiff’s claims could be included in the main contract’s payment certificate. The defendant claimed that the plaintiff failed to complete the works within the agreed timeframe, submitted a draft final statement of accounts improperly without the Project Manager’s certification and did not route its claim through the required channels. The defendant faulted the final statement of 18th June 2014 for Kshs.139,471,809.77 for being procedurally irregular.
5. The defendant contended that repeated requests were made, including a letter dated 29th December 2014 for the plaintiff to comply, but no properly certified final account was ever submitted. It was stated that since the plaintiff’s claim was not certified or approved by the Project Manager/Resident Engineers at the time of the defendant’s final statement, it was excluded from the final payment certificate issued to the third party. The defendant averred that it wrote to the third party on 19th April 2015 requesting that its final statement be processed excluding the plaintiff’s uncertified claim, which should instead be dealt with separately upon proper approval. That subsequently, the Resident Engineers confirmed that the plaintiff’s claim would have to be pursued directly with the third party. The defendant admitted prior payments made to the plaintiff and correspondence acknowledging part of the interest being Kshs.2,036,680.94 and USD 15,934.76, which sums it stated have always been available for collection.
6. The defendant vide an application dated 30th January 2017 and amended on 13th May 2022 sought for leave to issue a Third Party Notice against National Highways Authority (KENHA) which application was allowed in a Ruling delivered on 28th January 2020.
7. The third party in opposition to this suit filed a statement of defence dated 17th July 2017, which was subsequently amended on 12th April 2022. The third party denied the allegations contained in the Third Party Notice and averred that the defendant is not entitled to indemnity, contribution, or costs. It contended that there was no privity of contract between it and the plaintiff since the plaintiff’s claim is based on a July 2011 sub-contract between the plaintiff and the defendant, to which it was a stranger. It asserted that its only contract was with the Ministry of Roads dated 14th November 2008 for the Nairobi - Thika Road Lot 1: Nairobi City Arterial Connectors Contract No RD 0530.
8. The third party stated that it fully performed its obligations under the 2008 contract. It further stated that pursuant to Clause 60.14, its liability to the defendant was extinguished once the defendant submitted its final statement without including the plaintiff’s claim. It contended that for the said reason, the defendant has no cause of action against it. The third party asserted that even if indemnity was available, the defendant would first need to show that it actually paid the plaintiff’s claim, failure to which no indemnity or contribution can arise. It averred that the defendant submitted its final statement on 19th April 2015, confirmed by the Engineer APEC Limited.
9. The third party referred to Clause 60.11 of the 2008 contract which required the defendant to include all claims in the draft and final statements, subject to the Engineer’s verification and dispute resolution under Clause 67 of the contract. The third party emphasized that since the plaintiff’s claim was not included in the defendant’s final statement, it is barred under Clause 60.14 of the 2008 contract.
10. The above notwithstanding, the third party asserted that any claim for indemnity or contribution should have been referred to the Dispute Review Expert (DRE) and thereafter to arbitration under Clause 67 of the 2008 contract and UNCITRAL Rules. In addition, the third party stated that the defendant’s claim is barred by limitation as the plaintiff’s sum was certified on 18th June 2014. It further stated that under Section 67 of the Kenya Roads Act, 2007, the claim herein is also improperly before Court.
11. This matter proceeded to hearing where the plaintiff, the defendant and the third party each called one witness in support of their cases.
PLAINTIFF’S CASE.
12. Engineer James Macharia, the Managing Director of the plaintiff testified as PW1. He adopted his witness statement dated 8th March 2019 as his evidence-in-chief and produced the documents in the plaintiff’s list and bundle of documents dated 8th March 2019 as plaintiff exhibits No. 1 to 16, and the supplementary list and bundle of documents dated 9th May 2022 as plaintiff exhibits No. 17 & 18. He testified that the defendant was the main contractor for the Nairobi–Thika Road Lot 1 project (Contract No. RD 0530) and that the plaintiff was a nominated sub-contractor for the relocation of water and sewerage facilities under Quotation No. KeNHA/TW&S/Pk-2/2010-2011, pursuant to a Letter of Award issued by Consulting Engineering Services (India) Private Limited in association with APEC Ltd.
13. PW1 stated that under a contract executed between the parties in 2011, and later amended by an Addendum, the defendant engaged the plaintiff to relocate water and sewerage facilities along Thika Road. He further stated that the defendant undertook to pay the plaintiff based on the Engineer’s certification and funds received from the third party. PW1 testified that the plaintiff completed and handed over the works, which were certified by the Engineer at Kshs.326,777,632.64 on 18th June 2014. He indicated that by then, the defendant had paid Kshs.177,277,232.00, and the Engineer allowed a contractual deduction of Kshs.18,909,569.75. PW1 asserted that after deductions, the Engineer certified the amount due to the plaintiff at Kshs.130,596,830.89 as at 18th June 2014.
14. He testified that the contract provided for interest on delayed payments and since the defendant had delayed the payments, the Engineer computed and certified interest at Kshs.8,874,978.88, bringing the total certified sum to Kshs.139,471,809.77. He added that interim certificates had previously been processed by the Resident Engineer, Eng. E.M. Mugo, and approved by the overall Engineer. PW1’s evidence was that the final certificate was first submitted on 29th April 2014, and returned by the defendant on 28th May 2014 for lack of the Resident Engineer’s signature, and it was resubmitted on 11th June 2014 after approval by the Resident Engineer, and finally approved by the overall Engineer and forwarded to the defendant on 18th June 2014.
15. Engineer Macharia testified that despite certification and repeated demands, the defendant failed to pay the sums due. He stated that the defendant’s allegation that approval by the Technical Director, Nairobi Water and Sewerage Company was required, was unfounded, as all prior payments had been processed through the Resident Engineer acting on his behalf. He further testified that by a letter dated 12th October 2015, the defendant admitted owing the principal sum and part of the interest, and subsequently made a part-payment of USD 13,345.00 and Kshs.1,731,179.00 on 6th March 2017, which the plaintiff accepted. PW1 maintained that under the contract between the plaintiff and the defendant, the plaintiff was entitled to interest on delayed payments at a commercial rate of 24% p.a., as approved by the Engineer, and that this rate ought to apply to the certified sum from 18th June 2014 until full payment.
16. In cross-examination by Prof. Mumma (SC), learned Counsel for the third party, PW1 stated that Consulting Engineering Services (India) Limited supervised the Thika Superhighway project. He indicated that Clause 42.2 of the contract between the plaintiff and the defendant provided for interest, requiring the Project Manager to check the contractor’s monthly statement and certify the amount payable. He confirmed that the contract defined the Project Manager as the Technical Director, Nairobi City Water & Sewerage Company. PW1 referred to page 59 of the plaintiff’s bundle of documents, and pointed out a signature at the bottom of the certificate by the said Project Manager. PW1 further explained that next to the Project Manager’s signature on the certificate, it is noted “as per the letter dated 11th June 2014.”
17. He was referred to a letter at page 108 of the plaintiff’s bundle, which addressed interest on delayed payments and indicated that matters relating to additional works were handled directly by the client through the main contractor, China Wu Yi. He stated that in computing the interest due, reference ought to be made to that letter, and maintained that the plaintiff’s claim for interest runs from 14th June 2014 as reflected in the Engineer’s letter dated 18th June 2014.
18. In cross-examination by Mr. Ngatia (SC), learned Counsel for the defendant, Engineer Macharia testified that the plaintiff was appointed as a sub-contractor by the third party through the Engineer, but payment was to be made by the main contractor, China Wu Yi Company Limited, for works performed for the third party. He referred to the letter at page 108 of the plaintiff’s bundle of documents, which specifically addressed the plaintiff’s claim on interest and deductions and confirmed that a Report had been duly evaluated for payment.
19. PW1 outlined the payment process, being that the sub-contractor would submit an application to the supervising Engineer, who would issue a certificate to the main contractor’s Engineer; the main contractor would then include the sub-contractor’s payment in its request for payment, and the supervising Engineer would include the plaintiff’s payment.
20. PW1 referred again to the letter dated 18th June 2014 at page 56 of the plaintiff’s bundle of documents, confirming that it certified Kshs.139,471,809.77 as due to the plaintiff, which sum remains unpaid. He stated that the defendant has never disputed owing the plaintiff Kshs.130,000,000/= and that Judgment has since been entered for the plaintiff in the sum of Kshs.139,471,809.71. He testified that the main contractor was to receive funds from the third party to pay the sub-contractor, as they both served the same client. He added that Nairobi Water & Sewerage Company acted as the third party’s agent, and by a letter dated 24th July 2020, the defendant confirmed that the plaintiff’s payment had been approved by Nairobi Water & Sewerage Company, to avoid escalation of interest as per the letter dated 18th June 2014.
21. PW1 testified that under the contract between the plaintiff and the defendant, the defendant could not pay the plaintiff until it had received funds from the third party. He maintained that the certified sum of Kshs.139,471,809.71 was a shared obligation, in that Kshs.8,874,978.88 was owed by the defendant, while Kshs.130,596,830.89 was owed by the third party. He stated that Nairobi Water & Sewerage Company and APEC Limited, and not the defendant, were to certify completeness of the plaintiff’s work.
22. In re-examination, PW1 testified that Addendum No. 1 found at page 8 of the plaintiff’s bundle of documents, provided under Clause 2 of the General Conditions of Contract that the plaintiff’s payments were to be certified by the Engineer and received from the third party. He explained that the Engineer was APEC Limited, which prepared the letter dated 18th June 2014, and that Mr. Mugo of Nairobi Water & Sewerage Company certified the plaintiff’s payment application at page 59 of the plaintiff’s bundle of documents, which was also signed by the overall Engineer. He maintained that the plaintiff had a contract with the defendant, not directly with the third party, whose involvement was by implication. He asserted that the defendant was under an obligation to pay the plaintiff upon receipt of funds from the third party.
DEFENDANT’S CASE.
23. Mr. Luo Zicheng, the defendant’s Deputy General Manager testified as DW1. His evidence was that the plaintiff was appointed by the third party to relocate water and sewerage facilities in the Nairobi - Thika Highway Project Lot 1 (Haile Selassie Avenue to Pangani Roundabout), while the defendant was the main contractor. He stated that payment to the plaintiff was the responsibility of the third party, based on certificates issued by the Engineer, Consulting Engineering Services (India) Private Limited in association with APEC Limited. He testified that once the Engineer certified satisfactory work, he would forward the certificate to the defendant, which would then prepare an interim payment certificate and resubmit it to the Engineer for evaluation and verification before it was sent to the third party. The third party would thereafter pay the defendant, who would in turn pay the plaintiff.
24. Referring to the final statement dated 18th June 2014, DW1 testified that Kshs.130,596,830.89 was payable to the plaintiff by the third party, while Kshs.8,800,000/= was payable by the defendant. He maintained that the defendant had already settled its portion, leaving the outstanding sum of Kshs.130,596,830.89, which remains unresolved. He confirmed that the Resident Engineer verified the total obligations at Kshs.139,471,809.77 as due from the third party to both the contractor and the sub-contractor. DW1 testified that the letter dated 18th June 2014 was a formal statement showing the balance of Kshs.130,596,830.89 due from the third party to the contractor, being the plaintiff. He indicated that the letter further showed that Kshs.8,874,978.88 was owed by the defendant to the plaintiff as interest for delayed payment of earlier certificates under Clause 43.1 of the sub-contract.
25. Mr. Zicheng stated that the final value of works was Kshs.326,777,632.64, from which the Engineer deducted Kshs.177,277,232.00 already paid to the plaintiff, leaving Kshs.149,500,400.64. He testified that a further deduction of Kshs.18,903,569.75, being sums due to the employer under the sub-contract (excluding liquidated damages) was effected, leaving a balance of Kshs.130,596,830.89. DW1 added that although the letter dated 18th June 2014 was copied to the third party and the Chief Resident Engineer, Lot 1, Eng. H. Ramesh, it was never responded to. He maintained that the defendant cannot settle the sum of Kshs.130,596,830.89 and urged the Court to determine who is liable for the debt.
26. In cross-examination by Prof. Mumma (SC), learned Counsel for the third party, DW1 testified that the defendant had a contract with the third party dated 14th November 2008, which allowed for nominated sub-contractors. That pursuant to the said contract, the defendant entered into a sub-contract with the plaintiff on 25th July 2011 for relocation of sewerage works. He testified that Addendum No. 1 introduced two Clauses, sub-clause 11 on employer’s risks and sub-clause 3 which provided that such risks shall be borne by Athi Water Services Board. He stated that Clause 42 required the contractor to submit monthly statements to the Project Manager, while sub-clause 42.7 (introduced by the addendum) provided that the plaintiff’s payments would only be made upon certification by the Engineer and receipt of funds from the third party. DW1 testified that in order for the defendant to be paid, it had to comply with the seven steps under Clause 42 and the additional sub-clause 42.7.
27. He referred to Clause 1.22 of the contract which defined the Project Manager as the person named in the contract data, or any replacement appointed by the employer, responsible for supervising works and administering the contract. He indicated that Clause 1.6 identified the employer as the defendant and the Project Manager as the Technical Director, Nairobi City Water & Sewerage Company. He explained that Clause 42 required the Project Manager to certify the value of the work done, while the Project Engineer’s role arose only at the final stage of the process. He observed that the letter dated 18th June 2014 was authored by Engineer P.K. Sateesh of Consulting Engineering Services (India) Private Limited, the Resident Engineer, rather than the Technical Director of Nairobi City Water & Sewerage Company. He indicated that Engineer Sateesh was responsible for supervising the road works, not the relocation of water and sewerage pipes, and would therefore act only after the Project Manager had performed his role.
28. DW1 referred to a letter at page 46 of the third party’s documents in which the defendant informed Consulting Engineering Services (India) Private Limited in association with APEC Limited that delays by the Project Manager, Nairobi City Water & Sewerage Company, had hindered approval of the plaintiff’s final statement, thereby impeding the Main Contractor and Engineer in discharging obligations to the employer. He stated that as at 19th April 2015, the plaintiff’s final account remained unapproved and was redirected to the Resident Engineer (Relocation) for scrutiny and recommendation for approval of the same by the Engineer and employer. He indicated that the said letter which also referred to the 18th June 2014 final statement, further requested that under sub-clause 60.11 of the contract, the final account be finalized without the alleged claim amount of the sub-contractor, to be dealt with separately in accordance with the provisions of the agreement, and upon the Project Manager’s recommendation. He emphasized that the Project Manager had not certified the final account.
29. DW1 also referred to a letter dated 21st April 2015 at page 48 of the third party’s documents, from Consulting Engineering Services (India) Private Limited to the third party’s General Manager (Design & Construction), recommending final payment. He testified that the said letter was also copied to the Team Leader and the Chief Resident Engineer, informing everyone that the final payment certificate had been issued. He explained that under Clause 57 of the sub-contract, the contractor was required to submit a detailed account of the total amount payable before expiry of the defects liability period to the Project Manager, he explained that the letter at page 53 of the third party’s documents stated that the plaintiff’s final account had not been properly received, as it was submitted to the defendant directly rather than through the required channel, and it included only EOT-related costs amounting to Kshs.125,633,429.02, with no work executed.
30. He testified that the letter further indicated that under sub-clause 60.11 of COPA, the defendant’s final account had been settled without the plaintiff’s alleged claim, which could be addressed separately in accordance with the provisions of the sub-contract and upon the Project Manager’s recommendation. That consequently, the Resident Engineer recommended payment to the defendant without including the plaintiff’s final account. Mr. Zicheng testified that Clause 60.10 of the main contract provided for Takeover Certificates, while Clause 60.11 required the contractor to submit a draft final statement to the Engineer within 56 days after issuance of the defects liability certificate under sub-clause 62.1. He stated that the Resident Engineer issued a discharge confirming the final statement. Referring to Clause 60.14, DW1 noted that the employer would not be liable for any claims unless included in the final statement. He added that by a letter dated 12th June 2014, the plaintiff re-submitted its updated outstanding amount duly signed by the Resident Engineer, Relocation of Services, for the defendant’s action.
31. DW1 referred to page 29 of the plaintiff’s bundle where Consulting Engineering Services (India) Private Limited, in association with APEC Limited, informed the plaintiff of the Award of Contract valued at Kshs.166,576,254.87, while at page 59 the amount certified as at 30th April 2014 was Kshs.177,277,232.00. He testified that the defendant was not obliged to include the plaintiff’s final account since the plaintiff had not complied with the sub-contract procedure, which remained unfulfilled at the time of his testimony. He confirmed knowledge of the consent entered into on 21st May 2019 and stated that by a letter dated 24th July 2020, the defendant informed the third party that there was no dispute on the principal amount due to the plaintiff, leading to a Judgment for Kshs.139,471,809.77. He added that delays in payment arose from delays in approvals by the Technical Director, Nairobi Water & Sewerage Services.
32. During cross-examination by Mr. Njuguna, learned Counsel for the plaintiff, DW1 stated that certification of payments was done by Consulting Engineering Services (India) Private Limited in association with APEC Limited, after which the defendant incorporated the certified payments as its own. He explained that the plaintiff applied for payment, which upon certification by the Engineer, became a payment certificate. He added that Addendum No. 1 amended Clause 43 by introducing Clause 43.7, designating the plaintiff as the contractor and the said Engineers as certifiers, whereas before the amendment, certification was by the Project Manager.
33. He clarified that applications for payment were addressed to the appointed Project Engineer. DW1 reiterated that Clause 42.7 of the sub-contract, introduced by Addendum No. 1, provided that payments to the sub-contractor would be based on certificates issued by the Resident Engineer as the representative of the third party, and received from the third party. Mr. Zicheng confirmed that the Addendum was signed by the Resident Engineer and the defendant’s Project Manager. He explained that while initially certificates were issued by the Project Manager, the Addendum transferred the said role to the Resident Engineer, therefore the letter dated 18th June 2014 was consistent with the Addendum and approved the plaintiff’s final statement.
34. He maintained that the defendant remitted Kshs.8,874,978.88 due to the plaintiff on 19th September 2023. DW1 stated that under Clause 43.1 of the sub-contract, payments were due within 28 days of certification, meaning that the plaintiff’s final account certified on 18th June 2014 ought to have been paid by 16th July 2014, failure to which interest would accrue at prevailing commercial rates. He confirmed that this applied to the Kshs.8,874,978.88 due from the defendant. He maintained that the Kshs.130,596,830.89 was payable to the plaintiff only upon receipt from the third party. Referring to Engineer Cherono’s statement dated 16th May 2022, DW1 acknowledged the sum was payable but could not confirm if the defendant received it, adding that if paid, the defendant would have no claim against the third party.
35. In re-examination, DW1 confirmed that the letter dated 18th June 2014 specified amounts due to the plaintiff from both the defendant and the third party. He stated that the defendant did not deny its indebtedness and had paid Kshs.8,874,078.88 to the plaintiff. Referring to paragraph 17 of Engineer Cherono’s statement, he noted mention of Kshs.999,123,390.00 reimbursed for relocation of utilities executed during DLP under BOQ item No. 1.15, but stated that he was unaware if the Kshs.130,596,830.89 formed part of that sum.
THIRD PARTY’S CASE
36. Mr. Daniel Sacho Cherono, the third party’s Director of Maintenance testified as DW2. He adopted his witness statement dated 16th May 2022 as his evidence in chief and produced the documents on the third party’s bundle of documents dated 12th May 2022 as the third party’s exhibit Nos. 1 to 5. He testified that the Chief Resident Engineer nominated by the third party directly supervised the project. He added that since some utilities along the Nairobi - Thika Road required removal under the supervision of Nairobi Water & Sewerage Company, the company was requested to nominate a Project Manager to certify and supervise the relocation of those works. He explained that upon certification by the Nairobi Water & Sewerage Company, the defendant was to pay the plaintiff, and thereafter seek reimbursement from the third party, subject to certification by the third party Consulting Engineers.
37. Mr. Cherono stated that the plaintiff’s claim of Kshs.125,633,429.03 in the final payment certificate lacked supporting documents and certification from the Nairobi Water & Sewerage Company Project Manager, hence payment could not be effected. He referred to the defendant’s letter of 19th April 2015 to the Engineer submitting the defendant’s final statement to the Consulting Engineer, excluding the plaintiff’s claim of Kshs.125,633,429.02 due to lack of approval by the Nairobi Water & Sewerage Company. He testified that in the same letter, the defendant requested that the final statement be finalized without the plaintiff’s claim, citing unconscionable delays and asked that the claim be dealt with separately under the sub-contract, upon recommendation of the Nairobi Water & Sewerage Company Project Manager.
38. Mr. Cherono claimed that from the foregoing, the third party understood that the defendant relinquished reimbursement rights for the plaintiff’s claim and asked the third party to proceed with final payments without further claims, which was confirmed in the Engineer’s letter of 21st April 2015 to the third party, which stated that the defendant’s final statement had been finalized without the sub-contractor’s claim, which could be dealt with separately under the sub-contract upon the Nairobi Water & Sewerage Company’s recommendation. He stated that all payments under certificate No. 32 were fully made and once the final certificate was signed by the Resident Engineer, no further payments were due as the third party’s liability was extinguished in accordance with Clause 60.14 of the main contract. He asserted that there was no outstanding claim in the final statement as the defendant opted to exclude the plaintiff’s sums.
39. Mr. Cherono emphasized that since the third party was not a party to the sub-contract, it bore no role in settling disputes arising therefrom. He referred to the Engineer’s letter of 18th June 2021 confirming that Kshs.130,596,830.89 for relocation of services was payable under BOQ 1.15. DW2 testified that the aforesaid sum was paid, yet the defendant now wrongly alleges otherwise. He cited the Engineer’s letter of 21st April 2015 confirming reimbursement of Kshs.991,123,390 for relocation of utilities under BOQ 1.15. 18. He added that under Clause 60.11 of the contract, disputes over the final statement were to be referred to the Dispute Review Expert and arbitration under UNCITRAL Rules.
40. He asserted that the defendant caused the delay in settling the plaintiff’s claim and should bear any interest payable under the sub-contract. He contended that there is no triable issue on the third party’s liability, as the plaintiff’s claim did not arise from any act or omission by the third party.
41. In cross-examination by Mr. Njuguna, learned Counsel for the plaintiff, DW2 confirmed that the third party was not a signatory to the contract between the defendant and the plaintiff. He stated that the defendant’s work for the third party was satisfactorily completed, part of which had been sub-contracted to the plaintiff. He noted that the Project Manager in the plaintiff - defendant contract was jointly appointed by those parties. He acknowledged that the third party paid several certificates over time. Referring to page 95 of the plaintiff’s bundle of documents,
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i) Kshs.139,471,809.70;
ii) Interest at the rate of 24% p.a from 18th June 2014 until payment in full; and
iii) Costs of this suit.
2. The plaintiff’s case is that the defendant was the main contractor for the rehabilitation and upgrading of the Nairobi - Thika Road (A2) under Contract No. RD 0530 Lot 1; Nairobi City Arterial Connectors with the Kenya National Highways Authority (KeNHA). That by a Contract Agreement dated July 2011, the defendant sub-contracted the plaintiff to relocate water and sewerage facilities and undertook to pay the plaintiff based on Engineer’s certification and payments received from KeNHA. The plaintiff averred that it executed and handed over the works which were certified by the Engineer on 18th June 2014 at Kshs.326,777,632.64. It further averred that prior to the said certification, the defendant had paid the plaintiff Kshs.177,277,232.00, thus after contractual deductions of Kshs.18,909,569.75, the balance due to it from the defendant was Kshs.130,596,830.89.
3. The plaintiff contended that during the period of the contract, the defendant delayed payments due to it, and since the contract terms between the plaintiff and the defendant provided for interest on delayed payments, the Engineer also certified Kshs.8,874,978.88 as accrued interest for delayed payments, making the total certified sum Kshs.139,472,809.77. The plaintiff’s contestation is that despite certification, the defendant failed to pay on grounds that the amount demanded was not included in the main contract’s payment certificate. The plaintiff asserted that it was the defendant’s obligation to ensure inclusion, and that the defendant admitted the principal debt and part of the interest in a letter dated 12th October 2015, but has still failed to settle it.
4. In opposition to the plaintiff’s suit, the defendant filed a statement of defence dated 4th July 2016 which was subsequently amended on 5th May 2022. The defendant denied all the averments in the plaintiff’s plaint. It averred that payment to the plaintiff was expressly conditional on certification by the Project Manager Nairobi Water & Sewerage Company and Consulting Engineering Services (CES) Limited, as Resident Engineers/Agents of the third party. The defendant asserted that it is only after certification that the plaintiff’s claims could be included in the main contract’s payment certificate. The defendant claimed that the plaintiff failed to complete the works within the agreed timeframe, submitted a draft final statement of accounts improperly without the Project Manager’s certification and did not route its claim through the required channels. The defendant faulted the final statement of 18th June 2014 for Kshs.139,471,809.77 for being procedurally irregular.
5. The defendant contended that repeated requests were made, including a letter dated 29th December 2014 for the plaintiff to comply, but no properly certified final account was ever submitted. It was stated that since the plaintiff’s claim was not certified or approved by the Project Manager/Resident Engineers at the time of the defendant’s final statement, it was excluded from the final payment certificate issued to the third party. The defendant averred that it wrote to the third party on 19th April 2015 requesting that its final statement be processed excluding the plaintiff’s uncertified claim, which should instead be dealt with separately upon proper approval. That subsequently, the Resident Engineers confirmed that the plaintiff’s claim would have to be pursued directly with the third party. The defendant admitted prior payments made to the plaintiff and correspondence acknowledging part of the interest being Kshs.2,036,680.94 and USD 15,934.76, which sums it stated have always been available for collection.
6. The defendant vide an application dated 30th January 2017 and amended on 13th May 2022 sought for leave to issue a Third Party Notice against National Highways Authority (KENHA) which application was allowed in a Ruling delivered on 28th January 2020.
7. The third party in opposition to this suit filed a statement of defence dated 17th July 2017, which was subsequently amended on 12th April 2022. The third party denied the allegations contained in the Third Party Notice and averred that the defendant is not entitled to indemnity, contribution, or costs. It contended that there was no privity of contract between it and the plaintiff since the plaintiff’s claim is based on a July 2011 sub-contract between the plaintiff and the defendant, to which it was a stranger. It asserted that its only contract was with the Ministry of Roads dated 14th November 2008 for the Nairobi - Thika Road Lot 1: Nairobi City Arterial Connectors Contract No RD 0530.
8. The third party stated that it fully performed its obligations under the 2008 contract. It further stated that pursuant to Clause 60.14, its liability to the defendant was extinguished once the defendant submitted its final statement without including the plaintiff’s claim. It contended that for the said reason, the defendant has no cause of action against it. The third party asserted that even if indemnity was available, the defendant would first need to show that it actually paid the plaintiff’s claim, failure to which no indemnity or contribution can arise. It averred that the defendant submitted its final statement on 19th April 2015, confirmed by the Engineer APEC Limited.
9. The third party referred to Clause 60.11 of the 2008 contract which required the defendant to include all claims in the draft and final statements, subject to the Engineer’s verification and dispute resolution under Clause 67 of the contract. The third party emphasized that since the plaintiff’s claim was not included in the defendant’s final statement, it is barred under Clause 60.14 of the 2008 contract.
10. The above notwithstanding, the third party asserted that any claim for indemnity or contribution should have been referred to the Dispute Review Expert (DRE) and thereafter to arbitration under Clause 67 of the 2008 contract and UNCITRAL Rules. In addition, the third party stated that the defendant’s claim is barred by limitation as the plaintiff’s sum was certified on 18th June 2014. It further stated that under Section 67 of the Kenya Roads Act, 2007, the claim herein is also improperly before Court.
11. This matter proceeded to hearing where the plaintiff, the defendant and the third party each called one witness in support of their cases.
PLAINTIFF’S CASE.
12. Engineer James Macharia, the Managing Director of the plaintiff testified as PW1. He adopted his witness statement dated 8th March 2019 as his evidence-in-chief and produced the documents in the plaintiff’s list and bundle of documents dated 8th March 2019 as plaintiff exhibits No. 1 to 16, and the supplementary list and bundle of documents dated 9th May 2022 as plaintiff exhibits No. 17 & 18. He testified that the defendant was the main contractor for the Nairobi–Thika Road Lot 1 project (Contract No. RD 0530) and that the plaintiff was a nominated sub-contractor for the relocation of water and sewerage facilities under Quotation No. KeNHA/TW&S/Pk-2/2010-2011, pursuant to a Letter of Award issued by Consulting Engineering Services (India) Private Limited in association with APEC Ltd.
13. PW1 stated that under a contract executed between the parties in 2011, and later amended by an Addendum, the defendant engaged the plaintiff to relocate water and sewerage facilities along Thika Road. He further stated that the defendant undertook to pay the plaintiff based on the Engineer’s certification and funds received from the third party. PW1 testified that the plaintiff completed and handed over the works, which were certified by the Engineer at Kshs.326,777,632.64 on 18th June 2014. He indicated that by then, the defendant had paid Kshs.177,277,232.00, and the Engineer allowed a contractual deduction of Kshs.18,909,569.75. PW1 asserted that after deductions, the Engineer certified the amount due to the plaintiff at Kshs.130,596,830.89 as at 18th June 2014.
14. He testified that the contract provided for interest on delayed payments and since the defendant had delayed the payments, the Engineer computed and certified interest at Kshs.8,874,978.88, bringing the total certified sum to Kshs.139,471,809.77. He added that interim certificates had previously been processed by the Resident Engineer, Eng. E.M. Mugo, and approved by the overall Engineer. PW1’s evidence was that the final certificate was first submitted on 29th April 2014, and returned by the defendant on 28th May 2014 for lack of the Resident Engineer’s signature, and it was resubmitted on 11th June 2014 after approval by the Resident Engineer, and finally approved by the overall Engineer and forwarded to the defendant on 18th June 2014.
15. Engineer Macharia testified that despite certification and repeated demands, the defendant failed to pay the sums due. He stated that the defendant’s allegation that approval by the Technical Director, Nairobi Water and Sewerage Company was required, was unfounded, as all prior payments had been processed through the Resident Engineer acting on his behalf. He further testified that by a letter dated 12th October 2015, the defendant admitted owing the principal sum and part of the interest, and subsequently made a part-payment of USD 13,345.00 and Kshs.1,731,179.00 on 6th March 2017, which the plaintiff accepted. PW1 maintained that under the contract between the plaintiff and the defendant, the plaintiff was entitled to interest on delayed payments at a commercial rate of 24% p.a., as approved by the Engineer, and that this rate ought to apply to the certified sum from 18th June 2014 until full payment.
16. In cross-examination by Prof. Mumma (SC), learned Counsel for the third party, PW1 stated that Consulting Engineering Services (India) Limited supervised the Thika Superhighway project. He indicated that Clause 42.2 of the contract between the plaintiff and the defendant provided for interest, requiring the Project Manager to check the contractor’s monthly statement and certify the amount payable. He confirmed that the contract defined the Project Manager as the Technical Director, Nairobi City Water & Sewerage Company. PW1 referred to page 59 of the plaintiff’s bundle of documents, and pointed out a signature at the bottom of the certificate by the said Project Manager. PW1 further explained that next to the Project Manager’s signature on the certificate, it is noted “as per the letter dated 11th June 2014.”
17. He was referred to a letter at page 108 of the plaintiff’s bundle, which addressed interest on delayed payments and indicated that matters relating to additional works were handled directly by the client through the main contractor, China Wu Yi. He stated that in computing the interest due, reference ought to be made to that letter, and maintained that the plaintiff’s claim for interest runs from 14th June 2014 as reflected in the Engineer’s letter dated 18th June 2014.
18. In cross-examination by Mr. Ngatia (SC), learned Counsel for the defendant, Engineer Macharia testified that the plaintiff was appointed as a sub-contractor by the third party through the Engineer, but payment was to be made by the main contractor, China Wu Yi Company Limited, for works performed for the third party. He referred to the letter at page 108 of the plaintiff’s bundle of documents, which specifically addressed the plaintiff’s claim on interest and deductions and confirmed that a Report had been duly evaluated for payment.
19. PW1 outlined the payment process, being that the sub-contractor would submit an application to the supervising Engineer, who would issue a certificate to the main contractor’s Engineer; the main contractor would then include the sub-contractor’s payment in its request for payment, and the supervising Engineer would include the plaintiff’s payment.
20. PW1 referred again to the letter dated 18th June 2014 at page 56 of the plaintiff’s bundle of documents, confirming that it certified Kshs.139,471,809.77 as due to the plaintiff, which sum remains unpaid. He stated that the defendant has never disputed owing the plaintiff Kshs.130,000,000/= and that Judgment has since been entered for the plaintiff in the sum of Kshs.139,471,809.71. He testified that the main contractor was to receive funds from the third party to pay the sub-contractor, as they both served the same client. He added that Nairobi Water & Sewerage Company acted as the third party’s agent, and by a letter dated 24th July 2020, the defendant confirmed that the plaintiff’s payment had been approved by Nairobi Water & Sewerage Company, to avoid escalation of interest as per the letter dated 18th June 2014.
21. PW1 testified that under the contract between the plaintiff and the defendant, the defendant could not pay the plaintiff until it had received funds from the third party. He maintained that the certified sum of Kshs.139,471,809.71 was a shared obligation, in that Kshs.8,874,978.88 was owed by the defendant, while Kshs.130,596,830.89 was owed by the third party. He stated that Nairobi Water & Sewerage Company and APEC Limited, and not the defendant, were to certify completeness of the plaintiff’s work.
22. In re-examination, PW1 testified that Addendum No. 1 found at page 8 of the plaintiff’s bundle of documents, provided under Clause 2 of the General Conditions of Contract that the plaintiff’s payments were to be certified by the Engineer and received from the third party. He explained that the Engineer was APEC Limited, which prepared the letter dated 18th June 2014, and that Mr. Mugo of Nairobi Water & Sewerage Company certified the plaintiff’s payment application at page 59 of the plaintiff’s bundle of documents, which was also signed by the overall Engineer. He maintained that the plaintiff had a contract with the defendant, not directly with the third party, whose involvement was by implication. He asserted that the defendant was under an obligation to pay the plaintiff upon receipt of funds from the third party.
DEFENDANT’S CASE.
23. Mr. Luo Zicheng, the defendant’s Deputy General Manager testified as DW1. His evidence was that the plaintiff was appointed by the third party to relocate water and sewerage facilities in the Nairobi - Thika Highway Project Lot 1 (Haile Selassie Avenue to Pangani Roundabout), while the defendant was the main contractor. He stated that payment to the plaintiff was the responsibility of the third party, based on certificates issued by the Engineer, Consulting Engineering Services (India) Private Limited in association with APEC Limited. He testified that once the Engineer certified satisfactory work, he would forward the certificate to the defendant, which would then prepare an interim payment certificate and resubmit it to the Engineer for evaluation and verification before it was sent to the third party. The third party would thereafter pay the defendant, who would in turn pay the plaintiff.
24. Referring to the final statement dated 18th June 2014, DW1 testified that Kshs.130,596,830.89 was payable to the plaintiff by the third party, while Kshs.8,800,000/= was payable by the defendant. He maintained that the defendant had already settled its portion, leaving the outstanding sum of Kshs.130,596,830.89, which remains unresolved. He confirmed that the Resident Engineer verified the total obligations at Kshs.139,471,809.77 as due from the third party to both the contractor and the sub-contractor. DW1 testified that the letter dated 18th June 2014 was a formal statement showing the balance of Kshs.130,596,830.89 due from the third party to the contractor, being the plaintiff. He indicated that the letter further showed that Kshs.8,874,978.88 was owed by the defendant to the plaintiff as interest for delayed payment of earlier certificates under Clause 43.1 of the sub-contract.
25. Mr. Zicheng stated that the final value of works was Kshs.326,777,632.64, from which the Engineer deducted Kshs.177,277,232.00 already paid to the plaintiff, leaving Kshs.149,500,400.64. He testified that a further deduction of Kshs.18,903,569.75, being sums due to the employer under the sub-contract (excluding liquidated damages) was effected, leaving a balance of Kshs.130,596,830.89. DW1 added that although the letter dated 18th June 2014 was copied to the third party and the Chief Resident Engineer, Lot 1, Eng. H. Ramesh, it was never responded to. He maintained that the defendant cannot settle the sum of Kshs.130,596,830.89 and urged the Court to determine who is liable for the debt.
26. In cross-examination by Prof. Mumma (SC), learned Counsel for the third party, DW1 testified that the defendant had a contract with the third party dated 14th November 2008, which allowed for nominated sub-contractors. That pursuant to the said contract, the defendant entered into a sub-contract with the plaintiff on 25th July 2011 for relocation of sewerage works. He testified that Addendum No. 1 introduced two Clauses, sub-clause 11 on employer’s risks and sub-clause 3 which provided that such risks shall be borne by Athi Water Services Board. He stated that Clause 42 required the contractor to submit monthly statements to the Project Manager, while sub-clause 42.7 (introduced by the addendum) provided that the plaintiff’s payments would only be made upon certification by the Engineer and receipt of funds from the third party. DW1 testified that in order for the defendant to be paid, it had to comply with the seven steps under Clause 42 and the additional sub-clause 42.7.
27. He referred to Clause 1.22 of the contract which defined the Project Manager as the person named in the contract data, or any replacement appointed by the employer, responsible for supervising works and administering the contract. He indicated that Clause 1.6 identified the employer as the defendant and the Project Manager as the Technical Director, Nairobi City Water & Sewerage Company. He explained that Clause 42 required the Project Manager to certify the value of the work done, while the Project Engineer’s role arose only at the final stage of the process. He observed that the letter dated 18th June 2014 was authored by Engineer P.K. Sateesh of Consulting Engineering Services (India) Private Limited, the Resident Engineer, rather than the Technical Director of Nairobi City Water & Sewerage Company. He indicated that Engineer Sateesh was responsible for supervising the road works, not the relocation of water and sewerage pipes, and would therefore act only after the Project Manager had performed his role.
28. DW1 referred to a letter at page 46 of the third party’s documents in which the defendant informed Consulting Engineering Services (India) Private Limited in association with APEC Limited that delays by the Project Manager, Nairobi City Water & Sewerage Company, had hindered approval of the plaintiff’s final statement, thereby impeding the Main Contractor and Engineer in discharging obligations to the employer. He stated that as at 19th April 2015, the plaintiff’s final account remained unapproved and was redirected to the Resident Engineer (Relocation) for scrutiny and recommendation for approval of the same by the Engineer and employer. He indicated that the said letter which also referred to the 18th June 2014 final statement, further requested that under sub-clause 60.11 of the contract, the final account be finalized without the alleged claim amount of the sub-contractor, to be dealt with separately in accordance with the provisions of the agreement, and upon the Project Manager’s recommendation. He emphasized that the Project Manager had not certified the final account.
29. DW1 also referred to a letter dated 21st April 2015 at page 48 of the third party’s documents, from Consulting Engineering Services (India) Private Limited to the third party’s General Manager (Design & Construction), recommending final payment. He testified that the said letter was also copied to the Team Leader and the Chief Resident Engineer, informing everyone that the final payment certificate had been issued. He explained that under Clause 57 of the sub-contract, the contractor was required to submit a detailed account of the total amount payable before expiry of the defects liability period to the Project Manager, he explained that the letter at page 53 of the third party’s documents stated that the plaintiff’s final account had not been properly received, as it was submitted to the defendant directly rather than through the required channel, and it included only EOT-related costs amounting to Kshs.125,633,429.02, with no work executed.
30. He testified that the letter further indicated that under sub-clause 60.11 of COPA, the defendant’s final account had been settled without the plaintiff’s alleged claim, which could be addressed separately in accordance with the provisions of the sub-contract and upon the Project Manager’s recommendation. That consequently, the Resident Engineer recommended payment to the defendant without including the plaintiff’s final account. Mr. Zicheng testified that Clause 60.10 of the main contract provided for Takeover Certificates, while Clause 60.11 required the contractor to submit a draft final statement to the Engineer within 56 days after issuance of the defects liability certificate under sub-clause 62.1. He stated that the Resident Engineer issued a discharge confirming the final statement. Referring to Clause 60.14, DW1 noted that the employer would not be liable for any claims unless included in the final statement. He added that by a letter dated 12th June 2014, the plaintiff re-submitted its updated outstanding amount duly signed by the Resident Engineer, Relocation of Services, for the defendant’s action.
31. DW1 referred to page 29 of the plaintiff’s bundle where Consulting Engineering Services (India) Private Limited, in association with APEC Limited, informed the plaintiff of the Award of Contract valued at Kshs.166,576,254.87, while at page 59 the amount certified as at 30th April 2014 was Kshs.177,277,232.00. He testified that the defendant was not obliged to include the plaintiff’s final account since the plaintiff had not complied with the sub-contract procedure, which remained unfulfilled at the time of his testimony. He confirmed knowledge of the consent entered into on 21st May 2019 and stated that by a letter dated 24th July 2020, the defendant informed the third party that there was no dispute on the principal amount due to the plaintiff, leading to a Judgment for Kshs.139,471,809.77. He added that delays in payment arose from delays in approvals by the Technical Director, Nairobi Water & Sewerage Services.
32. During cross-examination by Mr. Njuguna, learned Counsel for the plaintiff, DW1 stated that certification of payments was done by Consulting Engineering Services (India) Private Limited in association with APEC Limited, after which the defendant incorporated the certified payments as its own. He explained that the plaintiff applied for payment, which upon certification by the Engineer, became a payment certificate. He added that Addendum No. 1 amended Clause 43 by introducing Clause 43.7, designating the plaintiff as the contractor and the said Engineers as certifiers, whereas before the amendment, certification was by the Project Manager.
33. He clarified that applications for payment were addressed to the appointed Project Engineer. DW1 reiterated that Clause 42.7 of the sub-contract, introduced by Addendum No. 1, provided that payments to the sub-contractor would be based on certificates issued by the Resident Engineer as the representative of the third party, and received from the third party. Mr. Zicheng confirmed that the Addendum was signed by the Resident Engineer and the defendant’s Project Manager. He explained that while initially certificates were issued by the Project Manager, the Addendum transferred the said role to the Resident Engineer, therefore the letter dated 18th June 2014 was consistent with the Addendum and approved the plaintiff’s final statement.
34. He maintained that the defendant remitted Kshs.8,874,978.88 due to the plaintiff on 19th September 2023. DW1 stated that under Clause 43.1 of the sub-contract, payments were due within 28 days of certification, meaning that the plaintiff’s final account certified on 18th June 2014 ought to have been paid by 16th July 2014, failure to which interest would accrue at prevailing commercial rates. He confirmed that this applied to the Kshs.8,874,978.88 due from the defendant. He maintained that the Kshs.130,596,830.89 was payable to the plaintiff only upon receipt from the third party. Referring to Engineer Cherono’s statement dated 16th May 2022, DW1 acknowledged the sum was payable but could not confirm if the defendant received it, adding that if paid, the defendant would have no claim against the third party.
35. In re-examination, DW1 confirmed that the letter dated 18th June 2014 specified amounts due to the plaintiff from both the defendant and the third party. He stated that the defendant did not deny its indebtedness and had paid Kshs.8,874,078.88 to the plaintiff. Referring to paragraph 17 of Engineer Cherono’s statement, he noted mention of Kshs.999,123,390.00 reimbursed for relocation of utilities executed during DLP under BOQ item No. 1.15, but stated that he was unaware if the Kshs.130,596,830.89 formed part of that sum.
THIRD PARTY’S CASE
36. Mr. Daniel Sacho Cherono, the third party’s Director of Maintenance testified as DW2. He adopted his witness statement dated 16th May 2022 as his evidence in chief and produced the documents on the third party’s bundle of documents dated 12th May 2022 as the third party’s exhibit Nos. 1 to 5. He testified that the Chief Resident Engineer nominated by the third party directly supervised the project. He added that since some utilities along the Nairobi - Thika Road required removal under the supervision of Nairobi Water & Sewerage Company, the company was requested to nominate a Project Manager to certify and supervise the relocation of those works. He explained that upon certification by the Nairobi Water & Sewerage Company, the defendant was to pay the plaintiff, and thereafter seek reimbursement from the third party, subject to certification by the third party Consulting Engineers.
37. Mr. Cherono stated that the plaintiff’s claim of Kshs.125,633,429.03 in the final payment certificate lacked supporting documents and certification from the Nairobi Water & Sewerage Company Project Manager, hence payment could not be effected. He referred to the defendant’s letter of 19th April 2015 to the Engineer submitting the defendant’s final statement to the Consulting Engineer, excluding the plaintiff’s claim of Kshs.125,633,429.02 due to lack of approval by the Nairobi Water & Sewerage Company. He testified that in the same letter, the defendant requested that the final statement be finalized without the plaintiff’s claim, citing unconscionable delays and asked that the claim be dealt with separately under the sub-contract, upon recommendation of the Nairobi Water & Sewerage Company Project Manager.
38. Mr. Cherono claimed that from the foregoing, the third party understood that the defendant relinquished reimbursement rights for the plaintiff’s claim and asked the third party to proceed with final payments without further claims, which was confirmed in the Engineer’s letter of 21st April 2015 to the third party, which stated that the defendant’s final statement had been finalized without the sub-contractor’s claim, which could be dealt with separately under the sub-contract upon the Nairobi Water & Sewerage Company’s recommendation. He stated that all payments under certificate No. 32 were fully made and once the final certificate was signed by the Resident Engineer, no further payments were due as the third party’s liability was extinguished in accordance with Clause 60.14 of the main contract. He asserted that there was no outstanding claim in the final statement as the defendant opted to exclude the plaintiff’s sums.
39. Mr. Cherono emphasized that since the third party was not a party to the sub-contract, it bore no role in settling disputes arising therefrom. He referred to the Engineer’s letter of 18th June 2021 confirming that Kshs.130,596,830.89 for relocation of services was payable under BOQ 1.15. DW2 testified that the aforesaid sum was paid, yet the defendant now wrongly alleges otherwise. He cited the Engineer’s letter of 21st April 2015 confirming reimbursement of Kshs.991,123,390 for relocation of utilities under BOQ 1.15. 18. He added that under Clause 60.11 of the contract, disputes over the final statement were to be referred to the Dispute Review Expert and arbitration under UNCITRAL Rules.
40. He asserted that the defendant caused the delay in settling the plaintiff’s claim and should bear any interest payable under the sub-contract. He contended that there is no triable issue on the third party’s liability, as the plaintiff’s claim did not arise from any act or omission by the third party.
41. In cross-examination by Mr. Njuguna, learned Counsel for the plaintiff, DW2 confirmed that the third party was not a signatory to the contract between the defendant and the plaintiff. He stated that the defendant’s work for the third party was satisfactorily completed, part of which had been sub-contracted to the plaintiff. He noted that the Project Manager in the plaintiff - defendant contract was jointly appointed by those parties. He acknowledged that the third party paid several certificates over time. Referring to page 95 of the plaintiff’s bundle of documents,
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