1. This is an appeal from the judgment delivered on 16th May 2023, Nairobi CMCC Commercial Suit Number E204 of 2021, in which the court allowed the 1st Respondent’s claim of Kshs. 9,817,079.20 against both the Appellant and the 2nd Respondent, jointly and severally.
2. The background of the dispute is that the 1st Respondent instituted a suit against the Appellant and 2nd Respondent in the Magistrates Court in Nairobi CMCC Commercial Suit Number E204 of 2021 vide a plaint dated 22/2/2021 whereby it sought special damages of Kshs.9,817,079.20 plus interest and costs of the suit.
3. After hearing the suit, Honourable H.M. Nganga, Principal Magistrate, entered judgment in favour of the 1st Respondent, awarding it special damages of Kshs.9,817,079.20 plus interest and costs to be paid jointly by the Appellant and the 2nd Respondent.
4. The Appellant, being dissatisfied with the aforementioned judgement, appealed against the whole of it on the following grounds as set out in its memorandum of appeal dated 7/6/2023:
“1. The Learned Magistrate erred in fact and in law in failing to hold that the Appellant was not a party to the finance agreement which the 1st Respondent was seeking to enforce and as such it could not be liable for the sums claimed by the 1st Respondent.
2. The Learned Magistrate erred in fact and in law in failing to hold that of the two delivery notes produced in evidence by the 1st Respondent, one of them predated the Finance Agreement, the very basis of the 1st Respondents claim and as such, the claim by the 1st Respondent against the Appellant was unsustainable.
3. The Learned Magistrate went against the weight of evidence which was in favour of the Appellant particularly with regard to whom the goods/services were delivered to, the evidence tendered clearly indicating that the goods were delivered to the 2nd Respondent by the 1st Respondent.
4. The Learned Magistrate erred in fact and in law in failing to hold that as the conditions precedent for the Appellant to make any payment to the 1st Respondent had not crystallized/Matured, the Appellant had no obligation to make payments to the 1st Respondent.
5. The Learned Magistrate erred in law and in fact in shifting the burden of proof on the issue as to whether payment had been made to the Appellant with respect to the goods/services rendered to the Appellant.”
5. Based on the foregoing, the Appellant prayed for an order to have the appeal allowed with costs, that the judgment of the trial court be set aside, and be substituted with an order of this Court dismissing the appeal suit against it.
6. The appeal was canvassed by way of written submissions. The Appellant filed its submissions dated 6/11/2024. The Respondent’s submissions are dated 13/11/2024.
Analysis and determination:
7. I have carefully considered the Appellant’s record of appeal dated 25th September 2024. In my view, the primary issue for determination is whether the parties entered into a binding tripartite agreement dated 23rd November 2018, and if so, whether there was a breach of that agreement by the Appellant.
8. The 1st Respondent’s position before the lower court was that the parties had entered into a tripartite financing agreement for structured cabling works at Nyayo National Stadium, dated 23rd November 2018. The Appellant, however, contended that it was not a party to the said agreement.
9. I have examined the agreement in question, which is found at pages 11 to 14 of the record of appeal. It is indeed a financing agreement for structured cabling works at Nyayo National Stadium and was executed between the 1st and 2nd Respondents. Notably, a representative of the Appellant signed the agreement in the capacity of a witness.
10. The Agreement provided in part as follows: -
“CONTENTS OF THE AGREEMENT
That Markem Limited has appointed Kabonyo Agencies as a subcontractor for the Structured Cabling Works and is thereby aware and approves the intention of the latter to incorporate Nexgen Technologies Limited to Nyayo Stadium Structured Cabling Project as a financier subject to the terms and conditions stated herein and the works schedule to be agreed between Kabonyo Agencies and Markem Limited. In this respect we confirm your (Kabonyo Agencies) appointment to undertake structured cabling works on a supply and fix basis at the Nyayo National Stadium as per your BoQ sum total of Kshs. 22,574,574.40 (Kenya Shillings Twenty Two Million, Five Hundred and Seventy Four Thousand, Five Hundred and Seventy Four and Fourty Cents), details of which are enclosed herein.) and referenced LPO NO.OCT/NYAYO/2017/010.”
11. The agreement further provides that:-
“That Nexgen Technologies Limited has agreed to finance Kabonyo Agencies for the structured cabling works at Nyayo National Stadium.
The agreement is as follows:
Nexgen Technologies Limited has agreed to the following.
● To finance Kabonyo Agencies to undertake works that are part of the Nyayo National Stadium structured cabling project wholly.
Kabonyo Agencies has agreed to the following:
● That invoices raised by Nexgen Technologies Limited are subject to review and or revision by Markem Limited before submission for payment to the Client,
● That the invoices raised with the Client are subject to review and revision by the Project Electrical Engineer, for the time being the Chief Engineer (Electrical), State Department of Public Works, Ministry of Transport, Infrastructure, Housing and Urban Development and the Client; the outcome and duration of such review and revision being beyond the control of Markem Limited;
● That Markem Limited will pay Nexgen Technologies Limited such monies as reviewed and or revised as stated above and upon receipt of the reviewed and or revised monies from the client.”
12. A plain reading of the terms of the agreement, as produced above, indicates that all three parties herein were involved in the agreement, and that the contract was prepared and executed with the knowledge, approval, and for the benefit of the Appellant.
13. The doctrine of privity of contract posits that a contract only creates legal obligations and rights between the parties who signed it, and that a third party cannot sue to enforce the contract's terms, even if the contract was intended to benefit them. See the case of Aineah Liluyani Njirah v Aga Khan Health Services [2013] eKLR, where the Court of appeal stated that:-
“Privity of contract is a long-established part of the law of contract. In the earlier part of the last century, it was identified by Viscount Haldane LC as one of the fundamental principles of the English Contract Law. See Dunlop Pneumonic Tyre v. Selfridge and Co. Ltd. The essence of the privity rule is that only the people who actually negotiated a contract (who are privy to it) are entitled to enforce its terms. Even if a third party is mentioned in the contract, he cannot enforce any of its terms nor have any burdens from that contract enforced against him.”.
14. However, there exist several exceptions where a third party can enforce or be bound by a contract. Some of these exceptions include where there exists an agency relationship and where contracts are made for the benefit of third parties. On these exceptions, the Court of Appeal in the case of Aineah Liluyani Njirah v Aga Khan Health Services (supra) stated that: -
“More fundamentally, however, when the contracting parties intend to give a right of enforcement to a third party, “it is difficult to see how it can be said that effect is given to that intention by allowing the promisee, but not the third party, to sue...where an unjust or illogical result is caused by the privity rule (Emphasis supplied). It would surely be much simpler and clearer to give effect to the intentions of the contracting parties by allowing the third party to enforce the contract….
There are now many exceptions to the privity rule, both at common law and in the statute books. They developed in an ad hoc fashion as a response to specific situations where the courts or the legislatures ascertained a need to grant third parties the right to enforce a contract made for their benefit. Second, a third party should be able to enforce a term of the contract when the contract expressly states that the third party has a right of enforcement, regardless of whether or not the contract benefits the third party. Third, the third party should have a right to rely on a term of a contract which excludes or limits the liability of the third party, provided that was the intention of the parties…”
15. In the present case, the contract having been made for the benefit of the Appellant, the Appellant equally had obligations under the contract. In fact, it is apparent from the contract that it is the Appellant who was to make the payments to the other parties to the agreement upon the Appellant being paid by its client. This is expressly acknowledged by the Appellant in its submissions herein as follows: -
“12. The provisions of the Finance Agreement expressly state that the Appellant would only pay the 1st Respondent upon receipt of the monies from the client, whom the 1st Respondent indicated was Sports Kenya. He could not demonstrate that money had been received by the Appellant. Nor did the 1st Respondent call Sports Kenya as a witness to confirm that monies had been received by the Appellant for the project for onward transmission to him.
16. In the premises, it is therefore the finding of this Court that the lower court did not err in reaching the conclusion that the agreement dated 23rd November 2018 was a tripartite contract between the parties herein.
17. Having found that the Appellant had obligations under the agreement dated 23rd November 2018, the next question for this court’s determination is whether there was a breach of the agreement on the part of the Appellant.
18. From the record of appeal, it is evident that the 1st Respondent undertook the obligation to finance the project, a fact that the Appellant did not dispute. Further, neither the Appellant nor the Contracting Authority denied that the project was executed to completion. Notably, no notice of defective works was issued to any of the parties, indicating acceptance of the completed works.
19. The 1st Respondent asserted that, despite having fully performed its obligations under the agreement, it had not been paid by either the Appellant or the 2nd Respondent. In response, the Appellant contended that, even assuming the agreement was binding, it had not received any payments from the ‘Client’ and was therefore not in a financial position to remit payments to the 1st Respondent. The Appellant further argued that the agreement expressly provided that payments to the 1st Respondent would only be effected upon receipt of funds from the Client.
20. This Court notes that, although the Appellant denied having received any payments from the Client (Sports Kenya), it failed to provide any evidence in support of that assertion. As the main contractor in the project, the Appellant bore the burden of proving that no payments had been received in respect of the works, particularly in light of the 1st Respondent’s claim to the contrary.
21. In the premises, this Court concurs with the finding of the lower court that the evidence established that the parties had entered into a binding agreement, that the Appellant had an obligation to make payments to the 1st Respondent for the work done.
22. Accordingly, this Court finds that the appeal is devoid of merit and is hereby dismissed with costs to the 1st Respondent.
23. It is so ordered.
SIGNED DATED and DELIVERED IN VIRTUAL COURT THIS
19TH DAY OF JUNE 2025
ADO MOSES
JUDGE
In the presence of: -
C/A – Moses
………………………..for the Appellant
….………………………....for the Respondent
2. The background of the dispute is that the 1st Respondent instituted a suit against the Appellant and 2nd Respondent in the Magistrates Court in Nairobi CMCC Commercial Suit Number E204 of 2021 vide a plaint dated 22/2/2021 whereby it sought special damages of Kshs.9,817,079.20 plus interest and costs of the suit.
3. After hearing the suit, Honourable H.M. Nganga, Principal Magistrate, entered judgment in favour of the 1st Respondent, awarding it special damages of Kshs.9,817,079.20 plus interest and costs to be paid jointly by the Appellant and the 2nd Respondent.
4. The Appellant, being dissatisfied with the aforementioned judgement, appealed against the whole of it on the following grounds as set out in its memorandum of appeal dated 7/6/2023:
“1. The Learned Magistrate erred in fact and in law in failing to hold that the Appellant was not a party to the finance agreement which the 1st Respondent was seeking to enforce and as such it could not be liable for the sums claimed by the 1st Respondent.
2. The Learned Magistrate erred in fact and in law in failing to hold that of the two delivery notes produced in evidence by the 1st Respondent, one of them predated the Finance Agreement, the very basis of the 1st Respondents claim and as such, the claim by the 1st Respondent against the Appellant was unsustainable.
3. The Learned Magistrate went against the weight of evidence which was in favour of the Appellant particularly with regard to whom the goods/services were delivered to, the evidence tendered clearly indicating that the goods were delivered to the 2nd Respondent by the 1st Respondent.
4. The Learned Magistrate erred in fact and in law in failing to hold that as the conditions precedent for the Appellant to make any payment to the 1st Respondent had not crystallized/Matured, the Appellant had no obligation to make payments to the 1st Respondent.
5. The Learned Magistrate erred in law and in fact in shifting the burden of proof on the issue as to whether payment had been made to the Appellant with respect to the goods/services rendered to the Appellant.”
5. Based on the foregoing, the Appellant prayed for an order to have the appeal allowed with costs, that the judgment of the trial court be set aside, and be substituted with an order of this Court dismissing the appeal suit against it.
6. The appeal was canvassed by way of written submissions. The Appellant filed its submissions dated 6/11/2024. The Respondent’s submissions are dated 13/11/2024.
Analysis and determination:
7. I have carefully considered the Appellant’s record of appeal dated 25th September 2024. In my view, the primary issue for determination is whether the parties entered into a binding tripartite agreement dated 23rd November 2018, and if so, whether there was a breach of that agreement by the Appellant.
8. The 1st Respondent’s position before the lower court was that the parties had entered into a tripartite financing agreement for structured cabling works at Nyayo National Stadium, dated 23rd November 2018. The Appellant, however, contended that it was not a party to the said agreement.
9. I have examined the agreement in question, which is found at pages 11 to 14 of the record of appeal. It is indeed a financing agreement for structured cabling works at Nyayo National Stadium and was executed between the 1st and 2nd Respondents. Notably, a representative of the Appellant signed the agreement in the capacity of a witness.
10. The Agreement provided in part as follows: -
“CONTENTS OF THE AGREEMENT
That Markem Limited has appointed Kabonyo Agencies as a subcontractor for the Structured Cabling Works and is thereby aware and approves the intention of the latter to incorporate Nexgen Technologies Limited to Nyayo Stadium Structured Cabling Project as a financier subject to the terms and conditions stated herein and the works schedule to be agreed between Kabonyo Agencies and Markem Limited. In this respect we confirm your (Kabonyo Agencies) appointment to undertake structured cabling works on a supply and fix basis at the Nyayo National Stadium as per your BoQ sum total of Kshs. 22,574,574.40 (Kenya Shillings Twenty Two Million, Five Hundred and Seventy Four Thousand, Five Hundred and Seventy Four and Fourty Cents), details of which are enclosed herein.) and referenced LPO NO.OCT/NYAYO/2017/010.”
11. The agreement further provides that:-
“That Nexgen Technologies Limited has agreed to finance Kabonyo Agencies for the structured cabling works at Nyayo National Stadium.
The agreement is as follows:
Nexgen Technologies Limited has agreed to the following.
● To finance Kabonyo Agencies to undertake works that are part of the Nyayo National Stadium structured cabling project wholly.
Kabonyo Agencies has agreed to the following:
● That invoices raised by Nexgen Technologies Limited are subject to review and or revision by Markem Limited before submission for payment to the Client,
● That the invoices raised with the Client are subject to review and revision by the Project Electrical Engineer, for the time being the Chief Engineer (Electrical), State Department of Public Works, Ministry of Transport, Infrastructure, Housing and Urban Development and the Client; the outcome and duration of such review and revision being beyond the control of Markem Limited;
● That Markem Limited will pay Nexgen Technologies Limited such monies as reviewed and or revised as stated above and upon receipt of the reviewed and or revised monies from the client.”
12. A plain reading of the terms of the agreement, as produced above, indicates that all three parties herein were involved in the agreement, and that the contract was prepared and executed with the knowledge, approval, and for the benefit of the Appellant.
13. The doctrine of privity of contract posits that a contract only creates legal obligations and rights between the parties who signed it, and that a third party cannot sue to enforce the contract's terms, even if the contract was intended to benefit them. See the case of Aineah Liluyani Njirah v Aga Khan Health Services [2013] eKLR, where the Court of appeal stated that:-
“Privity of contract is a long-established part of the law of contract. In the earlier part of the last century, it was identified by Viscount Haldane LC as one of the fundamental principles of the English Contract Law. See Dunlop Pneumonic Tyre v. Selfridge and Co. Ltd. The essence of the privity rule is that only the people who actually negotiated a contract (who are privy to it) are entitled to enforce its terms. Even if a third party is mentioned in the contract, he cannot enforce any of its terms nor have any burdens from that contract enforced against him.”.
14. However, there exist several exceptions where a third party can enforce or be bound by a contract. Some of these exceptions include where there exists an agency relationship and where contracts are made for the benefit of third parties. On these exceptions, the Court of Appeal in the case of Aineah Liluyani Njirah v Aga Khan Health Services (supra) stated that: -
“More fundamentally, however, when the contracting parties intend to give a right of enforcement to a third party, “it is difficult to see how it can be said that effect is given to that intention by allowing the promisee, but not the third party, to sue...where an unjust or illogical result is caused by the privity rule (Emphasis supplied). It would surely be much simpler and clearer to give effect to the intentions of the contracting parties by allowing the third party to enforce the contract….
There are now many exceptions to the privity rule, both at common law and in the statute books. They developed in an ad hoc fashion as a response to specific situations where the courts or the legislatures ascertained a need to grant third parties the right to enforce a contract made for their benefit. Second, a third party should be able to enforce a term of the contract when the contract expressly states that the third party has a right of enforcement, regardless of whether or not the contract benefits the third party. Third, the third party should have a right to rely on a term of a contract which excludes or limits the liability of the third party, provided that was the intention of the parties…”
15. In the present case, the contract having been made for the benefit of the Appellant, the Appellant equally had obligations under the contract. In fact, it is apparent from the contract that it is the Appellant who was to make the payments to the other parties to the agreement upon the Appellant being paid by its client. This is expressly acknowledged by the Appellant in its submissions herein as follows: -
“12. The provisions of the Finance Agreement expressly state that the Appellant would only pay the 1st Respondent upon receipt of the monies from the client, whom the 1st Respondent indicated was Sports Kenya. He could not demonstrate that money had been received by the Appellant. Nor did the 1st Respondent call Sports Kenya as a witness to confirm that monies had been received by the Appellant for the project for onward transmission to him.
16. In the premises, it is therefore the finding of this Court that the lower court did not err in reaching the conclusion that the agreement dated 23rd November 2018 was a tripartite contract between the parties herein.
17. Having found that the Appellant had obligations under the agreement dated 23rd November 2018, the next question for this court’s determination is whether there was a breach of the agreement on the part of the Appellant.
18. From the record of appeal, it is evident that the 1st Respondent undertook the obligation to finance the project, a fact that the Appellant did not dispute. Further, neither the Appellant nor the Contracting Authority denied that the project was executed to completion. Notably, no notice of defective works was issued to any of the parties, indicating acceptance of the completed works.
19. The 1st Respondent asserted that, despite having fully performed its obligations under the agreement, it had not been paid by either the Appellant or the 2nd Respondent. In response, the Appellant contended that, even assuming the agreement was binding, it had not received any payments from the ‘Client’ and was therefore not in a financial position to remit payments to the 1st Respondent. The Appellant further argued that the agreement expressly provided that payments to the 1st Respondent would only be effected upon receipt of funds from the Client.
20. This Court notes that, although the Appellant denied having received any payments from the Client (Sports Kenya), it failed to provide any evidence in support of that assertion. As the main contractor in the project, the Appellant bore the burden of proving that no payments had been received in respect of the works, particularly in light of the 1st Respondent’s claim to the contrary.
21. In the premises, this Court concurs with the finding of the lower court that the evidence established that the parties had entered into a binding agreement, that the Appellant had an obligation to make payments to the 1st Respondent for the work done.
22. Accordingly, this Court finds that the appeal is devoid of merit and is hereby dismissed with costs to the 1st Respondent.
23. It is so ordered.
SIGNED DATED and DELIVERED IN VIRTUAL COURT THIS
19TH DAY OF JUNE 2025
ADO MOSES
JUDGE
In the presence of: -
C/A – Moses
………………………..for the Appellant
….………………………....for the Respondent