Background and Introduction
1. The plaintiff instituted this suit on 15th April 2019 against the defendant, seeking special damages of Kshs. 612,306,077.60, general damages for breach of contract, interest at commercial rates, and costs.
2. The plaintiff alleges that it entered into an Accounting Services Agreement with the defendant, through its then Chief Executive Officer, whereby the defendant was engaged to provide accounting and tax agency services. These services were said to include the computation of tax obligations, advising the plaintiff of the same via email, and remitting the appropriate taxes to the Kenya Revenue Authority (KRA) upon receipt of the requisite funds from the plaintiff.
3. The plaintiff contends that it paid a total of Kshs. 222,920,044.85 to the defendant under this arrangement. However, it later discovered that the taxes had not been remitted to KRA, and that the defendant had allegedly issued falsified receipts purporting to originate from the KRA online portal. This fraud allegedly came to light in November 2018 when KRA summoned the plaintiff’s senior management and informed them that the company had failed to meet its tax obligations. KRA had issued prior demand letters in May 2018 to the plaintiff’s Chief Executive Officer and Chief Finance Officer.
4. The plaintiff further asserts that the defendant’s actions amounted to fraud and a material breach of contract, exposing it to investigation by KRA for criminal tax violations and resulting in reputational harm and business disruption. Despite issuing a notice of intention to sue, the defendant allegedly failed to take remedial steps.
5. In its statement of defence dated 13th August 2019, the defendant denies the alleged contractual obligations and states that its role was limited to financial consultancy. It denies receiving the claimed sum or issuing any KRA receipts. The defendant puts the plaintiff to strict proof of its allegations.
6. At the hearing each party called one witness. PW1, SHANE LEAHY, testified as the plaintiff’s Group CEO and Director of its local operations. DW1, PETER KIGUTA WERU, testified on behalf of the defendant. Their testimonies largely restated the parties' positions as summarized above and will be considered within the context of the issues framed for determination.
Analysis and Determination
7. The court identifies the following issues for determination:
i. Whether the defendant was contracted to render tax agency services;
ii. Whether the defendant received Kshs. 222,920,044.85 from the plaintiff for tax remittance;
iii. Whether the defendant breached the contract;
iv. Whether the plaintiff is entitled to the reliefs sought.
i. Whether the defendant was contracted to render tax agency services:
8. The plaintiff alleges that the defendant was retained as its tax agent, with obligations to compute, advise, and remit taxes to KRA. The defendant admits to a contractual relationship but maintains that it was limited to financial consultancy.
9. PW1 testified that the plaintiff would remit tax amounts to the defendant for onward payment to KRA. However, he admitted that no written agreement existed to that effect. DW1 confirmed that there was an informal arrangement in 2018, under which the defendant earned a 5% commission for providing general financial consultancy services, particularly in the betting industry. He expressly denied undertaking any tax agency or remittance functions and stated that the defendant was not licensed as a tax agent under the Tax Procedures Act.
10. While contractual obligations can arise from oral agreements or the conduct of parties, the court finds that the plaintiff did not tender sufficient evidence to establish that the defendant had assumed any responsibility for tax computation or remittance. Payment slips produced by the plaintiff did not show any link to the defendant. Moreover, the slips bore no identifiers connecting them to the defendant and appeared to be addressed to the plaintiff. The plaintiff also failed to produce any communication or documentation showing instructions to the defendant to handle tax matters.
11. In the absence of a written contract or corroborating evidence establishing an agency relationship, the court finds that the plaintiff has not proved the existence of a binding obligation on the defendant to act as a tax agent.
ii: Whether the defendant received Kshs. 222,920,044.85 from the plaintiff:
12. The plaintiff claims to have paid Kshs. 222,920,044.85 to the defendant for tax remittance. It alleges that the defendant provided falsified KRA receipts as confirmation of payment.
13. PW1 stated that the false tax receipts were received from the defendant, but admitted that there was no documentary proof linking the defendant to the issuance of the receipts. The receipts bore the name of a Mr. Dennis Shijenje, whom PW1 could not identify as an employee, agent, or associate of the defendant. No evidence was presented to show that the bank purportedly used for the remittances, Standard Chartered Bank, had not processed the transactions.
14. DW1, on the other hand, denied receiving the claimed sum and maintained that any payments made by the plaintiff were for consultancy services. He disassociated the defendant from the KRA receipts and tax remittance responsibilities.
15. The plaintiff did not produce bank statements, remittance instructions, or correspondence to prove that the funds were transmitted to or handled by the defendant for tax purposes. Neither was there evidence establishing that the defendant issued the KRA receipts or orchestrated the alleged fraud.
16. Under Section 107(1) of the Evidence Act, the burden of proof lies on the party who desires the court to give judgment as to any legal right or liability dependent on the existence of facts which they assert. In this case, it was the plaintiff’s burden to prove, on a balance of probabilities, that the defendant received and misappropriated the funds. Section 108 further provides that the burden lies on the person who would fail if no evidence were given on either side.
17. Since the plaintiff failed to adduce sufficient documentary or testimonial evidence to support their claims, they did not discharge this legal burden. The absence of direct or circumstantial evidence linking the defendant to the alleged fraudulent acts or to the issuance of the KRA receipts significantly weakened the plaintiff’s case.
18. Accordingly, the court finds that the plaintiff has not proved, on a balance of probabilities, that the defendant received the claimed amount or that the receipts originated from the defendant.
iii: Whether the defendant breached the contract:
19. To establish a breach of contract, the plaintiff must first prove the existence of a valid and enforceable contractual obligation. According to the principles of contract law, a breach can only occur where there is a clear duty imposed by the contract, and that duty is not fulfilled. Since no such duty has been established, it logically follows that no breach can be found. The court cannot infer a contractual obligation where none has been proven, especially in the absence of credible evidence or mutual intention to create legal relations.
iv: Whether the plaintiff is entitled to the reliefs sought:
20. The plaintiff seeks special damages amounting to Kshs. 612,306,077.60, general damages, interest, and costs. It is trite law that special damages must not only be specifically pleaded but also strictly proved, as established in numerous judicial precedents. The burden lies on the claimant to provide clear and credible evidence of the loss suffered and the causal link to the defendant’s conduct. Having failed to prove the existence of a contractual duty on the part of the defendant to remit taxes, or that the defendant received the sum allegedly paid, the plaintiff’s claim must fail.
Disposition
21. Accordingly, the suit is hereby dismissed with costs to the defendant.
1. The plaintiff instituted this suit on 15th April 2019 against the defendant, seeking special damages of Kshs. 612,306,077.60, general damages for breach of contract, interest at commercial rates, and costs.
2. The plaintiff alleges that it entered into an Accounting Services Agreement with the defendant, through its then Chief Executive Officer, whereby the defendant was engaged to provide accounting and tax agency services. These services were said to include the computation of tax obligations, advising the plaintiff of the same via email, and remitting the appropriate taxes to the Kenya Revenue Authority (KRA) upon receipt of the requisite funds from the plaintiff.
3. The plaintiff contends that it paid a total of Kshs. 222,920,044.85 to the defendant under this arrangement. However, it later discovered that the taxes had not been remitted to KRA, and that the defendant had allegedly issued falsified receipts purporting to originate from the KRA online portal. This fraud allegedly came to light in November 2018 when KRA summoned the plaintiff’s senior management and informed them that the company had failed to meet its tax obligations. KRA had issued prior demand letters in May 2018 to the plaintiff’s Chief Executive Officer and Chief Finance Officer.
4. The plaintiff further asserts that the defendant’s actions amounted to fraud and a material breach of contract, exposing it to investigation by KRA for criminal tax violations and resulting in reputational harm and business disruption. Despite issuing a notice of intention to sue, the defendant allegedly failed to take remedial steps.
5. In its statement of defence dated 13th August 2019, the defendant denies the alleged contractual obligations and states that its role was limited to financial consultancy. It denies receiving the claimed sum or issuing any KRA receipts. The defendant puts the plaintiff to strict proof of its allegations.
6. At the hearing each party called one witness. PW1, SHANE LEAHY, testified as the plaintiff’s Group CEO and Director of its local operations. DW1, PETER KIGUTA WERU, testified on behalf of the defendant. Their testimonies largely restated the parties' positions as summarized above and will be considered within the context of the issues framed for determination.
Analysis and Determination
7. The court identifies the following issues for determination:
i. Whether the defendant was contracted to render tax agency services;
ii. Whether the defendant received Kshs. 222,920,044.85 from the plaintiff for tax remittance;
iii. Whether the defendant breached the contract;
iv. Whether the plaintiff is entitled to the reliefs sought.
i. Whether the defendant was contracted to render tax agency services:
8. The plaintiff alleges that the defendant was retained as its tax agent, with obligations to compute, advise, and remit taxes to KRA. The defendant admits to a contractual relationship but maintains that it was limited to financial consultancy.
9. PW1 testified that the plaintiff would remit tax amounts to the defendant for onward payment to KRA. However, he admitted that no written agreement existed to that effect. DW1 confirmed that there was an informal arrangement in 2018, under which the defendant earned a 5% commission for providing general financial consultancy services, particularly in the betting industry. He expressly denied undertaking any tax agency or remittance functions and stated that the defendant was not licensed as a tax agent under the Tax Procedures Act.
10. While contractual obligations can arise from oral agreements or the conduct of parties, the court finds that the plaintiff did not tender sufficient evidence to establish that the defendant had assumed any responsibility for tax computation or remittance. Payment slips produced by the plaintiff did not show any link to the defendant. Moreover, the slips bore no identifiers connecting them to the defendant and appeared to be addressed to the plaintiff. The plaintiff also failed to produce any communication or documentation showing instructions to the defendant to handle tax matters.
11. In the absence of a written contract or corroborating evidence establishing an agency relationship, the court finds that the plaintiff has not proved the existence of a binding obligation on the defendant to act as a tax agent.
ii: Whether the defendant received Kshs. 222,920,044.85 from the plaintiff:
12. The plaintiff claims to have paid Kshs. 222,920,044.85 to the defendant for tax remittance. It alleges that the defendant provided falsified KRA receipts as confirmation of payment.
13. PW1 stated that the false tax receipts were received from the defendant, but admitted that there was no documentary proof linking the defendant to the issuance of the receipts. The receipts bore the name of a Mr. Dennis Shijenje, whom PW1 could not identify as an employee, agent, or associate of the defendant. No evidence was presented to show that the bank purportedly used for the remittances, Standard Chartered Bank, had not processed the transactions.
14. DW1, on the other hand, denied receiving the claimed sum and maintained that any payments made by the plaintiff were for consultancy services. He disassociated the defendant from the KRA receipts and tax remittance responsibilities.
15. The plaintiff did not produce bank statements, remittance instructions, or correspondence to prove that the funds were transmitted to or handled by the defendant for tax purposes. Neither was there evidence establishing that the defendant issued the KRA receipts or orchestrated the alleged fraud.
16. Under Section 107(1) of the Evidence Act, the burden of proof lies on the party who desires the court to give judgment as to any legal right or liability dependent on the existence of facts which they assert. In this case, it was the plaintiff’s burden to prove, on a balance of probabilities, that the defendant received and misappropriated the funds. Section 108 further provides that the burden lies on the person who would fail if no evidence were given on either side.
17. Since the plaintiff failed to adduce sufficient documentary or testimonial evidence to support their claims, they did not discharge this legal burden. The absence of direct or circumstantial evidence linking the defendant to the alleged fraudulent acts or to the issuance of the KRA receipts significantly weakened the plaintiff’s case.
18. Accordingly, the court finds that the plaintiff has not proved, on a balance of probabilities, that the defendant received the claimed amount or that the receipts originated from the defendant.
iii: Whether the defendant breached the contract:
19. To establish a breach of contract, the plaintiff must first prove the existence of a valid and enforceable contractual obligation. According to the principles of contract law, a breach can only occur where there is a clear duty imposed by the contract, and that duty is not fulfilled. Since no such duty has been established, it logically follows that no breach can be found. The court cannot infer a contractual obligation where none has been proven, especially in the absence of credible evidence or mutual intention to create legal relations.
iv: Whether the plaintiff is entitled to the reliefs sought:
20. The plaintiff seeks special damages amounting to Kshs. 612,306,077.60, general damages, interest, and costs. It is trite law that special damages must not only be specifically pleaded but also strictly proved, as established in numerous judicial precedents. The burden lies on the claimant to provide clear and credible evidence of the loss suffered and the causal link to the defendant’s conduct. Having failed to prove the existence of a contractual duty on the part of the defendant to remit taxes, or that the defendant received the sum allegedly paid, the plaintiff’s claim must fail.
Disposition
21. Accordingly, the suit is hereby dismissed with costs to the defendant.