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1. The Plaintiff filed this suit on 29th May 2017 against the Defendants seeking, inter alia:
a) A declaration as to which of the Defendants is liable to pay the Plaintiff and to what extent;
b) The sum of Kshs.28, 049, 334.13 being the total amount owing to the Plaintiff under Interim Payment Certificates Nos. 16 & 17.
c) Interest on (b) above.
d) Damages for breach of contract.
e) Costs of the suit.
2. The Plaintiff’s case, as pleaded, is that vide a contract dated 26th June 2014 between the Plaintiff and the 1st defendant it was subcontracted to undertake electrical installation works at the construction of the 2nd defendant’s factory. The Plaintiff states that the sub contract was supplemental to the main contract for building works concluded between the 1st Defendant and the 2nd Defendant to which the Plaintiff was not a party to. The Plaintiff alleges that the subcontract provided that the procedure for originating and processing of applications for payments and payment certificates were to be the same as those prescribed under the main contract. The process was that the Project Architect Messrs. Triad Architects would issue an Interim Payment Certificate for completed works upon an application being made for payment by the Contractor and sub-contractors and upon valuation by the project quantity surveyor Messrs. Karkan Partnership.
3. The Plaintiff avers that on 1st April 2016, the Project Quantity surveyor issued an Interim Valuation Statement No. 16 recommending that an interim payment of Kshs.33,663,414.05 be made to the 1st Defendant. Out of this amount a net amount of Kshs.14,808,916.59(inclusive of VAT) was apportioned to the Plaintiff. Subsequently on 7th April 2016, the architect issued an interim payment certificate No. 16 for Kshs.33,663,414.05 in favour of the 1st Defendant.
4. The Plaintiff further states that on 4th October 2016 the Project Quantity Surveyor issued an interim valuation statement No. 17 recommending a payment of Kshs.15,909,897. 29 to the 1st Defendant out of which Kshs.13,240,417.54(Inclusive VAT) was apportioned to the Plaintiff. On 17th October 2016, the Architect issued an Interim Payment Certificate No. 17 for Kshs.15,909,897.29 in favour of the 1st Defendant.
5. The Plaintiff relies on Clause 23.6 of the sub contract, which provides that payments to the sub-contractor were to be made by the contractor within 7 days of receiving payment from the 2nd Defendant. Accordingly, by a letter dated 18th January 2017, the plaintiff demanded payment from the 1st Defendant for the amounts due under Interim Payment Certificates Nos. 16 & 17.
6. In response, the 1st Defendant by a letter dated 23rd February 2017 claimed that the responsibility for paying the Plaintiff had been assigned to the 2nd Defendant through a letter dated 10th December 2014 asserting that this was constitutes a valid tripartite agreement on payment. However, the plaintiff avers that Clause 23.9 of the sub contract under only permits such assignment under two conditions; first, upon application by the Plaintiff and second, where the 1st Defendant fails to make payment as required under Clause 23.6 and continued in default for 14 days. In either case the Architect is required to issue a payment certificate directly to the Plaintiff.
7. The Plaintiff states that although Interim valuation statements Nos. 16 & 17 both provided that payments were to be made directly by the 2nd Defendant to the Plaintiff and other sub-contractors, no payment certificates were ever issued directly to the Plaintiff contrary to Clause 23.9 of the sub contract.
8. The plaintiff further states that the issuance of the payment Interim Valuation statement Nos.16 & 17 by the architect confirmed that all work had been completed in accordance with the Contract. Therefore, neither the 1st nor the 2nd Defendant can claim that the amounts are being withheld due to any default on the part of the Plaintiff.
9. The Plaintiff avers that it has made several demands for payment to the 1st Defendant who has consistently redirected the Plaintiff to the 2nd Defendant, claiming that it is no longer responsible for payment. The Plaintiff also states that it has made several demands to the 2nd Defendant all of which have been ignored. Having fulfilled its contractual obligations, the plaintiff maintains that it is entitled to payment of Kshs28,049, 334.13 for certified works under Interim Certificates Numbers 16 and 17.
10. The 1st Defendant filed an Amended Statement of Defence and Counterclaim dated 26th October 2022 denying the key averments in the Plaint. It asserted that the Plaintiff was a subcontractor nominated by the architect and was subject to the procedure outlined in the main contract including supervision, variations, valuations and payment. While acknowledging that the Plaintiff was not a party to the main contract, the 1st Defendant maintained that the subcontract between itself and the plaintiff was governed by the provisions of the main contract in relation to the execution and payment for the sub contract works.
11. The 1st Defendant further stated that interim payment certificates covered not only completed work but also materials on site as well. It added that following its letter dated 10th December 2014 authorizing the 2nd Defendant to make direct payments to the Plaintiff, the 2nd Defendant paid a total of Kshs.78,128,301.80 to the Plaintiff in certificate numbers 12, 13, 14 and 15 without any reference to the 1st Defendant.
12. The 1st Defendant acknowledged that the duty to certify work rested with the Architect and admitted that Interim Payment Certificate Nos. 16 and 17 were duly issued, containing the stated amounts. It also confirmed that the total sum of Kshs.28,049,334.13 was arithmetically correct.
13. The 1st Defendant denied refusing to pay as alleged. Referring to Clauses 23.6 and 23.7 of the sub-contract, it stated that it had only received Kshs.3,500,000/= in relation to certificates Nos 16 and 17. This amount was paid pursuant to a partial settlement agreement dated February 2017 but effective December 2016, intended to settle the 1st Defendant’s portion of Certificate No. 16. The Agreement was premised on the understanding that the 2nd Defendant would continue making direct payments to the plaintiff as had been done previously.
14. . The 1st Defendant averred that it has not received the full amounts due under certificates Nos. 16 and 17 and therefore had not been placed in funds to satisfy the plaintiff entitlement under those certificates, in accordance with Clauses 23.6 or 23.7 of the sub contract.
15. The 1st Defendant further stated that, in addition to its cross claim against the 2nd Defendant, it has declared a dispute and initiated the dispute resolution procedure under clause 45 of the main contract. This process seeks to recover all outstanding payments from the 2nd defendant, including amounts due to the 1st Defendant and sub-contractors, the Plaintiff included, as well as accrued interest for the period of non-payment.
16. The 1st Defendant stated that once it receives payment from the 2nd Defendant in respect of Certificate Nos. 16 and 17, it will remit the Plaintiff’s dues, including interest, as provided for in Clause 23.7 of the sub contract. Additionally, the 1st Defendant raised a jurisdictional objection, arguing that the sub contract contains an arbitration clause which designates arbitration as the agreed method of dispute resolution between the parties.
17. In its Counterclaim against the 2nd Defendant, the 1st Defendant sought the following reliefs:
a) An order directing the 2nd Defendant to pay the 1st Defendant the sum of Kshs.46,073,311.34 due in Certificates Nos. 16 and 17;
b) An award of interest against the 2nd Defendant on the amount of Kshs.46,073,311.34 as per the contract.
c) An award of costs of this suit.
18. In support of its Counterclaim, the 1st Defendant/Counterclaimant averred that it entered into a contract titled “The Proposed Relocation of Proctor and Allan (EA) Operations to Limuru on 28th April 2014 in the amount of Kshs.466,790,867.21. The Plaintiff was nominated by the architect to undertake electrical installations works for a contract sum of Kshs.67,471,243/= inclusive of VAT. On the architect advice, the 1st Defendant/Counterclaimant entered into a subcontract with the Plaintiff on 26th June 2014.
19. The 1st Defendant stated that, at the Plaintiff’s request, it issued a letter dated 10th December 2014, authorizing the 2nd Defendant to make direct payments to the Plaintiff for its portion of the architect’s certificate. Pursuant to this arrangement, the 2nd Defendant paid the Plaintiff a total of Kshs.78,128,301. 80 under certificate Nos. 12, 13, 14 and 15.
20. The 1st Defendant/ Counterclaimant further stated that Certificate No. 16 issued by the architect on 7th April 2016 was for Kshs.33,663,414.05 comprising of Kshs.18,854, 497.46 for the 1st Defendant and Kshs.14,808,016. 59 for Plaintiff. However, the 2nd Defendant failed to pay the Plaintiff in accordance with the direct payment arrangement, nor did it remit the amount to the 1st Defendant/Counterclaimant as required under the contract.
21. The 1st Defendant/Counterclaimant avers that the architect issued Interim Payment Certificate No. 17 dated 17th October 2016 for the sum of Kshs.15,909,897. 29 which included Kshs.13,240,417. 54due to the Plaintiff as the nominated subcontractor. However, the 2nd Defendant failed to remit this amount either to the Plaintiff or to the 1st Defendant/counterclaimant, contrary to the terms of the contract.
22. The 1st Defendant/Counterclaimant further states that following a demand and notice to invoke recovery proceedings dated 25th July 2016, the 2nd Defendant acknowledged the debt and requested time to commence full commercial production at its factory to be able to finalize financing arrangements to enable payment.
23. The 1st Defendant/ Counterclaimant avers that this undertaking to pay was formalized through a partial settlement agreement signed on 17th February 2017 and 6th March 2017 respectively by the 1st Defendant and the 2nd Defendant. Despite this, the 2nd Defendant defaulted on the agreement having only paid Kshs.3,500,000/= by April 2017.
24. The Counterclaimant avers that the 2nd Defendant owes the Plaintiff a total of Kshs.46,073,311.34 comprising of Kshs.30,163,414.05 from Certificate No. 16 and Kshs.15,509,897.29 form Certificate No. 17. It relies on Clause 34.6 of the main contract and Clause 23.7 of the sub contract both of which provide for interest on delayed payment. Additionally, Clause 34.21.3 of the main contract defines any net amount due in the final account as a debt if it remains unpaid 14 days after presentment of the certificate to the 2nd Defendant.
25. In its Statement of Defence dated 11th July 2017, the 2nd Defendant confirmed the existence of the main contract with the 1st Defendant dated 28th April 2014. The contract was later amended by an addendum dated 12th May 2014.
26. The 2nd Defendant acknowledged that the 1st Defendant sub-contracted the electrical installations works to the Plaintiff but emphasized that it had no role in pre-qualifying, pricing, selecting, negotiating terms of the Plaintiff’s sub-contract. . It further clarified that it is was not party to the sub-contract and was unaware of its terms.
27. The 2nd Defendant admitted that the project Quantity Surveyor issued an interim valuation statement No. 16 on 1st April 2016 and that the architect subsequently issued an Interim Certificate No. 16 Serial No. 996680 on 7th April 2016 in favour of Epco Builders Limited for the sum of Kshs.33,663,414.05. however, it denied that any apportionment was made in favour of the Plaintiff and argued that the Quantity Surveyor lacked authority under the main contract or in law to apportion
28. The 2nd Defendant maintained that the Interim Certificate was issued solely in favour of the 1st Defendant and that the Plaintiff, could only claim directly against the 2nd Defendant if a Special Payment Certificate had been issued under the conditions outlined in the main contract. it argued that the Plaintiff lacked locus standi to claim as against it based on Interim Certificate No 16 and that any claim must arise from breach of the Settlement Agreement. It further stated that negotiations regarding Certificate No 16 led to the execution of a partial settlement and release agreement, which now governs any claim.
29. The 2nd Defendant also admitted that the Interim Valuation Statement No. 17 was issued on 4th October 2016 for Kshs.15,909,897.29 and that Interim Certificate No. 17 Serial No. 1000425 was issued in favour of Epco Builders Limited for the same amount. however, it denied any apportionment to the Plaintiff and disclaimed knowledge of the letters dated 23rd February 2017 and 10th December 2014.It added that the final account for the project had not yet been prepared and submitted by the Quantity Surveyor and that upon its presentation and the expiry of the defects liability period, it intended to pursue claims against the 1st Defendant for breach of contract. The 2nd Defendant also denies ignoring the Plaintiff’s demands for payment, asserting that it was under no obligation to pay the Plaintiff directly.
30. In its reply dated 15th March 2018 the 1st Defendant responded to the 2nd Defendant Statement of Defence by asserting that the Plaintiff was not an elective subcontractor but a nominated subcontractor appointed under Clause 31 of the main contract. It argued that the 2nd Defendant’s involvement in the sub contract was evident, as it or its agents selected the Plaintiff, supervised it work, issued instructions, valued and certified its work, and made direct payments. It also claimed that the 2nd Defendant issued variation orders and altered the scope of work without consulting the 1st Defendant and paid for the additional scope directly.
31. The 1st Defendant emphasized that; Clause 31 of the main contract governs the employment and terms of subcontractors and that the subcontract was supplemental to a main contract under clause 31.5.1. It cited Clause 23.1 of the sub contract read with clauses 31.5.7 and 34 of the main contract, as governing the payment process. It also referenced Clauses 31.7 and 34.3 of the main contract and clause 23.6 of the sub0contract; regarding issuance of the interim certificates.
32. The 1st Defendant reiterated that interim valuation statement No. 16, apportioned Kshs.14,808,916.59 to the Plaintiff out of a total valuation amount of Kshs.33,663,414.05 and that Statement No 17 apportioned Ksh.13,240,417.54 to the Plaintiff out of Kshs.15,909,897.29. It argued that the Quantity surveyor is empowered under Clauses 6.1, 34.1 and 34.2 of the main contract and Clause 23.3 of the sub-contract to make such valuations, and that there is no prescribed format preventing apportionment of subcontractors.
33. The 1st Defendant maintained that it is the standard industry practice for Quantity Surveyor to indicate amounts due to the main contractor and nominated subcontractors in each valuation. - It added that the architect relies on these valuations to advise on payments due to subcontractors under Clause 31.6 of the main contract. Clause 23.2 if the sub-contract also allows the sub-contractor to submit details of the amounts claimed for the relevant period.
34. The 1st Defendant asserts that although a partial settlement agreement was reached between the 1st and 2nd Defendant in December 2016, the 2nd Defendant has failed to fulfill its obligations; it argued that the agreement does not bar recovery of the agreed amounts. It stated that interim certificate Nos. 16 and 17 which include amounts due to the plaintiff, have not been challenged by the 2nd Defendant and were payable within 14 days of presentation.
35. In its reply to the 2nd Defendant’s defence, the 1st Defendant reaffirmed that the quantity surveyor issued interim valuation No. 17 and denied the claim that the quantity surveyor lacked authority under the contract or in law to apportion the payments as he did. It further stated that Interim Certificate No. 17 was not challenged by the 2nd Defendant and that the amounts therein continue to accrue interest in accordance with Clause 34.6 of the main contract. Additionally, the 1st Defendant avers that the obligation to pay for electrical work remains a primary responsibility of the 2nd Defendant under Article 2.5 and Clauses 3.4, 31.2, 34.5. 34.6 and 34.21.3 of the main contract.
36. The 1st Defendant noted that at the time of filing its defence, the final account had not yet been prepared or submitted by the quantity surveyor. However, it confirmed that the final account has since been completed and indicates a net amount of Kshs.28,698,318. 57 due to it. When added to the amounts outstanding in Certificate Nos. 16 (Kshs.30,163,414.05 and 17 (Kshs.15,909,897.29), the total principal amount due to the 1st Defendant stands at Kshs.74,663,414.05. The 1st Defendant seeks interest on delayed payment and prolongation costs. The 1st Defendant further stated that it is unaware of any claims the 2nd Defendant intends to bring against it, as no claims have been formally presented.
37. During the trial, each party called one witness. The Plaintiff witness PW1, Kayal Patel reiterated the contents of his witness statement. During cross examination, he admitted that he did not sign the subcontract agreement and has no formal training in construction, being a pharmacist by training. He confirmed that the Plaintiff had undertaken multiple projects and clarified that the dispute was not about figures but which party between the 1st and 2nd Defendant was responsible for payment.
38. He stated that the Plaintiff had previously received direct payments from the 2nd Defendant. He stated that he was unaware whether the 1st Defendant was owed money under certificates No’s 17 and 17 or whether the 1st Defendant had been paid. He also acknowledged non-compliance with Clause 31.5 of the contract and confirmed that Clause 31.1 provides for arbitration in case of disputes. During re-examination, he expressed frustration, stating that the Plaintiff was being “tossed around” and that none of the correspondence between the Defendants had been copied to the Plaintiff. He emphasized that the Plaintiff was not a party to the arbitration proceedings and could not enforce any resulting award. He also noted that the court had ruled on 8th March 2021 that there was no dispute to be referred to arbitration.
39. The 1st Defendant witness, DW1, Ramji Devji Varsani adopted his witness statement and produced all documents filed by the 1st Defendant. He testified that the 2nd Defendant, as the employer, instructed it to enter into a contract. He confirmed that the 1st Defendant had not received payment for Certificates Nos. 16 and 17 and therefore had no funds to pay the Plaintiff.
40. During cross examination, DW1 admitted that the 1st Defendant did not dispute the amount owed to the Plaintiff but maintained the 2nd Defendant was responsible for payment. He acknowledged that there was no clause in the contract explicitly stating that states that the 2nd Defendant was responsible for payment to the plaintiff although Clause 23.6 of the sub-contract implies such an obligation. He clarified that the 2nd Defendant was not a party to the subcontract.
41. He explained that the authorization letter issued to the 2nd Defendant was intended to save time and manage tax obligations, and that the 2nd Defendant did not respond to it because it was considered an automatic directive. He confirmed that previous payments to the Plaintiff had been made by the 2nd Defendant. DW1 also stated that the Plaintiff was indirectly involved in the arbitration proceedings along with other subcontractors, although the Plaintiff was not a witness in those proceedings. He testified that the arbitral award is in the process of being adopted by the court and that the Plaintiff’s claim was included in the counterclaim filed by the 1st Defendant. He emphasized that the Plaintiff lacks the capacity to enforce the arbitral award and reiterated that the 1st Defendant cannot pay the Plaintiff until it receives payment from the 2nd Defendant. He also confirmed that the court had ruled on a preliminary objection, directing that the matter be referred to arbitration. During cross examination by the 2nd Defendant’s counsel, DW1 testified that the parties to the main contract were the 1st and 2nd Defendant and that the employer, the 2nd Defendant, was responsible for paying the Plaintiff. When referred to the letter dated 10th December 2014 from the 1st Defendant to the 2nd Defendant authorizing direct payments to nominated sub-contractors DW1 stated that the letter was not responded to because it was a directive, not requiring a reply and that it was implemented. He stated that although the sub-contract was not formally amended, the letter served as an addendum..
42. During re-examination, DW1 stated that the Plaintiff was not nominated by the 1st Defendant but was instead procured by the 2nd Defendant. He emphasized that the main and subcontract were interrelated and must be interpretated together. DW1 confirmed that the 1st Defendant had not received payments and had not refused to pay the Plaintiff. Regarding the letter dated 10th December 2014, he testified that the Plaintiff is copied in the correspondence and raised no objection. He also clarified that not all certificates involve every contractor, but in this case, Certificates Nos. 16 and 17 did involve the Plaintiff.
43. DW2, the 2nd Defendant’s witness, Paul Mwangi Nduati, adopted his witness statement dated 4th October 2023 and produced the 2nd Defendant’s list and bundle of documents dated 2nd August 2022. During cross examination, he confirmed that the 2nd Defendant nominated the Plaintiff as a subcontractor. However, when referred to the letter dated 10th December 2014, he stated that the 2nd Defendant did not see or acknowledged receipt of the letter. He denied that the 2nd Defendant paid the Plaintiff directly although he acknowledged that the letter purported to authorize such payment. He maintained that the contract was never varied
44. . DW2 also confirmed that the 2nd Defendant had not paid the 1st Defendant. He stated that he did not recall receiving any demand letter from the Plaintiff. He acknowledged awareness of the arbitral award, and stated that four parties were involved in the arbitration; itself, the 1st Defendant, the Plaintiff and Volcanic Plumbing. He was uncertain whether the Plaintiff could enforce the award. He admitted that the 2nd Defendant had not paid the Plaintiff, citing the contract’s structure between the 1st Defendant and the 2nd Defendant. He claimed that the company lacked funds due to ongoing restructuring and insisted that the Plaintiff should follow the contract. He also stated that he is not aware of the ruling and does not recall the preliminary objection.
45. Upon further cross examination by the 1st Defendant’s counsel, DW2 conceded that the 2nd Defendant failure to pay its contractors reflected poorly on its reputation. He reiterated that the company was experiencing financial difficulties and was seeking investors. . He admitted that the 2nd Defendant did not denying that they owe the 1st Defendant and confirmed that it had not been involved in any legal proceedings with the Plaintiff.
46. DW2 acknowledged that the 2nd Defendant was in occupation of the completed complex and conducting business there. He confirmed that the counterclaim in the arbitration proceedings had been dismissed. He testified that both the architect and the Quantity Surveyor were employees of the 2nd Defendant, that the figures in the certificates were not disputed, and that the 2nd Defendant had no objection to the certificates themselves.
47. He stated that the 2nd Defendant was not under insolvency or winding up proceedings. He urged the court to enforce the contract as it had not been varied. He further testified that the 1st Defendant’s obligation to pay the Plaintiff arose after receiving payment from the 2nd Defendant.
48. At the close of the trial, all parties filed their respective submissions. The Plaintiff’s submissions were dated 10th January 2025; the 1st and 2nd Defendant’s submissions are both dated 19th March 2025 Parties highlighted their submissions on 20th March 2025.
Plaintiff’s submissions
49. In its written submissions, the Plaintiff, provided a comprehensive overview of its case and the Defendant’s positions, as presented during trial. It identified the following five issues for determination: (a)Whether the Plaintiff is entitled to payment of Kshs.28,049,334.13; (b) If the answer to (a) is in the affirmative, who between the 1st and 2nd Defendants is liable to pay the Plaintiff; (c) whether the Plaintiff is entitled to interest on the outstanding amount; (d) whether the Plaintiff’s claim against the Defendants should be referred to arbitration as prayed by the 1st Defendant and (e) Who should bear the costs of the suit.
50. On the first issue, the Plaintiff submitted that the amount of Kshs.28,049,334.13 as evaluated by the project Quantity Surveyor (QS) and certified by the Project Architect in certificates Nos. 16 and 17 is not in dispute. Citing the case of Dawynaus Limited versus FG Minter Limited [1971] 2 ALL ER 1389, the Plaintiff submitted that the issuance of certificates by the Architect affirms that the work was completed in accordance with the contract. It is submitted that both DW1 and DW2 acknowledged that the amount of Kshs.28,049,334.13/= due to it under certificates Nos. 16 and 17 is undisputed. The plaintiff also referred to the court’s ruling dated 14th June 2021, which dismissed the Defendant’s preliminary objection and acknowledged the 1st Defendant’s admissions that the Plaintiff is owed Kshs.28,049,334.13.
51. On the second issue, the Plaintiff submitted that, it was not a party to the main contract between the 1st and 2nd Defendant but was a party to the sub contract with the 1st Defendant. While making reference to the case of Agricultural Finance Corporation versus Lengetia Limited & Jack Mwangi [1985] eKLR, the Plaintiff argued that contractual right or obligation cannot accrue to a party who is not privy to the contract unless the matters fall within the known exceptions such as assignment or novation of contractual rights and obligations. The Plaintiff contended that the 1st Defendant’s denial of payment obligation is based on two contradictory argument; first, that it assigned its payment obligation to the 2nd Defendant via a letter dated 1oth December 2014 and second, that the obligation to pay only arises upon receipt of payment from the 2nd Defendant under Clauses 23.6 and 23.7 of the sub-contract. The Plaintiff argued that these positions are legally untenable and would result in an unjust outcome leaving it without a remedy despite having fulfilled its contractual obligations.
52. The Plaintiff maintained that the 1st Defendant’s claim of assigned must be considered within the context of the sub-contracts express contractual provisions. It argues that Clauses 23.6 and 23.7 of the subcontract commonly referred to as “pay-when-paid” or “back-to-back” clauses do not absolve the 1st Defendant of its payment obligations. According to the Plaintiff, these clauses only regulated the timing of payment and do not transfer liability. While relying on the decision in Zenith Steel Fabricators Limited v Continental Builders Limited & Another [2018] eKLR, the Plaintiff asserts that the contractual responsibility to pay remained with the 1st Defendant.
53. The Plaintiff further submits that Clause 23.9 of the subcontract only allows direct payment by the 2nd Defendant in limited circumstances: upon the Plaintiff’s application, and where the 1st Defendant fails to pay within 14 days prompting the Architect to issue a direct payment certificate to the Plaintiff. Since no such certificate were issued, the Plaintiff argued that the 1st Defendant remained liable under the subcontract.
54. The Plaintiff contends that the 1st Defendant’s letter dated 10th December 2014 cannot be construed as a valid assignment of its payment obligation. The issue of assignment was first raised in the 1st Defendant’s letter dated 23rd February 2017, in response to the Plaintiff’s demand for payment. The plaintiff argued that this correspondence contradicted Clause 15 of the subcontract, which required written consent from both the Plaintiff and the 2nd Defendant for any assignment. No such consent was provided. The Plaintiff also noted that no evidence of business custom was presented to support the 1st Defendant’s claim that such an authorization letter constituted a valid assignment. .
55. While relying on Helstan Securities v Hertfordshire C.C [1978] 3 All E.R 262 and Rockview Investments Limited v Mungei (Civil Appeal E078 of 2021) [2023] KEHC 21042, the Plaintiff submitted that the 1st Defendant’s letter authorising direct payment cannot legally amount to an assignment or variation of the subcontract. It reiterates, citing Zenith Steel Fabricators Limited v Continental Builders Limited & Another [2018] eKLR, that the 1st Defendant’s payment responsibility remained intact, even though the Plaintiff received direct payments from the 2nd Defendant for Interim Payment Certificates Nos. 12 to 15.
56. The Plaintiff further referred to decisions from the United Kingdom, Australia, and India, including the case of Kingstone Enterprises v NBCC (India) Limited & Another, W.P (C) No. 4517 of 2023, to support its argument that Clauses 23.6 and 23.7 of the subcontract merely regulated the payment timeline and do not make the 1st Defendant’s liability contingent on prior payment from the 2n
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1. The Plaintiff filed this suit on 29th May 2017 against the Defendants seeking, inter alia:
a) A declaration as to which of the Defendants is liable to pay the Plaintiff and to what extent;
b) The sum of Kshs.28, 049, 334.13 being the total amount owing to the Plaintiff under Interim Payment Certificates Nos. 16 & 17.
c) Interest on (b) above.
d) Damages for breach of contract.
e) Costs of the suit.
2. The Plaintiff’s case, as pleaded, is that vide a contract dated 26th June 2014 between the Plaintiff and the 1st defendant it was subcontracted to undertake electrical installation works at the construction of the 2nd defendant’s factory. The Plaintiff states that the sub contract was supplemental to the main contract for building works concluded between the 1st Defendant and the 2nd Defendant to which the Plaintiff was not a party to. The Plaintiff alleges that the subcontract provided that the procedure for originating and processing of applications for payments and payment certificates were to be the same as those prescribed under the main contract. The process was that the Project Architect Messrs. Triad Architects would issue an Interim Payment Certificate for completed works upon an application being made for payment by the Contractor and sub-contractors and upon valuation by the project quantity surveyor Messrs. Karkan Partnership.
3. The Plaintiff avers that on 1st April 2016, the Project Quantity surveyor issued an Interim Valuation Statement No. 16 recommending that an interim payment of Kshs.33,663,414.05 be made to the 1st Defendant. Out of this amount a net amount of Kshs.14,808,916.59(inclusive of VAT) was apportioned to the Plaintiff. Subsequently on 7th April 2016, the architect issued an interim payment certificate No. 16 for Kshs.33,663,414.05 in favour of the 1st Defendant.
4. The Plaintiff further states that on 4th October 2016 the Project Quantity Surveyor issued an interim valuation statement No. 17 recommending a payment of Kshs.15,909,897. 29 to the 1st Defendant out of which Kshs.13,240,417.54(Inclusive VAT) was apportioned to the Plaintiff. On 17th October 2016, the Architect issued an Interim Payment Certificate No. 17 for Kshs.15,909,897.29 in favour of the 1st Defendant.
5. The Plaintiff relies on Clause 23.6 of the sub contract, which provides that payments to the sub-contractor were to be made by the contractor within 7 days of receiving payment from the 2nd Defendant. Accordingly, by a letter dated 18th January 2017, the plaintiff demanded payment from the 1st Defendant for the amounts due under Interim Payment Certificates Nos. 16 & 17.
6. In response, the 1st Defendant by a letter dated 23rd February 2017 claimed that the responsibility for paying the Plaintiff had been assigned to the 2nd Defendant through a letter dated 10th December 2014 asserting that this was constitutes a valid tripartite agreement on payment. However, the plaintiff avers that Clause 23.9 of the sub contract under only permits such assignment under two conditions; first, upon application by the Plaintiff and second, where the 1st Defendant fails to make payment as required under Clause 23.6 and continued in default for 14 days. In either case the Architect is required to issue a payment certificate directly to the Plaintiff.
7. The Plaintiff states that although Interim valuation statements Nos. 16 & 17 both provided that payments were to be made directly by the 2nd Defendant to the Plaintiff and other sub-contractors, no payment certificates were ever issued directly to the Plaintiff contrary to Clause 23.9 of the sub contract.
8. The plaintiff further states that the issuance of the payment Interim Valuation statement Nos.16 & 17 by the architect confirmed that all work had been completed in accordance with the Contract. Therefore, neither the 1st nor the 2nd Defendant can claim that the amounts are being withheld due to any default on the part of the Plaintiff.
9. The Plaintiff avers that it has made several demands for payment to the 1st Defendant who has consistently redirected the Plaintiff to the 2nd Defendant, claiming that it is no longer responsible for payment. The Plaintiff also states that it has made several demands to the 2nd Defendant all of which have been ignored. Having fulfilled its contractual obligations, the plaintiff maintains that it is entitled to payment of Kshs28,049, 334.13 for certified works under Interim Certificates Numbers 16 and 17.
10. The 1st Defendant filed an Amended Statement of Defence and Counterclaim dated 26th October 2022 denying the key averments in the Plaint. It asserted that the Plaintiff was a subcontractor nominated by the architect and was subject to the procedure outlined in the main contract including supervision, variations, valuations and payment. While acknowledging that the Plaintiff was not a party to the main contract, the 1st Defendant maintained that the subcontract between itself and the plaintiff was governed by the provisions of the main contract in relation to the execution and payment for the sub contract works.
11. The 1st Defendant further stated that interim payment certificates covered not only completed work but also materials on site as well. It added that following its letter dated 10th December 2014 authorizing the 2nd Defendant to make direct payments to the Plaintiff, the 2nd Defendant paid a total of Kshs.78,128,301.80 to the Plaintiff in certificate numbers 12, 13, 14 and 15 without any reference to the 1st Defendant.
12. The 1st Defendant acknowledged that the duty to certify work rested with the Architect and admitted that Interim Payment Certificate Nos. 16 and 17 were duly issued, containing the stated amounts. It also confirmed that the total sum of Kshs.28,049,334.13 was arithmetically correct.
13. The 1st Defendant denied refusing to pay as alleged. Referring to Clauses 23.6 and 23.7 of the sub-contract, it stated that it had only received Kshs.3,500,000/= in relation to certificates Nos 16 and 17. This amount was paid pursuant to a partial settlement agreement dated February 2017 but effective December 2016, intended to settle the 1st Defendant’s portion of Certificate No. 16. The Agreement was premised on the understanding that the 2nd Defendant would continue making direct payments to the plaintiff as had been done previously.
14. . The 1st Defendant averred that it has not received the full amounts due under certificates Nos. 16 and 17 and therefore had not been placed in funds to satisfy the plaintiff entitlement under those certificates, in accordance with Clauses 23.6 or 23.7 of the sub contract.
15. The 1st Defendant further stated that, in addition to its cross claim against the 2nd Defendant, it has declared a dispute and initiated the dispute resolution procedure under clause 45 of the main contract. This process seeks to recover all outstanding payments from the 2nd defendant, including amounts due to the 1st Defendant and sub-contractors, the Plaintiff included, as well as accrued interest for the period of non-payment.
16. The 1st Defendant stated that once it receives payment from the 2nd Defendant in respect of Certificate Nos. 16 and 17, it will remit the Plaintiff’s dues, including interest, as provided for in Clause 23.7 of the sub contract. Additionally, the 1st Defendant raised a jurisdictional objection, arguing that the sub contract contains an arbitration clause which designates arbitration as the agreed method of dispute resolution between the parties.
17. In its Counterclaim against the 2nd Defendant, the 1st Defendant sought the following reliefs:
a) An order directing the 2nd Defendant to pay the 1st Defendant the sum of Kshs.46,073,311.34 due in Certificates Nos. 16 and 17;
b) An award of interest against the 2nd Defendant on the amount of Kshs.46,073,311.34 as per the contract.
c) An award of costs of this suit.
18. In support of its Counterclaim, the 1st Defendant/Counterclaimant averred that it entered into a contract titled “The Proposed Relocation of Proctor and Allan (EA) Operations to Limuru on 28th April 2014 in the amount of Kshs.466,790,867.21. The Plaintiff was nominated by the architect to undertake electrical installations works for a contract sum of Kshs.67,471,243/= inclusive of VAT. On the architect advice, the 1st Defendant/Counterclaimant entered into a subcontract with the Plaintiff on 26th June 2014.
19. The 1st Defendant stated that, at the Plaintiff’s request, it issued a letter dated 10th December 2014, authorizing the 2nd Defendant to make direct payments to the Plaintiff for its portion of the architect’s certificate. Pursuant to this arrangement, the 2nd Defendant paid the Plaintiff a total of Kshs.78,128,301. 80 under certificate Nos. 12, 13, 14 and 15.
20. The 1st Defendant/ Counterclaimant further stated that Certificate No. 16 issued by the architect on 7th April 2016 was for Kshs.33,663,414.05 comprising of Kshs.18,854, 497.46 for the 1st Defendant and Kshs.14,808,016. 59 for Plaintiff. However, the 2nd Defendant failed to pay the Plaintiff in accordance with the direct payment arrangement, nor did it remit the amount to the 1st Defendant/Counterclaimant as required under the contract.
21. The 1st Defendant/Counterclaimant avers that the architect issued Interim Payment Certificate No. 17 dated 17th October 2016 for the sum of Kshs.15,909,897. 29 which included Kshs.13,240,417. 54due to the Plaintiff as the nominated subcontractor. However, the 2nd Defendant failed to remit this amount either to the Plaintiff or to the 1st Defendant/counterclaimant, contrary to the terms of the contract.
22. The 1st Defendant/Counterclaimant further states that following a demand and notice to invoke recovery proceedings dated 25th July 2016, the 2nd Defendant acknowledged the debt and requested time to commence full commercial production at its factory to be able to finalize financing arrangements to enable payment.
23. The 1st Defendant/ Counterclaimant avers that this undertaking to pay was formalized through a partial settlement agreement signed on 17th February 2017 and 6th March 2017 respectively by the 1st Defendant and the 2nd Defendant. Despite this, the 2nd Defendant defaulted on the agreement having only paid Kshs.3,500,000/= by April 2017.
24. The Counterclaimant avers that the 2nd Defendant owes the Plaintiff a total of Kshs.46,073,311.34 comprising of Kshs.30,163,414.05 from Certificate No. 16 and Kshs.15,509,897.29 form Certificate No. 17. It relies on Clause 34.6 of the main contract and Clause 23.7 of the sub contract both of which provide for interest on delayed payment. Additionally, Clause 34.21.3 of the main contract defines any net amount due in the final account as a debt if it remains unpaid 14 days after presentment of the certificate to the 2nd Defendant.
25. In its Statement of Defence dated 11th July 2017, the 2nd Defendant confirmed the existence of the main contract with the 1st Defendant dated 28th April 2014. The contract was later amended by an addendum dated 12th May 2014.
26. The 2nd Defendant acknowledged that the 1st Defendant sub-contracted the electrical installations works to the Plaintiff but emphasized that it had no role in pre-qualifying, pricing, selecting, negotiating terms of the Plaintiff’s sub-contract. . It further clarified that it is was not party to the sub-contract and was unaware of its terms.
27. The 2nd Defendant admitted that the project Quantity Surveyor issued an interim valuation statement No. 16 on 1st April 2016 and that the architect subsequently issued an Interim Certificate No. 16 Serial No. 996680 on 7th April 2016 in favour of Epco Builders Limited for the sum of Kshs.33,663,414.05. however, it denied that any apportionment was made in favour of the Plaintiff and argued that the Quantity Surveyor lacked authority under the main contract or in law to apportion
28. The 2nd Defendant maintained that the Interim Certificate was issued solely in favour of the 1st Defendant and that the Plaintiff, could only claim directly against the 2nd Defendant if a Special Payment Certificate had been issued under the conditions outlined in the main contract. it argued that the Plaintiff lacked locus standi to claim as against it based on Interim Certificate No 16 and that any claim must arise from breach of the Settlement Agreement. It further stated that negotiations regarding Certificate No 16 led to the execution of a partial settlement and release agreement, which now governs any claim.
29. The 2nd Defendant also admitted that the Interim Valuation Statement No. 17 was issued on 4th October 2016 for Kshs.15,909,897.29 and that Interim Certificate No. 17 Serial No. 1000425 was issued in favour of Epco Builders Limited for the same amount. however, it denied any apportionment to the Plaintiff and disclaimed knowledge of the letters dated 23rd February 2017 and 10th December 2014.It added that the final account for the project had not yet been prepared and submitted by the Quantity Surveyor and that upon its presentation and the expiry of the defects liability period, it intended to pursue claims against the 1st Defendant for breach of contract. The 2nd Defendant also denies ignoring the Plaintiff’s demands for payment, asserting that it was under no obligation to pay the Plaintiff directly.
30. In its reply dated 15th March 2018 the 1st Defendant responded to the 2nd Defendant Statement of Defence by asserting that the Plaintiff was not an elective subcontractor but a nominated subcontractor appointed under Clause 31 of the main contract. It argued that the 2nd Defendant’s involvement in the sub contract was evident, as it or its agents selected the Plaintiff, supervised it work, issued instructions, valued and certified its work, and made direct payments. It also claimed that the 2nd Defendant issued variation orders and altered the scope of work without consulting the 1st Defendant and paid for the additional scope directly.
31. The 1st Defendant emphasized that; Clause 31 of the main contract governs the employment and terms of subcontractors and that the subcontract was supplemental to a main contract under clause 31.5.1. It cited Clause 23.1 of the sub contract read with clauses 31.5.7 and 34 of the main contract, as governing the payment process. It also referenced Clauses 31.7 and 34.3 of the main contract and clause 23.6 of the sub0contract; regarding issuance of the interim certificates.
32. The 1st Defendant reiterated that interim valuation statement No. 16, apportioned Kshs.14,808,916.59 to the Plaintiff out of a total valuation amount of Kshs.33,663,414.05 and that Statement No 17 apportioned Ksh.13,240,417.54 to the Plaintiff out of Kshs.15,909,897.29. It argued that the Quantity surveyor is empowered under Clauses 6.1, 34.1 and 34.2 of the main contract and Clause 23.3 of the sub-contract to make such valuations, and that there is no prescribed format preventing apportionment of subcontractors.
33. The 1st Defendant maintained that it is the standard industry practice for Quantity Surveyor to indicate amounts due to the main contractor and nominated subcontractors in each valuation. - It added that the architect relies on these valuations to advise on payments due to subcontractors under Clause 31.6 of the main contract. Clause 23.2 if the sub-contract also allows the sub-contractor to submit details of the amounts claimed for the relevant period.
34. The 1st Defendant asserts that although a partial settlement agreement was reached between the 1st and 2nd Defendant in December 2016, the 2nd Defendant has failed to fulfill its obligations; it argued that the agreement does not bar recovery of the agreed amounts. It stated that interim certificate Nos. 16 and 17 which include amounts due to the plaintiff, have not been challenged by the 2nd Defendant and were payable within 14 days of presentation.
35. In its reply to the 2nd Defendant’s defence, the 1st Defendant reaffirmed that the quantity surveyor issued interim valuation No. 17 and denied the claim that the quantity surveyor lacked authority under the contract or in law to apportion the payments as he did. It further stated that Interim Certificate No. 17 was not challenged by the 2nd Defendant and that the amounts therein continue to accrue interest in accordance with Clause 34.6 of the main contract. Additionally, the 1st Defendant avers that the obligation to pay for electrical work remains a primary responsibility of the 2nd Defendant under Article 2.5 and Clauses 3.4, 31.2, 34.5. 34.6 and 34.21.3 of the main contract.
36. The 1st Defendant noted that at the time of filing its defence, the final account had not yet been prepared or submitted by the quantity surveyor. However, it confirmed that the final account has since been completed and indicates a net amount of Kshs.28,698,318. 57 due to it. When added to the amounts outstanding in Certificate Nos. 16 (Kshs.30,163,414.05 and 17 (Kshs.15,909,897.29), the total principal amount due to the 1st Defendant stands at Kshs.74,663,414.05. The 1st Defendant seeks interest on delayed payment and prolongation costs. The 1st Defendant further stated that it is unaware of any claims the 2nd Defendant intends to bring against it, as no claims have been formally presented.
37. During the trial, each party called one witness. The Plaintiff witness PW1, Kayal Patel reiterated the contents of his witness statement. During cross examination, he admitted that he did not sign the subcontract agreement and has no formal training in construction, being a pharmacist by training. He confirmed that the Plaintiff had undertaken multiple projects and clarified that the dispute was not about figures but which party between the 1st and 2nd Defendant was responsible for payment.
38. He stated that the Plaintiff had previously received direct payments from the 2nd Defendant. He stated that he was unaware whether the 1st Defendant was owed money under certificates No’s 17 and 17 or whether the 1st Defendant had been paid. He also acknowledged non-compliance with Clause 31.5 of the contract and confirmed that Clause 31.1 provides for arbitration in case of disputes. During re-examination, he expressed frustration, stating that the Plaintiff was being “tossed around” and that none of the correspondence between the Defendants had been copied to the Plaintiff. He emphasized that the Plaintiff was not a party to the arbitration proceedings and could not enforce any resulting award. He also noted that the court had ruled on 8th March 2021 that there was no dispute to be referred to arbitration.
39. The 1st Defendant witness, DW1, Ramji Devji Varsani adopted his witness statement and produced all documents filed by the 1st Defendant. He testified that the 2nd Defendant, as the employer, instructed it to enter into a contract. He confirmed that the 1st Defendant had not received payment for Certificates Nos. 16 and 17 and therefore had no funds to pay the Plaintiff.
40. During cross examination, DW1 admitted that the 1st Defendant did not dispute the amount owed to the Plaintiff but maintained the 2nd Defendant was responsible for payment. He acknowledged that there was no clause in the contract explicitly stating that states that the 2nd Defendant was responsible for payment to the plaintiff although Clause 23.6 of the sub-contract implies such an obligation. He clarified that the 2nd Defendant was not a party to the subcontract.
41. He explained that the authorization letter issued to the 2nd Defendant was intended to save time and manage tax obligations, and that the 2nd Defendant did not respond to it because it was considered an automatic directive. He confirmed that previous payments to the Plaintiff had been made by the 2nd Defendant. DW1 also stated that the Plaintiff was indirectly involved in the arbitration proceedings along with other subcontractors, although the Plaintiff was not a witness in those proceedings. He testified that the arbitral award is in the process of being adopted by the court and that the Plaintiff’s claim was included in the counterclaim filed by the 1st Defendant. He emphasized that the Plaintiff lacks the capacity to enforce the arbitral award and reiterated that the 1st Defendant cannot pay the Plaintiff until it receives payment from the 2nd Defendant. He also confirmed that the court had ruled on a preliminary objection, directing that the matter be referred to arbitration. During cross examination by the 2nd Defendant’s counsel, DW1 testified that the parties to the main contract were the 1st and 2nd Defendant and that the employer, the 2nd Defendant, was responsible for paying the Plaintiff. When referred to the letter dated 10th December 2014 from the 1st Defendant to the 2nd Defendant authorizing direct payments to nominated sub-contractors DW1 stated that the letter was not responded to because it was a directive, not requiring a reply and that it was implemented. He stated that although the sub-contract was not formally amended, the letter served as an addendum..
42. During re-examination, DW1 stated that the Plaintiff was not nominated by the 1st Defendant but was instead procured by the 2nd Defendant. He emphasized that the main and subcontract were interrelated and must be interpretated together. DW1 confirmed that the 1st Defendant had not received payments and had not refused to pay the Plaintiff. Regarding the letter dated 10th December 2014, he testified that the Plaintiff is copied in the correspondence and raised no objection. He also clarified that not all certificates involve every contractor, but in this case, Certificates Nos. 16 and 17 did involve the Plaintiff.
43. DW2, the 2nd Defendant’s witness, Paul Mwangi Nduati, adopted his witness statement dated 4th October 2023 and produced the 2nd Defendant’s list and bundle of documents dated 2nd August 2022. During cross examination, he confirmed that the 2nd Defendant nominated the Plaintiff as a subcontractor. However, when referred to the letter dated 10th December 2014, he stated that the 2nd Defendant did not see or acknowledged receipt of the letter. He denied that the 2nd Defendant paid the Plaintiff directly although he acknowledged that the letter purported to authorize such payment. He maintained that the contract was never varied
44. . DW2 also confirmed that the 2nd Defendant had not paid the 1st Defendant. He stated that he did not recall receiving any demand letter from the Plaintiff. He acknowledged awareness of the arbitral award, and stated that four parties were involved in the arbitration; itself, the 1st Defendant, the Plaintiff and Volcanic Plumbing. He was uncertain whether the Plaintiff could enforce the award. He admitted that the 2nd Defendant had not paid the Plaintiff, citing the contract’s structure between the 1st Defendant and the 2nd Defendant. He claimed that the company lacked funds due to ongoing restructuring and insisted that the Plaintiff should follow the contract. He also stated that he is not aware of the ruling and does not recall the preliminary objection.
45. Upon further cross examination by the 1st Defendant’s counsel, DW2 conceded that the 2nd Defendant failure to pay its contractors reflected poorly on its reputation. He reiterated that the company was experiencing financial difficulties and was seeking investors. . He admitted that the 2nd Defendant did not denying that they owe the 1st Defendant and confirmed that it had not been involved in any legal proceedings with the Plaintiff.
46. DW2 acknowledged that the 2nd Defendant was in occupation of the completed complex and conducting business there. He confirmed that the counterclaim in the arbitration proceedings had been dismissed. He testified that both the architect and the Quantity Surveyor were employees of the 2nd Defendant, that the figures in the certificates were not disputed, and that the 2nd Defendant had no objection to the certificates themselves.
47. He stated that the 2nd Defendant was not under insolvency or winding up proceedings. He urged the court to enforce the contract as it had not been varied. He further testified that the 1st Defendant’s obligation to pay the Plaintiff arose after receiving payment from the 2nd Defendant.
48. At the close of the trial, all parties filed their respective submissions. The Plaintiff’s submissions were dated 10th January 2025; the 1st and 2nd Defendant’s submissions are both dated 19th March 2025 Parties highlighted their submissions on 20th March 2025.
Plaintiff’s submissions
49. In its written submissions, the Plaintiff, provided a comprehensive overview of its case and the Defendant’s positions, as presented during trial. It identified the following five issues for determination: (a)Whether the Plaintiff is entitled to payment of Kshs.28,049,334.13; (b) If the answer to (a) is in the affirmative, who between the 1st and 2nd Defendants is liable to pay the Plaintiff; (c) whether the Plaintiff is entitled to interest on the outstanding amount; (d) whether the Plaintiff’s claim against the Defendants should be referred to arbitration as prayed by the 1st Defendant and (e) Who should bear the costs of the suit.
50. On the first issue, the Plaintiff submitted that the amount of Kshs.28,049,334.13 as evaluated by the project Quantity Surveyor (QS) and certified by the Project Architect in certificates Nos. 16 and 17 is not in dispute. Citing the case of Dawynaus Limited versus FG Minter Limited [1971] 2 ALL ER 1389, the Plaintiff submitted that the issuance of certificates by the Architect affirms that the work was completed in accordance with the contract. It is submitted that both DW1 and DW2 acknowledged that the amount of Kshs.28,049,334.13/= due to it under certificates Nos. 16 and 17 is undisputed. The plaintiff also referred to the court’s ruling dated 14th June 2021, which dismissed the Defendant’s preliminary objection and acknowledged the 1st Defendant’s admissions that the Plaintiff is owed Kshs.28,049,334.13.
51. On the second issue, the Plaintiff submitted that, it was not a party to the main contract between the 1st and 2nd Defendant but was a party to the sub contract with the 1st Defendant. While making reference to the case of Agricultural Finance Corporation versus Lengetia Limited & Jack Mwangi [1985] eKLR, the Plaintiff argued that contractual right or obligation cannot accrue to a party who is not privy to the contract unless the matters fall within the known exceptions such as assignment or novation of contractual rights and obligations. The Plaintiff contended that the 1st Defendant’s denial of payment obligation is based on two contradictory argument; first, that it assigned its payment obligation to the 2nd Defendant via a letter dated 1oth December 2014 and second, that the obligation to pay only arises upon receipt of payment from the 2nd Defendant under Clauses 23.6 and 23.7 of the sub-contract. The Plaintiff argued that these positions are legally untenable and would result in an unjust outcome leaving it without a remedy despite having fulfilled its contractual obligations.
52. The Plaintiff maintained that the 1st Defendant’s claim of assigned must be considered within the context of the sub-contracts express contractual provisions. It argues that Clauses 23.6 and 23.7 of the subcontract commonly referred to as “pay-when-paid” or “back-to-back” clauses do not absolve the 1st Defendant of its payment obligations. According to the Plaintiff, these clauses only regulated the timing of payment and do not transfer liability. While relying on the decision in Zenith Steel Fabricators Limited v Continental Builders Limited & Another [2018] eKLR, the Plaintiff asserts that the contractual responsibility to pay remained with the 1st Defendant.
53. The Plaintiff further submits that Clause 23.9 of the subcontract only allows direct payment by the 2nd Defendant in limited circumstances: upon the Plaintiff’s application, and where the 1st Defendant fails to pay within 14 days prompting the Architect to issue a direct payment certificate to the Plaintiff. Since no such certificate were issued, the Plaintiff argued that the 1st Defendant remained liable under the subcontract.
54. The Plaintiff contends that the 1st Defendant’s letter dated 10th December 2014 cannot be construed as a valid assignment of its payment obligation. The issue of assignment was first raised in the 1st Defendant’s letter dated 23rd February 2017, in response to the Plaintiff’s demand for payment. The plaintiff argued that this correspondence contradicted Clause 15 of the subcontract, which required written consent from both the Plaintiff and the 2nd Defendant for any assignment. No such consent was provided. The Plaintiff also noted that no evidence of business custom was presented to support the 1st Defendant’s claim that such an authorization letter constituted a valid assignment. .
55. While relying on Helstan Securities v Hertfordshire C.C [1978] 3 All E.R 262 and Rockview Investments Limited v Mungei (Civil Appeal E078 of 2021) [2023] KEHC 21042, the Plaintiff submitted that the 1st Defendant’s letter authorising direct payment cannot legally amount to an assignment or variation of the subcontract. It reiterates, citing Zenith Steel Fabricators Limited v Continental Builders Limited & Another [2018] eKLR, that the 1st Defendant’s payment responsibility remained intact, even though the Plaintiff received direct payments from the 2nd Defendant for Interim Payment Certificates Nos. 12 to 15.
56. The Plaintiff further referred to decisions from the United Kingdom, Australia, and India, including the case of Kingstone Enterprises v NBCC (India) Limited & Another, W.P (C) No. 4517 of 2023, to support its argument that Clauses 23.6 and 23.7 of the subcontract merely regulated the payment timeline and do not make the 1st Defendant’s liability contingent on prior payment from the 2n
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