A. INTRODUCTION.
1. This appeal arises from the judgement and decree of Hon. E. A. Obina, Senior Principal Magistrate, delivered on 28th September, 2023 in Kisumu CMCC No. E086 of 2022. The proceedings before the trial court arose from a contractual dispute in which the Respondent, who was the Plaintiff before that court, instituted proceedings against the 1st and 2nd Appellants, who were the 1st and 2nd Defendants, respectively.
2. By a plaint dated 16th March, 2022, the Respondent sought to recover Ksh.9,961,305.81/- from the Appellants. The amount was claimed as interest allegedly accruing from the failure to pay Certificate No. 16, which the Respondent contended fell due on 5th March, 2012 but was not paid until 30th January, 2019.
3. The Appellants resisted the Respondent’s claim by filing a joint statement of defence dated 7th June 2022. In the defence, they wholly denied liability for the Respondent’s claim and prayed that the suit be dismissed with costs.
4. The trial court heard the matter and, on 29th September 2023, rendered judgement in favour of the Respondent. It entered judgment for the Respondent in the sum of Ksh.9,961,305.81, together with interest at court rates from the date of filing the suit until payment in full, as well as the costs of the suit.
5. Being aggrieved and dissatisfied with the judgement and decree of the trial court, particularly the findings and orders made in favour of the Respondent, the Appellants exercised their right of appeal and preferred the present appeal. Through the appeal, they challenge the trial court’s determination and seek the intervention of this Court on the grounds set out in their memorandum of appeal.
B. GROUNDS OF APPEAL.
6. The Appellants rely on the following grounds of appeal, as set out in their memorandum of appeal dated 24th October, 2023, in challenging and seeking to set aside the judgement and decree of the trial court:
i. The learned trial magistrate erred in both fact and law by awarding interest on late payment on retention while the same is not provided for in the contract.
ii. The learned Magistrate erred in law and in fact by relying on Clause 23.3 in the contract to award the Respondent/Plaintiff interest on retention, while Clauses 26.1 and 32.1 of the same contract expressly cover payment of retention and final Account payments respectively and the same clauses do not provide for payment of interest on delayed payment on retention.
iii. The Learned Magistrate erred in Fact and in law by awarding Kshs 9,961,305.81 to the Respondent/Plaintiff who did not specifically plead and prove the interest rate applied to arrive at that amount therefore their claim for the same was unsubstantiated and based on no evidence.
iv. The court erred by awarding Kshs. 9,961,305.81 without showing how they arrived at that amount and the same is manifestly harsh, unconscionable, oppressive and exorbitant.
v. The learned Magistrate erred in fact and law by not finding that the claimant was estopped for failing to make any demands for interest despite the fact that at the hearing, the respondent/claimant did not produce any demand letter/notice to show that they made any demand for payment of interest on retention and when in 2016 they accepted the payment without demanding for interest and that no demand was made before instituting the suit.
vi. The Learned Trial Magistrate erred in fact and in law in failing to take into account the Appellant/Defendant's submissions and cited authorities' copies which were availed.
7. The Appellants urge this Court to allow the appeal and set aside the judgement and decree of the trial court. They pray that the judgement and decree be substituted with an order dismissing the Respondent’s claim against them with costs.
8. In the alternative, the Appellants pray that the award made by the trial court be set aside and substituted with an award commensurate with the loss, if any, proved by the Respondent. They further pray that this Court make appropriate orders as to the costs of both the proceedings before the trial court and the present appeal.
C. DUTY OF THIS COURT.
9. As this is a first appeal, I am obligated, pursuant to Section 78 of the Civil Procedure Act and as articulated in Selle v Associated Motor Boat Co. Ltd [1969] E.A. 123, to re-assess, re-analyze and re-evaluate the evidence presented before the trial court and to arrive at my own conclusions, bearing in mind that I neither saw nor heard the witnesses testify.
10. In Selle, Sir Clement De Lestang observed that:
“This Court must consider the evidence, evaluate it itself and draw its own conclusions, though in doing so it should always bear in mind that it neither heard witnesses and should make due allowance in this respect.
However, this Court is not bound necessarily to follow the trial judge’s findings of fact if it appears either that he had clearly failed on some point to take account of particular circumstances or probabilities, materially to estimate the evidence or if the impression based on the demeanour of a witness is inconsistent with the evidence in the case generally.”
11. The duty of the first appellate court was also discussed by the Court of Appeal for East Africa in the case of Peters v Sunday Post Limited [1958] EA 424 in which it was held that the appropriate standard of review established in cases of appeal can be stated in three complementary principles:
“i. First, on first appeal, the Court is under a duty to reconsider and re-evaluate the evidence on record and draw its own conclusions;
ii. In reconsidering and re-evaluating the evidence, the first appellate court must bear in mind and give due allowance to the fact that the trial court had the advantage of seeing and hearing the witnesses testify before her; and
iii. It is not open to the first appellate court to review the findings of a trial court simply because it would have reached different results if it were hearing the matter for the first time.”
D. THE PLEADINGS BEFORE THE TRIAL COURT.
12. The Respondent pleaded in the plaint that it was a limited liability company incorporated under the Companies Act and that the 1st Appellant was a national government department or ministry responsible for internal national security, public administration and the co-ordination of the national government, while the 2nd Appellant was a public officer established under the National Police Service Act and responsible for the Kenya National Police Service.
13. The Respondent averred that, sometime in the year 2008, the Appellants advertised a tender for the construction of the proposed 24 Type E flats at Kondele Police Station, Kisumu. The Respondent successfully tendered for the works and, consequently, entered into a contract with the Appellants on 12th March, 2008 for the construction of the said flats.
14. The Respondent pleaded that the original contract sum was Ksh.84,381,918.00/-. However, after commencement of the works, the scope of the project was varied following instructions issued by the Project Manager. The variations amounted to Ksh.9,460,854.41/-, while other contractual claims arising from price fluctuations and additional works amounted to Ksh.14,925,859.00/-, thereby increasing the total contractual sum to Ksh.108,768,631.41/-.
15. The Respondent further pleaded that the contract period was 52 weeks but that delays in the payment of certificates by the Appellants affected the timely completion of the project and necessitated an extension of the contract period. Despite the difficulties occasioned by the delayed payments, the Respondent completed the works and handed over the project on 19th July, 2011. Upon the expiry of the defects’ liability period, the Respondent was issued with a Certificate of Practical Completion and subsequently a Certificate of Making Good Defects.
16. The Respondent averred that the Appellants delayed payment of the retention monies and other certified amounts, thereby attracting interest under the express terms of the contract. In particular, the Project Manager issued Final Certificate No. 16, which became due for payment on 5th March, 2012 in the sum of Ksh.11,032,015.84/-. The Respondent pleaded that the Appellants delayed payment of that amount until 30th June, 2019.
17. The Respondent relied on Clause 23.3 of the contract, which provided, in substance, that the Employer was required to pay certified amounts within 30 days of the date of issue of each certificate and that, where payment was delayed, the Contractor would be paid simple interest on the delayed payment. The interest was to be calculated on the basis of the number of days of delay at a rate three percentage points above the Central Bank of Kenya’s average base lending rate prevailing on the date the payment became overdue.
18. The Respondent consequently pleaded that the delayed payment of the certified amounts, and in particular the final payment of Ksh.11,032,015.84/- which was made approximately eight years after it fell due, attracted contractual interest. It calculated the accrued interest at Ksh.9,961,305.81/-, based on three percentage points above the applicable Central Bank of Kenya lending rates during the relevant period.
19. The Respondent’s claim against the Appellants was therefore for Ksh.9,961,305.81/-, being interest allegedly due under Clause 23.3 of the contract on account of the delayed payment of the certified sums. The Respondent pleaded that, despite demand and the issuance of a notice of intention to sue, the Appellants failed or neglected to settle the claimed amount, thereby necessitating the institution of the suit.
20. The Respondent consequently sought judgement against the Appellants, jointly and severally, for Ksh.9,961,305.81/-, together with interest accruing under Clause 23.3 of the contract, interest at the rate of three percentage points above the Central Bank of Kenya lending rate until payment in full, and the costs and interest of the suit.
21. The Appellants resisted the Respondent’s claim and denied each and every allegation contained in the plaint and put the Respondent to strict proof thereof.
22. They denied the allegations relating to the tender, the contract and the Respondent’s claim, and put the Respondent to strict proof thereof. In respect of several other averments in the plaint, the Appellants stated that they were strangers to the matters pleaded and similarly required the Respondent to prove them.
23. The Appellants further pleaded that the suit was time-barred by virtue of Section 3(2) of the Public Authorities Limitation Act, Cap. 39, Laws of Kenya. They admitted only that there had been no previous proceedings between the parties concerning the same subject matter.
24. The Appellants denied that a demand and notice of intention to sue had been issued against them and put the Respondent to strict proof thereof. They also denied the jurisdiction of the trial court to hear and determine the suit.
25. On that basis, the Appellants prayed that the Respondent’s suit be dismissed with costs on the ground that it disclosed no reasonable cause of action against them.
26. The Respondent filed a reply to the statement of defence, thereby joining issue with the Appellants’ defence and reiterating the averments contained in the plaint. The Respondent further denied the Appellants’ contention that the suit was time-barred.
E. THE EVIDENCE BEFORE THE TRIAL COURT.
27. The Respondent called its director Samwel Okumu Odhiambo who testified as PW1 and adopted the contents of his witness statement dated 16th March, 2021, in which she stated that sometime in the year 2008, the Appellant advertised a tender for the construction of 24 Type E flats at Kondele Police Station, Kisumu, which the Respondent successfully bid for.
28. Consequently, the parties entered into a contract dated 12th March, 2008, for the construction of the said flats at an initial contract sum of Ksh.84,381,918.00/-. He stated that, following variations to the initial contract, including changes in the scope of works instructed by the Project Manager, price fluctuations and extra works, the contract sum eventually escalated to Ksh.108,768,631.41/-.
29. He testified that the contract period was 52 weeks but that, owing to delayed payments by the Appellant after certificates had been issued by the Project Manager, the project could not be completed within the initial contractual period, thereby necessitating an extension.
30. Despite the difficulties occasioned by the delayed payments, the Respondent completed the project and handed it over on 19th July, 2011. Thereafter, the defect liability period elapsed, and the Respondent was issued with a Certificate of Practical Completion and subsequently a Certificate confirming that the defects had been made good.
31. The witness further stated that the Project Manager issued Final Certificate No. 16 for practical completion and payment on 5th March, 2012, in the sum of Ksh.11,032,015.84/-. However, the Appellant delayed payment of the said amount until 30th June, 2019. He set out the payments made against the certificates issued during the project and maintained that the payments were made late.
32. PW1 relied on Clause 23.3 of the contract, which provided verbatim as follows:
“Payments shall be adjusted for deductions for retention. The Employer shall pay the Contractor the amounts certified by the Project Manager within 90 days of the date of issue of each certificate. If the Employer makes a late payment, the Contractor shall be paid simple interest on the late payment in the next payment. Interest shall be calculated on the basis of number of days delayed at a rate three percentage points above the Central Bank of Kenya’s average rate for base lending prevailing as of the first day the payment becomes overdue.”
33. The witness stated that, by reason of the delayed payments, interest accrued on the sums that remained outstanding. In particular, he contended that the final payment of Ksh.11,032,015.84/- was made approximately eight years after the amount fell due.
34. PW1 consequently calculated the accrued interest at Ksh.9,961,305.81/-, based on the contractual rate of three percentage points above the applicable Central Bank lending rates.
35. The Respondent’s claim was therefore for Ksh.9,961,305.81/-, being interest arising from the delayed payment of the certified sums pursuant to Clause 23.3 of the contract.
36. The witness produced the following documents in support of the Respondent’s case:
- A copy of a letter dated 3rd March, 2012.
- A copy of a letter dated dated 5th March, 2012.
- A copy of a letter dated 11th May, 2016.
- A copy of a letter dated 31st May, 2016.
- A copy of a letter dated 8th November, 2016.
- A copy of summary of statement for final payment.
- Copies of summary of variation orders.
- Copies of statement for payment on account.
- Copies of payment vouchers.
- A copy of the tender document and agreement dated 12th March, 2008.
37. On cross examination, PW1 told the trial court that the Respondent had been a contractor for many years and had undertaken several government projects. He explained that payments under such contracts were made in instalments until the project was completed and the relevant certificates issued.
38. The witness stated that, upon completion, 50% of the amount was paid, with the remaining 50% being paid after six months. He maintained that, in the present case, there were payments made during the course of the project, but the payments were delayed, and that he had raised the issue of the delay in payment.
39. PW1 further testified that a Certificate of Completion was issued in 2011, another Certificate was issued in 2012 and that the Respondent was issued with a final statement of accounts in 2016. He clarified that the Respondent’s claim was solely for interest and that it was claiming interest from 5th March, 2012.
40. The witness acknowledged that the Certificate of Final Payment was issued on 11th May, 2016. He also referred to the provisions on settlement of disputes, including Clause 37, which in precis provided that disputes or differences arising between the Employer and the Contractor were to be notified and, subject to an attempt at amicable settlement, referred to arbitration in accordance with the procedure stipulated in the contract, with the arbitrator having jurisdiction to determine the matters in dispute and the resulting award being final and binding upon the parties.
41. The witness however maintained that the Respondent’s claim was purely for interest and that there was no architectural dispute requiring determination.
42. On re-examination, PW1 reiterated that the basis of the Respondent’s claim was the delay in payment and that the Respondent was claiming interest as provided for under Clause 23.3 of the contract. He maintained that Clause 23.3 applied to all the certificates issued under the contract.
43. The witness explained that a payment certificate was a document issued during the execution of the works, while a final certificate was a compilation of all the certificates. He further stated that a payment certificate formed the basis for payment and that, upon completion of the works, 50% could be paid, with the remaining 50% being paid after six months. PW1 added that no objection had been raised when he gave his testimony.
44. At that juncture, the Respondent closed its case.
45. The Appellants did not call any witnesses and likewise closed their case.
F. THE TRIAL COURT’S FINDINGS.
46. The trial court considered the pleadings, evidence and submissions before it and the applicable law, and identified the issues for determination as whether the Appellants had advertised the tender for the construction of 24 Type E flats at Kondele Police Station, whether the Respondent had bid for and won the tender, whether the parties had entered into a contract, the nature and cause of any difficulties encountered in the performance of the contract, whether the Respondent had proved its case on a balance of probabilities and the issue of costs.
47. The trial court noted that the Respondent’s case was that the parties had entered into a construction contract on 12th March, 2008, under which the Respondent undertook the construction works. The contract sum was subsequently varied, and the project was affected by delays in payment, resulting in an extension of the contract period. The Respondent eventually completed and handed over the project on 19th July, 2011, after which certificates of completion and making good defects were issued.
48. The trial court further found that Certificate No. 16, amounting to Ksh.11,032,015.84/-, became due for payment on 5th March, 2012 but was not paid until 30th June, 2019.
49. The trial court observed that the Appellants had filed a defence but did not call any evidence. It therefore held that the Respondent’s oral and documentary evidence remained unchallenged, and that the Appellants’ submissions could not substitute evidence or prove the averments contained in their defence.
50. The court consequently found that the Appellants had advertised the tender, that the Respondent had bid for and won it, and that the parties had entered into the construction agreement. It further found that the difficulties encountered in the performance of the contract were occasioned by the Appellants’ adjustments and delays in making payments.
51. On the question of interest, the trial court considered Clause 23.3 of the contract, which required payment of certified amounts within 30 days and provided for interest on late payment at three percentage points above the Central Bank of Kenya’s average base lending rate prevailing when the payment became overdue. It held that, since Certificate No. 16 remained unpaid beyond the contractual period and was eventually settled approximately eight years later, interest became payable under the contractual provision.
52. The court rejected the Appellants’ contention that there was no contractual basis for interest on the retained amount and held that it was not its role to rewrite the parties’ contract.
53. The trial court also rejected the Appellants’ reliance on the arbitration clause and their plea of limitation, finding that they had participated in the proceedings after filing a defence and had invoked arbitration too late. It further held that the subsequent payment made by the Appellants eight years later had effectively breathed life into the contractual relationship, thereby defeating the plea of limitation.
54. In the result, the trial court entered judgement for the Respondent in the sum of Ksh.9,961,305.81/-, with interest at court rates from the date of filing suit until payment in full, and awarded the Respondent the costs of the suit.
G. THE APPELLANTS’ SUBMISSIONS.
55. Now to this appeal, the Appellant submited that the appeal arose from the Respondent’s claim for Ksh.9,961,305.81/-, being interest allegedly due on account of delayed payment of certified sums under a construction contract.
56. They contended that the Respondent had pleaded that the Appellants delayed payment of retention monies after the expiry of the defects’ liability period and that the delayed payments consequently attracted interest under the express terms of the contract. In particular, the Respondent claimed that the final payment of Ksh.11,032,015.84/-, which it alleged fell due on 5th March, 2012, was only paid on 30th June, 2019, approximately eight years later. The Respondent consequently claimed Ksh.9,961,305.81/- as interest calculated at three percentage points above the prevailing Central Bank of Kenya lending rate.
57. In addressing the circumstances in which an appellate court may interfere with a trial court’s findings of fact, the Appellants relied on the authority of Mwanasokoni v Kenya Bus Services Ltd & 3 Others [1985] KECA 131 (KLR), where Hancox, JA stated that an appellate court will only disturb a finding of fact where the finding is based on no evidence, is founded on a misapprehension of the evidence, or where the trial court is shown demonstrably to have acted on wrong principles in reaching the finding.
58. The Appellants submitted that the trial court fell within those circumstances because it misapprehended the evidence and applied wrong legal principles in finding in favour of the Respondent.
59. The Appellants’ principal contention was that the contract did not provide for the payment of interest on delayed retention monies or on the final account in the manner claimed by the Respondent. They argued that the trial court therefore erred in applying Clause 23.3 of the contract to Certificate No. 16, which, in their submission, related neither to retention monies nor to the final account.
60. The Appellants observed that the Respondent had pleaded that the Appellants delayed payment of retention monies after the expiry of the defects’ liability period and that the certified amounts were consequently to earn interest under the express terms of the contract.
61. The Respondent relied on Clause 23.3, which provided that payments were to be adjusted for deductions for retention; that the Employer was to pay the Contractor amounts certified by the Project Manager within 30 days of the date of issue of each certificate; and that, in the event of late payment, the Contractor would be paid simple interest on the late payment in the next payment. The interest was to be calculated on the basis of the number of days delayed at a rate three percentage points above the Central Bank of Kenya’s average base lending rate prevailing on the first day the payment became overdue.
62. The Appellants submitted, however, that the Respondent’s own pleadings disclosed an inconsistency concerning Certificate No. 16. Whereas the Respondent pleaded that the certificate became due for payment on 5th March, 2012, its schedule of certificates stated that Certificate No. 16 was issued on 11th May, 2016. The Appellants argued that the discrepancy was material because, if interest were payable at all, the date from which it could run would depend on the date on which the certificate was issued and became payable.
63. The Appellants further submitted that it was undisputed at the trial that payments under the contract were subject to a 10% retention, which was payable in two moieties. The first half was payable upon issuance of the Certificate of Practical Completion, while the second half was payable upon expiry of the defects’ liability period and certification that the notified defects had been remedied.
64. The Appellants referred to the Respondent’s documentary evidence, including payment vouchers relating to the two portions of the retention monies, the Certificate of Practical Completion dated 9th July, 2011, the Certificate of Making Good Defects dated 15th March, 2012 and the summary statement relating to the sixteenth and final certificate dated 11th May, 2016. They argued that the evidence demonstrated that the outstanding amounts comprised retention monies and final account payments.
65. The Appellants contended that the contract contained a specific provision dealing with retention, namely Clause 26.1. That clause provided that the Employer would retain from each payment due to the Contractor the proportion stated in the Appendix to the Conditions of Contract until completion of the whole of the works; that, upon completion of the works, half of the total amount retained would be repaid; and that the remaining half would be paid upon expiry of the defects’ liability period and certification by the Project Manager that all defects notified to the Contractor had been corrected.
66. The Appellants submitted that Clause 23.3 dealt with payments made during the course of the contract and required deductions for retention to be made from such payments. It did not, however, provide for the payment of interest on retention monies. According to the Appellants, the mode and timing of repayment of the retention monies were specifically governed by Clause 26.1. They therefore argued that the trial court erred by relying on Clause 23.3 to award interest on amounts which were, in substance, retention monies governed by Clause 26.1.
67. The Appellants further submitted that the contract separately provided for payment of the final account under Clause 32.1. That clause required the Contractor to submit to the Project Manager a detailed account of the total amount considered payable under the contract before the end of the defects liability period.
68. The Project Manager was then required to issue a Defects Liability Certificate and certify any final payment due within 30 days of receiving a correct and complete account. Where the account was unsatisfactory, the Project Manager was required to identify the necessary corrections or additions, and, where the account remained unsatisfactory after resubmission, to determine the amount payable and issue a payment certificate. The Employer was required to pay the amount due under the Final Certificate within 60 days.
69. The Appellants argued that Clause 32.1 contained no provision for interest on delayed payment of the final account. Similarly, Clause 26.1 contained no provision for interest on delayed payment of retention monies. Their position was therefore that the Respondent could not rely on Clause 23.3, an unrelated contractual provision, to claim interest on delayed payment of retention monies and the final account. They submitted that the trial court consequently erred in law by importing an interest obligation into the contract where none existed.
70. The Appellants further argued that the manner in which the Respondent presented its claim was confusing and that the confusion led the trial court to make a finding unsupported by the evidence. They referred to the trial court’s statement that “if Certificate No. 16 dated 5th March 2012 remained unsettled after 30 days,” interest would accrue.
71. The Appellants submitted that the evidence, including the Respondent’s own documents and pleadings, showed that Certificate No. 16 was issued on 11th May 2016. They therefore argued that, even if Clause 23.3 were applicable, interest could only have commenced 30 days after 11th May, 2016, and not from 5th March, 2012. The Appellants contended that the trial court consequently applied an erroneous formula in computing the interest awarded.
72. The Appellants submitted that the award of interest for a period preceding the filing of a suit is a matter of substantive law and is subject to established legal principles. They relied on Highway Furniture Mart Limited v Permanent Secretary & Another [2006] 2 EA 94 (CA), where the Court of Appeal adopted the principle stated in New Types Enterprises Ltd v Kenya Achand Insurance Company Ltd [1988] KLR 380 that an award of interest for a period prior to the filing of suit is a matter of substantive law.
73. The Appellants further relied on the principle stated in Mulla, The Code of Civil Procedure, 16th Edition, Volume 1, that antecedent interest is claimable where there is an agreement stipulating the rate of interest, where interest is allowed by mercantile usage which must be pleaded and proved, where there is a statutory right to interest, or where an agreement to pay interest may be implied from the parties’ course of dealing.
74. The Appellants submitted that the Respondent failed to satisfy those requirements because it neither proved an express contractual provision for interest on delayed payment of retention monies and the final account nor established any implied contractual basis for the claim. They argued that the mere existence of Clause 23.3 did not assist the Respondent because, properly construed, that clause did not app
[...truncated]
1. This appeal arises from the judgement and decree of Hon. E. A. Obina, Senior Principal Magistrate, delivered on 28th September, 2023 in Kisumu CMCC No. E086 of 2022. The proceedings before the trial court arose from a contractual dispute in which the Respondent, who was the Plaintiff before that court, instituted proceedings against the 1st and 2nd Appellants, who were the 1st and 2nd Defendants, respectively.
2. By a plaint dated 16th March, 2022, the Respondent sought to recover Ksh.9,961,305.81/- from the Appellants. The amount was claimed as interest allegedly accruing from the failure to pay Certificate No. 16, which the Respondent contended fell due on 5th March, 2012 but was not paid until 30th January, 2019.
3. The Appellants resisted the Respondent’s claim by filing a joint statement of defence dated 7th June 2022. In the defence, they wholly denied liability for the Respondent’s claim and prayed that the suit be dismissed with costs.
4. The trial court heard the matter and, on 29th September 2023, rendered judgement in favour of the Respondent. It entered judgment for the Respondent in the sum of Ksh.9,961,305.81, together with interest at court rates from the date of filing the suit until payment in full, as well as the costs of the suit.
5. Being aggrieved and dissatisfied with the judgement and decree of the trial court, particularly the findings and orders made in favour of the Respondent, the Appellants exercised their right of appeal and preferred the present appeal. Through the appeal, they challenge the trial court’s determination and seek the intervention of this Court on the grounds set out in their memorandum of appeal.
B. GROUNDS OF APPEAL.
6. The Appellants rely on the following grounds of appeal, as set out in their memorandum of appeal dated 24th October, 2023, in challenging and seeking to set aside the judgement and decree of the trial court:
i. The learned trial magistrate erred in both fact and law by awarding interest on late payment on retention while the same is not provided for in the contract.
ii. The learned Magistrate erred in law and in fact by relying on Clause 23.3 in the contract to award the Respondent/Plaintiff interest on retention, while Clauses 26.1 and 32.1 of the same contract expressly cover payment of retention and final Account payments respectively and the same clauses do not provide for payment of interest on delayed payment on retention.
iii. The Learned Magistrate erred in Fact and in law by awarding Kshs 9,961,305.81 to the Respondent/Plaintiff who did not specifically plead and prove the interest rate applied to arrive at that amount therefore their claim for the same was unsubstantiated and based on no evidence.
iv. The court erred by awarding Kshs. 9,961,305.81 without showing how they arrived at that amount and the same is manifestly harsh, unconscionable, oppressive and exorbitant.
v. The learned Magistrate erred in fact and law by not finding that the claimant was estopped for failing to make any demands for interest despite the fact that at the hearing, the respondent/claimant did not produce any demand letter/notice to show that they made any demand for payment of interest on retention and when in 2016 they accepted the payment without demanding for interest and that no demand was made before instituting the suit.
vi. The Learned Trial Magistrate erred in fact and in law in failing to take into account the Appellant/Defendant's submissions and cited authorities' copies which were availed.
7. The Appellants urge this Court to allow the appeal and set aside the judgement and decree of the trial court. They pray that the judgement and decree be substituted with an order dismissing the Respondent’s claim against them with costs.
8. In the alternative, the Appellants pray that the award made by the trial court be set aside and substituted with an award commensurate with the loss, if any, proved by the Respondent. They further pray that this Court make appropriate orders as to the costs of both the proceedings before the trial court and the present appeal.
C. DUTY OF THIS COURT.
9. As this is a first appeal, I am obligated, pursuant to Section 78 of the Civil Procedure Act and as articulated in Selle v Associated Motor Boat Co. Ltd [1969] E.A. 123, to re-assess, re-analyze and re-evaluate the evidence presented before the trial court and to arrive at my own conclusions, bearing in mind that I neither saw nor heard the witnesses testify.
10. In Selle, Sir Clement De Lestang observed that:
“This Court must consider the evidence, evaluate it itself and draw its own conclusions, though in doing so it should always bear in mind that it neither heard witnesses and should make due allowance in this respect.
However, this Court is not bound necessarily to follow the trial judge’s findings of fact if it appears either that he had clearly failed on some point to take account of particular circumstances or probabilities, materially to estimate the evidence or if the impression based on the demeanour of a witness is inconsistent with the evidence in the case generally.”
11. The duty of the first appellate court was also discussed by the Court of Appeal for East Africa in the case of Peters v Sunday Post Limited [1958] EA 424 in which it was held that the appropriate standard of review established in cases of appeal can be stated in three complementary principles:
“i. First, on first appeal, the Court is under a duty to reconsider and re-evaluate the evidence on record and draw its own conclusions;
ii. In reconsidering and re-evaluating the evidence, the first appellate court must bear in mind and give due allowance to the fact that the trial court had the advantage of seeing and hearing the witnesses testify before her; and
iii. It is not open to the first appellate court to review the findings of a trial court simply because it would have reached different results if it were hearing the matter for the first time.”
D. THE PLEADINGS BEFORE THE TRIAL COURT.
12. The Respondent pleaded in the plaint that it was a limited liability company incorporated under the Companies Act and that the 1st Appellant was a national government department or ministry responsible for internal national security, public administration and the co-ordination of the national government, while the 2nd Appellant was a public officer established under the National Police Service Act and responsible for the Kenya National Police Service.
13. The Respondent averred that, sometime in the year 2008, the Appellants advertised a tender for the construction of the proposed 24 Type E flats at Kondele Police Station, Kisumu. The Respondent successfully tendered for the works and, consequently, entered into a contract with the Appellants on 12th March, 2008 for the construction of the said flats.
14. The Respondent pleaded that the original contract sum was Ksh.84,381,918.00/-. However, after commencement of the works, the scope of the project was varied following instructions issued by the Project Manager. The variations amounted to Ksh.9,460,854.41/-, while other contractual claims arising from price fluctuations and additional works amounted to Ksh.14,925,859.00/-, thereby increasing the total contractual sum to Ksh.108,768,631.41/-.
15. The Respondent further pleaded that the contract period was 52 weeks but that delays in the payment of certificates by the Appellants affected the timely completion of the project and necessitated an extension of the contract period. Despite the difficulties occasioned by the delayed payments, the Respondent completed the works and handed over the project on 19th July, 2011. Upon the expiry of the defects’ liability period, the Respondent was issued with a Certificate of Practical Completion and subsequently a Certificate of Making Good Defects.
16. The Respondent averred that the Appellants delayed payment of the retention monies and other certified amounts, thereby attracting interest under the express terms of the contract. In particular, the Project Manager issued Final Certificate No. 16, which became due for payment on 5th March, 2012 in the sum of Ksh.11,032,015.84/-. The Respondent pleaded that the Appellants delayed payment of that amount until 30th June, 2019.
17. The Respondent relied on Clause 23.3 of the contract, which provided, in substance, that the Employer was required to pay certified amounts within 30 days of the date of issue of each certificate and that, where payment was delayed, the Contractor would be paid simple interest on the delayed payment. The interest was to be calculated on the basis of the number of days of delay at a rate three percentage points above the Central Bank of Kenya’s average base lending rate prevailing on the date the payment became overdue.
18. The Respondent consequently pleaded that the delayed payment of the certified amounts, and in particular the final payment of Ksh.11,032,015.84/- which was made approximately eight years after it fell due, attracted contractual interest. It calculated the accrued interest at Ksh.9,961,305.81/-, based on three percentage points above the applicable Central Bank of Kenya lending rates during the relevant period.
19. The Respondent’s claim against the Appellants was therefore for Ksh.9,961,305.81/-, being interest allegedly due under Clause 23.3 of the contract on account of the delayed payment of the certified sums. The Respondent pleaded that, despite demand and the issuance of a notice of intention to sue, the Appellants failed or neglected to settle the claimed amount, thereby necessitating the institution of the suit.
20. The Respondent consequently sought judgement against the Appellants, jointly and severally, for Ksh.9,961,305.81/-, together with interest accruing under Clause 23.3 of the contract, interest at the rate of three percentage points above the Central Bank of Kenya lending rate until payment in full, and the costs and interest of the suit.
21. The Appellants resisted the Respondent’s claim and denied each and every allegation contained in the plaint and put the Respondent to strict proof thereof.
22. They denied the allegations relating to the tender, the contract and the Respondent’s claim, and put the Respondent to strict proof thereof. In respect of several other averments in the plaint, the Appellants stated that they were strangers to the matters pleaded and similarly required the Respondent to prove them.
23. The Appellants further pleaded that the suit was time-barred by virtue of Section 3(2) of the Public Authorities Limitation Act, Cap. 39, Laws of Kenya. They admitted only that there had been no previous proceedings between the parties concerning the same subject matter.
24. The Appellants denied that a demand and notice of intention to sue had been issued against them and put the Respondent to strict proof thereof. They also denied the jurisdiction of the trial court to hear and determine the suit.
25. On that basis, the Appellants prayed that the Respondent’s suit be dismissed with costs on the ground that it disclosed no reasonable cause of action against them.
26. The Respondent filed a reply to the statement of defence, thereby joining issue with the Appellants’ defence and reiterating the averments contained in the plaint. The Respondent further denied the Appellants’ contention that the suit was time-barred.
E. THE EVIDENCE BEFORE THE TRIAL COURT.
27. The Respondent called its director Samwel Okumu Odhiambo who testified as PW1 and adopted the contents of his witness statement dated 16th March, 2021, in which she stated that sometime in the year 2008, the Appellant advertised a tender for the construction of 24 Type E flats at Kondele Police Station, Kisumu, which the Respondent successfully bid for.
28. Consequently, the parties entered into a contract dated 12th March, 2008, for the construction of the said flats at an initial contract sum of Ksh.84,381,918.00/-. He stated that, following variations to the initial contract, including changes in the scope of works instructed by the Project Manager, price fluctuations and extra works, the contract sum eventually escalated to Ksh.108,768,631.41/-.
29. He testified that the contract period was 52 weeks but that, owing to delayed payments by the Appellant after certificates had been issued by the Project Manager, the project could not be completed within the initial contractual period, thereby necessitating an extension.
30. Despite the difficulties occasioned by the delayed payments, the Respondent completed the project and handed it over on 19th July, 2011. Thereafter, the defect liability period elapsed, and the Respondent was issued with a Certificate of Practical Completion and subsequently a Certificate confirming that the defects had been made good.
31. The witness further stated that the Project Manager issued Final Certificate No. 16 for practical completion and payment on 5th March, 2012, in the sum of Ksh.11,032,015.84/-. However, the Appellant delayed payment of the said amount until 30th June, 2019. He set out the payments made against the certificates issued during the project and maintained that the payments were made late.
32. PW1 relied on Clause 23.3 of the contract, which provided verbatim as follows:
“Payments shall be adjusted for deductions for retention. The Employer shall pay the Contractor the amounts certified by the Project Manager within 90 days of the date of issue of each certificate. If the Employer makes a late payment, the Contractor shall be paid simple interest on the late payment in the next payment. Interest shall be calculated on the basis of number of days delayed at a rate three percentage points above the Central Bank of Kenya’s average rate for base lending prevailing as of the first day the payment becomes overdue.”
33. The witness stated that, by reason of the delayed payments, interest accrued on the sums that remained outstanding. In particular, he contended that the final payment of Ksh.11,032,015.84/- was made approximately eight years after the amount fell due.
34. PW1 consequently calculated the accrued interest at Ksh.9,961,305.81/-, based on the contractual rate of three percentage points above the applicable Central Bank lending rates.
35. The Respondent’s claim was therefore for Ksh.9,961,305.81/-, being interest arising from the delayed payment of the certified sums pursuant to Clause 23.3 of the contract.
36. The witness produced the following documents in support of the Respondent’s case:
- A copy of a letter dated 3rd March, 2012.
- A copy of a letter dated dated 5th March, 2012.
- A copy of a letter dated 11th May, 2016.
- A copy of a letter dated 31st May, 2016.
- A copy of a letter dated 8th November, 2016.
- A copy of summary of statement for final payment.
- Copies of summary of variation orders.
- Copies of statement for payment on account.
- Copies of payment vouchers.
- A copy of the tender document and agreement dated 12th March, 2008.
37. On cross examination, PW1 told the trial court that the Respondent had been a contractor for many years and had undertaken several government projects. He explained that payments under such contracts were made in instalments until the project was completed and the relevant certificates issued.
38. The witness stated that, upon completion, 50% of the amount was paid, with the remaining 50% being paid after six months. He maintained that, in the present case, there were payments made during the course of the project, but the payments were delayed, and that he had raised the issue of the delay in payment.
39. PW1 further testified that a Certificate of Completion was issued in 2011, another Certificate was issued in 2012 and that the Respondent was issued with a final statement of accounts in 2016. He clarified that the Respondent’s claim was solely for interest and that it was claiming interest from 5th March, 2012.
40. The witness acknowledged that the Certificate of Final Payment was issued on 11th May, 2016. He also referred to the provisions on settlement of disputes, including Clause 37, which in precis provided that disputes or differences arising between the Employer and the Contractor were to be notified and, subject to an attempt at amicable settlement, referred to arbitration in accordance with the procedure stipulated in the contract, with the arbitrator having jurisdiction to determine the matters in dispute and the resulting award being final and binding upon the parties.
41. The witness however maintained that the Respondent’s claim was purely for interest and that there was no architectural dispute requiring determination.
42. On re-examination, PW1 reiterated that the basis of the Respondent’s claim was the delay in payment and that the Respondent was claiming interest as provided for under Clause 23.3 of the contract. He maintained that Clause 23.3 applied to all the certificates issued under the contract.
43. The witness explained that a payment certificate was a document issued during the execution of the works, while a final certificate was a compilation of all the certificates. He further stated that a payment certificate formed the basis for payment and that, upon completion of the works, 50% could be paid, with the remaining 50% being paid after six months. PW1 added that no objection had been raised when he gave his testimony.
44. At that juncture, the Respondent closed its case.
45. The Appellants did not call any witnesses and likewise closed their case.
F. THE TRIAL COURT’S FINDINGS.
46. The trial court considered the pleadings, evidence and submissions before it and the applicable law, and identified the issues for determination as whether the Appellants had advertised the tender for the construction of 24 Type E flats at Kondele Police Station, whether the Respondent had bid for and won the tender, whether the parties had entered into a contract, the nature and cause of any difficulties encountered in the performance of the contract, whether the Respondent had proved its case on a balance of probabilities and the issue of costs.
47. The trial court noted that the Respondent’s case was that the parties had entered into a construction contract on 12th March, 2008, under which the Respondent undertook the construction works. The contract sum was subsequently varied, and the project was affected by delays in payment, resulting in an extension of the contract period. The Respondent eventually completed and handed over the project on 19th July, 2011, after which certificates of completion and making good defects were issued.
48. The trial court further found that Certificate No. 16, amounting to Ksh.11,032,015.84/-, became due for payment on 5th March, 2012 but was not paid until 30th June, 2019.
49. The trial court observed that the Appellants had filed a defence but did not call any evidence. It therefore held that the Respondent’s oral and documentary evidence remained unchallenged, and that the Appellants’ submissions could not substitute evidence or prove the averments contained in their defence.
50. The court consequently found that the Appellants had advertised the tender, that the Respondent had bid for and won it, and that the parties had entered into the construction agreement. It further found that the difficulties encountered in the performance of the contract were occasioned by the Appellants’ adjustments and delays in making payments.
51. On the question of interest, the trial court considered Clause 23.3 of the contract, which required payment of certified amounts within 30 days and provided for interest on late payment at three percentage points above the Central Bank of Kenya’s average base lending rate prevailing when the payment became overdue. It held that, since Certificate No. 16 remained unpaid beyond the contractual period and was eventually settled approximately eight years later, interest became payable under the contractual provision.
52. The court rejected the Appellants’ contention that there was no contractual basis for interest on the retained amount and held that it was not its role to rewrite the parties’ contract.
53. The trial court also rejected the Appellants’ reliance on the arbitration clause and their plea of limitation, finding that they had participated in the proceedings after filing a defence and had invoked arbitration too late. It further held that the subsequent payment made by the Appellants eight years later had effectively breathed life into the contractual relationship, thereby defeating the plea of limitation.
54. In the result, the trial court entered judgement for the Respondent in the sum of Ksh.9,961,305.81/-, with interest at court rates from the date of filing suit until payment in full, and awarded the Respondent the costs of the suit.
G. THE APPELLANTS’ SUBMISSIONS.
55. Now to this appeal, the Appellant submited that the appeal arose from the Respondent’s claim for Ksh.9,961,305.81/-, being interest allegedly due on account of delayed payment of certified sums under a construction contract.
56. They contended that the Respondent had pleaded that the Appellants delayed payment of retention monies after the expiry of the defects’ liability period and that the delayed payments consequently attracted interest under the express terms of the contract. In particular, the Respondent claimed that the final payment of Ksh.11,032,015.84/-, which it alleged fell due on 5th March, 2012, was only paid on 30th June, 2019, approximately eight years later. The Respondent consequently claimed Ksh.9,961,305.81/- as interest calculated at three percentage points above the prevailing Central Bank of Kenya lending rate.
57. In addressing the circumstances in which an appellate court may interfere with a trial court’s findings of fact, the Appellants relied on the authority of Mwanasokoni v Kenya Bus Services Ltd & 3 Others [1985] KECA 131 (KLR), where Hancox, JA stated that an appellate court will only disturb a finding of fact where the finding is based on no evidence, is founded on a misapprehension of the evidence, or where the trial court is shown demonstrably to have acted on wrong principles in reaching the finding.
58. The Appellants submitted that the trial court fell within those circumstances because it misapprehended the evidence and applied wrong legal principles in finding in favour of the Respondent.
59. The Appellants’ principal contention was that the contract did not provide for the payment of interest on delayed retention monies or on the final account in the manner claimed by the Respondent. They argued that the trial court therefore erred in applying Clause 23.3 of the contract to Certificate No. 16, which, in their submission, related neither to retention monies nor to the final account.
60. The Appellants observed that the Respondent had pleaded that the Appellants delayed payment of retention monies after the expiry of the defects’ liability period and that the certified amounts were consequently to earn interest under the express terms of the contract.
61. The Respondent relied on Clause 23.3, which provided that payments were to be adjusted for deductions for retention; that the Employer was to pay the Contractor amounts certified by the Project Manager within 30 days of the date of issue of each certificate; and that, in the event of late payment, the Contractor would be paid simple interest on the late payment in the next payment. The interest was to be calculated on the basis of the number of days delayed at a rate three percentage points above the Central Bank of Kenya’s average base lending rate prevailing on the first day the payment became overdue.
62. The Appellants submitted, however, that the Respondent’s own pleadings disclosed an inconsistency concerning Certificate No. 16. Whereas the Respondent pleaded that the certificate became due for payment on 5th March, 2012, its schedule of certificates stated that Certificate No. 16 was issued on 11th May, 2016. The Appellants argued that the discrepancy was material because, if interest were payable at all, the date from which it could run would depend on the date on which the certificate was issued and became payable.
63. The Appellants further submitted that it was undisputed at the trial that payments under the contract were subject to a 10% retention, which was payable in two moieties. The first half was payable upon issuance of the Certificate of Practical Completion, while the second half was payable upon expiry of the defects’ liability period and certification that the notified defects had been remedied.
64. The Appellants referred to the Respondent’s documentary evidence, including payment vouchers relating to the two portions of the retention monies, the Certificate of Practical Completion dated 9th July, 2011, the Certificate of Making Good Defects dated 15th March, 2012 and the summary statement relating to the sixteenth and final certificate dated 11th May, 2016. They argued that the evidence demonstrated that the outstanding amounts comprised retention monies and final account payments.
65. The Appellants contended that the contract contained a specific provision dealing with retention, namely Clause 26.1. That clause provided that the Employer would retain from each payment due to the Contractor the proportion stated in the Appendix to the Conditions of Contract until completion of the whole of the works; that, upon completion of the works, half of the total amount retained would be repaid; and that the remaining half would be paid upon expiry of the defects’ liability period and certification by the Project Manager that all defects notified to the Contractor had been corrected.
66. The Appellants submitted that Clause 23.3 dealt with payments made during the course of the contract and required deductions for retention to be made from such payments. It did not, however, provide for the payment of interest on retention monies. According to the Appellants, the mode and timing of repayment of the retention monies were specifically governed by Clause 26.1. They therefore argued that the trial court erred by relying on Clause 23.3 to award interest on amounts which were, in substance, retention monies governed by Clause 26.1.
67. The Appellants further submitted that the contract separately provided for payment of the final account under Clause 32.1. That clause required the Contractor to submit to the Project Manager a detailed account of the total amount considered payable under the contract before the end of the defects liability period.
68. The Project Manager was then required to issue a Defects Liability Certificate and certify any final payment due within 30 days of receiving a correct and complete account. Where the account was unsatisfactory, the Project Manager was required to identify the necessary corrections or additions, and, where the account remained unsatisfactory after resubmission, to determine the amount payable and issue a payment certificate. The Employer was required to pay the amount due under the Final Certificate within 60 days.
69. The Appellants argued that Clause 32.1 contained no provision for interest on delayed payment of the final account. Similarly, Clause 26.1 contained no provision for interest on delayed payment of retention monies. Their position was therefore that the Respondent could not rely on Clause 23.3, an unrelated contractual provision, to claim interest on delayed payment of retention monies and the final account. They submitted that the trial court consequently erred in law by importing an interest obligation into the contract where none existed.
70. The Appellants further argued that the manner in which the Respondent presented its claim was confusing and that the confusion led the trial court to make a finding unsupported by the evidence. They referred to the trial court’s statement that “if Certificate No. 16 dated 5th March 2012 remained unsettled after 30 days,” interest would accrue.
71. The Appellants submitted that the evidence, including the Respondent’s own documents and pleadings, showed that Certificate No. 16 was issued on 11th May 2016. They therefore argued that, even if Clause 23.3 were applicable, interest could only have commenced 30 days after 11th May, 2016, and not from 5th March, 2012. The Appellants contended that the trial court consequently applied an erroneous formula in computing the interest awarded.
72. The Appellants submitted that the award of interest for a period preceding the filing of a suit is a matter of substantive law and is subject to established legal principles. They relied on Highway Furniture Mart Limited v Permanent Secretary & Another [2006] 2 EA 94 (CA), where the Court of Appeal adopted the principle stated in New Types Enterprises Ltd v Kenya Achand Insurance Company Ltd [1988] KLR 380 that an award of interest for a period prior to the filing of suit is a matter of substantive law.
73. The Appellants further relied on the principle stated in Mulla, The Code of Civil Procedure, 16th Edition, Volume 1, that antecedent interest is claimable where there is an agreement stipulating the rate of interest, where interest is allowed by mercantile usage which must be pleaded and proved, where there is a statutory right to interest, or where an agreement to pay interest may be implied from the parties’ course of dealing.
74. The Appellants submitted that the Respondent failed to satisfy those requirements because it neither proved an express contractual provision for interest on delayed payment of retention monies and the final account nor established any implied contractual basis for the claim. They argued that the mere existence of Clause 23.3 did not assist the Respondent because, properly construed, that clause did not app
[...truncated]