1. The plaintiff vide a plaint dated 18th August, 2018 and amended on 9th August, 2021 instituted this suit against the defendant seeking judgment against it as hereunder -
i) Kshs.1,204,035.28 being the rental arrears together with accrued interest thereon at 24% p.a., from 17th August, 2017 until payment in full;
ii) Kshs.2,077,910.28 being the contractually agreed sum that is to say 100% of the remaining rental/lease fees to the end of lease period/term on account of the 200 refrigerators chargeable in respect of the first batch and in respect of the second batch;
iii) Kshs.3,230,760.00 being the contractually agreed sum in regard to the secondary lease for a period of 24 months (from the expiry of the primary lease) regarding rental addendum No. 1 (batch No. 1) of the agreement between the parties;
iv) Kshs.3,499,990.00 being the cost of leasing the 100 fridges described in batch No. 1 (i.e. schedule No. 1) for 26 months beyond the secondary lease period i.e. 13th May, 2019 up to 13th July, 2021;
v) Kshs.7,257,179.53 being the cost of leasing the 100 fridges described in batch No. 2 (i.e. schedule No. 2) for 29 months beyond the primary lease period i.e. 23rd February, 2019 up to 23rd July, 2021;
vi) An order for the return of the 200 fridges to the plaintiff, consistent with the brand and model leased, or in the alternative, reimbursement of Kshs.13,774,101.00 being the cost of replacement of the 200 refrigerators illegally detained and/or converted by the defendant i.e. USD 57,072.00 (as regards model FSL 270) plus USD 78,300.00 as regards model FV 280, total USD 135,372.00 at the exchange rate of Kshs.101.75 to the dollar at the time of filing the suit;
vii) Interest at the Court rates on (a) to (d) above from the date of filing suit to payment in full;
viii) Costs of the suit; and
ix) Any other/further relief that this Honourable Court may deem fit to grant.
2. The plaintiff’s case is that it entered into a Rental Agreement with the defendant on 27th December, 2013, allowing the defendant to lease equipment by executing Rental Schedules. Subsequently, the parties herein executed two Rental Schedules, the first being V-KEROCHE 1001/11/2013 on 13th May, 2014 for 100 Frigorex fridges model FV 280, and the second being V-KEROCHE BREWERIES LIMITED 1002/12/2015 on 23rd February, 2016 for 100 Frigorex fridges model FSL 270. It was agreed between the parties herein that the first batch would have a five-year rental period with monthly fees of Kshs.280,336.00 for the first 36 months, and Kshs.134,615.00 for the remaining 24 months, whereas the second batch had a three-year period with monthly fees of Kshs. 250,247.57.
3. The Rental Agreement provided that fees were payable quarterly in advance, and late payments allowed the plaintiff to terminate the agreement and demand full payment of remaining lease rentals plus early repayment costs. The plaintiff contended that the Rental Agreement provided that the interest rate payable on default was 24% p.a. and an overdue rate of 3% per month. The plaintiff alleges that the defendant took possession of the equipment but failed to pay the rental fees or return the equipment, causing it to suffer financial losses. It indicated that the defendant has since paid it Kshs. 3,953,498.63, leaving a balance of Kshs. 1,204,035.28, which continues to accrue interest.
4. In opposition to the plaintiff’s suit, the defendant filed a statement of defence dated 18th April, 2019 which was subsequently amended on 7th December, 2022 denying all the averments in the plaintiff’s plaint. The defendant averred that the interest rate for calculating rental instalments was to be tied to the financier’s base lending rate. It claimed to have paid all outstanding rental fees owed to the plaintiff, and that it had not received any notice of default or termination of the Rental Agreement from the plaintiff. It was stated by the defendant that rental schedule No. V-KEROCHE 1001/11/2013 contained unfair terms by including both a primary and secondary term, contended that payments for the secondary term were unjustified. The defendant also stated that the second Rental Schedule, No. V-KEROCHE 1002/12/2015 did not include a secondary term, and that the parties should have negotiated an end-of-term disposal agreement.
5. This matter proceeded to hearing where the plaintiff called one witness in support of its case. The defendant also called one witness to ventilate its case.
PLAINTIFF’S CASE.
6. Mr. Wang’ombe Gathondu testified as PW1. He produced the documents in the plaintiff’s list and bundle of documents dated 17th August, 2018 as plaintiff exhibit Nos. 1 to 6. He testified that the plaintiff entered into a Rental Agreement with the defendant on 27th December, 2013, allowing the defendant to lease equipment by executing Rental Schedules. That subsequently, the parties herein executed two Rental Schedules, the first one being V-KEROCHE 1001/11/2013 on 13th May, 2014 for 100 Frigorex fridges model FV 280, and the second being V-KEROCHE BREWERIES LIMITED 1002/12/2015 on 23rd February, 2016 for 100 Frigorex fridges model FSL 270. PW1 further testified that the commencement date which was also the date of delivery of the refrigerators for the first batch was 13th May, 2014, whereas that of the 2nd batch was on 23rd February, 2016.
7. It was stated by PW1 that the Rental Schedules provided that the first batch would be for a five-year rental period with monthly fees of Kshs. 280,336.00 for the first 36 months, and Kshs. 134,615.00 for the remaining 24 months. The second batch was for a three-year rental period with monthly fees of Kshs. 250,247.57. He further stated that the aforesaid sums were exclusive of insurance and maintenance charges, and were payable quarterly in advance. He also stated that late payments allowed the plaintiff to terminate the Rental Agreement and demand full payment of the remaining lease rentals, plus early repayment costs. It was PW1’s testimony that the Rental Agreement provided that the interest rate payable on default was 24% p.a. and an overdue rate of 3% per month.
8. PW1 asserted that the defendant took possession of the equipment but failed to pay the rental fees or return the equipment, thus causing the plaintiff to suffer financial losses which included financing repayment of a loan facility taken to finance purchase of the equipment rented out to the defendant. He testified that the defendant has since paid it Kshs. 3,953,498.63, leaving a balance of Kshs. 1,204,035.28, which continues to accrue interest.
9. In cross examination, PW1 testified that the rental fees for 2nd Rental Schedule initially included insurance and that the interest rate for calculating rental instalments was linked to the financier’s base lending rate. He agreed that the default interest rate was not 24% but 3% per month above Chase Bank's default rate. He further testified that as at 9th February, 2016, the plaintiff had invoiced the defendant Kshs.738,158.20, followed by more invoices for the second batch on 1st March, 2016. PW1 contended that the defendant made payments totaling Kshs.841,008.12 and Kshs.998,953.40 towards arrears, but the said amounts were insufficient to clear the debt. PW1 stated another invoice for Kshs. 403,845.00 was raised, although he was unsure of the reason it was raised. He confirmed that Rental Schedules were still active, with invoices being issued.
10. He stated that after 4th May, 2017, additional payments, including Kshs. 750,742.73 were made by the defendant to cater for the accumulated arrears. He testified that the payments made covered both primary and secondary terms of the 1st Rental Schedule, the primary term of the 2nd Rental Schedule, and a small portion of the secondary leases. He stated that the plaintiff's statement of accounts did not capture rental balances as at 31st December, 2018, because the last payment of Kshs.3,953,498.63 was received after 17th August, 2018. PW1 confirmed that the plaintiff terminated the Rental Agreement. He testified that the defendant paid Kshs.403,845.00 for the secondary term of batch one (1st Rental Schedule), and that the second term of the 2013 Rental Schedule commenced in either May or June 2017 but did not reach maturity.
11. In re-examination, PW1 testified that the Rental Agreement's commencement date is defined in the Rental Schedules and was communicated in writing by the plaintiff, but the actual commencement date was the delivery date or the date the plaintiff made financial consideration towards purchasing the equipment. He further testified that the plaintiff would invoice the defendant at the beginning or at the end of the month, but the first invoice in this case was prorated. He confirmed that the plaintiff terminated the Rental Agreement because the defendant was not making timely payments. He explained that the first invoice was raised in May 2014, but the first payment was not made until 3rd November, 2014.
12. It was PW1’s testimony that despite the termination of the Rental Agreement, the defendant still possesses the 200 refrigerators leased to it by the plaintiff, which should have been returned according to Clause 11.3(a) of the Rental Agreement. PW1 noted that the plaintiff paid USD 78,300 for 100 refrigerators after obtaining financing from Chase Bank, which was paid off in the year 2021.
DEFENDANT’S CASE.
13. Mr. Nicholas Kipchirchir Kechir testified as DWI. He adopted his witness statement dated 7th December, 2022 and produced the defendant’s bundle of documents dated 14th July, 2021 as defence exhibits 1 to 8. DW1 testified that on 27th January, 2014 and 4th February, 2016, the parties executed Rental Schedules V-KEROCHE 1001/11/2013 and V-KEROCHE BREWERIES LIMITED 1002/12/2015, respectively, under which the defendant rented and took possession of fridges. He added that the Rental Schedules were to commence on the delivery dates or the dates the plaintiff made financial consideration towards purchasing the equipment. The interest rate for calculating rental instalments was the financier’s base lending rate at 24% per annum, with an overdue interest rate of 3% per month above the financing bank's default rate.
14. DW1 stated that the contractual relationship proceeded smoothly until April 2018 when the primary term of Rental Schedule No. V-KEROCHE 1001/11/2013 ended. That in August 2018, the parties had several meetings and discussions to summarize the transactions related to the rental schedules. He testified that in a letter dated 10th October, 2018, the plaintiff stated that the outstanding amount was Kshs.3,438,745.50, after negotiations, they agreed that the outstanding amount was Kshs.4,744,198.33. That the defendant issued six postdated cheque Nos. 6746, 8748, 8749, & 8750 of Kshs.790,699.70 each totaling the aforesaid amount, which were credited to the plaintiff’s accounts settling the debt. DW1 contended that the said sum included all accrued interest and that the plaintiff never disputed the sufficiency of the amount paid to it to cater for the costs arising from the two Rental Schedules in issue.
15. It was his evidence that in October 2018, the parties met to discuss ending the 1st Rental Schedule and settling any disputes, and the plaintiff agreed to withdraw this suit. That in the said meeting the defendant expressed an intention to purchase the leased fridges after the rental terms expired. However, the parties have not yet agreed on the terms for purchasing the fridges.
16. On being cross-examined, DW1 confirmed that the defendant kept the refrigerators after the Rental Schedules expired. He claimed that all payments were made on time. He testified that as at 31st July, 2018, the defendant owed the plaintiff Kshs. 5,157,533.91. Cheques totaling to Kshs. 4,700,000/= were issued around October or November 2018, but one cheque for Kshs. 700,000/= bounced. He further testified that since the cheques represented accumulated amounts, payments were not made on time. DW1 stated that the defendant did not pay the plaintiff the capital investment of the equipment as required by Clause 11.3(b). He acknowledged that the plaintiff is entitled to a claim for breach of contract because the defendant retained the refrigerators after the Rental Agreement elapsed.
17. In re-examination, DW1 stated that the defendant entered into two Rental Agreements with the plaintiff, one in the year 2013 and another one in January 2016. He stated that the second batch of fridges did not include a secondary lease, leading to a disagreement. According to the plaintiff's account, the outstanding balance was Kshs.5,157,533.91. The defendant paid Kshs.4,744,198.33, but one cheque for Kshs.790,699.70 bounced due to a missing signature from one of the defendant's bank account signatories. DW1 acknowledged that Kshs.790,699.70 is still owed to the plaintiff. DW1 admitted that the defendant did not make timely payments, which under Clause 9.2 meant that it repudiated the Rental Agreement, but the defendant never received a termination notice and maintained good relations with the plaintiff. He admitted that the defendant had not returned the refrigerators, as the 2nd Rental Agreement was still in force at the time this suit was filed.
18. At the close of the defendant’s case, the Court directed parties to file written submissions. The plaintiff’s submissions were filed on 30th November, 2023 by the law firm of Nyaanga & Mugisha Advocates, whereas the defendant’s submissions were filed by the law firm of Kabugu & Company Advocates on 20th March, 2024.
19. Mr. Dachi, learned Counsel for the plaintiff relied on the case of Solomon Ndegwa v Peter Nditu Gitau [2019] eKLR and submitted that the defendant breached the terms of the Rental Agreement dated 27th December, 2013 and the Rental Schedules dated 27th January, 2014 and 4th February, 2016 by failing to remit the rental fees for the 200 refrigerators and/or making several inconsistent payments towards the rentals, and failing to return the said refrigerators upon the lapse of the aforementioned agreements. He further submitted that the plaintiff's witness testified that the defendant failed to make the required payments and eventually stopped paying altogether, triggering a default, and that during cross-examination, the defendant's witness admitted that the defendant did not make consistent and timely payments according to the Rental Agreement and Rental Schedules, and eventually ceased making payments.
20. He submitted that the defendant’s debt to the plaintiff due to unpaid rentals is documented in a letter dated 10th October, 2018, where the plaintiff outlined the outstanding rentals at the defendant's request. Counsel urged this Court to note that the defendant had not disputed the authenticity of the aforesaid letter. Additionally, the defendant had not denied making late and erratic payments at the beginning of the Agreement, nor had it denied failing to make rental payments altogether. Counsel argued that the evidence shows that the defendant breached Clauses 4.1, 4.6, and 9.1(a) of the Rentals Agreements by failing to make the required payments for the leased refrigerators, and as such, the Rental Agreements became repudiated as per Clause 9.2 thereof, and the plaintiff terminated it as per Clause 11.1. Counsel contended that the defendant was contractually obligated to return the 200 refrigerators to the plaintiff as provided for under Clause 11.3(a) of the Rental Agreement.
21. Mr. Dachi argued that regardless of whether the Agreement was terminated or not, the 200 refrigerators should have been returned following the end of the lease terms specified in the Rental Schedules, as the first Rental Schedule ended on 13th May, 2019, and the second on 23rd February, 2019. He contended that since it was not disputed that the defendant failed to return the 200 refrigerators as required by the two Rental Schedules, but instead it retained them and continues to use them for its benefit and profit, the defendant is in breach of Clauses 13.1 and 11.3(a) of the Rental Agreements. To this end, Counsel relied on the Court of Appeal case of Mwangi v Kiiru [1987] eKLR, which cited with approval the case of Photo Production v Securicor Ltd [1980] AC 827. In submitting that the plaintiff is entitled to the reliefs sought, Mr. Dachi referred to the decisions in Kenya Commercial Bank v Philip Odongo Kabita T/A Odongo Kabita Valuers [2002] eKLR and Abdi Ahmed Abdi Kawir Trading as A. A. Kawir Building Contrators Company alias A. A. Kawir Building Contractors and Civil Engineering Company v County Council of Isiolo [2017] eKLR.
22. Mr. Kabugu, learned Counsel for the defendant submitted that the defendant disputes the plaintiff's claim, and asserted that all rental payments were made through post-dated cheques, with no dispute over the sufficiency of the amounts paid. Further, that discussions occurred regarding the defendant purchasing the refrigerators but the plaintiff did not follow up or attempt to agree on the terms for this purchase. Counsel relied on the Black’s Law Dictionary 9th Edition definition of breach of contract and submitted that the plaintiff failed to demonstrate breach of the Rental Agreements and Rental Schedules by the defendant. Counsel referred to Clause 11.1 of the Rental agreements and further submitted that the plaintiff did not issue the defendant with a notice terminating the Agreement, because the defendant did not breach it.
23. He contended that even if a breach occurred, the plaintiff waived its right to terminate the Agreements by not issuing notices. In addition, Counsel argued that by accepting the defendant's post-dated cheques, the plaintiff is estopped from asserting any breach on the defendant's part. It was submitted by Mr. Kabugu that the plaintiff's claim for Kshs.1,204,035.28 in rental arrears, plus accrued interest at 24% per annum from 7th August, 2017 was not proved. That in a letter dated 25th October, 2018 the defendant informed the plaintiff that it had no outstanding debt, but the said letter was not responded to, and the plaintiff did not dispute the averments therein. To this end, Counsel relied on the case of Mohammed & another v Haidara [1972] EA 166, and stated that uncontroverted facts are deemed admitted.
24. Mr. Kabugu argued that the parties did not reach an agreement on terms after the first Rental Schedule matured, and as such, any claims after its maturity are not based on any Agreement. He argued that the plaintiff's claims under the secondary lease are unjustified. He stated that the defendant expressed its intention to purchase the refrigerators, but the plaintiff did not respond, making the plaintiff's claim for the cost of the refrigerators or a refund order unfounded. Counsel asserted that the defendant has retained the refrigerators while awaiting the plaintiff's response. Furthermore, the plaintiff never demanded the return of the refrigerators, demonstrating acquiescence, and should not benefit from its inaction. He referred to Clause 11.4 of the Rental Agreement and stated that the plaintiff had not taken any steps to mitigate any of its losses, hence it is in the interest of justice that the reliefs sought be denied.
ANALYSIS AND DETERMINATION.
25. I have considered and analyzed the evidence adduced in this case alongside the pleadings filed, as well as the written submissions by Counsel for the parties. The following are the issues for determination -
i) Whether the defendant breached the Rental Agreement and the Rental Schedules between the parties herein; and
ii) Whether the plaintiff is entitled to the reliefs sought.
Whether the defendant breached the Rental Agreement and the Rental Schedules.
26. The parties herein got into a Rental Agreement dated 27th December, 2013 which allowed them to get into Rental Schedules. Subsequently, they entered into two Rental Schedules No. V-KEROCHE 1001/11/2013 (hereinafter referred to as the 1st Schedule) and V-KEROCHE BREWERIES LIMITED 1002/12/2015 (hereinafter referred to as the 2nd schedule). In the 1st Schedule the plaintiff agreed to lease FV 280 refrigerators to the defendant for a primary period of three years at a monthly rate of Kshs.280,336.00, and a secondary period of two years at a monthly rate of Kshs.134,615.00. In the 2nd Schedule the plaintiff agreed to lease to the defendant FSL 270 refrigerators for a period of three years at a monthly rate of Kshs.250,247.57.
27. It was a term of the Rental Schedules that the interest rate used to calculate the rental instalments would be linked to the financier’s base lending rate of 24% per annum, and the overdue interest would be 3% per month above the financing bank default interest rate.
28. It is not disputed that the aforementioned refrigerators were delivered to the defendant, but the defendant never made payments of the rental instalments on time as provided for under the Rental Agreement and the Rental Schedules. DW1 stated in re-examination that the rental instalments were never paid on time but the defendant would periodically issue the plaintiff with post-dated cheques to take care of the accumulated arrears. That the parties herein maintained a good relationship and the plaintiff did not terminate the Rental Agreement.
29. On perusal of the Rental Schedules produced by the plaintiff as plaintiff exhibit Nos. 2 & 3 and the evidence on record, it is worth noting that the primary & secondary periods for the 1st Schedule were set to expire on 13th May, 2017 and 13th May, 2019, respectively, whereas the 2nd Schedule was set to expire on 23rd February, 2019. It is not disputed that sometime in August 2018, the parties herein had several meetings and discussions to summarize the transactions relating to the Rental Schedules. In a letter dated 10th October, 2018 produced by the defendant as Defence Exhibit No. 5, it states that the plaintiff provided the defendant with a transaction summary breakdown of the two Rental Schedules and requested the defendant to issue it with post-dated cheques covering the entire duration to lease maturity. The plaintiff also asked the defendant to indicate whether it would purchase the units leased or if it would extend the lease.
30. From the said letter, it is evident that the total amount owed to the plaintiff by the defendant was Kshs.5,157,533.91 as at the end of August 2018, and the total interest on delayed payments was Kshs.390,539.74, repossession fees was Kshs. 206,712.00, total rentals to lease until maturity of the 1st Schedule was Kshs. 1,076,920.00 and of the 2nd Schedule was Kshs.1,251,237.85. The disposal price for the units as at the date of maturity of the leases was Kshs.1,957,500/= for the units leased under the 1st Schedule, and Kshs.2,282,880/= for the units leased under the 2nd Schedule, DW1 confirmed that the plaintiff was issued with 6 post-dated cheques of Kshs.790,699.70 each, around October/November 2018 but one cheque bounced due to a missing signature from one of the defendant's bank account signatories.
31. I have perused the defendant’s letter to the plaintiff dated 25th October, 2018 and noted that the plaintiff’s representative informed the defendant that the plaintiff was still claiming interest on delayed payments from them, repossession fees and filing fees. In the said letter, the defendant implored on the plaintiff to waive the interest on late payments and requested the plaintiff to furnish them with a discounted fee note for costs for instructing repossessors to repossess the refrigerators. The defendant also informed the plaintiff of its intention to acquire the equipment leased. The plaintiff did not respond to the said letter, a fact which is not disputed.
32. The plaintiff’s claim is that the defendant breached the Rental Agreement by failing to remit the rental fees for the 200 refrigerators and/or making several inconsistent payments towards the rentals, and failing to return the said refrigerators upon the elapse of the aforementioned Rental Agreement. A party is guilty of breach of contract if without lawful excuse, he/she fails or refuses to perform what is due from him under the contract, or performs defectively, or incapacitates himself from performing the contract. In this case, the plaintiff vide a letter dated 10th October, 2018 advised the defendant of the outstanding sums due to it. The defendant did not dispute the figures therein, instead it proceeded to issue 6 postdated cheques of Kshs.790,699.70 each but one cheque bounced. This means that after receipt of the letter dated 10th October, 2018, the defendant paid the plaintiff a total sum of Kshs.3,953,498.50 in a bid to settle the outstanding arrears as at the end of August 2018, thereby leaving a balance of Kshs.1,204,035.28.
33. DW1 testified that the plaintiff has never served the defendant with a termination notice as provided for under Clause 11 of the Rental Agreement. I note that there is no evidence of the same on the record. I am therefore inclined to conclude that the Rental Agreement and the Rental Schedules were never terminated. The defendant’s submissions that the parties did not reach an agreement on terms after the 1st Rental Schedule matured and that any claims after its maturity are not based on any Agreement are of no probative value. This is because, the primary period for the 1st Schedule matured and/or elapsed on 13th May, 2017 and not April 2018 as contended by DW1. Further, upon perusal of the 1st Schedule, it is evident that the parties herein accepted to be bound by the terms therein by executing the said Schedule, which Agreement was for a period of five years with different timelines, the first timeline was for three years, wherein the defendant was required to lease the fridges at a monthly rate of Kshs. 280,336.00 per month, and then a further period of two years, where the defendant would lease the fridges at a monthly rate of Kshs.134,615.00.
34. In view of the evidence adduced and the documents relied on, it is evident that by the time the parties herein started engaging in negotiations in respect to the Rental Schedules, the parties were already into the second part of the 1st Schedule, therefore the defendant cannot purport to claim that it is not bound by the terms of the 1st schedule in respect to the secondary term. As a result, coupled with the fact that the defendant retained possession of the leased equipment until the elapse of the Rental Schedules, I find that the defendant was expected to continue making rental payments to the plaintiff of the leased equipment until the elapse of the Rental Schedules. Since no evidence was tendered by the defendant of such payments, it is my finding that the defendant breached the Rental Agreement and the Rental Schedules between the parties herein.
35. As to whether the defendant breached the Rental Agreement by failing to return the leased refrigerators upon the elapse of the Rental Agreement and the Rental Schedules, I am not persuaded that this is the case. In the letter dated 10th October, 2018, the plaintiff requested the defendant to communicate as to whether or not it intended to purchase the leased refrigerators upon the elapse/termination of the Rental Schedules. The plaintiff informed the defendant the cost of the refrigerators as at the date of maturity of the Rental Schedules. The defendant in its letter dated 25th October, 2018, informed the plaintiff that it intended to purchase the leased refrigerators and indicated the rate at which it intended to purchase them. It is not disputed that the plaintiff neither responded to the said letter, nor repossessed the refrigerators as provided for under Clause 9 of the Rental Schedules. This Court finds that failure to return the leased refrigerators to the plaintiff upon the elapse of the Rental Agreement and the Rental Schedules does not amount to breach of contract since having been given an option to purchase the refrigerators and the defendant having accepted the offer, what was left was for parties to agree on the cost of the refrigerators.
Whether the plaintiff is entitled to the reliefs sought.
36. The nature of the reliefs sort by the plaintiff are special damages. It is trite law that special damages must be specifically pleaded and strictly proved. See Nizar Virani T/A Kisumu Beach Resort vs. Phoenix of East Africa Assurance Company Limited Civil Appeal No. 88 of 2002 [2004] 2 KLR 269.
37. In the case of Hydro Water Well (K) Limited v Sechere & 2 others (Sued in their representative capacity as the officers of Chae Kenya Society) (Civil Suit E212 of 2019) [2021] KEHC 22 (KLR) the Court held that -
“The law of contract gives effect to consensual agreements entered into by particular individuals in their own interests. Remedies granted by the courts are designed to give effect to what was voluntarily undertaken by the parties. Damages in contract are therefore intended to place the claimant in the same position as he would have been in if the contract had been performed. This position was appreciated as early as in 1848 in Robinson v Harman11 in which Parke B said “the rule of the common law is, that where a party sustains a loss by reason of a breach of contract, he is, so far as money can do it, to be placed in the same situation, with respect to damages, as if the contract had been performed.”
38. Having found that the defendant breached the Rental Agreement and the Rental Schedules, this Court will now determine what remedies the plaintiff is entitled to, so as to give effect to what was voluntarily entered into by the parties.
Claim for Rental arrears of Kshs.1,204,035.28 from the commencement date to the date when this suit was instituted.
39. As explained here before, the plaintiff vide a letter dated 10th October, 2018 informed the defendant that its outstanding rental arrears together with the accrued interest thereon as at end of August, 2018 was Kshs.5,157,533.91. The defendant did not dispute the said figure instead, it issued the plaintiff with 6 postdated cheques for Kshs.790,699.70 each, but one cheque bounced. This means that the defendant received a total of Kshs.3,953,498.50 leaving a balance of Kshs.1, 204,035.28. The said amount is due and owing from the defendant to the plaintiff.
40. In the premise, this Court finds that the plaintiff is entitled to the claim of Kshs. 1,204,035.28. Clause 18 of the Rental Agreement provides that any amount due but unpaid shall be paid with interest at the overdue rate as shall be advised in the relevant Rental Schedule. Clause (e) of Rental Schedule No. V-KEROCHE 1001/11/2013 states that the overdue rate of interest shall be advised from time to time, whereas the Rental Schedule No. V-KEROCHE BREWERIES LIMITED 1002/12/2015 in Clause (e) provides that the overdue rate of interest shall be 3% per month above the financing bank default interest rate which in this case is 24 % as stated by the parties herein. Indeed, in the plaint amended on 9th August, 2021, the plaintiff sought for an order that the said sum of Kshs.1,204,035.28 which is due and owing to it from the defendant accrues interest at the rate of 24%. For this reason, this Court finds that the amount of Kshs.1,204,035.28 shall accrue interest at the rate of 24% from 10th October, 2018, which is the date when the defendant was notified of the outstanding debt, until payment in full;
Claim for sum of Kshs. 3,230,760/= as contractually agreed under the Rental Schedule dated 27th January, 2014 (the first batch).
41. Earlier on in this ruling, this Court found that since the Rental Agreement and the Rental Schedules were not terminated, and the defendant retained possession of the leased refrigerators until the elapse of the Rental Agreement and the Rental Schedules, the defendant was expected to continue making rental payments to the plaintiff of the leased equipment until the elapse of the Rental Schedules. As correctly stated in the plaintiff’s letter dated 10th October, 2018, the secondary term of the 1st Schedule had a remainder of eight (8) months to maturity whereas the 2nd Schedule had a remainder of five (5) months to maturity noting that the said Schedules were to elapse on 13th May, 2019 and 23rd February, 2019, respectively.
42. In the secondary term of the 1st schedule, the defendant was required to make a monthly payment of Kshs.134,615.00, thus the total rentals to lease maturity is the amount of Kshs.1,076,920.00. In the 2nd Schedule, the defendant was required to make monthly payments of Kshs.250,247.57, thus the total rentals to lease maturity is the sum of Kshs.1,251,237.85. Thus making a total of Kshs.2,328,157.85, which amounts this Court finds the plaintiff is entitled to, and is hereby awarded.
Claim for sum of loss of user.
43. In the case of Kenya Breweries Limited v Natex Distributors Limited [2004] eKLR the Court held that –
“The general principle of compensation in both contract and tort is that subject to the doctrine of mitigation of loss, the claimant is to be put as far as possible in the same position as he would have been if the breach complained of had not occurred: restitution in integrum. Accordingly, the claimant is entitled to gains prevented by the breach, expenses caused by the breach, and expenses rendered futile by the breach.”
44. This Court has already made a finding that failure to return the leased refrigerators to the plaintiff upon the elapse of the Rental Agreement and the Rental Schedules does not amount to breach of contract. The reason being that having been given an option to purchase the refrigerators and the defendant having accepted the offer, what was left was for the parties to agree on the cost of the refrigerators.
45. In any event, the plaintiff could have mitigated its loss by repossessing the refrigerators, but it did not. That being the case, the claim for loss of user fails.
Claim for return of the 200 refrigerators or in the alternative payment for replacement of the same.
46. It is not disputed that the defendant still retains physical possession of the leased refrigerators to date. In the letter dated 10th October, 2018, the plaintiff requested the defendant to communicate as to whether or not it would purchase the leased refrigerators at the elapse of the Rental Agreement and the Rental Schedules, or whether it would be extending the lease. The plaintiff also indicated the disposal price of the refrigerators as at the date of lease maturity. The defendant in a letter dated 25th October, 2018 informed the plaintiff that it intended to purchase the leased refrigerators in the 1st Schedule at a rate of not more than 10% due to depreciation of the same over a duration of five years. It also requested for a proposal for buying off the equipment leased in the 2nd Schedule, and a payment plan.
47. The disposal price of the leased refrigerators was contained in the plaintiff’s letter dated 10th October, 2018, which the defendant partly complied with. Despite the fact that the defendant had this information, it chose to retain the refrigerators knowing the plaintiff’s position on the issue.
48. In the premise, it is my finding that the claim for return of the refrigerators and/or reimbursement of the cost of the refrigerators is not merited. Since the defendant was presented with an offer to purchase the refrigerators and it also communicated its intention to purchase the said refrigerators, this Court finds that it is in the interest of justice to make an order directing the defendant to pay the plaintiff the disposal price of the leased refrigerators as at the date of maturity of the Rental Schedules, as indicated in the plaintiff’s letter dated 10th October, 2018.
49. The upshot is that the plaintiff’s suit against the defendant is partly merited. Section 27 of the Civil Procedure Act provides that costs follow the event. Since the plaintiff has partly succeeded, itis awarded ¾ of costs of this suit.
50. In the circumstances, I make the following orders: -
i) The defendant shall pay the plaintiff Kshs.1,204,035.28 being the rental arrears together with accrued interest thereon at 24% p.a., from 10th October, 2018 until payment in full;
ii) The defendant shall pay the plaintiff Kshs.2,328,157.85 being the contractually agreed sum that is to say 100% of the remaining rental fees to the end of lease period on account of the 200 refrigerators chargeable in respect of the Rental Schedules;
iii) The defendant shall pay the plaintiff the disposal price of the leased refrigerators as at the date of maturity of the Rental Schedules at the rate indicated in the plaintiff’s letter dated 10th October, 2018 towards purchase of the leased refrigerators;
iv) I award interest at Court rates on (ii) to (iii) above from the date of filing suit to payment in full;
v) ¾ of the costs of the suit are hereby awarded to the plaintiff.
It is so ordered.
DATED, SIGNED and DELIVERED at NAIROBI on this 19th day of July, 2024. Judgment delivered through Microsoft Teams Online Platform.
NJOKI MWANGI
JUDGE
In presence of:
Mr. Korir h/b for Ms Mumo for the Official Receiver & Administrator of the plaintiff
Ms Wairimu h/b for Mr. Kabugu for the defendant
Ms B. Wokabi – Court Assistant.
i) Kshs.1,204,035.28 being the rental arrears together with accrued interest thereon at 24% p.a., from 17th August, 2017 until payment in full;
ii) Kshs.2,077,910.28 being the contractually agreed sum that is to say 100% of the remaining rental/lease fees to the end of lease period/term on account of the 200 refrigerators chargeable in respect of the first batch and in respect of the second batch;
iii) Kshs.3,230,760.00 being the contractually agreed sum in regard to the secondary lease for a period of 24 months (from the expiry of the primary lease) regarding rental addendum No. 1 (batch No. 1) of the agreement between the parties;
iv) Kshs.3,499,990.00 being the cost of leasing the 100 fridges described in batch No. 1 (i.e. schedule No. 1) for 26 months beyond the secondary lease period i.e. 13th May, 2019 up to 13th July, 2021;
v) Kshs.7,257,179.53 being the cost of leasing the 100 fridges described in batch No. 2 (i.e. schedule No. 2) for 29 months beyond the primary lease period i.e. 23rd February, 2019 up to 23rd July, 2021;
vi) An order for the return of the 200 fridges to the plaintiff, consistent with the brand and model leased, or in the alternative, reimbursement of Kshs.13,774,101.00 being the cost of replacement of the 200 refrigerators illegally detained and/or converted by the defendant i.e. USD 57,072.00 (as regards model FSL 270) plus USD 78,300.00 as regards model FV 280, total USD 135,372.00 at the exchange rate of Kshs.101.75 to the dollar at the time of filing the suit;
vii) Interest at the Court rates on (a) to (d) above from the date of filing suit to payment in full;
viii) Costs of the suit; and
ix) Any other/further relief that this Honourable Court may deem fit to grant.
2. The plaintiff’s case is that it entered into a Rental Agreement with the defendant on 27th December, 2013, allowing the defendant to lease equipment by executing Rental Schedules. Subsequently, the parties herein executed two Rental Schedules, the first being V-KEROCHE 1001/11/2013 on 13th May, 2014 for 100 Frigorex fridges model FV 280, and the second being V-KEROCHE BREWERIES LIMITED 1002/12/2015 on 23rd February, 2016 for 100 Frigorex fridges model FSL 270. It was agreed between the parties herein that the first batch would have a five-year rental period with monthly fees of Kshs.280,336.00 for the first 36 months, and Kshs.134,615.00 for the remaining 24 months, whereas the second batch had a three-year period with monthly fees of Kshs. 250,247.57.
3. The Rental Agreement provided that fees were payable quarterly in advance, and late payments allowed the plaintiff to terminate the agreement and demand full payment of remaining lease rentals plus early repayment costs. The plaintiff contended that the Rental Agreement provided that the interest rate payable on default was 24% p.a. and an overdue rate of 3% per month. The plaintiff alleges that the defendant took possession of the equipment but failed to pay the rental fees or return the equipment, causing it to suffer financial losses. It indicated that the defendant has since paid it Kshs. 3,953,498.63, leaving a balance of Kshs. 1,204,035.28, which continues to accrue interest.
4. In opposition to the plaintiff’s suit, the defendant filed a statement of defence dated 18th April, 2019 which was subsequently amended on 7th December, 2022 denying all the averments in the plaintiff’s plaint. The defendant averred that the interest rate for calculating rental instalments was to be tied to the financier’s base lending rate. It claimed to have paid all outstanding rental fees owed to the plaintiff, and that it had not received any notice of default or termination of the Rental Agreement from the plaintiff. It was stated by the defendant that rental schedule No. V-KEROCHE 1001/11/2013 contained unfair terms by including both a primary and secondary term, contended that payments for the secondary term were unjustified. The defendant also stated that the second Rental Schedule, No. V-KEROCHE 1002/12/2015 did not include a secondary term, and that the parties should have negotiated an end-of-term disposal agreement.
5. This matter proceeded to hearing where the plaintiff called one witness in support of its case. The defendant also called one witness to ventilate its case.
PLAINTIFF’S CASE.
6. Mr. Wang’ombe Gathondu testified as PW1. He produced the documents in the plaintiff’s list and bundle of documents dated 17th August, 2018 as plaintiff exhibit Nos. 1 to 6. He testified that the plaintiff entered into a Rental Agreement with the defendant on 27th December, 2013, allowing the defendant to lease equipment by executing Rental Schedules. That subsequently, the parties herein executed two Rental Schedules, the first one being V-KEROCHE 1001/11/2013 on 13th May, 2014 for 100 Frigorex fridges model FV 280, and the second being V-KEROCHE BREWERIES LIMITED 1002/12/2015 on 23rd February, 2016 for 100 Frigorex fridges model FSL 270. PW1 further testified that the commencement date which was also the date of delivery of the refrigerators for the first batch was 13th May, 2014, whereas that of the 2nd batch was on 23rd February, 2016.
7. It was stated by PW1 that the Rental Schedules provided that the first batch would be for a five-year rental period with monthly fees of Kshs. 280,336.00 for the first 36 months, and Kshs. 134,615.00 for the remaining 24 months. The second batch was for a three-year rental period with monthly fees of Kshs. 250,247.57. He further stated that the aforesaid sums were exclusive of insurance and maintenance charges, and were payable quarterly in advance. He also stated that late payments allowed the plaintiff to terminate the Rental Agreement and demand full payment of the remaining lease rentals, plus early repayment costs. It was PW1’s testimony that the Rental Agreement provided that the interest rate payable on default was 24% p.a. and an overdue rate of 3% per month.
8. PW1 asserted that the defendant took possession of the equipment but failed to pay the rental fees or return the equipment, thus causing the plaintiff to suffer financial losses which included financing repayment of a loan facility taken to finance purchase of the equipment rented out to the defendant. He testified that the defendant has since paid it Kshs. 3,953,498.63, leaving a balance of Kshs. 1,204,035.28, which continues to accrue interest.
9. In cross examination, PW1 testified that the rental fees for 2nd Rental Schedule initially included insurance and that the interest rate for calculating rental instalments was linked to the financier’s base lending rate. He agreed that the default interest rate was not 24% but 3% per month above Chase Bank's default rate. He further testified that as at 9th February, 2016, the plaintiff had invoiced the defendant Kshs.738,158.20, followed by more invoices for the second batch on 1st March, 2016. PW1 contended that the defendant made payments totaling Kshs.841,008.12 and Kshs.998,953.40 towards arrears, but the said amounts were insufficient to clear the debt. PW1 stated another invoice for Kshs. 403,845.00 was raised, although he was unsure of the reason it was raised. He confirmed that Rental Schedules were still active, with invoices being issued.
10. He stated that after 4th May, 2017, additional payments, including Kshs. 750,742.73 were made by the defendant to cater for the accumulated arrears. He testified that the payments made covered both primary and secondary terms of the 1st Rental Schedule, the primary term of the 2nd Rental Schedule, and a small portion of the secondary leases. He stated that the plaintiff's statement of accounts did not capture rental balances as at 31st December, 2018, because the last payment of Kshs.3,953,498.63 was received after 17th August, 2018. PW1 confirmed that the plaintiff terminated the Rental Agreement. He testified that the defendant paid Kshs.403,845.00 for the secondary term of batch one (1st Rental Schedule), and that the second term of the 2013 Rental Schedule commenced in either May or June 2017 but did not reach maturity.
11. In re-examination, PW1 testified that the Rental Agreement's commencement date is defined in the Rental Schedules and was communicated in writing by the plaintiff, but the actual commencement date was the delivery date or the date the plaintiff made financial consideration towards purchasing the equipment. He further testified that the plaintiff would invoice the defendant at the beginning or at the end of the month, but the first invoice in this case was prorated. He confirmed that the plaintiff terminated the Rental Agreement because the defendant was not making timely payments. He explained that the first invoice was raised in May 2014, but the first payment was not made until 3rd November, 2014.
12. It was PW1’s testimony that despite the termination of the Rental Agreement, the defendant still possesses the 200 refrigerators leased to it by the plaintiff, which should have been returned according to Clause 11.3(a) of the Rental Agreement. PW1 noted that the plaintiff paid USD 78,300 for 100 refrigerators after obtaining financing from Chase Bank, which was paid off in the year 2021.
DEFENDANT’S CASE.
13. Mr. Nicholas Kipchirchir Kechir testified as DWI. He adopted his witness statement dated 7th December, 2022 and produced the defendant’s bundle of documents dated 14th July, 2021 as defence exhibits 1 to 8. DW1 testified that on 27th January, 2014 and 4th February, 2016, the parties executed Rental Schedules V-KEROCHE 1001/11/2013 and V-KEROCHE BREWERIES LIMITED 1002/12/2015, respectively, under which the defendant rented and took possession of fridges. He added that the Rental Schedules were to commence on the delivery dates or the dates the plaintiff made financial consideration towards purchasing the equipment. The interest rate for calculating rental instalments was the financier’s base lending rate at 24% per annum, with an overdue interest rate of 3% per month above the financing bank's default rate.
14. DW1 stated that the contractual relationship proceeded smoothly until April 2018 when the primary term of Rental Schedule No. V-KEROCHE 1001/11/2013 ended. That in August 2018, the parties had several meetings and discussions to summarize the transactions related to the rental schedules. He testified that in a letter dated 10th October, 2018, the plaintiff stated that the outstanding amount was Kshs.3,438,745.50, after negotiations, they agreed that the outstanding amount was Kshs.4,744,198.33. That the defendant issued six postdated cheque Nos. 6746, 8748, 8749, & 8750 of Kshs.790,699.70 each totaling the aforesaid amount, which were credited to the plaintiff’s accounts settling the debt. DW1 contended that the said sum included all accrued interest and that the plaintiff never disputed the sufficiency of the amount paid to it to cater for the costs arising from the two Rental Schedules in issue.
15. It was his evidence that in October 2018, the parties met to discuss ending the 1st Rental Schedule and settling any disputes, and the plaintiff agreed to withdraw this suit. That in the said meeting the defendant expressed an intention to purchase the leased fridges after the rental terms expired. However, the parties have not yet agreed on the terms for purchasing the fridges.
16. On being cross-examined, DW1 confirmed that the defendant kept the refrigerators after the Rental Schedules expired. He claimed that all payments were made on time. He testified that as at 31st July, 2018, the defendant owed the plaintiff Kshs. 5,157,533.91. Cheques totaling to Kshs. 4,700,000/= were issued around October or November 2018, but one cheque for Kshs. 700,000/= bounced. He further testified that since the cheques represented accumulated amounts, payments were not made on time. DW1 stated that the defendant did not pay the plaintiff the capital investment of the equipment as required by Clause 11.3(b). He acknowledged that the plaintiff is entitled to a claim for breach of contract because the defendant retained the refrigerators after the Rental Agreement elapsed.
17. In re-examination, DW1 stated that the defendant entered into two Rental Agreements with the plaintiff, one in the year 2013 and another one in January 2016. He stated that the second batch of fridges did not include a secondary lease, leading to a disagreement. According to the plaintiff's account, the outstanding balance was Kshs.5,157,533.91. The defendant paid Kshs.4,744,198.33, but one cheque for Kshs.790,699.70 bounced due to a missing signature from one of the defendant's bank account signatories. DW1 acknowledged that Kshs.790,699.70 is still owed to the plaintiff. DW1 admitted that the defendant did not make timely payments, which under Clause 9.2 meant that it repudiated the Rental Agreement, but the defendant never received a termination notice and maintained good relations with the plaintiff. He admitted that the defendant had not returned the refrigerators, as the 2nd Rental Agreement was still in force at the time this suit was filed.
18. At the close of the defendant’s case, the Court directed parties to file written submissions. The plaintiff’s submissions were filed on 30th November, 2023 by the law firm of Nyaanga & Mugisha Advocates, whereas the defendant’s submissions were filed by the law firm of Kabugu & Company Advocates on 20th March, 2024.
19. Mr. Dachi, learned Counsel for the plaintiff relied on the case of Solomon Ndegwa v Peter Nditu Gitau [2019] eKLR and submitted that the defendant breached the terms of the Rental Agreement dated 27th December, 2013 and the Rental Schedules dated 27th January, 2014 and 4th February, 2016 by failing to remit the rental fees for the 200 refrigerators and/or making several inconsistent payments towards the rentals, and failing to return the said refrigerators upon the lapse of the aforementioned agreements. He further submitted that the plaintiff's witness testified that the defendant failed to make the required payments and eventually stopped paying altogether, triggering a default, and that during cross-examination, the defendant's witness admitted that the defendant did not make consistent and timely payments according to the Rental Agreement and Rental Schedules, and eventually ceased making payments.
20. He submitted that the defendant’s debt to the plaintiff due to unpaid rentals is documented in a letter dated 10th October, 2018, where the plaintiff outlined the outstanding rentals at the defendant's request. Counsel urged this Court to note that the defendant had not disputed the authenticity of the aforesaid letter. Additionally, the defendant had not denied making late and erratic payments at the beginning of the Agreement, nor had it denied failing to make rental payments altogether. Counsel argued that the evidence shows that the defendant breached Clauses 4.1, 4.6, and 9.1(a) of the Rentals Agreements by failing to make the required payments for the leased refrigerators, and as such, the Rental Agreements became repudiated as per Clause 9.2 thereof, and the plaintiff terminated it as per Clause 11.1. Counsel contended that the defendant was contractually obligated to return the 200 refrigerators to the plaintiff as provided for under Clause 11.3(a) of the Rental Agreement.
21. Mr. Dachi argued that regardless of whether the Agreement was terminated or not, the 200 refrigerators should have been returned following the end of the lease terms specified in the Rental Schedules, as the first Rental Schedule ended on 13th May, 2019, and the second on 23rd February, 2019. He contended that since it was not disputed that the defendant failed to return the 200 refrigerators as required by the two Rental Schedules, but instead it retained them and continues to use them for its benefit and profit, the defendant is in breach of Clauses 13.1 and 11.3(a) of the Rental Agreements. To this end, Counsel relied on the Court of Appeal case of Mwangi v Kiiru [1987] eKLR, which cited with approval the case of Photo Production v Securicor Ltd [1980] AC 827. In submitting that the plaintiff is entitled to the reliefs sought, Mr. Dachi referred to the decisions in Kenya Commercial Bank v Philip Odongo Kabita T/A Odongo Kabita Valuers [2002] eKLR and Abdi Ahmed Abdi Kawir Trading as A. A. Kawir Building Contrators Company alias A. A. Kawir Building Contractors and Civil Engineering Company v County Council of Isiolo [2017] eKLR.
22. Mr. Kabugu, learned Counsel for the defendant submitted that the defendant disputes the plaintiff's claim, and asserted that all rental payments were made through post-dated cheques, with no dispute over the sufficiency of the amounts paid. Further, that discussions occurred regarding the defendant purchasing the refrigerators but the plaintiff did not follow up or attempt to agree on the terms for this purchase. Counsel relied on the Black’s Law Dictionary 9th Edition definition of breach of contract and submitted that the plaintiff failed to demonstrate breach of the Rental Agreements and Rental Schedules by the defendant. Counsel referred to Clause 11.1 of the Rental agreements and further submitted that the plaintiff did not issue the defendant with a notice terminating the Agreement, because the defendant did not breach it.
23. He contended that even if a breach occurred, the plaintiff waived its right to terminate the Agreements by not issuing notices. In addition, Counsel argued that by accepting the defendant's post-dated cheques, the plaintiff is estopped from asserting any breach on the defendant's part. It was submitted by Mr. Kabugu that the plaintiff's claim for Kshs.1,204,035.28 in rental arrears, plus accrued interest at 24% per annum from 7th August, 2017 was not proved. That in a letter dated 25th October, 2018 the defendant informed the plaintiff that it had no outstanding debt, but the said letter was not responded to, and the plaintiff did not dispute the averments therein. To this end, Counsel relied on the case of Mohammed & another v Haidara [1972] EA 166, and stated that uncontroverted facts are deemed admitted.
24. Mr. Kabugu argued that the parties did not reach an agreement on terms after the first Rental Schedule matured, and as such, any claims after its maturity are not based on any Agreement. He argued that the plaintiff's claims under the secondary lease are unjustified. He stated that the defendant expressed its intention to purchase the refrigerators, but the plaintiff did not respond, making the plaintiff's claim for the cost of the refrigerators or a refund order unfounded. Counsel asserted that the defendant has retained the refrigerators while awaiting the plaintiff's response. Furthermore, the plaintiff never demanded the return of the refrigerators, demonstrating acquiescence, and should not benefit from its inaction. He referred to Clause 11.4 of the Rental Agreement and stated that the plaintiff had not taken any steps to mitigate any of its losses, hence it is in the interest of justice that the reliefs sought be denied.
ANALYSIS AND DETERMINATION.
25. I have considered and analyzed the evidence adduced in this case alongside the pleadings filed, as well as the written submissions by Counsel for the parties. The following are the issues for determination -
i) Whether the defendant breached the Rental Agreement and the Rental Schedules between the parties herein; and
ii) Whether the plaintiff is entitled to the reliefs sought.
Whether the defendant breached the Rental Agreement and the Rental Schedules.
26. The parties herein got into a Rental Agreement dated 27th December, 2013 which allowed them to get into Rental Schedules. Subsequently, they entered into two Rental Schedules No. V-KEROCHE 1001/11/2013 (hereinafter referred to as the 1st Schedule) and V-KEROCHE BREWERIES LIMITED 1002/12/2015 (hereinafter referred to as the 2nd schedule). In the 1st Schedule the plaintiff agreed to lease FV 280 refrigerators to the defendant for a primary period of three years at a monthly rate of Kshs.280,336.00, and a secondary period of two years at a monthly rate of Kshs.134,615.00. In the 2nd Schedule the plaintiff agreed to lease to the defendant FSL 270 refrigerators for a period of three years at a monthly rate of Kshs.250,247.57.
27. It was a term of the Rental Schedules that the interest rate used to calculate the rental instalments would be linked to the financier’s base lending rate of 24% per annum, and the overdue interest would be 3% per month above the financing bank default interest rate.
28. It is not disputed that the aforementioned refrigerators were delivered to the defendant, but the defendant never made payments of the rental instalments on time as provided for under the Rental Agreement and the Rental Schedules. DW1 stated in re-examination that the rental instalments were never paid on time but the defendant would periodically issue the plaintiff with post-dated cheques to take care of the accumulated arrears. That the parties herein maintained a good relationship and the plaintiff did not terminate the Rental Agreement.
29. On perusal of the Rental Schedules produced by the plaintiff as plaintiff exhibit Nos. 2 & 3 and the evidence on record, it is worth noting that the primary & secondary periods for the 1st Schedule were set to expire on 13th May, 2017 and 13th May, 2019, respectively, whereas the 2nd Schedule was set to expire on 23rd February, 2019. It is not disputed that sometime in August 2018, the parties herein had several meetings and discussions to summarize the transactions relating to the Rental Schedules. In a letter dated 10th October, 2018 produced by the defendant as Defence Exhibit No. 5, it states that the plaintiff provided the defendant with a transaction summary breakdown of the two Rental Schedules and requested the defendant to issue it with post-dated cheques covering the entire duration to lease maturity. The plaintiff also asked the defendant to indicate whether it would purchase the units leased or if it would extend the lease.
30. From the said letter, it is evident that the total amount owed to the plaintiff by the defendant was Kshs.5,157,533.91 as at the end of August 2018, and the total interest on delayed payments was Kshs.390,539.74, repossession fees was Kshs. 206,712.00, total rentals to lease until maturity of the 1st Schedule was Kshs. 1,076,920.00 and of the 2nd Schedule was Kshs.1,251,237.85. The disposal price for the units as at the date of maturity of the leases was Kshs.1,957,500/= for the units leased under the 1st Schedule, and Kshs.2,282,880/= for the units leased under the 2nd Schedule, DW1 confirmed that the plaintiff was issued with 6 post-dated cheques of Kshs.790,699.70 each, around October/November 2018 but one cheque bounced due to a missing signature from one of the defendant's bank account signatories.
31. I have perused the defendant’s letter to the plaintiff dated 25th October, 2018 and noted that the plaintiff’s representative informed the defendant that the plaintiff was still claiming interest on delayed payments from them, repossession fees and filing fees. In the said letter, the defendant implored on the plaintiff to waive the interest on late payments and requested the plaintiff to furnish them with a discounted fee note for costs for instructing repossessors to repossess the refrigerators. The defendant also informed the plaintiff of its intention to acquire the equipment leased. The plaintiff did not respond to the said letter, a fact which is not disputed.
32. The plaintiff’s claim is that the defendant breached the Rental Agreement by failing to remit the rental fees for the 200 refrigerators and/or making several inconsistent payments towards the rentals, and failing to return the said refrigerators upon the elapse of the aforementioned Rental Agreement. A party is guilty of breach of contract if without lawful excuse, he/she fails or refuses to perform what is due from him under the contract, or performs defectively, or incapacitates himself from performing the contract. In this case, the plaintiff vide a letter dated 10th October, 2018 advised the defendant of the outstanding sums due to it. The defendant did not dispute the figures therein, instead it proceeded to issue 6 postdated cheques of Kshs.790,699.70 each but one cheque bounced. This means that after receipt of the letter dated 10th October, 2018, the defendant paid the plaintiff a total sum of Kshs.3,953,498.50 in a bid to settle the outstanding arrears as at the end of August 2018, thereby leaving a balance of Kshs.1,204,035.28.
33. DW1 testified that the plaintiff has never served the defendant with a termination notice as provided for under Clause 11 of the Rental Agreement. I note that there is no evidence of the same on the record. I am therefore inclined to conclude that the Rental Agreement and the Rental Schedules were never terminated. The defendant’s submissions that the parties did not reach an agreement on terms after the 1st Rental Schedule matured and that any claims after its maturity are not based on any Agreement are of no probative value. This is because, the primary period for the 1st Schedule matured and/or elapsed on 13th May, 2017 and not April 2018 as contended by DW1. Further, upon perusal of the 1st Schedule, it is evident that the parties herein accepted to be bound by the terms therein by executing the said Schedule, which Agreement was for a period of five years with different timelines, the first timeline was for three years, wherein the defendant was required to lease the fridges at a monthly rate of Kshs. 280,336.00 per month, and then a further period of two years, where the defendant would lease the fridges at a monthly rate of Kshs.134,615.00.
34. In view of the evidence adduced and the documents relied on, it is evident that by the time the parties herein started engaging in negotiations in respect to the Rental Schedules, the parties were already into the second part of the 1st Schedule, therefore the defendant cannot purport to claim that it is not bound by the terms of the 1st schedule in respect to the secondary term. As a result, coupled with the fact that the defendant retained possession of the leased equipment until the elapse of the Rental Schedules, I find that the defendant was expected to continue making rental payments to the plaintiff of the leased equipment until the elapse of the Rental Schedules. Since no evidence was tendered by the defendant of such payments, it is my finding that the defendant breached the Rental Agreement and the Rental Schedules between the parties herein.
35. As to whether the defendant breached the Rental Agreement by failing to return the leased refrigerators upon the elapse of the Rental Agreement and the Rental Schedules, I am not persuaded that this is the case. In the letter dated 10th October, 2018, the plaintiff requested the defendant to communicate as to whether or not it intended to purchase the leased refrigerators upon the elapse/termination of the Rental Schedules. The plaintiff informed the defendant the cost of the refrigerators as at the date of maturity of the Rental Schedules. The defendant in its letter dated 25th October, 2018, informed the plaintiff that it intended to purchase the leased refrigerators and indicated the rate at which it intended to purchase them. It is not disputed that the plaintiff neither responded to the said letter, nor repossessed the refrigerators as provided for under Clause 9 of the Rental Schedules. This Court finds that failure to return the leased refrigerators to the plaintiff upon the elapse of the Rental Agreement and the Rental Schedules does not amount to breach of contract since having been given an option to purchase the refrigerators and the defendant having accepted the offer, what was left was for parties to agree on the cost of the refrigerators.
Whether the plaintiff is entitled to the reliefs sought.
36. The nature of the reliefs sort by the plaintiff are special damages. It is trite law that special damages must be specifically pleaded and strictly proved. See Nizar Virani T/A Kisumu Beach Resort vs. Phoenix of East Africa Assurance Company Limited Civil Appeal No. 88 of 2002 [2004] 2 KLR 269.
37. In the case of Hydro Water Well (K) Limited v Sechere & 2 others (Sued in their representative capacity as the officers of Chae Kenya Society) (Civil Suit E212 of 2019) [2021] KEHC 22 (KLR) the Court held that -
“The law of contract gives effect to consensual agreements entered into by particular individuals in their own interests. Remedies granted by the courts are designed to give effect to what was voluntarily undertaken by the parties. Damages in contract are therefore intended to place the claimant in the same position as he would have been in if the contract had been performed. This position was appreciated as early as in 1848 in Robinson v Harman11 in which Parke B said “the rule of the common law is, that where a party sustains a loss by reason of a breach of contract, he is, so far as money can do it, to be placed in the same situation, with respect to damages, as if the contract had been performed.”
38. Having found that the defendant breached the Rental Agreement and the Rental Schedules, this Court will now determine what remedies the plaintiff is entitled to, so as to give effect to what was voluntarily entered into by the parties.
Claim for Rental arrears of Kshs.1,204,035.28 from the commencement date to the date when this suit was instituted.
39. As explained here before, the plaintiff vide a letter dated 10th October, 2018 informed the defendant that its outstanding rental arrears together with the accrued interest thereon as at end of August, 2018 was Kshs.5,157,533.91. The defendant did not dispute the said figure instead, it issued the plaintiff with 6 postdated cheques for Kshs.790,699.70 each, but one cheque bounced. This means that the defendant received a total of Kshs.3,953,498.50 leaving a balance of Kshs.1, 204,035.28. The said amount is due and owing from the defendant to the plaintiff.
40. In the premise, this Court finds that the plaintiff is entitled to the claim of Kshs. 1,204,035.28. Clause 18 of the Rental Agreement provides that any amount due but unpaid shall be paid with interest at the overdue rate as shall be advised in the relevant Rental Schedule. Clause (e) of Rental Schedule No. V-KEROCHE 1001/11/2013 states that the overdue rate of interest shall be advised from time to time, whereas the Rental Schedule No. V-KEROCHE BREWERIES LIMITED 1002/12/2015 in Clause (e) provides that the overdue rate of interest shall be 3% per month above the financing bank default interest rate which in this case is 24 % as stated by the parties herein. Indeed, in the plaint amended on 9th August, 2021, the plaintiff sought for an order that the said sum of Kshs.1,204,035.28 which is due and owing to it from the defendant accrues interest at the rate of 24%. For this reason, this Court finds that the amount of Kshs.1,204,035.28 shall accrue interest at the rate of 24% from 10th October, 2018, which is the date when the defendant was notified of the outstanding debt, until payment in full;
Claim for sum of Kshs. 3,230,760/= as contractually agreed under the Rental Schedule dated 27th January, 2014 (the first batch).
41. Earlier on in this ruling, this Court found that since the Rental Agreement and the Rental Schedules were not terminated, and the defendant retained possession of the leased refrigerators until the elapse of the Rental Agreement and the Rental Schedules, the defendant was expected to continue making rental payments to the plaintiff of the leased equipment until the elapse of the Rental Schedules. As correctly stated in the plaintiff’s letter dated 10th October, 2018, the secondary term of the 1st Schedule had a remainder of eight (8) months to maturity whereas the 2nd Schedule had a remainder of five (5) months to maturity noting that the said Schedules were to elapse on 13th May, 2019 and 23rd February, 2019, respectively.
42. In the secondary term of the 1st schedule, the defendant was required to make a monthly payment of Kshs.134,615.00, thus the total rentals to lease maturity is the amount of Kshs.1,076,920.00. In the 2nd Schedule, the defendant was required to make monthly payments of Kshs.250,247.57, thus the total rentals to lease maturity is the sum of Kshs.1,251,237.85. Thus making a total of Kshs.2,328,157.85, which amounts this Court finds the plaintiff is entitled to, and is hereby awarded.
Claim for sum of loss of user.
43. In the case of Kenya Breweries Limited v Natex Distributors Limited [2004] eKLR the Court held that –
“The general principle of compensation in both contract and tort is that subject to the doctrine of mitigation of loss, the claimant is to be put as far as possible in the same position as he would have been if the breach complained of had not occurred: restitution in integrum. Accordingly, the claimant is entitled to gains prevented by the breach, expenses caused by the breach, and expenses rendered futile by the breach.”
44. This Court has already made a finding that failure to return the leased refrigerators to the plaintiff upon the elapse of the Rental Agreement and the Rental Schedules does not amount to breach of contract. The reason being that having been given an option to purchase the refrigerators and the defendant having accepted the offer, what was left was for the parties to agree on the cost of the refrigerators.
45. In any event, the plaintiff could have mitigated its loss by repossessing the refrigerators, but it did not. That being the case, the claim for loss of user fails.
Claim for return of the 200 refrigerators or in the alternative payment for replacement of the same.
46. It is not disputed that the defendant still retains physical possession of the leased refrigerators to date. In the letter dated 10th October, 2018, the plaintiff requested the defendant to communicate as to whether or not it would purchase the leased refrigerators at the elapse of the Rental Agreement and the Rental Schedules, or whether it would be extending the lease. The plaintiff also indicated the disposal price of the refrigerators as at the date of lease maturity. The defendant in a letter dated 25th October, 2018 informed the plaintiff that it intended to purchase the leased refrigerators in the 1st Schedule at a rate of not more than 10% due to depreciation of the same over a duration of five years. It also requested for a proposal for buying off the equipment leased in the 2nd Schedule, and a payment plan.
47. The disposal price of the leased refrigerators was contained in the plaintiff’s letter dated 10th October, 2018, which the defendant partly complied with. Despite the fact that the defendant had this information, it chose to retain the refrigerators knowing the plaintiff’s position on the issue.
48. In the premise, it is my finding that the claim for return of the refrigerators and/or reimbursement of the cost of the refrigerators is not merited. Since the defendant was presented with an offer to purchase the refrigerators and it also communicated its intention to purchase the said refrigerators, this Court finds that it is in the interest of justice to make an order directing the defendant to pay the plaintiff the disposal price of the leased refrigerators as at the date of maturity of the Rental Schedules, as indicated in the plaintiff’s letter dated 10th October, 2018.
49. The upshot is that the plaintiff’s suit against the defendant is partly merited. Section 27 of the Civil Procedure Act provides that costs follow the event. Since the plaintiff has partly succeeded, itis awarded ¾ of costs of this suit.
50. In the circumstances, I make the following orders: -
i) The defendant shall pay the plaintiff Kshs.1,204,035.28 being the rental arrears together with accrued interest thereon at 24% p.a., from 10th October, 2018 until payment in full;
ii) The defendant shall pay the plaintiff Kshs.2,328,157.85 being the contractually agreed sum that is to say 100% of the remaining rental fees to the end of lease period on account of the 200 refrigerators chargeable in respect of the Rental Schedules;
iii) The defendant shall pay the plaintiff the disposal price of the leased refrigerators as at the date of maturity of the Rental Schedules at the rate indicated in the plaintiff’s letter dated 10th October, 2018 towards purchase of the leased refrigerators;
iv) I award interest at Court rates on (ii) to (iii) above from the date of filing suit to payment in full;
v) ¾ of the costs of the suit are hereby awarded to the plaintiff.
It is so ordered.
DATED, SIGNED and DELIVERED at NAIROBI on this 19th day of July, 2024. Judgment delivered through Microsoft Teams Online Platform.
NJOKI MWANGI
JUDGE
In presence of:
Mr. Korir h/b for Ms Mumo for the Official Receiver & Administrator of the plaintiff
Ms Wairimu h/b for Mr. Kabugu for the defendant
Ms B. Wokabi – Court Assistant.