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Court of AppealDismissedNot stated in the judgment as supplied· [1978] KECA 7 (KLR)

Chase International Investment Corporation & another v Keshra & 3 others (Civil Appeal 8 of 1978) [1978] KECA 7 (KLR)

Court of Appeal of Kenya (East African Court of Appeal era, Nairobi)
11 July 1978
ELE.J.E LawCMC.B MadanSWS.W.W Wambuzi
7,857 words in judgment
View original judgmentRead on Kenya Law Watch case
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·~31 min to read original · ~4 min brief

The bottom line

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Kenya's Court of Appeal ruled a bank that let a contractor finish lodges it knew wouldn't be paid had to foot the bill.

What this practically means

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Executive summary

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Laxmanbhai, building contractors, sued Chase and its senior officer Oliver for Shs 1,843,007, the certified balance due under a building contract for two lodges constructed for African Ponderosa Ltd, a company Chase and Devco financed and heavily controlled through debentures, a legal charge and an overrun agreement. The contractor alleged that on 26th October 1972 Oliver assured Laxman that Chase would pay if the work was completed and expedited. Kneller J found the assurance was given ('You will be paid for all your work on them if you do so'), rejected the pleaded contract, misrepresentation and fraud/restitution bases, but entered judgment on the basis that Chase's conduct created an estoppel in Laxmanbhai's favour. The appellants appealed, contending that estoppel cannot be used as a sword and that judgment rested on unpleaded grounds; Laxmanbhai sought affirmation on contractual and unjust-enrichment grounds. The Court of Appeal, per Law JA with Madan and Wambuzi JJA concurring, dismissed the appeal. It held that the pleading ground failed because estoppel was pleaded in the reply and was a specific issue at trial; that the equity arising was in the nature of a proprietary estoppel capable of founding a cause of action, since Chase as equitable owner encouraged the contractor's expenditure while knowing the company could not pay; and that a promissory estoppel cannot found an action. Madan and Wambuzi JJA independently found all three ingredients of unjust enrichment satisfied, endorsing it as a third category of obligation recognised in England, Canada and the USA. The decision of the High Court was affirmed; the appeal was dismissed with costs, certified for two counsel.

Key legal issues

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01

Whether estoppel can be used as a sword to found a cause of action

Holding

The equity arising was proprietary in nature and proprietary estoppel gives rise to a cause of action; the promissory/proprietary distinction is of little importance in solving a particular case.

Reasoning

Law JA traced the authorities from Ramsden v Dyson through Crabb v Arun District Council and applied Scarman LJ's three questions and the five Willmott v Barber tests, answering each in Laxmanbhai's favour. Chase, as equitable owner under the charge, encouraged Laxmanbhai's expenditure, knew of his mistaken belief, and retained the benefit of completion on sale; leaving Laxmanbhai without remedy would be unconscionable.

p. 6
02

Whether Chase and Oliver knew of the company's insolvency

Holding

The Court of Appeal found the trial judge's contrary finding wrong: Chase and Oliver must have known well before the end of 1972 that the company could not pay its debts, making Oliver's encouragement of continued work a reckless representation acted on to Laxmanbhai's detriment.

Reasoning

The overrun agreement was the only apparent source of funds, yet was of speculative and contingent value, enforceable only after completion; attempts to enforce it against shareholders largely failed, and Chase did not seriously rely on it. The lodges could not be commercially occupied until 1973, so the company could not have traded out of insolvency in the ordinary course.

p. 4
03

Recovery on unjust enrichment

Holding

All three ingredients of unjust enrichment were satisfied, and Laxmanbhai was entitled to succeed on that ground independently of estoppel, notwithstanding any want of writing for a guarantee.

Reasoning

Madan JA and Wambuzi JA both accepted that Chase received the benefit of Laxmanbhai's labour and materials in the lodges, that the enrichment was at Laxmanbhai's expense, and that it would be unjust to retain it. The doctrine, drawn from Goff and Jones and from Fibrosa, Deglman and James More & Sons v University of Ottawa, belongs to a third category of obligation distinct from contract and tort and accords with the spirit of section 3(c) of the Judicature Act.

p. 8
04

Whether judgment could rest on estoppel not pleaded as a cause of action

Holding

The pleading objection failed because estoppel was pleaded in the reply and was made a specific issue at trial (issue 12), which the judge adopted and decided on.

Reasoning

Estoppel was raised to counter contentions put forward by the defence, not as the primary cause of action; since it was canvassed at trial and made a specific issue, no procedural injustice arose. The court dismissed the first ground of appeal accordingly.

p. 5

Legal principles established

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  • An equity by way of estoppel, where the circumstances raise an equity, its extent is known and the manner of satisfaction identified, may ground a cause of action; the distinction between proprietary and promissory estoppel is not helpful in deciding particular cases.
  • A promissory estoppel, by its definition, cannot found an action where none existed before; only a proprietary estoppel gives rise to a cause of action.
  • Unjust enrichment is a distinct third category of obligation, independent of contract and tort, applicable in Kenya where a defendant is enriched at the plaintiff's expense and it would be against conscience to retain the benefit.
  • A mortgagee/debenture-holder who encourages a contractor to build in expectation of payment and who profits from the completion while the contractor goes unpaid acts unconscionably and may be compelled to pay.

Court orders

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  1. 1.Appeal dismissed.
  2. 2.Costs of the appeal awarded to the respondents, with certification for two counsel.
On appeal from
High Court of Kenya
Not stated in the judgment as supplied
Jurisdiction invoked
Appellate jurisdiction of the Court of Appeal over an appeal from a High Court civil trial (statutory basis not expressly stated in the judgment as supplied).

Key timeline

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Practical implications

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Frequently asked questions

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Later judgments citing this (8)

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Judgments in the corpus that rely on this one. Where the Court said how it treated the authority, that is shown.

Cite this brief

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Cite this brief

Caselaw, "Chase International Investment Corporation & another v Keshra & 3 others (Civil Appeal 8 of 1978) [1978] KECA 7 (KLR)", Case Analysis (1978). Not stated in the judgment as supplied. Source: https://new.kenyalaw.org/akn/ke/judgment/keca/1978/7/eng@1978-07-11

Suggested citation format for research notes or client memos. Always verify the original judgment before relying on any point.