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Court of AppealPartially AllowedCivil Appeal No 87 of 1988· [1995] KECA 126 (KLR)

Kisumu Municipal Council & another v BOT Construction (BETCO) Ltd & 3others [1995] KECA 126 (KLR)

Court of Appeal
3 April 1995
JGJ.E GicheruRKR.O KwachROR.S.C Omolo
4,375 words in judgment
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The bottom line

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Kenya's Court of Appeal ruled that a council's acceptance letter fixed practical completion, killed the surety's bond liability, and made half the retention money payable only later.

What this practically means

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Executive summary

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The Court of Appeal at Nairobi (Gicheru, Kwach and Omolo JJA) heard an appeal by Kisumu Municipal Council and its surety, South British Insurance Co Ltd, against the judgment of Trainor J (7 March 1985, HCCC No 1637 of 1978) arising from a 1972 building contract for 50 low-cost rental houses (Arina Estate Phase III) in Kisumu. The contractor, Bot Construction Ltd, failed to complete the external road works and the Council terminated the contract under clause 25(1)(b). The trial judge awarded the Council Kshs 37,604/50 (Kshs 27,604/50 for the cost of completing the road works less the unpaid contract balance, plus Kshs 10,000/= for inconvenience), but allowed the contractor a set-off of Kshs 56,332/50 (half the retention money), which wiped out the award, and dismissed the surety's claim to recover Kshs 114,000/= paid under its performance bond. The Court of Appeal held that the Council's letter of 17th August 1973 accepting the houses amounted to a certificate of practical completion; the retention money was not payable until expiry of the defects liability period, so the set-off was baseless and was set aside. The trial court's award of Kshs 37,604/50 was sustained. The surety's payment on 7th April 1978 fell outside the bond period under clause 31, which expired at practical completion, and was voluntary; its appeal was dismissed. The first appellant's appeal succeeded only to that limited extent, with one-third of costs against the contractor; the second appellant's appeal was dismissed with costs. The decision binds subordinate courts and the High Court on the effect of acceptance of works as a practical completion certificate and on the temporal limits of surety liability.

Key legal issues

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01

Date of practical completion under a building contract where the date of possession was not stated

Holding

The letter of 17th August 1973 accepting the 50 houses and confirming the defects liability period constituted a certificate of practical completion dated 17th August 1973

Reasoning

The appendix left the date of possession blank, so the 30-week completion period made no sense and the works proceeded without reference to it. When the first appellant accepted the 50 houses and confirmed the six-month defects liability period by its letter of 17th August 1973, that letter operated as the architect's certificate under clause 15(1), fixing practical completion on that date. Anything remaining undone fell within the defects liability period.

p. 7
02

Entitlement to the retention money and the validity of the set-off

Holding

The first respondent was not entitled to one half of the retention money at practical completion; the set-off of Kshs 56,332/50 was baseless

Reasoning

Under clause 30(4)(b), half the 10% retention was payable on the certificate of practical completion, but certificate No 473 dated 11th August 1973 showed over half the retention had already been paid out, so nothing was due. The remaining Kshs 56,332/50 became payable only on expiry of the six-month defects liability period or the issue of the defects completion certificate under clause 30(4)(c). The set-off was therefore wrongly granted.

p. 7
03

Liability of the surety under clause 31 of the conditions

Holding

The second appellant's bond liability expired at the certified date of practical completion; its payment of Kshs 114,000/= on 7th April 1978 was voluntary

Reasoning

Clause 31 bound the surety only until the certified date of practical completion, subject to extensions of time under clause 23. Practical completion was certified on 17th August 1973, but the surety paid on 7th April 1978, well outside the bond period. Having paid without legal obligation and without informing the respondents to afford them an opportunity to oppose, the surety could not recover from the contractor or its directors.

p. 7

Legal principles established

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  • Where an employer under a building contract accepts the completed works and confirms the defects liability provisions, that acceptance amounts to a certificate of practical completion on the date of the letter
  • A surety's liability under a performance bond is confined to the period up to the certified date of practical completion; payment made after that date is voluntary and cannot be recovered from the contractor or its directors

Court orders

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  1. 1.The first respondent's set-off of Kshs 56,332/50 granted by the superior court is set aside
  2. 2.The judgment of the superior court in the sum of Kshs 37,604/50 in favour of the first appellant against the first respondent is sustained
  3. 3.The first appellant's appeal is allowed to the limited extent indicated, with 1/3 of the costs against the first respondent both in the Court of Appeal and in the superior court
  4. 4.The second appellant's appeal against the first, second, third and fourth respondents is dismissed with costs to those respondents
On appeal from
High Court of Kenya at Nairobi
HCCC No 1637 of 1978
Jurisdiction invoked
First appeal to the Court of Appeal from the High Court (Laws of Kenya, appellate jurisdiction - provision not expressly stated in the judgment)

Key timeline

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Practical implications

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Frequently asked questions

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Cite this brief

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Cite this brief

Caselaw, "Kisumu Municipal Council & another v BOT Construction (BETCO) Ltd & 3others [1995] KECA 126 (KLR)", Case Analysis (1995). Civil Appeal No 87 of 1988. Source: https://new.kenyalaw.org/akn/ke/judgment/keca/1995/126/eng@1995-04-03

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