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Court of AppealPartially AllowedCivil Appeal 297 of 2003· [2005] KECA 317 (KLR)

Mumias Sugar Company Ltd v Freight Forwarders (K) Ltd [2005] KECA 317 (KLR)

Court of Appeal of Kenya
18 March 2005
EOE. O. O'KubasuPWP. N. WakiWDW. S. Deverell
4,451 words in judgment
View original judgmentRead on Kenya Law Watch case
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The bottom line

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Kenya's Court of Appeal ruled that rent and deposits cannot be claimed under an agreement to lease unless the lease deal could still be enforced when the suit was filed.

What this practically means

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Executive summary

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This is a first appeal against the judgment of Hayanga J (High Court, Mombasa, H.C.C.C. No. 109 of 2000), which found that negotiations between Freight Forwarders (K) Ltd and Mumias Sugar Company had produced a binding sub lease and awarded the plaintiff Kshs 3,461,200, made up of a Kshs 847,800 security deposit, Kshs 2,543,400 quarterly rent in advance and Kshs 70,000 preparation costs, while refusing specific performance. Allowing the appeal in part, a bench of O'Kubasu, Waki and Deverell JJA held that the correspondence, running from 7th to 26th May 1999, crystallized not into a sub lease but into a binding contract to enter into one: the appellant's letter of 24th May 1999 was a counter-offer, accepted by the respondent's advocate's letter of 26th May 1999. That correspondence, signed by authorised employees, was a sufficient memorandum under subsection (3) of the Law of Contract Act (Cap 23), so the part-performance proviso did not arise. The Court held the plaint misconceived in pleading an executed sub lease, making the defences under sections 53A, 105 and 107 of the Transfer of Property Act 1882 responsive, since those sections govern the lease itself rather than a contract to make one. Applying Ariff v Jadinath Majumdar, the Court held that rent stipulated under an agreement to lease is enforceable only if the contract was capable of specific performance when the suit was filed - the filing date, not the date rent fell due - a burden the respondent failed to discharge. The deposit and rent claims failed; preparation costs were reduced to Kshs 50,000; judgment was substituted accordingly, with the respondent paying three-quarters of the appellant's costs here and below.

Key legal issues

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01

Whether the correspondence produced a binding contract to enter into a sub lease

Holding

Yes. The appellant's letter of 24th May 1999 was a counter-offer; the respondent's advocate's letter of 26th May 1999 accepted it, bringing into existence a binding contract to execute the sub lease.

Reasoning

The Court traced the correspondence from the first draft sub lease through successive amendments. The appellant's 24th May 1999 letter, proposing changes to the wording, was a counter-offer; the respondent's advocate's 26th May 1999 letter accepted and incorporated those changes. The appellant never replied. Although Exhibit 9 did not reflect the agreed amendment to clause 5(e), the appellant could have insisted on it in the engrossment, and its written submissions in the superior court identified no clause to which it still objected.

p. 2
02

Whether correspondence satisfies the writing requirement of section 3(3) of the Law of Contract Act

Holding

Yes. Letters exchanged between authorised employees of the intended lessor and lessee constitute a sufficient memorandum; the part-performance proviso need not be relied upon.

Reasoning

Section 3(3) of the Law of Contract Act (Cap 23), in its un-amended form applicable in June 1999, required a contract for the disposition of an interest in land to be evidenced in writing signed by the party to be charged. The Court held that letters signed by authorised employees of the companies satisfy that requirement. It followed that the proviso dealing with part performance did not arise, and no finding was needed on whether the appellant's possession of the keys amounted to part performance.

p. 4
03

Enforceability of a rent covenant in an agreement to lease where the lease was never executed

Holding

Rent stipulated under a contract to enter into a sub lease is enforceable only where the contract was capable of specific performance when the suit claiming the rent was filed; the burden lies on the plaintiff, and here it was not discharged, so the award of quarterly rent was wrong.

Reasoning

Following the Privy Council's approach in Ariff v Jadinath Majumdar, as adopted in Rogan-Kamper v Lord Grosvenor (No 2), a claimant cannot enforce monetary covenants of an agreement to lease without the protection of specific performance. The relevant date is the filing of the suit, not the date the rent first fell due. Because the respondent led no evidence of when its head lease was surrendered to Kenya Railways, it failed to prove capability of specific performance on 2nd March 2000 when the plaint was filed.

p. 6
04

Claim to a security deposit under a sub lease that never came into existence

Holding

There is no basis for claiming a security deposit where the sub lease never came into existence, no specific performance was ordered, and no particulars of secured amounts were given; the claim was dismissed.

Reasoning

The deposit was pleaded as security for due performance of covenants in the sub lease. Since the sub lease never came into existence, the superior court had made no order for specific performance, and no particulars were given of any amounts the security would cover, the Court found no proper basis for the claim and dismissed it as part of allowing the appeal.

p. 5
05

The distinction, in pleading, between an executed sub lease and a contract to enter into one

Holding

The plaint pleaded an executed sub lease rather than an agreement to enter into one, which made the defences under the Transfer of Property Act 1882 responsive; those sections govern the lease itself, not a contract to make one.

Reasoning

The plaint averred that a sub lease was already in existence and had been breached, not that there was an agreement to enter into one. The Court held the defence, including the pleas under sections 53A, 105 and 107 of the Transfer of Property Act 1882, was logically responsive to the plaint as drafted, and observed that those sections would have been irrelevant had the claim been framed as specific performance of a contract to enter into a sub lease.

p. 3

Legal principles established

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  • A contract to enter into a lease or sub lease contained in correspondence signed by authorised employees of the intended lessor and lessee companies is a sufficient memorandum under subsection (3) of the Law of Contract Act (Cap 23) and may found a suit; reliance on part performance is unnecessary.
  • Where rent is claimed under a covenant in a contract to enter into a lease, the claimant must prove the contract was capable of specific performance on the date the suit was filed - not on the date the rent first fell due - and the burden of proof rests on the claimant.
  • Statutory provisions governing the grant, transfer or registration of a lease itself (such as sections 53A, 105 and 107 of the Transfer of Property Act 1882) are not engaged by a suit founded on a contract to enter into such a lease.

Court orders

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  1. 1.Appeal allowed to the extent stated: the claims for the security deposit of Shs 847,800 and for quarterly rent of Shs 2,543,400 fail, and the preparation costs award is reduced from Shs 70,000 to Shs 50,000.
  2. 2.Judgment of the superior court (Hayanga J, H.C.C.C. No. 109 of 2000) set aside.
  3. 3.Substituted judgment for the plaintiff for the sum of Shs 50,000 together with costs, with interest at court rates from the date of the lower court's judgment.
  4. 4.Respondent ordered to pay ¾ of the appellant's costs of the appeal and in the superior court.

Authorities

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Legislation

  • Law of Contract Act (Cap 23)Section 3(3) and proviso (quoted in its un-amended form)
  • Law of Contract Amendment Act No 21 of 1990Not specified (pleaded as rendering the alleged lease unenforceable)
  • Transfer of Property Act 1882Sections 53A, 105 and 107

Cases cited (4)

  • Rogan-Kamper v. Lord Grosvenor (No 2)
    1977 KLR 123
  • Ariff v. Jadinath Majumdar
    (1930) 58 Cal 1235
  • Walsh v. Lonsdale
    (1882) 21 Ch D 9
  • Souza Figueiredo's case
On appeal from
High Court of Kenya at Mombasa
H.C.C.C. No. 109 of 2000
Jurisdiction invoked
First appeal to the Court of Appeal from the judgment of the High Court of Kenya at Mombasa; the judgment itself cites no specific constitutional or statutory provision as the basis of the Court's jurisdiction.

Key timeline

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Practical implications

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Frequently asked questions

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Later judgments citing this (9)

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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, "Mumias Sugar Company Ltd v Freight Forwarders (K) Ltd [2005] KECA 317 (KLR)", Case Analysis (2005). Civil Appeal 297 of 2003. Source: https://new.kenyalaw.org/akn/ke/judgment/keca/2005/317/eng@2005-03-18

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