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Court of AppealOtherCivil Application No. 194 of 2009· [2013] KECA 481 (KLR)

Aineah Liluyani Njirah v Agha Khan Health Services [2013] KECA 481 (KLR)

Court of Appeal of Kenya
12 July 2013
RNR.N. NambuyeDavid Kenani MaragaD.K. MaragaKMK. M'Inoti
2,645 words in judgment
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The bottom line

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Kenya's Court of Appeal reopened the door for an employee to sue on his employer's insurance policy, recognising third-party beneficiaries can sometimes enforce contracts despite privity.

What this practically means

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Executive summary

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This is a ruling of the Court of Appeal at Nairobi (Nambuye, Maraga and M'Inoti, JJ.A.) delivered on 12 July 2013 on a reference arising from Civil Application No. 194 of 2009. The applicant, a former UN employee dismissed allegedly for making false claims under a UN insurance policy underwritten by the respondent, had sought leave under Rule 4 of the Court of Appeal Rules to file the notice and record of appeal out of time against the judgment of Mutungi, J. of the High Court dated 22 July 2008 in H.C.A. No. 275 of 2004. A single Judge, Githinji, JA, dismissed the application on 17 December 2009, essentially on the ground that there was no privity of contract between the applicant and the respondent, the insurance contract having been made between the UN and the respondent. On the reference, the applicant disclosed that the policy was effected for the benefit of UN employees, including himself. Although the policy itself was not on the record, the full Court held that if that were so, the applicant might have had a cause of action under the exemptions to the privity of contract doctrine. The Court reviewed the doctrine, its criticism and comparative reform. Invoking Article 159(2)(a) and (d) of the Constitution and Sections 3A and 3B of the Appellate Jurisdiction Act, the Court interfered with the single Judge's decision. However, it declined to grant the extension sought because the policy was not before it and the respondent had not been heard on the new point. It allowed the application only to the extent of permitting a fresh application for enlargement of time exhibiting the policy, to be considered by a single Judge other than the three of them, with each party bearing its own costs.

Key legal issues

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01

The privity of contract doctrine and its exceptions

Holding

Privity of contract is a long-established rule that only parties to a contract may enforce it, but it is subject to many common law and statutory exceptions, including where a contract is expressly made for the benefit of a third party, who may then have a right of enforcement

Reasoning

The Court traced the doctrine from Dunlop v Selfridge, noted sustained criticism and comparative reform in Ireland, England, Singapore, New Zealand, Canada, Australia, the United States, France and Germany, and observed that courts have used devices such as constructive trusts and estoppel to allow third parties to sue. Where a contract expressly benefits a third party there is a presumption the parties intended him to have a right of enforcement, rebuttable by the promisor.

p. 2
02

Whether the applicant had a potential cause of action notwithstanding absence of privity

Holding

If the insurance policy was effected for the benefit of UN employees including the applicant, he may have had a cause of action under the exemptions to the privity of contract principle

Reasoning

The applicant's case and his earlier application were dismissed on the ground of no privity of contract between him and the respondent, the insurance contract being between the UN and the respondent. The disclosure that the policy was for the benefit of UN employees, including the applicant, gave the Court considerable anxiety because that fact, if established, could bring the applicant within third-party beneficiary exemptions and would likely have changed the single Judge's assessment.

03

Interference with the single Judge's decision and the appropriate disposition

Holding

The Court interfered with the single Judge's dismissal in the interest of substantial justice, but declined to grant the extension itself, instead permitting a fresh application with the policy exhibited, to be heard by a different single Judge

Reasoning

Rule 55(2) of the Court of Appeal Rules restrains reliance on evidence not before the single Judge. However, given that the applicant was unrepresented, that his dismissal and the dismissal of his application rested on the privity point, and that the new fact would likely have led the single Judge to allow the application, the Court interfered. Granting the extension outright would be unfair because the policy was not on the record and the respondent had not been heard on the new point.

p. 4

Legal principles established

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  • A single Judge's dismissal of an extension-of-time application may be interfered with on reference where material facts that would likely have altered the outcome, such as the existence of a cause of action under exemptions to the privity of contract doctrine, were not placed before the single Judge, in the interest of substantial justice under Article 159(2)(a) & (d) of the Constitution and Sections 3A and 3B of the Appellate Jurisdiction Act
  • A party to litigation may be relieved of the strict privity of contract rule where a contract of insurance was effected for his benefit as a third-party beneficiary, entitling him to invoke the exemptions to the privity of contract principle
  • An appellate court may not grant relief founded on additional evidence not placed before the single Judge where the opposing party has had no opportunity to respond to the new point

Court orders

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  1. 1.The application was allowed to enable the applicant, if he so wishes, to file a fresh application for enlargement of time exhibiting the policy of insurance
  2. 2.The fresh application to be considered afresh by a single Judge of the Court who should not be any of the three judges constituting this Court
  3. 3.Each party to bear its own costs

Authorities

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Legislation

  • Court of Appeal RulesRule 4
  • Court of Appeal RulesRule 55(2)
  • Constitution of KenyaArticle 159(2)(a) & (d)
  • Appellate Jurisdiction ActSections 3A and 3B
  • Contracts (Rights of Third Parties) Act (England and Wales)s. 1
  • Contracts (Rights of Third Parties) Act (Singapore)-
  • Contracts (Privity) Act (New Zealand)-
  • New Brunswick Law Reform Act (Canada)s. 4
  • Quebec Civil Code (Canada)Article 1444
  • French Civil CodeArticle 1121
  • German Civil Code (Bürgerliches Gesetzbuch)§328-333
  • Sale of Goods and Supply of Services Act (Ireland)1980
  • Western Australia Property Law Acts. 11(2)
  • Queensland Property Law Acts. 55
  • Northern Territory Law of Property Acts. 56

Cases cited (8)

  • Dunlop Pneumonic Tyre v. Selfridge and Co. Ltd.
    [1915] AC 847
  • Prudential Assurance Co Ltd v. Ayres
    [2008] E.W.C.A. Civ 52; [2008] All E.R. (D) 90 (Feb)
  • Darlington Borough Council v. Wiltshier Northern Ltd
    [1995] 1 W.L.R. 68
  • Fraser River Pile & Dredge Ltd v. Can Dive Services Ltd
    [1999] 3 S.C.R. 108
  • Investors Compensation Scheme Ltd v. West Bromwich Building Society
    [1998] 1 W.L.R. 896
  • Saville National Bank of Sharjah v. Dellborg
    unreported, 9 July 1997
  • Lawrence v. Fox
    (1859) 20 N.Y. 268
  • Choate, Hall & Stewart v. SCA Services Inc
    (1979) 378 Mass. 535
On appeal from
High Court of Kenya at Nairobi
H.C.A. No. 275 of 2004
Jurisdiction invoked
Rule 4 of the Court of Appeal Rules; reference to the full Court; Sections 3A and 3B of the Appellate Jurisdiction Act and Article 159(2)(a) & (d) of the Constitution

Key timeline

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Practical implications

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Frequently asked questions

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Later judgments citing this (25)

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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, "Aineah Liluyani Njirah v Agha Khan Health Services [2013] KECA 481 (KLR)", Case Analysis (2013). Civil Application No. 194 of 2009. Source: https://new.kenyalaw.org/akn/ke/judgment/keca/2013/481/eng@2013-07-12

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