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Court of AppealDismissedCivil Appeal No. 272 of 2006· [2015] KECA 784 (KLR)

Savings & Loan (K) Limited v Gakombe & another (Civil Appeal 272 of 2006) [2015] KECA 784 (KLR)

Court of Appeal of Kenya
24 April 2015
DMD. K. MusingaSKS. Gatembu KairuKMK. M'Inoti
3,250 words in judgment
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The bottom line

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Kenya's Court of Appeal ruled that a non-party to a contract may still sue if a separate side promise exists, and suits shouldn't be struck out unless hopeless.

What this practically means

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Executive summary

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This Court of Appeal judgment (Musinga, Gatembu Kairu and M'Inoti JJ.A, delivering a single judgment of the court) dismisses the appellant Savings & Loan (K) Limited's interlocutory appeal against a ruling of Ochieng J in the High Court which had refused to strike out Dr. Gakombe's suit for breach of a home-loan refinancing arrangement. S&L and the Automobile Association of Kenya had in 1997 contracted to run a members' home loan scheme; Dr. Gakombe, an AA member servicing a loan elsewhere, applied for refinancing under the scheme's brochure terms, saved the required deposits, but never obtained the facility after S&L terminated the agreement. S&L applied to strike out his suit on the ground of privity of contract, arguing he was a stranger to the S&L–AA agreement. The Court restated the classical privity doctrine, following Dunlop v Selfridge and Kenyan authority including Agricultural Finance Corporation v Lengetia, but recognised the collateral contract exception illustrated by Shanklin Pier v Detel Products. It found prima facie differences between the refinancing terms in the brochure and the principal agreement, making Dr. Gakombe's claim of a collateral agreement a triable issue. Invoking DT Dobie v Muchina, it held that striking out is a drastic power to be used sparingly, only where a suit plainly and obviously discloses no cause of action. The Court deliberately avoided conclusive findings on pending trial issues and affirmed the High Court ruling, dismissing the appeal with costs to the respondents. The binding propositions are the privity rule with its collateral-contract exception and the sparing exercise of the striking-out jurisdiction.

Key legal issues

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01

Privity of contract and its collateral-contract exception

Holding

Although a non-party cannot, in the classical rendering, enforce a contract, the question whether Dr. Gakombe had a separate collateral refinancing agreement with S&L, on terms different from the S&L–AA agreement, is a bona fide triable issue that cannot be resolved summarily.

Reasoning

The Court compared the terms of the 1997 S&L–AA agreement (20% saving over 36 months) with the brochure's refinancing terms (10% over 24 months) and found prima facie different terms, supporting the possibility of a collateral agreement. Following Shanklin Pier v Detel Products, a collateral contract can found an action notwithstanding absence of privity. Whether such a contract existed must be determined after a full hearing.

p. 5
02

Striking out pleadings for want of a reasonable cause of action

Holding

Dr. Gakombe's suit does not plainly and obviously disclose no reasonable cause of action; the High Court did not err in refusing to strike it out, and the summary jurisdiction must not become a means of avoiding trial.

Reasoning

Restating DT Dobie & Company Ltd v Muchina, the Court held striking out is drastic and should be exercised sparingly, only where the plaintiff has no case at all. Because the suit showed at least a semblance of a cause of action grounded on a possible collateral contract and triable issues, the interlocutory dismissal of the striking-out application was correct.

p. 5
03

Restraint of interlocutory appeals on merits

Holding

In an interlocutory appeal the Court should avoid expressing concluded views on issues pending trial, so as not to prejudice any party.

Reasoning

The Court declined to make definitive findings on privity or the collateral contract, citing its consistent practice in BP (Kenya) Ltd v Kisumu Market Service Station and David Kamau Gakuru v National Industrial Credit Bank, reserving all substantive questions for the trial court after a full hearing.

p. 5

Legal principles established

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  • Under the doctrine of privity, a contract cannot confer rights or impose obligations on a non-party and cannot be enforced by or against a third party; however, an exception exists where a contract is accompanied by a collateral contract between one of the parties and a third party relating to the same subject matter.
  • The power to strike out a suit for disclosing no reasonable cause of action is drastic, to be exercised sparingly and only in plain and obvious cases where the court has no doubt the plaintiff has no case at all; if a suit shows a mere semblance of a cause of action it should go to trial.
  • An appellate court hearing an interlocutory appeal should not express concluded views on matters pending trial.

Court orders

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  1. 1.Appeal dismissed with costs to the respondents
  2. 2.The ruling and order of the High Court (Ochieng J) dismissing the application to strike out the suit affirmed; the suit remains pending trial before the High Court

Authorities

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Legislation

  • Contracts (Rights of Third Parties) Act, 1999 (United Kingdom)
  • Contracts (Rights of Third Parties) Act, 2001 (Singapore)
  • Civil Procedure Rules (former)Order VI Rule 13 (b), (c) and (d)

Cases cited (10)

  • Agricultural Finance Corporation v Lengetia Ltd
    [1985] KLR 765
  • Kenya National Capital Corporation Ltd v Albert Mario Cordeiro & Another
    CA No. 274 of 2003
  • William Muthee Muthami v Bank of Baroda
    CA No. 91 of 2004
  • Dunlop Pneumatic Tyre Co Ltd v Selfridge & Co Ltd
    [1915] AC 847
  • Shanklin Pier v Detel Products Ltd
    [1951] 2 KB 854
  • Darlington Borough Council v Wiltshire Northern Ltd
    [1995] 1 WLR 68
  • BP (Kenya) Ltd v Kisumu Market Service Station
    CA No. 25 of 1992
  • David Kamau Gakuru v National Industrial Credit Bank Ltd
    CA No. 84 of 2001
  • DT Dobie & Company Ltd v Muchina
    [1982] KLR 1
  • Corporate Insurance Co Ltd v Nyali Beach Hotel Ltd
    CA No. 270 of 1996
On appeal from
High Court of Kenya at Nairobi
H.C.C.C. No. 1785 of 2000
Jurisdiction invoked
First appeal to the Court of Appeal under the former Civil Procedure framework (interlocutory appeal from the High Court); no specific constitutional/statutory provision quoted in the judgment

Key timeline

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Practical implications

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Frequently asked questions

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Later judgments citing this (2)

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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, "Savings & Loan (K) Limited v Gakombe & another (Civil Appeal 272 of 2006) [2015] KECA 784 (KLR)", Case Analysis (2015). Civil Appeal No. 272 of 2006. Source: https://new.kenyalaw.org/akn/ke/judgment/keca/2015/784/eng@2015-04-24

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