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Court of AppealPartially AllowedCivil Appeal No. 206 of 2008· [2016] KECA 649 (KLR)

City Council of Nairobi v Wilfred Kamau Githua t/a Githua Associates & another [2016] KECA 649 (KLR)

Court of Appeal
15 April 2016
PKP. Kihara KariukiMartha Karambu KoomeM. K. KoomeJMJ. Mohammed
5,657 words in judgment
View original judgmentRead on Kenya Law Watch case
AI-assisted case brief
·~23 min to read original · ~4 min brief

The bottom line

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Kenya's Court of Appeal threw out a consultant's multi-million shilling claim because he wasn't licensed, the water company wasn't a party to his contract, and the claim came too late.

What this practically means

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Executive summary

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This appeal by the City Council of Nairobi challenged a ruling of Khaminwa J (High Court, HCCC No. 118 of 2005, delivered 28th July 2008) which struck out the name of the Nairobi City Water & Sewerage Co Ltd from a consultant's claim for KShs.50 million plus accrued interest, and dismissed the Council's application to strike out the consultant's suit on grounds of fraud, misrepresentation and illegality. The Court of Appeal disposed of the appeal on submissions. The Court held that the 2nd respondent, incorporated in December 2003 after the 1998 Consultancy Agreement, was a third party to that contract: no assignment, novation, agency, collateral contract or trust bound it to the appellant's liabilities, so it could not be sued. Further, as disclosed statutory agent of a disclosed principal, it could not be sued at common law. The Court affirmed the High Court on this limb and dismissed the appeal against the striking out of the 2nd respondent's name. However, the Court allowed the second limb: the 1st respondent, confirmed by the Land Surveyors Board not to be a registered or licensed surveyor, had breached the Survey Act and the Local Government Act, rendering his cause of action unenforceable under the ex turpi causa principle. The Court also found the 240% per annum penal interest unconscionable and the claim statute barred under the Public Authorities Limitation Act (three years against a local authority) and the Limitation of Actions Act (six years against the 2nd respondent). The final orders dismissed the appeal as regards the 2nd respondent with costs to it, and allowed the appeal as regards the strike-out application with costs to the appellant.

Key legal issues

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01

Privity of contract and liability of a post-incorporation company

Holding

The 2nd respondent, incorporated in December 2003 after the 1998 Consultancy Agreement, was a third party to that contract and could not be held liable for its debts absent an assignment, novation or any of the recognized exceptions to privity.

Reasoning

The court applied the doctrine of privity as stated in Halsbury's Laws of England and Agricultural Finance Corporation v Lengetia. The appellant and 1st respondent could not identify any agreement by which the 2nd respondent undertook the appellant's liabilities, and no collateral contract, agency, trust or contractual benefit was demonstrated. The High Court's finding on this point was therefore affirmed.

p. 8
02

Agency of a disclosed principal

Holding

The 2nd respondent provided water and sewerage services as the disclosed statutory agent of a disclosed principal (the appellant) and could not be sued on the Consultancy Agreement.

Reasoning

Relying on Anthony Francis Wareheim v Kenya Post Office Savings Bank, the court held that where the principal is disclosed the agent is not to be sued. The principal (the appellant) was disclosed and no factors vitiating the liability of the disclosed principal were shown, so the enjoinment of the 2nd respondent was unwarranted.

p. 8
03

Illegality and enforceability of the Consultancy Agreement

Holding

The 1st respondent breached the Survey Act and the Local Government Act by undertaking survey work while not a registered or licensed surveyor, rendering his cause of action unenforceable for illegality.

Reasoning

The Land Surveyors Board confirmed by letter that the 1st respondent was not a registered or licensed surveyor. Applying the ex turpi causa maxim as stated in Mapis Investment (K) Ltd v Kenya Railways Corporation, the court held that no court ought to enforce an illegal contract. The claim was therefore irredeemably tainted by illegality.

p. 9
04

Limitation of actions

Holding

The claim against the appellant was barred by the three-year period in section 3(2) of the Public Authorities Limitation Act, and the claim against the 2nd respondent was barred by section 4 of the Limitation of Actions Act.

Reasoning

The Consultancy Agreement was executed in March 1998, the fee notes related to the period 1981 to 1994, and the suit was filed in March 2005. Against a local authority, proceedings founded on contract must be brought within three years; against the 2nd respondent the six-year contractual limitation had also expired, defeating the claim.

p. 10
05

Unconscionable penal interest

Holding

The contractual interest of 20% per month (240% per annum) was unconscionable.

Reasoning

Following this Court's decision in Margaret Njeri Muiruri v Bank of Baroda, which declined to uphold a 45% per annum interest rate as manifestly excessive and morally wrong, the court found the penal interest clause unconscionable, reinforcing the refusal to enforce the claim.

p. 10

Legal principles established

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  • A company incorporated after the execution of a contract is not privy to it and cannot be compelled to answer obligations under a contract made before its incorporation absent assignment, novation or an exception to the doctrine of privity.
  • Where the principal is disclosed, the agent is not to be sued and there is no cause of action against the agent absent vitiating factors.
  • No court ought to enforce an illegal contract; a cause of action founded on conduct in breach of statutory qualification requirements is unenforceable for illegality once the illegality is brought to the notice of the court.
  • A claim against a local authority founded on contract brought more than three years after the cause of action accrued is statute barred under section 3(2) of the Public Authorities Limitation Act.

Court orders

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  1. 1.The appeal against the learned Judge's ruling allowing the 2nd respondent's application dated 22nd March 2006 is dismissed with costs to the 2nd respondent
  2. 2.The appeal against the learned Judge's ruling dismissing the appellant's application dated 14th March 2007 is allowed with costs to the appellant

Authorities

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Legislation

  • Survey ActChapter 299 of the Laws of Kenya
  • Local Government ActSection 143(2) (Cap 265, now repealed)
  • Water ActSection 5(1); Rules Rule 5(1)(d) Part IV
  • Public Authorities Limitation ActSection 3(2) (Chapter 39, Laws of Kenya)
  • Limitation of Actions ActSection 4 (Chapter 22, Laws of Kenya)
  • Civil Procedure RulesOrder I rule 10
  • Banking ActSection 44

Cases cited (9)

  • Mbogo & Anor v Shah
    [1968] EA 98
  • Agricultural Finance Corporation v Lengetia
    1982-88 I KAR 772
  • Kepong Prospecting Ltd v SK Jagatheesan & Anor
    [1968] AC 810
  • Victor Mabachi & Anor v Nurtun Bates Ltd
    [2013] eKLR
  • Anthony Francis Wareheim T/A Wareheim & 2 Others v Kenya Post Office Savings Bank
    Civil Appln Nos. NAI 5 & 48 of 2002
  • Mapis Investment (K) Ltd v Kenya Railways Corporation
    [2005] eKLR
  • Margaret Njeri Muiruri v Bank of Baroda
    (2014) eKLR
  • Sigma Engineering v Attorney General
    (2011) eKLR
  • Mehta v Shah
    1965 EA 321
On appeal from
High Court of Kenya at Nairobi
HCCC No. 118 of 2005
Jurisdiction invoked
Appellate jurisdiction of the Court of Appeal over a decision of the High Court in first-instance civil proceedings

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, "City Council of Nairobi v Wilfred Kamau Githua t/a Githua Associates & another [2016] KECA 649 (KLR)", Case Analysis (2016). Civil Appeal No. 206 of 2008. Source: https://new.kenyalaw.org/akn/ke/judgment/keca/2016/649/eng@2016-04-15

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