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Court of AppealDismissedCivil Appeal No. 265 of 2016

Mareco Limited v Future Limited & another [2017] KECA 113 (KLR)

Court of Appeal of Kenya
15 December 2017
2,213 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 confirmed that a buyer only owes payment for invoices it formally accepted through its own verification system, and courts cannot decide issues outside the pleadings.

What this practically means

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Executive summary

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Mareco Limited, a factoring company, appealed against the High Court's dismissal of its claim against Green Future Limited and Huawei Technologies Limited. Under a master factoring agreement, Mareco purchased debts owed to Green Future by third parties, taking control of Green Future's bank account and receiving an irrevocable direction to pay from Huawei. Mareco purchased assigned invoices aggregating Kshs.29,848,373.39 but later discovered the invoices had been cancelled and fresh ones issued, with payments diverted to a new account. The trial court (Ochieng, J.) dismissed the claim against Huawei, holding the assigned invoices had never been duly accepted, but ordered Green Future to refund Kshs.27,652,470.39. Mareco appealed, contending the trial Judge unilaterally formulated issues outside the pleadings, failed to determine the agreed issues, and made findings unsupported by evidence. Green Future supported the appeal; Huawei opposed. The Court of Appeal, in a unanimous judgment, re-evaluated the evidence as required on a first appeal and rejected the appeal. It held that the issue of whether the invoices had been duly accepted arose squarely from the pleadings and evidence, and that in determining what 'duly accepted' meant the Judge was entitled to consider Huawei's Supplier Collaboration System verification procedure, which was unchallenged. Huawei had settled all payments under the duly accepted invoices, and there was no evidence supporting the claims for profit margin and loss of investment opportunity. The appeal was dismissed with costs to the 2nd respondent. The judgment affirms the rule that issues for determination flow from the pleadings, and the High Court decision was affirmed in full.

Questions the Court framed

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The issues the Court set itself to decide, in its own words.

  1. 1.Whether the learned Judge erred by unilaterally formulating issues for determination not raised or agreed by the parties
  2. 2.Whether the learned Judge departed from, or failed to determine, the issues as framed and agreed by the parties
  3. 3.Whether the learned Judge misdirected himself on the law, pleadings and evidence on record
  4. 4.Whether the finding that the 2nd respondent had settled all the invoices was unsupported by evidence
  5. 5.Whether the appellant was entitled to damages for profit margin and loss of investment opportunity

Key legal issues

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01

Whether the trial Judge erred in considering the issue of 'duly accepted' invoices and the SCS verification procedure allegedly not raised by the parties

Holding

The issue of whether the invoices had been duly accepted arose from the pleadings and evidence; the Judge did not err in considering it or the SCS procedure.

Reasoning

The appellant's cause of action rested on assigned invoices it believed had been accepted, and the 2nd respondent's defence expressly contended it had not duly approved payment of those invoices. The meaning of 'duly accepted' was therefore in issue, and evaluating what 'duly accepted' entailed necessarily involved considering the 2nd respondent's evidence about the SCS approval procedure, which the 1st respondent did not challenge.

p. 4
02

Whether the 2nd respondent was liable to pay the appellant on the assigned invoices

Holding

The 2nd respondent could only accept and pay invoices verified and entered in its SCS system; it had settled all payments under duly accepted invoices and was under no legal obligation to the appellant.

Reasoning

The 2nd respondent's witness explained in detail its invoice approval procedure, confirming that mere acknowledgment of receipt did not amount to acceptance, and that payment required submission of correct invoices in the SCS system per the payment terms in appendix 2 to the subcontract agreement. This uncontroverted evidence, corroborated by the contractual payment terms, supported the trial court's finding of no liability.

p. 4
03

Whether the appellant was entitled to profit margin and loss of investment opportunity damages

Holding

There was no evidence warranting the award of those damages.

Reasoning

The appellant argued it had adduced uncontroverted evidence supporting the claims, but the court found nothing on the record justifying the award of profit margins or loss of investment opportunity, and the trial Judge was not faulted for disregarding those heads of claim.

p. 4

Legal principles established

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  • Issues for determination by a court must flow from the pleadings; a court cannot pronounce on issues not raised in the pleadings filed by the parties.
  • On a first appeal, the Court of Appeal's role is to re-evaluate, re-assess and re-analyze the evidence and determine whether the trial court's conclusions should stand.

Court orders

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  1. 1.Appeal dismissed
  2. 2.Costs of the appeal to the 2nd respondent

The bench

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One judgment of the whole court — no separate or dissenting opinions.

majority
majority
Martha Karambu Koome
M. K. KoomeJA
Currently serving
majority
On appeal from
High Court of Kenya at Nairobi
H.C.C.C No. 101 of 2014
Jurisdiction invoked
First appeal to the Court of Appeal under the Court of Appeal's appellate jurisdiction (statutory first appeal from the High Court)

Relief refused

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Claim against the 2nd respondent for the purchase price, profit margins and loss of investment opportunity

The invoices were never duly accepted by the 2nd respondent, which settled all payments under the duly accepted invoices; no evidence supported the claims for profit margin and loss of investment

p. 4

Costs

Appeal dismissed with costs to the 2nd respondent (Huawei Technologies Limited).

Quotable passages

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Verbatim from the judgment, each located to the page it appears on in the official PDF — so these can be cited and checked directly.

It is trite that issues for determination by a court flow from the pleadings. A court cannot make pronouncement on issues not raised in the pleadings filed by parties and to do so would be tantamount to acting outside its mandate.
p. 3Issues flow from pleadings
This being a first appeal, our primary role as a first appellate court is to re-evaluate, re-assess and reanalyze the evidence on record and then determine whether the conclusions reached by the learned trial Judge are to stand or not and give reasons either way.
p. 3Duty of a first appellate court
In the end, we find that the appeal lacks merit and is hereby dismissed with costs to the 2 nd respondent.
p. 5Final orders / disposition

Issues in the judgment

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minor

The judgment inconsistently identifies counsel Mr. Oundo as appearing 'for the 2nd appellant' when he appeared for the 2nd respondent.

minor

The judgment states the power of attorney was of even date with the factoring agreement dated 25th March, 2015, but the irrevocable direction to pay is dated 12th April, 2013, a chronological inconsistency on the face of 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, "Mareco Limited v Future Limited & another [2017] KECA 113 (KLR)", Case Analysis (2017). Civil Appeal No. 265 of 2016. Source: https://new.kenyalaw.org/akn/ke/judgment/keca/2017/113/eng@2017-12-15

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