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Court of AppealPartially AllowedCivil Appeal No. 310 of 2014· [2017] KECA 419 (KLR)

748 Air Services Limited v Theuri Munyi

Court of Appeal
14 July 2017
PWP. N. WakiRNR. N. NambuyePKP. O. Kiage
4,073 words in judgment
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The bottom line

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Kenya's Court of Appeal ruled an employee who silently accepts a salary cut for months cannot later claim the difference, since contracts can be varied by conduct.

What this practically means

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Executive summary

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The Court of Appeal (Waki, Nambuye and Kiage, JJ.A) allowed an appeal by 748 Air Services Limited against an Industrial Court award of Kshs. 2,794,364 to its former Finance Director, Theuri Munyi, who had been declared redundant in January 2009. The trial court had found that the company's 50% salary reduction in May 2008 was implemented without consultation, was arbitrary and unlawful, and awarded arrear salary and recalculated terminal benefits on the original salary terms, while finding nothing wrong with the redundancy itself. The Court of Appeal framed three issues: estoppel, variation of contract, and the appropriate orders. Reappraising the record under Rule 29(1) as on a retrial, the Court found there was no evidence that Munyi or other employees objected to the reduction; Munyi had authored the initial cost-cutting proposals, headed the payroll, received the reduced salary for eight months without complaint, and did not cross-appeal the redundancy finding. Applying the doctrines of estoppel by conduct and waiver, the Court held it would be unjust and inequitable to allow him to revert to the previous contractual relationship. It further held, following Globe Motors and Prudential Assurance v Jutley, that a written contract of employment may be varied orally or by conduct, and that the salary variation was a new binding term. The ELRC orders were set aside and the respondent's suit dismissed. Exercising discretion on costs, the Court declined to condemn the employee, directing each party to bear its own costs in both courts. Judgment delivered at Nairobi on 14th July 2017.

Key legal issues

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01

Whether estoppel and waiver by conduct barred the respondent's claim for the reduced salary

Holding

The doctrine applied. The respondent, as Finance Director who chaired the cost-cutting committee and headed the payroll, knew of the 50% reduction and its reasons, received the reduced salary for eight months without objection, and thereby waived his right to claim the shortfall.

Reasoning

The Court adopted its analysis in Serah Njeri Mwobi and Sita Steel Rolling Mills, holding waiver may be inferred from conduct inconsistent with any other intention. There was no evidence of objection to the reduction, contradicting the trial court's finding. Having accepted the reduced salary for eight months, it was unjust and inequitable to allow the respondent to revert to the prior contractual position.

p. 7
02

Whether a written contract of employment can only be amended in writing

Holding

No. Parties are free to vary a written contract orally or by conduct; the variation of the salary term by the acts of both parties was a new term that bound them. The trial court erred in holding the contract was not capable of variation.

Reasoning

Drawing on the parole evidence rule authorities and the English Court of Appeal decision in Globe Motors, the Court held the general principle is freedom of contract: parties may agree terms in a document, by word of mouth, or by conduct, and may vary even in the face of a 'no oral variation' clause. Contracts belong to the parties, who may negotiate and vary terms as and when they choose.

p. 8
03

Whether the trial court's award of arrear salary and terminal benefits based on the pre-reduction salary could stand

Holding

It could not. Since the reduction was validly accepted and the contract varied, terminal dues and terminal benefits could not be computed on the original higher remuneration; the ELRC's award was set aside and the respondent's suit dismissed in its entirety.

Reasoning

The trial court had treated the salary reduction as a temporary arrangement subject to reversal, but the Court found the reduction was accepted by conduct, making the pre-reduction figures an wrong basis. The Court reappraised the record under Rule 29(1) as on retrial, held the trial court's contrary findings lacked evidential foundation, and allowed the appeal in full, substituting dismissal of the suit.

p. 8

Legal principles established

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  • An employee who, with knowledge of the reasons for a salary reduction and of his right to refuse it, accepts and receives the reduced salary for a prolonged period without objection may be estopped, by conduct and waiver, from later claiming the shortfall.
  • A written contract of employment may be varied not only in writing but also orally or by conduct; parties are free to agree new terms by any of those modes, even absent a formal written amendment.
  • A finding of fact made without any evidential basis amounts to no finding at all and may be disturbed on appeal.

Court orders

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  1. 1.Appeal allowed
  2. 2.Orders issued by the ELRC set aside and substituted with an order dismissing the respondent's suit before that Court
  3. 3.Each party to bear its own costs in the Court of Appeal and before the Employment & Labour Relations Court

Authorities

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Legislation

  • Employment ActSection 49
  • Income Tax ActSection 3(1)
  • Court of Appeal RulesRule 29(1)

Cases cited (12)

  • Serah Njeri Mwobi vs John Kimani Njoroge
    [2013] eKLR
  • Lawrence Omondi vs Creative Eye Limited
    [2015] eKLR
  • CMC Aviation Limited vs Mohammed Noor
    [2015] eKLR
  • Globe Motors Inc & Others vs TRW Lucas Electric Steering Ltd & Others
    EWCA CIV 396
  • Selle vs Associated Motor Boat Co.
    [1968] EA 123
  • Mwangi vs Wambugu
    [1984] KLR
  • McIlkenny vs Chief Constable of West Midlands
    [1980] All ER 227
  • Banning vs Wright
    (1972) 2 All ER 987
  • Sita Steel Rolling Mills Ltd vs Jubilee Insurance Company Ltd
    [2007] eKLR
  • Seascapes Limited vs Development Finance Company of Kenya Limited
    [2009] eKLR
  • Prudential Assurance Company of Kenya Ltd vs Jutley & Another
    [2005] eKLR
  • Housing Finance Company of Kenya Ltd vs Njuguna
    LLR 1176 (CCK)
On appeal from
Industrial Court of Kenya (now Employment & Labour Relations Court) at Nairobi
Industrial Court Case No. 773 (N) of 2009
Jurisdiction invoked
First appeal to the Court of Appeal under its appellate jurisdiction (Rule 29(1) of the Court of Appeal Rules invoked for reappraisal of evidence)

Key timeline

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Practical implications

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Frequently asked questions

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Later judgments citing this (21)

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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, "748 Air Services Limited v Theuri Munyi", Case Analysis (2017). Civil Appeal No. 310 of 2014. Source: https://new.kenyalaw.org/akn/ke/judgment/keca/2017/419/eng@2017-07-14

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