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Court of AppealPartially AllowedCivil Appeal No. 333 of 2013· [2017] KECA 538 (KLR)

Erastus Kihara Mureithi v Co-operative Bank of Kenya Ltd [2017] KECA 538 (KLR)

Court of Appeal of Kenya
12 May 2017
Martha Karambu KoomeM. K. KoomePKP. O. KiageSKS. ole Kantai
3,960 words in judgment
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The bottom line

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Kenya's Court of Appeal dismissed a bank's Kshs. 11 million claim because it never proved it actually paid the tax it sought to recover.

What this practically means

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Executive summary

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The Court of Appeal (Koome, Kiage and Kantai JJ.A) allowed the appeal of Erastus Kihara Mureithi against the High Court (Havelock J) judgment awarding Co-operative Bank of Kenya Kshs. 11,194,097 plus interest at 14% and costs. The bank had sued its former Chief Executive and Managing Director to recover income tax it allegedly paid to the Kenya Revenue Authority on benefits enjoyed during his employment, pleading alternatively a contractual claim, a refund of monies paid without consideration, and unjust enrichment. The Court, exercising its first appellate duty to re-evaluate the whole evidence, identified the central question as whether the sum claimed was in fact paid to KRA for the appellant's benefit. It found the pleadings nebulous and the evidence a jumbled collection of inconsistent totals: the claimed figure appeared nowhere in the correspondence between the bank and KRA, and KRA's letter of 16 July 2004, over a year after suit, was still demanding Kshs. 14,459,766 in tax arrears in respect of the appellant from the bank. Adopting the English authorities on restitution and recoupment, the Court held that proof of actual payment is a condition precedent to any claim in recoupment, reimbursement or restitution, and that payment was not established on a balance of probabilities. The High Court judgment and decree were set aside in their entirety, the bank's suit was dismissed with costs, and the appellant received the costs of the appeal. Other issues, including estoppel and the construction of the employment contract, were left for another occasion.

Key legal issues

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01

Whether restitution/recoupment lies without proof of payment

Holding

The court held that proof of actual payment is a condition precedent to any claim in recoupment, reimbursement or restitution.

Reasoning

Drawing on Fibrosa, McCarthy v McCarthy & Stone and Benard Shaw Ltd v Shaw, the court held that a person compelled by law to pay another's liability may recover from that person, but only where payment was actually made, was not officious, and discharged the defendant's liability. Since a compelled payment benefits the beneficiary, equity imposes a concurrent duty to restitute; but absent proof of payment there is no enrichment to reverse and no cause of action.

p. 5
02

Whether the respondent proved payment of Kshs. 11,194,097 to KRA on the appellant's behalf

Holding

The court held that the evidence was wholly insufficient to establish payment; the exact figure appeared nowhere in the KRA correspondence and KRA was later demanding tax arrears from the respondent in respect of the appellant.

Reasoning

The court found inconsistent totals across the record: the respondent's own letter of 4 July 2001 recomputed the Managing Director's benefit at Kshs. 5,025,694; Ernst & Young's computations totalled Kshs. 10,934,683; and KRA's letter of 16 July 2004 demanded Kshs. 14,459,766 in respect of the appellant, more than a year after suit, indicating non-payment. The Kshs. 48,512,615 PAYE set-off in KRA's letter of 23 July 2003 made no reference to the claimed sum or the appellant.

p. 6

Legal principles established

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  • A claim for recoupment/restitution of a payment made under compulsion of law requires proof of actual payment; without proof of payment the claim must fail.
  • To succeed in recoupment the claimant must show he was compelled or compellable by law to pay, did not officiously expose himself to the liability, and that his payment discharged a liability of the defendant.
  • A first appellate court must re-evaluate the whole evidence and draw its own independent inferences, while giving due respect to the trial judge's advantage of observing witnesses.

Court orders

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  1. 1.The judgment and decree of the High Court is set aside in entirety
  2. 2.The respondent's suit at the High Court is dismissed with costs
  3. 3.The appellant shall have the costs of this appeal

Authorities

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Legislation

  • Income Tax ActChapter 470
  • Court of Appeal RulesRule 29(1)
  • KRA's Employers Guide to Pay as You Earn in Kenya (Revised Edition) (2002)

Cases cited (6)

  • MBOGO vs. SHAH
    [1968] EA 93
  • SELLE vs. ASSOCIATED MOTOR BOAT CO. LTD & OTHERS
    [1968] EA 123
  • FIBROSA SPOLKA ACKLYJNA vs. FAIRBAIN LAWSON COMBE BARBOUR LTD
    [1943] AC 32
  • Mc CARTHY vs. Mc CARTHY & STONE PLC
    [2007] EWCA 664
  • Moule v. Garrett
    (1872) LR 7 Exch 101, [1861-73] All ER Re 135
  • BENARD SHAW LTD vs. SHAW
    [1951] 2 ALL ER 267
On appeal from
High Court of Kenya at Nairobi
H.C.C.C. No. 175 of 2003
Jurisdiction invoked
First appellate jurisdiction under the Court of Appeal Rules (Rule 29(1)); appeal as of right from the High Court

Key timeline

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Practical implications

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Frequently asked questions

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Later judgments citing this (3)

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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, "Erastus Kihara Mureithi v Co-operative Bank of Kenya Ltd [2017] KECA 538 (KLR)", Case Analysis (2017). Civil Appeal No. 333 of 2013. Source: https://new.kenyalaw.org/akn/ke/judgment/keca/2017/538/eng@2017-05-12

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