Attorney General v Orbit Chemical Industries Limited [2019] KECA 790 (KLR)
The bottom line
#Kenya's Court of Appeal cancelled a Ksh.6 billion judgment against the Government because the official who agreed to it lacked authority to settle.
What this practically means
#Executive summary
#Questions the Court framed
#The issues the Court set itself to decide, in its own words.
- 1.What constitutes a valid consent or compromise of a suit?
- 2.Who has authority to bind the Government of Kenya to a settlement or compromise?
- 3.Whether the provisions of the Government Contracts Act apply to a settlement arising out of court proceedings
- 4.Whether it was proved to the satisfaction of the court, under Order XXIV Rule 6 of the then Civil Procedure Rules, that the suit had been adjusted wholly or in part by a lawful agreement or compromise
Key legal issues
#Whether the Government Contracts Act applies to a settlement arising out of court proceedings
The High Court erred in holding that the Government Contracts Act did not apply because the alleged agreement arose from court proceedings rather than a negotiated government contract. A consent order is as good as a contract, so those entering it on behalf of the Government must have authority to bind the Government in a contract.
The Court of Appeal relied on Flora N. Wasike v Destimo Wamboko, which holds that a consent judgment has contractual effect and can only be set aside on grounds justifying the setting aside of a contract. Given that contractual effect, only persons with authority to bind the Government in a contract - the accounting officer of the relevant ministry or a person authorized under the Government Contracts Act - could conclude a binding consent. Mr. Tuamwari was not such a person, so his report could not bind the Government.
Whether Mr. Tuamwari, or counsel, had authority to bind the Government to the settlement
Mr. Tuamwari was not the appellant's legal counsel and his letters and reports could not bind the Government; no instructions emanated from the Ministry of Lands, the instructing client, and the Permanent Secretaries of both Ministries denied any agreement to settle.
The Tuamwari letter and report were internal memoranda not copied to the respondent's counsel, the Ministry of Lands or the Ministry of Finance. The Permanent Secretary Ministry of Lands and the Permanent Secretary Ministry of Finance swore affidavits denying consultation and agreement, and noting Mr. Tuamwari was not an authorized officer under the Government Contracts Act. The Court further held that even if a duly instructed counsel has implied general authority to settle, Tuamwari was not counsel; and that a solicitor committing his client to a sum beyond the client's reach (Ksh.6 billion against a Ministry budget under Ksh.2 billion) was not acting bona fide.
Whether a compromise was proved to the satisfaction of the court under Order XXIV Rule 6
It was not shown to the satisfaction of the court that a compromise had been arrived at; the learned Judge erred in inferring a compromise from mere exchange of correspondence and conduct.
Order XXIV Rule 6 requires that it be proved to the satisfaction of the court that a suit has been adjusted by a lawful agreement or compromise before judgment may be entered. The Court, adopting the interpretation of the Indian counterpart provision in Chanbasappa Gurushantappa Hiremath, held this requirement is a safeguard for a party questioning the validity of an adjustment. Here the appellant denied any agreement, the alleged compromise document was not a compromise agreement at all, and the Judge failed to interrogate how the astronomical sum had been computed.
Whether a party may renege from a consent where the other party is a public entity
None of the authorities relied on by the respondent for the rule that a party cannot renege from a consent involved a public body; in the public entity context, instructions must emanate from the concerned ministry and none were given to counsel here.
The Court distinguished the general consent-order jurisprudence (KCB v Specialized Engineering and related decisions) on the basis that those cases involved private parties. Where one party is a public entity, the ministry concerned is the source of instructions to counsel, and the accounting officer must authorize the settlement. The Permanent Secretaries of the Ministries of Lands and Finance denied authorizing or even knowing of the settlement, and the sum exceeded the Ministry's budgetary capacity, rendering the alleged consent neither bona fide nor valid.
Legal principles established
#- A consent judgment or order has contractual effect and can only be set aside on grounds which would justify setting a contract aside; consequently, persons entering a consent on behalf of the Government must have authority to bind the Government in a contract, and without the authority of the accounting officer of the respective ministry a settlement is not binding on the Government
- The general authority of an advocate to compromise a client's suit is qualified: the advocate must act bona fide and not contrary to an express negative direction, and a solicitor who commits his client to a sum not within the client's reach is not acting bona fide
- Under Order XXIV Rule 6, proof that a suit has been adjusted must be made to the satisfaction of the court; a court will not merely endorse consents that may be unlawful, and must safeguard a party who has not entered a consent and is being coerced into one
- The validity of a consent order, particularly one affecting public resources, can be questioned; illegality and matters against public policy and financial probity are things a court should neither entertain nor allow
Court orders
#- 1.The appeal is allowed with costs
- 2.The ruling of the High Court delivered on 12th October, 2012 is set aside
- 3.The application dated 23rd July, 2008 is dismissed with costs to the appellant
The bench
#One judgment of the whole court — no separate or dissenting opinions.
- On appeal from
- High Court of Kenya at Nairobi
- H.C.C.C. No. 876 of 2004
- Jurisdiction invoked
- First appeal to the Court of Appeal against a ruling of the High Court (the judgment does not cite a specific constitutional or statutory provision)
Relief refused
#Entry of judgment in favour of the respondent in the sum of Ksh.6,015,113,000 in terms of the alleged compromise agreement of 4th March, 2008
No valid consent or compromise was proved; Mr. Tuamwari had no authority to bind the Government, the letter and report were internal memoranda not copied to the instructing Ministry, and the Permanent Secretaries of the Ministries of Lands and Finance denied knowledge of and agreement to the settlement
Costs
The appeal is allowed with costs; the application dated 23rd July, 2008 is dismissed with costs to the appellant
Quotable passages
#Verbatim from the judgment, each located to the page it appears on in the official PDF — so these can be cited and checked directly.
The upshot of the above is that we find merit in this appeal. It is hereby allowed with costs. Consequently, the ruling of the High Court delivered on 12th October, 2012 is hereby set aside and the application dated 23 rd July, 2008 is dismissed with costs to the appellant.
In our view without the authority of the accounting officer of the respective ministry, the report of Mr. Tuamwari was not binding on the Government.
We understand this to mean that as a consent has a contractual effect, the persons entering a consent must be those with authority to bind the government in a contract.
We understand this to mean that courts of law will not act as robots and merely endorse consents even if they be unlawful.
Clearly this was against public interest and financial probity and is against public policy which a court should neither entertain nor allow.
Whereas an advocate had general authority to compromise on behalf of his client, he can only do so if he acts bona fide and not contrary to express and/or negative direction
Issues in the judgment
#The judgment inconsistently spells the Indian parties' names, rendering the same authority differently at different points
The judgment inconsistently renders the respondent's surname in the Samuel Mbugua authority ('Ikumbu' versus 'Ikumbo')
The affidavit of Miss Dorothy Angote is described as sworn on '23rd September' without a year, and the letter date is inconsistently referred to as a meeting of '4th February, (should be March) 2008'
Key timeline
#Practical implications
#Frequently asked questions
#Cite this brief
#Cite this brief
Caselaw, "Attorney General v Orbit Chemical Industries Limited [2019] KECA 790 (KLR)", Case Analysis (2019). Civil Appeal No. 32 of 2014. Source: https://new.kenyalaw.org/akn/ke/judgment/keca/2019/790/eng@2019-03-22
Suggested citation format for research notes or client memos. Always verify the original judgment before relying on any point.