Karuri Civil Engineering (K) Limited v Equity Bank Limited [2019] KECA 866 (KLR)
The bottom line
#A Kenyan construction company lost its bid to recover Ksh. 75 million from Equity Bank because its equipment detention was caused by its own contract non-performance, not the bank's delayed payment.
What this practically means
#Executive summary
#Questions the Court framed
#The issues the Court set itself to decide, in its own words.
- 1.Whether the judgment of the trial court was contradictory in finding the respondent could not rely on privity of contract yet dismissing the claim
- 2.Whether the performance bond and the advance payment bond were separate and distinct
- 3.Whether the respondent Bank was liable to the appellant for special damages for loss of user of detained plant, machinery and equipment on account of delayed payment of the performance bond
- 4.Whether the detention of the appellant's equipment was causally linked to the delayed payment of the performance bond
Key legal issues
#Privity of contract and the right of a third party beneficiary to sue on a performance bond
The appellant, as the third party beneficiary at whose request the bond was issued and for whose benefit the premium was charged, had locus standi to sue on the bond; the privity defence fails.
The Bank issued the bond on the appellant's application, received a 2% premium as consideration, and the trigger for enforcement was non-performance of the appellant's contract. Following Gakombe and the collateral contract exception in Shanklin Pier, and the exceptions recognised in Aineah Likuyani Njirah, the court reaffirmed that privity cannot shield a guarantor from a third party beneficiary of a performance bond.
Whether the trial judgment was contradictory
No. The trial court correctly analysed privity in two parts - locus standi first, then proof of liability - and the appellant misapprehended this approach.
Liability under a performance bond is a question of both fact and law. Having conferred locus standi, the court was still required to determine whether the appellant proved special damages for loss of user. It found liability unproved. The two-stage reasoning was coherent, not contradictory.
Relationship between performance bond and advance payment bond
The trial court erred in holding the two bonds separate and distinct; they are interlinked, founded on the same contract, with distinct purposes but the same trigger for demand.
Applying Caterpillar Motoren, the court held that although the bonds are contractually separate, they both arise from the same underlying contract and non-performance triggers demand under either. However, this error did not avail the appellant because the delayed payment of the performance bond was still not the cause of the detention of the equipment.
Causation and liability for loss of user of detained equipment
The respondent Bank was not liable; the detention was caused by the appellant's own non-performance of the contract, and the bond did not cover or mention the equipment.
The evidence of PW2 and PW4 showed the equipment was held by the Department of Defence due to non-payment of the balance of the Advance Payment Guarantee and the appellant's non-performance. The decision to detain was made by the Department of Defence, not the Bank. Loss lies where it falls; the only remedy for delayed payment would be interest accruing to the Department of Defence as beneficiary, and the bond was not an insurance cover for the appellant.
Legal principles established
#- The doctrine of privity of contract cannot be used to oust responsibility to a third party beneficiary of a performance bond
- An 'on demand' performance bond creates primary, independent liability payable on demand, not dependent on default under the principal contract
- A performance bond and an advance payment bond, though contractually separate, are interlinked and founded on the same contract; their purposes are distinct but the trigger for demand is the same
Court orders
#- 1.The appeal is dismissed
- 2.The decision of the trial court dismissing the counterclaim is affirmed (there being no cross-appeal)
- 3.Each party to bear its own costs in this appeal
The bench
#One judgment of the whole court — no separate or dissenting opinions.
- On appeal from
- High Court of Kenya at Nairobi
- Nairobi HCCC No. 694 of 2008
- Jurisdiction invoked
- First appeal to the Court of Appeal under the Court of Appeal's appellate jurisdiction (no specific provision stated in the judgment)
Relief refused
#Special damages of Ksh. 75,285,000/= for loss of user and detention of plant, machinery and equipment
The detention of the equipment was caused by the appellant's own non-performance of the contract, not by the Bank's delayed payment of the bond; the bond neither mentioned nor covered the equipment
A finding that the trial court's judgment was contradictory
The trial court took a two-pronged approach: first determining locus standi on privity, then evaluating whether liability and damages were proved
Costs
Each party is to bear its own costs in this appeal.
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.
In our considered view, the doctrine of privity of contract cannot be used to oust responsibility to a third party beneficiary of a performance bond.
The bonds are contractually separate; however, it is the purpose of the bonds that are distinct; the trigger for demand for payment is the same namely non-performance of the contracted works.
Detention was a direct consequence of non-performance; neither delayed payment of the bond nor the advance payment guarantee were causes of retention or detention of the appellant's equipment.
For the various reasons stated above, we find this appeal has no merit and is hereby dismissed. There is no cross-appeal on dismissal of the counterclaim and we affirm the decision of the trial court in dismissing the counterclaim. Each party is to bear its own costs in this appeal.
Key timeline
#Practical implications
#Frequently asked questions
#Later judgments citing this (2)
#Judgments in the corpus that rely on this one. Where the Court said how it treated the authority, that is shown.
- Standard Chartered Financial Services Limited v Manchester Outfitters (Suiting Division) Limited Now Called King Woolen Mills Limited & 2 others[2025] KESC 68 (KLR)14 Nov 2025followed
- Archer Dramond Morgan Limited v Supermind Development Self Help Group (A Registered Self Help Group through its Chairman, Secretary and Treasurer Respectively Namely Francis Kimani, Smith Muturi and Paul Muchiri) & 2 others; Supermind Development Self Help Group (A Registered Self Help Group through its Chairman, Secretary and Treasurer Respectively, Namely Francis Kimani, Smith Muturi and Paul Muchiri) (Plaintiff to the Counterclaim); Archer Dramond Morgan Limited (Defendant to the Counterclaim) (Environment and Land Case Civil Suit 149 of 2010) [2025] KEELC 6135 (KLR)[2025] KEELC 6135 (KLR)23 Sept 2025applied
Cite this brief
#Cite this brief
Caselaw, "Karuri Civil Engineering (K) Limited v Equity Bank Limited [2019] KECA 866 (KLR)", Case Analysis (2019). Civil Appeal No. 339 of 2012. Source: https://new.kenyalaw.org/akn/ke/judgment/keca/2019/866/eng@2019-03-08
Suggested citation format for research notes or client memos. Always verify the original judgment before relying on any point.