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Court of AppealPartially AllowedCivil Appeal No. 58 of 2018· [2020] KECA 457 (KLR)

Magnate Ventures Ltd v David Odwori Namuhisa (Civil Appeal 58 of 2018) (Civ) [2020] KECA 457 (KLR)

Court of Appeal
7 August 2020
RNR. N. NambuyeSKS. Gatembu KairuAMA. K. Murgor
3,929 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 ruled that a consultant paid a retainer and 4% revenue share was not an employee, so the Employment Court had no jurisdiction and the Kshs. 20.9 million award collapsed.

What this practically means

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Executive summary

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The respondent claimed consultancy fees of 4% of revenue under a consultancy agreement dated 9th November 2009, varied by a second agreement dated 4th May 2011, under which he was to provide electrical engineering expertise to the appellant for a monthly retainer and a 4% share of revenue net of expenses. The Employment and Labour Relations Court (Wasilwa, J) found an employer-employee relationship existed, upheld its own jurisdiction, and awarded the respondent Kshs. 20,957,933.09 with interest and costs. The appellant appealed, contending the relationship was purely consultancy, that the ELRC lacked jurisdiction, and that the award was unsupported by the pleadings or evidence. Allowing the appeal, the Court held that the trial judge erred by importing ILO Recommendation No. 198 of 2006 — which remains unenacted in Kenya — instead of construing the express terms of the contract. On proper construction, the terminology, retainer, 4% revenue share, non-compete clauses and exclusive licence provisions placed the arrangement on a commercial consultancy footing, never intended to create employment. Consequently, the ELRC had no jurisdiction over a dispute founded on a commercial consultancy agreement, and the award fell with it. The Court set aside the judgment of 31st July 2017, substituted an order dismissing the suit, and awarded costs to the appellant. The judgment binds subordinate courts and tribunals to construe the true meaning of contracts before determining the nature of a working relationship and the competent forum.

Key legal issues

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01

Nature of the relationship between the parties: employment or consultancy

Holding

The relationship was strictly commercial consultancy, not employment; the trial judge erred by applying ILO R198 instead of construing the express contractual terms.

Reasoning

The court held that the parties' intention must be discerned from the contract's language and context. The terminology (consultant, retainer, 4% revenue share), the non-compete clauses, and the exclusive use of the respondent's licence placed the arrangement on a commercial footing. The trial judge's importation of ILO R198, which is not enacted into Kenyan law, amounted to rewriting the parties' agreement.

p. 4
02

Jurisdiction of the Employment and Labour Relations Court

Holding

The ELRC had no jurisdiction over a dispute founded on a consultancy agreement with commercial hallmarks.

Reasoning

Relying on Lillian S 'Caltex' and Samuel Kamau Macharia, the court restated that jurisdiction flows from the Constitution and legislation. Article 162(2) and section 12 confer exclusive jurisdiction over employment and labour disputes. Since the dispute was based on a consultancy agreement, the trial court should have declined jurisdiction once it construed the true meaning of the parties' agreement.

p. 5
03

Entitlement to the award of Kshs. 20,957,933.09

Holding

The award fell with the lack of jurisdiction and could not be examined on the merits.

Reasoning

Because the trial court lacked jurisdiction to determine the dispute, the consequential award of consultancy fees was equally beyond its remit, and this Court had no basis to examine its merits. The appeal succeeded and the suit was dismissed.

p. 5

Legal principles established

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  • A non-binding ILO recommendation cannot be imported into a contract to recast its nature where the contractual terms are express; courts must construe the parties' agreement rather than rewrite it.
  • Where parties' terms expressly create a consultancy/commercial relationship with a retainer and percentage fee, the relationship is not one of employment, and a dispute founded on such a consultancy agreement falls outside the exclusive jurisdiction of the Employment and Labour Relations Court.
  • Jurisdiction is determined by the Constitution and written law; a court cannot arrogate to itself jurisdiction exceeding that conferred by law.

Court orders

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  1. 1.The appeal is allowed
  2. 2.The judgment of the Employment and Labour Relations Court delivered on 31st July 2017 is set aside and substituted with an order dismissing the suit
  3. 3.Costs of the suit to the appellant

Authorities

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Legislation

  • Constitution of Kenya, 2010Article 162(2)
  • Employment and Labour Relations ActSection 12
  • Employment and Labour Relations Court Act, 2011Section 12
  • ILO Employment Relationship Recommendation, 2006 (No. 198)

Cases cited (8)

  • Whitehead vs Woolworths (Pty)
    (1999) 20 ILJ 2133 (LC)
  • Charter Reinsurance Co Limited vs Fagan
    [1997] AC 313
  • Pius Kimaiyo Langat vs Co-operative Bank of Kenya Ltd
    [2017] eKLR
  • Savings And Loan Kenya Limited vs Mayfair Holdings Limited
    [2012] eKLR
  • Lord Napier and Ettrick vs R F Kershaw Limited
    [1999] 1 WLR 756
  • The Owners of Motor Vessel ‘Lillian S’ vs Caltex Oil Kenya Ltd
    [1989] KLR 1
  • Samuel Kamau Macharia & Another vs Kenya Commercial Bank & 2 others
    Application No. 2 of 2011 [2012] eKLR
  • Mwanasokoni vs Kenya Bus Limited
    [1985] KLR 931
On appeal from
Employment and Labour Relations Court of Kenya at Nairobi
Employment & Labour Relations Cause No. 1459 of 2014
Jurisdiction invoked
First appeal to the Court of Appeal from the Employment and Labour Relations Court; jurisdiction of the ELRC under Article 162(2) of the Constitution and section 12 of the Employment and Labour Relations Act was a central issue

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, "Magnate Ventures Ltd v David Odwori Namuhisa (Civil Appeal 58 of 2018)  (Civ) [2020] KECA 457 (KLR)", Case Analysis (2020). Civil Appeal No. 58 of 2018. Source: https://new.kenyalaw.org/akn/ke/judgment/keca/2020/457/eng@2020-08-07

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