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Court of AppealPartially AllowedNakuru Civil Appeal (from Nakuru ELC No E019 of 2020)

Jomo Kenyatta University of Agriculture and Technology v Kwanza Estate Limited (Civil Appeal 64 of 2022) [2023] KECA 700 (KLR)

Court of Appeal of Kenya
16 June 2023
FSF. SichaleLAL. AchodeWKW. Korir
5,876 words in judgment
View original judgmentRead on Kenya Law Watch case
AI-assisted case brief
·~24 min to read original · ~4 min brief

The bottom line

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Kenya's Court of Appeal ruled JKUAT could exit its lease early because 'or sooner determination' was a break clause, and Covid-19 frustrated the lease.

What this practically means

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Executive summary

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JKUAT appealed against the judgment of Ohungo J of the Environment and Land Court at Nakuru (27 April 2022), which dismissed its suit and entered judgment on the landlord's counterclaim, declaring the six-year lease (1 May 2016 to 30 April 2022) still in force, its termination notice null and void, and awarding restoration costs of kshs. 40,000,000 plus rent of kshs. 71,965,138.70 for the unexpired term. The landlord cross-appealed for VAT of kshs. 11,514,422.20. The Court of Appeal (Sichale, Achode and Korir JJA, in a single unanimous judgment) framed three issues. First, it held that the phrase 'or sooner determination' in clauses 5.5, 5.26 and 5.27, read holistically with clause 7.10, amounted to a break clause allowing the parties to terminate the lease before expiry of the fixed term; the trial Judge erred in holding otherwise. Any reading forcing payment of rent for the remaining term would amount to unjust enrichment. Second, on frustration, the Court found the change in law via the KUCCPS placement directive was known to the appellant before it signed the lease in 2016 and thus foreseeable; however, the Covid-19 government-mandated lockdown was a force majeure event that made continued performance unfair, so condemning the appellant to pay rent for the entire lease while not using the premises was an error. Third, the cross-appeal on VAT was dismissed as meritless. The appeal was allowed: the appellant was to pay only the restoration cost of kshs. 40,000,000, and each party was to bear its own costs. The decision binds subordinate courts and tribunals on contractual interpretation of 'or sooner determination' and on first-appeal procedure.

Questions the Court framed

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The issues the Court set itself to decide, in its own words.

  1. 1.Whether the lease agreement contained an early termination clause (break clause) in the phrase 'or sooner determination'
  2. 2.Whether the lease agreement was frustrated by law and circumstances (change in KUCCPS placement policy and Covid-19 pandemic)
  3. 3.Whether the trial court ought to have included a VAT amount in the awarded rental amount (cross-appeal)

Key legal issues

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01

Whether the lease contained a break clause

Holding

The trial Judge erred; the phrase 'or sooner determination' amounted to a break clause entitling the parties to determine the lease before the expiry of the fixed term, read holistically with the other clauses.

Reasoning

The Court held that contract clauses must be read in context and as part of a whole. Clauses 5.5, 5.26 and 5.27 bore the phrase 'or sooner determination', and clause 7.10 contemplated interruption of the lease. The ordinary meaning of the phrase gave the parties an exit window upon change of circumstances, so the trial Judge erred in finding there was no break clause.

p. 8
02

Whether the lease was frustrated

Holding

The lease was frustrated: the Covid-19 lockdown was a force majeure event, and condemning the appellant to pay rent for the whole lease term while not using the premises was erroneous.

Reasoning

The appellant knew of the KUCCPS directive before signing in 2016, so the change in law was foreseeable and could not found frustration. However, the government-mandated Covid-19 lockdown closed the campus, the appellant stopped generating income from the premises, and it continued paying until January 2021 in good faith. Requiring performance in the face of such unforeseen circumstances was absurd, unfair and unjust.

p. 10
03

Cross-appeal on VAT

Holding

The cross-appeal for VAT of kshs. 11,514,422.20 was dismissed as having no merit.

Reasoning

Having found the lease capable of early termination and frustrated, the Court declined to consider the VAT issue; only the restoration cost remained payable. The cross-appeal was therefore without merit.

p. 10
04

Standard of interference on a first appeal

Holding

As a first appellate court, the Court re-evaluated the evidence and would interfere where the trial court misapprehended the evidence or acted on wrong principle.

Reasoning

The Court cited Mwangi v Samburu [1984] KLR 453 for the settled principle that a first appellate court will not normally interfere with findings of fact unless they are based on no evidence, on a misapprehension of the evidence, or on a demonstrably wrong principle.

p. 5

Legal principles established

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  • Contract clauses must be read holistically and in context, not as separate clauses; the phrase 'or sooner determination' in a lease allows the parties to terminate before the expiry of the fixed term.
  • On early termination of a lease, the lessee is liable only for monies accrued up to the time of determination; forcing payment for the remaining lease period would amount to unjust enrichment.
  • A new ground or argument not raised in the trial court (here, the contra proferentem rule) cannot be raised for the first time on appeal.
  • The Covid-19 pandemic lockdown, being a force majeure event beyond a party's control, may render continued performance of a lease unfair where performance is required despite unforeseeable and unavoidable circumstances.

Court orders

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  1. 1.The appeal is allowed
  2. 2.The appellant shall pay the cost of restoration of the suit premises to its original state at an all-inclusive price of forty million (kshs. 40,000,000/=)
  3. 3.Each party shall bear its own costs
  4. 4.The cross-appeal is dismissed

The bench

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One judgment of the whole court — no separate or dissenting opinions.

FS
majority

Wrote the judgment

LA
majority

Wrote the judgment

WK
majority

Wrote the judgment

On appeal from
Environment and Land Court at Nakuru
Nakuru ELC No E019 of 2020
Jurisdiction invoked
First appellate jurisdiction of the Court of Appeal (specific provision not stated in the judgment)

Relief refused

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The respondent's cross-appeal for VAT of kshs. 11,514,422.20 on the awarded rental amount

The Court declined to engage the VAT issue since the appeal had succeeded on the break clause and frustration grounds; the cross-appeal was found to have no merit

p. 10

The appellant's implied claim to escape the restoration cost of kshs. 40,000,000 awarded in the trial court

The Court preserved the trial court's restoration-cost order as part of the monies owed at the time of determination

p. 10

Costs

Each party shall bear its own costs.

Quotable passages

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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 efiect of the phrase "or sooner determination" in those clauses, was to allow the parties to opt out of the lease agreement prior to the fixed term of the lease and therefore, the trial Judge erred in finding that the phrase did not amount to a break clause entitling the parties to determine the contract before the expiry of the lease term.
p. 8Break clause / early termination
Any reading of the clause which would force the appellant to pay monies for the remaining lease period other than that which accrued from the usage of the premises would be unfair and would amount to unjust enrichment.
p. 7Liability on early termination
we find that the pandemic was a force majeure event that caused the appellant undue dificulty in continuing with the lease agreement in accordance with its purpose and making the payments thereupon agreed.
Frustration / force majeure
The appellant shall pay the cost of restoration of the suit premises to its original state at an allinclusive price of forty million (kshs. 40,000,000/=).
p. 10Final orders
Each party shall bear its own costs.
p. 10Costs order

Issues in the judgment

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minor

The judgment refers to the placement directive as issued in different years: 'in 2014 the Kenya Universities and Colleges Central Placement Service (KUCCPS) required all students admitted to the university to be placed as government-sponsored' and 'The plan took efiect in 2017', while elsewhere the Court states 'the appellant admitted in cross-examination that the directive was implemented in 2014.'

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, "Jomo Kenyatta University of Agriculture and Technology v Kwanza Estate Limited (Civil Appeal 64 of 2022) [2023] KECA 700 (KLR)", Case Analysis (2023). Nakuru Civil Appeal (from Nakuru ELC No E019 of 2020). Source: https://new.kenyalaw.org/akn/ke/judgment/keca/2023/700/eng@2023-06-16

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