China Gezhouba Group v JTG Enterprises Limited & another
The bottom line
#Kenya's Court of Appeal slashed a Kshs.682 million subcontractor award to about Kshs.10.6 million because the subcontractor skipped mandatory contract approval steps.
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 trial court erred in holding that modification of the Subcontract under paragraph 10.1 did not require approval by the Employer
- 2.Whether the trial court erred in finding that the sum of Kshs.477,473,634.24 for actual excavated works was payable despite the absence of an Order of Variation and Employer approval under Clause 17.1
- 3.Whether the Supplementary Subcontract Agreements were executed to cater for additional hard rock excavation beyond the quantities contemplated in the original Subcontract
- 4.Whether the appellant's letter dated 31st March 2021 amounted to an admission that the rock classification in the original Bill of Quantities did not match the actual site position
- 5.Whether the retention money of Kshs.73,431,524.53 and IPC No. 26 of Kshs.10,623,086.15 were admitted and payable
- 6.Whether the award of Kshs.89,844,519.19 as 16% VAT was justified
- 7.Whether the award of liquidated damages at 2% of the contract sum rather than 2% of the overdue payment was correct
- 8.Whether the appellant's counterclaim for liquidated damages for delay was made out
- 9.Whether the decretal sum should have been payable 90% in USD and 10% in Kenya Shillings (cross-appeal)
Key legal issues
#Whether the change in rock classification required an Order of Variation from the Employer
Yes. The change in costs was a substantial change varying the terms of the contract; Clause 10.2 required implementation only after the Order of Variation from the Employer, which was never sought or obtained
The court construed Clause 10.1 of the Subcontract, holding that the decision as to what constituted a variation ultimately remained with the Employer. A change whose effect was incurring expenses beyond the contemplated charges fell within 'other character of any work'. Clause 10.2 prohibited changing any part of the works without permission. The 1st respondent, aware of the Main Contract, chose to bear the risks of not seeking the Order.
Whether the Kshs.477,473,634.24 additional claim was payable absent Employer approval
No. The amount was not contemplated in the Subcontract and, under Clause 17.1, the 1st respondent could not claim from the appellant before successfully claiming additional payment from the Employer
The court construed the contract against its commercial purpose and factual background: the Government of Kenya was ultimately responsible for payment. Clause 17.1 reflected that any escalation in costs would ultimately be incurred by the Government, hence the requirement that additional claims be made to and approved by the Employer. No such claim was made or approved.
Whether the Supplementary Subcontract Agreements catered for additional hard rock excavation
No. S1 adjusted the scope of work without adjusting the Bill of Quantities; S2 and S3 catered for additional works for the intake tower, approach channel and discharge channel
The court perused the three agreements. S1 expressly stated the adjustment of construction scope did not involve adjustment of the Bill of Quantities. Construing 'in accordance with the actual completed quantities of work which have been confirmed' to mean a change in the soil-rock ratio, absent a document confirming those quantities, would import into the document something other than what it states.
Whether the appellant's letter of 31st March 2021 was an admission of liability
No. The letter was a forwarding letter for the 1st respondent's report and concluded by requesting professional analysis and identification, indicating the contents required further investigation
The court held that a reading of paragraphs 4 and 5 in isolation might suggest an admission, but considered holistically, the letter forwarded a report issued by the 1st respondent and recommended that the Employer and Engineer's Representative organise professional analysis. The recommendation for further investigation negated an unequivocal admission.
Whether the retention money of Kshs.73,431,524.53 was payable
No. Retention was due only at expiry of the defects liability period, upon fulfilment of defects repair responsibility, and only upon the appellant receiving payment from the Employer; none of these conditions was met
Counsel's submission that the retention money was payable did not amount to an admission of liability by the appellant, since it indicated the money was held by a third party. PW1 admitted the 1st respondent did not complete the subcontracted works and took no step to terminate the contract for non-payment, so the defects liability period had not started running and there was no evidence of receipt of payment from the Employer.
Whether IPC No. 26 of Kshs.10,623,086.15 was payable
Yes. Although DW1's statement only admitted non-payment of about Kshs.10 million, counsel's admission in submissions that the sum was due bound the appellant
The court distinguished between the witness's statement (which admitted only non-payment of the final settlement of about Kshs.10 million) and counsel's submissions admitting the sum was due. Relying on Diamond Trust Bank v Ply & Panels, counsel with unterminated instructions has apparent authority to compromise all matters connected with the action, so the admission bound the appellant.
Whether the appellant's counterclaim for liquidated damages for delay was made out
The claim was premature and not capable of calculation; the trial court's dismissal of the counterclaim was affirmed, albeit for different reasons
The appellant had not taken any step to terminate the Subcontract notwithstanding the 1st respondent's admitted delay. The claim was for continuing breach, which would only end on completion of the works or effective termination of the subcontract, so the sum due, if any, was not capable of being calculated at that stage.
Legal principles established
#- A change in a contract whose effect is to incur expenses beyond the contemplated charges falls within 'other character of any work' and constitutes a variation requiring an Order of Variation from the Employer where the contract so provides
- Where a subcontract requires that additional payment claims be made to, and approved by, the Employer before the subcontractor can claim from the main contractor, an unapproved additional claim is not payable by the main contractor
- A forwarding letter that recommends further professional analysis is not an unequivocal admission of liability
- Counsel has apparent or ostensible authority to compromise matters connected with the action, and an admission of liability in counsel's submissions binds the client
- In a first appeal, the Court of Appeal is under a duty to analyse and re-assess the evidence and reach its own conclusions, while making allowance for not having seen or heard the witnesses
Court orders
#- 1.Appeal allowed in part
- 2.Judgment of the trial court allowing the 1st respondent's suit against the appellant set aside
- 3.Substituted judgment for the 1st respondent against the appellant in the sum of Kshs.10,623,086.15 for IPC No. 26, with interest at court rates from the date of filing suit until payment in full
- 4.Trial court's decision dismissing the appellant's counterclaim affirmed
- 5.1st respondent's cross-appeal dismissed
- 6.Each party to bear its own costs of the appeal
The bench
#One judgment of the whole court — no separate or dissenting opinions.
Wrote the judgment
Wrote the judgment
Wrote the judgment
- On appeal from
- High Court of Kenya at Nairobi
- High Court Commercial Case No. E649 of 2021
- Jurisdiction invoked
- First appeal to the Court of Appeal under the Court of Appeal's appellate mandate (first appeal by way of rehearing on evidence and law)
Relief refused
#Claim for Kshs.477,473,634.24 for unpaid rock excavation works
No Order of Variation was sought or obtained from the Employer as required by Clause 10.2, and the additional claim was never made to and approved by the Employer under Clause 17.1
Retention money of Kshs.73,431,524.53
Retention was only due at expiry of the defects liability period, upon fulfilment of defects repair responsibility and upon the appellant receiving payment from the Employer; none was established
VAT of Kshs.89,844,519.19
Not addressed as it fell away with the underlying findings
Liquidated damages of Kshs.31,390,300.80 at 2% of the contract sum
Fell away with the underlying findings; the court noted liquidated damages, had they been payable, would have been 2% of the overdue payment, not the contract sum
Cross-appeal for payment 90% in USD and 10% in Kenya Shillings at exchange rate of 1USD = Kshs.101.86
Cross-appeal failed in light of the court's findings on the 1st respondent's claim
Appellant's counterclaim for liquidated damages for delay of Kshs.478,426,993.73
Claim was premature; the appellant had not terminated the Subcontract and the continuing-breach sum was not yet capable of calculation
Costs
Each party to bear its own costs of the 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 the premises, we partly find merit in this appeal, which we allow in part. We set aside the judgment of the learned trial Judge allowing, the 1st respondent's suit against the appellant.
We substitute therefor a judgment for the 1st respondent against the appellant in the sum of Kshs.10,623,086.15 for IPC No. 26. The same shall be paid with interest at court rates from the date of filing suit until payment in full.
Since both the appellant and the 1st respondent are partly successful, we direct each party to bear its own costs of the appeal.
a change in the costs of a contract is a substantial change that effectively varies the terms of a contract and in this case required that an Order of Variation be sought and obtained by the 1st respondent from the Employer.
Party B shall not claim any rights from Party A before successfully claiming additional payment or extension of duration from the Employer.
So long as a counsel is acting for a party in a case and his instructions have not been terminated, he has full control over the conduct of the trial and has apparent authority to compromise all matters connected with the action.
we are under a duty to analyse and re-assess the evidence on record and reach our own conclusions on the issues for determination in the appeal.
Issues in the judgment
#Date of the appellant's letter inconsistently stated as 31st March 2021 and 31st August 2021
Liquidated damages figure described as 25% of contract sum in the plaint but 2% in the trial court's award
Key timeline
#Practical implications
#Frequently asked questions
#Cite this brief
#Cite this brief
Caselaw, "China Gezhouba Group v JTG Enterprises Limited & another", Case Analysis (2024). Civil Appeal E793 of 2023. Source: https://new.kenyalaw.org/akn/ke/judgment/keca/2024/1940/eng@2024-12-20
Suggested citation format for research notes or client memos. Always verify the original judgment before relying on any point.