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ELCPartially AllowedELC NO. 698 OF 2015· [2018] KEELC 4520 (KLR)

PAA Brothers Company Limited v Qiye Company Limited [2018] KEELC 4520 (KLR)

Environment and Land Court
6 February 2018
2,955 words in judgment
View original judgmentRead on Kenya Law Watch case
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The bottom line

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What this practically means

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Executive summary

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The plaintiff, PAA Brothers Company Limited, bought 13 apartments in Muthangari Suites from the defendant developer under a sale agreement dated 4th June 2014, with transfer on 26th January 2015. It sued for a declaration that the lease was null and void, refunds, reimbursement of electrical repair costs, a mandatory injunction for repairs, and damages for breach of contract, alleging latent and patent structural defects discovered after tenants took occupation. The defendant denied the defects, contended any claim lay against the management company, asserted its obligations ended on transfer, and invoked an arbitration clause as ousting the court's jurisdiction. The court held that the defendant, having filed a defence without applying to refer the matter to arbitration, was precluded from relying on the clause; the developer, not the moribund management company, was the proper defendant; and the nullity claim was abandoned. The defendant's supervising engineer conceded he could not give an independent opinion and that the defects fell outside his specialty, while the plaintiff's engineer documented architectural, electrical and mechanical defects costing Kshs.48,952,469.35 to rectify. Adopting cost of reinstatement as the measure of damages and citing Darlington BC v Wiltshier Northern Ltd, East Ham BC v Bernard Sunley and Quick v Taff Ely BC, the court found the defendant liable for both patent and latent defects. Judgment was entered for the plaintiff for Kshs.48,952,469.35 as general damages with interest at court rates from the date of judgment, and costs against the defendant. Reimbursement of electrical repair costs and loss of rental income were refused for want of proof, and other heads denied to avoid double compensation.

Key legal issues

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01

Whether the arbitration clause ousted the court's jurisdiction

Holding

The defendant, having filed a defence without seeking referral to arbitration, was precluded from raising the arbitration clause.

Reasoning

An arbitration clause existed, but the mechanism for invoking it required a timely application. Because the defendant filed a defence without applying to have the matter referred to arbitration, it could not later rely on the clause to defeat the suit. The court thus proceeded to determine the claim on its merits.

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02

Whether the plaintiff should have sued the management company instead of the developer

Holding

No - the sale agreement was between the plaintiff and the defendant as developer, so the defendant was the proper party.

Reasoning

The defendant had incorporated Muthangari Suites Management Company and allotted the plaintiff shares, but the company was moribund and not party to the sale agreement. Since the contractual obligations arose from the agreement between plaintiff and defendant, the claim lay against the developer and not the management company.

p. 3
03

Liability for the defects

Holding

The defendant was liable for both patent and latent defects, having failed to remedy defects reported within the warranty period.

Reasoning

The warranty covered structural defects; adopting the definition of structural defects from the cited journal (faulty workmanship or materials), the defects documented by the plaintiff's engineer fell within it. Complaints were made within the initial and extended warranty periods, and the defendant acknowledged but did nothing, hence liability attached.

p. 4
04

Quantum of damages

Holding

Cost of reinstatement was adopted as the measure, awarding Kshs.48,952,469.35 as general damages.

Reasoning

Relying on Darlington BC v Wiltshier Northern Ltd and East Ham BC v Bernard Sunley, the court identified reinstatement cost as one of the accepted bases of assessment. The plaintiff's engineer's detailed computation of reinstatement costs was found reasonable, and no other heads were awarded to avoid double compensation.

p. 5

Legal principles established

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  • A party who does not apply to refer a dispute to arbitration before filing a defence is precluded from raising the arbitration clause afterwards.
  • The general principle for assessment of damages for breach of contract is compensatory.
  • A developer who fails to remedy defects brought to its attention within the warranty period is liable for both patent and latent defects.

Court orders

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  1. 1.Judgment entered for the Plaintiff against the Defendant in the sum of Kshs.48,952,469.35/= as general damages
  2. 2.The amount to attract interest at court rates from the date of judgment
  3. 3.The defendant to pay costs of the suit
Jurisdiction invoked
Article 162(2)(b) of the Constitution (Environment and Land Court) - original jurisdiction over the lease and construction dispute

Key timeline

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Practical implications

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Frequently asked questions

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Cite this brief

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Cite this brief

Caselaw, "PAA Brothers Company Limited v Qiye Company Limited [2018] KEELC 4520 (KLR)", Case Analysis (2018). ELC NO. 698 OF 2015. Source: https://new.kenyalaw.org/akn/ke/judgment/keelc/2018/4520/eng@2018-02-06

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