CFC Stanbic Bank Limited v Kenya Haulage Agency Limited (Civil Appeal E041 of 2022) [2025] KECA 1034 (KLR) (5 June 2025) (Judgment)

Key Facts

Issues

• Whether a bank owed its customer a duty of care in issuing a bid bond to serve as tender security guaranteeing compliance with the tender requirements. The court examined the bank-customer relationship and the standard of care expected when executing such guarantees.
• What were the ingredients required to establish liability in negligence? The court outlined the four key elements: duty of care, breach of that duty, causation of damage, and foreseeability of the damage. These were applied to the bank's actions in issuing the defective bid bond.
• Whether courts could make findings on issues not pleaded. The appellate court held that the trial judge erred by addressing breach of contract, which was not pleaded by the respondent, and instead focused on the negligence claim that was specifically framed.
• Whether the loss of profits suffered by a tenderer as a result of its tender bid being rendered unresponsive due to the negligence of its bank was recoverable. The court addressed this in the context of a bid bond issued for 119 days instead of the required 120 days, leading to the respondent's tender being rejected.

Holdings

• The court determined that the respondent's claim for USD 250,860 in special damages was justified as the loss of anticipated profits from the tender was foreseeable given the bank's actual knowledge of the guarantee's purpose and the tender requirements.
• The appeal was dismissed because the High Court's findings on negligence and damages were upheld, despite procedural arguments about breach of contract not being pleaded. The court emphasized adherence to pleaded causes of action in negligence cases.
• The Court of Appeal held that the bank owed a duty of care to the respondent in issuing the bid bond, which was breached by providing a guarantee valid for 119 days instead of the required 120 days. The court found the breach directly caused the respondent's tender to be rejected, establishing a proximate and foreseeable loss.

Remedies

• The respondent was awarded special damages of USD 250,860 as compensation for the loss of profits due to the appellant's negligence in issuing an incorrect bid bond.
• The Court of Appeal dismissed the appellant's appeal, upholding the High Court's decision that the bank was liable for negligence.
• The court awarded costs to the respondent, indicating that the appellant was responsible for covering the legal expenses incurred by the respondent during the proceedings.

Monetary Damages

Legal Principles

• The bank breached its duty of care by issuing a bid bond valid for 119 days instead of the required 120 days. This breach was directly tied to the bank's failure to exercise reasonable care and skill in fulfilling the customer's instructions for the tender security.
• The court held that the bank owed a duty of care to its customer in issuing a bid bond as tender security. This duty arises from the bank-customer relationship and the bank's special skills in banking operations. The standard of care required was that of a person of ordinary prudence or an ordinary professional in the banking sector.
• The court determined that the loss of anticipated profits from the tender was not too remote. The bank's knowledge of the tender's purpose and the legal effect of non-conforming security made the profit loss foreseeable, satisfying the remoteness requirement for negligence claims.
• The court applied principles from international case law (e.g., Hedley Byrne v Heller, Wagon Mound) to determine recoverability of pure economic loss arising from negligent misstatements. It emphasized proximity and foreseeability as key factors in allowing recovery of such losses.
• The court established that the bank's breach directly caused the respondent's loss. The tender was invalidated due to the one-day shortfall in the bid bond's validity, and the respondent proved this causal link through documentary evidence from Kenya Ports Authority.

Precedent Name

• Wellesley Partners LLP v Withers LLP
• Dakianga Distributors (K) Ltd v Kenya Seed Company Limited
• Kenya Breweries Limited v Kiambu General Transport Agency Limited
• Bid Insurance Brokers Limited v British United Provident Fund
• Rivtow Marine Ltd v Washington Iron Works
• Jabane, Mohamed Mahmoud v Highstone Butty Tongoi Olenja
• Hedly v Raxendale
• Isiye, Morris Munameza & 2 others v African Banking Corporation Ltd
• Independent Electoral and Boundaries Commission & another v Mule & 3 others
• Galaxy Paints Co Ltd v Falcon Guards Ltd
• Kenya Airports Authority v Mitu-Bell Welfare Society & 2 others
• Seaway Hotels Ltd v Cragg [Canada] Ltd
• Mutua, Wilfred Nzioka v Barclays Bank of Kenya Ltd & another
• Caparo Industries plc v Dickman
• Spartan Steel & Alloys Ltd v Martin & Co. [Contractors] Ltd.
• Ounga, Eric Omuodo v Kenya Commercial Bank Limited
• Kiamokama Tea Factory Co Limited v Joshua Nyakoni
• Donoghue v Stevenson
• Union Oil Co v Oppen
• Mbogo & another v Shab
• Mawira, Jeneby v Annwhiller Mwende Rugendo & another
• Wagon Mound [No 1]
• Standard Chartered Bank Kenya Ltd v Intercom Services Ltd & 4 others
• Wagon Mound [No 2]
• Twokay Chemicals Limited v Patrick Makau Mutisya & another
• Odd Jobs v Mubia
• Karak Brothers Company Ltd v Burden
• Selle & Another v Associated Motor Boats Co Ltd & others
• Caltex Oil [Australia] Pty Ltd v Dredge 'Willemsstad'

Cited Statute

• Banking Act
• Constitution of Kenya
• Evidence Act
• Public Procurement and Asset Disposal Act

Judge Name

• A.K. Murgor
• P. Nyamweya
• G.V. Odunga

Passage Text

• The appeal arose from a High Court decision holding the appellant bank liable for issuing a bid bond valid for 119 days instead of 120 days, causing the respondent to lose a tender. The Court of Appeal held that the respondent's claim lay in negligence, not breach of contract, but found that the bank owed a duty of care in preparing the bond as tender security. The court further held that the loss of anticipated profits was foreseeable and recoverable. The appeal was dismissed and the damages of USD 250,860 upheld.
• Having found that there was breach of contract by the defendant and that it was such breach that determined the failure of the plaintiff's bid, I hold that the plaintiff thus lost the prospects to win the tender and thus the legitimate expectation to so win and derive the benefits expected to flow from clinching the tender. That loss must be quantified in terms of what the parties or one of them, reasonably and objectively anticipated as the financial benefit one would get if the tender were won by the tenderer and payment made after the goods were supplied.
• The loss of the actual tender was not only foreseeable but also a proximate loss in the circumstances, given the appellant's actual knowledge as regards the purpose of the bank guarantee, and the legal effect of that non-conformity, and it could not therefore be argued that the loss of profits arising from the loss of the tender was too remote.