Centurion Engineers & Builders Limited v Kenya Bureau of Standards (Civil Appeal E398 of 2021) [2023] KECA 1289 (KLR) (27 October 2023) (Judgment)

Key Facts

Transaction Type

Issues

• The court considered if the respondent, Kenya Bureau of Standards, could be estopped from challenging the arbitral award on PPDA grounds after not raising the issue during the contract's execution or the arbitration process. The Court of Appeal agreed with the appellant that the respondent's late challenge was an afterthought to avoid contractual obligations.
• The court examined whether the arbitral award upholding a contract variation exceeding 15% of the original sum was against public policy under the Arbitration Act, as the respondent argued it violated the PPDA. The Court of Appeal found the award valid, stating the respondent had not raised the PPDA issue earlier and used a private document for the contract.

Holdings

• The Court of Appeal set aside the High Court's ruling dated December 9, 2016, which had set aside the arbitral award on the grounds that it was contrary to public policy. The appeal was allowed with costs to the appellant, Centurion Engineers & Builders Limited.
• The arbitral award dated May 5, 2015, made by Mr. Onesmus Mwangi Gichuri, was recognized as binding and adopted as the judgment of the court. The Court of Appeal found no merit in the respondent's public policy argument and upheld the arbitrator's findings.
• The Court of Appeal held that the respondent, Kenya Bureau of Standards, was estopped from raising the PPDA compliance issue on appeal, as it had not raised it during the arbitration or contract execution. The court emphasized that the parties are bound by their contractual terms and that the respondent used a private document despite being a public entity.

Remedies

• The arbitral award of Mr Onesmus Mwangi Gichuri dated May 5, 2015 is recognized as binding and adopted as judgment of the court.
• The appeal is allowed with costs to the appellant.
• The ruling of the High Court dated December 9, 2016 is set aside.

Contract Value

Legal Principles

• The court reiterated the principle of Pacta Sunt Servanda, stating that parties are bound by their contractual terms unless there is evidence of coercion, fraud, or undue influence. The court found no such evidence and thus enforced the contract as agreed.
• The court held that the respondent is estopped from raising the Public Procurement and Disposal Act (PPDA) provisions as a defense, having used a private contract and not referenced the PPDA in the original agreement. This prevents the respondent from benefiting from their prior conduct of not adhering to statutory requirements.
• The court applied the Literal Rule in interpreting the supplementary agreement, emphasizing that the clear terms of the agreement should be followed without implying additional conditions. This approach was used to determine that the supplementary contract did not prohibit variations beyond 15%.

Precedent Name

• Jiwaji v Jiwaji
• Stephen Kinini Wangondu v the Ark Ltd
• Selle v Associated Motor Boat Co of Kenya & others
• Kenya Bureau of Standards v Geo Chem Middle East
• Kenya Sugar Research Foundation v Kenchuan Architects Ltd
• Deutsche Schachtbau-und Tiefbohrgesellschaft mbH v Ras Al Khaimah National Oil Company
• Brogden v Metropolitan Rly Co

Key Disputed Contract Clauses

Cited Statute

• Arbitration Act
• Public Procurement and Disposal Act

Judge Name

• G. W. NGENYE - MACHARIA
• H. A. OMONDI
• DR. K. I. LAIBUTA

Passage Text

• "The upshot of this is that the ruling of the High Court dated December 9, 2016 be and is hereby set aside. The arbitral award of Mr Onesmus Mwangi Gichuri dated May 5, 2015 be and is hereby recognized as binding and shall be adopted as judgment of the court."
• "Having considered the record as put to us...it is clear to us that there was indeed a contract between the parties...the variation was arrived at by mutual agreement and meeting of the minds...a reading of the supplementary agreement clearly shows that, indeed, there was a variation of the original contract in terms of additional works to the original contract...the supplementary agreement was also clear that, upon completion, the work would be measured and evaluated by the Ministry of Works, and that any necessary variations would be addressed accordingly."
• "Given these set of findings by the Arbitrator...the inescapable finding of the Arbitrator would have been that the quantity variation of works that doubled the original Contract quantity was a bold violation of section 47 of the PPDA Act as read with regulation 31 (c) of the PPDA Regulations. This was because that substantial variation was not subjected to new procurement......such a lenient stance would encourage Contractors to happily collude in the violation of the law, and then turn around to play victim so as to win the sympathy of the court. The Law on Procurement is on the side of the Kenyan Public and it must be strictly enforced."

Damages / Relief Type