COTECNA INSPECTION S.A v HEMS GROUP TRADING COMPANY LIMITED [2007] KECA 354 (KLR)
The bottom line
#Kenya's Court of Appeal confirmed an inspector's liability for a false quality report but cut the damages award from Ksh.34.7 million to Ksh.19.9 million.
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 acts of the appellant (failure to carry out preshipment inspection and issuance of a false Clean Report of Findings) were the direct cause of the losses suffered by the respondent, notwithstanding that liability was settled in Civil Appeal No. 114 of 1998.
- 2.Whether the respondent failed to mitigate its losses, in particular by refusing the exporter's offer of US Dollars 65,000 and by reconditioning the soya beans.
- 3.Whether each head of special damages awarded by the superior court was properly pleaded, strictly proved and legally recoverable, including whether items payable in any event and duplicated heads should have been allowed.
Key legal issues
#Causation and nexus between breach of duty and the loss suffered
Although liability for breach of duty had been conclusively settled in Civil Appeal No. 114 of 1998, the appellant's failure to inspect the soya beans and its issuance of a false Clean Report of Findings was the direct cause of the respondent's losses; the defence in paragraph 8 of the defence was disproved.
The court re-evaluated the evidence as a first appellate court. The appellant's shifting positions - first claiming receipt of the IDF on 24 October 1994, then 21 October 1994, with no conclusive evidence of either - undermined its assertion that preshipment inspection was impossible. A Clean Report of Findings was necessary for the bank to pay under the letter of credit; issuing a false CRF without inspection recklessly enabled payment for substandard goods before the respondent could know their condition. Under the preshipment inspection contract the appellant owed duties of due diligence to third parties, and it could have stopped the transaction by issuing a non-negotiable Clean Report of Findings.
Burden of proving causation
The burden lay on the plaintiff to prove that the breach caused the loss, but where the operative facts (payment mechanics abroad, issuance of the CRF) lie peculiarly within the defendant's knowledge, the defendant bears the evidential burden of adducing that evidence.
Causation evidence must show, on a balance of probabilities, that the defendant's breach, and not solely the act of another, caused the damage. The respondent, as importer in Kenya, could not know how payment was made in the USA; the appellant was best placed to explain. Its failure to adduce such evidence, coupled with its admission of a false CRF, satisfied the causation requirement.
Mitigation of damages
The respondent did not fail to mitigate: the exporter's US Dollar 65,000 offer was uncertain, came from a third party, and would have required the respondent to act against its interests; reconditioning the soya beans was itself a reasonable mitigating step.
Whether steps taken in mitigation are reasonable is a question of fact, with the burden on the defendant. The offer required acceptance of a 'final settlement' of all claims for a sum less than the loss already incurred and tied to uncertain proceeds from the exporter's claims against its own supplier. Rejecting it was reasonable. The cleaning of the beans, though costly, was a commendable attempt to salvage the consignment.
Special damages: pleading and proof
Awards for analysis reports (Ksh.124,490) and bond fees (Ksh.1,893,120) exceeded the amounts pleaded (Ksh.120,000 each) and were reduced to the pleaded figures; the strict pleading rule cannot be bypassed by the Odd Jobs v Mubia principle for unpleaded issues.
Special damages must be pleaded and strictly proved. The Odd Jobs principle allowing courts to decide unpleaded issues applies only to issues canvassed at trial, not to claims for special damages where the law is strict. Since the plaint was never amended to raise the amounts, the excess over the pleaded sums was disallowed.
Heads of damage payable in any event and duplication
Port charges, railway transport from Mombasa to Nairobi, and wagon loading/offloading were costs the respondent would have incurred regardless of the condition of the beans and were already reflected in the profit calculation; they were disallowed or reduced. The shortlanding/shortfall award of Ksh.5,881,425 could not stand as it duplicated the loss-of-profit award, and the 'extra expenses to House of Manji' claim was caused by late shipment, not the appellant's breach.
Only loss flowing from the breach is recoverable. Railway transport was arranged before shipment and was a component of the costing that produced the allowed profit, so allowing it again would double-count. The extra purchase of soya beans in December 1994 predated both the CRF and the beans' arrival, so the appellant's acts could not have caused it. The shortfall figure conflated shortlanding with post-cleaning deficiency already accounted for in the profit computation.
Bank charges / impecuniosity damages
The award of bank charges on the respondent's overdraft was upheld as recoverable loss flowing from the appellant's breach.
The respondent took the overdraft to finance the transaction in the expectation that the deal's profit would clear it; the appellant's breach defeated that expectation, causing interest to accumulate. The court saw no fault in the superior court's allowance of this head.
Legal principles established
#- A finding of breach of duty does not automatically entitle the plaintiff to all damages suffered; the plaintiff must prove that the breach caused the loss claimed.
- Special damages must be both specifically pleaded and strictly proved; a court may not award special damages in excess of or outside the amount pleaded, even where the higher amount is proved by evidence, unless the pleadings are amended.
- The principle in South Australia Asset Management Corporation v York Montague: a person under a duty to take reasonable care to provide information is responsible, if negligent, only for the consequences of the information being wrong, not for all consequences of the course of action taken on that information.
- On a first appeal, the appellate court must reconsider and evaluate the evidence afresh and draw its own conclusions, while making due allowance for the fact that it neither saw nor heard the witnesses.
- Items of cost that the claimant would have incurred in any event regardless of the defendant's breach (such as transport of goods to their intended destination) are not recoverable as special damages, having been factored into the loss-of-profit calculation.
Court orders
#- 1.Appeal allowed to the extent that the damages awarded by the superior court be reduced from Ksh.34,764,410 to Ksh.19,935,510.
- 2.Interest on Ksh.19,935,510 at court rates from the date of filing the suit until payment in full.
- 3.Respondent awarded 2/3 of the costs of the appeal.
- 4.The finding that the appellant was directly liable for the respondent's loss was affirmed.
The bench
#One judgment of the whole court — no separate or dissenting opinions.
Wrote the judgment
Wrote the leading judgment. Held that liability had been conclusively settled by the Court's earlier decision in Civil Appeal No. 114 of 1998 and could not be revisited, but the respondent still had to prove causation and quantum. Found the appellant's false Clean Report of Findings was directly connected to the respondent's loss, but substantially reduced the award of special damages from Ksh.34,764,410 to Ksh.19,935,510 by disallowing unpleaded items, duplicated heads, and costs payable in any event, and upholding the finding that the respondent had mitigated its loss.
I have however rejected some heads of the loss that were awarded, reduced some claims and confirmed others. After doing so, the amount I would find due to the respondent is Ksh.19,935,510/= (nineteen million, nine thirty five thousand, five hundred and ten shillings).p. 26
- On appeal from
- High Court of Kenya at Eldoret
- H.C.C.C. No. 126 of 1997
- Jurisdiction invoked
- First appellate jurisdiction over the High Court under the Constitution and the Court of Appeal's appellate jurisdiction (appeal as of right from the High Court's judgment and decree); the court expressly declined to revisit liability settled in its own earlier decision in Civil Appeal No. 114 of 1998.
Relief refused
#Reversal of the finding of liability / causation
Liability had been conclusively settled by the Court of Appeal in Civil Appeal No. 114 of 1998, and on re-evaluation of the evidence the appellant's false Clean Report of Findings was directly connected to the respondent's loss.
Reduction of damages on the ground of failure to mitigate
The US Dollar 65,000 offer came from a third party (the exporter), was uncertain in extent, and accepting it would have required the respondent to act against its own interests; reconditioning the beans was itself a mitigating step.
General damages (no cross-appeal)
The dismissal of the claim for general damages was not challenged by cross-appeal, so the court had no jurisdiction to reconsider it.
Costs
The respondent be awarded 2/3 of the costs of the appeal (the appellant having substantially failed in 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.
I would award interest on that amount at court rate from the date of filing the suit till the date of payment in full. On the issue of costs, the appellant has succeeded in having the damages substantially reduced from Ksh.34,764,410/= awarded by the trial Judge to Ksh.19,935,510/=. The appeal has, accordingly largely failed but partly succeeded. In the event, I would award to the respondent 2/3 of the costs of the appeal.
I have had the advantage of reading in draft form the judgment of Onyango Otieno, J.A and I agree with his conclusion that the appeal be allowed to the extent that the damages awarded by the superior court be reduced from Kshs.34,764,410/- to Kshs.19,935,510/- with interest at court rates from the date of filing the suit to the date of payment in full.
I have no jurisdiction to revisit the same and thus it remains that the appellant has been found liable to the respondent in its breach of duty to the respondent.
It is now well settled law that a court of law will only allow special damages that are pleaded and strictly proved and not otherwise.
the mere fact that a party is found liable for breach of duty to another party does not of necessity mean that the party in breach must meat all the damages that the offended party suffers. The offended party still has the duty to show that the breach of duty caused the damages he suffered
The guiding principle of law in mitigation of losses is as follows. It is the duty of the plaintiff to take all reasonable steps to mitigate the loss he has sustained consequent upon the wrongful act in respect of which he sues, and he cannot claim as damages any sum which is due to his own neglect.
This Court must consider the evidence, evaluate it itself and draw its own conclusion though it should always bear in mind that it has neither seen nor heard the witness and should make due allowance in this respect.
Issues in the judgment
#The judgment states at one point that the CRF 'was issued on 23rd August 1994', which contradicts the consistent evidence elsewhere that the Clean Report of Findings was dated 6th or 7th March 1995; 23rd August 1994 is elsewhere the date of the Import Declaration Form.
The judgment records the transport of the soya beans 'by Railway to Mombasa (sic)' when the beans were transported from Mombasa to Nairobi, an evident slip in the summary of findings.
The summary of the court's findings of fact recites that the beans were imported under a Clean Report of Findings dated 7th March 1995 while the CRF in evidence is elsewhere dated 6.3.95/6th March 1995 - a one-day discrepancy between the two dates in the judgment.
Key timeline
#Practical implications
#Frequently asked questions
#Cite this brief
#Cite this brief
Caselaw, "COTECNA INSPECTION S.A v HEMS GROUP TRADING COMPANY LIMITED [2007] KECA 354 (KLR)", Case Analysis (2007). Civil Appeal No. 45 of 2001. Source: https://new.kenyalaw.org/akn/ke/judgment/keca/2007/354/eng@2007-04-27
Suggested citation format for research notes or client memos. Always verify the original judgment before relying on any point.