National Water Conservation & Pipeline Corporation v Mwanza (Civil Appeal 178 of 2014) [2017] KECA 797 (KLR) (26 May 2017) (Judgment)
Neutral citation:
[2017] KECA 797 (KLR)
Republic of Kenya
Civil Appeal 178 of 2014
PN Waki, RN Nambuye & HM Okwengu, JJA
May 26, 2017
Between
National Water Conservation & Pipeline Corporation
Appellant
and
Jayne Kanini Mwanza
Respondent
(An appeal from the Judgment of the High Court of Kenya at Nairobi (Nzioki Wa Makau, J.) dated 23rd January, 2014inIndustrial Court Cause No. 25 of 2012
Cause 25 of 2012
)
Judgment
1.Does a fixed contract of service, which has an option for renewal, expire automatically by effluxion of time or the employee has a legitimate expectation that it would be renewed once the option is exercised? In either case, what are the consequences? Those are the questions we are required to answer in this appeal. The appellant will henceforth be referred to as “the Corporation” which was represented before us by learned counsel Mr N Malonza instructed by M/s Sisule Munyi Kilonzo & Company Advocates, while the respondent (“the employee”) was represented by learned counsel Mr E A Ongicho instructed by M/s Ongicho-Ongicho & Company Advocates.
2.The salient facts are fairly straight forward and largely undisputed.The employee was working for the Corporation from the year 2002 as a Human Resources Officer on permanent and pensionable terms. On the advice of consultants in 2008, the corporation made policy changes in respect of a certain cadre of offices which were created, including the office of ‘General Manager, Human Resource and Administration’. It was made a fixed term contractual office. The position was advertised and the employee applied and was successfully interviewed after accepting the change of her status from permanent and pensionable to contractual.
3.By a letter dated December 17, 2008, the employee was appointed as, and she accepted to be, the General Manager, Human Resource & Administration Department of the Corporation on a fixed contract of three years expiring on December 16, 2011. The Corporation reserved the right to terminate the services prematurely depending on the employee’s performance but that option was never exercised. There was also a clause for “Renewal of Appointment”providing as follows:
4.Six months prior to the expiry of the contract, the employee exercised the option for renewal by making a request in a letter dated June 7, 2011. She acknowledged in the letter that her contract would end on December 16, 2011. There was no response to that letter by the Corporation. On the last day of the contract, the employee addressed the Corporation as follows:-
5.The letter was written on a Friday with a weekend in between and the Corporation responded on Monday December 19, 2011 referring to the fixed contract and the letter seeking renewal but regretting that the board of directors (BOD) had met on 16th December and resolved not to renew the contract. It said the position would be re-advertised and invited the employee to apply if so willing. She would be paid her gratuity and other dues on the expired contract.
6.The employee was aggrieved by that action and therefore went before the Industrial Court on January 10, 2012 and lodged a claim asserting that the renewal of the contract was automatic upon the proper and timely request made by her under clause 7 which was not responded to until after the expiry of the contract. She further pleaded that the purported termination of the renewed contract on December 19, 2011 was unfair termination causing her mental anguish because she had a legitimate expectation that her contract had been renewed. She made the following prayers:-i.A declaration that the Letter dated December 19, 2011 is null and void.ii.A declaration that the 2nd 3 year contractual period is subsisting.iii.Reinstate the grievant and treat her in all aspects as if the grievant employment had not been terminated.iv.The respondent be ordered to re-employ, and/or revert and/or change the claimant’s employment terms to be on permanent and pensionable terms.
7.In the alternative, the employee sought payment of the following terminal dues and benefits:
8.The Corporation denied the claims and in particular that the renewal was automatic pointing out that it was subject to consideration and acceptance by the BOD. It pleaded the Code of Regulations which was part of the contract between the parties and which provided that appointments on contract lasted for a maximum of 3 years and were only renewable at the discretion of the BOD. The contract would otherwise end by effluxion of time and attract no claim for unfair termination. It pleaded further that the employee was aware of the date of expiry of the contract and had acknowledged it in her letters. She was thus stopped from asserting otherwise. At all events, the corporation urged, if such contracts were automatically renewable, it would make nonsense of the fixed term converting the contract into a renewable one ad infinitum. It further contended that there was no time limit for the response by the BOD on the request made under clause 7 and the court cannot therefore impute any. Finally, the Corporation contended that the employee had been paid her salary, gratuity and leave under the contract and nothing more was claimable.
9.The matter fell before Nzioki wa Makau, J. for hearing and determination but the parties agreed to have the decision made on the basis of the documents filed, submissions made and issues framed by them. In the end, the trial court found that although there was a fixed contract, the employee continued to work past the contract date and it was therefore impliedly renewed. Termination thereafter without notice was unlawful and the employee was entitled to compensation. Judgment was thus entered in favour of the employee for the following:-a.Kshs 750,000/= being 3 months notice per the contractb.Kshs 918,000/= being 3 months salary as compensationc.Pay for 113 leave daysd.Costs of the suit.
10.In arriving at those conclusions, the trial court reasoned in the following manner:
11.Those are the findings which aggrieved the corporation and provoked this appeal. In its memorandum of appeal the corporation laid out 13 grounds but learned counsel Mr Malonza focused on the issue stated at the introduction of this judgment, that is, whether the contract was renewable automatically. He referred to clause 7 (supra) and submitted that the clause must be read together with clause 2.2.3 of the Code of Regulations which were incorporated into the contract and stated in part:-
12.In those circumstances, urged counsel, making the request as the employee did, did not precipitate any renewal as the request was subject to consideration by the BOD. According to him, the employee was aware of the expiry date of the contract and specifically stated so in her letters to the Corporation. The communication by the BOD was made at the first opportunity after its meeting on December 16, 2011 because there was an intervening weekend. By that time, the contract had expired automatically and there was no obligation on the part of the Corporation to respond at any particular time to a request made.
13.In support of that submission, counsel cited the case of Ruth Gathoni Ngotho-Kariuki v. Presbyterian Church of East Africa and Presbyterian Foundation [2012] eKLR where the fixed term clause provided as follows:-
14.Instead of the hospital informing the employee about the renewal 3 months before its expiry, it did so 2 months after the expiry and the trial court, Byram Ong’aya, J. found that there was an obligation under the contract for the employer to renew the contract. The court held:
15.That case, in Mr Malonza’s submission, was distinguishable since the contract between the employee and the Corporation in this case did not impose any obligation for renewal and there could thus be no legitimate expectation of a renewal. As to what amounts to legitimate expectation, counsel cited the Supreme Court decision in Communications Commission of Kenya & 5 others v Royal Media Services Limited & 5 others [2014] eKLR.
16.Counsel further relied on the persuasive decision of Rika, J. in the case of Margaret A Ochieng v National Water Conservation & Pipeline Corporation [2014] eKLR which was based on identical facts and circumstances but related to the office of ‘General Manager, Corporate Services and Legal Affairs’. It was decided on March 18, 2014, two months after the case before us. The court in that case stated the position in law to be that fixed-term contracts carry no expectancy of renewal and held:
17.The second ground urged by counsel was in respect of the remedies awarded by the trial court. These, according to him, could only have been awarded if the contract was terminated before the three year period which it was not. As there was no termination of any contract by the corporation, there cannot be any remedies granted. He pointed out, and it was evident, that the employee was paid all her dues including payment in lieu of 103 days leave and the entire suit should therefore have failed.
18.In response, Mr Ongicho relied on the Submissions made before the trial court in which he advanced the arguments, inter alia, that the contract was automatically renewable once the employee made a request; that the employee was under no incapacity to work and had performed well in her employment; that the Corporation’s decision was an afterthought and in bad faith; that the abrupt termination was in breach of trust and the Corporation was under an obligation to give a hearing to the employee as well as the reasons for termination of the contract; and that the remedy of specific performance was the best in the circumstances of the case.
19.Counsel further submitted that the fixed term contract had a pre-conditional clause for renewal which, once complied with, called upon the corporation to respond. It was a right of the employee to make a request and a duty of the corporation to respond. The corporation failed to respond until after the expiry of the contract and therefore, in counsel’s view, the employee had a legitimate expectation that the contract was extended. He cited for support, this Court’s decision (differently constituted) in Oshwal Academy (Nairobi) & Another v Indu Vishwanath [2015] eKLR where the court cited with approval persuasive decisions of the Industrial Court propounding the legal position that:
20.In this case, urged counsel, there was an obligation on the part of the Corporation to respond to the request of the employee before expiry of the contract. The trial Judge was therefore right that the contract was deemed to have been extended beyond December 16, 2011 on the same terms and unless there was compliance with the Employment Act, 2007, any termination thereafter would be unfair termination attracting the remedies dished out by the trial court. The appeal was for dismissal.
21.We have considered those submissions and the entire record of appeal, as we must on a first appeal, in order to arrive at our own conclusions on matters of law as well as facts. Since the trial court had no added advantage of hearing and seeing any witnesses for assessment of credibility, we stand on equal footing with that court and are at liberty to interfere with the decision if it is based on no evidence or on a misapprehension of the evidence or the court is shown demonstrably to have acted on wrong principles in reaching its findings. See Mwangi vs Wambugu [1984] KLR page 453.
22.Was the fixed term contract automatically renewed upon the employee making a request? The sole basis for the finding made by the trial court was the legal proposition that if an employee continues working past the end of a contract without being formally renewed, there is an implied agreement by the employer that the expiry date of the contract had changed and a notice was thereafter necessary to terminate the employment. With respect, we think that principle was too widely stated and erroneously construed. A general principle that a fixed term contract will continue if not terminated would be a contradiction to the very definition of a fixed term. There is a definite start date and an end date. The contract would logically end automatically without more otherwise it would no longer be a fixed term contract. See the case of SA Rugby (Pty) Ltd v CCMA & others [2006] 27 ILJ 1041 (LC) at 1044 par 6).
23.The general principle, as we understand it, is that a fixed term contract will terminate on the sun set date unless it is extended in terms stated in the contract. A court cannot rewrite the terms of a contract freely entered into between the parties. Once there is a written contract, the court will seek to give meaning to such contract giving ordinary meaning to its terms in determining any issue that may arise. The principle has been considered by several Judges of the Industrial Court (now the Employment and Labour Relations Court) and they are generally in agreement. Indeed this Court was in agreement in the Oshwal Academy (Nairobi) case (supra) when it decided as follows:-
24.The Ruth Gathoni case (supra) which was relied on by the trial court in this case (Nzioki wa Makau, J.) was an exception to the rule as clearly stated by the court itself (Byram Ongaya, J.). The renewal clause of the contract in that case obligated the hospital board to inform the claimant three months before the date of expiry of the contract that the contract would or would not be renewed. It was an obligation created under the contract itself for the employer to comply but the employer did not, hence the liability. Not so in the case before us. The renewal clause was premised, not only on the request of the employee, but also on the discretion of the Corporation, both of which were express terms of the contract. There was no obligation of the Corporation to act. In the circumstances, the trial court was in error in stating that the Ruth Gathoni case supported the employee’s case.
25.The only issue for consideration is whether the terms of the renewal clause fell within the exceptions to the general rule. Some of the exceptions were stated in the case of Frenchon vs The Secretary-General of the United Nations, decided by the United Nations Appeals Tribunal [UNAT], Case No. 2010 -125.T as:
26.Was there legitimate expectation by the employee for renewal? The Supreme Court in the Communications Commission of Kenya case (supra) extensively analyzed the principle of legitimate expectation in comparative fashion before summarizing it as follows:-a.there must be an express, clear and unambiguous promise given by a public authority;b.the expectation itself must be reasonable;c.the representation must be one which it was competent and lawful for the decision-maker to make; andd.there cannot be a legitimate expectation against clear provisions of the law or the Constitution.
27.The employee here was not a new recruit in the Corporation. She was aware of the policy decision the Corporation took to change from permanent and pensionable to fixed term contract employment terms of the identified cadre of employees and she willingly became part of that process. That is why it was clear in her mind as she wrote the second letter on 16th December, 2011 thus:
28.She did not report to work but instead asked for her untaken leave days to be paid. She knew she would have to await the decision of the BOD as the contract was not automatically renewable and the terms of it said so. She did not work past the end of the contract as erroneously stated by the trial court. How would it then turn out that she expected the contract to be automatically renewed? An expectation to be actionable ought to be legitimate and in our view there was no ‘express, clear and unambiguous’ promise by the corporation in this case that the contract would be automatically renewed once the employee so requested. We also find no legitimate expectation that the employee would be given the reasons for non extension of a fixed term contract as there was no obligation on the part of the corporation to give any.
29.We think we have said enough to satisfy ourselves that this appeal is meritorious. We allow it and set aside the orders of the lower court. There is evidence on record that the employee worked for many years with the corporation and rendered exemplary services. In exercising her right to question the actions of the corporation she was not, in our view, actuated by malice or ill will but seeking a binding construction of the contract between the parties which may well extend to benefit a wider section of the employed public. For those reasons we find no good reason to condemn the employee on the costs of the litigation. We order that each party shall bear its own costs both here and before the Employment and Labour Relations Court.
DATED AND DELIVERED AT NAIROBI THIS 26TH DAY OF MAY, 2017.P. N. WAKI......................................JUDGE OF APPEALR. N. NAMBUYE......................................JUDGE OF APPEALH. M. OKWENGU......................................JUDGE OF APPEALI certify that this is a true copy of the original.DEPUTY REGISTRAR