Court: Employment and Labour Relations Court, Kenya
Case No.: [2025] KEELRC 947 (KLR)
Parties:
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Claimant: Kenya Chemical Workers Union (the Union)
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Respondent: Vector Pest Control and Supplies Limited (the Employer)
Issue
The main issue in this case was whether the Respondent (Vector Pest Control and Supplies Limited) could rely on the doctrine of frustration to avoid implementing the Collective Bargaining Agreement (CBA), particularly the monetary clauses, after experiencing financial difficulties. The Claimant alleged that despite a concluded CBA, the Respondent failed to implement the terms of the agreement.
Facts
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The Claimant and the Respondent entered into a Collective Bargaining Agreement (CBA), which was finalized and agreed upon by both parties.
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The CBA included monetary clauses, which the Respondent failed to implement.
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The Respondent argued that it could not implement the monetary clauses of the CBA due to severe financial constraints.
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The Respondent further argued that its financial struggles were caused by unforeseen circumstances, amounting to frustration of the contract.
Legal Issues
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Whether the doctrine of frustration could be invoked by the Respondent based on financial difficulties.
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Whether financial hardship constitutes an unforeseen event that can render performance of the CBA impossible.
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Whether the Respondent’s financial difficulties could justify non-performance of the CBA.
Court’s Analysis and Reasoning
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Doctrine of Frustration:
The court explained the doctrine of frustration, emphasizing that it arises when an external, unforeseeable event occurs, making the performance of the contract either impossible or significantly different from what was initially agreed. The event must be beyond the control and contemplation of both parties at the time of contract formation. -
Financial Hardship Not Constituting Frustration:
The court rejected the Respondent’s argument that its financial difficulties amounted to a frustrated event. The court held that financial hardship alone does not constitute frustration. It noted that businesses can generally project their financial performance, and the dip in profits experienced by the Respondent after 2021 was foreseeable. Had the Respondent engaged financial experts to project future profitability, it would have been able to plan for such eventualities. -
Response to Declining Profits:
The court further emphasized that, once the Respondent realized its financial position was deteriorating, it could have taken steps to address the situation, such as restructuring or downsizing the business, rather than invoking frustration. The court pointed out that financial difficulties are common in business and should not automatically be used as an excuse for non-performance of a contract. -
Frustration Cannot Be Inferred from Foreseeable Events:
The court clarified that frustration cannot be claimed for events that are foreseeable or result from normal business risks. Business decisions, such as profitability projections, fall within the reasonable expectations of parties entering into a contract.
Court’s Analysis & Conclusion:
The
court noted that financial projections and expert advice could have
prevented the situation from becoming an unexpected challenge. The
Respondent could have foreseen its financial decline after 2021 and
taken measures such as restructuring or downsizing to mitigate the
impact.
The court stressed that frustration cannot be invoked
simply because of financial hardship or disappointments in business
performance.
The court held that the Respondent’s financial hardship did not amount to frustration of the CBA. The Respondent had the ability to foresee the financial decline and take corrective actions, such as restructuring its operations. The court ruled that financial difficulty alone was not sufficient to justify the invocation of the doctrine of frustration.
The court further emphasized that not all disappointments or difficulties in business will result in the frustration of a contract. The Respondent’s inability to implement the monetary clauses of the CBA was not a result of an unforeseeable or uncontrollable event.
Thus, the Respondent remained obligated to implement the terms of the CBA, and the case was decided in favor of the Claimant (Kenya Chemical Workers Union).
Key Legal Principles
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Frustration of Contract: A contract is frustrated when an unforeseeable event occurs, making performance either impossible or radically different from the original terms.
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Financial Hardship: Financial difficulties are generally not grounds for invoking frustration, especially when they are foreseeable and could have been mitigated by proper business planning.
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Duty to Perform Contracts: A party claiming frustration must show that the event in question was beyond its control and could not have been reasonably anticipated.
Financial Hardship Not a Ground for Frustration: The court firmly held that financial hardship alone does not constitute a ground for frustration, and business difficulties or disappointments do not necessarily lead to a frustrated contract.
Implications of the Decision
This case reinforces the principle that financial challenges alone cannot justify the non-performance of contractual obligations. It places an emphasis on the need for businesses to plan carefully and use expert advice to anticipate and mitigate risks, such as changes in profitability. This case also underscores the high bar that must be met to successfully invoke the doctrine of frustration, particularly in the context of commercial contracts.
Recommendations
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Businesses should invest in financial planning and expert advice to anticipate and manage potential financial difficulties.
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Parties to collective agreements or contracts should negotiate and include terms that address unforeseen financial challenges to avoid relying on the frustration defense.
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Legal practitioners should be mindful of the rigorous requirements for frustration and advise clients accordingly.
Read the Full case here
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