Insurance Law Notes

 
Insurance
The Insurance Act (Chapter 487) (Insurance Act) is the principal legislation governing insurance and reinsurance business in Kenya. It establishes the Insurance Regulatory Authority (IRA), whose functions include the regulation, supervision and licensing of insurers and reinsurers in Kenya.

Insurance may be defined as a contract between two parties whereby one party called insurer undertakes, in exchange for a fixed sum called premiums, to pay the other party called insured a fixed amount of money on the happening of a certain event.
The insurance, thus, is a contract whereby
Certain sum. called premium, is charged in consideration
Against the said consideration, a large sum is guaranteed to be paid by the insurer who received the premium
The payment will be made in a certain definite sum. I.e., I lose or the policy amount whichever may be, and
The payment is made only upon a contingency
Since Insurance is a contract, certain sections of the Contract Act are applicable.
All agreements are contracts if they are made by the free consent of the parties, competent to contract, for a lawful consideration and with a lawful object and which are not hereby declared to be void.
Elements of Insurance Contract can be classified into two sections;
The elements of general contract and
The elements of special contract relating to insurance: the special contract of insurance involves principles: insurable interest, utmost good faith, indemnity, subrogation, warranties. Proximate cause, assignment, and nomination, the return of premium.
Elements of Insurance Contract
This Act says that all agreements are the contract if they are made by the free consent of the parties, competent to contract, for a lawful consideration and with a lawful object and which are not at this moment declared to be void”.
The insurance contract involves—(A) the elements of the general contract, and (B) the element of special contract relating to insurance.
The special contract of insurance involves principles:
Insurable Interest.
Utmost Good Faith.
Indemnity.
Subrogation.
Warranties.
Proximate Cause.
Assignment and Nomination.
Return of Premium.
So, in total, there are eight elements of the insurance contract which are discussed below:
General Contract
The valid contract, according to Section 10 of the Indian Contract Act 1872, must have the following essentialities;
Agreement (offer and acceptance),
Legal consideration,
Competent to make a contract,
Free consent,
Legal object.
Insurable Interest
For an insurance contract to be valid, the insured must possess an insurable interest in the subject matter of insurance.
The insurable interest is the pecuniary interest whereby the policy-holder is benefited by the existence of the subject-matter and is prejudiced death or damage of the subject- matter. The essentials of a valid insurable interest are the following:
There must be a subject-matter to be insured.
The policy-holder should have a monetary relationship with the subject-matter.
The relationship between the policy-holders and the subject-matter should be recognized by law. In other words, there should not be any illegal relationship between the policy-holder and the subject-matter to be insured.
The financial relationship between the policy-holder and subject-matter should be such that the policy-holder is economically benefited by the survival or existence of the subject-matter and or will suffer economic loss at the death or existence of the subject matter.
The subject-matter is life in the life insurance, property, and goods in property insurance, liability, and adventure in general insurance.
Insurable interest is essentially a pecuniary interest, i.e., the loss caused by fire happening of the insured risk must be capable of financial valuation.
No emotional or sentimental loss, as an expectation or anxiety, would be the ground of the insurable interest. The event insured should be one that if it happens, the party suffers financially and if it does not happen, the party is benefited by the existence.
But a mere hope or expectation, which may be frustrated by the happening to some extent, is not an insurable interest.
Utmost Good Faith
The doctrine of disclosing all material facts is embodied in the important principle ‘utmost good faith’ which applies to all forms of insurance.
Both parties to the insurance contract must agree (ad idem) at the time of the contract. There should not be any misrepresentation, non-disclosure or fraud concerning the material.
In case of insurance contract the legal maxim ‘Caveat Emptor” (let the buyer beware) docs not prevail, where it is the regard of the buyer to satisfy himself of the genuineness of the subject-matter and the seller is under no obligation to supply information about it.
But in the insurance contract, the seller, i.e., the insurer will also have to disclose all the material facts.
An insurance contract is a contract of uherrimae fidei, i.e., of absolute good faith both parties to the contract must disclose all the material facts and fully.
Material Facts
A material fact is one which affects the judgment or decision of both parties in entering into the contract.
Facts which count materially are those which knowledge influences a party in deciding whether or not to offer or to accept such risk and if the risk, is acceptable, on what terms and conditions the risk should be accepted.
These facts have a direct bearing on the degree of risk about the subject of insurance.
In case of life insurance, the material facts or factors affecting the risk will be age, residence, occupation, health, income, etc., and in case of property insurance, it would make him use the design, owner, and situation of the property.
Full and True Disclosure
The utmost Good Faith says that all the material facts should be disclosed in true and fill the form. It means that the facts should be disclosed in that form in which they exist.
There should be no concealment, misrepresentation, mistake or fraud about the material facts. There should be no false statement and no half-truth nor nay silence on the material facts.
The duty of Both the Parties
The duty to disclose the material facts lies on both the parties the insured as well as the insurer, but in practice the assured has to be more particular, about the; observance of this principle because it is usually in full knowledge of facts relating to the subject-matter which, despite all effective inspections of the insurer, would not be disclosed.
Facts need not be disclosed by the insured
The following facts, however, are not required to be disclosed by the insured (0 Facts which tend to lessen the risk.
Facts of public knowledge.
Facts that could be inferred from the information disclosed.
Facts waived by the insurer.
Facts governed by the conditions of the policy.
Principle of Indemnity
As a rule, all insurance contracts except personal insurance are contracts of indemnity.
According to this principle, the insurer undertakes to put the insured, in the event of loss, in the same position that he occupied immediately before the happening of the event insured against, in a certain form of insurance, the principle of indemnity is modified to apply.
For example, in marine or fire insurance, sometimes, a certain profit margin which would have earned in the absence of the event, is also included in the loss. In a true sense of the indemnity, the insured is not entitled to make a profit from his loss.
To discourse over insurance the principle of indemnifying it an essential feature of an insurance contract, in the absence of which this industry would have the hue of gambling, and the insured would tend to affect over-insurance and then intentionally cause a loss to occur so that a financial gain could be achieved. So, to avoid this international loss, only the actual loss becomes payable and not the assured sum (which is higher in over-insurance). If the property is under-insured, i.e., the insured amount is less than the actual value of the property insured, the insured is regarded his insurer for the amount if under insurance and in case of loss one shall share the loss himself.
To avoid an Anti-social Act; if the assured is allowed to gain more than the actual loss, which is against the principle of indemnity, he will be tempted to gain by the destruction of his property after getting it insured against risk. He will be under constant temptation to destroy the property. Thus, the whole society will be doing only anti-social acts, i.e., the persons would be interested in gaining after the destruction of the property. So, the principle of indemnity has been applied where only the cash-value of his loss and nothing more than this, though he might have insured for a greater amount, will be compensated.
To maintain the Premium at Low-level; if the principle of indemnity is not applied, the larger amount will be paid for a smaller loss, and this will increase the cost of insurance, and the premium of insurance will have to be raised. If the premium is raised two things may happen first, persons may not be inclined to ensure and second, unscrupulous persons would get insurance to destroy the property to gain from such an act. Both things would defeat the purpose of insurance. So, a principle of indemnity is here to help them because such temptation’ is eliminated when only actual loss and not more than the actual financial loss is compensated provided there is insurance up to that amount.
Conditions for Indemnity Principle
The following conditions should be fulfilled in full application of the principle of indemnity.
The insured has to prove that he will suffer a loss on the insured matter at the time of happening the event and the loss is an actual monetary loss.
The amount of compensation will be the amount of insurance. Indemnification cannot be more than the amount insured.
If the insured gets more amount than the actual loss, the insurer has the right to get the extra amount back.
If the insured gets some amount from the third party after being fully indemnified by the insurer, the insurer will have the right to receive alt the amount paid by the third party.
The principle of indemnity does not apply to personal insurance because the amount of loss is not easily calculable there.
Doctrine of Subrogation
The doctrine of subrogation refers to the right of the insurer to stand in the place of the insured, after the settlement of a claim, in so far as the insured’s right of recovery from an alternative source is involved.
If the insured is in a position to recover the loss in full or in part from a third party due to whose negligence the loss may have been precipitated, his right of recovery is subrogated to the insurer on the settlement of the claim.
The insurers, after that, recover the claim from the third party. The right of subrogation may be exercised by the insurer before payment of loss.
Essentials of Doctrine of Subrogation
A corollary to the Principle of Indemnity
The doctrine of subrogation is the supplementary principle of indemnity.
The latter doctrine says that only the actual value of the loss of the property is compensated, so the former follows that if the damaged property has any value left or any right against a third party the insurer can subrogate the left property or right of the property because if the insured is allowed to retain, he shall have realized more than the actual loss, which is contrary to principle of indemnity.
Subrogation is the Substitution
The insurer, according to this principle’, becomes entitled to all the rights of insured subject matter after payment because he has paid the actual loss of the property.
He is substituted in place of other persons who act on the right and claim of the property, insured.
Subrogation only up to the amount, of payment
The insurer is subrogated all the rights, claims, remedies and securities’ of the damaged insured property after indemnification, but he is entitled to gel these benefits only to the extent of his payment.
The insurer is, thus, subrogated to the alternative rights and remedies of the insured, only up to the amount of his payment to the insured.
In the same way, if die insured is compensated for his loss from another party after he has been indemnified by his insurer he is liable to part with the compensation up to the extent that the insurer is entitled to.
In one U.S. case it was made clear “if the insurer, having paid the claim to the insured, recovers from the defaulting third party in excess of the amount paid under the policy, he has to pay this excess to the insured though he may charge the insured his share of reasonable expenses incurred in collecting.
The Subrogation may be applied before Payment
If the assured got certain compensation, from the third party before being fully indemnified by the insurer, the insurer could pay only the balance of the loss.
Personal Insurance
The doctrine of subrogation does riot apply to personal insurance because the doctrine of indemnity does not apply to such insurance. The insurers have no right of action against the third party in respect of the damage.
For example, if an insured dies due to. the negligence of a third party his dependent has the right to recover the amount of the loss from the third party along with the policy amount No amount of the policy would be subrogated by the insurer.
Warranties
There are certain conditions and promises in the insurance contract which are called warranties.
Proximate Cause
The rule; is that immediate and not the remote cause is to be regarded. The maxim is “sed causa proximo non-remold-spectator”; see the proximate cause and not, the distant cause.
The real cause must be seen while payment of the loss. If the real cause of loss is insured, the insurer is liable to compensate for the loss; otherwise, the insurer may not be responsible for a loss.
Proximate cause is not a device to avoid the trouble of discovering the real ease or the common sense cause.
Proximate cause means the actual efficient cause that sets in motion a train of events which brings about result, without the intervention of any force started and worked actively from a new and independent source.
The determination of real cause depends upon the working and practice of insurance and circumstances to losses. A loss may not be occasioned merely by one event.
There may be concurrent causes or chain of causes. They may occur in a sequence or broken chain. Sometimes, certain causes arc excepted by (the insurance contract and the insurer is not liable for the accepted peril.
The efficient cause of a loss is called the proximate cause of the loss.
For the policy to cover the loss must have an insured peril as the proximate cause of the loss or also the insured peril must occur in the chain of causation that links the proximate cause with the loss.
The proximate cause is not necessarily, the cause that was nearest to the damage either in time or place but is rather the cause that was responsible for the loss.
Determination of Proximate Cause
If there is a single cause of the loss, the cause will be the proximate cause, and further, if the peril (cause of loss) was insured, the insurer will have to repay the loss.
If there are concurrent causes, the insured perils and excepted perils have to be segregated. The concurrent causes may be first, separable and second, inseparable. Separable causes are those which can be separated from each other. The loss occurred due to a particular cause may be distinguishing known. In such a case if any cause, is excepted peril, the insurer will have to pay up to the extent of loss which occurred due to insured perils. If the circumstances are such that the perils are inseparable, then the insurers are not liable at all when there exists any excepted peril.
If the causes occurred in the form of the chain, they have to be observed seriously.
If there is an unbroken chain, the excepted and insured peril has to be separated. If an excepted peril precedes the operation of the insured peril so that the loss caused by the latter is the direct and natural consequence of the excepted peril, there is no liability. If the insured peril is followed by an excepted peril, there is a valid liability.
If there is a broken chain of events with no excepted peril involved, it is possible to separate the losses. The insurer is liable only for that loss caused by an insured peril; where there is an excepted peril, the subsequent loss caused by an insured peril will be a new and indirect cause because of the interruption in the chain of events. The insurer will be liable for the loss caused by insured peril which can be easily segregated. Similarly, if the loss occurs by an insured peril and there is, subsequently loss by an excepted peril, the insurer will be liable for loss occurred due to the insured peril.
In brief, if the happening of an excepted peril is followed by the occurrence of an insured peril, as a new and independent cause there is a valid claim. If an insured peril is followed by the happening of an excepted peril, as a new and independent cause, there is a claim excluding loss or damage; caused by the excepted peril.
Assignment or Transfer of Interest
It is necessary to distinguish between the assignment of (a) the subject-matter of insurance, (b) the policy, and (c) the policy money when payable.
Marine and life policies can be freely assigned but assignments under fire and accident policies, are not valid without the prior consent of the insurers—except changes of interest by will or operation of law.
Moreover, assignments under fire and accident policies must be made before tine insured parts with his, interest. Once he has lost interest, the policy is void and cannot be assigned.
The life policies can be assigned whether the assignee has an insurable interest or not.
Life policies are frequently charged, assigned or otherwise dealt with, for they are valuable securities. The marine policy is freely assignable unless it contains terms expressly prohibiting assignment.
It assigned either before or after a loss. A marine policy may be assigned by endorsement thereon or in another customary manner.
In practice, a marine cargo policy is frequently endorsed in blank and becomes in effect a quasi-negotiable instrument.
Thus, it will be appreciated, adds considerably to the convenience of mercantile transactions as the policy can be negotiated through a bank along with other documents of title.
Assignment in fire insurance cannot be recognized without the prior consent of the insurer, change of interest in fire policies (unless by will or operation of law) are not valid unless and until the consent of the insurer has been given.
The fire policies are not like an assignment nor intended to be assigned from one person to another without the consent of the insurer. Assignment in fire insurance constitutes a new contract.
Return of Premium
Ordinarily, the premium once paid cannot be refunded. However, in the following cases, the refund is allowed.
By Agreement in the Policy
The assured may pay a full premium while affecting the insurance but it may be agreed to return it wholly or partly in the happening of certain events. For example, special packing may reduce risk.
For Reasons of Equity
Non-attachment of risk: Where the subject-matter insured or part thereof, has never ten imperiled, for example, term insurance with returnable premium where the premium is returned to the policy-holder if death does not occur during the period of insurance.
The undeclared balance of on open policy: The policy may be canceled and premium may be returned for short interest allowed provided there was no further interest in the policy.
The payment of Premium is apportionable. The apportioned part of -the consideration is refundable when a part of policy interest is not involved. For example, insurance may be taken for a voyage in stages, each stage being rated separately. In such a case if some stages are not completed the premium relating to the incomplete stage is returnable.
Where the assured has no insurable interest throughout the currency of the risk, the premium is returnable provided the policy was not attached by way of wagering.
Unreasonable delay in commencing the voyage may also entitle the insurer to cancel the insurance by returning the premium.
Where the assured has over-insured under an unvalued policy a proportionate part of the premium is returnable.
Over-insurance by Double Insurance
If there is over-insurance by double insurance, a proportionate part of the several premiums is returnable provided that if the policies are taken at different times and any earlier policy has at any time born the entire risk or if a claim has been paid.
On the policy in respect of the foil insured thereby, no premium is returnable in respect of that policy and when double insurance is affected knowingly by the assured no premium is returnable.
Various Clauses of Insurance Contract
The old form of policy is even used today, To make the standard policy suitable for the different types of contracts, suitable conditions are added to the policy.
Use conditions are inserted in the policy in the form of clauses. The clauses took the standard form with special meanings. They may be about Hull, Cargo, and Freight.
Types of Insurance Contract
Insurance may be defined as a contract between two parties whereby one party called insurer undertakes, in exchange for a fixed sum called premiums, to pay the other party called insured a fixed amount of money on the happening of a certain event.
The insurance contract may be divided into two forms — first life insurance contract and the second contract of indemnity.
Occurring of Event
The event, the death, in life insurance is certain, but the only uncertainty is the time when death will occur.
In indemnity insurance {in fire and marine insurances) the event may not take place at all or may take place in part.
Therefore, in life insurance, ordinarily every piece will become a claim sooner or later but it is not certain in indemnity insurance.
Subject-Matter
The subject-matter in life insurance is life.
Chances of death would increase along with the advance in age whatever precautionary measures may be taken for improvement of health whereas the property in other insurance can be repaired and replaced and may remain usually in good condition.
Related: Proximate Cause Principle of Insurance
Variance in Premium
In life insurance premium is not much variable whereas in other insurance premiums is variable in numerous forms.
Classification of Risk
The classification of risks is generally simpler in life insurance than in other types of insurance contracts.
In life contract, it would be standard, sub-standard and un-insurable but in other insurance, it may be several.
Read more: Levels of Risks
Period of Insurance
Generally, life insurance is taken for a longer period. Whereas the other forms of insurance are taken for not more than one-two years.
Related: Utmost Good Faith in Insurance
Protection and Investment
The life insurance contract protects against loss of early death and investment to meet the old age requirement.
Other forms of insurance do not provide investment because the premium paid is not returnable if the contingencies (hazards) do not occur within the period.
Other forms of insurance provide only protection against loss of the damage of the property against the insured perils.
Premium Payment
The mode of premium payment in life insurance is generally level premium whereas, in other forms of insurances, it is a single premium.
Insurable Interest
Insurable interest must be at the time of proposal in insurance but in property insurance, it must be present at the time of loss.
Insurance Policy Form
Since most of the insurance contracts are simple contracts, these need not necessarily be in writing.
The exceptions are fidelity guarantee contracts and marine insurance contracts which are required to be evidenced in writing because of the requirement of law.
However, as a rule, insurers do issue policies about all types of insurance contracts.
It should be known by the students that policy as such is not the contract in itself, it is simply evidence to the contract which already exists.
In practice, different insurers use different types of policies for the same class of business, and there is no standardization as such.
In some classes of business, it may be seen, however, that most of the wordings have been standardized and an example may be the standard fire policy.
Related: 4 Difference between Insurance and Assurance
Apart from this, another common feature that will be found in almost all policies is the appearance of a schedule, where all important information about the insurance is marshaled.
The advantage of such scheduled, policies is that one can easily find out the critical information from the schedule rather than taking the trouble of going through the whole policy wordings.
Various Clauses of Insurance Contract
The old form of policy is even used today, To make the standard policy suitable for the different types of contracts, suitable conditions are added to the policy.
Use conditions are inserted in the policy in the form of clauses. The clauses took the standard form with special meanings. They may be about Hull, Cargo, and Freight.
Hull Clauses
These clauses are mainly framed wife the insurances on vessels and are incorporated in hull policies. The clauses may be about losses resulting from a collision, standing, general average, etc.
‘All risks policy’ may be issued or certain risks may be excluded from the policy by inserting suitable clauses. ‘Inland or Port Risk Clauses’ may be incorporated in fee policy to determine the extent of the loss. These clauses are known as ‘Institute Time Clauses’.
Cargo Clauses
These clauses are used in the insurance of goods and are incorporated in cargo policies. Use clauses describe the nature, extent; and scope of the insurance and define comprehensive conditions and restrictions.
The additional marine perils against which cover may be sought or which are excluded from the policies are inserted through special clauses. The terms and conditions of Cargo insurance are specially incorporated in the policies.
‘With Average (W.A.) or With Particular Average, ‘Exposed during transit,’ etc., are the important clauses of cargo insurance.
The underwriting of cargo-risks depends upon the nature of goods, the susceptibility of the goods, intentions of the insurer and insured and willingness of the assured to pay the extra premium. This clause is known as the ‘Institute Cargo Clause.’
Freight Clauses
The clauses are framed in connection with the loss of freight due to maritime perils which may be insured for a period or a voyage. A person who paid the freight in advance and the person who will receive the freight on completion of the voyage are interested in covering the risk.
The General Average. (GA.), Particular Average (P.A.), etc. are used in the freight clauses. The clauses are known as Institute Freight Clauses’.
The clauses to be incorporated in the policy are taken from Lloyd’s Association. There are various clauses which are suitably inserted according to the nature and type of policies. Hull, cargo, and freight policies have different standard provisions.
In case of hull insurance, the clauses provide that if the insured vessel at the expiration of the policy is at sea or a port of refuge.
Generally, the ship may be covered until arrival at the port of destination. In case of cargo policies with Average,
Free of Particular Average or All Risks are generally used. There are standard clauses that are invariably used in marine insurance.
Firstly, policies are constructed in the plain, ordinary and popular sense, and, later on, specific clauses are added to them according to the terms and conditions of the contract. Clauses attached to the policy would override the printed wording in the policy.
Description of the Marine Clauses
The usual clauses which are or may be incorporated in a marine policy are:
Assignment clause,
Lost or not lost,
At and from clause,
Warehouse to warehouse clause,
Deviation, touch and stay clause,
Inchmaree clause,
Running down clause,
Sue and Labor clause,
Reinsurance clause,
Memorandum clause,
Continuation clause.
Let’s get an idea regarding them;
Assignment Clause
“The clause of assignment is as below …. as well as in his/their name as for and in the name and names of all and every other person or persons to whom the same doth mayor shall appertain, in part or all doth make assurance… and cause… and them and every of them, to be insured ….”
This clause makes it clear that the marine policy is freely assignable unless this is expressly prohibited. The policy can be assigned to anyone who may acquire an insurable interest in the subject- matter as soon as the assured parts with his interest.
Cargo policy is freely assignable, and no notice thereof is essential to be given to the underwriter.
But, in case of hull insurance die policy cannot be assigned freely, and the consent of underwriter is essential because the degree of risk of the subject- matter is materially changed when the management and ownership of the vessel are changed.
Since the owner of cargo has no control over the cargo in transit, the blank endorsement may be permitted. But in hull insurance, specific endorsement of an assignment is essential.
It is interesting to note that marine policy can be assigned even after h takes place, but the assignee does not get a better title than the assignor.
However, where the assured has parted with his interest in the subject, matter insured and has not, before or at time of so doing, expressly or impliedly agreed to assign the policy and subsequent assignment of the policy is inoperative.
Lost or Not Lost Clause
The clause is as to be insured, lost or not lost. The policy was taken in good faith. The meaning of the clause is that the insurer insures the subject-matter irrespective of the fact that it has already been lost or not lost before the issue of the policy.
It is taken in such a case where a merchant receives information of the shipment of his cargo very late after the sailing of the steamer and, therefore, when he submits the risk to the underwriter and effects insurance it was not known whether the subject- matter to be insured was lost or was not lost.
So, to provide full protection for shipment, the words, ‘Lost or not Lost’ are inserted. It means that the insurer undertakes to indemnify the insured whether the subject matter before the date of issue of the policy was already lost or not.
In this case, it is assumed that the assured and the underwriters are ignorant about the safety or otherwise of the subject- matter.
The policy terminates if it is proved later on that one of the two parties was aware of the subject-matter at the time of loss.
The introduction of this clause has a retrospective effect to provide for any loss which has occurred during the period from the date of shipment to the date of issue of policy.
This clause was most prevalent in olden times when the media of communication were not developed so much. Now, the clause has lost much of its importance.
At and From Clause
This clause is applicable in voyage policies insuring hull, and freight. It determines the time when the actual risk commences. As soon as the ship will arrive at the port, the risk will commence.
It means that the policy covers the subject-matters while it is lying at the port of departure and from the time the ship sails when the policy contains from only instead of “At and Form.”
From means, the risk commences from the time of departure of the ship and not previous to that. In the case of cargo policy, this clause is amended as the risk may commence boom the ‘time the cargo is loaded onto the vessel.
In voyage policy, if the ship is not at that place when the contract is concluded, the risk commences as soon as the ship arrives there in good safety. If the place of departure is specified by the policy, and the ship sails from another place than the specified one, the risk does not attach.
Termination of Risk.
The wordings of policy, in this case, are as follows:
“And upon the goods and merchandises until the same be there discharged and safely landed.” When the ship arrives at the port of destination, the goods must be landed within a reasonable time and if they are not landed the risk ceases.
The risk of landing within a reasonable time is permitted in most of the cases. But, where it is allowed with a standard policy, clauses such as craft, lighters, etc., are inserted into the policy.
Warehouse to Warehouse Clause
Underwriters are responsible for the risk commencing from the time of loading to the time of unloading the cargo. But, in certain cases, the risks are beyond these two limits, i. e., departing, and destination.
So, to cover the inland risks from the original place of departure to the port of sailing and from the port of discharge to the place of final destination are insured under ‘Warehouse to warehouse clause.’
Under this policy, the risk commences from the specified place and continues to the specified place of destination named in the policy. Thus, the risk of land, craft transport and transshipment are also covered under a single marine insurance policy.
Sometimes, time-limit is also inserted in the policy, and the extra cost is required from the insured to cover the remaining voyage. But, where goods are willfully detained, the underwriter shall cease his liability.
The clause has appeared in the Institute Cargo clause is as follows:
The risks covered by this policy attach from the time the goods leave the Warehouse and/or Store at the place named in the policy for the commencement of the transit and continue during the ordinary course of transit, including customary transshipment, if any, until the goods are discharged oversize from the oversea vessel at the final port.
Lucena v Craufurd: HL 1806
Before the declaration of war, against the United Provinces, His Majesty’s ships took possession of several ships belonging to Dutch East India men, and took them to St Helena. The Commissioners then insured the ships for their journey from St Helena to London. War followed shortly. The ships were declared as prizes to his Majesty, having ‘belonged, when taken, to subjects of the United Provinces, since become enemies.’ A loss occurred and the Commissioners sought to claim under the policies, saying the interest was in the King.
Held: An insurance taken out on the profits of a ship or other goods which was in its true nature a wager was merely an attempt to evade the 1745 Act. Even though the contract did not come within the word of the Act, it came within its spirit, and was avoided by the Act.
Lord Eldon rejected the argument based on moral certainty: ‘In order to distinguish that intermediate thing between a strict right, or a right derived under a contract, and a mere expectation or hope, which has been termed an insurable interest, it has been said in many cases to be that which amounts to a moral certainty. I have in vain endeavoured however to find a fit definition of that which is between a certainty and an expectation; nor am I able to point out what is an interest unless it be a right in the property, or a right derivable out of some contract about the property, which in either case may be lost upon some contingency affecting the possession or enjoyment of the party.’ and ‘That expectation [of the insured in the case], though founded upon the highest probability, was not an interest, and it was equally not interest, whatever might have been the chances in favour of the expectation . . If moral certainty be a ground of insurable interest, there are hundreds, perhaps thousands, who would be entitled to insure. First the dock company, then the dock master, then the warehouse-keeper, then the porter, and then every other person who to a moral certainty would have anything to do with the property, and of course get something by it.’
Lawrence J (advising their lordships) ‘A man is interested in a thing to whom advantage may arise or prejudice happen from the circumstances which may attend it; and whom it imports, that its condition as to safety or other quality should continue; interest does not necessarily imply a right to the whole or part of the thing, nor necessarily and exclusively that which may be the subject of privation, but the having some relation to, or concerning the subject of the insurance; which relation or concern, by the happening of the perils insured against. may be so affected as to produce a damage, detriment or prejudice to the person insuring. And where a man is so circumstanced with respect to matters exposed to certain risks or dangers, as to have a moral certainty of advantage or benefit, but for those risks or dangers he may be said to be interested in the safety of the thing. To be interested in the preservation of a thing, is to be so circumstanced with respect to it as to have benefit from its existence, prejudice from its destruction. The property of a thing and the interest devisable from it may be very different; of the first the price is generally the measure, but by interest in a thing every benefit and advantage arising out of or depending on such thing may be considered as being comprehended.’
Lawrence J, Lord Eldon
(1806) 2 Bos and Pul MR 269, [1806] EngR 12, (1806) 2 Bos and Pul 269, (1806) 127 ER 630
 Marine Insurance Act 1745
England and Wales
Citing:
Appeal from – Lucena v Craufurd CEC 1802
Enemy ships which had been captured were insured for their return to England. A claim arose. The insurance provider said that the claim failed under the 1745 Act as a wager since the claimant had no insurable interest in the ships.
Held: . .
Cited – L Cras v Hughes 1782
Two Spanish register ships had been captured by a squadron of ships of war assisted by men at arms. . .

LABOUR LAWS NOTES

Kenya Labour law: An introduction

What is Labour Law?
Labour law is a body of legislation under the Kenya employment act that defines your rights and obligations as workers and employers in the workplace. The Kenya Labour law (also spelled as "labor" law or called "employment law") mediates the relationship between workers (employees), employers, trade unions and the government. Collective labour law relates to the tripartite relationship between employee, employer and union. Second, individual labour law concerns employees' rights at work and through the contract for work. The labour movement has been instrumental in the enacting of laws protecting labour rights in the 19th and 20th centuries. Labour rights have been integral to the social and economic development since the Industrial Revolution. Employment standards are social norms (in some cases also technical standards) for the minimum socially acceptable conditions under which employees or contractors will work.  
At Community level, labour law covers two main areas:

• Working conditions, including working time, part-time and fixed-term work, and posting of workers

• Information and consultation of workers, including in the event of collective redundancies and transfers of undertakings.

History of Kenya labour law
Kenya Labour laws arose due to the demand for workers to have better conditions, the right to organize, or, alternatively, the right to work without joining a labour union, and the simultaneous demands of employers to restrict the powers of workers' many organizations and to keep labour costs low. Employers' costs can increase due to workers organizing to achieve higher wages, or by laws imposing costly requirements, such as health and safety or restrictions on their free choice of whom to hire. Workers' organizations, such as trade unions, can also transcend purely industrial disputes, and gain political power. The state of labour law at any one time is therefore both the product of, and a component of, struggles between different interests in society.

The sources of Kenya labour law 
The sources of labour law in kenya are found in statutes(Acts of Parliament), the constitution of kenya 2010, the common law and international treaties, principles and conventions. 
the Acts of Parliament include the Kenya Employment Act, the Labour relations Act that regulates the relationship between trade unions and employers or employees and employers or employers' organisation, the Labour Institutions Act that creates the National Labour Board, the Commission of Inquiry, the Wages Councils (both the general and the agricultural wages council), the Directorate of Labour Administration and Inspection and the Employment Agencies under the Director of employments ambit. 
the Constitution in its article 40 provides for the right to associate, article 41 right of workers, employers, trade unions and employers organisation and as well in its subsection 5 the right to collective bargaining. in its article 36 freedom of association, article 37 right to assembly, picketing and demonstration. 
the common law principles also apply such as the tort of vicarious liability where the employer is responsible for the acts of an employee, civil actions in industrial accidents and also imposes a duty of the employer and employee such as confidentiality on the employee and the issue of compensation of part of the employer for injury or unfair termination of contract. 
the Constitution in its article 2(5)(6)provides for the adoption of internationally generally accepted principles and the ratified treaties to for part of Kenyan law. these will include conventions of the international labour organization such as the minimum age convention, Equal Remuneration Convention etc. Customary law however does not apply. 

The constitution of Kenya and labour laws
The KenyanConstitution contains several provisions of relevance to employment and labour law: 

• the right to equality;

• protection of dignity;

• protection against servitude, forced labour and discrimination;

• the right to pursue a livelihood; and

• protection for children against exploitative labour practices and work that is hazardous to their wellbeing.

It is important to interpret all labour legislation in light of the Constitution.
The Constitution deals specifically with labour relations, providing that everyone has the right to fair labour practices,and specifically the right

• to form and join a trade union;

• to participate in the activities and programmes of a trade union; and

• to strike

Every employer, meanwhile, has the right

• to form and join an employers’ organisation; and

• to participate in the activities and programmes of an employers’ organisation.

Every trade union and every employers’ organisation has the right

• to determine its own administration, programmes and activities;

• to organise; and

• to form and join a federation

Finally, every trade union, employers’ organisation and employer has the right to engage in collective bargaining.

Employment Act

The Kenya labour laws of 2007(Employment Act, Labour Institutions Act, Labour Relations Act, Occupational Safety and Health Act and Work Injury Benefits Act) replaced the Kenya Employment Act and Regulation of  Wages and Conditions of Employment Act. lt establishes minimum terms and conditions of employment. Unlike the repealed Act, the new one defines a number of common terms – probationary contract, migrant workers, worst forms of child labour, dependant, forced or compulsory labour and HIV.
lt also provides for prohibition against forced labour, discrimination in employment on the basis of race, colour, sex, language, religion, political or other opinion, nationality, ethnic or social origin, mental or HIV status and sexual harassment.
lt deals with payment, disposal and recovery of wages, allowances and deductions of an employee. The major changes are that the employer cannot deduct employees wages exceeding two thirds. The previous law provided for deductions up to 50 per cent. Further, all employees are entitled to itemised payslips or salary statements. The law also provides for basic conditions of a contract of service  – hours of work and annual, maternity and sick leave, housing, water, food and
medical attention. In the new provision, an employee is entitled to three months’ maternity leave. However, the employee shall not forfeit annual leave. The law introduces a 14-day paternity leave.
The legislation deals with termination and dismissal. For the first time, the law provides for payment of service pay for every year worked to an employee whose contract has been terminated. Further, the legislation provides that the Labour minister may require an employer to insure his employees against redundancy through an employment insurance scheme.
The employers are also required to justify termination of employment. The law introduces the concept of unfair dismissals. lt also regulates the engagement of children in employment. lt prohibits employment of children in any activity that constitutes child labour. It also sets the minimum age and conditions of employment of a child.
Employers are required to keep records and make them available for inspection. They are also required to notily the Director of Employment of vacancies, termination and abolition of offices. The law also outlines requirements for a foreign contract and sets out complaint procedures and jurisdiction in cases of disputes between the employee and
employer.

Labour Institutions Act

The law establishes institutions and organisations for the administration and management of labour relations the national Labour Board, the industrial Court, Committee of Inquiry, Labour Administration and Inspection, the Wages Council and Employment Agencies.
The law, however, does not apply to the Armed Forces, Kenya Police, Prisons Service, Administration Police and the National Youth Service.

National Labour Board

The members are appointed by the Minister for Labour and drawn from the most representative federation of trade unions and employers, independent members and Government officials. The boards role is to advise the minister on employment and labour, legislation, trade unionism and codes ofgood conduct.
It also advises on ILO issues, international or regional associations, systems of labour inspection and the administration of labour Acts, public employment service, productivity, appointment of wages councils and members of the Industrial
court.
Other issues include setting compensation benelits, manpower development, registration, suspension and cancellation of registration of trade unions and employers organisations.

Kenya Labour Laws: Minimum Employment Rights and Benefits under the Employment Act.

Hours of work – An employee is entitled to at least one rest day in every period of seven days. 
Maternity Leave Provisions 
Maternity Leave is for 3 months with full pay. Annual leave not forfeited on account of an employee having taken her maternity leave 

Sick Leave in Kenya

Sick Leave in Kenya only available after 2 months of employment. 
The minimum period of entitlement is seven days with full pay and seven days with half-pay for every twelve months, subject to production of a certificate of incapacity to work duly signed by qualified medical practitioner. 

Paternity Leave in Kenya

Paternity leave in Kenya is two weeks with full pay. Paternity leave is only applicable to a man whose recognised wife delivers a baby. What this means is that paternity leave is not open to any man, but only those who are married and whose wives are recognised by the employers. "A male employer shall be entitled to two weeks paternity leave with full pay." 

Annual Leave in Kenya

Annual leave in Kenya is 21 days with full pay. Annual leave is exclusive of public holidays, weekly rest days or any leave days stated by law (paragraph 9 of the Regulation of Wages (General) Order, subsidiary to the Regulations of Wages and Conditions of Employment Act).  

Public Holidays in Kenya

Public holidays and weekly rest days (one per week) on full pay in addition to leave days. Where employees work on public holidays they are entitled to payment at double their wage rate in addition to their normal wage. 
Public holidays in Kenya are; 
New Year’s Day -  January 01 
Good Friday  - April  
Easter Monday - April 
Labour Day - May 01 
Madaraka Day - June 01 
Mashujaa Day  (Heroes Day) - October 10 
Kenyatta Day - October 20 
Jamhuri Day (Independence Day Kenya) - December 12 
Christmas Day - December 25,  
Boxing Day - December 26

The Evolution of Labor Law in Kenya 

The genesis of labor law and practice can be traced to the 19th century when need arose for the colonial government to pass legislation to ensure adequate supply of cheap labor to service the emerging enterprises in agriculture, industry and in the service sector. Terms and conditions of employment were regulated by statutes and the common law. The law of contract in Kenya was originally based on the Contract Act, 1872, of India, which applied on contracts made or entered into before 1st of January 1961. The Indian Contract Act applied to the three countries Kenya, Tanzania and Uganda . Since then the Kenyan law of contract has been based on the English common law of contract, under the Kenyan Law of Contract Act (Cap. 23), section 2 (1).

With industrialization, towards the middle of the 20th century, an organized trade union movement was well established.

The first wage earners’ associations in Kenya can be traced back to the early 1940s and soon after the Second World War.

The first trade union regulation was made in the introduction of Ordinance No. 35 of 1939 that required all crafts organizations to apply for registration which they could be granted or denied depending on whether they had legitimate dealings consistent with government policy. The Ordinance also permitted any group of seven people to form a trade union and operate as one upon registration. Cancellation of registration under the Ordinance was not subject to appeal or open to question in a court of law (Aluchio 1998, 3).

In 1948, in order to gain complete hold on the wage earners organizations the government brought in a Trade Union Labor Officer, to be attached to the Labor Department with the duty to foster "responsible" unionism (Ananaba 1979, 3). In 1952 a more detailed piece of legislation was enacted for Trade Unions but again with significant omissions. It lacked necessary provisions for effective operation of trade unions. It did not legalize peaceful picketing or provide immunity against damages as a result of strikes. On the other hand, the government encouraged creation of staff associations and works committees since they fitted in its interests to confining workers’ organization to economic imperative alone and also lacked strike powers.

This rigid control of trade unions was maintained by the colonial government until the end. This notwithstanding, the movement was able to grow both in numerical strength and power. At independence the total number of following was about 155,000, 52 trade unions, with four centers formed and registered, namely, East African Trade Union Congress (EATUC), Kenya Federation of Registered Trade Unions (KFRTU), Kenya Federation of Labor (KFL) and Kenya Africa Workers Congress (KAWC).

Industrial confrontation arose not merely from traditional trade union activities, but also from the movement’s political role in the struggle for freedom from colonial domination, particularly after individual political leaders had been arrested and placed in detention.

On the threshold of independence however, both employers and trade unions, felt that it was vital for the infant nation to make economic process that capital and labor should work together in harmony: the incidence of strikes and lockouts had to be drastically reduced.

As a result, in October 1962, a landmark was established with the signing of the Industrial Relations Charter by the government of Kenya, the Federation of Kenya Employers and the Kenya Federation of Labor, the forerunner of COTU (K), the Central Organization Of Trade Unions (Kenya).

The Industrial Relations Charter spelt out the agreed responsibilities of management and unions and their respective obligations in the field of industrial relations, it defined a model recognition agreement as a guide to parties involved, and it set up a joint Dispute Commission.

The Industrial Relations Charter has been revised twice since then, but remained the basis for social dialogue and labor relations in Kenya throughout the years. Currently the “Charter” is under review again; the parties have already produced a draft Charter in 2001 that might be signed in the context of the overall Labor Law review.

With the set up of an Industrial Court in 1964, one additional basic cornerstone was laid for the development of amicable conflict resolution in Kenya.

The Labor Law Reform Agenda In May 2001 a Taskforce to review the Labor Laws was appointed by the Attorney General (Gazette Notice No. 3204), within an International Labor Organization project. The terms of reference for the Taskforce were:

To examine and review all the labor laws including the Employment Act (Cap.226); the Regulation of Wages and Conditions of Employment Act (Cap. 229); the Trade Unions Act (Cap. 233), the Trade Disputes Act (Cap. 234), the Workmen’s Compensation Act (Cap. 236), the Factories Act (Cap. 514) and make recommendations for appropriate legislation to replace or amend any of the labor law statutes; To make recommendations on proposals for reform or amendment of labor laws to ensure that they are consistent with the Conventions and Recommendations of the International Labor Organization to which Kenya is a party; and To make recommendations on such other matters related to or incidental to the foregoing. Major points of concern were:

Extension of the application of protective labor regulation into the informal sector; Harmonization of the Kenyan labor legislation within the East African Community; Merging and redrafting the different Acts in order to produce a user-friendly and comprehensive labor legislation for benefit the people; The elimination of remaining colonial heritage in employment relations and contracts; The introduction of an Industrial Court of Appeal to overcome contradicting jurisdiction between the High Court and the Industrial Court; Review registration procedures and trade union monopoly based on the Trade Unions Act (Cap. 233) in view of the ratification of the ILO Freedom of Association and Protection of the Right to Organize Convention, 1948 (No. 87); Review regulations on casual employees; Setting up of an administration system which promotes involvement and democratic participation of the social partners (role of the Labor Advisory Board, possible involvement of civil society concerned in specific fields, etc.); Review possible limitations of excessive powers and influence of the Minister for Labor in industrial relations; Creation of an efficient labor administration system (inspection pp.) which is capable of effectively enforcing the laws; Review the election procedures for trade union officials, and implement a system of directly elected workers’ representatives; The establishment of an affordable, not contribution based, workers social insurance scheme, complementing the National Social Security Fund; Promote equity and equality in employment by incorporating anti-discriminatory (gender, HIV/AIDS) provisions into the Employment Act (Cap. 226), and as well as provisions against discriminating sexual harassment. The tripartite Taskforce, comprising of members from the government, the trade unions (COTU) and the employers organization (FKE), officially handed over five new texts to the Attorney General in April 2004. The five drafts, when they reach their final version, will replace the existing legislation on Labor Law. These drafts relate to the following matters:

Draft on the Labor Relations Act: an act to deal with the registration, regulation, management and democratization of trade unions and employers organizations or federations, to promote sound labor relations through the protection and promotion of freedom of association, the encouragement of effective collective bargaining and promotion of orderly and expeditious dispute settlement, conducive to social justice and economic development and related matters. Draft on the Labor Institutions Act: an act for the establishment of Labor Institutions, to provide for their functions, powers and duties. This text introduces a system of labor courts with exclusive jurisdiction on labor matters. The act establishes Subordinate Labor Courts, as well as a National Labor Court. The latter is a superior court having the same authority, inherent powers and standing in relation to matters under its jurisdiction, as the High Court. Appeals on decisions from Subordinate Labor Courts lie in the National Labor Court. Second appeals lie in the Court of Appeal. This text also creates a National Labor Board, whose main duty is to advise the Minister on labor legislation and matters. Draft on the Employment Act: an act to declare and define the fundamental rights of employees, to provide basic conditions of employment of employees and to regulate employment of children. This act contains provisions on freedom from discrimination and from sexual harassment. Provisions on freedom from forced labor expressly domesticate ILO Forced Labor Convention, 1930 (No. 29) and the Abolition of Forced Labor Convention, 1957 (No. 105), both ratified by Kenya in 1964. Draft on the Occupational Health and Safety Act: an act to provide for the safety, health and welfare of persons employed, and all persons lawfully present at workplaces and related matters. Draft on the Work Injury Benefits Act: an act to provide for compensation to employees for injuries suffered and occupational diseases contracted in the course of employment, for insurance of employees and related matters. These texts do now have to follow the path towards adoption, which will hopefully be completed by the end of 2004. Other sources of labor regulationEmployment relations in Kenya are regulated by a number of sources: constitutional rights, as mentioned above; statutory rights, as set out in statutes and regulations; rights set by collective agreements and extension orders of collective agreements; and individual labor contracts.

These legal sources are interpreted by the Industrial Court, and in some cases by the ordinary courts (see above). A particularly important role to play has the tripartite Industrial Relations Charter that laid the foundation for an industrial relations system already prior to Kenya’s independence in 1963. International standards, especially ILO Conventions ratified by Kenya are used by the government and courts as guidelines, even though they are not binding.

Acts of Parliament in the realm of civil and criminal law, which have provisions that may have impact on individual and collective labor relations include the Contract Act, Local Government Act, Public Service Commission Act, the Children Act, laws concerning the Armed Forces, and legislation dealing with the establishment of parastatals.

The following Acts of Parliament form the labor legislation framework for the country: Employment Act (Cap. 226); Regulation of Wages and Conditions of Employment Act (Cap. 229), - Industrial Training Act (Cap. 237), - Workmen’s Compensation Act (Cap. 236), - Shop Hours Act (Cap. 231), - Mombasa Shop Hours Act (Cap. 232), - Factories Act (Cap. 514), - Trade Unions Act (Cap. 233),- Trade Disputes Act (Cap. 234); Companies Act (Cap. 486); Bankruptcy Act (Cap. 53); Merchant Shipping Act (Cap. 389); Export Processing Zone’s Act (Cap. 547); Immigration Act (Cap. 172); Pension Act (Cap. 189); Retirement Benefits Act (No. 3 of 1997); National Social Security Fund Act (Cap. 258); National Hospital Insurance Act (Cap. 255); Provident Fund Act (Cap. 191); Public Health Act (Cap. 242). In individual labor cases British common law is applicable up to now. The Judiciary Act (Cap. 16) of 1967, section 3(1) states: “The jurisdiction of the High Court and of all subordinate courts shall be exercised in conformity with:

a) The Constitution; b) subject thereto, all other written laws; including the Acts of the Parliament of the United Kingdom (…);

c) subject thereto and so far as the same do not extend or apply, the substance of the common law, the doctrines of equity and the statutes of general application in force in England on the12th August 1897, and the procedure and practice observed in courts of justice in England at that date:

Provided that the said common law, doctrines of equity and statutes of general application shall apply so far only as the circumstances of Kenya and its inhabitants permit and subject to such qualifications as those circumstances may render necessary.”

EMPLOYEE RIGHTS AND OBLIGATIONS

To obey reasonable orders. An employee is under Kenya law required to obey lawful and reasonable orders from his employer.  Failure to do so is a ground for dismissal.   In Konig v Kanjee Naranjee Properties Limited [1968] EA 233, Law JA noted that, ‘a master is entitled to dismiss his servant summarily for willful disobedience of his master’s lawful and reasonable orders, which is his duty to obey.’

In Karimi v KCB & Another, (2005) eKLR, the plaintiff declined to take up a transfer ordered by his employer and was dismissed.  Kasango J held that this was a clear disobedience of his master’s lawful and reasonable orders and action taken by the employer to terminate the contract was appropriate. See also Njeru v Agip (K) Ltd [1986] KLR 480 where a failure to obey lawful instructions on how to work was held appropriate ground for dismissal

Where obedience of that lawful and reasonable order places the employee at grave risk to his person, dismissal for such a failure to obey would be inappropriate, see Ottoman Bank v Chakarian [1930] AC 277

RIGHTS AND OBLIGATIONS IN CONTRACTS OF EMPLOYMENT

Employees under Kenya law enjoy implied and statutory rights and owe implied and statutory obligations to their employers

Employers likewise have implied and statutory rights and owe obligations to employees

Employees rights are the employer’s obligations and vice versa

Duty of Obedience

In Pepper v Webb [1969] 1 WLR 514, a gardener used some expletives with words indicating lack of intention to obey the employer’s instructions.  The refusal was held to be a breach of contract.

Obedience is required only for a lawful order; if it is not lawful, he need not obey it.  

Orders that are reasonable have to be obeyed.  Unreasonable orders need not be obeyed.  To determine the reasonability of an order, principles of good human relations may be taken into account.  

Duty of Care and Competence

To exercise reasonable care and competence in performance of his duties. Failure to exercise care and competence may lead to dismissal under Kenya law for incompetence.

“ When a skilled laborer, artisan or artist is employed, there is, on his part, an implied warranty that he is of skill reasonably competent to the task he undertakes, - spondes peritiam artis.  Thus if an apothecary, a watch-maker, or an attorney be employed for reward, theye ach impliedly undertake to possess and exercise reasonable skill in theier several arts,” See Harmer v Cornelius (1858) 5 CBNS 236 at 246

It is an implied term of the contract of employment that an employee will exercise skill and care in the performance of his duties, and a breach of that term entitles the employer to claim damages in respect of the negligent performance of the work.

In Lister v Romford Ice [1957] AC 555 an employee of a company  negligently injured a fellow employee in the course of their work.  The injured employee sued the company and was awarded damages.  The company’s insurers sued the employee under the right of subrogation in the company name.  The court held that there was a breach of this duty and the company was entitled to indemnification from the employee for breach of this contractual duty

Duty of Trust and Confidence

An employment relationship is based on trust and confidence.  An employee is required not to act in a way to destroy the trust and confidence inherent in the relationship

Thus, an employee must not disclose confidential information about the employer’s business to an unauthorised person.

STATUTORY REQUIREMENTS OF A CONTRACT OF EMPLOYMENT

All contracts of service must satisfy the requirements of the Employment Act, 2007.  They must be written. 

S. 9(1)(a) of the Employment Act requires that a contract of service for a period or a number of working days which amount in the aggregate to the equivalent of three months or more; or (b) which provides for the performance of any specified work which could not reasonably be to be completed within a period or a number of working days amounting in the aggregate to the equivalent of three months shall be in writing.

The employer is responsible to ensure that the contract is written, and contains the particulars of employment and ensure that the employee consents in the manner provided under the Act.

Written contract must contain (s.10) particulars of employment to be given within 2 months of service

Particulars required under Kenya law are:

• The name, age, permanent address and sex of the employee

• The name of the employer

• Job description of the employment

• The date of commencement

• The form and duration of the contract

• The place of work

• The hours of work

• The remuneration and details of other benefits

• Intervals of payment of remuneration

• Date on which the employee’s period of continuous employment began

Others required are:

• Any terms of conditions on leave, incapacity to work and pension and pension schemes

• Length of notice for termination

• The period of employment

• Details on place of work

• Any collective agreements which directly affect the terms and conditions of employment

Employer is required to keep records on particulars for 5 years after termination

Under s. 12, statement on the disciplinary rules applicable to the employee required, and must specify the person whom employee may apply incase of dissatisfaction in decision of the disciplinary body or any grievance

ESSENTIALS OF A CONTRACT OF EMPLOYMENT

Statute envisages oral or written, express or implied contracts of service, see s. 2 of the Employment Act
Essentially it is a contract, governed by the general rules of contract under common law, hence subject to ordinary rules of construction for contracts.
Law of contract however may be inappropriate for employment cases. Contracts are normally a single transaction documents – limited to a specific transaction.  Employment cases concern a continued relationship for a long period of time with elements of trust and confidence.

Employment contracts thus are formed in the same manner as ordinary contracts.

Like other contracts under Kenya law, there must be an offer and an acceptance. The offer and acceptance may be subject to conditions

Wishart v National Association of Citizens’ Advice Bureaux Ltd, [1990] IRLR 393, claimant offered a job ‘subject to receipt of satisfatory references.’  References received were not satisfactory hence the offer was withdrawn. It was held that this was a conditional offer of employment and the defendants had an obligation to consider the references in good faith.  The question of being ‘satisfactory’ was subjective.

There must be an intention to create legal relations, consideration and absence of vitiating elements e.g. mistake, illegality, misrepresentation.

If the terms of the contract are designed to avoid payment of income tax, the contract is illegal. See Mohammed Ghias Quereshi & Another Versus Paramount Bank Limited High Court Civil Suit No. 1557 of 1997 (Nairobi)

EXPRESS TERMS OF A CONTRACT OF EMPLOYMENT

Express terms are contained in the contract of employment entered into by the parties.  These may include wages, salaries, commissions, bonuses, hours of work, nature of the duties, holidays, overtime, sick pay, pension schemes, insurance etc.

Variation – of the express terms of contract of employment require mutual consent.  Express terms, like express terms of a contract cannot be unilaterally varied

Promotion to another level without change of any express terms of the contract does not mean a revision of the express terms of the contract of employment, See Chase v Barclays Bank [1990] KLR 595

Express terms are found in the individual contract of employment, statute and a collective bargaining agreement applicable to the employee.  S. 28(1) sets out the minimum time allowable for  annual leave in any contract of employment at not less than 21 working days; 29(1) sets maternity leave at 3 months,  etc.

Breach of a contractual term may result in dismissal – s.  44 (3) empowers the employer to dismiss an employee “summarily when the employee has by his conduct indicated that he has fundamentally breached his obligations arising under the contract of service.” Fundamental breach is a factual assessment, with recourse to a Labour Officer allowed under s. 47(1) for complaint within 3 months

CONTRACT OF SERVICE

There must be a contract, either express or implied.  

Why do we need a definition?  Tort law doctrine of respondeat superior holds employer liable for the torts of an employee; while taxation statutes require employers to deduct certain taxes from wages/salaries to employees

Various tests formulated to establish existence of a contract of service under Kenya law

Control test

To what extent is a person under the direction and control of the other person with regard to the manner in which the work is done?

Formulated in Performing Right Society, Limited v. Mitchell and Booker (Palais de Danse), Limited [1924] 1 KB 762, where McCardie J opined at p.767 that, “It seems, however, reasonably clear that the final test, if there be a final test, and certainly the test to be generally applied, lies in the nature and degree of detailed control over the person alleged to be a servant .”

Ready Mix Concrete vs Minister of Pensions [1968] 2 QB 497, ‘control includes the power of deciding the thing to be done, the means to be employed in doing it, the time when and the place where it shall be done’ at 515.

Works best in contemporary employment situations.

E.g. CPC Industrial Products (K) Limited versus Samuel Kirwa Kosgei High Court Civil Appeal 7 of 2003 (Eldoret) “the place of work was the premises of the appellant; the work was assigned by an employee of the appellant, Mr. Wendo; and the supervision of the work was also done by the same employee of the appellant.”

See the definition of an employee under the Income Tax Act, Cap 470 – “… employer has the power of selection and dismissal of the employee, pays his wages or salary and exercises general or specific control”

Issues – what about professionals?  Doctors, lawyers etc?

Integration Test

Formulated due to the pitfalls in the control test where the employee possesses skill that the employer does not have.

Stevenson, Jordan and Harrison Ltd v MacDonald and Evans [1952] 1 TLR 101 “Under a contract of service, a man is employed as part of the business and his work is done as an integral part of the business.” Denning L.J.

Useful for those instances of specialised employees e.g. doctors and nurses in hospitals where control test is inappropriate, e.g. in Cassidy v Ministry of Health (1951) 2KB 598,  a resident surgeon in a hospital was held to be an employee, so that the hospital was liable for his negligence.

Multi Factor Test

No single factor is dispositive in defining employment status of a person

As the needs and practices at the workplace change, so too must the tests to be used in defining employment status.

Ready Mix Concrete (South East) Ltd v Minister of Pensions and National Insurance  laid out three conditions necessary for a contract of service to exist.

• Provision of own work and skill in a performance of service for an employer

• Element of control exercisable by the employer

• Other terms of the contract are not inconsistent with the existence of a contract of employment

Multi Factor Test

1. The power of selection, the payment of wages, income tax, holidays and leave, power to suspend and dismiss

2. Mutuality of obligation and control and an irreducible level of personal service.

3. Factors such as

• Contractual provisions

• Degree of control exercised by the employer

• Obligation of the employer to provide work

• Obligation of the employee to do the work

• The duty of personal service

• Provision of tools, equipment, instruments

• Taxation arrangements

• Opportunity to work for other employers

• Welfare provisions

• Degree of financial risk assumed etc

Economic Reality or Entrepreneural Test

Analysis from a self-employed perspective – Is he in a business of his own?

Who bears the risk – the economic risk of being in business

Market Investigations vs Minister of Social Security [1969] 2 QB 173 – A company employed women on a part time basis to do market research.  They could work as they chose, but according to a set pattern.   Held to be employees

All relevant factors must be considered, none of the factors used are dispositive