In re Estate of Gitau Gichuhi & 5 others (All Deceased) [2017] KECA 145 (KLR)

Court of Appeal

24 November 2017

GKG. B. M. Kariuki FSF. Sichale SKS. ole Kantai

2,503 words in judgment

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The bottom line

Kenya's Court of Appeal confirmed that partnership sale proceeds must be shared according to capital contributions recorded in the Partnership Deed, not equally among successors.

What this practically means

Executive summary

This appeal arose from a dispute among the successors of nine businessmen who, from the early 1960s, ran Nyonjoro Slaughterhouse on land Title No. Dagoretti/Mutuini/190 and formalized their relationship in a Partnership Deed dated 31st March 1975, which recorded each partner's capital contribution. After the original partners died, their successors sold the remaining partnership asset for Kshs 13.5 million but could not agree on distribution of the balance of about Kshs 7 million. On an Originating Summons brought by the firm of Meenye & Kirima Advocates, the High Court (Njuguna, J.) ordered that the net proceeds be distributed proportionately to each partner's capital contribution as set out in Clause 3 of the Partnership Deed. The estates of some of the original partners appealed, contending they were not recognized as a separate group of beneficiaries, that replying affidavit evidence was ignored, and that the proceeds should have been divided equally. The Court of Appeal, in a single judgment of the court delivered by Kariuki, Sichale and ole Kantai, JJ.A., rejected all seven grounds of appeal. It held that the trial Judge considered all the material and was right to follow Clause 3 of the Deed, since the recorded capital contributions must have reflected the partners' intention as to ownership of shares. The court regretted that the successors litigated instead of using the Deed's arbitration mechanism. The appeal was dismissed with each party bearing their own costs, save that Meenye & Kirima Advocates were to be paid their costs for handling the matter before the litigation.

Key legal issues

Mode of distribution of partnership sale proceeds among successors of deceased partners

Holding

Distribution must follow the capital contributions set out in Clause 3 of the Partnership Deed, not equal shares among successors.

Reasoning

The original partners deliberately reduced their relations into a Partnership Deed which recorded each partner's capital contribution and their obligations of good faith. The High Court Judge considered all the material and reasonably concluded that the parties must have intended capital contribution to be the basis of ownership of shares. The appellants offered no valid reason why successors should share equally, contrary to the Deed. The appellate court found no error in the Judge's findings and dismissed all grounds of appeal.

p. 5

Dispute resolution under the Partnership Deed

Holding

The successors' choice of litigation over the Deed's arbitration mechanism was regrettable and contrary to the founders' intentions.

Reasoning

The Partnership Deed provided for appointment of an arbitrator or arbitrators to resolve disputes between partners. The successors did not use that route to resolve the dispute over sharing sale proceeds, instead electing litigation from the High Court to the Court of Appeal, which the court described as expensive, energy-sapping, and damaging to relations, and not what the original partners envisaged.

p. 4

Legal principles established

Where a Partnership Deed sets out the capital contribution of each original partner, the successors of the partners are entitled to a share of partnership sale proceeds proportionate to each partner's contribution as recognized in the Deed.
On the material before the court, it is reasonable to hold that the intention of the partners was that their capital contribution be the basis of ownership of shares in the partnership.

Court orders

1.The appeal is dismissed
2.Each party to meet their own costs of the appeal
3.M/s Meenye and Kirima Advocates will be paid their costs for handling the matter before the litigation

Authorities

Legislation

Arbitration Act, Chapter 22 of 1961 (repealed)

On appeal from: High Court of Kenya at Milimani, Nairobi; H.C.C.C. No. 363 of 2011 (O.S)
Jurisdiction invoked: First appellate jurisdiction over the High Court (Court of Appeal hearing an appeal from the judgment and decree of the High Court)

Key timeline

Practical implications

Frequently asked questions

Cite this brief

Caselaw, "In re Estate of Gitau Gichuhi & 5 others (All Deceased) [2017] KECA 145 (KLR)", Case Analysis (2017). Civil Appeal No. 4 of 2017. Source: https://new.kenyalaw.org/akn/ke/judgment/keca/2017/145/eng@2017-11-24

Suggested citation format for research notes or client memos. Always verify the original judgment before relying on any point.