Eliud Muya Kariuki & 2 others v Mary Wanjiru Njenga & 4 others [2019] KECA 60 (KLR)
The bottom line
#The Court of Appeal confirmed that land sold by ousted company directors without a proper company resolution is fraudulently transferred, and such titles get cancelled.
What this practically means
#Executive summary
#Questions the Court framed
#The issues the Court set itself to decide, in its own words.
- 1.Whether the trial court properly discharged its mandate as was expected of it in law.
- 2.Whether the 1st appellant and his group were Directors of the Company as at the time the suit properties were disposed of.
- 3.Whether the 2nd and 3rd appellants discharged the burden of proof that they were bonafide purchasers of the suit properties for value and without notice.
- 4.Whether the respondents discharged the burden of proof of fraud against the appellants.
- 5.Whether it was erroneous for the trial court to order cancellation of title over the suit properties registered in favour of the 2nd and 3rd appellants, in the absence of the respondents exhibiting the titles sought to be cancelled.
Key legal issues
#Whether the trial court properly discharged its mandate in crafting its judgment
The High Court judgment complied with Order 21 rule 4 of the Civil Procedure Rules, as it summarized the facts, identified issues, made observations on the evidence, reasoned, made findings and reached conclusions in both suits.
Order 21 rule 4 requires judgments in defended suits to contain a concise statement of the case, points for determination, and reasons for the decision. The Court found that the trial judge followed this pattern in respect of both the 2nd and 3rd appellants' suit and the Company's claim treated as a counterclaim, summarizing facts, identifying issues, making observations and findings before concluding. The complaint that the judge failed to evaluate evidence was therefore unfounded.
Whether the 1st appellant and his group were directors of the Company at the time the suit properties were disposed of
They were not. They were ousted from office in elections held pursuant to a meeting on 7th January 1988, and failed to hand over the Company seal and files, which enabled the fraudulent transfers.
The trial judge weighed the 1st appellant's claim of continuous directorship since 1978 against evidence that a 1988 meeting elected new directors, after the appellants' attempt to forestall the meeting through Nakuru HCCC No. 10 of 1988 failed. The judge noted that had the appellants been continuously in office they would have known of the Company's deregistration and revived it themselves, and that the 1st appellant admittedly still held the Company seal despite no longer being a director. The Court found no reason to interfere with these findings.
Whether the 2nd and 3rd appellants proved they were bona fide purchasers for value without notice
They did not. The transactions were tainted with illegality and vitiated; the 2nd appellant had been the Company's rent-paying tenant for six years, was pressured into the purchase, made payments to the ousted former directors who could not account for the proceeds, and failed to exercise due diligence.
The Court found that the sale could only be sanctioned by a company or board resolution, that the minutes relied upon were discounted because the appellants had no mandate after their ouster, that the 2nd appellant admitted being pressured into the purchase and gave no explanation for bypassing the persons to whom he had paid rent for six years, and that the proceeds were not shown to have reached the Company. The shareholders' conduct in demanding rent and destroying property was inconsistent with having sanctioned the sale. The transactions were therefore explicitly tainted with illegality.
Whether the respondents discharged the burden of proof of fraud
Yes. Fraud was properly pleaded with particulars on the face of the pleadings, and proved: the appellants were unauthorized to transact for the Company, executed the transfers and received the proceeds which they failed to account for.
The Court applied the principle that fraud must be specifically pleaded with particulars stated on the face of the pleadings, and noted that the appellants raised no complaint about the mode of pleading. On proof, the trial judge found the property belonged to the Company, that only a board or shareholders' resolution could sanction its sale, and that the 1st appellant's group, who were not authorized directors, sold the properties and received the proceeds. The Court adopted this reasoning and found no basis to fault the trial court for allowing the Company's claim.
Whether it was erroneous to order cancellation of the appellants' titles where the respondents did not exhibit the titles sought to be cancelled
No. Since the 2nd and 3rd appellants had themselves exhibited their titles containing the same particulars, no prejudice was suffered, especially as the Company's claim was treated as a counterclaim.
The respondents did not exhibit the titles they sought to have cancelled, but the 2nd and 3rd appellants had already exhibited theirs, which would have contained the same particulars. The respondents' claim was treated as a counterclaim to the appellants' claim rather than a stand-alone claim. No prejudice was therefore suffered by the appellants and the cancellation order could stand.
Legal principles established
#- A first appeal to the Court of Appeal is by way of retrial: the Court must reconsider and evaluate the evidence itself and draw its own conclusions, while making due allowance for not having seen or heard the witnesses, and is not bound by the trial judge's findings of fact.
- The Court of Appeal will not lightly differ from the findings of fact of a trial judge who had the benefit of seeing and hearing the witnesses, and will only interfere where findings are based on no evidence or on wrong principles.
- Judgments in defended suits must contain a concise statement of the case, the points for determination, the decision and the reasons for it, in compliance with Order 21 rule 4 of the Civil Procedure Rules.
- Fraud must be specifically pleaded, with particulars stated on the face of the pleadings, and must be proved; it should not be left to be inferred from the facts.
- The disposal of company property can only be sanctioned by a resolution of the company or of its board of directors; a person who does not hold the requisite company authority cannot validly transfer company property, and a party who failed to exercise due diligence in circumstances requiring inquiry cannot claim the protection of a bona fide purchaser for value without notice.
Court orders
#- 1.The appeal is dismissed
- 2.Costs of the appeal are awarded to the respondents
- 3.The High Court judgment of 9th April 2010 stands: the 2nd and 3rd appellants' suit dismissed, the Company's claim allowed, the agreement dated 22nd August 1996 declared null and void, the titles of the 2nd and 3rd appellants cancelled, the suit properties re-registered in the Company's name, and a permanent injunction issued
The bench
#One judgment of the whole court — no separate or dissenting opinions.
- On appeal from
- High Court of Kenya at Nakuru
- Nakuru HC Civil Case No. 368 of 1997 consolidated with Nakuru H.C. Civil Suit No. 123 of 1998
- Jurisdiction invoked
- First appeal to the Court of Appeal under the Court of Appeal's appellate jurisdiction (first appeal from High Court judgment)
Relief refused
#Reversal of the High Court judgment and upholding of the 2nd and 3rd appellants' claim as bona fide purchasers
The appellants failed to prove a valid company resolution sanctioning the sale and failed to discharge the burden of proving they were bona fide purchasers for value without notice; fraud was properly pleaded and proved
Costs
The appeal was dismissed with costs to the respondents.
Quotable passages
#Verbatim from the judgment, each located to the page it appears on in the official PDF — so these can be cited and checked directly.
An appeal to this Court from a trial by the High Court is by way of retrial and the principles upon which this Court acts in such an appeal are well settled.
it will not lightly differ from the findings of fact of a trial judge who had had the benefit of seeing and hearing all the witnesses and will only interfere with them if they are based on no evidence, or the judge is shown demonstrably to have acted on wrong principles in reaching the findings he did
(i) Fraud must be specifically pleaded. (ii) Particulars of fraud alleged must be stated on the face of the pleadings.
the proper procedure to be followed for the disposal of the suit properties should have been as was set out in the case of Bugere Coffee Growers Ltd versus Sebadika and Another [1970] 147, that is by way of a resolution of either the Company or the Board of Directors.
The upshot of the above assessment and reasoning is that the appeal has no merit. It is accordingly dismissed with costs to the respondents.
Issues in the judgment
#The coram describes the appeal as from a judgment of the High Court of Kenya at Nakuru 'dated and delivered at Nairobi', which is internally inconsistent with the station of delivery.
The trial court's summary states the shareholders 'convened a meeting intending to elect new Directors' in 1988, but elsewhere the judgment refers to proof that 'elections were held in 1998' - an apparent date inconsistency within the judgment.
The judgment contains typographical inconsistencies in the land parcel references (Block 1/433 and 1/441 in the plaint versus '443' and '274' in the respondent's submissions on the payment receipt and agreement).
Key timeline
#Practical implications
#Frequently asked questions
#Cite this brief
#Cite this brief
Caselaw, "Eliud Muya Kariuki & 2 others v Mary Wanjiru Njenga & 4 others [2019] KECA 60 (KLR)", Case Analysis (2019). Civil Appeal No. 39 of 2011. Source: https://new.kenyalaw.org/akn/ke/judgment/keca/2019/60/eng@2019-12-20
Suggested citation format for research notes or client memos. Always verify the original judgment before relying on any point.