Mombasa Bricks & Tiles Ltd & 5 others v Arvind Shah & 7 others [2019] KECA 780 (KLR)
The bottom line
#Kenya's Court of Appeal cancelled a land sale where a trusted adviser bought family land cheaply using a loan secured on the land itself.
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 agreements executed by the parties reflected their true intention and consent to be bound
- 2.Whether the parties were proper parties to the suit (locus standi)
- 3.Whether the shares held by the 1st and 3rd respondents are held in trust for the 1st appellant or its nominees
- 4.Whether the 4th respondent holds the suit land in trust for the 1st appellant or its nominees
- 5.Whether the sale agreement and transfer of the suit land should be nullified
- 6.Whether the circumstances called for lifting of the corporate veil of the concerned companies
- 7.Whether the imposition of payment of mesne profits on the 5th and 6th appellants was proper
- 8.Whether there was legal basis for directing the audit of the accounts held by the 5th and 6th appellants
- 9.Whether an inspector should have been appointed under Section 165 of the Companies Act
- 10.Whether the learned Judge erred in not granting costs to the respondents or imposing interest on the mesne profits and misappropriated funds
Key legal issues
#Whether a presumption of undue influence arose from the relationship of trust between the appellants and the 1st respondent
Yes. The appellants placed trust in Arvind to salvage their properties, and the transactions called for explanation; Arvind failed to rebut the presumption, so the documents did not reflect the true and independent consent of the appellants.
The Court applied the Royal Bank of Scotland v Etridge framework: where trust and confidence are reposed in relation to financial affairs and a transaction calls for explanation, the evidential burden shifts to the fiduciary to justify the transaction. The evidence showed Arvind spearheaded all transactions, the land worth about Kshs.150 million was sold for Kshs.27 million, and Arvind's deposit was reimbursed, so he paid almost nothing. The presumption was unrebutted.
Whether the corporate veil of the 3rd and 8th respondents should be lifted
Yes. Arvind was the main actor behind the veil and used the companies to cover his improper conduct; the companies were deemed identical with him for the transactions in issue.
Relying on Halsbury's Laws and this Court's decision in Stephen Njoroge Gikera v Econite Mining, the Court held that where the character and control of a company is relevant and the veil is used to cover fraud or improper conduct, the court may pierce it to do justice. Arvind treated the 3rd and 8th respondents as extensions of himself, and they were party to the tainted transactions.
Whether constructive trusts arose over the shares and the suit land
Yes. The 1st and 3rd respondents hold the shares in the 4th-7th respondents, and the 4th respondent holds the suit land, in trust for the 1st appellant.
Applying Twalib Hatayan, the Court held that constructive trusts are imposed by operation of law where property is acquired by wrongdoing, and proof of intention is immaterial. Since the transactions were tainted by undue influence, deceit and unjust enrichment, equity imposed constructive trusts to guard against unjust enrichment and restore the property to the 1st appellant.
Whether the imposition of mesne profits and the audit orders on the 5th and 6th appellants was proper
No. Since the 1st appellant remains the true and beneficial proprietor of the suit land, only it could sue in trespass; the mesne profits and audit orders had no basis.
The trial judge had ordered the 5th and 6th appellants to pay mesne profits and directed an audit without finding wrongdoing by them. The Court of Appeal held that upon its finding that the 1st appellant is the beneficial proprietor, the 4th respondent could not claim mesne profits, and the assessment of rent and audit lacked legal foundation, contrary to the principle of no liability without fault.
Whether the parties were properly before the court (locus standi)
Yes. The parties were properly joined; a company sues in its own name and its shareholders or directors need not be enjoined.
Relying on Alfred Njau v City Council of Nairobi on locus standi and the concept of necessary parties, the Court held each party played a role in the dispute. A company is a distinct legal person capable of suing and being sued in its own name, and no shareholder or director of the 1st appellant complained that the appeal was instituted without authorization.
Legal principles established
#- Where a complainant reposes trust and confidence in another party over financial affairs, coupled with a transaction calling for explanation, the evidential burden shifts to that other party to rebut a presumption of undue influence
- The corporate veil may be pierced where it is used to cover improper conduct, treating the controlling person and the company as identical for the litigation
- A registered title under Section 23 of the repealed Registration of Titles Act is impeachable where it was procured through improper conduct or fraud
- A constructive trust is imposed by law where property is acquired by wrongdoing, irrespective of the parties' intention, to guard against unjust enrichment
- On a first appeal the Court is enjoined to reconsider and evaluate the evidence and draw its own conclusions, subject to deference to the trial court's findings unless they are shown to be wrong
Court orders
#- 1.H.C.C.C No. 2 of 2009 relating to shareholding in the 4th-7th respondents determined in the terms of the judgment
- 2.H.C.C.C Misc. Cause No. 4 of 2009 seeking appointment of an inspector dismissed
- 3.H.C.C.C Nos. 21, 22, 23 & 24 of 2009 determined in the terms of the judgment
- 4.Cross-appeal dismissed
- 5.High Court judgment dated 22nd December 2017 and the orders therein set aside and substituted
- 6.Declaration that the shares held by the 1st and 3rd respondents in the 4th-7th respondents are held in trust for the 1st appellant or its nominees
- 7.Declaration that the suit land is held in trust for the 1st appellant or its nominees
- 8.Nullification of the sale agreement dated 31st August 2005 and the transfer of the suit land to the 4th respondent
- 9.Direction that the transfer of the suit land to the 1st appellant or nominees is subject to the existing encumbrances on the title
- 10.Direction that parties meet their obligations towards repayment of any existing loans
- 11.Finding that the circumstances called for lifting of the corporate veil of the 3rd and 8th respondent companies
- 12.Finding that there was no basis for the imposition of mesne profits on the 5th and 6th appellants, for the audit of their accounts, or for appointment of an inspector under Section 165 of the Companies Act
- 13.Costs awarded to the appellants both in the High Court and in the appeal
The bench
#One judgment of the whole court — no separate or dissenting opinions.
- On appeal from
- High Court of Kenya at Mombasa
- H.C.C.C No. 9 of 2011
- Jurisdiction invoked
- First appeal under the Court of Appeal's appellate jurisdiction (Constitution Article 164)
- Consolidated with
- H.C.C.C No. 2 of 2009, H.C.C.C Misc. Cause No. 4 of 2009, H.C.C.C Nos. 21, 22, 23 & 24 of 2009
Relief refused
#Cross-appeal in its entirety (costs, inspector under Section 165, option to stay, injunction, interest)
The Court found the cross-appeal devoid of merit
Appointment of an inspector under Section 165 of the Companies Act
No basis for such appointment was found
Costs
As costs follow the event, the same were awarded to the appellants both at the High Court and in the Court of Appeal.
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.
Quite simply, a purchaser cannot buy your property by charging the same property to obtain a loan to buy it from you and then leave you as chargor with the obligation to repay the terms of the loan without undue influence and unjust enrichment.
Therefore, we lift the corporate veil of the said companies and deem them to be one and the same with respect to the transactions in issue.
A declaration that the shares held by the 1 st and 3rd respondents in the 4th -7th respondents are held in trust for the 1 st appellant or its nominees.
A declaration that the suit land is held in trust for the 1st appellant or its nominees.
An order nullifying the sale agreement dated 31st August, 2005 and the transfer of the suit land to the 4th respondent.
As costs follow the event, we award the same to the appellants both at the High Court and here.
Issues in the judgment
#Internal inconsistency in the deposit figures: the judgment states Standard Chartered required a deposit of Kshs.2,700,000 but elsewhere records that Arvind paid a deposit of Kshs.2,600,000, while also asserting he paid 'the deposit of Kshs.2,600,000 (not Kshs.2,700,000)'
The nullified sale agreement is inconsistently dated: the trial court record refers to a resolution of 2nd June 2005 while the final orders describe 'the sale agreement dated 31st August, 2005', although earlier narration describes forwarding of the executed sale agreement on 18th August 2005
The judgment refers to 'Black's Law Dictionary 19th Edition' and 'Hanbury & Martin on Modern Equity, 16th Edition' - edition numbering that appears erroneous, though these are textual references rather than contradictions of holdings
Key timeline
#Practical implications
#Frequently asked questions
#Later judgments citing this (1)
#Judgments in the corpus that rely on this one. Where the Court said how it treated the authority, that is shown.
- Burrough & another v Mungania & another (Civil Appeal E079 & E128 of 2023 (Consolidated)) [2026] KECA 898 (KLR)[2026] KECA 898 (KLR)15 May 2026
Cite this brief
#Cite this brief
Caselaw, "Mombasa Bricks & Tiles Ltd & 5 others v Arvind Shah & 7 others [2019] KECA 780 (KLR)", Case Analysis (2019). Civil Appeal No. 117 of 2018. Source: https://new.kenyalaw.org/akn/ke/judgment/keca/2019/780/eng@2019-04-04
Suggested citation format for research notes or client memos. Always verify the original judgment before relying on any point.