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Court of AppealDismissedCivil Appeal No E134 of 2022· [2024] KECA 270 (KLR)

Kibathi t/a Osoro Chege Kibathi & Co Advocates v Musti Investments Ltd (Civil Appeal E134 of 2022) [2024] KECA 270 (KLR)

Court of Appeal
8 March 2024
ASAsike-MakhandiaKMK. M'inotiMNMumbi Ngugi
5,100 words in judgment
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The bottom line

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The Court of Appeal ordered a law firm to honour 17 professional undertakings worth Kshs. 26.1 million after it failed to prove its fraud allegations.

What this practically means

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Executive summary

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Musti Investments Ltd., a vendor of seventeen Kajiado properties to Bank employees financed by Equity Bank, obtained seventeen professional undertakings from the appellant firm of advocates acting for the Bank, under which the firm undertook to pay a total of Kshs. 26,100,000 upon registration of the transfers. Registration took place, but the firm failed to honour the undertakings after the Bank alleged a fraudulent scheme in which purchase prices were inflated in collusion between purchasers, valuers and the vendor. Musti Investments took out an originating summons under Order 52 rule 7(b) of the Civil Procedure Rules to enforce the undertakings. Majanja J. allowed the summons and directed the appellant to honour the undertakings within thirty days, with costs. On appeal, the Court of Appeal identified two issues: whether the trial court erred in rejecting the alleged fraud and collusion, and whether the undertakings were vitiated by fraud or illegality under the Stamp Duty Act and the Banking Act. The Court reaffirmed that fraud must be strictly proved to an intermediate standard above a balance of probabilities and cannot be established by inference, and that the rule in Sabrimanian on hearsay applies to civil proceedings by dint of section 2(1) of the Evidence Act. It found the appellant's evidence excluded the seventeen purchasers, the original valuer was not called, and the investigation report was inadmissible hearsay. On illegality, the Court held the appellant itself completed the transfers and paid the deficient stamp duty and cannot profit from its own violations. The appeal was dismissed, the trial judgment upheld, and costs of the appeal awarded to the respondent.

Key legal issues

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01

Standard and mode of proof of fraud in civil disputes

Holding

Fraud must be distinctly pleaded and strictly proved to an intermediate standard above balance of probabilities, and cannot be inferred.

Reasoning

The Court adopted the long-standing formulation from R.G. Patel v. Lalji Makanji and Tunoi JA's concurrence in Vijay Morjaria, holding that where assurance above a balance of probabilities is required, fraud cannot be established by mere inference or suspicion from valuation disparities and unconnected payments.

p. 7
02

Whether the appellant proved the alleged fraud and collusion by the respondent

Holding

The appellant's evidence involved none of the 17 purchasers; the audit and investigation reports excluded them; the original valuer was not called; therefore no fraud against the respondent was proved.

Reasoning

The expert witness did not interview the purchasers or the original Lloyd Masika valuer, and the investigation report interviewees were not called. The trial court's acceptance of the respondent's explanation of payments to two unrelated employees could not be disturbed absent solid and compelling grounds.

p. 7
03

Admissibility of the Bank's investigation report as hearsay and its use in civil cases

Holding

The report was inadmissible hearsay because it was offered to establish the truth of the statements; the Sabrimanian rule applies to civil proceedings.

Reasoning

Section 2(1) of the Law of Evidence Act, cap 80 applies to all judicial proceedings in Kenya except Kadhis Courts and arbitral proceedings, so the criminal-law origin of Sabrimanian does not confine it to criminal cases; the report was offered for the truth of its contents, not merely to prove the statements were made.

p. 8
04

Whether the professional undertakings were unenforceable for violation of the Stamp Duty Act and the Banking Act

Holding

The illegality, if any, was perpetrated by the appellant itself, which completed the transfer forms and paid the stamp duty, and it cannot benefit from its own violations.

Reasoning

The record showed the appellant certified the transfers, failed to disclose the consideration, and paid stamp duty on a lower value; having elected not to testify, it could not invoke the violations to avoid the undertakings, since the law denies a perpetrator of illegality any benefit from it.

p. 9
05

Weight of expert evidence

Holding

Expert evidence is not accepted in isolation; a court may reject it on good and cogent grounds.

Reasoning

Relying on Ndolo v. Ndolo, the Court held the Acumen valuation impeaching the original valuation was entitled to no special weight because its maker did not interview the original valuer, who was likewise not called to testify.

p. 8

Legal principles established

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  • Fraud in civil proceedings must be proved to an intermediate standard above a balance of probabilities and cannot be established purely by inference.
  • The rule in Sabrimanian v. The Public Prosecutor on hearsay applies equally to civil proceedings by dint of the Law of Evidence Act, cap 80.
  • A party responsible for an illegality cannot rely on that illegality to escape a professional undertaking he gave.
  • Expert evidence must be weighed with all other evidence and may be rejected where it is not soundly based.
  • A first appellate court must re-evaluate the evidence and reach its own conclusions while according due deference to the trial court's advantage of seeing and hearing the witnesses.

Court orders

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  1. 1.The appeal was dismissed in its entirety
  2. 2.The judgment of the High Court requiring the appellant to honour the 17 professional undertakings was upheld
  3. 3.Costs of the appeal were awarded to the respondent

Authorities

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Legislation

  • Civil Procedure RulesOrder 52 rule 7(b)
  • Stamp Duty Actsection 10
  • Banking Actsection 11
  • Evidence Actsection 2(1); sections 107, 109 and 112

Cases cited (16)

  • Chumo Arap Songok v. David Kibiego Rotich
    [2006] eKLR
  • Sabrimanian v. The Public Prosecutor
    [1956] WLR 965
  • Mistry Amar Singh v. Serrano Wofunira Kulubya
    [1963] EA 406
  • Kenya Pipeline Co. Ltd v. Glencore Energy (UK) Ltd.
    [2015] eKLR
  • Njogu & Co Advocates v. National Bank of Kenya Ltd.
    [2016] eKLR
  • Takhar v. Gracefield Development Ltd & Others
    [2019] UKSC 13
  • Holman v. Johnson
    [1775-1802] All ER 98
  • Vijay v. Nansingh Madhusingh Darbar & Another (Vijay Morjaria v. Nansingh Madhusingh Darbar & Another)
    [2000] eKLR
  • Kinyanjui Kamau v. George Kamau (Njoroge)
    [2015] eKLR
  • Prime Bank v. Joseph Ogora Esige
    [2005] eKLR
  • Githunguri v. Jimba Credit Corporation Ltd
    [1988] KLR 825
  • Seascapes Ltd v. Development Finance Co of Kenya Ltd.
    [2009] KLR, 384
  • Lazarus Estates Ltd v. Beasley
    [1956] 1 All ER 341
  • R. G. Patel v. Lalji Makanji
    [1957] EA 314
  • Richard Akwesera Onditi v. Kenya Commercial Finance Co Ltd
    [2010] eKLR
  • Ndolo v. Ndolo
    [2008] 1 KLR (G&F) 742
On appeal from
High Court
Not stated in the judgment
Jurisdiction invoked
First appellate jurisdiction over the High Court (not expressly stated in the judgment)

Key timeline

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Practical implications

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Frequently asked questions

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Later judgments citing this (8)

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Judgments in the corpus that rely on this one. Where the Court said how it treated the authority, that is shown.

Cite this brief

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Cite this brief

Caselaw, "Kibathi t/a Osoro Chege Kibathi & Co Advocates v Musti Investments Ltd (Civil Appeal E134 of 2022) [2024] KECA 270 (KLR)", Case Analysis (2024). Civil Appeal No E134 of 2022. Source: https://new.kenyalaw.org/akn/ke/judgment/keca/2024/270/eng@2024-03-08

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