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Court of AppealPartially AllowedCivil Appeal No. E029 of 2023· [2024] KECA 353 (KLR)

Otundo & 5 others v Creek Marketing and Development Limited (Civil Appeal E132 of 2022) [2024] KECA 353 (KLR)

Court of Appeal
12 April 2024
10,609 words in judgment
View original judgmentRead on Kenya Law Watch case
AI-assisted case brief
·~42 min to read original · ~4 min brief

The bottom line

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Kenya's Court of Appeal confirmed that a supplementary sale agreement binds buyers to pay 30% late-payment interest, but the seller had to hand over the property and cover its own security costs.

What this practically means

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Executive summary

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This is a first appeal from the Environment and Land Court at Mombasa (N. A. Matheka, J.), which had dismissed the appellants' suit for vacant possession and allowed the respondent vendor's counterclaim for 30% late-payment interest and security charges. The appellants had agreed in 2011 to buy Kilifi/Mtwapa/403 for Kshs 33,500,000, paid the deposit, and later executed a Supplementary Sale Agreement extending the completion date, requiring a professional undertaking from their financier's advocates, and imposing 30% interest on the outstanding balance. The Court of Appeal framed six issues and, applying Selle v Associated Motor Boat Co., re-evaluated the evidence. It held that the supplementary agreement was binding; that the vendor was not in breach, the delay being solely attributable to the purchasers; that Presidential consent was not an agreed or lawful completion requirement, following the Mohamed Balala line of authority; and that the purchasers' willingness to proceed did not waive the interest clause. The Court affirmed the award of Kshs 6,540,005 interest, holding courts will not rewrite contracts absent fraud, coercion or undue influence. However, it found the trial Judge erred in dismissing the suit entirely: the purchasers were entitled to vacant possession upon payment of the interest, the respondent was not entitled to mesne profits, and the award of security charges was set aside since the vendor, having withheld possession, bore those costs at its own peril. The appeal partially succeeded. The trial judgment was set aside and substituted, with each party bearing its own costs of the appeal.

Key legal issues

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01

Legal effect of a supplementary sale agreement

Holding

A duly executed supplementary agreement is a legally binding contract that modifies or adds to an existing agreement, and the parties are bound by it in equal measure

Reasoning

The Court held that contracts are liable to mutual variation by subsequent agreement. The supplementary agreement of 15th December 2011 extended the completion date, introduced the professional undertaking requirement, imposed 30% interest on the balance, and provided for forfeiture of the deposit. Parties were bound by the Agreement as varied. Implication of terms is designed to give efficacy to the express terms, so the requirement of a supporting professional undertaking from the appellants' advocates was valid.

p. 8
02

Whether time remained of the essence and whether the vendor's willingness to proceed waived the interest clause

Holding

The respondent's willingness to continue with the transaction despite the appellants' delay did not constitute waiver of the stipulation as to time being of the essence or of the obligation to pay the agreed 30% late-payment interest

Reasoning

Although the extended completion date lapsed before the financier's undertaking was given, the respondent elected to continue with the transaction. That election did not waive the interest clause. The agreement to pay interest was itself sufficient notice that time was treated as of the essence. The appellants, being in breach, could not invoke estoppel by conduct to escape liability for the Kshs 6,540,005 interest.

p. 11
03

Whether a Presidential consent was a required completion document

Holding

Presidential consent was not among the agreed completion documents and is not a mandatory legal requirement for registration of transfers of beach plots, such requirements having been declared illegal and discriminatory

Reasoning

The agreed list of completion documents did not include Presidential consent, so the appellants could not allege breach for its non-delivery. The Court endorsed Mohamed Balala, which held the requirement illegal and discriminatory against owners of 1st and 2nd row beach plots as contravening Article 10 of the Constitution.

p. 7
04

Entitlement to vacant possession and mesne profits despite unpaid interest

Holding

The trial Judge erred in dismissing the suit entirely; upon registration and receipt of the balance of the purchase price, the appellants were entitled to vacant possession and mesne profits, though the respondent could condition possession on payment of the contracted interest

Reasoning

The Court distinguished authorities where vendors were blameworthy. Here the delay was attributable to the purchasers. However, the respondent could not cling to possession and also enjoy the benefits of the property. The respondent was accountable for mesne profits it had no right to appropriate, and the award of security charges to the respondent was set aside.

p. 16
05

Security charges as special damages

Holding

The trial court erred in awarding the respondent special damages on account of security charges, as its contractual right was limited to the purchase price and interest on delayed payment

Reasoning

The claim was specifically pleaded and proved by receipts, but the respondent, having withheld possession, bore the risk of and responsibility for security costs during that period. The Court found nothing in the Agreement entitling the respondent to incur such expenses and recover them from the appellants.

p. 18

Legal principles established

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  • Duly executed supplementary agreements are legally binding and enforceable in their express terms and bind the parties to the original agreement as varied
  • Courts will not rewrite contracts between parties; parties are bound by their contractual terms absent coercion, fraud or undue influence
  • On a first appeal the Court of Appeal must re-evaluate the evidence and reach its own conclusions, bearing in mind it did not see or hear the witnesses
  • A requirement of Presidential consent as a condition for transfer of 1st and 2nd row beach plots is illegal and discriminatory and contravenes Article 10 of the Constitution

Court orders

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  1. 1.The judgment and decree of the Environment and Land Court of Kenya at Mombasa (Nelly Matheka, J.) delivered on 27th September 2022 is set aside and substituted
  2. 2.The appellants do pay to the respondent late payment interest of Kshs 6,540,005 subject to which the respondent do forthwith deliver vacant possession of the suit property to the appellants
  3. 3.The respondent is not entitled to mesne profits in respect of the suit property from the date of registration of Transfer and Charge over the suit property
  4. 4.The respondent shall bear the cost of the security charges incurred on the suit property at the rate of Kshs. 10,000 with effect from 1st March 2015 to 1st May 2022 as awarded
  5. 5.Each party shall bear their own costs of the appeal

Authorities

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Legislation

  • Court of Appeal Rulesrule 88(1)
  • Constitution of KenyaArticle 10
  • Land Registration Actsection 24(a)
  • Land Registration Actsection 25(2)
  • Land Registration Actsection 26(1)
  • Land Registration Actsection 28(b), (c) and (j)
  • Law Society of Kenya Conditions of Sale, 1989clause 4(7)
  • Judicature Actsection 3
  • Law of Contract Actsection 3(3)
  • Land Actsection 38(2)

Cases cited (27)

  • Kinyanjui vs. Thande
    (1995-1998) 2 EA 159
  • Taj Mall Limited vs. Helen Njambi Mbugua
    [2019] eKLR
  • Kenya Hotel Properties Limited vs. Willesden Investments Limited
    [2009] eKLR
  • Nabro Properties Limited vs. Sky Structures Limited & 2 Others
    [2002] eKLR
  • Sagoo & Another vs. Mwicigi & 3 Others
    [2022] KECA 83 (KLR)
  • Mohamed Balala & 11 Others vs. Attorney General & 7 Others
    [2012] eKLR
  • Attorney General & 6 Others vs. Mohamed Balala & 11 Others
    [2014] eKLR
  • John Mburu vs. Consolidated Bank of Kenya
    [2018] eKLR
  • William Kipsoi Sigei vs. Kipkoech Arusei & Another
    [2019] eKLR
  • Willy Kimutai Kitilit vs. Michael Kibet
    [2018] eKLR
  • Mwangi vs. Kiiru
    [1987] eKLR
  • Arthi Highway Developers Limited v West End Butchery Limited and 6 others
    [2015] eKLR
  • Selle v Associated Motor Boat Co.
    [1968] EA 123
  • Alfarus Muli v Lucy M Lavuta & Another
    [1997] eKLR
  • Sita Steel Rolling Mills Ltd vs. Jubilee Insurance Company Ltd
    [2007] eKLR
  • D & C Builders vs Sidney Rees
    (1966) 2 QB 617
  • Pius Kimaiyo Langat vs. Co-operative Bank of Kenya Limited
    [2017] eKLR
  • Gatere Njamunyu vs. Joseck Njue Nyaga
    [1983] eKLR
  • Fidelity Commercial Bank Limited vs. Kenya Grange Vehicle Industries Limited
    [2017] eKLR
  • Gillepsie Bros. & Co. vs. Cheney, Eggar & Co.
    (1896) 2 QB 59
  • Reardon Smith Line vs. Hansen-Tangen
    (1976) 1 WLR 989
  • Mohamed Siaka Ali (Through Mohamed Shaibu Shosi – Personal Legal Representative) vs. Sunpalm Limited & 3 others
    [2015] eKLR
  • Yaxley v. Gotts
    [2000] Ch. 162
  • Lydia Wanjiku Wanyee suing as the administrator of the estate of the Late George Wanyee vs. George Nyanja
    [2015] eKLR
  • Harvela Investments Ltd. –v- Royal Trust Company of Canada (C.I.) Ltd and Others
    [1986] ALL E.R. 221
  • Christine Nyanchama Oanda vs. Catholic Diocese of Homa Bay Registered Trustees
    [2020] eKLR
  • Sisto Wambugu (Supra)
On appeal from
Environment and Land Court of Kenya at Mombasa
ELC Case No. 14 of 2013
Jurisdiction invoked
First appeal to the Court of Appeal under section 72(1) of the Appellate Jurisdiction Act / rule 88(1) of the Court of Appeal Rules

Key timeline

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Practical implications

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Frequently asked questions

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Cite this brief

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Cite this brief

Caselaw, "Otundo & 5 others v Creek Marketing and Development Limited (Civil Appeal E132 of 2022) [2024] KECA 353 (KLR)", Case Analysis (2024). Civil Appeal No. E029 of 2023. Source: https://new.kenyalaw.org/akn/ke/judgment/keca/2024/353/eng@2024-04-12

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