Mathingira Wholesalers Company Ltd v Kimwatu Kanyungu & 5 others [2016] KEELC 558 (KLR)
The bottom line
#A Nyeri court ruled that land registered in individuals' names actually belonged to a family company, which the registered owners held in trust.
What this practically means
#Executive summary
#Key legal issues
#Whether the plaintiff company was an agent of the registered proprietors of the suit property
The plaintiff was not an agent; no express agency was proved and the plaintiff conducted itself as owner
The defendants bore the burden under Section 107 of the Evidence Act to prove agency. The company's objects permitting agency business did not establish an actual agency. The plaintiff paid land rent and rates in its own name, sued in respect of the property, received no agency fee and acted without reference to the defendants. The court therefore held no agency relationship existed.
The true relationship between the plaintiff and the registered proprietors over the suit property
The registered proprietors hold the suit property in trust for the plaintiff company (constructive trust)
Although the defendants are registered proprietors under Section 27 of the RLA, Section 28 subjects their rights to duties as trustees. The plaintiff was in use and control of the property; the defendants' interests corresponded with their shareholdings; those who sold shares ceased enjoying rent; and the proprietors had intended to transfer the property to the company. The court applied Macharia Mwangi Maina and inferred a constructive trust.
Validity of changes to the membership of the plaintiff company
The changes to membership were valid despite non-compliance with internal procedures, because no fraud was pleaded or proved and the directors caused or sanctioned the transfers
Fraud was neither pleaded nor proved against the new shareholders, unlike in Arthi Highway Developers. Incoming shareholders were entitled to presume internal compliance; the burden lay on the directors, who executed and sanctioned the transfers and never objected until the 2007 dispute. Equity considers as done that which ought to have been done, and the defendants could not benefit from their own inaction.
Validity of the meeting of 13th October 2007 and elections held then
The meeting and elections were lawful and valid
Having upheld the membership changes, the contention that the meeting was attended by strangers failed. Although proof of service of notice on all shareholders was lacking, Article 26 of the Articles of Association provides that accidental omission to give notice does not invalidate proceedings.
Whether the plaintiff owes the registered owners an account
No; the plaintiff does not owe the registered owners an account
The plaintiff was not an agent and had been meeting its statutory obligations under the Companies Act, so a negative verdict was returned on the accounting claim against it.
Entitlement to the money held in the joint bank account and accounting by the 1st defendant
The money belongs to the plaintiff and is to be released to a newly elected board; the 1st defendant must account for unauthorised withdrawals
Following the trust finding, the deposited funds belong to the plaintiff. To promote reconciliation, a fresh election of the board was ordered within three months, with status quo on the funds maintained meanwhile. The 1st defendant was directed to account for sums withdrawn without board sanction.
Legal principles established
#- A company is a separate legal person from its shareholders and shareholders have no proprietary rights to company property apart from their shares (as submitted and relied on from Salomon and Omondi)
- A constructive trust over land may be inferred from the conduct of the parties even where the registered proprietor holds title
- Where no fraud is alleged or proved against incoming shareholders, they are entitled to presume the company's internal procedures were complied with; the burden of compliance falls on the directors
- Accidental omission to give notice of a meeting to a member does not invalidate the proceedings of the meeting (per Article 26 of the company's Articles)
- Equity considers as done that which ought to have been done, and a party who caused a procedural defect cannot benefit from it
Court orders
#- 1.Declaration that the registered proprietors of the suit property hold Nyeri Municipality Block 1/94 in trust for the plaintiff company
- 2.Declaration that the money held in the account belongs to the plaintiff and should be released to the bona fide board of management of the plaintiff company
- 3.Direction that the plaintiff holds a fresh meeting within three months for the purpose of electing a board to manage its affairs, and that the board so elected shall access the funds, with status quo over the funds maintained in the interim
- 4.Direction that the 1st defendant accounts to the plaintiff for the money he withdrew from the plaintiff's account without the sanction of the plaintiff's board
- 5.Each party to bear its own costs
- Jurisdiction invoked
- Original civil jurisdiction over ownership and management of land parcel Nyeri Municipality Block 1/94 (specific enabling provision not stated in the judgment)
Key timeline
#Practical implications
#Frequently asked questions
#Cite this brief
#Cite this brief
Caselaw, "Mathingira Wholesalers Company Ltd v Kimwatu Kanyungu & 5 others [2016] KEELC 558 (KLR)", Case Analysis (2016). Not stated in the judgment as provided. Source: https://new.kenyalaw.org/akn/ke/judgment/keelc/2016/558/eng@2016-07-12
Suggested citation format for research notes or client memos. Always verify the original judgment before relying on any point.