Galana Oil Kenya Limited v Commercial Mart Limited & another (Environment & Land Case 197 of 2019) [2022] KEELC 2736 (KLR)
The bottom line
#Kenya's Environment and Land Court ordered the refund of Kshs 19.6 million paid for an unregistered, unwitnessed lease that was legally unenforceable.
What this practically means
#Executive summary
#Key legal issues
#Whether a valid and enforceable lease contract arose between the Plaintiff and the 1st Defendant
No enforceable lease contract arose. The lease document was not attested by a witness, was not embossed with the parties' seals, and was never presented for registration, failing Section 3(3) of the Law of Contract Act as read with the Land Registration Act.
The transaction concerned a disposition of an interest in land, attracting the peremptory formalities of Section 3(3) of the Law of Contract Act and Section 38 of the Land Registration Act. The lease document on record was neither attested by a witness nor sealed by the companies nor registered. Following Kukal Properties, an agreement that fails these requirements is inoperative and unenforceable. The court therefore concluded that no legal and enforceable contract capable of being enforced arose between the Plaintiff and the 1st Defendant.
Whether the Doctrine of rescission was applicable
The issue was moot because the Plaintiff had withdrawn the prayer for rescission, and in any event a party in breach cannot seek to rescind a contract.
The Plaintiff filed a Notice of withdrawal dated 30th November 2019 withdrawing prayer (a) for rescission, so the issue ceased to exist for deliberation. The court nonetheless observed, citing Beatrice Muthio Nzioka v Charles Akello On'wen and Halsbury's Laws of England, that absent a contractual condition entitling rescission, rescission is only available where the counterparty's conduct amounts to repudiation and the parties can be restored to their former position.
Whether specific performance could be decreed against the Plaintiff
No. Specific performance is discretionary and cannot be granted on a contract that is illegal, invalid or unenforceable; the lease was a nullity for non-compliance with statutory formalities including Sections 35 and 37 of the Companies Act 2015.
Relying on Reliable Electrical Engineers Ltd v Mantrac Kenya Ltd and Leo Investment Ltd v Estuarine Estate Ltd, the court held that specific performance presupposes a valid enforceable contract. The lease here was unattested, unsealed, unregistered and thus a nullity. A claim for specific performance predicated on such a defective instrument is misconceived; restitution rather than enforcement is the available route.
Whether the Kshs 19,632,000/= paid to the 2nd Defendant was held on trust and is refundable
Yes. The payment was due only upon granting vacant possession, execution and registration of the lease; those preconditions had not been met, so the 2nd Defendant held the monies on trust for the Plaintiff and the Defendants must refund it jointly and/or severally.
Clause 2 of the Letter of Offer made the lumpsum payment of Kshs 19,632,000/= conditional upon grant of vacant possession, execution and registration of the lease. Payment of the monies to the 2nd Defendant on or about 22nd September 2017 preceded satisfaction of those conditions. The court found the payment was to be held on trust pending compliance, and since the lease was neither executed nor registered and vacant possession was never granted, retaining the money while keeping the land would amount to unjust enrichment, following Maisha Investments Ltd v Mohamed Hassanali Alimohamed Jammohamed.
Legal principles established
#- A suit cannot be brought on a contract for the disposition of an interest in land unless the contract is in writing, signed by all parties and each signature attested by a witness present at signing
- No instrument effecting a disposition of an interest in land operates to convey the interest until it is registered
- Specific performance is an equitable and discretionary remedy that will not issue on a defective, illegal or invalid contract
- While a suit for specific performance on a non-compliant contract is a nullity, a suit for restitution of money paid under it is valid
- Where a transaction aborts before the conditions for payment are met, money paid must be refunded and cannot be retained as that would be unjust enrichment
Court orders
#- 1.The Defendants jointly and/or severally shall refund to the Plaintiff the sum of Kshs 19,632,000/= only owing as at 30th June 2018
- 2.The Defendants shall pay interest at the rate of 14% per annum with effect from 22nd April 2019 until full liquidation and/or refund
- 3.The Defendants' Counter-claim be and is hereby dismissed
- 4.The Plaintiff be and is hereby awarded costs of the suit and the Counter-claim, to be agreed upon and/or taxed by the taxing officer of the court
- Jurisdiction invoked
- Not expressly stated in the judgment; determined in the first instance by the Environment and Land Court in its civil jurisdiction over land transactions.
Key timeline
#Practical implications
#Frequently asked questions
#Cite this brief
#Cite this brief
Caselaw, "Galana Oil Kenya Limited v Commercial Mart Limited & another (Environment & Land Case 197 of 2019) [2022] KEELC 2736 (KLR)", Case Analysis (2022). . Source: https://new.kenyalaw.org/akn/ke/judgment/keelc/2022/2736/eng@2022-06-23
Suggested citation format for research notes or client memos. Always verify the original judgment before relying on any point.