Rop & 3 others v Shah & 4 others

(Being appeals against the judgment and decree of the High Court of Kenya at Nairobi (Mong’are, J.) dated 1st September 2025 in HC Civil Suit No. 448 of 2012) JUDGMENT 1. This judgment determines two consolidated appeals (CA No. E756 of 2025 & CA No. E890 of 2025) arising from the judgment delivered on 1st September 2025 by the High Court (Mong’are, J.) in Nairobi HC Civil Suit No. 448 of 2012. The consolidation order, which was recorded with the consent of counsel for the parties, designated Civil Appeal No. E756 of 2025 as the lead le. We will refer to the parties as they appear in the lead le. 2. The dispute giving rise to this appeal stems from a landlord-tenant relationship. The 1st respondent, Rameshchandra Somchand Shah (“Mr. Shah”) and Savita Rameshchandra Shah (“Ms. Savita”) (who is not a party in CA No. E756 of 2025 but is the 2nd respondent in CA No. E890 of 2025), were the registered proprietors of an industrial property situated on L.R. No. 209/8929, o Enterprise Road, Nairobi (“the suit property”). By a lease dated 29th November 2005, Mr. Shah and Ms. Savita leased the suit property to the 2nd appellant, Palm Healthcare International Limited (In Receivership) (“Palm or the company”) for a term of six years from 15th December 2005 to 14th December 2011. The 2nd respondent, Sanjeev Kumar Shashikant Gadhia (“Mr. Gadhia or guarantor”), and the 3rd respondent, Anwar Majid Hussein (“Mr. Hussein or guarantor”), were directors and guarantors of Palm’s obligations under the lease. 3. On 6th April, 2009, the Eastern and Southern African Trade and Development Bank (“PTA Bank”), as debenture holder, appointed the 1st appellant, Bernard Rop (“Mr. Rop or receiver”), as receiver and manager of Palm’s assets. Mr. Rop took control of Palm’s assets, including the right of use of the suit property under the lease. The lease expired by euxion of time on 14th December 2011. However, the receiver remained in occupation of the suit property for 108 more days until 31st March 2012. No rent was paid for this period, and when the suit property was vacated, it was not restored to its original condition as per the terms of the lease agreement. The property owners led suit in the High Court against the company, the receiver, Mr. Gadhia and Mr. Hussein, as the respective 1st to 4th defendants seeking, inter alia, mesne prots for the overstay period, costs of restoration, and other reliefs. 4. Before the High Court, Mr. Shah and Ms. Savita pleaded that they were the registered proprietors of the suit property and had leased it to Palm for six years from 15th December 2005 to 14th December 2011. They averred that Mr. Gadhia and Mr. Hussein were guarantors of the lease and that upon Palm defaulting, PTA Bank appointed Mr. Rop as receiver and manager on 6th April 2009. They stated that the lease expired on 14th December 2011, but the lessee remained in the property until 31st March 2012, without paying rent, and upon vacating the premises failed to restore them to their original condition, forcing them to incur restoration costs of Kshs. 24,700,000. They claimed a total of Kshs. 30,638,242 comprising mesne prots of Kshs. 3,286,094, site-value tax, ground rent and insurance of Kshs. 76,093, restoration costs of Kshs. 24,700,000, legal fees of Kshs. 200,000, accrued interest of Kshs. 176,695, and loss of rental income of Kshs. 5,568,000, less a deposit of Kshs. 3,368,640, and sought judgment for the said amount against the company, the receiver and the guarantors, jointly and severally, plus interest and costs. 5. Palm and Mr. Rop led a statement of defence denying liability, averring that Mr. Rop was appointed receiver and manager by PTA Bank under a debenture and was merely an agent of the company. They https://new.kenyalaw.org/akn/ke/judgment/keca/2026/1820/eng@2026-09-25 2

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argued that Mr. Rop had no personal obligations or responsibility under the lease and could not be held personally liable. 6. Mr. Gadhia and Mr. Hussein admitted being guarantors under the lease but denied liability, averring that as at the time the lease expired on 14th December 2011, no rent was due and owing and that the lessee yielded up the premises pursuant to Clause Z of the lease. Denying the claim for monies spent in the restoration of the premises, they averred that the lessor knew the premises were required for industrial purposes, and that the lessee applied for consent to make alterations, and submitted the drawings to the City Council of Nairobi for approval. They asserted that they were discharged upon determination of the lease and therefore prayed for the dismissal of the suit with costs. 7. In the impugned judgment, the learned Judge found all the four defendants jointly and severally liable, and entered judgment for Mr. Shah and Ms. Savita in the sum of Kshs. 27,933,187, interest at 16% per annum from the date of ling the suit until payment in full, and costs of the suit. In arriving at her decision, the learned Judge held that Mr. Rop was personally liable for his actions during the receivership, and that the guarantors were liable for Palm’s defaults. She also held that Palm and Mr. Rop were not entitled to indemnity from the guarantors. 8. Being dissatised with the judgment, Mr. Rop and Palm led CA No. E756 of 2025 while Mr. Gadhia and Mr. Hussein lodged CA No. E890 of 2025. Through the thirteen (13) grounds of appeal, which we have taken liberty to condense, Mr. Rop and Palm fault the learned Judge for: holding Mr. Rop personally liable for Palm’s obligations under the lease; holding Mr. Rop personally liable for the costs of restoration and the mesne prots when he was not a party to the lease and had not entered into any personal contract; awarding interest at 16% per annum, which was not pleaded; and failing to consider the evidence, submissions, and authorities relied upon by the appellants. 9. In Civil Appeal No. E890 of 2025, the guarantors raised ten (10) grounds of appeal. In summary, they contend that the learned Judge erred: in holding them liable for Rop’s actions, as they had no control over him since he had supplanted the company’s board; awarding special damages that were not strictly proved; and, awarding interest of 16% per annum, which was not pleaded. 10. When the appeals came up for hearing on 16th March 2026, learned Senior Counsel, Mr. Chacha Odera, led learned counsel, Ms. Kavagi, in prosecuting the appeal by Mr. Rop and Palm, while learned counsel, Mr. Rugo, argued the appeal lodged by Mr. Gadhia and Mr. Hussein. Learned counsel Mr. Mwangi led Mr. Wanyoike in opposing the appeals on behalf of Mr. Shah and Ms. Kavita. Counsel for the parties relied on the led written submissions, which they briey highlighted. 11. In the written submissions dated 27th November 2025, learned Senior Counsel, Mr. Chacha Odera, submitted that the learned Judge erred in holding the receiver personally liable for the company’s obligations under the lease when he was an agent of a disclosed principal. He relied on Antony Francis Wareham t/a AF Wareham & 2 Others vs. Kenya Post Oce Savings Bank [2004] KECA 166 (KLR) and Victor Mabachi & Another vs. Nurtun Bates Limited [2013] KECA 204 (KLR) for the principle that where the principal is disclosed, the agent is not to be sued. 12. Secondly, it was argued that no privity of contract existed between Mr. Rop and the lessor, as the receiver was not a party to the lease. Reliance was placed on Agricultural Finance Corporation vs. Lengetia Limited & Jack Mwangi [1985] KECA 58 (KLR) and City Council of Nairobi vs. Wilfred Kamau Githua t/a Githua Associates & Another [2016] KECA 649 (KLR). 13. Thirdly, Mr. Chacha Odera, SC, submitted that the receiver could only be held personally liable for contracts entered into during his tenure and not for pre-existing obligations under the lease. Counsel cited Top Time Enterprises Limited vs. P V R Rao as Receiver/Manager appointed by Kenya https://new.kenyalaw.org/akn/ke/judgment/keca/2026/1820/eng@2026-09-25 3

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Commercial Bank Limited to run Nyali Beach Hotel Limited (in Receivership) & Another [2014] KECA 684 (KLR) and Martin John Whitehead & Another vs. Industrial Court & Another [2016] KECA 298 (KLR) in support of the argument. 14. Fourthly, counsel relying on David Sironga Ole Tukai vs. Francis Arap Muge & 2 others [2014] KECA 155 (KLR) and Mutiso vs. Nzioka (Suing as the Personal Representative of Esther Ntheya Nzioka (Deceased)) [2025] KECA 1727 (KLR) for the principle that parties are bound by their pleadings, submitted that the learned Judge erred by awarding interest on the decretal amount of 16% per annum, which was not pleaded and was therefore arbitrary. 15. Finally, Mr. Chacha Odera, SC, submitted that the learned Judge failed to consider the evidence, submissions, and authorities relied upon by the appellants, thereby arriving at a decision against the weight of the evidence. 16. Mr. Rugo, learned counsel for Mr. Gadhia and Mr. Hussein, relied on submissions dated 4th March 2026, which reduced their appeal to three arguments. First, counsel submitted that the learned Judge erred in holding the guarantors liable for the receiver’s actions. According to counsel, the guarantors had no control over the receiver, who had supplanted the company’s board and taken exclusive control of the company's assets, including the lease. Counsel contended that the guarantors were legally incapacitated from performing their obligations under the guarantee because the receiver had taken over the company’s aairs, and the guarantors could not therefore be held liable for the receiver’s conduct. 17. Secondly, counsel submitted that the special damages were not strictly proved. He argued that the learned Judge misapprehended the standard of proof in civil cases as enunciated in James Muniu Mucheru vs. National Bank of Kenya Limited [2019] KECA 1058 (KLR), and also failed to evaluate the contradictions and inconsistencies in the respondents’ evidence. Counsel submitted that the evidence adduced by the respondents was contradictory and failed to meet the required standard of proof for special damages, highlighting contradictions in the testimonies of the quantity surveyor (Charles Kinyanjui Maingi (PW2)), a building contractor (Rak Vekaria (PW3)), and Stephen Maranda (PW4). Mr Rugo placed reliance on Total (Kenya) Limited Formally (sic) Caltex Oil (Kenya) Limited vs. Janevams Limited [2015] KECA 822 (KLR) and Stanley Mombo Amuti vs. Kenya AntiCorruption Commission [2019] KECA 783 (KLR) for the proposition that special damages must be strictly proved and that failure to produce material evidence warrants an adverse inference. 18. Finally, Mr. Rugo, relying on Wanjohi vs. Mukabi [2021] KECA 476 (KLR) for the principle that parties are bound by their pleadings, argued that the award of interest at 16% per annum was not pleaded and was therefore arbitrary. 19. In opposition to both appeals, Mr. Mwangi, through submissions dated 12th March 2026, argued that the learned Judge was correct in holding all the appellants jointly and severally liable. Counsel submitted that the receiver, having elected to remain in possession of the suit property after the lease expired, was personally liable for the rent and restoration costs. He referred to Top Time Enterprises Limited vs. P V R Rao (supra) for the proposition that a receiver acts as a principal in entering into contracts in the performance of his functions and is therefore personally liable. Regarding Mr. Gadhia and Mr. Hussein, Mr. Mwangi submitted that the guarantors were liable under the guarantee. He cited Mwaniki Wa Ndegwa vs. National Bank of Kenya Ltd & Another [2016] KECA 388 (KLR); John Mburu vs. Consolidated Bank of Kenya [2018] KECA 796 (KLR); and Bhogal & 3 Others vs. Sheikh & Gregory (Joint Receivers and Managers of Sam-Con Limited (In Receivership) & 3 Others [2025] KECA 1666 (KLR) for the proposition that a guarantor becomes liable upon the default of https://new.kenyalaw.org/akn/ke/judgment/keca/2026/1820/eng@2026-09-25 4

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the principal debtor and that the appointment of a receiver does not discharge the guarantors from their obligations. 20. In response to the appellants’ assertion that the special damages were not proved, Mr. Mwangi submitted that the special damages were properly pleaded and strictly proved through the evidence of six witnesses and documentary evidence, including invoices, receipts, bank statements, and a lease with a subsequent tenant. He relied on Total (Kenya) Limited Formally (sic) Caltex Oil (Kenya) Limited vs. Janevams Limited (supra) and Yusuf Mohammed Jiwa t/a Jiwa Properties & Another vs. Mwangi & 2 Others [2024] KECA 38 (KLR). 21. Finally, counsel argued that the award of interest at 16% per annum was proper as the lease expressly provided for that rate, and that the learned Judge was entitled to enforce the agreed rate. 22. This is a rst appeal, and we are required to re-evaluate the evidence and draw our own conclusions bearing in mind that, unlike the trial court, we did not hear and see the witnesses testify in order to gauge their demeanour. Guided by this role as enunciated in the celebrated case of Selle vs. Associated Motor Boat Co. Ltd [1968] EA 123, we have carefully considered the record, the grounds of appeal, the written submissions, and the oral highlights of counsel and distilled the following issues for our determination: rst, whether the receiver was personally liable for the obligations under the lease, particularly the mesne prots and restoration costs; second, whether the guarantors were liable for the defaults of the company during the receivership; third, whether the special damages were strictly proved; and, fourth, whether the award of interest at 16% per annum was proper. 23. The rst issue concerns the liability of Mr. Rop, the receiver and manager. The law regarding the liability of a receiver and manager is well settled. In Top Time Enterprises Limited vs. P V R Rao (supra), this Court demarcated that role as follows: “ ... the general legal position is simply put, that the receiver or manager of a company under receivership acts as a principal in entering into any contracts in the performance of his functions, and is therefore personally liable on the contracts entered into by him in his capacity as receiver, unless the contract provides otherwise.” 24. This position is reinforced by Halsbury’s Laws of England, 3rd Edition, Volume 6, paragraph 975, where it is stated that, except for certain exceptions, a receiver is personally liable on any contract entered into by him in the performance of his functions, save in so far as the contract otherwise provides, and is entitled to indemnity out of the assets. 25. In the instant case, the receiver was appointed on 6th April 2009. He found the lease, which was to expire on 14th December 2011, still in force. He took control of the company’s assets, including the right to use the suit property. However, the receiver remained in possession of the suit property, past the date of surrendering the property, until 31st March, 2012. This decision was made by the receiver in the performance of his functions. By remaining in possession past the date of the expiry of the lease, the receiver entered into an implied contract with the landlords to continue occupying the premises under the existing terms. 26. The question is whether there is merit in the receiver’s argument that he was merely an agent of the company since there was a disclosed principal. In Martin John Whitehead & Another vs. Industrial Court & Another (supra), this Court, while allowing an appeal against the judgment wherein the High Court had declined to issue an order of certiorari against a decision of the defunct Industrial Court https://new.kenyalaw.org/akn/ke/judgment/keca/2026/1820/eng@2026-09-25 5

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holding the appellant receivers personally liable to pay wages for the employees of a company placed under receivership, held that: “ (26) This was a labour dispute over the payments of redundancy benets of the several employees of the company which was placed under receivership on 7th November, 2001. We are not at all called upon to determine the merits of how the award was arrived at, the only issue for our determination as we understand it from the pleadings, the record of appeal, and the submissions made before us is whether by holding the appellants personally liable to settle the award, the High Court erred. It is abundantly clear that the appellants were appointed receiver managers pursuant to the deed of appointment of 7th November 2001 and in accordance with the supplemental debenture which provided that receiver managers shall be agents of the company. The receiver managers indicated in all the communication they wrote to the employees and to the Union that they were acting solely as agents of the company and put a rider in the communication that they accepted no personal liability for the employment contracts. … (30) In our view, the excess of jurisdiction in the circumstances of this matter related only to the order that the receivers bore personal liability to settle the award as per the collective bargaining agreement that was entered into with the company. Secondly, by the court failing to hear the receivers on the issue of whether they could bear personal liability which issue was not part of the claim, the court acted in excess of its jurisdiction by considering extraneous matters. This was a dispute against The House of Manji, a company under receivership, and the receivers were acting as agents, thus any award is supposed to be settled by the company or by the receivers on behalf of the company from the assets of the company. Personal liability can only be ordered if the receivers are found culpable of fraud or negligence in the discharge of their duties or for particular contracts that they entered into.” 27. The receiver and company relied on the foregoing decision to argue that the receiver was not personally liable for the rent incurred after the lease period contained in the written agreement expired. With respect to counsel for the appellant, we nd the facts of the cited case distinguishable from those of the appeal before us. In that case, the receivers found the employees having been employed by the company that was put under receivership, but in the appeal before us, though the receiver found an existing lease, he failed to vacate the premises at the expiry of the lease, giving rise to an implied extension of the lease for a period of 108 days. That implied contract, in our view, was entered into by the receiver, and he was therefore personally liable to pay rent for the extended lease. We therefore agree with learned counsel, Mr. Mwangi, that the argument that the receiver could not be held liable for the elongation of the lease is without merit. 28. Related to the foregoing issue is the question whether the receiver was personally liable for the restoration expenses. It was argued for the receiver and the company that liability should not apply to the lease because the receiver was not a party to it and therefore no privity of contract existed between the receiver and the landlords. It is not disputed that Mr. Rop was appointed receiver on 6th April 2009, which was three years before the expiry of the lease. The receiver was empowered by clause 18 of the appointing instrument to, among other things, perform, repudiate, rescind, vary or enter into any arrangement or compromise any contracts or agreements as he considered expedient. https://new.kenyalaw.org/akn/ke/judgment/keca/2026/1820/eng@2026-09-25 6

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29. The receiver could terminate the lease if he felt that was the correct decision. He, however, chose to perform the contract. On 7th April 2009, he wrote to Mr. Shah committing to pay the outstanding rent. On 27th April 2009, PTA Bank wrote to Mr. Shah making a proposal on the payment of rent to which he responded with his own proposal. This was followed by the receiver’s letter dated 22nd May 2009 forwarding to Mr. Shah the payment of the rent for the period from 6th April 2009 to 5th May 2009. Evidently, the receiver exercised his powers and paid the rent. These actions, coupled with his conduct, leave no doubt that he acted as the principal and assumed the position of the directors of the company. 30. There was no dispute that the liability that arose from the lease was with regard to the requirement for the tenant to restore the premises to its original state. Having found that the receiver took over and complied with the terms of the lease, it follows that the receiver was liable for the restoration expenses as they arose from the terms of the lease. We also note that the receiver oered the rent deposit as compensation for the restoration works, which was not sucient. He then went ahead to express awareness of the liability and his willingness to reimburse Mr. Shah. This is compounded by the correspondence committing to restore the premises to the original state. There is therefore no merit in the attempt by Mr. Rop and Palm to fault the learned Judge for holding Mr. Rop personally liable for the restoration costs. 31. The second issue is whether the guarantors were liable for the defaults of the company during the receivership. There is no dispute that the guarantors guaranteed the company’s obligations under the lease. Clause (a) of the proviso to the lease provided that the guarantors would pay all the rents and make good all losses, costs, and expenses incurred by the lessor due to the lessee’s default. A guarantee is a secondary obligation that arises upon the default of the principal debtor. We nd untenable the guarantors’ argument that they were not liable because the receiver took exclusive control of the company’s assets, thereby preventing them from performing their obligations. The appointment of the receiver did not discharge them from their obligations. The guarantors’ liability was not extinguished by the receivership. As held in Mwaniki Wa Ndegwa vs. National Bank of Kenya Ltd & Another (supra), a guarantor becomes liable upon default by the principal debtor. 32. The lease expired on 14th December, 2011, and the company, through the receiver, failed to pay the rent for the extra days the company occupied the premises, and when the company vacated the premises, it did not restore the property to its original state as agreed in the contract. These defaults triggered the guarantors’ liability. The guarantors are therefore liable for the restoration costs, jointly and severally with the company. Notwithstanding our nding, we agree with the learned Judge that the receiver and the company cannot seek indemnity from the guarantors. The guarantee is a separate contract between the landlords and the guarantors. The receiver’s recourse for indemnity lies elsewhere. 33. Although the guarantors cannot successfully distance themselves from all the claims that arose during the period when the company was under receivership, we nd merit in their argument that they were not liable to pay rent for the period when the lease was extended by the receiver because they had completely lost control to the receiver during the period when the company overstayed in the suit premises. A look at the correspondence proposing the extension of the lease shows that Mr. Gadhia and Mr. Hussein were never informed or involved and therefore did not consent to further extension of the lease. In any event, their guarantee was limited to the terms of the lease, which terms included the period of the lease. They were therefore not liable for the rent for the extended period. Their appeal therefore succeeds to that extent. 34. There was the argument by the appellants that the special damages were not strictly proved. It is trite law, as succinctly expressed in Hahn vs. Singh [1985] KECA 129 (KLR), that special damages must be specically pleaded and strictly proved. Our examination of the record discloses that the respondents https://new.kenyalaw.org/akn/ke/judgment/keca/2026/1820/eng@2026-09-25 7

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called six witnesses, including Charles Kinyanjui Maingi (PW2), a quantity surveyor, and Timothy Njohia (PW5), a valuer. They produced a report, invoices, receipts, bank statements, and a lease with a subsequent tenant. The evidence was largely uncontroverted. The learned Judge considered the evidence and made specic ndings on the amounts awarded. The appellants did not call any expert evidence to challenge the respondents’ evidence. We are therefore satised that the special damages were proved to the required standard. In this case, the respondents pleaded special damages and produced documentary evidence to support the claim. 35. On the fourth issue, the appellants argued that the award of interest at 16% per annum was not pleaded. We note that the lease provided for interest at 16% per annum on delayed payments. The respondents’ plaint sought interest at market rates, and during trial, the plaint was amended to seek interest at court rates. The learned Judge awarded interest at 16% per annum. In Shah vs. Guilders International Bank Ltd [2002] KECA 307 (KLR), it was held that where parties have agreed on a rate of interest, the court has no discretion in the matter and must enforce the agreed rate unless it is shown to be illegal, unconscionable, or fraudulent. In this case, the lease expressly provided for interest at 16% per annum on delayed payments. The learned Judge was therefore entitled to award interest at that rate. The argument that interest was not pleaded is without merit, as the lease itself provided for the rate. 36. In summary, we nd and hold that the receiver, Mr. Rop, was personally liable for the mesne prots for the period between 15th December 2011 and 31st March 2012 and the restoration costs. It is also our nding that despite the guarantors (Mr. Gadhia and Mr. Hussein) being liable for the restoration costs, they are not liable for the mesne prots for the period between 15th December 2011 and 31st March 2012. The award of interest at 16% per annum is upheld. 37. Consequently, Civil Appeal No. E756 of 2025 fails in its entirety, whereas Civil Appeal No. E890 of 2025 minimally succeeds to the extent that the aspect of the learned Judge’s judgment nding Mr. Gadhia and Mr. Hussein liable for the mesne prots for the period between 15th December 2011 and 31st March 2012 is hereby set aside. 38. On costs, the general principle is that costs follow the event. The receiver and company, having failed in their appeal, will meet the respondents’ costs of the appeal. Considering the outcome of the appeal by Mr. Gadhia and Mr. Hussein, the appropriate order is to ask the parties to meet their own costs in respect of this particular appeal. DATED AND DELIVERED AT NAIROBI THIS 25TH DAY OF SEPTEMBER 2026. W. KORIR ……………………………………………… JUDGE OF APPEAL L. M. NDOLO ……………………………………………… JUDGE OF APPEAL A. I. HASSAN ……………………………………………… JUDGE OF APPEAL I certify that this is a True copy of the original Signed https://new.kenyalaw.org/akn/ke/judgment/keca/2026/1820/eng@2026-09-25 8

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DEPUTY REGISTRAR https://new.kenyalaw.org/akn/ke/judgment/keca/2026/1820/eng@2026-09-25 9

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