Bethany Vineyards Limited & 1 other v Equity Bank Limited & 2 others

31st August 2011 or upon receipt of the sale of 3,000,000 Transcentury Limited shares owned by the 2nd plaintiff and pledged as security. The plaintiffs further averred that the 2nd plaintiff pledged his 3,000,000 Transcentury Limited shares as collateral, to be held in a nominee account by the 2nd defendant. 3. They stated that additional securities that were to be held by the 1st defendant as lien included a personal guarantee by Mr. George Charles Mburu Kariithi, supported by a legal charge of Kshs.40,000,000/=, parcels of land Nos. Ngong/Ngong 48152 & 48171 and corporate guarantees from related entities. The plaintiffs stated that on or around 4th June 2011, the 2nd plaintiff with the 1st defendant’s consent entered into an agreement with the 3rd defendant to sell the 3,000,000 shares at Kshs.50/= per share, totaling Kshs.150,000,000/=, which sum was to be used to repay the loan, with the balance credited to the 1st plaintiff’s account No. 08129594xxxx. 4. The plaintiffs further stated that the 3rd defendant vide his letter dated 20th June 2011 confirmed the purchase of the Transcentury Limited shares and undertook to deposit Kshs.50,000,000/= into the 1st plaintiff’s account by 31st July 2011, but failed to do so and has since refused to pay despite repeated demands. They contended that the said sale was also confirmed by the 1st defendant in its letter dated 3rd June 2011. In addition, that the 1st & 2nd defendants failed to credit the sale proceeds into the 1st plaintiff’s account, despite transferring the shares to the 3rd defendant and acknowledging the sale. 5. The plaintiffs stated that a letter dated 19th December 2011 from the 1st defendant indicated that the loan advanced to them had been repaid and securities discharged, but failed to explain the source of the repayment. 6. In opposition to the suit herein, the 1st & 2nd defendants filed a statement of defence dated 21st December 2012 which was subsequently amended on 4th March 2015. In their defence, the 1st & 2nd defendants denied all the averments in the plaintiffs’ plaint and averred that the further Loan Agreement dated 30th June 2011 did not vary the Loan Agreement of 29th September 2010 but rescheduled the plaintiff’s outstanding facility making Kshs.33,307,700/= the drawdown limit. They further denied knowledge of the agreement between the 2nd plaintiff and the 3rd defendant to the extent that the 3,000,000 Transcentury shares were to be sold at a reserve price of Kshs.50/= each. 7. The 1st & 2nd defendants stated that as at 19th December 2011, the loan advanced to the plaintiffs had been fully settled via two payments totaling Kshs.33,274,768.50, made by the 3rd defendant between October and December 2011, which led to the securities held by the 1st defendant to be discharged and be available for collection. 8. The 1st & 2nd defendants stated that their obligations ended upon settlement of the loan and transfer of shares and they are not liable for any amounts beyond the loan repayment. They further stated that since they were not parties to the Share Sale Agreement, any remaining amounts from the share sale fall under the 3rd defendant’s responsibility. They asserted that the plaintiffs agreed to a partial payment plan with the 3rd defendant without setting time limits, which led to the shares being transferred to the 3rd defendant. The 1st & 2nd defendants averred that acknowledgement of a Kshs.2,405,709/= part payment by the 1st plaintiff further confirms the said agreement. They contended that since the plaintiffs failed to fully disclose their agreement with the 3rd defendant and acknowledged accepting the repayment structure, they are estopped from claiming further amounts from them afterwards. 9. The 3rd defendant in opposition to this suit filed a statement of defence dated 26th June 2012 which was subsequently amended on 6th June 2013, 16th July 2015 & on 22nd September 2020 to include a counterclaim/set-off. The 3rd defendant denied all the averments in the plaintiff’s plaint and averred https://new.kenyalaw.org/akn/ke/judgment/kehc/2025/14839/eng@2025-10-08 2

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that on 4th June 2011, he agreed to buy 3,000,000 Transcentury Limited shares from the 2nd plaintiff. He stated that the agreement involved no specific payment timeline and was based on an arrangement for staggered payments, some made to meet the 2nd plaintiff’s urgent needs. 10. The 3rd defendant asserted that he has paid a total of approximately Kshs.42,905,790/=, with Kshs.2,405,790/= being paid directly to the 2nd plaintiff, Kshs.33,500,000/= being paid under duress to accounts held with the 1st defendant for the 2nd plaintiff’s benefit and Kshs.7,000,000/= which was paid in the course of 2012. It was stated by the 3rd defendant that the said payments were made on a without prejudice basis, not admission of liability and were intended to facilitate release of securities, not to confirm final contractual obligations. He further stated that his letter dated 20th June 2011 was a non-binding letter of comfort, issued at the plaintiffs' request and not an enforceable undertaking. 11. The 3rd defendant in his counterclaim/set-off averred that the 2nd plaintiff misrepresented that the shares were freely tradable and unencumbered, their market value was no less than Kshs.50/- per share and that the shares were not at the risk of dilution, though bond holder conversions later devalued them to 50 cents. He contended that the 2nd plaintiff knew or should have known that he (3rd defendant) lacked due diligence, but still misled him into believing in flexible payment terms. The 3rd defendant stated that upon discovering the aforesaid misrepresentations, he sought to rescind the sale of the said shares through letters dated 14th August 2014 & 18th July 2017, demanding a refund. He averred that the 2nd plaintiff responded conditionally demanding share value to be pegged at Kshs.22.25 per share plus 18% compound interest, effectively imposing unilateral terms for rescission. The 3rd defendant asserted that the agreement between him and the 2nd plaintiff was vague on critical terms like price and timelines, thus the Kshs.42,905,790.00 paid has wholly failed. For this reason, he claimed that he is entitled to a refund of the full amount paid. 12. The 3rd defendant prays for the plaintiffs’ suit be dismissed with costs. He also prays for judgment against the 2nd plaintiff, including a declaration that the share sale agreement is null and void, an order for its rescission and/or, in the alternative, an award of damages in lieu thereof. The 3rd defendant also prays for an order compelling the 1st & 2nd defendants to execute the share re-transfer documents. Additionally, the 3rd defendant seeks an order for refund of the full purchase price of Kshs.42,905,790/paid for the shares, damages for misrepresentation, the costs of the counterclaim/set-off with interest, and interest on the refund amount at the rate of 16% per annum from the date of filing this suit until payment in full. 13. The plaintiffs filed a defence to the 3rd defendant’s counterclaim/set-off dated 29th September 2020. In the said defence, the plaintiffs denied all the averments contained in the 3rd defendant’s counterclaim/ set-off and averred that the 3rd defendant’s claims of misrepresentation are an afterthought. They acknowledged that the letters cited by the 3rd defendant were written without prejudice, but claimed that the 3rd defendant waived negotiation privilege by referring to the said letters, thus they would rely on them for their full tenor and effect. The plaintiffs denied the 3rd defendant’s entitlement to rescind the Share Sale Agreement and claim for refund and/or set off, and stated that the 3rd defendant’s claim against them is time-barred. 14. This matter proceeded to hearing where the plaintiffs called one witness in support of their case, the 1st & 2nd defendants called one witness, while the 3rd defendant testified and called a witness to testify in his defence. https://new.kenyalaw.org/akn/ke/judgment/kehc/2025/14839/eng@2025-10-08 3

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Plaintiffs’ Case. 15. Mr. Joseph Muturi Kamau testified as PW1. He adopted his witness statement dated 9th September 2015 as his evidence in chief. He stated that the 1st defendant advanced a loan facility of Kshs.40,000,000/= to the 1st plaintiff on 29th September 2010, to be repaid within six (6) months or upon the sale of 3,000,000 Transcentury Limited shares, whichever came first. He stated that the said facility was secured by inter alia, a personal guarantee and legal charge over multiple properties, a lien over the 3,000,000 Transcentury Limited shares held by Equity Bank, corporate guarantees from Fatima Holdings Limited, Consolidated Securities Limited and Nimex Ltd. Mr. Muturi also stated that the aforesaid facility was later rescheduled via a further Loan Agreement dated 30th June 2011 for Kshs.33,307,700/=, secured on similar terms. 16. Mr. Muturi contended that vide a letter dated 23rd August 2010, Dyer & Blair Investment Bank confirmed that he had offered the 3,000,000 shares for sale at Kshs.50 per share, totaling to Kshs.150,000,000/=, with sale proceeds to be deposited into the 1st plaintiff’s account, and on 3rd June 2011, the 2nd defendant prepared a sale transfer form showing that the said shares were sold for Kshs.150,000,000/=. Mr. Muturi testified that on 20th June 2011, the 3rd defendant confirmed in writing that he had purchased the shares and committed to pay part of the proceeds by 31st July 2011. He stated that the sale was also confirmed by the 1st defendant in a letter dated 5th June 2011, but the 3rd defendant did not remit payment for the shares as agreed, hence on 10th October 2011, he inquired from the 1st defendant why the Kshs.150,000,000/= had not been deposited into the agreed account. 17. Mr. Muturi contended that in as much as the 1st defendant responded to his inquiry on 8th November 2011, it did not provide clarity on the crediting of the sale proceeds. He stated that the 2nd defendant facilitated the transfer of the shares from him to the 3rd defendant. He maintained that the 1st & 2nd defendants were obligated to credit the full sale amount to the 1st plaintiff’s account, deduct the balance of the loan amount and avail the balance for the 1st plaintiff’s use, which was not done. He further stated that after instituting this case, the 1st defendant informed them that the loan advanced to them had been fully repaid and securities released, but failed to disclose who paid the loan and/or whether the proceeds from the share sale were used. He testified that the defendants are guilty of breach of contract as a result of which the plaintiffs have suffered loss and damage. 18. On being cross-examined by Mr. Munyalo, Mr. Muturi stated that the loan terms of the financial facility advanced to the 1st plaintiff were varied in June 2011, reducing the loan amount to Kshs.33,000,000/=, payable by August 2011. He further stated that as at the repayment date, the aforesaid loan had not been cleared. He indicated that he had engaged Dyer & Blair in 2010 to sell the Transcentury Limited shares over-the-counter, but no buyer was found then, and in 2011 he offered the said shares to the 3rd defendant, the then Chairman of the 1st defendant. 19. Mr. Muturi asserted that he and the 3rd defendant entered into an oral agreement for the sale of the aforesaid shares at Kshs.50 per share, totaling Kshs.150,000,000/=, with the understanding that part of the proceeds would go towards settling the subject loan. He contended that in as much as the aforesaid agreement was not in writing, Dyer & Blair confirmed the offer price in writing. Mr. Muturi asserted that the nominal share value of the Transcentury Limited shares was Kshs.1,800,000/=, but their market value was Kshs.150,000,000/=. 20. It was his evidence that the said shares were transferred to the 2nd defendant who held them as a nominee/custodian on behalf of the 1st defendant and thereafter transferred them to the 3rd defendant. He further testified that in as much as he expected that the 3rd defendant would deposit the full https://new.kenyalaw.org/akn/ke/judgment/kehc/2025/14839/eng@2025-10-08 4

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purchase sum into the 1st plaintiff’s account held by the 1st defendant and the latter would recover the loan and release the balance to the 1st plaintiff, only Kshs.33,307,700/=, sufficient to settle the loan amount, was received by the 1st defendant. 21. Mr. Muturi stated that the 1st & 2nd defendants were not informed of the agreement between him and the 3rd defendant. He admitted that the agreement between him and the 3rd defendant did not have any definite time. He confirmed that it was the 3rd defendant who bore the responsibility of paying any balance for the shares sold. Mr. Muturi denied claims that the sale of the shares was purely private and stated that Dyer & Blair, and the 1st & 2nd defendants all played roles in facilitating the transaction and transferring the shares. 22. During cross-examination by Mr. C.N. Kihara, Mr. Muturi admitted that in his witness statement, he did not mention of having met with the 3rd defendant. He confirmed that the plaintiffs do not seek any specific reliefs against the 3rd defendant. He acknowledged that there is no formal Board resolution from the 1st plaintiff authorizing the filing of this suit. He however claimed that there was a verbal resolution by the 1st plaintiff’s Board as per its Articles of Association, made in the presence of Charles Kariithi. Mr. Muturi stated that the 1st plaintiff has three shareholder companies being Fatima Holdings Ltd, Consolidated Securities Ltd and Nimex Ltd, none of which nominated a representative to represent them in Court as per the 1st plaintiff’s Articles of Association. He confirmed that he personally knows the 3rd defendant and stated that he should have paid the full purchase price for the 3,000,000 Transcentury Limited shares after settling the loan due to the 1st defendant. 23. Mr. Muturi contended that Transcentury Limited shares were initially valued at 50 cents nominally, but Dyer & Blair indicated a market value of Kshs.50 per share. He however confirmed that he did not have any valuation reports of the 1st defendant’s valuation of the shares despite the fact that it was responsible for asset valuation as per the Loan Agreement. He was not aware if the said shares had been valued by the 1st defendant. 24. He reiterated that no formal written agreement existed between him and the 3rd defendant as the transaction was oral and without a fixed completion date. He stated that he met the 3rd defendant at his office to discuss the sale of the shares and that the 3rd defendant knew that the proceeds of the said sale were intended to repay the 1st plaintiff’s loan advanced to it by the 1st defendant. He confirmed that he did not show the 3rd defendant any loan documents during the said meeting and he relied on trust. 25. Mr. Muturi stated that Transcentury Limited shares were listed in the Nairobi Stock Exchange on 14th July 2011, and before that, for purposes of public listing, the company prepared a Memorandum of Information. He further stated that Regulations required existing shareholders to meet certain requirements, and that 50% of issued ordinary shares were not to be sold for a period of 24 months. He explained that the said shareholders were not to ofioad 50% of their shareholding for 24 months in order to safeguard potential investors in the company’s shares, and they had to agree with the foregoing in writing as individual shareholders. He also explained that the foregoing was to apply to a specific category of shareholders depending on their shareholding number of shares. He indicated that prior to the listing, all the shares were immobilized. 26. It was his evidence that the company (Transcentury Limited) introduced additional 150,920,616 of unissued shares. He added that the company also gave shares with a value of 0.50 cents each for correctible bonds, for bond holders. He stated that after public listing, the share prices started fluctuating and the share price declined within 3 weeks to around Kshs.25/= to 30/=, down from Kshs.50/=. https://new.kenyalaw.org/akn/ke/judgment/kehc/2025/14839/eng@2025-10-08 5

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27. Mr. Muturi stated that he could not recall how much he paid for the Transcentury Limited shares as a founding investor. He acknowledged that the sale of the shares would attract regulatory attention whether sold over the counter or at the Nairobi Stock Exchange. He acknowledged that the 3rd defendant has since paid Kshs.33,500,000/= directly to the bank, effectively settling the loan. He admitted being aware that the 3rd defendant agreed to pay the loan for the 1st plaintiff on a without a prejudice basis. He confirmed that the 3rd defendant offered to return the shares, and his Advocates on record even made further proposals on 4th August 2014, but no final agreement was reached. 28. In regard to the share transfer documents, he said that the documents had his name and one signature, but it did not have the signature of the transferee. 29. In re-examination, Mr. Muturi maintained that the 1st & 2nd defendants are necessary parties to this case since the 3,000,000 Transcentury Limited shares were pledged to the 1st defendant as part of a loan facility, and the shares were held in the 2nd defendant’s account No. A0011, a subsidiary of the 1st defendant. He denied that the signature on the purchase transfer form for the shares was his and stated that the said form was signed by the Manager Equity Nominees (2nd defendant) on behalf of the transferee. Mr. Muturi testified that by the time this suit was filed, the loan advanced to the 1st plaintiff by the 1st defendant had not yet been repaid, and that repayment by the 3rd defendant only occurred after this suit was filed. 1St & 2Nd Defendants’ Case. 31. Mr. George Kamau Mwangi testified as DWI. He adopted his witness statement dated 1st March 2015 as his evidence in chief and produced the 1st & 2nd defendants’ bundle of documents dated 19th September 2016 as defence exhibits No. 1 to 7. Mr. Kamau testified that on 3rd November 2010, the 2nd plaintiff transferred 3,000,000 Transcentury Limited shares to the 2nd defendant as security for a loan advanced to the 1st plaintiff by the 1st defendant. That on 3rd June 2011, the 1st defendant informed the 2nd defendant that the 2nd plaintiff intended to sell the said shares at Kshs.50/- each in one lot, via a private arrangement with the 3rd defendant, which sale arrangement was confirmed by the 2nd plaintiff. He testified that since the shares were not listed in the Nairobi Stock Exchange, they were to be sold over the counter. He further testified that the 1st & 2nd defendants were not parties to the private sale, but the 1st defendant agreed to this arrangement on condition that the balance of the loan amount in the sum of Kshs.33,307,700/= being paid first. 32. Mr. Kamau stated that at that time, the market price for the shares was approximately Kshs.38/-. He contended that the 2nd defendant transferred the shares to the 3rd defendant in June 2011 and by August 2011, the 1st defendant advised the 2nd defendant that the 2nd plaintiff had acknowledged a direct partial payment of Kshs.2,405,709.00 made to him, and the 3rd defendant also paid and settled the 1st plaintiff’s outstanding loan amount. Mr. Kamau testified that the 2nd defendant could not verify if the full sale price for the shares was paid to the 2nd plaintiff as the sale agreement excluded them. 33. He further testified that the 2nd plaintiff had no objection to the transfer of the shares and that the private agreement between the 2nd plaintiff and the 3rd defendant did not specify timelines for full payment. He contended that the claim against the 1st & 2nd defendants to account for the full sale price is unfounded and that they cannot be held liable for any excess amount claimed beyond Kshs.33,307,700/=. 34. During cross-examination by Mr. Kahura, Mr. Kamau (DW1) confirmed that the 2nd defendant offers custodial services to the public and it holds securities on behalf of the 1st defendant and it is a subsidiary https://new.kenyalaw.org/akn/ke/judgment/kehc/2025/14839/eng@2025-10-08 6

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of the said defendant. He testified that securities are only released upon full receipt of the purchase price, and not before, even at the request of a client. He further testified that on offering the 3,000,000 Transcentury Limited shares as security, the 2nd plaintiff signed a share transfer form. He stated that the signature of the seller and the buyer on the same form appeared to be the same. He also stated that the person who signed the said share transfer form by the name of Peterson Mwangi was once an employee of the 1st defendant. 35. Mr. Kamau explained that when shares are not sold in the open market, the sale terms are agreed privately between the parties, and in this case, the share transfer form showed a sale value of the shares to be Kshs.150,000,000/=, which value was used for computing stamp duty. He stated that in spite of the foregoing, the 1st & 2nd defendants’ documents reflected a nominal value of 50 cents per share, totaling Kshs.1,500,000/=. He could not confirm whether any valuation of the shares was conducted by the 1st defendant which was responsible for valuing securities. He asserted that the 2nd defendant released the shares after the 1st plaintiff’s loan was fully settled on 8th December 2011. 36. Upon cross-examination by Mr. C. N. Kihara, Mr. Kamau confirmed that the loan advanced to the 1st plaintiff was secured by personal guarantees, land, and the 2nd plaintiff’s 3,000,000 Transcentury Limited shares. He stated the shares were valued at 50 cents per share, based on the 2nd plaintiff’s own share transfer form. He stated that if the shares had been sufficient security, no additional security would have been required. He testified that in a letter dated 20th June 2011 from the 3rd defendant to the 1st plaintiff, the 3rd defendant indicated that Kshs.50,000,000/= as part proceeds from the sale of the shares would be paid by 31st July 2011, but as at 10th October 2011, the proceeds from the sale of shares had not reached the 1st defendant. He noted that in a letter dated 30th November 2012, the 2nd plaintiff acknowledged having received Kshs.7,500,000/= from the 3rd defendant. 37. He testified that in July 2011, Transcentury Limited shares had a high of Kshs.60/=, a low of Kshs.40/ =, and closed at Kshs.42/=, with 1,370,000 shares traded. Further, that in November 2011, the share price ranged from Kshs.25/= to Kshs.30/=, closing at Kshs.28.75. He stated that the 2nd plaintiff never demanded from the 1st defendant a specific balance for any unpaid shares. Mr. Kamau could not confirm if the share security was released on 6th June 2011, noting that there was an application to reschedule the loan on 30th June 2011. 38. In re-examination, Mr. Kamau confirmed that the request for release of the shares as security was made by the 2nd plaintiff. He testified that they had sufficient securities at the 1st defendant in the event that the shares were released. 3Rd Defendant’s Case. 39. Mr. Alex Kieme Munga testified as DW2. He adopted his witness statement dated 22nd September 2020 as his evidence in chief. He stated that in the year 2011, he was a Director & shareholder of Nimex Limited, which was a shareholder of the 1st plaintiff company. Mr. Kieme denied knowledge of any meeting having been held by the 1st plaintiff on 18th November 2011 or on any other date, authorizing the filing of this suit. He also denied having signed the Board resolution filed on 27th March 2017 by the 1st plaintiff. 40. During cross-examination by Mr. Kahura, Mr. Kieme stated that he was not aware of the number of 1st plaintiff’s Directors who should sign a Board resolution in order for a seal of the 1st plaintiff to be affixed. On being referred to Clause 23 of the 1st plaintiff’s Articles & Memorandum of Association, he admitted that the 1st plaintiff’s seal is affixed on an instrument or on the resolution of two Directors https://new.kenyalaw.org/akn/ke/judgment/kehc/2025/14839/eng@2025-10-08 7

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and/or one Director and Secretary. He had no knowledge of any clause in the 1st plaintiff’s Articles of Association that provides that all three Directors must sign a resolution. 41. In re-examination, Mr. Kieme stated that Clause 12 of the 1st plaintiff’s Articles of Association is the only one that gives the 1st plaintiff’s Directors the power to act. He averred that before participating in a meeting, there must have been an invitation to attend, but in this case he was not invited to the meeting that passed the resolution filed on 27th March 2017 by the 1st plaintiff. 42. Dr. Peter Kahara Munga testified as DW3. He adopted his witness statement dated 22nd December 2020 as his evidence in chief and produced the 22 documents filed by him on 17th November 2020 and the second bundle of 3 documents. The documents he produced were marked as the 3rd defendant’s exhibits No. 1-25. He stated that he is a good friend of the 2nd plaintiff, who approached him for financial assistance due to hardship. He further stated that at the 2nd plaintiff’s request, he signed a comfort letter dated 20th June 2011 addressed to the 1st plaintiff. He confirmed that he bought Transcentury Limited shares privately, not via the Nairobi Stock Exchange. Dr. Munga referred to page 64 of his documents and stated that in July 2011, Transcentury Limited shares averaged Kshs.42.50 with 1,370,900 shares traded, and by September 2013, the average price had dropped to Kshs.30.25. He stated that he had offered to return the shares to the 2nd plaintiff on condition of refund of the money he had paid, but the offer was declined. He added that he has since realized that the shares that had been previously offered to him were pledged as loan security, with each share valued at Kshs.0.50. He also stated that bond holder conversions devalued some shares to 50 cents after being listed in the Nairobi Stock Exchange. He stated that he had not received any dividends from the Transcentury Limited shares, and that he was not aware that the shares were under lien to the 1st defendant in exchange for a loan. 43. During cross-examination by Mr. Kahura, Dr. Munga stated that he was the Chairman of the 1st defendant since 1984 and he held that position during his transaction with the 2nd plaintiff. He admitted that although he agreed to buy the shares, no price was agreed upon initially, as they intended to verify the market value first. He stated that he was not coerced into signing the letter dated 20th June 2011, he understood its contents and the said letter did not explicitly state it was a letter of comfort. Dr. Munga confirmed that he had no direct communication with Dyer & Blair, but he paid them Kshs.4,985,100/=. He also referred to a letter dated 29th August 2011 found at page 43 of his documents, where the 2nd plaintiff acknowledged that the 3rd defendant had paid the broker's commission. Dr. Munga confirmed that he had agreed to buy the 2nd plaintiff’s 3,000,000 Transcentury Limited shares at Kshs.50 per share, but despite the 2nd plaintiff’s claim that the shares were transferred to him, he never signed transfer forms nor received a share certificate. 44. Dr. Munga testified that he believed that the shares had been transferred, but admitted that he had not paid the full purchase price, having only paid an additional Kshs.33,000,000 without prejudice, and expressed his intention to return the shares to the 2nd plaintiff. He stated that he was unaware that the shares were under a lien to the 1st defendant. He referred the Court to page 43 of his documents where the 2nd plaintiff acknowledged having received Kshs.2,405,790/=, and to page 44, where a letter dated 20th November 2012 shows that the 2nd plaintiff acknowledged receipt of Kshs.7,500,000/= from him during the pendency of this case. He denied that the letter dated 30th November 2012 was a forgery. Dr. Munga contended that he paid off the 1st plaintiff’s loan to the 1st defendant because the 2nd plaintiff linked him to it. He stated that he was not aware that the 2nd plaintiff was a customer of the 1st defendant before he approached him. He confirmed the transfer of shares was fraudulent, as it occurred before the loan was fully repaid. https://new.kenyalaw.org/akn/ke/judgment/kehc/2025/14839/eng@2025-10-08 8

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45. On being cross-examined by Mr. Munyalo, Dr. Munga confirmed that the 1st defendant was not involved in his transaction with the 2nd plaintiff, except for the Kshs.33,000,000/= he paid directly to the 1st defendant. He stated that no further payments were made after 30th November 2011 due to the ongoing suit. He stated that in November 2012, he paid the 2nd plaintiff Kshs.7,500,000/= after being personally approached for assistance, but he has not made payments since. 46. Dr. Munga reiterated that the 2nd plaintiff’s shares were under a lien to the 1st defendant at the time of sale and no specific payment timeline was agreed upon, thus he would pay when funds were available. He indicated that although the par value of the shares was 50 cents, the listing price was Kshs.50/= per share, which he noted is subject to market fluctuations. He emphasized that there was no formal agreement on share price, no default clause, and that the shares had not been valued. Dr. Munga asserted that since the 1st defendant was not a party to the share sale agreement, it cannot be held liable to pay the plaintiffs. 47. In re-examination Dr. Munga stated that he paid over Kshs.30,000,000/= after the suit was filed in an effort to disassociate himself and the 1st defendant from this dispute. He acknowledged that the decline in value of the Transcentury Limited shares was not the 2nd plaintiff’s fault, as share prices are determined by market forces. 48. At the close of the 3rd defendant’s case, this Court directed the parties’ Advocates to file written submissions. The plaintiffs’ submissions dated 24th May 2024 & 11th November 2024 were filed by the law firm of Kaplan & Stratton Advocates, the 1st & 2nd defendants’ submissions dated 18th June 2024 were filed by the law firm of Waweru Gatonye & Company Advocates, while the 3rd defendant’s submissions were filed by the law firm of C. N. Kihara & Company Advocates. 49. Mr. Kahura, learned Counsel for the plaintiffs submitted that the 2nd plaintiff was the owner of 3,000,000 Transcentury Limited shares, and his company, the 1st plaintiff took a loan from the 1st defendant secured by inter alia, the aforesaid shares. He further submitted that subsequently, the shares were transferred to the 2nd defendant who retained complete authority of the shares at the time they were pledged. That subsequently, the 2nd plaintiff agreed to sell the shares to the 3rd defendant at the rate of Kshs.50/= per share totaling Kshs.150,000,000/=, which sum was to be collected by the 1st defendant as it had control of the shares. Counsel further submitted that upon the sale of the shares, the 1st & 2nd defendants duly transferred the 2nd plaintiff’s shares to the 3rd defendant on 3rd June 2011, but they have not accounted for the purchase price of the shares. 50. Counsel relied on the case of Ndungu Mbugua v Benson Irungu Mbaria [2020] eKLR and argued that the 3rd defendant acknowledged that he paid the commission for the transaction based on a market price of Kshs.50/= per share totaling Kshs.150,000,000/= as can be seen from the form calculating the commission. He submitted that the defendants’ contention that the value of the 2nd plaintiff’s shares was 50 cents each, as per the share certificate is incorrect as this value is the par value and not the market value. Mr. Kahura asserted that the 3rd defendant’s sentiments that the letter dated 20th June 2011 was a comfort letter was not proved and no evidence was adduced by the 3rd defendant in support of his contention. In submitting that this Court should consider the express statements in the letter dated 20th June 2011 and interpret it for what it expressly states, Counsel referred to the case of Fidelity Commercial Bank Limited v Kenya Grange Vehicle Industries Limited [2017] eKLR. 51. Mr. Kahura cited the provisions of Section 29 of the Sale of Goods Act and the book of Benjamin’s Sale of Goods 10th Edition and stated that the 3rd defendant ought to have paid for the shares at the time he received them or within a reasonable time thereafter. https://new.kenyalaw.org/akn/ke/judgment/kehc/2025/14839/eng@2025-10-08 9

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52. Counsel referred to a Ruling delivered by Judge Ochieng (as he then was) on 29th January 2015 in this suit, and submitted that due to the form of security created on the 2nd plaintiff’s shares, it imposes a mortgagor’s duty upon the defendants as it amounts to a legal mortgage on the shares. He relied on the case of Eunice Kanungu Kingori v NIC Bank Limited [2018] eKLR and contended that the 1st defendant had a duty to collect the entire purchase price for the shares and credit the surplus to the plaintiffs. It was stated by Counsel that it is not disputed that the 1st & 2nd defendants transferred the shares to the 3rd defendant before the institution of this suit and before the 3rd defendant paid for the purchase price of the shares. 53. Counsel argued that this was only possible since the 3rd defendant was the Chairman of the 1st defendant bank hence being in breach of the Prudential Guidelines issued by the Central Bank of Kenya, which is a statutory instrument going by the Court of Appeal’s holding in Equity Bank (Kenya) Limited v Don Ogalloh Riaro & another [2019] eKLR. Mr. Kahura urged this Court to hold the 1st & 2nd defendants liable to account for the full proceeds of the sale as the owner of the security. He contended that with the 2nd plaintiff having denied knowledge of the letter dated 30th November 2012 which the 3rd defendant relies on as proof that he gave the 2nd plaintiff Kshs.7,000,000/=, the 3rd defendant did not discharge his burden of proving that he gave the 2nd plaintiff Kshs.7,500,000/= in November 2012. 54. As to whether the 3rd defendant is entitled to rescind the contract for the sale of the 2nd plaintiff’s Transcentury Limited shares, Mr. Kahura submitted that the 3rd defendant did not provide any evidence to show how the alleged misrepresentation was made to him. He relied in the text The Law of Rescission by Dominic O’Sullivan and asserted that the 3rd defendant had not established a case for rescission based on misrepresentation. As to the 1st representation, Counsel contended that the transfer was effected by employees of the 1st defendant, the 2nd representation is not false as the market value of the shares was Kshs.50/= per share, the 3rd representation refers to a statement as to the future state of affairs and is thus not a representation and the 4th representation is not a representation at all since as an experienced businessman the 3rd defendant cannot allege to have been misled. 55. Mr. Kahura argued that the issue of whether or not this suit is fatally defective for want of a resolution from the 1st plaintiff’s Board of Directors was dealt with in a Ruling delivered on 6th May 2020 in this suit by Judge Kasango, which Ruling has never been appealed from, varied and/or set aside. He added that in the said Ruling, the Court dismissed the 3rd defendant’s application seeking to dismiss this suit on that ground. Counsel referred to the case of Dhanjal Investments Limited v Shabaha Investments Limited [2020] KECA 366 (KLR) and Clause 4 of the last facility agreement dated 30th June 2011 between the plaintiffs and the 1st defendant, and asserted that the plaintiffs are entitled to a claim for interest as sought in the amended plaint. 56. Mr. Munyalo, learned Counsel for the 1st & 2nd defendants submitted that at the time of rescheduling the loan advanced to the 1st plaintiff by the 1st defendant which was on 30th June 2011, the 2nd plaintiff had sold the Transcentury Limited shares to the 3rd defendant. He argued that it not disputed that the agreement for the sale of shares was between the 2nd plaintiff and the 3rd defendant, thus the 1st & 2nd defendants were not privy to the said agreement. To this end, Counsel relied on the Court of Appeal case of City Council of Nairobi v Wilfred Kamau Githua t/a Githua & Associates [2016] eKLR and the case of Kenindia Assurance Company Limited v New Nyanza Wholesalers Limited [2017] eKLR. 57. Counsel further submitted that the plaintiffs at paragraph 13 of their amended plaint averred that the 2nd defendant only held the shares in a nominee account and had a duty to transfer the shares to the 3rd defendant pursuant to the sale of the shares. Mr. Munyalo stated that the plaintiffs acknowledge that https://new.kenyalaw.org/akn/ke/judgment/kehc/2025/14839/eng@2025-10-08 10

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part of the purchase price of the shares was to be paid through the 1st defendant to settle the loan. He relied on the decisions made in the cases of John Mburu v Consolidated Bank of Kenya [2018] eKLR and Willow Park Limited v Jamii Bora Bank Limited & another [2019] eKLR and asserted that the 2nd plaintiff cannot now claim from the 1st defendant the entire purchase price. 58. Mr. Munyalo argued that the share transfer forms that facilitated transfer of the 2nd plaintiff’s shares from the 2nd defendant to the 3rd defendant were executed by an agent of the 2nd defendant on behalf of the 2nd plaintiff as instructed by the 2nd plaintiff. Counsel contended that the 1st & 2nd defendants had no obligation to pursue any payment from the 3rd defendant on behalf of the 2nd plaintiff. 59. He stated that the prayer for supply of the true statement of account is unnecessary as the statements have always been there. Counsel submitted that the only funds paid by the 3rd defendant to the 1st defendant were sufficient to settle the loan advanced to the 1st plaintiff by the 1st defendant. Therefore, there is no surplus to refund to the 2nd plaintiff. He asserted that the claim for interest is not supported by any documents. 60. Mr. C.N. Kihara, learned Counsel for the 3rd defendant submitted that there was no duty between the 2nd plaintiff and the 1st defendant to collect the purchase price of the Transcentury Limited shares from the 3rd defendant. He stated that the plaintiffs’ suit seeks no prayers and/or reliefs against the 3rd defendant. Further, he stated that the 3rd defendant did not know that the 2nd plaintiff was in loan arrears, and that he paid part of the 1st plaintiff’s loan without prejudice. Counsel argued that the terms of the sale of the shares were vague, there was no start and end date for the price and the price per share was also not agreed on. 61. He further stated that the 3rd defendant did not approach the 1st & 2nd defendants for release of the 2nd plaintiff’s shares prematurely. Instead, it was the 2nd plaintiff who asked the 2nd defendant to transfer the subject shares to the 3rd defendant. Counsel disputed that the shares were transferred to the 3rd defendant on 3rd June 2011. 62. He submitted that the details that would have guided the plaintiffs on the price of the subject shares are missing and there was no disclosure that the shares had been offered for sale for two years without getting a buyer. He further submitted that there was no disclosure that the 2nd plaintiff was in default of a loan. Mr. Kihara contended that the Transcentury Limited shares were in amortization as at 22nd March 2011 until the date of listing on 14th July 2011 after which their value was listed as Kshs.50/=, but the share value fluctuated. 63. In a rejoinder, Mr. Kahura submitted that the alleged letter of comfort dated 20th June 2011 does not qualify to the definition of a letter of comfort as defined by the Black’s Law Dictionary. He maintained that the terms of the said letter are an acknowledgement of the sale of the shares. Counsel contended that a payment without prejudice is unknown in law. Analysis And Determination. 64. I have considered and analyzed the evidence adduced in this suit in line with the pleadings filed, together with the written submissions by Counsel for the parties. The issues that arise for determination are: i. Whether the 1st plaintiff’s suit against the defendants is fatally defective for want of a Board resolution; ii. Whether the plaintiffs are entitled to the reliefs sought in the amended plaint; and iii. Whether the 3rd defendant’s counterclaim/set-off is merited. https://new.kenyalaw.org/akn/ke/judgment/kehc/2025/14839/eng@2025-10-08 11

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Whether the 1st plaintiff ’s suit against the defendants is fatally defective for want of a Board resolution. 65. All through the evidence presented by the 3rd defendant and upon perusal of the pleadings filed by him, it is evident that he challenges the 1st plaintiff’s suit against the defendants on the ground that the 1st plaintiff did not pass a valid resolution to warrant the institution of this suit. 66. The Court record however contains a Ruling delivered by Judge Kasango on 6th May 2020, in respect to the 3rd defendant’s Notice of Motion application dated 4th September 2019 seeking to strike out the 1st plaintiffs’ suit and the entire claim against the 3rd defendant for want of authority from the 1st plaintiff company to institute this suit. The learned Judge held as follows – It does become apparent that there no (sic) requirement for a company to present a resolution of a company indicating that a company has authorized the filing of a suit or has authorized the swearing of an affidavit on its behalf nor, for that matter, confirming it has authorized an advocate to represent it. It suffices for the deponent to state that he has authority to do such act. The answer to the first issue therefore is to the effect that the plaintiffs’ suit does not fail because of lack of the resolution of the 1st plaintiff. 67. The above Ruling has never been appealed against, varied and/or set aside by a Court of competent jurisdiction, which means that Judge Kasango’s finding still stands. In view of the Ruling of 6th May 2020, the 1st plaintiffs’ suit against the defendants is not fatally defective for want of a Board resolution to institute it. Whether the plaintiffs are entitled to the reliefs sought in the amended plaint. 68. The plaintiffs seek orders for the 1st defendant to be compelled to supply the true statement of account for account No. 08129594xxxx, in the name of the 1st plaintiff for the period from 4th June 2011 to date, an order that the 1st defendant credits Kshs.150,000,000/= being the sale proceeds from the sale of the 3,000,000 Transcentury Limited shares into the 1st plaintiff’s account for their own use and an order for interest on the claimed amount at commercial rates of 18% per annum, compounded monthly, from the date of filing of this suit until payment in full. The plaintiffs also claim that the 3rd defendant’s counterclaim is time barred. 69. From the prayers being sought by the plaintiffs, it is apparent that the dispute between the parties herein revolves around the sale and transfer of the 2nd plaintiff’s Transcentury Limited shares. From the evidence adduced, vide a letter of offer dated 29th September 2010, the 1st defendant advanced a loan to the 1st plaintiff secured by inter alia, the 2nd plaintiff’s 3,000,000 Transcentury Limited shares. Following the said Loan Agreement, the 2nd plaintiff transferred the said shares to the 2nd defendant, a subsidiary of the 1st defendant, which was seized of the responsibility of being the custodian of all security documents deposited with the 1st defendant, Equity Bank of Kenya Ltd. This meant that only the 2nd defendant could deal with the shares until they were re-transferred to the 2nd plaintiff. It was a term of the Loan Agreement between the 1st plaintiff and the 1st defendant that the loan facility was to be repaid within six (6) months from the date of the drawdown or upon the sale of the 2nd plaintiff’s shares, whichever came earlier. https://new.kenyalaw.org/akn/ke/judgment/kehc/2025/14839/eng@2025-10-08 12

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70. It is not in contestation that by the elapse of the six (6) months, the plaintiffs had neither settled the loan advanced to the 1st plaintiff by the 1st defendant nor sold the 2nd plaintiff’s 3,000,000 Transcentury Limited shares. 71. It has been demonstrated in evidence that vide a facility letter dated 30th June 2011, the loan advanced to the 1st plaintiff was rescheduled setting the outstanding maximum amount at Kshs.33,307,700/= plus interest, repayable by 31st August 2011 or upon receipt of proceeds of sale of the Transcentury Limited shares. It is also not disputed that the 2nd plaintiff and the 3rd defendant got into an oral agreement whereby it was agreed that the 3rd defendant would purchase the subject shares. 72. In as much as there is no written agreement in respect to the sale of the subject shares, DW1 referred to a letter dated 20th June 2011 written by the 3rd defendant and addressed to the 1st plaintiff’s Directors as proof that the 3rd defendant had agreed to purchase the subject shares. The said letter was referenced purchase of 3 million shares of Transcentury Limited (TCL) from Mr. Joseph Muturi Kamau and it stated that – Further to my purchase of 3 million shares of TCL from one of your directors Mr. Joseph Muturi Kamau and the transfer of the same to me, I wish to confirm that Kshs.50 million, being part proceeds from this transaction will be paid to your account No. 0810 2959 42195 at Equity Centre by 31st July 2011. 73. It is however worthy of note that although the 3rd defendant does not deny having signed the said letter, he contended that it was drafted by the 2nd plaintiff, and it was meant to serve as “a letter of comfort” as the 3rd defendant was requested to sign the said letter by the 2nd plaintiff who was his good friend and business associate, and that he had approached him (3rd defendant) for help. 74. In Paget’s Law of Banking 10th Edition under the title “Letters of Comfort” at page 614, the learned Author states as follows“ In determining whether a letter of comfort is acceptable in circumstances where it might otherwise have required a guarantee, a bank must understand the nature and extent of the commitment which is being given. Whilst it might be thought that considerations which generally wish to give rise to the use of a comfort letter rather than a guarantee are such that the giver would necessarily wish to ensure that the comfort letter did not in itself constitute a legally binding commitment, it appears that the courts will in fact treat such letters as being capable of constituting binding obligations unless the opposite intention is clearly expressed. (Emphasis added). 75. From the above excerpt, a letter of comfort is a written assurance provided by a third party to support the obligations or performance of another party in a transaction, without creating a legally binding guarantee. It is typically not legally enforceable, but rather meant to provide moral assurance. In most instances, a letter of comfort is normally given to a lender to reassure them of the financial stability or backing of a related entity. In view of the fact that the letter dated 20th June 2011 does not indicate that it is a letter of comfort on the face of it, this Court has to determine whether its contents amount to a letter of comfort. 76. In determining the said issue, I have to go back to the evidence that was adduced by the 3rd defendant. He stated that the said letter was drafted by the 2nd plaintiff after the 1st plaintiff defaulted in its loan obligations and because the 2nd plaintiff was his friend and business associate in a certain company (Marioth Real Estate). The 3rd defendant stated that he appended his signature on the said letter for https://new.kenyalaw.org/akn/ke/judgment/kehc/2025/14839/eng@2025-10-08 13

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the 2nd plaintiff to take to the 1st defendant bank. The 2nd plaintiff did not dispute that the letter signed by the 3rd defendant was not a letter of comfort and he did not deny having drafted it. It is my finding therefore that the said letter did not create binding legal obligations. 77. Reliance by the plaintiffs on the letter dated 20th June 2011 was meant to confirm that that the 3rd defendant had agreed to purchase the 2nd plaintiff’s Transcentury Limited shares. The 3rd defendant did not dispute that he agreed to purchase the said shares. The 3rd defendant contended that in as much as he got into an agreement for the purchase of the 2nd plaintiff’s shares with the 2nd plaintiff, they did not agree on the cost of the shares and the payment timelines. Upon perusal of the documents in the plaintiffs’ list of exhibits dated 21st November 2011, it is evident that the value shares of the 2nd plaintiff’s shares was 50 cents each totaling Kshs.1,500,000/= as per the transfer of share/stock form dated 28th October 2010 which transferred the said shares from the 2nd plaintiff to the 2nd defendant. 78. The plaintiffs however contended that the value of 50 cents was the par value and not the market value. Mr. Kamau & Dr. Munga both testified that in July 2011, Transcentury Limited shares had a high of Kshs.60/=, a low of Kshs.40/=, and closed at Kshs.42/=, with 1,370,000 shares traded, and in November 2011, the share price ranged from Kshs.25/= to Kshs.30/=, closing at Kshs.28.75. During cross-examination by Mr. Kahura, the 3rd defendant confirmed that he had agreed to buy the 2nd plaintiff’s 3,000,000 Transcentury Ltd shares at Kshs.50 per share. 79. On being cross-examined by Mr. Munyalo, the 3rd defendant stated that although the par value of the shares was 50 cents, the listing price was Kshs.50/= per share, which he noted was subject to market fluctuations. In view of the above testimony by the plaintiffs’ and the defendants’ witnesses, it is manifest that ordinarily, the market value of shares and the par value are different. 80. From the evidence adduced by the 3rd defendant, the sale of the said shares as per the oral agreement was however pegged at market rates of Kshs.50 and not at the par value of 50 cents. 81. In regard to the facility agreements dated 29th September 2010 and 30th June 2011, it is clear that the loan was to be repaid within six (6) months from the date of the drawdown or upon the sale of the 2nd plaintiff’s shares, whichever came first. 82. In order to establish the liability of the 1st and 2nd defendants in this case, it is crucial to establish if the oral agreement between the 2nd plaintiff and the 3rd defendant created a legally binding and enforceable contract. The plaintiffs’ claim is anchored on an alleged oral contract. The plaintiffs therefore have the burden of proving that the said contract met the basic requirements of validity, that the parties had the capacity to enter into the contract, that it contained all the elements found in all contracts, such as offer, acceptance, consideration, and mutuality or a meeting of the minds and that the oral agreement did not violate laws or regulations/policies. 83. On the issue of oral contracts, the Court of Appeal in the case of Attorney General v Kabuito Contractors Limited (Civil Appeal 638 of 2019) [2023] KECA 230 (KLR) (3 March 2023) (Judgment) had the following to sayFor oral contracts, the courts will first be concerned with whether an oral contract exists and then with ascertaining the terms as these are, by their very nature, not written down. Ascertaining the terms of an oral contract has been held to be a question of fact. (See Carmichael v National Power Plc (1999) 1 WLR 2042 (HL)). This means that all evidence to assist that task is admissible, including evidence of the parties’ subjective intentions and subsequent conduct. As Lord Neuberger stated in Thorner v Major (2009) UKHL 18, (2009) 1 WLR 776 “the interpretation of an oral contract is a matter of fact (I suggest https://new.kenyalaw.org/akn/ke/judgment/kehc/2025/14839/eng@2025-10-08 14

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inference from primary fact), rather than one of law, on which the parties’ subjective understanding of what they were agreeing is admissible.” (Emphasis added). 84. The Court of Appeal went on to state as follows in the above case………..Be that as it may, the respondent’s claim that there existed an oral contract between itself and the Ministry ought to be proved on the balance of probabilities. Oral contracts are harder to prove. An oral contract is not legally enforceable unless it is provable in court. This means that in the event of a breach, it is up to the plaintiff to prove the existence of the oral contract by adducing the necessary evidence. The party seeking to enforce an oral agreement has the difficult task of proving the terms of the agreement as well as the existence of the verbal agreement. A written agreement is itself a proof that there was an agreement, but an oral agreement is merely a verbal communication of proposal and acceptance which is difficult to prove in future if any disputes arises. The burden of proof totally lies on the person who is claiming the right to prove the existence of an oral agreement. The plaintiff in this matter had that burden of proving the existence of the oral contract and the terms of the oral agreement. (Emphasis added). 85. From my analysis of the evidence adduced, the oral contract between the 2nd plaintiff and the 3rd defendant had no completion date and it did not specify the amount of money that the 3rd defendant was supposed to pay at any given intervals or if the amount was to be paid in lump sum. 86. The 3rd defendant (plaintiff in the counter-claim) alleged that the 2nd plaintiff (defendant in the counter-claim) by filing the instant suit dated 21st November, 2011, effectively and unilaterally set up his own completion date and timelines, which the 3rd defendant pleads amounts to a rescission of the agreement. The said defendant also contended that the 2nd plaintiff added a penalty interest as liquidated damages, terms that had not been agreed at all and put the 2nd plaintiff to strict proof to the contrary. 87. On the aspect of validity and completeness of the oral contract between the 2nd plaintiff and the 3rd defendant herein, it is my finding that there was no meeting of minds on the sale of the 3,000,000 Transcentury Ltd shares to the 3rd defendant due to lack of a completion date in the performance of the said oral contract. The lack of certainty in the payment terms and the duration of the contract left it open ended and subject to different interpretations. In that regard, I do concur with the 3rd defendant’s Counsel’s submissions that the terms of the oral contract were vague. 88. The 2nd plaintiff denied having issued instructions to the 1st & 2nd defendants for the transfer of his shares to the 3rd defendant. The 1st and 2nd defendants contended that they were not privy to the agreement of sale of shares between the 2nd plaintiff and the 3rd defendant. There are various letters that address the issue of transfer of the 2nd plaintiff’s shares to the 3rd defendant. DW1, George Kamau Mwangi however testified that the signatures of the seller and the buyer that appear on the transfer of share/stock to the 3rd defendant herein appear to be the same. He added that the form was executed by one Peterson Mwangi, a former employee of the 1st defendant. 89. From my analysis of the evidence on record, no evidence was adduced by the plaintiffs to demonstrate that the said shares were successfully transferred to the 3rd defendant., as he did not sign a share transfer form. He stated that he was not issued with a share certificate for the said shares. This therefore means that the 2nd plaintiff still remains the holder of the 3,000,000 Transcentury Limited’s shares. The 2nd plaintiff did not adduce evidence to the contrary. In my considered view, when no further payments were forthcoming, from the 3rd defendant, the least that the 2nd plaintiff could have done was to the https://new.kenyalaw.org/akn/ke/judgment/kehc/2025/14839/eng@2025-10-08 15

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rescind the oral contract with the 3rd defendant and request the 1st and 2nd defendants to re-transfer the 3,000,000 shares to him. 90. In order to hold the 1st and 2nd defendants liable to the extent of ordering them to account for the sum of Kshs.150,00,000/= being the market value of the sale of the 3,000,000 Transcentury Limited shares, the plaintiffs would have to prove that the 3rd defendant paid for the said shares in full and that after receipt of the money, the 1st defendant has deliberately refused to credit the amount in issue to the 1st plaintiff’s account with the 1st defendant. There is however no evidence to prove that Kshs.150,000,000/= was ever received by the 1st defendant, save for the amount of Kshs,33,500,000/= which was paid to the 1st defendant by the 3rd defendant to offset the 1st plaintiff’s loan. It is therefore my finding that the case against the 1st and 2nd defendants has not been proved on a balance of probabilities. If the 3rd defendant has proved his counter-claim against the plaintiffs 91. In his counter-claim, the 3rd defendant seeks to rescind the contract for the sale of the 2nd plaintiff’s shares on account of misrepresentation. He also prays that the 2nd plaintiff to be compelled to refund him Kshs.42,905,790.00 being the money paid as consideration for the purchase of the subject shares plus interest on the said sum and damages for misrepresentation. 92. The evidence adduced confirms that the 3rd defendant paid the 1st defendant Kshs.33,500,000/= on behalf of the plaintiffs to offset the loan the 1st plaintiff had taken from the 1st defendant. The 3rd defendant also paid Kshs.2,405,790.00 directly to the 2nd plaintiff. The contested payment is the one for the sum of Kshs.7,500,000/=. The 3rd defendant relied on a letter dated 30th November 2012 written by the 2nd plaintiff confirming receipt of Kshs.7,500,000/= from the 3rd defendant as part of the proceeds for payment of the 3,000,000 Transcentury Limited shares. In his evidence, Mr. Muturi denied ever having written the letter or seeing the said letter until the bundle of documents of 17th November 2020 were filed. In cross-examination, the 3rd defendant was asked how the payment of the Kshs.7,500,000/ = was made to the 2nd plaintiff and his answer was that he could not remember. 93. This Court notes that the payment in issue is said to have been made many years back. As at the time I took over the hearing of this case, the 2nd plaintiff was 81 years old as when a proposal was made by Mr. C. N. Kihara to recall him for further cross-examination, Mr. Kahura opposed the application and informed this Court that 3rd defendant was 81 years old. In the course of the proceedings before me, Mr. C.N. Kihara stated that the 3rd defendant was 80 years old. Due to the 3rd defendant’s advanced age, there is the possibility that the 2nd plaintiff could not recall having written the letter acknowledging receipt of the payment of Ksh.7.500,000/= from the 3rd defendant. Further, the 2nd plaintiff did not allege that the signature on the said letter was not his, and if he had alleged that it was forged, the burden of proof would have shifted to him to prove that the signature on the face of the said letter was not his, by calling a Document Examiner to adduce evidence on his known signature, as compared to the signature on the said letter, to prove that he did not sign the said letter and to disassociate himself from its contents. 94. The 3rd defendant stated the additional amount he paid was Kshs.7,000,000/=. He could not recall if it was Kshs.7,500,000/-. In the counter-claim he indicated that the amount was Khs.7,000,000/= and that is the third amount that the Court considers to having been paid by the 3rd defendant. It is therefore my finding that in total, the plaintiffs received a cumulative amount of Kshs.42,905,790.00 from the 3rd defendant. https://new.kenyalaw.org/akn/ke/judgment/kehc/2025/14839/eng@2025-10-08 16

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95. Apart from seeking orders for declaration of the sale of shares agreement as null and void and for rescission of the same, and for the repayment of the sum of Kshs. 42,905,790.00, the 3rd defendant seeks damages for misrepresentation. The Meriam Webster Dictionary defines misrepresentation as follows … a false or misleading representation, often made intentionally to deceive or cause harm, which can be verbal, by conduct, or even through nondisclosure or concealment. 96. In the case of Kelvin Mutua and 197 others v Athi Water Services Board [2021] eKLR, the Court defined the word misrepresentation as hereunder Mary Charman in her book Contract Law defines misrepresentation as follows; A misrepresentation is an untrue statement of fact, made by one party to a contract to another, which is not a term of the contract, but has an inducing effect on it. 97. In the above case, the Court went further to state at paragraph 36 that Misrepresentation of facts can be made by carelessly issuing facts without checking the actual details. Also, misrepresentation can be a deliberate lie, intended to deceive and stated in the full knowledge that it is untrue. An innocent party in both types of misrepresentation is entitled to rescind the contract if he chooses to (Mary Charman, 2007, pg. 179). (Emphasis added). 98. Further, the Court in Sachin Shaha v Jagat Mahendra Kumar Shah & another [2020] eKLR, held as follows in respect to misrepresentation …As to the relationship between non-disclosure and misrepresentation, Chitty on Contracts, General Principles, 31st Edition states: Non-disclosure. The general rule is that mere non-disclosure does not constitute misrepresentation, for there is, in general, no duty on the parties to contract to disclose material facts to each other, however dishonest such non-disclosure may be in particular circumstances. But there are exceptions to the general rule that there is no duty to disclose. First, there are many statutory exceptions. Second, there are exceptions at common law where the contract is within the class of contracts uberrimae fidei, where there is a fiduciary relationship between the parties, and where failure to disclose some facts distorts a positive representation. It is also possible for a person to be guilty of misrepresentation by conduct. (Emphasis added). 99. From the foregoing excerpts, misrepresentation generally refers to a deliberate false statement or action, whether made verbally or through conduct, intended to mislead or distort a fact. In the case herein, the 3rd defendant contended that the 2nd plaintiff misrepresented that the shares were freely tradable and unencumbered, that their market value was no less than Kshs.50/- per share and that the shares were not at risk of dilution. He contended that the 2nd plaintiff knew or should have known that he (3rd defendant) lacked due diligence, but still misled him into believing in flexible payment terms. 100. As to whether the 2nd plaintiff misrepresented to the 3rd defendant that the shares were freely tradable and unencumbered, I am not convinced that this amounts to misrepresentation. Although the shares had been offered to the 1st defendant and transferred to the 2nd defendant as security for a loan advanced to the 1st plaintiff, both the 1st & 2nd defendants were fully aware that the shares were intended for sale and that part of the proceeds would be used to settle the outstanding loan amount. DW1 (Mr. Kamau) https://new.kenyalaw.org/akn/ke/judgment/kehc/2025/14839/eng@2025-10-08 17

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in his evidence stated that the shares could be transferred if the owner of the shares requested for the lien to be lifted in order for the shares to be sold. 101. Moreover, the 3rd defendant admitted that the 2nd plaintiff had approached him, disclosed his financial difficulties, and informed him about the existing loan, which prompted the drafting of the letter dated 20th June 2011. In light of the foregoing and the provisions of the facility agreements dated 29th September 2010 & 30th June 2011 which stipulated that the loan was to be repaid within six (6) months from the date of drawdown or upon the sale of the 2nd plaintiff’s shares, whichever occurred first, I am not convinced that the subject shares were not freely tradable. 102. The other issue on misrepresentation, was whether the 2nd plaintiff (Mr. Muturi) misrepresented that the market value of the shares was no less than Kshs.50/= per share and that the shares were not at risk of dilution. From the evidence adduced, he was one of the founding members of Transcentury Limited. He held 3,000,000 shares in the said company. He admitted in evidence that he knew that there would be a listing for a public offer for Transcentury Limited shares in the Nairobi Stock Exchange. As a shareholder of the said company, that was insider information which was known to him but he did not divulge that information to the 3rd defendant (Dr. Munga) to enable him to make an informed decision on whether to buy the shares or not. Dr. Munga stated that as a seasoned businessman, he knew that listing of existing shares and additional shares meant that the people owning the original shares would suffer a loss due to dilution of shares. 103. He indicated that the prospectus preparing the listing of the Transcentury shares at the Nairobi Stock Exchange was dated 1st July 2011, and the shares were listed on 14th July, 2011. From his evidence, the discussions for purchase of the 2nd plaintiff’s shares had occurred earlier. The 3rd defendant got to know about the public listing much later when it became public knowledge that Transcentury Limited shares would be publicly listed. As stated by the 3rd defendant, once the said shares were publicly listed, they suffered fluctuation and did not maintain a market value of Kshs.50/=. 104. It is my finding that the non-disclosure to the 3rd defendant by the 2nd plaintiff of the intended public listing of Transcentury shares led to misrepresentation of the true market value of the shares that the 2nd plaintiff offered to sell to the 3rd defendant. On that basis and my earlier finding of the vagueness of the terms of the oral contract, the 3rd defendant’s counter-claim succeeds, while the plaintiffs’ case against the 1st and 2nd defendants is dismissed with costs. 105. On the issue of the counterclaim being time barred, I did not see any evidence adduced by the plaintiffs to support that contention. I therefore find that the counterclaim is not time barred. 106. Section 27 of the Civil Procedure Act provides that costs follow the event. Since the 1st and 2nd defendants have succeeded in the main suit, I hereby award them costs of the main suit. I award the 3rd defendant costs of the counterclaim. 107. The final orders arei. The plaintiffs’ suit is hereby dismissed with costs; ii. The 3rd defendant’s counterclaim is hereby allowed with costs; iii. That I hereby issue a declaration that the oral Sale of Shares Agreement is null, void and unenforceable. It is rescinded forthwith. The 1st and 2nd defendants are hereby directed to sign the re-transfer of shares/stock form in favour of the 2nd plaintiff; iv. The 2nd plaintiff shall refund to the 3rd defendant, the sum of Kshs.42,905,790/= received as consideration for purchase of the said shares within forty-five (45) days from today; https://new.kenyalaw.org/akn/ke/judgment/kehc/2025/14839/eng@2025-10-08 18

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v. The 2nd plaintiff shall pay damages in the sum of Kshs.2,000,000/= to the 3rd defendant for false misrepresentation; vi. The 1st and 2nd defendants are awarded the costs of the main suit; vii. The 3rd defendant is awarded the costs of the counterclaim; viii. The amount in (iv) above shall earn interest at Court rates from 22nd September, 2020 being the date of the counterclaim; and ix. Interest on (v), (vi) and (vii) shall be payable from the date of this Judgment until payment in full. It is so ordered. DATED, SIGNED AND DELIVERED AT NAIROBI ON THIS 8TH DAY OF OCTOBER, 2025.JUDGMENT DELIVERED THROUGH MICROSOFT TEAMS ONLINE PLATFORM. NJOKI MWANGI JUDGE In the presence of: Mr. Kahura for the 1st & 2nd plaintiffs Ms Chepngeno h/b for Mr. Munyalo for the 1st & 2nd defendants Mr. C.N. Kihara for the 3rd defendant Ms B. Wokabi – Court Assistant. https://new.kenyalaw.org/akn/ke/judgment/kehc/2025/14839/eng@2025-10-08 19

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