NDEGE WHOLESALERS LIMITED v CHIKOO INVESTMENTS LIMITED & NAIR DEVELOPMENT LIMITED [2006] KEHC 1322 (KLR)

REPUBLIC OF KENYA

IN THE HIGH COURT OF KENYA

AT NAIROBI (MILIMANI COMMERCIAL COURTS)

Civil Case 788 of 1997

NDEGE WHOLESALERS LIMITED……………….................................................………PLAINTIFF

VERSUS

CHIKOO INVESTMENTS LIMITED……................................................…………1ST DEFENDANT

NAIR DEVELOPMENT LIMITED…………...............................................……….2ND DEFENDANT

J U D  G E M E N T

The subject matter of this suit is a property L.R. No. 209/10882/17, NAIROBI.  Basically, it is the plaintiff’s case that it purchased that property from the 1st defendant, for a sum of KShs. 8. 5 million.  The plaintiff then moved onto the property and has been in occupation since 1991.

Later, the 1st defendant is said to have fraudulently sold the same property to the 2nd defendant, who then proceeded to have the title thereof transferred to its name.

The plaintiff is challenging the legality of the transfer to the 2nd defendant, and asks the court to declare that the plaintiff is the legal or beneficial owner of the property, to the exclusion of the defendants.  Therefore, it is the plaintiff’s case that the defendants’ proprietorship to the property be cancelled.

In its defence, the 1st defendant denied having sold the property to the plaintiff.  It also denied the allegations that it had fraudulently caused the property to be transferred to the 2nd defendant.

As far as the 1st defendant was concerned, the transfer by him, to the 2nd defendant was bona fide.  For that reason, the 1st defendant lodged a counter-claim against the plaintiff, seeking to have the plaintiff evicted from the property, so that the property could then be handed over to the 2nd defendant.

And on the part of the 2nd defendant, its case was that it was a bona fide purchaser for value without notice.  It says that it never had any notice of the plaintiff’s alleged claim to the property.  It also says that when it purchased the property from the 1st defendant, there was no fraud involved.

When the case came up for trial, on 24th May 2006, the 1st defendant failed to attend court.  Their advocate, Mr. Owino Okeyo also failed to attend court.

Another noteworthy development, just before the trial begun was that the 2nd defendant notified the court that the defendants would be relying on the bundle of documents which had been put together by the plaintiff.

At the trial, the plaintiff called one witness, Mr. Shashikant J. Khatri, whilst the 2nd defendant also called one witness, Mr. Pradeed Karamshi Shah.  And, as the 1st defendant did not attend the trial, it also did not call any witness.

Mr. Khatri testified that he is a director and a shareholder of the plaintiff.  In that capacity, he was involved in the transaction for the purchase of the suit property.  His involvement included holding negotiations with Mr. Ashok Lakhani, who was then a director of the 1st defendant.  The said negotiations were conducted in April 1990.

It was Mr. Khatri’s testimony that as at that date the construction of the industrial godowns, one of which was the suit property, was almost complete.  In other words, the 1st defendant was constructing industrial godowns on a piece of land, and was selling each of the said godowns separately.  The witness says that he visited the suit property and identified the unit No. 2 as the one that the plaintiff wished to buy.  He also says that the purchase price was negotiated and agreed in the sum of KShs. 8. 5 million.

Having agreed on the purchase price, the plaintiff paid KShs. 850,000/=, being the 10% deposit, on 4th June 1990.  The witness produced a cheque counterfoil as well its bank statements to prove payment.  That fact of the payment is also acknowledged in the undated Agreement for Sale executed by both the plaintiff and the 1st Defendant.

Mr. Khatri also produced proof of a further payment to the 1st defendant of KShs.1,650,000/=, which was paid on 15th September 1990.  That payment was proved by way of the cheque counterfoil and the plaintiff’s bank statement.

It was Mr. Khatri’s testimony that the 1st defendant handed over possession of the godown in September 1990, after receiving the second payment.

After taking possession, the plaintiff carried out a massive extension of the development thereon.  One of the main items of the extension, was the construction of a mezzanine floor, at the cost of KShs. 4. 0 million.

Meanwhile, the plaintiff paid the balance of the purchase price on 25th July 1991.  The said sum of KShs. 6. 0 million was acknowledged by the 1st defendant, through a letter dated 31st July 1991.

At that point, the plaintiff was only awaiting the transfer of the title to their name.  However, the 1st defendant’s advocates, Messrs Oraro & Rachier Advocates, gave various explanations for the delay in effecting the transfer.  One significant explanation was contained in a letter dated 27th February 1992, wherein the advocates explained that the transfer document had been sent to the other director in England, for his signature.  According to Mr. Khatri, the director who was in England at the time was Mr. A. Lakhani.

At that time, the 1st defendant’s other director, Mr. Hezekiah Oyugi had just passed away.

In the circumstances, the plaintiff was content to await the transfer, as they had no reason to have any doubts about the propriety of the transaction.  After all, they were in possession of the property, and were carrying on business without any interference from any quarters.

Four years later, on 11th November 1996, Messers Owino Okeyo & Company Advocates wrote to the plaintiff, asking for proof that the plaintiff had paid the sum of KShs. 6. 0 million.  The letter from Messrs Owino Okeyo & Company Advocates was written in their capacity as advocates for the 1st defendant.

In response to that inquiry, the plaintiff provided the advocates with a copy of the cheque, after which the advocates never reverted to the plaintiff.

Surprisingly, however, the property was then transferred to the 2nd Defendant, through a Transfer instrument dated 30th December 1996. The 2nd defendant then sought to evict the plaintiff from the property but the plaintiff obtained an injunction order from the court, restraining the 2nd defendant from interfering with their peaceable enjoyment of the property.

It is in those circumstances that the plaintiff now asks this court to declare the transfer to the 2nd defendant unlawful.

In the face of the plaintiff’s evidence, the 2nd defendant said that their advocate, as at the time of purchasing the suit property, was Messrs P. L. Mutuli Advocates.  That was said by Mr. P. K. Shah.  That notwithstanding, the witness acknowledged the fact that the Transfer instrument was drawn by Owino Okeyo & Co. Advocates.

To the knowledge of Mr. Shah, the 2nd defendant was buying a “clean property”, as the title thereto had no encumbrance save for a caveat by Guilders Bank.  That caveat was lifted at the time the title was being transferred to the 2nd defendant.  Thereafter, the 2nd defendant received the title documents from Owino Okeyo & Company Advocates.

Interestingly, the 2nd defendant concedes having never visited the suit property prior to purchasing it.  Mr. Shah explained that for a price of KShs. 14 million, the 2nd defendant found the transaction “attractive for a commercial purpose.”   He said that he was generally aware of the other units of godowns.

As far as Mr. Shah was concerned, the 2nd defendant was not aware of any underhand dealings relating to the suit property, because they did not know that the plaintiff had purchased the property.  He therefore said that the property should be given to the 2nd defendant.

During cross-examination, Mr. Shah said that he was not sure of the advocates who acted for the 2nd defendant in the transaction.  The court found that answer to be significant as Mr. Shah insisted that he is the person who handled the transaction on behalf of the 2nd defendant.  That being the case, it was very surprising that he could not tell whether Owino Okeyo & Company Advocates or alternatively P. L. Mutuli Advocates who acted for the 2nd defendant.

However, the witness conceded that the firm of P. L. Mutuli Advocates did not appear at all, on the documents produced as evidence in court.

Another interesting feature of Mr. Shah’s evidence is the fact that he had previously purchased real property.  In his experience, the standard practice in such transactions is that, the agreement for sale is normally drawn by the advocates for the vendor, whilst the advocates for the purchaser, drew up the Transfer documents.

Mr. Shah described the transaction herein as being standard.  However, he also concedes that there was never drawn up an Agreement for Sale as between the 1st Defendant and the 2nd Defendant.  To my mind, that fact alone served to remove the transaction from the realm of those which, by the understanding of the witness, could be described as standard.

Secondly, as the Transfer instrument would normally be prepared by the advocates for the purchaser, in Mr. Shah’s understanding, the fact that the Transfer herein was drawn by the firm of Owino Okeyo & Co. Advocates, by necessary implication, the said advocates were acting for the 2nd defendant.  In the face of that inescapable conclusion, I find that any knowledge which the firm of Owino Okeyo & Co. Advocates had regarding the transaction between the plaintiff and the 1st defendant, can be imputed on the 2nd defendant.

In effect, by November  1996, at the latest, the 2nd defendant is deemed to have been aware that the plaintiff had contracted with the 1st defendant for the purchase of the suit property.  The 2nd defendant is also deemed to have been aware that the plaintiff had paid the full purchase price to the 1st defendant.  That is because the plaintiff had provided to the advocates, proof that KShs. 6. 0 million had been paid to the vendor.  Of course, the rest of the money had already been paid directly to the advocates who had acted for the vendor at the commencement of the transaction.  There has never been any doubts or issues raised about that fact.

Having received the full purchase price for the suit property, the 1st defendant was obliged to transfer the property to the plaintiff.  At that stage, the 1st defendant no longer had any interest in the property which it could pass on to the 2nd defendant legally.

Secondly, the 2nd defendant was also aware of the transaction as between the plaintiff and the 1st defendant.  As I have already demonstrated, that knowledge is deemed to have reached them through Owino Okeyo & Co. Advocates.  Therefore, for the 2nd defendant to have decided to proceed with the purchase of the property in those circumstances was unlawful.

In the process of cross-examination, Mr. Shah said that the 2nd defendant paid the purchase price of KShs 14 million.  However, when asked how exactly the money was paid, he feigned ignorance.  He said that he did not know how much was paid to the Guilders Bank, and how much was paid to the vendor.  Once again, given the fact that it was Mr. Shah who handled the transaction on behalf of the 2nd defendant, I find his testimony to be improbable.  I find it hard to believe that Mr. Shah could decide to spend the sum of KShs. 14 million on buying a property which he had not ever visited.  It is equally unbelievable that Mr. Shah could not recall the manner in which the purchase price was divided as between the vendor and Guilders Bank.

He readily admits that if only he had visited the property, he would have ascertained the presence of the plaintiff within the property.  He would then have been able to ascertain that the plaintiff was not just a tenant, but someone who had a purchaser’s interest in the property.

In my considered view, the evidence shows that the 2nd defendant was, at the very least, totally negligent in the manner in which they went about buying the suit property.  Indeed, the involvement of Mr. Shah and the firm of Owino Okeyo & Co. Advocates, points clearly at a fraud.

I say so because, amongst other things, Mr. Shah testified that he was well aware of the fact that when a company was executing a Transfer instrument, it could only do so through its directors.   In this case, there is no dispute about the fact that one director of the 1st defendant, Mr. Hezekiah Oyugi, had passed away, as at the time when the 2nd defendant was transacting with the 1st defendant.  Meanwhile, Mr. A. Lakhani, who is described as “the other director” was in the United Kingdom.  Therefore, who executed the Transfer instrument on behalf of the 1st Defendant?

According to Mr. Shah, the signatories were Mr. Job Oyugi and Mr. Douglas Oyugi, both of whom were sons to the late Hezekiah Oyugi.  When the witness was asked whether or not the said two signatories were directors of the 1st defendant, his answer was that he was not sure.  In the circumstances, the very instrument which purportedly transferred title to the 2nd defendant is also of doubtful integrity.  It could not therefore convey to the 2nd defendant any legal title.

Having given due consideration to the evidence tendered in this case, I have not the slightest doubt that the 1st defendant was guilty of fraud, when it purported to sell to the 2nd defendant a property which it had already sold to the plaintiff.  Also, there is no doubt that Mr. Owino Okeyo advocate was right in the middle of the said fraud.  In view of that fact, the 2nd defendant is also found to be liable for the fraud.  But quite apart from the knowledge of Mr. Owino Okeyo advocate being imputed on the 2nd defendant, the conduct of Mr. Pradeed Karamshi Shah persuades me that he was well aware of the fraud being perpetuated against the plaintiff.

In conclusion, the plaintiff has satisfied the court that it has the sole legal and equitable interest in the suit property.  Therefore, the title which is in the name of the 2nd defendant was void, for the reasons that it was procured through fraud, and also because as at the time the 1st defendant was purporting to confer title on the 2nd defendant, it had no title which it so confer.

In the circumstances, the Registrar of Lands is directed to cancel the title which has been issued to the 2nd defendant.  In order to enable the Registrar do the needful, the 2nd defendant is directed to surrender the title it is holding, to the said Registrar.  The said surrender is to be effected within the next THIRTY (30) DAYS.

The Registrar of Lands is required to effect the cancellation of the 2nd defendant’s title within THIRTY (30) DAYS of receipt of the title from the 2nd defendant.

Thereafter, the Registrar of Landsis to issue a new title in the name of NDEGE WHOLESALERS LIMITED, upon the payment of the requisite stamp duty.  The said stamp duty is to be paid by the plaintiff.

Meanwhile, the counter-claim by the 1st defendant is dismissed as against the plaintiff, following the failure of the 1st defendant to lead any evidence in that regard.

Finally, the costs of the suit are awarded to the plaintiff, as against both defendants.  The plaintiff is also awarded the costs of the counterclaim by the 1st defendant.

It is so ordered.

Dated and Delivered at Nairobi, this 19th day of September 2006.

FRED A. OCHIENG

JUDGE