Simona Rizzoti v Kenya Way Limited [2021] eKLR

Key Facts

Transaction Type

Issues

• Whether the Plaintiff is entitled to the damages and reliefs sought, including projected profits, returned property, and compensation for breach of contract.
• Whether the Plaintiff has the legal standing to bring the suit as an individual rather than through the company Kuumba Limited, given the pre-incorporation agreement.
• Whether the lease agreement dated 7th June 2013 is valid and enforceable despite its unregistered status under the law.

Holdings

• The plaintiff was found to have locus standi to sue in her personal capacity as the agreement was a pre-incorporation contract between her and co-promoters (before Kuumba Limited's incorporation on 26th June 2013). The company could not ratify the agreement as it did not exist at the time.
• The court held that the lease agreement dated 7th June 2013 is not a valid lease due to non-registration but remains enforceable as a contract between the parties. The agreement's terms govern the contractual relationship, though it does not confer legal estate rights.
• The court concluded the plaintiff failed to prove breach of contract and special damages. No evidence of rent payments or repair agreements was presented, and claims for losses (e.g., profits, property) were dismissed for insufficient proof.
• Each party was ordered to bear their own costs of litigation.

Remedies

Legal Principles

• The court applied the standard of proof requiring clear and convincing evidence for special damages, noting that mere averments in pleadings or submissions are insufficient. The Plaintiff's reliance on witness testimony without supporting documentation failed to meet this threshold.
• The court emphasized that special damages must be both specifically pleaded in the plaint and strictly proved through tangible evidence. The Plaintiff's failure to provide adequate documentation to substantiate her claims for projected profits, lost stock, and other losses led to the dismissal of her case under this principle.
• The court held that a lease agreement executed before the incorporation of Kuumba Limited must be treated as a pre-incorporation agreement, with the directors personally liable until the company adopts the contract post-incorporation. This principle was applied to determine the Plaintiff's locus standi, as the agreement was entered into by individuals prior to the company's legal existence.
• The court recognized that an unregistered lease agreement for a term exceeding one year remains enforceable as a contract between the parties, even if it cannot confer legal estate rights. This principle was used to validate the 7th June 2013 agreement as a binding contract despite its failure to meet registration requirements for a formal lease.

Precedent Name

• Douglas Odhaiambo Apel & Emmanuel Omolo Khasin -vs-Telkom Kenya Limited
• A S t/a Business 2000 vs Lakhramshi Virpal Shah & 5 Others
• EA Power & Lighting Co Ltd v The Attorney General
• GosVenor v Rogan – Kamper
• W J Blakeman Ltd vs. Associated Hotel Management Services Ltd
• Gilgil Telecoms Industries Limited v Duncan Nderitu & 57 others
• Juletabi African Adventure Limited & another vs Christopher Michael Lockley
• Phonogram Limited vs Lane
• Souza Figueiredo v Moorings Hotel Co. Ltd
• Phares Omondi Okech & 3 Others (Suing for and on behalf of Kasgam Community – Wadhari Clan) vs Victory Construction Co. Ltd & Kisumu Water & Another
• Chon Jeuk Suk Kim And Kim Jong Kyu Vs E.J. Austin And Others
• Kelner vs Baxter
• Rajabali Kassam t/a Giraffe Snack Bar v Total Kenya Ltd
• Bachelor's Bakery Ltd v Westlands Securities Ltd
• Consolidated Chemicals Ltd vs. KEL Chemicals Ltd
• Rogan – Kamper v Lord Grosvenor (No 2)

Key Disputed Contract Clauses

• Clause 11 required the lessees to return the premises in good and tenantable repair. The defendant argued this justified the eviction, while the plaintiff claimed the defendant breached the agreement by evicting her without notice.
• The lease agreement specified a term of five years and one month, with an annual rent of 70,000 Euros for the first two years and a 10% increase in the third year. The court analyzed whether this term, despite non-registration, could support the plaintiff's claims for breach.
• Clause 10 exempted lessees from liability for the lessor's undisclosed debts. The plaintiff argued the defendant retained financial obligations (electricity, water, liquor license), but the court found no enforceable claims due to lack of evidence.
• Clause 2 and 3 mandated quarterly rent payments of 17,500 Euros on the 5th day of each period. The plaintiff claimed she made payments, but the defendant denied receipt, leading to disputes over compliance with this covenant.
• Clause 13 required the lessees to secure insurance covering occupiers' liability, fire, and burglary. The court noted this clause but found it irrelevant to the dismissal, as the plaintiff's claims for damages were unproven.
• Clause 14 stipulated a 100,000 Euro fee for lessees if the property was sold. The plaintiff did not pursue this claim, and the court did not address its enforceability.

Cited Statute

• Registered Land Act
• Companies Act, 2015
• Registration of Titles Ordinance Act
• Landlord and Tenant (Shops, Hotels and Catering Establishments) Act

Judge Name

Passage Text

• I find and hold that the Plaintiff had the capacity to sue in her own name since Kuumba Limited did not exist at the time of the 7th June 2013 agreement and the agreement must be construed as a pre-incorporation agreement with the promoters personally liable.
• In the instant suit, it is not in doubt that it was intended by the parties that the agreement of 7th June 2013 serve as a lease agreement... Nonetheless, as espoused in the authorities I have adverted to, I find that while the agreement of 7th June 2013 does not pass muster as a valid lease agreement owing to its non-registration, it is still enforceable as contract between the parties.
• The totality of the evidence is that the Plaintiff's did not prove the special damages flowing from the alleged breaches. The Plaintiff's suit must therefore fail.

Damages / Relief Type

• Compensatory Damages: Air conditioner repairs (KShs 30,000)
• Compensatory Damages: Outstanding account for Armando Tanzini's guests
• Compensatory Damages: Stock and materials (KShs 1,239,632)
• Compensatory Damages: Water bill refund (KShs 50,000)
• Compensatory Damages: Bookings/reservations (Dec 2013–July 2014, KShs 3,033,155)
• Compensatory Damages: Electricity and water refunds (KShs 279,910)
• Compensatory Damages: Projected profit for 5 years (691,880 Euros, KShs 78,182,440)
• Compensatory Damages: Renovation costs (30,000 Euros, KShs 3,450,000)
• Restitution: Return of plaintiff's property (cheque books, books of accounts, registration documents, receipt books, oven, electric mixer, VAIO computer)
• Compensatory Damages: Mattresses, bed, and linen (KShs 5,500,000)
• Compensatory Damages: Kitchen accessories (KShs 300,000)
• Compensatory Damages: Liquor license costs
• Compensatory Damages: Money in safe at eviction (KShs 325,000)
• Compensatory Damages: Expenses for Armando Tanzini