Kibathi t/a Osoro Chege Kibathi & Co Advocates v Musti Investments Ltd (Civil Appeal E134 of 2022) [2024] KECA 270 (KLR) (8 March 2024) (Judgment)

Key Facts

Transaction Type

Issues

• The court addressed whether the professional undertakings provided by the appellant to pay the purchase price upon registration were affected by fraud or illegality. The appellant argued the undertakings were based on fraudulent transactions, but the court found insufficient proof to support this claim.
• The second issue was determining if the respondent, Musti Investments Ltd, was a party to the fraudulent activities. The court examined evidence to establish if the respondent participated in or benefited from the alleged overvaluation and subsequent financial improprieties.
• The court considered whether the transactions involving the sale of properties by Musti Investments Ltd to Bank employees were tainted by fraud, as alleged by the appellant Kibathi & Co Advocates. The key issue was whether the respondent colluded with purchasers to overvalue properties, leading to fraudulent gains.
• The fourth issue concerned the allocation of costs following the court's decision. The respondent was awarded costs, and the appeal was dismissed, indicating the court's view on the parties' conduct and the outcome of the legal disputes.

Holdings

• The appellate court confirmed the trial court's ruling that the respondent's professional undertakings were enforceable and not vitiated by fraud or illegalities. It rejected the appellant's claims that discrepancies in valuation reports and the respondent's payments to Bank employees constituted proof of fraud, noting the lack of evidence linking the respondent to the 17 purchasers' transactions. The court also held that the Stamp Duty Act and Banking Act violations were attributable to the appellant, who prepared the documents and paid stamp duty, and thus the respondent could not benefit from those infractions.
• The trial court (Majanja J.) found that the respondent was not involved in fraud or collusion and was not implicated in violations of the Stamp Duty Act or Banking Act. The court allowed the summons, directing the appellant to honor the 17 professional undertakings and awarding costs to the respondent. The appellate court (Court of Appeal) upheld this decision, dismissing the appeal and affirming that the appellant failed to prove fraud or illegality, and that the respondent could not be held liable for violations committed by the appellant. The court emphasized that the respondent was not the perpetrator of the alleged infractions, which were attributed to the appellant and the Bank.

Remedies

• The Court of Appeal awarded the costs of the appeal to the respondent, in addition to the costs of the suit previously awarded by the trial court.
• The Court of Appeal upheld the trial court's judgment, which allowed the summons and required the appellant to honor the 17 professional undertakings within 30 days from the date of the judgment.

Contract Value

Legal Principles

• The court determined that the appellant's investigation report was inadmissible hearsay under the Sabrimanian rule. The report was offered to prove the truth of its contents, which are statements made by individuals not called as witnesses, thus violating the hearsay rule in civil proceedings as per the Law of Evidence Act.
• The court applied the principle that allegations of fraud must be proved to a standard higher than a balance of probabilities but not as high as beyond reasonable doubt. This standard was used to evaluate the evidence presented by the appellant, which was found insufficient to establish fraud.

Precedent Name

• Njogu & Co Advocates v. National Bank of Kenya Ltd.
• Sabrimanian v. The Public Prosecutor
• R. G. Patel v. Lalji Makanji
• Chumo Arap Songok v. David Kibiego Rotich
• Takhar v. Gracefield Development Ltd & Others
• Lazarus Estates Ltd v. Beasley
• Ndolo v. Ndolo
• Kenya Pipeline Co. Ltd v. Glencore Energy (UK) Ltd
• Kinyanjui Kamau v. George Kamau Njoroge
• Mistry Amar Singh v. Serrano Wofunira Kulubya
• Vijay v. Nansingh Madhusingh Darbar & Another
• Holman v. Johnson

Cited Statute

• Evidence Act, Sections 107, 109, 112
• Stamp Duty Act, Section 10
• Banking Act, Section 11

Judge Name

• Asike-Makhandia
• Mumbi Ngugi
• Kamau M'Inoti

Passage Text

• "Allegations of fraud must be strictly proved; although the standard of proof may not be so heavy as to require proof beyond reasonable doubt, something more than a mere balance of probabilities is required."
• "The record is crystal clear that it was the appellant... who was responsible for completing the transfer forms and paying the stamp duty... Before the trial court, the appellant elected not to testify... to explain himself as the obvious perpetrator of the violations."
• "No court in this land will allow a person to keep an advantage which he has obtained by fraud... The court is careful not to find fraud unless it is distinctly pleaded and proved; but once it is proved, it vitiates judgments, contracts and all transactions whatsoever."

Damages / Relief Type