[2022] KEHC 13914 (KLR)

Gatabaki & 2 others (All Suing as the Co-Administrators of the Estate of Samuel Mundati Gatabaki - Deceased) v Muga Developers Limited & 3 others (Commercial Case 151 of 2017) [2022] KEHC 13914 (KLR) (Commercial and Tax) (18 October 2022) (Ruling)

Neutral citation: [2022] KEHC 13914 (KLR)

Republic of Kenya

In the High Court at Nairobi (Milimani Commercial Courts Commercial and Tax Division)

Commercial and Tax

Commercial Case 151 of 2017

DAS Majanja, J

October 18, 2022

Between

Nancy Wanja Gatabaki

1st Plaintiff

Esther Susan Wangari Gatabaki

2nd Plaintiff

Josephine Beatrice Gathoni

3rd Plaintiff

All Suing as the Co-Administrators of the Estate of Samuel Mundati Gatabaki - Deceased

and

Muga Developers Limited

1st Defendant

Suraya Sales Limited

2nd Defendant

Suraya Property Group Limited

3rd Defendant

Equity Bank Limited

4th Defendant

Ruling

Introduction and background 1. The Plaintiffs have filed the Notice of Motion dated July 7, 2022 and have invoked Articles 50 and 159 of the Constitution, Order 9 Rule 9 and 10, Order 10 Rule 11, Order 40, Order 45 and Order 51 Rule 1 of the Civil Procedure Rulesand sections 1A, 1B and 3A of the Civil Procedure Act seeking the following orders:1. Spent2. Spent3. Thatthe consent dated December 21, 2021 and executed between the Plaintiffs’ Advocates and the 4th Defendants' Advocates and adopted as an order of the court on December 21, 2021 be set aside unconditionally together with all consequential orders thereto and reinstate the parties to the same position as they were before the said consent was recorded.4. Thatthis Honorable Court be pleased to reinstate the suit and the same be set down for hearing on merit5. Thatthis Honourable Court be pleased to grant temporary injunction against the 1st, 2nd and 3rd Defendants from carrying on survey works, advertising or sale or disposal of or in any manner interfering with the suit property and or any part of the Plaintiffs property pending hearing and determination of this application and pending hearing and determination of the suit6. Thatleave be granted to the Plaintiffs to enjoin the Director, Survey of Kenya as well as the Chief Land Registrar Nairobi to the suit7. Thatthis Honorable Court be pleased to order stay sale and or disposal of the suit properties or any part thereof by the 4th Defendants pending hearing and determination of this suit.8. Thatthis Honourable Court be pleased to issue any other such orders that it may deem fit in the circumstances:9. Thatthe costs of this Application be provided for.

2. The application is supported by the affidavit and the supplementary affidavit of the 1st Plaintiff, Nancy Wanja Gatabaki, sworn on July 7, 2022 and August 4, 2022 respectively. The 1st, 2nd and 3rd Defendants have opposed the application through the replying affidavit of their director, Peter Kiarie Muraya sworn on July 27, 2022 whereas the 4th Defendant (“the Bank”) has filed Ground of Opposition dated July 28, 2022 and relies on the replying affidavit of its officer, Moses Ndirangu, sworn on July 28, 2022. The parties also rely on their written submissions which were orally highlighted by their respective counsel.

3. Despite the heated nature of the dispute between the parties, the facts giving rise to the litigation are largely common ground. The Deceased, Samuel Mundati Gatabaki, was the registered owner of the suit property, LR 282223/33 and entered into a Joint Venture Agreement with the 2nd and 3rd Defendants and incorporated the 1st Defendant. The 1st Defendant then entered into several transactions involving the suit property which was transferred to the 1st Defendant including the charging of the suit property to the Bank. All these transactions were necessary for the development of the Fouways Junction Estate, a real estate property development of the Joint Venture (“the Development”). In the present suit, the Plaintiffs claim that they are entitled to 50 units within the Development.

4. Over the course of the proceedings and by a letter dated December 21, 2021, the Plaintiffs and the Bank, through their respective counsel reported to the court that they had consented on the matter and urged the court to mark this suit as settled between themselves in the following terms:1. The plaintiffs are to purchase eighteen (18) housing units more particularly detailed in the attached schedule from Muga Developers Limited (In Receivership) for a total purchase price of Kshs 172,700,000/= which sum is to be paid to Equity Bank (Kenya) Limited (the Bank)2. The plaintiffs shall endeavour to procure the consent of the directors of Muga Developers Limited to the sale of the eighteen (18) housing units at the total purchase price of Kshs 172,700,000/= within the next 30 days provided that the sale of the units to the plaintiffs will be deemed proper notwithstanding the refusal or failure of the 1st to 3rd defendants to give such approval despite the plaintiffs’ efforts to obtain it3. The plaintiffs shall pay the sum of Kshs 60,000,000/= to the Bank as a deposit on or before December 31, 2021. The Bank shall be entitled to undertake due diligence on the source of funds as required under applicable laws within ten (10) days of receipt of the deposit. If the due diligence is not satisfactory to the Bank, this shall be treated as a material breach of this Agreement and shall entitle the Bank, without prejudice to any other rights or remedies that it may have, to rescind this Agreement and to refund the deposit and/or make a report to the relevant government authorities as required by law4. The plaintiffs are at liberty to engage the Bank to negotiate a facility for payment of the balance of the purchase price in the sum of Kshs 112,700,000/- by 14" January, 2022. The plaintiffs to provide the Bank with the details and particulars of the borrower(s)5. The plaintiffs withdraw all claims they have against the Bank relating to the Bank’s charge over Land Reference Number 28223/33 where the Fourways Junction Estate has been developed including High Court Civil Case 151 of 2017, High Court Commercial Case Number 30 of 2020 (Formerly Nairobi Environment & Land Court Case No 364 of 2019) and Civil Appeal E282 of 2021. The plaintiffs confirm they have no further claims against the Bank arising out of the Bank's charge over Land Reference Number 28223/33. The plaintiffs are to execute consent letters to be filed in the courts where the matters have been instituted in the terms set out in Schedule 3 annexed to this agreement6. The plaintiffs are to cease and desist from restricting access to the portions of Land Reference Number 28233/33 that are not owned by the plaintiffs The plaintiffs are to grant access to the Bank's officers and/or agents and other third parties authorised by the Bank that require access to the developed and undeveloped portions of Land Reference Number 28223/33 that are not owned by the plaintiffs.7. The plaintiffs are to pay the Bank's costs for High Court Civil Case 151 of 2017, High Court Commercial Case Number 30 of 2020 (Formerly Nairobi Environment & Land Court Case No 364 of 2019) and Civil Appeal E282 of 2021 to be agreed between the plaintiffs’ advocates and the Bank's advocates and in the event the advocates are unable to agree to be taxed by the courts where the matters have been instituted8. The 4th defendant's application dated August 5, 2021 is marked as compromised on the terms set out above.9. The plaintiffs and the Bank are to enter an agreement setting out the terms of settlement above.10. The parties be at liberty to apply.

5. The aforementioned consent letter and terms (“the Consent”) have since been adopted as an order of the court and forms the basis of the Plaintiffs’ application to which I now turn.

The application 6. The Plaintiffs claim that the Consent was recorded and adopted without their knowledge and written consent as to its contents and in their absence. The Plaintiffs add that the Consent was executed without consensus of the other Defendants, who the Plaintiffs still blame for unlawfully, irregularly and without the consent of the 1st Plaintiff, charged the suit property to the Bank, which resulted in massive financial loss to the Plaintiffs. They assert that the Consent was executed by collusion between their previous advocates and advocates of the Bank with the intent of absolving the 1st, 2nd and 3rd Defendants from their legal obligations to transfer the suit property to the Plaintiffs.

7. The Plaintiffs accuse the Defendants of material nondisclosure in respect of the transactions of the Development including impugning the formation of the 1st Defendant, the charging of the suit property and the loan amounts currently owing to the Bank. They therefore urge the court to reinstate the suit so that the Defendants can also be compelled by the court to account for the monies due and owing to the Plaintiffs as a result of the sale of units in the Development.

8. The Plaintiffs state that the Consent was entered into by mistake as all issues pertaining to ownership of the Development had not been resolved and that the Consent purports to allow for the sale to the Plaintiffs, properties which already belonged to the Deceased free of all encumbrances thus causing them to suffer massive financial loss. They state that the implementation of the Consent has the unlawful and unconscionable effect of violating the Development agreement between the Deceased and the 1st Defendant which determined that in the event the 1st Defendant was unable to develop the suit property, then portions thereof would revert to the Deceased unconditionally.

9. The Plaintiffs state that they did not give instructions and or authority to their then advocates on record Musyoka Wambua & Katiku Advocates to record the Consent and that the execution of the Consent as adopted as an order to the court has the effect of defeating their claim in the amended plaint filed on grounds that the Bank will sell all the assets of the Plaintiffs and that they will be condemned to pay costs without a hearing. Further, that the Consent will cause great prejudice to Deceased’s estate and its beneficiaries as the estate will lose the assets which ought to be distributed among the beneficiaries.

10. The Plaintiffs further state that it is necessary to join the Director of Survey to the suit in order to determine the correct total acreage that should have formed part of the suit property and resolve the issue of encroachment into the 1st Plaintiff’s property by the 1st Defendant and that this can only be done at the hearing of the main suit. Further, that it is necessary to join the Registrar of Titles to this suit as the Plaintiffs have established that the 1st Defendant deviated from the Development Agreement and fraudulently conveyed the suit property to the 1st Defendant without paying stamp duty or any consideration to the land owners and subsequently and without knowledge or consent of the 1st Plaintiff and the Deceased proceeded to amalgamate the suit property which was charged to the Bank.

11. The Plaintiffs aver that it is necessary that the monies paid by the 1st Plaintiff to the Bank in panic when she established that the Bank had advertised for sale by auction the properties owned by her deceased husband, be put in an escrow account pending hearing and determination of this suit as she did not willingly consent to buy the same as they rightfully belonged to the Deceased. They add that to date, no valuation of the suit property has been carried out by an independent surveyor to determine the true value and boundaries of the suit property.

12. For the above reasons, the Plaintiffs contend that after reinstatement of the suit and stay, the matter ought to be referred to arbitration or court—annexed mediation before the court determines the same and that it is mete and just that the prayers sought are granted and the Consent order be set aside unconditionally and the suit reinstated and set down for hearing.

The 1st - 3rd defendants’ reply 13. The 1st, 2nd and 3rd Defendants(“the Defendants”) depone that the Plaintiffs, in their own volition and by a lawful consent dated November 1, 2021, executed on November 2, 2021 and filed on November 3, 2021 by the firm of Musyoka Wambua & Katiku Advocates, wholly and unreservedly withdrew their entire claims against the Defendants, and undertook not to institute any further claims with respect to the suit properties and also agreed to engage the Bank in respect of the suit properties, on whatever terms they may deem necessary. That by virtue of the aforesaid consent, the Defendants are no longer parties to this suit, and as such, no order(s) can issue against them as any such orders against them would be nugatory for want of joinder in the suit.

14. The Defendants point out that the Plaintiffs have sought temporary injunctive orders against them but that no prayer has been made to set aside the consent dated November 1, 2021 and reinstate the suit against the Defendants. That with the aforesaid consent dated November 1, 2021 which preceded the Consent dated December 21, 2021, there was absolutely no need for the Defendants’ consensus with respect to the Consent dated December 21, 2021, thus no claim of collusion, unlawfulness and/or irregularity arises.

15. The Defendants point out that the unsubstantiated allegations/claims contained in the Plaintiffs’ deposition were found to be res judicata and/or time-barred in a ruling delivered by this Court on November 30, 2020 in HCCC No 30 of 2020, Nancy Wanja Gatabaki and Others v Muga Developers and 10 Others and that the court therein also found that the Plaintiffs’ suit was an abuse of the court process, the Plaintiffs having benefited from the consent order they sought to unsettle and that it is the same modus operandithat the Plaintiffs have adopted and deployed in the instant application.

16. In any case, the Defendants state that the present application severely falls short of the threshold for the setting aside of a lawful and valid consent and that the Plaintiffs, having wholly and unreservedly withdrawn their claims against Defendants, by the unchallenged consent dated November 1, 2021, have no prima facie case to warrant the issuance of temporary injunctive orders

17. The Defendants pray that to prevent the abuse of the court process by the Plaintiffs, it is in the interest of justice and fairness that the application be dismissed with costs.

The bank’s reply 18. The Bank states that the Plaintiffs have failed to meet the test for setting aside or varying a consent order and that they have failed to prove that the Consent was obtained by fraud or collusion or by an agreement contrary to the policy of the court.

19. The Bank avers that the Plaintiffs were aware of the existence of the Consent and have largely performed its terms thus the allegation that they had no knowledge of the Consent or its contents is patently untrue. That in the absence of any fraud or collusion as alleged by the Plaintiffs, the Consent is binding on the Plaintiffs and the Bank and that an advocate has ostensible authority to settle a claim and that the Bank contends that the Plaintiffs’ remedy, if any, is an action against their former advocate

20. The Bank states that a consent order has contractual effect and it is not open to the Plaintiffs to give effect to some aspects of the Consent such as getting 19 housing units at below market prices but reject others. The Bank accuses the Plaintiffs of having a history of trying to reopen matters without proper basis for ulterior purposes and that the application is an abuse of the court process for a number of reasons.

21. That the application is a thinly veiled attempt to re-litigate matters that were raised by the Plaintiffs in this suit and HCCC No 30 of 2020 and second, that it is an afterthought which has been filed for the sole purpose of defeating the Bank’s contempt application dated May 26, 2022 that is still pending in court.

22. The Bank further states that the Plaintiffs have not met the test for the grant of a temporary injunction for the reasons that the Plaintiffs do not have a prima facie case against the Bank as all the Plaintiffs’ claims against the Bank were settled by the Consent, there is no prayer for a permanent injunction in the present case, and indeed the Plaintiffs have no cause of action as judgement has been entered. The Bank states that a temporary injunction cannot issue where the Plaintiffs have not sought a permanent injunction in the plaint and it relies on the decision in Morris and Co Ltd v Kenya Commercial Bank Ltd and others [2003] 2 EA 605 and that the Plaintiffs have not tendered any evidence to support their allegation that the Bank is taking steps to sell the Plaintiffs’ property. That this allegation is wholly unsupported and cannot form the basis for an injunction.

23. The Bank supports the Defendants’ averment that by the consent dated November 1, 2021, the Plaintiffs and the Defendants agreed to settle this case between themselves on the terms set out in that consent and that the case had been settled as against the Defendants by the time the Plaintiffs entered the Consent with the Bank.

24. The Bank denies that the Consent was adopted without the consent or knowledge of the Plaintiffs or that it was adopted in the absence of the consensus of all the parties to the suit as alleged by the Plaintiffs and avers that their advocates, Musyoka Wambua & Katiku, engaged the Bank’s advocates in order to give effect to the Consent. The Bank denies that there was collusion between the Plaintiffs’ former advocates and the Bank’s advocates as the Plaintiffs were always aware of the existence and the terms of the Consent and were copied in correspondence where the advocates were working towards giving effect to the Consent.

25. The Bank depones that the Plaintiffs were performing parts of the Consent as they paid the deposit for the purchase of the housing units stated in the Consent and have continued to make payment towards the purchase price of these units. Further, that they have executed a Notice of Withdrawal of Appeal in Civil Appeal No E282 of 2021 as required by the Consent.

26. The Bank also denies that the Consent was adopted without fundamental disclosure of material facts as alleged and that the facts set out in the Plaintiffs’ deposition were raised by the Plaintiffs in HCCC No 30 of 2020 which was struck out for being res judicata and an abuse of the court process.

27. For the above reasons, the Bank urges the court to dismiss the Plaintiffs’ application.

Analysis and determination 28. I have gone through the parties’ pleadings and submissions. The primary issue for the court’s determination is whether the Consent of December 21, 2021 ought to be set aside and consequently, whether the Plaintiffs are entitled to the injunction and the other reliefs sought.

29. The parties are in agreement that the principles of setting aside a consent order are well established in this jurisdiction and they have cited various decisions in support of the same. In Brooke Bond Liebig v Mallya[1975] EA 266 Mustafa Ag. VP expressed the following principal as follows:The compromise agreement was made an order of the court and was thus a consent judgment. It is well settled that a consent judgment can be set aside only in certain circumstances, e.g on grounds of fraud or collusion, that there was no consensus between the parties, public policy or for such reasons as would enable a court to set aside or rescind a contract. In this case the parties and their advocates consented to the compromise in very clear terms; they were certainly aware of all the material facts and there could not have been any mistake or misunderstanding. None of the factors which could give rise to the setting aside of a consent agreement existed.

30. In Flora N. Wasike v Destimo Wamboko[1988] eKLR Hancox JA cited Setton on Judgments and orders (7th edition) vol 1 page 124, and reiterated that;Any order made in the presence and with the consent of counsel is binding on all parties to the proceedings or action, and those claiming under them… and cannot be varied or discharged unless obtained by fraud or collusion or by an agreement contrary to the policy of the court…; or if the consent was given without sufficient material facts, or in general for a reason which would enable a court set aside an agreement.

31. Lastly and as regards the authority of counsel on record to enter into a consent in court, Harris J., in Kenya Commercial Bank Ltd v Specialised Engineering Co. Ltd[1982] KLR 485 observed as follows:A consent order entered into by counsel is binding on all parties to the proceedings and cannot be set aside or varied unless it is proved that it was obtained by fraud or collusion or by an agreement contrary to the policy of the court or where the consent was given without sufficient material facts or in misapprehension or ignorance of such facts in general for a reason which would enable the court to set aside an agreement.A duly instructed advocate has an implied general authority to compromise and settle the action and the client cannot avail himself of any limitation by him of the implied authority to his advocate unless such limitation was brought to the notice of the other side.

32. The Plaintiffs averred that the Consent was entered into by their previous advocates without instructions, consensus and knowledge of the Plaintiffs and that the same was executed in collusion with the Bank’s advocates and without fundamental disclosure of material facts to the court. Further, that the Consent was entered into by mistake as all issues pertaining to the development on the suit property had not been first resolved.

33. The Defendants and the Bank have denied the Plaintiffs’ allegations. They have shown the court a previous consent dated November 21, 2021 which settled the case between the Plaintiffs and the Defendants. In that consent between the Plaintiffs and the Defendants, it was agreed that certain properties would be released by the Defendants to the Plaintiffs and that the Plaintiffs would be at liberty to negotiate settlement with the Bank. They would also execute any and all necessary documents to give effect to the consent. Further, the Plaintiffs agreed to withdraw all claims against the Defendants and undertook not to file any further claims. The Bank has stated that the Plaintiffs’ previous advocates actively participated in facilitating the Consent and that the Plaintiffs have been fulfilling part of the said Consent.

34. I have gone through the thread of correspondence exhibited by the Bank. The conversation leading to the Consent are detailed and the back and forth questions and answers leave no doubt that the Consent was freely negotiated and the Plaintiffs’ advocate had full instructions. The tenor of the advocates’ correspondence was centered on how to implement and comply with various clauses of the Consent. Finally, there is nothing in the Plaintiffs’ advocates letter to demonstrate that they did not have instructions to enter into the Consent or stop its implementation.

35. The Plaintiffs bear the burden to demonstrate that the Consent was obtained by fraud, collusion, misrepresentation or any other grounds that would entitle the court to set it aside. In this case, I find that the Plaintiffs’ letter to its current advocates dated July 27, 2022 disowning the Consent is an afterthought that was made after filing of this application and is against the weight of their instructions to their previous advocates who had been undertaking steps to implement the Consent. As I have previously stated, the Consent is detailed and I find it hard to believe that the Plaintiffs’ previous advocates could have colluded with the Bank’s advocates to craft such an elaborate and detailed Consent without the involvement or instructions of the Plaintiffs. As Musinga J., (as he was then) held in Republic v District Land Registrar Nandi and Another Exparte Tegenei (2005) eKLR:It is not easy to prove that there was fraud or collusion in recording of any consent orders between advocates in the absence of their instructing clients but where such orders completely negate the interests of the instructing client and it is shown to the satisfaction of the court that the client was not even aware of the application that gave rise to the consent orders, leave alone to the recording of the orders, in the absence of any satisfactory explanation by the counsel who is accused of entering into the consent orders in question, a court of law would be entitled to conclude that there was fraud or collusion involved and will not uphold the consent orders issued.

36. The Plaintiffs have not demonstrated any collusion or fraud on the part of its advocates and that of the Bank in recording the Consent. As I have stated, the correspondence indicates that the Plaintiffs’ advocates had express instructions to enter into the Consent and had instructions to implement its terms, which the Plaintiffs had knowledge of and have been actively participating in.

37. Turning to the allegation of fraud and illegalities raised by the Plaintiffs’ in their depositions, I agree with the Defendants and the Bank that the same are not new. The issues were raised by the Plaintiffs’ in HCCC No 30 of 2020 and by a ruling dated November 30, 2022 the court held that these claims were res judicata. The Plaintiffs lodged an appeal against that decision; Nairobi CA Civil Appeal No E282 of 2021 but withdrew it by the Notice of Withdrawal filed through the firm of Gatheru Gathemia and Company Advocates and approved by the Plaintiffs affixing their signatures on the notice. The withdrawal was part of the process of implementing the Consent. There is no suggestion that the firm of Gatheru Gathemia and Company Advocates did not have instructions. Apart from withdrawing the appeal, the Plaintiffs, as part of the implementation process of the Consent, signed letters of offer for the purchase of 18 units

38. All in all, I find that the plaintiffs’ previous advocates had the requisite, apparent and ostensible authority to enter into the consent and bind the plaintiffs and that there was nothing to alert the defendants of any lack of instructions hence the consent is binding. further, the plaintiffs’ have taken steps to implement the consent without protest and i find that the plaintiffs have not established the grounds for setting aside the consent and the consequent order.

39. Having found that the Consent is binding upon the Plaintiffs, it follows that the suit between the Plaintiff and the Bank has been compromised and settled and there is nothing left to be determined between them. The Defendants and the Bank had alerted the court to the previous consent dated November 1, 2021. Even though the Plaintiffs claim that this consent is a surprise to them and that they are unaware of it, the same has since been adopted as an order of the court and has not been set aside. Under that consent, the suit between the Plaintiffs and the 1st, 2nd and 3rd Defendants has since been settled meaning that there is also nothing pending between the Plaintiffs and the 1st, 2nd and 3rd Defendants.

40. Prayers 5, 6, 7 and 8 of the application are predicated on the reinstatement and existence of the suit. Having reached the conclusion that the Consent is valid, no order of injunction as prayed by the Plaintiffs can be issued against the Defendants (see Daniel Kirui v Geoffrey Njuguna Kimani NKR HCCC No 26 of 2002 [2016] eKLR). The only orders the court can now issue are to implement the Consent.

Disposition 41. The Plaintiffs’ application dated 7th July 2022 lacks merit. It is dismissed with costs to the 4th Defendant.

DATED AND DELIVERED AT NAIROBI THIS 18TH DAY OF OCTOBER 2022. D. S. MAJANJAJUDGECourt of Assistant: Mr M. OnyangoMs Beacco instructed by Wanyonyi and Muhia Advocates for the Plaintiffs.Mr Kimani, SC with him Mr Ondieki instructed by Hamilton Harrison and Mathews Advocates for the 4th Defendant.