[2022] KEHC 16660 (KLR)

Mae Properties Limited v Waithuki & 3 others (Civil Case 496 of 2006) [2022] KEHC 16660 (KLR) (Commercial and Tax) (8 December 2022) (Judgment)

Neutral citation: [2022] KEHC 16660 (KLR)

Republic of Kenya

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

Commercial and Tax

Civil Case 496 of 2006

WA Okwany, J

December 8, 2022

Between

Mae Properties Limited

Plaintiff

and

Dominic Kamau Waithuki

1st Defendant

Positive Investments Limited

2nd Defendant

Alikam Enterprises Limited

3rd Defendant

Second Edition Limited

4th Defendant

Judgment

1. The plaintiff sued the defendants through the plaint dated 5th September 2006 and amended on 5th November 2017 seeking the following orders:-1. Kenya Shillings Thirty Five Million One Hundred and Seventy Five Thousands and Thirty Shillings and Fourteen Cents ( Kshs 35,175,030. 14) as damages for loss of use.2. An account of the profit made by the defendants arising from the sale of each of the following on-sold Runda plots, Land Reference Numbers 7785/253, 7785/830, 7785/848, 7785/888, 7785/907, 7785/920, 7785/1010, 7785/1012, 7785/1013, 7785/1015, 7785/1016, 7785/1020, 7785/1021, 7785/1022, 7785/1058, 7785/1076, 7785/1012, 7785/1117, 7785/11125, 7785/1133, and 7785/1134 showing:-a.All sales by the defendants to third parties of the Runda Properties.b.The proceeds of such sales and3. An order for payment by the defendants to the plaintiff of all sums found to be due from the defendant to the plaintiff upon the taking of the account under paragraph (2) above .4. General damages.5. Punitive and or aggravated damages.6. Cost of this suit and7. Interest on (1), (3) and (4) at such rate as the court thinks fit in the circumstances from the date of filing suit until payment in full.

2. A summary of the plaintiff’s case is that it was at all material times the owner of various parcels of land in Runda which it developed into what are known as serviced vacant plots. The first defendant is also a shareholder and director in the other defendants. It is the plaintiff’s case that the first defendant used the other defendants as purchase vehicles to conceal his involvement in the transactions in question.

3. The plaintiff states that the defendants bought 22 plots from the plaintiff at prices substantially below the market value and then on-sold those plots to third parties. It is allege that, as a result, the first defendant, through the other defendants, the 1st defendants made secret profits from the transactions to the plaintiff’s detriment. The plaintiff’s case is that the 1st defendant breached his duties to the plaintiff thus occasioning it in loss and damage.

4. The plaintiff therefore claims the secret profit that the defendants made from the 1st defendant’s breach of duty. The amount claimed is calculated as the price difference between the price the purchase vehicles paid for the plots and their market value as determined by the plaintiff’s expert witness below.

5. The plaintiff states that as its employee, the 1st defendant owed to it inter alia the following duties:-1. To act bona fide in the interests of the plaintiff and2. To act for the proper purposes of the plaintiff in relation to its affairs.

6. It is alleged that the 1st defendant, while being an employee of the plaintiff, procured the Agreement by each of the purchase vehicles in writing to purchase from the plaintiff at prices materially below market value, the following plots forming part of the Runda Properties (hereinafter called “ the purchased Runda plots”) as follows:-

7. Particulars of purchased Runda plotsL.R. NO. Purchaser Agreement date Purchase price Market value at Lloyd Masika

7785/217 Alikam Enterprises Limited September 1994 Kshs 1,000,000. 00 Kshs 3,500,000. 00

7785/253 Alikam Enterprises Limited Kshs 1,300,000. 00

7785/830 Alikam Enterprises Limited 12-9-95 Kshs 850,000. 00 Kshs 1,950,000. 00

7785/848 Positive Investments Limited 04-9-00 Kshs 1,200,000. 00 Kshs 2,250,000. 00

7785/888 Alikam EnterprisesLimited 24-2-95 Kshs 1,300,000. 00 Kshs 2,150,000. 00

7785/907 Alikam EnterprisesLimited 24-2-95 Kshs 1,800,000. 00 Kshs 1,500,000. 00

7785/917 Mr & Mrs Danson Mburu 17/10/95 Kshs 2,200,000. 00 Kshs 1,500,000. 00

7785/920 Alikam EnterprisesLimited 28-10-95 Kshs 1,800,000. 00 Kshs 1,750,000. 00

7785/1010 Positive Investments Limited 10/10/98 Kshs 1,200,000. 00 Kshs 2,250,000. 00

7785/1012 Positive Investments Limited 29/10/97 Kshs 1,200,000. 00 Kshs 2,250,000. 00

7785/1013 Alikam EnterprisesLimited 4/7/96 Kshs 1,200,000. 00 Kshs 1,800,000. 00

7785/1015 Alikam EnterprisesLimited 10-10-96 Kshs 1,200,000. 00 Kshs 1,800,000. 00

7785/1016 Positive Investments Limited 4/1/97 Kshs 1,200,000. 00 Kshs 2, 500,000. 00

7785/1020 Second Edition Limited 4/1/98 Kshs 1,200,000. 00 Kshs 2, 500,000. 00

7785/1021 Alikam EnterprisesLimited 13/2/98 Kshs 1,200,000. 00 Kshs 1,800,000. 00

7785/1022 Alikam EnterprisesLimited 21/7/98 Kshs 1,200,000. 00 Kshs 2,500,000. 00

7785/1058 Second Edition Limited 27/1/99 Kshs 1,500,000. 00 Kshs 2, 500,000. 00

7785/1076 Second Edition Limited 29/1/99 Kshs 1,500,000. 00 Kshs 2, 500,000. 00

7785/1112 Positive Investments Limited Kshs 1,200,000. 00 Kshs 2, 500,000. 00

7785/1117 Alikam EnterprisesLimited 26/6/99 Kshs 1,500,000. 00 Kshs 2,500,000. 00

7785/1125 Positive Investments Limited 23/6/99 Kshs 1,500,000. 00 Kshs 2, 500,000. 00

7785/1133 Second Edition Limited 23/7/98 Kshs 1,500,000. 00 Kshs 2, 500,000. 00

7785/1134 Second Edition Limited 23/7/98 Kshs 1,500,000. 00 Kshs 2, 500,000. 00 And in each case upon deferred payments terms.

8. It is further alleged that the 1st defendant, through the Purchase Vehicles, subsequently agreed to sell and transfer to third parties the following Purchased Runda Plots (hereinafter called “ the On-Sold Runda Properties “) as follows.Best particulars available at time of filing suit of On-Sold Runda propertiesL.R. NO. Agreement date Purchaser Sale price Kshs

7785/253 29/7/96 Vipul S. Bhatt Kshs 3,000,000. 00

7785/830 Unknown to plaintiff Sukani Holdings Ltd Unknown to plaintiff

7785/848 Unknown to plaintiff Elizabeth Gathoni Muchai Unknown to plaintiff

7785/888 Unknown to plaintiff Mr & Mrs Alfonse Mwangi Gitonga Unknown to plaintiff

7785/907 Unknown to plaintiff Mr and Ms Lazar Unknown to plaintiff

7785/920 Unknown to plaintiff Richard M. Kibathi Unknown to plaintiff

7785/1010 Unknown to plaintiff Joe Kibe Unknown to plaintiff

7785/1012 Unknown to plaintiff Mr & Mrs Stephan W. Njuguna Unknown to plaintiff

7785/1013 Unknown to plaintiff Mr & Mrs Lawrence Mwaura Unknown to plaintiff

7785/1015 Unknown to plaintiff Memba Muriuki Unknown to plaintiff

7785/1016 Unknown to plaintiff Habil O . Owuor Unknown to plaintiff

7785/1020 Unknown to plaintiff Mr & Mrs Patrick M. Mwai Unknown to plaintiff

7785/1021 Unknown to plaintiff Argwings Kodhek Otieno Unknown to plaintiff

7785/1022 Unknown to plaintiff Sera N. Waruiru Unknown to plaintiff

7785/1058 Unknown to plaintiff Mr & Mrs Daniel Ohonde Omondi Unknown to plaintiff

7785/1076 Unknown to plaintiff Evans K. Wanderi Unknown to plaintiff

7785/1112 Unknown to plaintiff Mr & Mrs Sospeter Waga Unknown to plaintiff

7785/1117 Unknown to plaintiff Mr & Mrs David Ananda Odera Unknown to plaintiff

7785/1125 Unknown to plaintiff Florence W. Kabare Unknown to plaintiff

7785/1133 Unknown to plaintiff Mr & Mrs Francis Gitau Unknown to plaintiff

7785/1134 Unknown to plaintiff Mr & Mrs Philomon Achieng Unknown to plaintiff

9. Without prejudice to the foregoing and in the alternative, the plaintiff states that in the whole service of sub-division and sale of its Runda Properties it was understood that the 1st defendant would act in the best market prices and that the market value would be duly paid to the plaintiff

10. The plaintiff contends that the 1st defendant owed it a duty of care both contractually and at common law, to take reasonable care in the arrangement of the sales to ensure that the purchasers duly paid market value process and that the sales price were duly passed to the plaintiff.

11. The plaintiff listed the particulars of the breach of duty by the 1st defendant as follows:-a.Purported to assent to have his purchase vehicles assign their allotted/purchased plots to third parties.b.Though/ and/or with the purchase vehicles pocketed the difference between the declared purchase price and true market value of the plots.c.Aware that the plots were worth far more than the declared purchase price, nonetheless presented transfers for the execution by the plaintiff while the defendants received and pocketed the differences from the true market value.

12. The plaintiff stated that it relied upon the advice of the 1st defendant and in belief that it was true thereby contracts of sale and transfer of the various plots. It states that the 1st defendant had revealed the true facts and that in fact and in truth he was not dealing at arm’s length with the plaintiff, the plaintiff would not have entered into the sales/transfers from the aforesaid plots.

13. It is alleged that as a result of the negligence of the 1st defendant and the 1st defendant’s breached of his contractual duties and obligations and the plaintiff has suffered loss and damage.Particulars of breached of contractual duties.a.Failed to perform his duties in good faith.b.Failed to exercise his duties in the plaintiff’s best interests.c.Failed to disclose his interests in the purchase vehicles to the Directors and shareholders of the plaintiff andd.Failed to disclose the true market value of the plots, which was paid to the purchase price.

14. The plaintiff averred that by reason of the matters hereinbefore set out, the 1st defendant acted:-1. Mala fide and against the interests of the plaintiff and/or2. For improper purposes in relation to the affairs of the plaintiff and/or3. In breach of trust and/or in breach of his obligations as an employee in respect of the assets of the plaintiff.Particulars.The 1st defendant, and/or/through the purchased vehicles, entered into contracts with the plaintiff to acquire the purchased Runda plots from the plaintiff, at prices, which were to his knowledge, materially below prevailing market prices, and otherwise than at arm’s length and on normal commercia terms

15. It was the plaintiff’s case that by reason of the matters hereinbefore set out, It has suffered loss and damage which it particularized as follows:-The difference between the fair market value for each purchased Runda property and the price at which the same was agreed to be purchased by the defendant as set out below.

16. Particulars of damageL.R. Price agreed to be paid by defendant Market price (Llord Masika ) Damages

7785/217 Kshs 1,000,000. 00 Kshs 3,500,000. 00 Kshs 2,500,000. 00

7785/830 Kshs 800,000. 00 Kshs 1, 950,000. 00 Kshs 1,100,000. 00

7785/848 Kshs 1,200,000. 00 Kshs 2,250,000. 00 Kshs 1,050,000. 00

7785/888 Kshs 1,300,000. 00 Kshs 2,150,000. 00 Kshs 850,000. 00

7785/1010 Kshs 1,200,000. 00 Kshs 2,500,000. 00 Kshs 1,300,000. 00

7785/1012 Kshs 1,200,000. 00 Kshs 2,500,000. 00 Kshs 1,300,000. 00

7785/1013 Kshs 1,200,000. 00 Kshs 1,800,000. 00 Kshs 300,000. 00

7785/1015 Kshs 1,200,000. 00 Kshs 1,800,000. 00 Kshs 300,000. 00

7785/1016 Kshs 1,200,000. 00 Kshs 2,500,000. 00 Kshs 1,300,000. 00

7785/1020 Kshs 1,200,000. 00 Kshs 2,500,000. 00 Kshs 1,300,000. 00

7785/1021 Kshs 1,200,000. 00 Kshs 2,500,000. 00 Kshs 1,300,000. 00

7785/1022 Kshs 1,200,000. 00 Kshs 2,500,000. 00 Kshs 1,300,000. 00

7785/1058 Kshs 1,200,000. 00 Kshs 2,500,000. 00 Kshs 1,000,000. 00

7785/1076 Kshs 1,500,000. 00 Kshs 2,500,000. 00 Kshs 1,000,000. 00

7785/1112 Kshs 1,200,000. 00 Kshs Kshs

7785/1117 Kshs 1,500,000. 00 Kshs 2,500,000. 00 Kshs 1,000,000. 00

7785/1125 Kshs 1,500,000. 00 Kshs 2,500,000. 00 Kshs 1,000,000. 00

7785/1133 Kshs 1,500,000. 00 Kshs 2,500,000. 00 Kshs 1,000,000. 00

7785/1134 Kshs 1,500,000. 00 Kshs 2,500,000. 00 Kshs 1,000,000. 00

17. At the hearing of the case, the plaintiff presented the testimonies of 2 witnesses as follows:-

18. PW1 Mrs Bernadette Gitari, an expert witness (valuer) testified that she had 35 years’ experience in land valuation. She valued the properties that are the subject of this suit and confirmed that their market value is as stated in the plaint. She identified her valuation report in the plaintiff’s bundle of documents.

19. PW2 Mrs Gladys Muema, produced the plaintiff’s bundle of documents as P exhibit 1.

20. The defendants filed a joint statement of defence dated 23rd November 2006 wherein they admit the descriptive paragraphs of the plaint and further concede that the 1st defendant was a Director of the 2nd, 3rd and 4th defendants. They also admit that the 1st defendant was employed by the plaintiff as a Manager whose duties were spelt out in the letter of appointment.

21. They state that the 1st defendant’s said duties did not preclude him from engaging in any other business and further, that the 1st defendant was never in a position of a Director or General Manager of the plaintiff such that he could determine the purchase price of the subject properties.

22. It is the defendants’ case that in all intances, the plaintiff was ably represented by its Board of Directors and General Managers and that the plaintiff acted freely on its own volition in the transactions that are the subject of this suit.

23. The defendant listed the particulars of the plaintiff’s free actions as follows:-a.By Board papers entitled particulars number two and four the plaintiff Board decided to sell certain plots to its members of staff.b.By a letter dated 2nd July 1993, the plaintiff sought advise from their lawyers on the intended sale of plots and properties to its staff aforesaid.c.By a letter dated 7th July 1993, the plaintiff was advised on how to proceed with the said sales by its lawyers aforesaid.

24. The defendants state that the plaintiff cannot claim that the 1st defendant unduly influenced any sales, transactions and/or made any misrepresentations as alleged or at all.

25. The 1st defendant denies the allegation that he influenced either the plaintiff or the rest of the defendants as alleged or at all as the said defendant are independent legal corporate bodies responsible for their own acts or omissions.

26. It is the 1st defendant’s case that the sale of the subject plots were directly under the plaintiff’s Board of Directors and General Manager to the exclusion of all other employees including him.

27. The 2nd, 3rd and 4th defendants deny that any plots that they may have purchased from the plaintiff were undervalued as alleged or that there was any undue influence in their purchase.

28. The defendants state that the plaint is based on conjecture and innuendos that are denied in totality.

29. At the close of the hearing, parties filed their respective written submissions wherein, they reiterated the contents of their pleadings.

30. I have considered the pleadings filed herein, the evidence presented by the plaintiff and the parties submissions.

31. The issues for determination are as follows;-a.Whether the 1st defendant had a duty to the plaintiff to act in its best interest and whether there was breachb.Whether the plaintiff is entitled to Kshs. 35,175,030. 14

Whether the first defendant owed a duty to the plaintiff to Act in its best interest. 32. The plaintiff pleaded that the 1st defendant was its employee and that he owed it a duty of care both contractually and at common law to the plaintiff to take reasonable care of the sales in ensuring that the purchasers paid market value for the properties. It was the plaintiff’s assertions that it relied on the advice of the 1st defendant in executing the contracts for the sale and transfer of various plots. The plaintiff contended that the 1st defendant purchased the properties in the names of the 2nd, 3rd and 4th defendants which the plaintiff refers to as purchase vehicles at a lower sum. It was the plaintiff’s case that the it would not have entered into the said sale and transfer of the properties had the 1st defendant given the right advice. As a result, the plaintiff contended that the 1st defendant breached its contractual duties by failing to perform his duties in good faith and by failing to exercise his duties in the plaintiff’s best interests.

33. The 1st defendants on the other hand argued that he was employed as an assistant coffee estate manager and eventually a manager and that at no time was he a director or general manager of the plaintiff company. He stated that he was therefore not capable of determining the purchase price of the suit plots. With regard to the 2nd,3rd and 4th defendants the 1st defendant stated that they were independent legal corporate bodies which could act independently of the 1st defendant.

34. I have perused the letter of appointment dated 17th April 1989 addressed to the 1st defendant which laid out the duties of the 1st defendant. According to the said appointment letter, the 1st defendant was tasked with dealing with matters relating to coffee and water. I note that on 5th July 1993, the plaintiff promoted the 1st defendant to the position of Coffee Estate Manager but his duties duties did not change. While the plaintiff contended that it relied on the advice given by the 1st defendant, there was no documentation to show that the 1st defendant had the capacity to offer such advice. It is trite that business of the company is managed by the directors

35. In the case of Peter O. Ngoget/aO. P. Ngoge & Associates vs. Ammu Investment Company Limited [2012] eKLR the Court expressed itself as follows:-“The general law, however, is that a corporation is an artificial legal entity. Accordingly it must of necessity act through agents, usually the Board of Directors. In other words the corporation’s brain is the Board of Directors who make decisions on behalf of the company. A company may in many ways be likened to a human body; it also has hands which hold the tools and act in accordance with the directions from the centre. Some of the people in the company are mere servants and agents who are nothing more than hands to do the work and cannot be said to represent the mind or will. Others are directors and managers who represent the directing mind and will of the company, and control what it does. The state of mind of these managers is the state of mind of the company and is treated by law as such. The day to day management of the company may, however, be handled by specific officers tasked to do so on behalf of the Board. However, the ultimate responsibility rests with the directors. It therefore follows that the management of the corporation must be deemed to be carried by or on behalf of the Board save in cases where the ultra vires principle applies.”

36. From the above cited case, it is clear that, the management of the company is done by directors. I find that plaintiff did not assign the 1st defendant duties to manage the plaintiff company. The plaintiff submitted that as its employee, the 1st defendant ought to have acted bonafide in the plaintiff’s interest and that he breached that duty by using the 2nd, 3rd and 4th defendants as purchasers of the suit plots thereby benefiting from the sale. It was the plaintiffs case that the 1st defendant breached his duties of good faith to act in the plaintiff’s best interests.

37. In the case of Michael Oyugi & 181 others v Industrial Plant (EA) Limited (in receivership) & another [2006] eKLR the court cited the words of Sir Gavin Lightman and Gabriel Moss in The law of Receivers and Administrators of Companies (London: Sweet & Maxwell, 2002) (pp.146-147) and stated that:-“Breach of the duty of good faith involves something more than negligence: it requires some dishonesty, or improper motive, some element of bad faith, to be established. Reckless indifference to the rights or interests of others or shutting one's eyes deliberately to the consequences of one's actions may suffice to establish dishonesty or bad faith…..”

38. The question that begs an answer is whether the 1st defendant was dishonest or acted in a manner that would negatively impact on the plaintiff. While I note that the 1st defendant did not dispute the purchase of the plots in question, he stated that the same was done through the 2nd,3rd and 4th defendants who were a distinct corporate body.

39. It was established in salomon vs salomon that a registered company is a legal person separate from its members and thus capable of owning property. The plots in question were held by the 2nd, 3rd and 4th defendants and not personally by the 1st defendant.On whether or not the defendant ought to have disclosed that he had an interest in the 2nd, 3rd and 4th defendants I note that such requirement is not contained the Company’s Memorandum and Articles of Association and neither is it on his terms of service. The plaintiff did not disclose any material to show that the 1st defendant was prohibited from being a director of the said companies.

40. I have considered in totality the evidence presented by the plaintiff, and the allegations levelled against the 1st defendant it is my view that no cause of action has arisen.

41. The board of directors authorized the sale and transfer of land in question. Even assuming that the 1st defendant wrongly advised the plaintiff, it was incumbent upon the plaintiff to conduct due diligence in all the transaction. The onus was on the plaintiff to ensure that the information given was correct by having the land valued by independent experts. I find that there is no evidence of illegality in the transactions with respect to the said plots of land. The parties had the freedom to enter into the contracts. The sale was sanctioned by the board of directors as required by law.

42. In the premises I find that there was no duty that was capable of being breached by the 1st defendant herein. The transactions occurred over a period of time and were open commercial transactions that the 2nd, 3rd and 4th defendants participated in.

43. On the issue of whether the plaintiff is entitled to the sum of Kshs. 35,175,030. 14, I note that having found that the defendant did not breach any duty of good faith to the plaintiff, it then follows that the plaintiff did not suffer any loss or damage capable of being remedied by this court. In the premises, I find that the plaintiff has not made out its case against the defendants. The plaintiffs suit is not merited and is therefore dismissed with costs to the defendants.

DATED, SIGNED AND DELIVERED VIRTUALLY AT NAIROBI THIS 8TH DAY OF DECEMBER 2022. W. A. OKWANYJUDGEIn the presence of: -Mr. Kahura for plaintiff.Mr. Kirui for Waweru for defendantCourt Assistant- Sylvia