[2017] KEHC 653 (KLR)

REPUBLIC OF KENYA

IN THE HIGH COURT OF KENYA

AT MOMBASA

CIVIL SUIT NO. 32 OF 2015 (O.S)

POLPANE PROPERTIES LTD.............................................PLAINTIFF

VERSUS

JASPER OMONDI

MOSES WAWERU

DALMUS OMONDI all T/A

OMONDI WAWERU & COMPANY ADVOCATES.......DEFENDANT

J U D G M E N T

1. By an originating summons dated the 27/2/2015 and filed in court on the 4/3/2015, the plaintiff has sued the defendant and sought the following reliefs:

i) An order directing the Defendants to forthwith refund to the Plaintiff Kenya Shillings 9,379,770/= paid to them as deposit for the purchase of parcels of Land known as KWALE/GALU KINONDO 17,KWALE/GALU KINONDO 18 AND KWALE/GALU KINONDO 19 together with interest thereon at their bankers rates from 20/1/2010 till payment in full, in default execution to issue.

ii) An order directing the Defendant, to pay interest thereon from the date of commencement of these proceedings till payment in full at court rates, in default execution to issue.

iii) An order directing the Defendant, to settle costs of these proceedings, which costs are to be agreed on or taxed within 90 days of the determination of these proceedings.

2. The originating summons is grounded on the briefs facts that sometimes in January 2010, the defendants firm was instructed bytwo parties transacting a sale of land pursuant to which transaction the sum of Kshs.9,379,700/= was deposited with the defendants’ firm as deposit of purchase price to be held by the firm as stakeholders and be invested in an interest bearing account in trust for the parties to the agreement with a covenant in the agreement to the effect that the interest earned would be shared between the parties.

3. It would appear that the agreement did not fall through hence on 11/10/2011 the parties entered into a Novation And a Variation agreement which extinguished the rights of the parties in the sale agreement dated 20/1/2010 and a nominee, the plaintiff, appointed to takeover and assume all the rights and obligations of the purchaser under the sale agreement. The novation and variation agreement obligated the vendor to procure the removal of the caveats registered against the titles within 90 days and procure the withdrawal of all court cases and in default the defendant would refund the deposit to the plaintiff together with all interests earned and the agreement would stand terminated. In February 2012, the plaintiff and the vendor separately demanded the refund of the deposit to the plaintiff without success hence the suit.

4. The affidavit of Boniface Owiti Anyango filed in support of the Summons then reiterates the grounds in the summons and then exhibits the agreement for sale, the novation and variation agreement as well as the correspondence exchanged on the claim basically notifying the defendants that the parties had agreed to terminate the agreement of sale and novation and variation agreement and that the deposit paid be refunded to the plaintiff.

5. After the Defendant filed its replying affidavit, the plaintiff did file a supplementary affidavit sworn by SIMON KABACHIA GICHINI whose purpose was to answer to the Replying affidavit by MOSES WAWERU and in particular to deny the assertion that the deposit was forfeited. It was then asserted that the defendants duty as stakeholder was to refund the deposit to the purchaser in the event of termination or transmit it to the vendors on completion but never to retain the funds for their use. That affidavit exhibited further correspondence after the demand had been made to show that the defendant had a duty to effect a refund.

6. The Defendant resisted the summons by the Replying Affidavits of MOSES WAWERU, the managing partner of the defendant and one LEONARD WILLIAM KUNGU the vendor. The deponents do not contest the payment of the suit sum and confirms that it was paid to them as stakeholders. However, the depondent contend that having been shown a draft novation and variation agreement, the plaintiff had the same executed by the parties behind the defendants back and never gave a copy thereof to the defendants.

7. On the alleged breach, it is asserted that by a letter dated November 2011, the vendor notified the plaintiff of his agreement with the caveators and requested to be advanced Kshs.17,500,000/= to settle their claims. The advocate then points out the fact that the caveats were removed and suits withdrawn in October and September 2011 in satisfaction of Clause 7. 1 of the novation and variation agreement but faults the plaintiff and its advocates for engaging the vendor directly and behind the advocate’s back contrary to the rules of ethics.

8. As a consequence of what the defendant deems breach of the agreements they issued letter of 8/4/2013 informing the plaintiffs advocates that the deposit had been forfeited. The advocate then exhibits an affidavit by the vendor in which the vendor contends that he procured the removal of caveats and withdrawal of suits and requested the purchaser to pay to the advocates for the caveators the sum of Kshs.17. 5 million but the plaintiff refused thus compelling him to look for funds to effect payment. The vendor then says that thereafter the plaintiff advocates informed the defendants that the plaintiff did not intend to proceed with the sale and demanded the refund but he was advised that the deposit had been forfeited.

9. After the affidavits were filed and exchanged, the court with the consent of the parties, gave directions that the originating summons be heard by way of the affidavits on record and oral submissions with liberty to the parties to file lists and copies of authorities. It was then subsequently further directed, with the further consent of the parties, that the parties would try out of court settlement and in default the matter would be heard and determined by the court on a single issue ‘whether or not the plaintiff is entitle to a refund’.

10. No settlement was reached hence the parties attend court on26/7/2017 to offer the agreed oral submissions. As at that date only the plaintiff had filed a list of authorities listing some 2 decisions.

Submissions by the parties

11. a.) The Plaintiff

In very brief oral submissions Mr. Mwanyale, for the plaintiff set out the history of the dispute and referred the court to the correspondence including a letter by the vendor dated 6/2/2012 in which he did confirm to the defendants that the two contracting parties had agreed, amicably, that the agreements be terminated and that the defendant should reciprocate the good gesture and effect the refund of the deposit held by then as stakehold.

12. The counsel then relied on the decision in Highbeam Ltd vs Meriara Wilberforce Nyamboga t/a Mariara & Co. Advocates for the pronouncement that an advocate is professionally duty bound to ensure that the money deposited as stakehold is not released until all the necessary conditions contemplated under the sale agreement are fullfilled. The decision in Osoro Mogikoyo t/a Osoro Mogikoyo & Co. Advocate was also cited for the same proposition.

13. The counsel therefore prayed that Judgment be entered for the plaintiff as prayed with interest which he left to the discretion of thecourt.

14. b.) The Defendant

For the defendant, Mr. Oduor Advocate submitted that the novation and variation agreement did not totally invalidate the agreement for sale and that Clause 15 of the Sale Agreement provided for forefeiture. He pointed out that the affidavit by the vendor confirmed that the deposit had forefeited even though nothing was said about the letters the same vendor had written to say and urge that the deposit be refunded. Mr. Oduor made a further honest and candid concession that both affidavit of Mr. Waweru and the vendor are silent on whether there had been any payment to Mr. Kungu, the vendor, but pointed out the non-existence of a dispute between the vendor and the defendants. For those reasons he prayed that the suit be dismissed.

Issues, Analysis and determination

15. After attempts at settlement, with the encouragement for the court failed, it was agreed that the only question for determination is ‘whether or not the plaintiff is entitled to a refund’ of the sum paid to the defendant to hold as stakeholders for the sale of a disclosed property. The court need not go beyond that agreement same that under section 27 of the Civil Procedure Act, it is bound to make a Consequential Order on costs.

16. Whether or not the plaintiff is entitled to a refund is the flip side of the question whether there had been a breach by the plaintiff that entitled the vendor to insist on forfeitures. To get to the answer to that question one needs to look at the agreements between the parties and the correspondence exchange with regard to the agreements.

17. The agreement of sale as novated and varied by the subsequent novation and variation agreement are clear on the rights and obligations between the parties. For avoidance of doubt, the novation and variation agreement did not render the Agreement for sale ottios rather it simply amended or altered it to the extent that it extended the completion date and supplanted the rights and obligation of the original purchaser on his nominees. Clause 15 of the Agreement for Sale and Clause 5. 2 of the Novation and Variation Agreement hold the key to resolving the dispute in this matter. Those clause read:-

Clause 15: If the sale shall not be completed on theCompletion Date due to the fault of the Purchaser then the Vendor shall serve notice in writing upon the Purchaser to make payment within Twenty-One (21) days from the date upon which such notice is served on the Purchaser. If the Purchaser shall fail to make the payment before the expiry of the said notice then the Vendor may at his option either extend the Completion date subject to the payment of ten per centum (10%) per annum on the Balance until completion or rescind the Agreement. In the event of recission by the Purchaser and provided that the Vendor shall then be ready and able to complete, then the Purchaser shall forfeit absolutely and the Vendor shall retain the Deposit being the agreed liquidated damages for the Purchaser’s breach of contract. In such eventuality the Purchaser’s Advocates shall thenceforth return all such documents related to the Property to the Vendor.

Clause 5. 3: Subject to the Vendor’s compliance with the provisions of clause 10 of the Agreement for Sale andsubject to receipt of the Balance from the Nominee in cleared funds by the Nominee’s Advocates, the Nominee’s Advocates shall issue a professional undertaking to the Vendor’s Advocates to pay the Balance to the Vendor and/or the Vendor’s Advocates within ten (10) days from the date of successful registration of the transfers in respect of the Properties in favour of the Nominee.

18. What is undeniable from the two agreements was that payment of the balance of purchase price would became due within 10 days ofsuccessful registration of transfer in favour of the Nominee. If there was to be a breach prior to transfer then the terms of the agreement of sale at Clause 15 obligated the vendors advocate to serve a Notice on the plaintiff and demand payment within 21 days and only upon of failure to comply with such demand would the vendor exercise the discretion to rescind and be entitled to forfeiture. In the entire corpus of the material filed, there is no evidence of breach nor service of the contractual demand.

19. Infact the first ever intimation of breach is by the defendants letter of 8/4/2013, some more than 14 months, after the plaintiff advocates had made a demand based on mutual agreement between the contracting parties to terminate. In the absence of evidence of breach and without evidence of compliance with the conditions precedent to forfeiture covenanted in the agreements, it is difficult to believe the assertion by the defendant that the plaintiff was in breach and therefore forfeited the deposit. Failure to pay 17,500,000/=requested by the vendor before the transfer could not be a basis to allege or ground breach because this payment had not become due.

20. In addition there is a long letter by the vendor, dated 6/2/2012 which directed the defendants to refund the funds. The pertinent portionof that letter by the vendor says:-

“In view of the fact that the two parties have agreed to terminate the sale transaction amicably, I am of theopinion that we should reciprocate the good gesture and once again request that you initiate the process of refunding the deposit unconditionally. (please see the last paragraph of my letter of 19th December 2011) requesting that you initiate the process of terminating the sale amicably. (Emphasis provided)

Despite the fact that there was a breach in the agreement and as a result I incurred a lot of loses, we conceded to an amicable and unconditional withdrawal.

Kindly and urgently do the necessary and keep me posted appropriately”.

21. It would present a different scenario if the content of that letterwere to be denied or challenged by either the defendant or thevendor. However it is clear that in the two affidavit filed both opted not to address it even though it was filed with the originating summons and founded the plaintiff’s claim for refund of the deposit.

22. All the above findings boil down to the fact that no breach has been exhibited as against the plaintiff to subject it to forfeiture and thecourt now finds that there was never forfeiture without breach and that the defendant as advocates holding deposit of purchase price as a stakeholders, is bound, in law, to effect a refund to the plaintiff. It is directed that the plaintiff is entitled to refund for which reason the court enters judgment for the plaintiff against the defendant for the sum of Kshs.9,379,770/= together with interests at 14% p.a. from the date of deposit fill payment in full.

23. The plaintiff also gets the costs of the suit to be paid by the defendant.

Dated and delivered at Mombasa this 6th day of December 2017.

P.J.O. OTIENO

JUDGE