Background
1. This appeal arises from the decision of the Chief Magistrate’s Court at Milimani Commercial Courts in CMCC No. 5888 of 2017, delivered on 20th March 2023, concerning the execution of a decree and objection proceedings instituted by the 1st Respondent, Cytonn Investment Partners Twenty LLP. The Appellant, Caroline Kaburu t/a Shericon Agencies, had sought to enforce the decree by attaching goods at the 2nd Respondent's premises.
2. The Appellant obtained a decree in CMCC No. 5888 of 2017 awarding her a sum of KES 1,238,045.15, being the unpaid amount for goods supplied to the 2nd Respondent, Wasini Resorts Limited t/a Wasini Luxury Suites & Hotel. Following the decree, the Appellant instructed auctioneers to attach goods at the 2nd Respondent’s premises on 21st November 2022.
3. The 1st Respondent objected to the attachment by filing an application dated 5th December 2022, asserting that it owned the proclaimed goods, having acquired the 2nd Respondent’s business through a Share Purchase Agreement dated 16th April 2018. The 1st Respondent argued that the goods in question were tools of trade and not liable for attachment.
4. In a ruling delivered on 20th March 2023, the trial court upheld the objection and lifted the attachment, reasoning that the 1st Respondent had demonstrated an equitable interest in the attached goods. The trial court further held that the Appellant had failed to prove that the goods belonged to the 2nd Respondent at the time of the attachment.
5. Dissatisfied with the decision, the Appellant, Caroline Kaburu t/a Shericon Agencies, filed the present appeal citing ten grounds, which have been summarized for brevity as follows:-
i. That the trial court erred in law and in fact in finding that the 1st Respondent had demonstrated a legal or equitable interest in the attached goods.
ii. That the trial court erred in relying on the Share Purchase Agreement dated 16th April 2018 as proof of ownership of the proclaimed goods despite the absence of proof of payment or transfer of ownership.
iii. That the trial court failed to consider that the Appellant was not bound by the terms of the Share Purchase Agreement as she was not a party to it.
iv. That the trial court failed to consider the effect of non-compliance with the provisions of the Transfer of Businesses Act, which required notice of transfer to be issued and published.
v. That the trial court failed to properly evaluate the evidence and submissions presented by the Appellant, thereby arriving at an erroneous decision.
6. This appeal seeks to challenge the trial court's findings on the ownership of the proclaimed goods and the adequacy of the evidence supporting the objection application. It was canvassed through written submissions. The Appellant’s submissions were filed on 18th April 2023, while the 1st Respondent’s submissions were filed on 25th October 2024. The 2nd Respondent did not file submissions or participate in the proceedings.
Appellant’s Submissions
7. The Appellant, Caroline Kaburu t/a Shericon Agencies, submits that the trial court erred in law and fact by upholding the 1st Respondent's objection without sufficient evidence of ownership or legal interest in the attached goods. She argues that the proclaimed goods belonged to the 2nd Respondent and were properly attached in execution of the decree.
8. The Appellant contends that the trial court misapplied Order 22 Rule 51 of the Civil Procedure Rules, which requires an objector to demonstrate legal or equitable interest in the attached property. She asserts that the 1st Respondent failed to provide concrete proof of ownership, such as payment receipts, transfer records, or valid title documents for the goods, and instead relied solely on the Share Purchase Agreement dated 16th April 2018, which is insufficient under the law.
9. The Appellant further argues that the Share Purchase Agreement cannot bind her as she was not a party to it, citing the doctrine of privity of contract. She relies on the case of Savings & Loan (K) Limited v Kanyenje Karangaita Gakombe and Another (2015) eKLR, which establishes that a contract cannot confer rights or impose obligations on third parties who are not privy to it.
10. The Appellant asserts that the trial court failed to consider the provisions of the Transfer of Businesses Act, specifically Section 3(1), which mandates that notice of the transfer of a business must be issued and published to protect third-party creditors. She submits that the 1st Respondent did not comply with this requirement, rendering the claimed transfer of ownership invalid and unenforceable against her.
11. The Appellant faults the trial court for failing to holistically evaluate the evidence, including her affidavit and submissions, which demonstrated that the goods were in the possession and control of the 2nd Respondent at the time of attachment. She further contends that the court did not adequately consider her submissions or analyze the objections raised with the required judicial thoroughness. Consequently, the Appellant prays for the appeal to be allowed, the trial court's ruling of 20th March 2023 to be set aside, and for the costs of the appeal and the objection application in the trial court to be awarded to her.
Respondent’s Submissions
12. The 1st Respondent, Cytonn Investment Partners Twenty LLP, submits that the trial court was correct in upholding its objection and lifting the attachment of goods at the 2nd Respondent’s premises. The Respondent argues that it demonstrated an equitable and legal interest in the proclaimed goods, which were in its possession and control at the time of the attachment.
13. The Respondent contends that it had acquired ownership of the proclaimed goods under the Share Purchase Agreement dated 16th April 2018, which transferred the business, including all assets, from the 2nd Respondent to the 1st Respondent. It submits that the trial court properly considered the terms of the agreement and Clause 4.8, which provided that the 1st Respondent would assume control of the 2nd Respondent's business.
14. The Respondent submits that Order 22 Rule 51 of the Civil Procedure Rules requires an objector to demonstrate either legal or equitable interest in the attached property, not both. It relies on the case of Dubai Bank (K) Ltd v Come-Ons Africa Ltd and Impak Holdings Co Ltd (2003) eKLR, where the court held that an objector need only show an equitable or legal interest in the property.
15. The Respondent also argues that the Appellant’s claims are unsubstantiated as she failed to prove that the proclaimed goods belonged to the 2nd Respondent at the time of attachment. The Respondent submits that the goods were legally under its control and that the Appellant failed to meet the burden of proof required to establish ownership by the 2nd Respondent.
16. On the issue of compliance with the Transfer of Businesses Act, the Respondent submits that this was not a material consideration for the court in the objection proceedings. It argues that the trial court correctly prioritized equitable interests and possession over procedural technicalities.
17. The Respondent contends that the Share Purchase Agreement was valid and enforceable, and the Appellant was not prejudiced by the agreement since she was pursuing her claim against the 2nd Respondent. The Respondent further submits that any liability arising from the 2nd Respondent’s debts would be addressed under the terms of the agreement between the Respondents.
18. On the issue of the tools of trade, the Respondent maintains that the proclaimed goods were essential to its business operations and were therefore protected from attachment.
19. Lastly, the Respondent submits that the trial court acted within the law and correctly analyzed the evidence presented. It contends that the trial court’s ruling was well-reasoned and consistent with legal principles governing objection proceedings.
20. In conclusion, the Respondent prays for the appeal to be dismissed with costs, arguing that the trial court’s decision was sound and supported by the evidence presented.
Analysis and Determination
21. This being a first appeal, this court is under a duty to re-evaluate and re-assess the evidence and make its own conclusions. It must, however, keep at the back of its mind that a trial court, unlike the appellate court, had the advantage of observing the demeanour of the witnesses and hearing their evidence first hand.
22. The above principle is well encapsulated in Selle v Associated Motor Boat Co. Ltd. [1968] EA 123, where it was held:
“An appeal to this court... is by way of a retrial and the principles upon which this court acts in such an appeal are well settled. Briefly, the court must reconsider the evidence, evaluate it itself, and draw its own conclusions, though it should always bear in mind that it has neither seen nor heard the witnesses and should make due allowance in this respect.”
23. From the pleadings in the record of appeal and the submissions, the main issue for determination is whether the Objector has established a legal or equitable interest in the whole or part of the attached property. Order 22 Rule 51 of the Civil Procedure Rules provides as follows:
“51. Objection to attachment [Order 22, rule 51.]
(1) Any person claiming to be entitled to or to have a legal or equitable interest in the whole of or part of any property attached in execution of a decree may at any time prior to payment out of the proceeds of sale of such property give notice in writing to the court and to all the parties and to the decree-holder of his objection to the attachment of such property.
(2) Such notice shall be accompanied by an application supported by affidavit and shall set out in brief the nature of the claim which such objector or person makes to the whole or portion of the property attached.
(3) Such notice of objection and application shall be served within seven days from the date of filing on all the parties.
24. It is clear from the above provisions of the law that an Objector has the burden of proving that it has a legal or equitable interest on the whole or part of the proclaimed/attached goods. In Chotabhai M. Patel v Chaprabhi Patel [1958] EA 743, the court laid out the following principles: -
"a. Where an objection is made to the attachment of any property attached in execution of a decree on the ground that such property is not liable to attachment the court shall proceed to investigate the objection with the like power as regards examination of the Objector, and in all other respects as if he was party to the suit.
b. The Objector shall adduce evidence to show that at the date of attachment, he had some interest in the property attached.
c. The question to be decided is, whether on the date of attachment, the Judgment Debtor or the Objector was in possession, or where the court is satisfied that the property was in the possession of the Objector, it must be found whether he held it on his own account or in trust for the Judgment Debtor. The sole question to be investigated is, thus, one of possession of, and some interest in the property.
d. Questions of legal right and title are not relevant except so far as they may affect the decision as to whether the possession is on account of or in trust for the Judgment Debtor or some other person. To that extent the title may be part of the inquiry.
25. In the instant case, the trial court upheld the Objector’s objection primarily on the basis of Clause 4.6 of the Share Purchase Agreement dated 16th April 2018, wherein it was agreed between the Objector and the judgment debtor (through its Shareholders) that the Objector herein was not assume “any debt, liability or obligation of the Company (Judgment Debtor) whether known or unknown.”
26. From the proceedings and evidence available on record, I note, as rightly submitted by the Appellant, that the trial court in reaching the above conclusion failed to take into account the provisions Section 3 and 4 of the Transfer of Business Act, Cap. 500 Laws of Kenya, which provides that a transferee of a business is liable to the liabilities of the transferor unless notice is given. Section 3 of the Act provides as follows; -
“(3) Transferee of business to be liable for liabilities of transferor unless notice given
1. Whenever any business or any portion of any business is transferred, with or without the goodwill or any portion thereof, the transferee shall, notwithstanding any agreement to the contrary, become liable for all the liabilities incurred in the business by the transferor, unless due notice in accordance with this Act has been given and has become complete.
2. The liability of the transferee under subsection (1) shall cease immediately notice given in accordance with this section has become complete:
Provided that should proceedings be instituted against the transferee before such liability has ceased the said notice shall (for the purposes of such proceedings but for such purposes only) be deemed incomplete pending the final determination of such proceedings, including all possible appeals, and pending the expiration of all periods during which such appeals may be brought.
3. Nothing in this section shall have the effect of relieving the transferor from any liability to which he would otherwise be subject.”
27. Section 4 of the Act provides as hereunder: -
"4. Provisions regarding notices
1. The notice required by section 3 to be given shall contain the particulars specified in subsection (2) of this section, and shall be given by publication, either before or after the date of the transfer, in the Gazette and in such newspaper or newspapers circulating in Kenya as may from time to time be prescribed by the Registrar-General, and shall, subject to the proviso to subsection (2) of section 3, be deemed to be complete upon the expiration of two months from the publication of the notice in the manner aforesaid.
2. The particulars to be contained in a notice are as follows— (a) the name and address of the transferor; (b) the nature of the business, and the name or style under which, and the address at which, the transferor has carried on the business; (c) the name and address of the transferee; (d) the address where the transferee intends to carry on the business; and (e) a statement as to whether the transferee is assuming or is intended to assume all the liabilities incurred in the business by the transferor."
28. It is not in dispute in this case that no notice was given under Section 3 of the Act and in the manner prescribed under Section 4 of the Act. The Objector in his submissions expressly admits that no notice has been given in respect of the transfer. The Objector however asserts that its objection is based on its equitable rights to the property and that the trial court rightly recognized the autonomy of the will of the parties as reflected in the Share Purchase Agreement between the parties.
29. I have carefully perused the said Share Purchase Agreement and considered the applicable law and find that the Transfer of Business Act is clear in Section 3 thereof that notwithstanding any agreement between the parties to the contrary, a transferee is to become liable for all the liabilities incurred in the business by the transferor unless due notice in accordance with the Act has been given and has become complete.
30. It is clear that the above provisions of the Act expressly oust and limits the parties’ freedom to contract, especially in relation to any debts or liabilities incurred by the transferor prior to the date of the transfer. The intention of Sections 3 and 4 of the Transfer of Business Act is clearly meant to protect creditors of the transferor who may be prejudiced if a transfer is to be effected without any notice, and the transferor stripped of its assets.
31. Section 4 of the Act is unequivocal that the notice required under Section 3 of the Act can only become complete after two months from the date of the publication and must be given (before or after the transfer) by publication in the Gazette and in such newspaper or newspapers circulating in Kenya, as may be prescribed by the Registrar-General.
32. From the foregoing, while the Objector may have demonstrated that it has some legal or equitable rights over the proclaimed property by virtue of the Share Purchase Agreement, it is however critical to note that where there is transfer of a business as is the case herein, the general principle under the Transfer of Business Act, Cap. 500 is that the liabilities follow the assets unless notice is given as prescribed under Section 4 of the Act and becomes complete.
33. Accordingly, I find that the trial magistrate erred in upholding the Objection by the 1st Respondent herein. The ruling of the trial court upholding the 1st Respondent’s objection is hereby set aside, and the Appellant is allowed to proceed with execution.
34. Costs of the objection proceedings and this appeal are awarded to the Appellant.
35. It is so ordered.
SIGNED DATED and DELIVERED IN VIRTUAL COURT
THIS 27TH DAY OF FEBRUARY 2025
ADO MOSES
JUDGE
In the presence of:
Moses – Court Assistant