' REPUBLIC OF KENYA
IN THE HIGH COURT OF KENYA AT MILIMANI
HCCOMMA/E304/2024
DAVID MUIGAI WANJOHI ………………………………………….… APPELANT
VERSUS
JOVAN KARIUKI T/A MORAN AUCTIONEERS ……………...……. RESPONDENT
JUDGEMENT
BACKGROUND OF THE CASE.
Sometime in October 2023, the Respondent proclaimed goods from Dasehn Group Limited on instructions from Mohamed Mithwan (their client), who claimed that Dasehn Group Limited owed him rent arrears. Among the proclaimed goods was motor vehicle KCF 010B (the suit motor vehicle) belonging to the Appellant, valued at KES 1,000,000.
The Respondent then proceeded to issue a public auction notice via an advertisement in the newspaper that represented Dasehn Group Limited as the owner of the said Motor Vehicle, an application that the Appellant saw days after publication.
The Appellant had initially informed the Respondent of his ownership of the said motor vehicle and further went ahead through its advocate to still inform the Respondent that the said motor vehicle belonged to him and not the Dasehn group.
Despite being aware of the fact that the motor vehicle belonged to David Muigai Wanjohi and not Dasehn Group Limited, the Respondent still proceeded to allegedly sell the said motor vehicle.
All through, the motor vehicle that the Respondents had detained and/or allegedly sold had not been transferred. The motor vehicle copy of records showed that the Appellant was the rightful owner of the said motor vehicle, as evidenced by two motor vehicle searches conducted on diverse dates that were produced as Exhibits 1 and 7 of the Claimant''s list of documents and list of further documents.
The Appellant questions how the sale and transfer were concluded, yet the motor vehicle searches still show that the Appellant is the rightful owner of the said motor vehicle.
As a result of the Respondent''s detention and/or illegal sale of the said motor vehicle, the Appellant has had to use an alternative means of transport to go about his day-to-day activities, which has proven expensive, forcing him to incur unnecessary expenses that he would not have incurred had the Respondent not detained the said motor vehicle.
The Appellant then proceeded to institute a claim in the Small Claims Court No. E1118 OF 2024 against the Respondent, which was ruled in the Respondent''s favour, and which judgment the Appellant now challenges.
The claim instituted at the Small Claims Court sought to: Order the return of the said motor vehicle.
Compensation to the tune of KES 1,000,000.
The Appellant filed this Appeal after being dissatisfied and aggrieved with the said judgment because: The Hon. Adjudicator/Resident Magistrate erred in law and in fact by ignoring the fact that the suit Motor Vehicle Registration Number KCF 010B belonged to David Muigai Wanjohi (the Appellant herein) and not Dasehn Group Limited (the tenant of the instructing client to the Respondent).
The Hon. Adjudicator/Resident Magistrate erred in law and in fact by ignoring the fact that the Appellant and the tenant are two separate persons and by virtue of the doctrine of separate legal personality, a director is not liable for the debts of a company.
The Hon. Adjudicator/Resident Magistrate erred in law and in fact by holding that the Appellant should have filed objector proceedings even though objector proceedings cannot be filed unless there is an existing suit for which a judgment has been issued. The decree holder is at the stage of executing a decree.
The Hon. Adjudicator/Resident Magistrate erred in law and in fact by ignoring the fact that the Small Claims Courts have jurisdiction to handle matters related to liability in tort in respect of loss or damage caused to any property or for the delivery or recovery of movable property.
The Hon. adjudicator/Resident Magistrate erred in law and in fact by ignoring the fact that the auctioneer (the Respondent) and the Landlord were always aware that the vehicle never belonged to the company/tenant. However, they went ahead to sell the same by public auction. By proceeding to sell, the Respondent was perpetuating an illegality.
The Hon. adjudicator/Resident Magistrate erred in law and in fact by ignoring the fact that even as at the date of hearing and filing this suit, the suit Motor Vehicle was registered in the name of the Appellant.
The Hon. Adjudicator/Resident Magistrate erred in law and in fact in ignoring the other reliefs that were sought and only focusing on one relief, the release of the suit Motor Vehicle.
The learned trial Magistrate erred in law and in fact by ignoring the submissions filed by the Claimant.
DIRECTIONS WERE GIVEN FOR APPEAL TO BE CANVASSED VIA SUBMISSIONS
SUMMARY OF THE EVIDENCE OF THE TRIAL COURT
CLAIMANT''S CASE:
David Muigai Wanjohi, a businessman and the Claimant in this matter, testified that he was the Director of the Dasehn Group company, which is a separate legal entity from him. That he owns Motor vehicle KCF 010B.That Mr. Mohammed is not his Landlord and that he did not owe him any money. He was the Landlord to Dasehn Group, which has two (2) directors, himself and Josephat Obadi. The Respondent never attached any property of the Co-director. They only attached his motor vehicle. He informed Moran Auctioneers that the motor vehicle was his personally via a letter. According to the Auctioneers, the sale occurred in January 2024. He searched the Motor vehicle on 21/08/2024, and he was still the legal owner. The physical motor vehicle is not with him. He requested Moran Auctioneers to return his motor vehicle, together with damages and costs of the suit.
The fair value of M/V is Kshs 1 Million, as per the valuation report. The property owned by the Landlord was commercial. He never used to live there. He was not notified of the auction earlier. He did not lodge any objection or proceedings nor go to any court to stop the auction. The motor vehicle was seized in mid-July 2023.
RESPONDENT''S CASE:
The Respondent, Nabhan Swaleh, testified that he is an advocate of the High Court of Kenya. He received instructions on 05/10/2023 to demand rent arrears amounting 1,217,000. They demanded the payment and sent a letter to Moran Auctioneers. Before the sale, he tried to assist the debtor, and the two (2) directors came and signed the acknowledgment of indebtedness that they would be liable to pay. The acknowledgment was dated 30/ 11/2023. They issued some cheques on the same day, which bounced. They promised to pay. Up to today, no payment has been made. The instruction letter is written to Moran Auctioneers. The tenant was Dasehn Group Limited. It is Dasehn who owed the debt.. The tenancy agreement was drawn up in their office between Dasehn Limited and the Landlord. The same is not filed in the Court. Failure to file does not mean it did not exist. The acknowledgement agreement was executed by only the two (2) directors. The other parties were not the executors because they were not directors of Dasehn Company. They stated that they were jointly and severally liable for the debts owed. (The acknowledgement agreement read). The Claimant before the Court. He executed the said acknowledgement of indebtedness. It is jointly the debtor that signs. He is not a party to this suit.
RESPONDENT WITNESS NO 2: Jovan Kariuki Humphrey T/ A Moran Auctioneers testified that he was instructed on 05/ 10/2023 to levy distress by Nabhan Swaleh.
On the same date, they proceeded to proclaim the goods in the house, including Motor vehicle KCF 010B. Thereafter, the Claimant approached their offices in Mombasa and promised to pay, but they did not honour the same. He was living in that house. There were several negotiations between Swaleh and the Claimant. They sent an acknowledgement saying they will pay. They seized the motor vehicle together with the other household goods on 06/ 11/2023. In January, he was informed that the cheque had bounced and that he should proceed with the sale to recover the rent arrears.
They advertised the goods on January 22, 2024, and the sale took place on January 31, 2024. He engaged a valuer and had a valuation report. It is dated 23/01/2024. The actual value was Kshs. 800,000/ = and the forced value was Kshs.600, OOO/=. On 02/02/2024, he received a demand letter to release motor vehicle KCF 010B, which had already been sold. They stated they were aware that the sale took place on 31/10/2024. They did not get any order to stop the sale. He never requested any independent valuation. No objection proceedings were brought. The motor vehicle was legally sold by public auction on 31/10/2024. He cannot have his cake and eat it. He engaged them all along, where there were too many of his motor vehicles. He acknowledged debt, and he issued cheques that bounced.
He prays that this claim be dismissed and that he be awarded costs. On cross-examination, he stated that he has been an Auctioneer for 14 years. He is aware of the procedure. The tenant is listed as Dahsen Group Limited. It is the company that owes the rent arrears. He knew that the company and David were two (2) separate legal entities. The NTSA search is dated 16/02/2024. The owner is David Muigai, together with ASL Credit Limited, as per the search. He issued a sale certificate after selling the motor vehicle. The agreement is between David and Joseph regarding indebtedness, as acknowledged. The motor vehicle belongs to David Muigai and ASL Credit. The certificate was issued on 16/02/2024. He was aware of the Auctioneer rules. He had not included a receipt. The buyer was one Mr. Fidel Odido. His documents are not attached. He is supposed to take them to KRA. The cheques are in the name of Dasehn Group and not David.
In RE-EXAMINATION AT. He stated that he issued the certificate of sale. (The date of the acknowledgement clause two is read out). The Claimant has signed. It is dated 30/10/2024. Charity Mwaniki witnessed it. He was not involved in the transfer of the motor vehicle. He is also not supposed to follow up with the buyer. The only documents that he gives to the purchaser are a certificate of sale. He did not need any documents from him. The sale was done according to the auctioneer''s rules.
APPELLANT SUBMISSIONS
The Appellant commenced submission by discussing the doctrine of separate legal personality, which is a cornerstone of corporate law exemplified by the case of Salomon v. Salomon & Co. Ltd [1897] AC 22. The doctrine asserts that a company, once incorporated, is a legal person in its own right, independent of its members (shareholders, directors, etc.), shielding them from personal liability for company debts and obligations. Locally, he relied on cases of Ukwala Supermarket v Jaideep Shah & another [2022] KEHC 2207 (KLR)
The Kenyan legal framework, as per the Companies Act, strongly supports this principle, ensuring that the liabilities and assets of a company are distinctly separate from those of its individual members.
In the case at hand, he submitted that the Respondent''s witness, Mr. Nabah Swaleh, affirmed to the Honourable Court that the actual tenant was Dasehn Group Limited, not the Claimant. Nevertheless, the learned magistrate held the directors, including the Claimant and Mr. Nyakundi, personally responsible for the rental arrears accrued by Dasehn Group Limited.
This decision clearly illustrates an error in law and fact by the Hon. Adjudicator/Resident Magistrate, who incorrectly imposed the company''s debts on its directors, even though the Respondent explicitly acknowledged that Dasehn Group Limited was the tenant, not the Claimant. Reliance made on the case of Multichoice Kenya Ltd v Mainkam Ltd & Anor. [2013] eKLR ,.
. This honorable Court must rectify this grave error by acknowledging the distinct legal entities of David Muigai Wanjohi and Dasehn Group Limited, thereby upholding the doctrine of separate legal personality and restoring justice to the aggrieved party.
It is argued that the core issue revolves around the breach of the Appellant''s proprietary rights, as enshrined in Article 40 of the Constitution of Kenya. By misrepresenting the ownership of the motor vehicle, the parties involved have directly infringed upon his constitutional rights to own and enjoy property.
The Respondent, clearly aware that the vehicle belonged to the Appellant, proceeded to fraudulently represent and sell the vehicle as belonging to Dasehn Group Limited.
It is imperative, therefore, that the Court recognizes the severity of these actions and accordingly compensates the Appellant for any losses incurred due to these deceitful practices, including but not limited to financial damages and loss of use of the vehicle. The judiciary is empowered to offer remedies such as the restitution of the vehicle to the Appellant and the award of compensation and possibly punitive damages for the fraudulent acts perpetrated.
Whether the concept of objector proceedings was applicable, there must be consideration, specifically the circumstances under which such proceedings are applicable, as well as the procedural framework provided by Kenyan law, and as such, a precise understanding and the correct interpretation of Order 22, Rule 51 of the Civil Procedure Rules is paramount.
This rule clearly specifies that any person claiming an interest in property attached as part of the execution of a decree may object to such attachment. The rule presupposes the existence of an attachment resulting directly from a decree execution, which necessitates the objector to assert their claim through a written notice and an accompanying affidavit.
Order 22, rule 51 of the Civil Procedure Rules states as follows:
“51. Objection to attachment [Order 22, rule 51]
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.
An application supported by an affidavit shall accompany such notice. It 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.
Such notice of objection and application shall be served within seven days from the date of filing on all the parties.”
In this instant case, in paragraph 17 of the judgment by the Hon. Adjudicator/Resident Magistrate, the Court, in asserting that legal shortcomings and signs of inaction marred the Claimant''s case, stated that:
“…. During this entire period, the claimant failed to file objection proceedings to contest the impending sale of his vehicle…”
In respect to the above-mentioned statement by the Court and the provisions of Order 22 rule 51, it is submitted that the Hon. Adjudicator/Resident Magistrate erred in law and in fact by holding that the Appellant should have filed objector proceedings even though objector proceedings cannot be filed unless there is an existing suit for which a judgment has been issued. The decree holder is at the stage of executing a decree.
The Appellant''s hands were tied regarding the initiation of objector proceedings due to the absence of any decree execution involving the Appellant''s property. The vehicle, which was the subject of dispute, had not been attached pursuant to any judicial decree against the Appellant, thus nullifying the premise for invoking objector proceedings. The insistence on this course of action, therefore, demonstrates a significant judicial oversight, misinterpreting the conditions under which such proceedings are applicable according to the Civil Procedure Rules.
It is critical, therefore, for this honorable Court to recognize the misapplication of Order 22, Rule 51 by the Hon. Adjudicator/Resident Magistrate and correct this procedural misstep that has led to the Claimant suffering loss of his property.
Section 23 of the Auctioneers Act provides for the duty of the auctioneer to act in accordance with such rules as may be prescribed when repossessing, attaching, storing, or selling any property pursuant to the provisions of any written law or contract.
Thus, it was the duty of the auctioneer to halt the auction process when a credible objection regarding the ownership of the property was presented. The failure to do so, especially after being informed of such an objection, was not only a breach of statutory duty but also a direct contravention of the provisions intended to protect property owners against wrongful sales.
The improper execution of the sale of the vehicle directly resulted in special and general damages to the Appellant, who lost a valuable asset due to the auctioneer''s unlawful actions. The auctioneers'' decision to ignore the Appellant''s objections led directly to these damages, making them liable under Section 26 of the Auctioneers Act, which allows for the recovery of losses due to the unlawful or improper exercise of an auctioneer''s powers.
In light of these breaches, the Court is urged to order appropriate remedies, including the recovery of damages equivalent to the value of the motor vehicle and any additional compensation deemed just for the losses incurred by the Appellant. Such a measure would not only rectify the wrongful acts committed but also uphold the integrity of legal processes governing property sales.
In the case at hand, the trial magistrate''s oversight in failing to consider the evidence that both the auctioneer and the Landlord knew the vehicle was owned by the Appellant, not the tenant, is a crucial lapse. This evidence is central to establishing the basis on which the vehicle should not have been auctioned, as it was not legally part of the tenant''s assets liable for seizure.
While rendering her judgment, the Learned Trial Magistrate disregarded the submissions with respect to the ownership of the said motor vehicle and the fact that RW2 acknowledged being in constant communication with the Claimant as of November 2023 and that he was aware that the Motor Vehicle they had proclaimed belonged to the Claimant and not Dasehn Group Limited. Had the Learned Trial Magistrate regarded the said submissions, she would have found that the Respondent was aware of the ownership status of the Motor Vehicle during its proclamation, seizure, and sale, and thus held that the same was an illegality.
Further, she failed to consider the fact that the acknowledgement of indebtedness adduced by the Respondent as Exhibit No. 8 in the Respondent''s List of Documents was not signed by the primary beneficiaries and that there was no evidence showing their confirmation of acceptance of the terms in the acknowledgement of indebtedness. Had the Learned Trial Magistrate considered this, she would have found that the Claimant and Mr. Nyakundi, being directors of Dasehn Group Limited, were not personally liable to the debts of the company.
Furthermore, as previously submitted to the Honourable Trial Court, the acknowledgement of indebtedness never created any security or charge over the Appellant''s motor vehicle. The directors did not pledge the Motor Vehicle as security for the debts incurred by the company. It is, therefore, worrisome that the Respondent would proceed to auction a motor vehicle that was not pledged. Even if the motor vehicle was pledged, the contract was not enforceable for lack of acceptance. Furthermore, there are procedural steps to be followed when enforcing an informal security, which include the issuance of a demand notice, institution of legal proceedings, and subsequent sale after a court award.
This failure to consider the evidence and submissions presented by the Claimant led to the entry of the judgment being challenged in this Appeal, which caused the Claimant to suffer injustice through the loss of his property.
The case of Republic v. Kenya Revenue Authority Ex Parte Yaya Towers Limited [2018] eKLR provides a pertinent precedent in which the Court emphasized the necessity of considering all evidence presented before making a judicial determination. The failure to do so was deemed a contravention of the fair administrative action guaranteed by Article 47 of the Constitution, and the right to a fair trial under Article 50.
The Claimant had sought another relief as an alternative to the release of the said Motor vehicle, being a judgment for KES 1,000,000, which would have catered for the value of the sold motor vehicle and the expenses incurred due to the illegal confiscation and sale of the said motor vehicle. Had the Trial Magistrate considered the alternative relief sought by the Claimant, she would have ordered the Respondent to pay the said KES 1,000,000 to the Claimant.
RESPONDENT SUBMISSIONS
It is submitted that the instant Appeal is objection proceedings disguised as an appeal. It is not denied that Sachdeva, Nabhan & Swaleh Advocates instructed the Respondent vide a letter dated October 5, 2023, to levy distress against Dasehn Group Ltd for rent arrears of Kshs. 1, 217, 000. The Respondent religiously demonstrated that throughout the course of his undertaking, he exhibited utmost good faith and remained professional in his dealings.
In strict adherence to the law, the Respondent proceeded to the Landlord''s premises on the same October 5, 2023, and proclaimed goods for the recovery of rent arrears. Amongst the goods proclaimed was a motor vehicle registration number KCF 010B. The Respondent issued the Appellant a proclamation notice dated October 5, 2023.
Soon thereafter, on November 6 2023, after the Appellant had failed, refused, ignored and/or neglected to redeem the proclaimed goods within the 14 days'' notice period, the Respondent proceeded to the Landlord''s premises and carted away the proclaimed good including motor vehicle registration number KCF 010B and issued the Appellant with a notification of sale dated November 6 2023.
Fully aware of the imminent sale of the proclaimed goods, the Appellant issued two postdated cheques, both dated November 30, 2023, which temporarily halted the sale of the proclaimed goods. Regrettably, both postdated cheques issued by the Appellant bounced because the Appellant''s account had insufficient funds. A clear admission of the rent arrears owed to the Landlord and a deliberate attempt to settle the said arrears .
The Appellant proceeded to execute an acknowledgment of indebtedness dated November 30, 2023, personally. Paragraph 2 of the said acknowledgement states that, in verbatim, “ We , DAVID MUIGAI WANJOHI and JOSEPH OBAI NYAKUNDI, acknowledge and accept that we are personally, jointly and severally liable for the payment of the outstanding amount stated in clause 1, being Kshs. 1, 217,000 and for any further amount which has accrued or will accrue in the future, including but not limited to storage charges in respect of Motor Vehicle registration number KCF 010B seized by the auctioneers and/or the cost of recovery of the said amount”.
It is submitted that the Trial Magistrate did not err in holding that he had failed, ignored, neglected, and/or refused to prove that the Respondent''s actions were ultra vires. The Respondent meticulously demonstrated to the Trial Court that it levied distress in strict adherence to Rule 12 of the Auctioneers Rules and as duly instructed by the Landlord''s advocates vide a letter dated October 5, 2023.
Additionally, it is contended that the Learned Trial Magistrate judiciously deciphered the Appellant''s acknowledgment of indebtedness; she rightly held that the Appellant and Joseph Obai Nyakundi were acting in their personal capacities, not as directors of Dasehn Group Limited. The liability for the outstanding amount was upon them as individuals and not the company as a separate legal entity. She proceeded to pronounce that, when the Appellant herein and Joseph Obai Nyakundi failed to clear the outstanding balance, the Respondent was within their rights to proceed with the execution.
It is submitted that the Learned Trial Magistrate demonstrated a profound comprehension of the law by pronouncing that courts have repeatedly held that orders cannot be issued in vain. Since the motor vehicle has already been sold to a third party, issuing an order for its release would be purely academic and without practical effect.
Thus, the Court is urged to hold that the Learned Trial Magistrate was succinct in her decision and uphold it. Thus, the Court is urged to hold that it cannot issue an order for the release of the subject motor vehicle at this point, as sought in the Memorandum of Appeal dated October 10, 2024, as rightly highlighted by the Trial Court, the said motor vehicle was already sold to a third party via public auction on January 31, 2024.
It is urged that the salient issue that commends itself for determination at this juncture is whether the Respondent usurped his mandate when selling the motor vehicle. It is urged that this Court uphold the Learned Trial Magistrate''s decision that the auction of the motor vehicle was conducted correctly and in accordance with the law, and the Appellant cannot fault the Respondent for strictly adhering to the law.
It is contended that the trial Magistrate was astute in her decision to hold that, in verbatim, during this entire period, the Claimant (Appellant herein) failed to file objection proceedings to contest the impending sale of his vehicle. This inaction weakens the Claimant’s position significantly. Reliance is made on Paul Ngei Wolile & 2 Others v Dalali Traders Auctioneers & Another [2021] eKLR, the Learned Judge in that matter when faced with a similar issued as the one that commends itself in the instant suit stated that, and rightly so , that objections to a sale conducted through a public auction are not tenable if the sale was carried out in accordance with the law. The proper course for an aggrieved party is to file a separate suit for damages, as envisaged under Section 99(4) of the Land Act. See also the case of Paul Ngei Wolile (Supra Koech & Another v Ethics & Anti-Corruption Commission & 3 Others; Koech (Objector); Gathogo t/a Valley Auctioneers & 5 Others (Interested Parties) [2022] KEHC 11909 (KLR) in which the Court held that once a public auction is completed. The property is transferred to the purchaser; subsequent objections are not sustainable. The auction process, having been concluded, cannot be undone through objection proceedings.
The motor vehicle is valued at KShs. I Million. It is also the force value. The auction was not against him as an individual. He seeks legal redress. He has not seen documents to prove the motor vehicle has been sold. The same may not have been sold. It is still in his name.
ISSUES, ANALYSIS, AND DETERMINATION
After reviewing the evidence and submissions on the records, the issues are.
Was the attachment and sale of the applicant''s M/V lawful? If the above is negative, what is the remedy? What is the order as to costs?
In a Kenyan civil case, the first appellate Court''s duty is to conduct a full and independent review of the entire evidence and the trial court''s findings of fact and law, with the power to uphold, vary, or set aside the decision, take additional evidence, order a new trial, or otherwise make a final determination. The overarching goal is to ensure the just and efficient determination of the proceedings and to correct any errors made by the lower Court. Key Duties of a First Appellate Court. As the appellate Court, this Court''s duty is to subject the whole of the evidence to a fresh and exhaustive scrutiny and make its own conclusions. The duty of the Court in a first appeal, such as this one, was stated in the case of Selle & another –vs- Associated Motorboat Co. Ltd. & others (1968) EA 123 in the following terms:
I accept counsel for the Respondent''s proposition that this Court is not necessarily bound to accept the findings of fact by the Court below. An appeal to this Court from a trial by the High Court is by way of retrial, and the principles upon which this Court acts in such an appeal are well settled. Briefly put, they are that this 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. In particular this Court is not bound necessarily to follow the trial judge''s findings of fact if it appears either that he has clearly failed on some point to take account of particular circumstances or probabilities materially to estimate the evidence or if the impression based on the demeanour of a witness is inconsistent with the evidence in the case generally ( Abdul Hammed Saif –vs- Ali Mohamed Sholan (1955), 22 E.A.C.A. 270 ).
. The appropriate standard of review established in the case above can be stated in three complementary principles:
a) First, on first Appeal, the Court is under a duty to reconsider and re-evaluate the evidence on record and draw its own conclusions.
b) In reconsidering and re-evaluating the evidence, the first appellate Court must bear in mind and give due allowance to the fact that the trial court had the advantage of seeing and hearing the witnesses testify before her; and
c) It is not open to the first appellate Court to review the findings of a trial court simply because it would have reached different results if it were hearing the matter for the first time."
On the first issue, whether the attachment and sale of the applicant''s M/V was lawful? The core focal point of discussion is the doctrine of separate legal personality, which is a cornerstone of corporate law exemplified by the case of Salomon v. Salomon & Co. Ltd [1897] AC 22. The doctrine asserts th
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IN THE HIGH COURT OF KENYA AT MILIMANI
HCCOMMA/E304/2024
DAVID MUIGAI WANJOHI ………………………………………….… APPELANT
VERSUS
JOVAN KARIUKI T/A MORAN AUCTIONEERS ……………...……. RESPONDENT
JUDGEMENT
BACKGROUND OF THE CASE.
Sometime in October 2023, the Respondent proclaimed goods from Dasehn Group Limited on instructions from Mohamed Mithwan (their client), who claimed that Dasehn Group Limited owed him rent arrears. Among the proclaimed goods was motor vehicle KCF 010B (the suit motor vehicle) belonging to the Appellant, valued at KES 1,000,000.
The Respondent then proceeded to issue a public auction notice via an advertisement in the newspaper that represented Dasehn Group Limited as the owner of the said Motor Vehicle, an application that the Appellant saw days after publication.
The Appellant had initially informed the Respondent of his ownership of the said motor vehicle and further went ahead through its advocate to still inform the Respondent that the said motor vehicle belonged to him and not the Dasehn group.
Despite being aware of the fact that the motor vehicle belonged to David Muigai Wanjohi and not Dasehn Group Limited, the Respondent still proceeded to allegedly sell the said motor vehicle.
All through, the motor vehicle that the Respondents had detained and/or allegedly sold had not been transferred. The motor vehicle copy of records showed that the Appellant was the rightful owner of the said motor vehicle, as evidenced by two motor vehicle searches conducted on diverse dates that were produced as Exhibits 1 and 7 of the Claimant''s list of documents and list of further documents.
The Appellant questions how the sale and transfer were concluded, yet the motor vehicle searches still show that the Appellant is the rightful owner of the said motor vehicle.
As a result of the Respondent''s detention and/or illegal sale of the said motor vehicle, the Appellant has had to use an alternative means of transport to go about his day-to-day activities, which has proven expensive, forcing him to incur unnecessary expenses that he would not have incurred had the Respondent not detained the said motor vehicle.
The Appellant then proceeded to institute a claim in the Small Claims Court No. E1118 OF 2024 against the Respondent, which was ruled in the Respondent''s favour, and which judgment the Appellant now challenges.
The claim instituted at the Small Claims Court sought to: Order the return of the said motor vehicle.
Compensation to the tune of KES 1,000,000.
The Appellant filed this Appeal after being dissatisfied and aggrieved with the said judgment because: The Hon. Adjudicator/Resident Magistrate erred in law and in fact by ignoring the fact that the suit Motor Vehicle Registration Number KCF 010B belonged to David Muigai Wanjohi (the Appellant herein) and not Dasehn Group Limited (the tenant of the instructing client to the Respondent).
The Hon. Adjudicator/Resident Magistrate erred in law and in fact by ignoring the fact that the Appellant and the tenant are two separate persons and by virtue of the doctrine of separate legal personality, a director is not liable for the debts of a company.
The Hon. Adjudicator/Resident Magistrate erred in law and in fact by holding that the Appellant should have filed objector proceedings even though objector proceedings cannot be filed unless there is an existing suit for which a judgment has been issued. The decree holder is at the stage of executing a decree.
The Hon. Adjudicator/Resident Magistrate erred in law and in fact by ignoring the fact that the Small Claims Courts have jurisdiction to handle matters related to liability in tort in respect of loss or damage caused to any property or for the delivery or recovery of movable property.
The Hon. adjudicator/Resident Magistrate erred in law and in fact by ignoring the fact that the auctioneer (the Respondent) and the Landlord were always aware that the vehicle never belonged to the company/tenant. However, they went ahead to sell the same by public auction. By proceeding to sell, the Respondent was perpetuating an illegality.
The Hon. adjudicator/Resident Magistrate erred in law and in fact by ignoring the fact that even as at the date of hearing and filing this suit, the suit Motor Vehicle was registered in the name of the Appellant.
The Hon. Adjudicator/Resident Magistrate erred in law and in fact in ignoring the other reliefs that were sought and only focusing on one relief, the release of the suit Motor Vehicle.
The learned trial Magistrate erred in law and in fact by ignoring the submissions filed by the Claimant.
DIRECTIONS WERE GIVEN FOR APPEAL TO BE CANVASSED VIA SUBMISSIONS
SUMMARY OF THE EVIDENCE OF THE TRIAL COURT
CLAIMANT''S CASE:
David Muigai Wanjohi, a businessman and the Claimant in this matter, testified that he was the Director of the Dasehn Group company, which is a separate legal entity from him. That he owns Motor vehicle KCF 010B.That Mr. Mohammed is not his Landlord and that he did not owe him any money. He was the Landlord to Dasehn Group, which has two (2) directors, himself and Josephat Obadi. The Respondent never attached any property of the Co-director. They only attached his motor vehicle. He informed Moran Auctioneers that the motor vehicle was his personally via a letter. According to the Auctioneers, the sale occurred in January 2024. He searched the Motor vehicle on 21/08/2024, and he was still the legal owner. The physical motor vehicle is not with him. He requested Moran Auctioneers to return his motor vehicle, together with damages and costs of the suit.
The fair value of M/V is Kshs 1 Million, as per the valuation report. The property owned by the Landlord was commercial. He never used to live there. He was not notified of the auction earlier. He did not lodge any objection or proceedings nor go to any court to stop the auction. The motor vehicle was seized in mid-July 2023.
RESPONDENT''S CASE:
The Respondent, Nabhan Swaleh, testified that he is an advocate of the High Court of Kenya. He received instructions on 05/10/2023 to demand rent arrears amounting 1,217,000. They demanded the payment and sent a letter to Moran Auctioneers. Before the sale, he tried to assist the debtor, and the two (2) directors came and signed the acknowledgment of indebtedness that they would be liable to pay. The acknowledgment was dated 30/ 11/2023. They issued some cheques on the same day, which bounced. They promised to pay. Up to today, no payment has been made. The instruction letter is written to Moran Auctioneers. The tenant was Dasehn Group Limited. It is Dasehn who owed the debt.. The tenancy agreement was drawn up in their office between Dasehn Limited and the Landlord. The same is not filed in the Court. Failure to file does not mean it did not exist. The acknowledgement agreement was executed by only the two (2) directors. The other parties were not the executors because they were not directors of Dasehn Company. They stated that they were jointly and severally liable for the debts owed. (The acknowledgement agreement read). The Claimant before the Court. He executed the said acknowledgement of indebtedness. It is jointly the debtor that signs. He is not a party to this suit.
RESPONDENT WITNESS NO 2: Jovan Kariuki Humphrey T/ A Moran Auctioneers testified that he was instructed on 05/ 10/2023 to levy distress by Nabhan Swaleh.
On the same date, they proceeded to proclaim the goods in the house, including Motor vehicle KCF 010B. Thereafter, the Claimant approached their offices in Mombasa and promised to pay, but they did not honour the same. He was living in that house. There were several negotiations between Swaleh and the Claimant. They sent an acknowledgement saying they will pay. They seized the motor vehicle together with the other household goods on 06/ 11/2023. In January, he was informed that the cheque had bounced and that he should proceed with the sale to recover the rent arrears.
They advertised the goods on January 22, 2024, and the sale took place on January 31, 2024. He engaged a valuer and had a valuation report. It is dated 23/01/2024. The actual value was Kshs. 800,000/ = and the forced value was Kshs.600, OOO/=. On 02/02/2024, he received a demand letter to release motor vehicle KCF 010B, which had already been sold. They stated they were aware that the sale took place on 31/10/2024. They did not get any order to stop the sale. He never requested any independent valuation. No objection proceedings were brought. The motor vehicle was legally sold by public auction on 31/10/2024. He cannot have his cake and eat it. He engaged them all along, where there were too many of his motor vehicles. He acknowledged debt, and he issued cheques that bounced.
He prays that this claim be dismissed and that he be awarded costs. On cross-examination, he stated that he has been an Auctioneer for 14 years. He is aware of the procedure. The tenant is listed as Dahsen Group Limited. It is the company that owes the rent arrears. He knew that the company and David were two (2) separate legal entities. The NTSA search is dated 16/02/2024. The owner is David Muigai, together with ASL Credit Limited, as per the search. He issued a sale certificate after selling the motor vehicle. The agreement is between David and Joseph regarding indebtedness, as acknowledged. The motor vehicle belongs to David Muigai and ASL Credit. The certificate was issued on 16/02/2024. He was aware of the Auctioneer rules. He had not included a receipt. The buyer was one Mr. Fidel Odido. His documents are not attached. He is supposed to take them to KRA. The cheques are in the name of Dasehn Group and not David.
In RE-EXAMINATION AT. He stated that he issued the certificate of sale. (The date of the acknowledgement clause two is read out). The Claimant has signed. It is dated 30/10/2024. Charity Mwaniki witnessed it. He was not involved in the transfer of the motor vehicle. He is also not supposed to follow up with the buyer. The only documents that he gives to the purchaser are a certificate of sale. He did not need any documents from him. The sale was done according to the auctioneer''s rules.
APPELLANT SUBMISSIONS
The Appellant commenced submission by discussing the doctrine of separate legal personality, which is a cornerstone of corporate law exemplified by the case of Salomon v. Salomon & Co. Ltd [1897] AC 22. The doctrine asserts that a company, once incorporated, is a legal person in its own right, independent of its members (shareholders, directors, etc.), shielding them from personal liability for company debts and obligations. Locally, he relied on cases of Ukwala Supermarket v Jaideep Shah & another [2022] KEHC 2207 (KLR)
The Kenyan legal framework, as per the Companies Act, strongly supports this principle, ensuring that the liabilities and assets of a company are distinctly separate from those of its individual members.
In the case at hand, he submitted that the Respondent''s witness, Mr. Nabah Swaleh, affirmed to the Honourable Court that the actual tenant was Dasehn Group Limited, not the Claimant. Nevertheless, the learned magistrate held the directors, including the Claimant and Mr. Nyakundi, personally responsible for the rental arrears accrued by Dasehn Group Limited.
This decision clearly illustrates an error in law and fact by the Hon. Adjudicator/Resident Magistrate, who incorrectly imposed the company''s debts on its directors, even though the Respondent explicitly acknowledged that Dasehn Group Limited was the tenant, not the Claimant. Reliance made on the case of Multichoice Kenya Ltd v Mainkam Ltd & Anor. [2013] eKLR ,.
. This honorable Court must rectify this grave error by acknowledging the distinct legal entities of David Muigai Wanjohi and Dasehn Group Limited, thereby upholding the doctrine of separate legal personality and restoring justice to the aggrieved party.
It is argued that the core issue revolves around the breach of the Appellant''s proprietary rights, as enshrined in Article 40 of the Constitution of Kenya. By misrepresenting the ownership of the motor vehicle, the parties involved have directly infringed upon his constitutional rights to own and enjoy property.
The Respondent, clearly aware that the vehicle belonged to the Appellant, proceeded to fraudulently represent and sell the vehicle as belonging to Dasehn Group Limited.
It is imperative, therefore, that the Court recognizes the severity of these actions and accordingly compensates the Appellant for any losses incurred due to these deceitful practices, including but not limited to financial damages and loss of use of the vehicle. The judiciary is empowered to offer remedies such as the restitution of the vehicle to the Appellant and the award of compensation and possibly punitive damages for the fraudulent acts perpetrated.
Whether the concept of objector proceedings was applicable, there must be consideration, specifically the circumstances under which such proceedings are applicable, as well as the procedural framework provided by Kenyan law, and as such, a precise understanding and the correct interpretation of Order 22, Rule 51 of the Civil Procedure Rules is paramount.
This rule clearly specifies that any person claiming an interest in property attached as part of the execution of a decree may object to such attachment. The rule presupposes the existence of an attachment resulting directly from a decree execution, which necessitates the objector to assert their claim through a written notice and an accompanying affidavit.
Order 22, rule 51 of the Civil Procedure Rules states as follows:
“51. Objection to attachment [Order 22, rule 51]
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.
An application supported by an affidavit shall accompany such notice. It 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.
Such notice of objection and application shall be served within seven days from the date of filing on all the parties.”
In this instant case, in paragraph 17 of the judgment by the Hon. Adjudicator/Resident Magistrate, the Court, in asserting that legal shortcomings and signs of inaction marred the Claimant''s case, stated that:
“…. During this entire period, the claimant failed to file objection proceedings to contest the impending sale of his vehicle…”
In respect to the above-mentioned statement by the Court and the provisions of Order 22 rule 51, it is submitted that the Hon. Adjudicator/Resident Magistrate erred in law and in fact by holding that the Appellant should have filed objector proceedings even though objector proceedings cannot be filed unless there is an existing suit for which a judgment has been issued. The decree holder is at the stage of executing a decree.
The Appellant''s hands were tied regarding the initiation of objector proceedings due to the absence of any decree execution involving the Appellant''s property. The vehicle, which was the subject of dispute, had not been attached pursuant to any judicial decree against the Appellant, thus nullifying the premise for invoking objector proceedings. The insistence on this course of action, therefore, demonstrates a significant judicial oversight, misinterpreting the conditions under which such proceedings are applicable according to the Civil Procedure Rules.
It is critical, therefore, for this honorable Court to recognize the misapplication of Order 22, Rule 51 by the Hon. Adjudicator/Resident Magistrate and correct this procedural misstep that has led to the Claimant suffering loss of his property.
Section 23 of the Auctioneers Act provides for the duty of the auctioneer to act in accordance with such rules as may be prescribed when repossessing, attaching, storing, or selling any property pursuant to the provisions of any written law or contract.
Thus, it was the duty of the auctioneer to halt the auction process when a credible objection regarding the ownership of the property was presented. The failure to do so, especially after being informed of such an objection, was not only a breach of statutory duty but also a direct contravention of the provisions intended to protect property owners against wrongful sales.
The improper execution of the sale of the vehicle directly resulted in special and general damages to the Appellant, who lost a valuable asset due to the auctioneer''s unlawful actions. The auctioneers'' decision to ignore the Appellant''s objections led directly to these damages, making them liable under Section 26 of the Auctioneers Act, which allows for the recovery of losses due to the unlawful or improper exercise of an auctioneer''s powers.
In light of these breaches, the Court is urged to order appropriate remedies, including the recovery of damages equivalent to the value of the motor vehicle and any additional compensation deemed just for the losses incurred by the Appellant. Such a measure would not only rectify the wrongful acts committed but also uphold the integrity of legal processes governing property sales.
In the case at hand, the trial magistrate''s oversight in failing to consider the evidence that both the auctioneer and the Landlord knew the vehicle was owned by the Appellant, not the tenant, is a crucial lapse. This evidence is central to establishing the basis on which the vehicle should not have been auctioned, as it was not legally part of the tenant''s assets liable for seizure.
While rendering her judgment, the Learned Trial Magistrate disregarded the submissions with respect to the ownership of the said motor vehicle and the fact that RW2 acknowledged being in constant communication with the Claimant as of November 2023 and that he was aware that the Motor Vehicle they had proclaimed belonged to the Claimant and not Dasehn Group Limited. Had the Learned Trial Magistrate regarded the said submissions, she would have found that the Respondent was aware of the ownership status of the Motor Vehicle during its proclamation, seizure, and sale, and thus held that the same was an illegality.
Further, she failed to consider the fact that the acknowledgement of indebtedness adduced by the Respondent as Exhibit No. 8 in the Respondent''s List of Documents was not signed by the primary beneficiaries and that there was no evidence showing their confirmation of acceptance of the terms in the acknowledgement of indebtedness. Had the Learned Trial Magistrate considered this, she would have found that the Claimant and Mr. Nyakundi, being directors of Dasehn Group Limited, were not personally liable to the debts of the company.
Furthermore, as previously submitted to the Honourable Trial Court, the acknowledgement of indebtedness never created any security or charge over the Appellant''s motor vehicle. The directors did not pledge the Motor Vehicle as security for the debts incurred by the company. It is, therefore, worrisome that the Respondent would proceed to auction a motor vehicle that was not pledged. Even if the motor vehicle was pledged, the contract was not enforceable for lack of acceptance. Furthermore, there are procedural steps to be followed when enforcing an informal security, which include the issuance of a demand notice, institution of legal proceedings, and subsequent sale after a court award.
This failure to consider the evidence and submissions presented by the Claimant led to the entry of the judgment being challenged in this Appeal, which caused the Claimant to suffer injustice through the loss of his property.
The case of Republic v. Kenya Revenue Authority Ex Parte Yaya Towers Limited [2018] eKLR provides a pertinent precedent in which the Court emphasized the necessity of considering all evidence presented before making a judicial determination. The failure to do so was deemed a contravention of the fair administrative action guaranteed by Article 47 of the Constitution, and the right to a fair trial under Article 50.
The Claimant had sought another relief as an alternative to the release of the said Motor vehicle, being a judgment for KES 1,000,000, which would have catered for the value of the sold motor vehicle and the expenses incurred due to the illegal confiscation and sale of the said motor vehicle. Had the Trial Magistrate considered the alternative relief sought by the Claimant, she would have ordered the Respondent to pay the said KES 1,000,000 to the Claimant.
RESPONDENT SUBMISSIONS
It is submitted that the instant Appeal is objection proceedings disguised as an appeal. It is not denied that Sachdeva, Nabhan & Swaleh Advocates instructed the Respondent vide a letter dated October 5, 2023, to levy distress against Dasehn Group Ltd for rent arrears of Kshs. 1, 217, 000. The Respondent religiously demonstrated that throughout the course of his undertaking, he exhibited utmost good faith and remained professional in his dealings.
In strict adherence to the law, the Respondent proceeded to the Landlord''s premises on the same October 5, 2023, and proclaimed goods for the recovery of rent arrears. Amongst the goods proclaimed was a motor vehicle registration number KCF 010B. The Respondent issued the Appellant a proclamation notice dated October 5, 2023.
Soon thereafter, on November 6 2023, after the Appellant had failed, refused, ignored and/or neglected to redeem the proclaimed goods within the 14 days'' notice period, the Respondent proceeded to the Landlord''s premises and carted away the proclaimed good including motor vehicle registration number KCF 010B and issued the Appellant with a notification of sale dated November 6 2023.
Fully aware of the imminent sale of the proclaimed goods, the Appellant issued two postdated cheques, both dated November 30, 2023, which temporarily halted the sale of the proclaimed goods. Regrettably, both postdated cheques issued by the Appellant bounced because the Appellant''s account had insufficient funds. A clear admission of the rent arrears owed to the Landlord and a deliberate attempt to settle the said arrears .
The Appellant proceeded to execute an acknowledgment of indebtedness dated November 30, 2023, personally. Paragraph 2 of the said acknowledgement states that, in verbatim, “ We , DAVID MUIGAI WANJOHI and JOSEPH OBAI NYAKUNDI, acknowledge and accept that we are personally, jointly and severally liable for the payment of the outstanding amount stated in clause 1, being Kshs. 1, 217,000 and for any further amount which has accrued or will accrue in the future, including but not limited to storage charges in respect of Motor Vehicle registration number KCF 010B seized by the auctioneers and/or the cost of recovery of the said amount”.
It is submitted that the Trial Magistrate did not err in holding that he had failed, ignored, neglected, and/or refused to prove that the Respondent''s actions were ultra vires. The Respondent meticulously demonstrated to the Trial Court that it levied distress in strict adherence to Rule 12 of the Auctioneers Rules and as duly instructed by the Landlord''s advocates vide a letter dated October 5, 2023.
Additionally, it is contended that the Learned Trial Magistrate judiciously deciphered the Appellant''s acknowledgment of indebtedness; she rightly held that the Appellant and Joseph Obai Nyakundi were acting in their personal capacities, not as directors of Dasehn Group Limited. The liability for the outstanding amount was upon them as individuals and not the company as a separate legal entity. She proceeded to pronounce that, when the Appellant herein and Joseph Obai Nyakundi failed to clear the outstanding balance, the Respondent was within their rights to proceed with the execution.
It is submitted that the Learned Trial Magistrate demonstrated a profound comprehension of the law by pronouncing that courts have repeatedly held that orders cannot be issued in vain. Since the motor vehicle has already been sold to a third party, issuing an order for its release would be purely academic and without practical effect.
Thus, the Court is urged to hold that the Learned Trial Magistrate was succinct in her decision and uphold it. Thus, the Court is urged to hold that it cannot issue an order for the release of the subject motor vehicle at this point, as sought in the Memorandum of Appeal dated October 10, 2024, as rightly highlighted by the Trial Court, the said motor vehicle was already sold to a third party via public auction on January 31, 2024.
It is urged that the salient issue that commends itself for determination at this juncture is whether the Respondent usurped his mandate when selling the motor vehicle. It is urged that this Court uphold the Learned Trial Magistrate''s decision that the auction of the motor vehicle was conducted correctly and in accordance with the law, and the Appellant cannot fault the Respondent for strictly adhering to the law.
It is contended that the trial Magistrate was astute in her decision to hold that, in verbatim, during this entire period, the Claimant (Appellant herein) failed to file objection proceedings to contest the impending sale of his vehicle. This inaction weakens the Claimant’s position significantly. Reliance is made on Paul Ngei Wolile & 2 Others v Dalali Traders Auctioneers & Another [2021] eKLR, the Learned Judge in that matter when faced with a similar issued as the one that commends itself in the instant suit stated that, and rightly so , that objections to a sale conducted through a public auction are not tenable if the sale was carried out in accordance with the law. The proper course for an aggrieved party is to file a separate suit for damages, as envisaged under Section 99(4) of the Land Act. See also the case of Paul Ngei Wolile (Supra Koech & Another v Ethics & Anti-Corruption Commission & 3 Others; Koech (Objector); Gathogo t/a Valley Auctioneers & 5 Others (Interested Parties) [2022] KEHC 11909 (KLR) in which the Court held that once a public auction is completed. The property is transferred to the purchaser; subsequent objections are not sustainable. The auction process, having been concluded, cannot be undone through objection proceedings.
The motor vehicle is valued at KShs. I Million. It is also the force value. The auction was not against him as an individual. He seeks legal redress. He has not seen documents to prove the motor vehicle has been sold. The same may not have been sold. It is still in his name.
ISSUES, ANALYSIS, AND DETERMINATION
After reviewing the evidence and submissions on the records, the issues are.
Was the attachment and sale of the applicant''s M/V lawful? If the above is negative, what is the remedy? What is the order as to costs?
In a Kenyan civil case, the first appellate Court''s duty is to conduct a full and independent review of the entire evidence and the trial court''s findings of fact and law, with the power to uphold, vary, or set aside the decision, take additional evidence, order a new trial, or otherwise make a final determination. The overarching goal is to ensure the just and efficient determination of the proceedings and to correct any errors made by the lower Court. Key Duties of a First Appellate Court. As the appellate Court, this Court''s duty is to subject the whole of the evidence to a fresh and exhaustive scrutiny and make its own conclusions. The duty of the Court in a first appeal, such as this one, was stated in the case of Selle & another –vs- Associated Motorboat Co. Ltd. & others (1968) EA 123 in the following terms:
I accept counsel for the Respondent''s proposition that this Court is not necessarily bound to accept the findings of fact by the Court below. An appeal to this Court from a trial by the High Court is by way of retrial, and the principles upon which this Court acts in such an appeal are well settled. Briefly put, they are that this 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. In particular this Court is not bound necessarily to follow the trial judge''s findings of fact if it appears either that he has clearly failed on some point to take account of particular circumstances or probabilities materially to estimate the evidence or if the impression based on the demeanour of a witness is inconsistent with the evidence in the case generally ( Abdul Hammed Saif –vs- Ali Mohamed Sholan (1955), 22 E.A.C.A. 270 ).
. The appropriate standard of review established in the case above can be stated in three complementary principles:
a) First, on first Appeal, the Court is under a duty to reconsider and re-evaluate the evidence on record and draw its own conclusions.
b) In reconsidering and re-evaluating the evidence, the first appellate Court must bear in mind and give due allowance to the fact that the trial court had the advantage of seeing and hearing the witnesses testify before her; and
c) It is not open to the first appellate Court to review the findings of a trial court simply because it would have reached different results if it were hearing the matter for the first time."
On the first issue, whether the attachment and sale of the applicant''s M/V was lawful? The core focal point of discussion is the doctrine of separate legal personality, which is a cornerstone of corporate law exemplified by the case of Salomon v. Salomon & Co. Ltd [1897] AC 22. The doctrine asserts th
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