Background and Introduction
1. By virtue of a General Power of Attorney donated by the plaintiff to the defendant and registered on 21st July 2000, the defendant was appointed as the plaintiff’s attorney to manage his affairs in Kenya. The Power of Attorney authorized the defendant, among other things, to oversee transactions and manage real estate properties on behalf of the plaintiff, who, owing to his professional engagements as a medical doctor based in Norway and Denmark, was unable to attend to such matters personally.
2. The plaintiff contends that, pursuant to the said power of attorney and with his instructions, the defendant purchased House No. B2 erected on LR No. NRB/BLOCK 209/2973, situated in Kileleshwa, Nairobi (hereinafter 'the Kileleshwa property'). The property was purchased through a mortgage facility with Housing Finance Company of Kenya (HFCK). The plaintiff’s savings and rental income were applied towards the repayment of the mortgage. The plaintiff further asserts that the loan was fully repaid and the property discharged around end of the year 2000.
3. Thereafter, early in 2003, and once again acting under the plaintiff’s instructions, the defendant purchased another property, House No. 8 on LR No. 3734/929, situated in Lavington (hereinafter 'the Lavington property'), through a similar mortgage arrangement. Rental income collected from both properties was similarly applied towards servicing the mortgage, which was ultimately cleared and the property discharged on 9th July 2009.
4. The plaintiff contends that the defendant later sold the Kileleshwa property without his knowledge or consent, and failed to remit or account for the proceeds of that sale. Further, the plaintiff claims that the defendant persuaded him to take a loan top-up of Kshs. 2,000,000/=, ostensibly to finance the purchase of an additional property, which purchase never materialized. The plaintiff alleges that this Kshs. 2,000,000/= was disbursed by HFCK on his application, at an interest cost of Kshs. 1,000,000/= but was never used by the defendant for the intended purpose nor refunded to the plaintiff.
5. In addition, the plaintiff asserts that the defendant collected rental income from the two properties which he did not fully remit to the plaintiff. As a result, the plaintiff claims that the defendant has failed to account for all monies handled on his behalf, including unremitted rental income and the proceeds of the Kileleshwa property sale, and has caused him financial loss.
6. The plaintiff asserts that the defendant, in acting under the power of attorney, owed him fiduciary duties, including the duty to act in his best interests, to safeguard his assets, and to provide regular and accurate accounts. However, the defendant is alleged to have acted fraudulently by concealing material transactions and breaching the trust inherent in the power of attorney arrangement, culminating to the present suit.
7. By his statement of defense the defendant admits the power of attorney and states that he managed the plaintiff’s properties as an attorney. He also acknowledges that he executed the sale of the Kileleshwa property while the power of attorney was in force. However, the defendant disputes the plaintiff’s allegations of wrongdoing.
8. His version is that the sale of the Kileleshwa property was done within the scope of the authority conferred by the power of attorney and in the plaintiff’s best interests. The defendant further contends that the Kileleshwa property was sold for Kshs. 6,500,000/= and not Kshs. 7,900,000/= as alleged by the plaintiff. He claims that he paid brokerage fees amounting to Kshs. 500,000/= and asserts that the remaining Kshs. 6,000,000/= was utilized towards offsetting the mortgage in accordance with an agreement reached with the plaintiff.
9. The defendant also avers that the Kileleshwa property, which by then had no outstanding mortgage, was charged in order to facilitate the purchase of the Lavington property. He adds that the Lavington property was similarly charged to secure a loan of Kshs. 4,000,000/= advanced on 28th March 2003, which was subsequently repaid in full by 2008.
10. The defendant asserts that he has accounted for the rental income by ensuring that it was used to service the mortgages and maintain the properties and pay expenses which he tabulates in his bundle of documents. He points to bank statements and mortgage account statements from HFCK as evidence that rental proceeds were duly applied for the plaintiff’s benefit.
11. The defendant maintains that in undertaking the foregoing transactions, he acted within the authority granted to him under the power of attorney, particularly the power to “settle and adjust accounts as he shall think fit and proper.” In sum, the defendant denies breaching any fiduciary duty or trust, and urges that the plaintiff’s claim be dismissed with costs.
Analysis and Determination
12. During the hearing, the plaintiff the defendant testified as PW1 and DW1 respectively. Their testimonies are consistent with the summary of the case as outlined above. I will therefore not reproduce the testimonies in full, but will refer to them where relevant in my analysis of the dispute.
13. Having considered the pleadings, the evidence on record, the witnesses' testimonies, and the parties' submissions, the issues that arise for determination are whether the defendant acted in excess of or contrary to his authority, and whether the plaintiff is consequently entitled to the remedies sought.
Fiduciary duties under the Power of Attorney and the alleged excess of authority:
14. It is common ground that the relationship between the plaintiff and the defendant was a classic principal-agent relationship underpinned by the executed Power of Attorney. An agent empowered by a power of attorney stands in a fiduciary relationship to the principal. This fiduciary duty arises because the agent has undertaken to act for and on behalf of the principal in matters that involve the principal’s property and interests, thereby placing a special trust and confidence in the agent.
15. The Black’s Law Dictionary defines a fiduciary duty as:
“a duty of utmost good faith, trust, confidence, and candor owed by a fiduciary (such as an agent or a trustee) to the beneficiary (such as the agent’s principal) … a duty to act with the highest degree of honesty and loyalty toward another person and in the best interest of the other person.”
16. In the same vein, the Halsburys Laws of England, Vol. 1 (1) 5th edition states:
“The relationship of agency is of a fiduciary nature. In some cases, commonly where money or property has been placed in the hands of the agent for a specific purpose, the agent becomes a trustee for his principal…”
17. This means that the defendant, as the plaintiff’s attorney, was obligated to act with loyalty, honesty, and in the sole interest of the plaintiff, and was prohibited from obtaining any personal advantage from the agency without the plaintiff’s informed consent.
18. The General Power of Attorney in question is broadly phrased. The power donated included power to settle, and adjust accounts which the defendant cites as his source of authority for selling the Kileleshwa property. The power of attorney otherwise expressly states that with respect to the houses, the defendant’s power was to manage, let and hire houses and other immovable properties.
19. The plaintiff argues that the defendant was essentially meant to be a caretaker; to manage and preserve the assets, not to dispose of them unilaterally without his consent. The plaintiff points out that no communication of an intent to sell was made to him beforehand. He only learned of the sale after the fact, from a third party. In his view, selling the property without his express consent was beyond the contemplation of the power of attorney and thus amounted to the defendant acting outside his authority.
20. The defendant, conversely, relies on the literal breadth of the power of attorney to argue he had legal authority to sell. He submits that the sale was not done surreptitiously, but was a bona fide transaction executed to avoid a looming mortgage default and in the plaintiff’s interest. Besides his testimony that there was an oral agreement with the plaintiff to sell the property, he did not produce any written instructions or other evidence to prove that the plaintiff had been kept in the loop during the pendency of the transaction.
21. The Court has considered the authorities on the powers and duties of an attorney in such circumstances. Even where a power of attorney is broad enough to technically authorize a sale, the agent’s fiduciary duty requires utmost good faith and fidelity to the donor’s interests. In the present case, even if there was ambiguity as to whether the defendant was entitled to sell the Kileleshwa property or not, the Halsbury's Laws of England Vol 1 4th edition states as follows with regard to authority of agents:
“In the absence of express directions, the agent may exercise his discretion so as to act in the best manner possible for the principal. An agent whose instructions are in ambiguous terms is justified if he acts in good faith and places reasonable construction on his authority; but where the limits imposed are definite he has no right to exercise his discretion.”
22. While the power of attorney did not explicitly forbid a sale, the circumstances indicate that the plaintiff’s expectation was for the property to be managed, not sold outright. The plaintiff’s conduct such as continuing to pay the mortgage and not putting the property on the market himself implies that he had no intention to sell at that time. Thus, the defendant’s authority to sell was at best ambiguous and should have been construed narrowly, certainly not executed without clearance from the plaintiff
23. In CCB V MIB & Another, [2014] eKLR, this court referred to the decision of the East African Court of Appeal in the case of Mjasiri V Joshi, [1990 – 1994] 1 EA 372. In the latter case, much like the present, a property owner had given an agent (through a power of attorney) authority to manage his house. The agent sold the house to himself and later transferred it to his son without the owner’s consent. The High Court found that the power of attorney created a fiduciary relationship and that the failure to obtain the consent of the owner of the property before transfer of the same rendered the transaction null and void.
24. On appeal to the Court of Appeal it was held that the original owner had given Ahmed Iddi Mjasir (the agent), the power of attorney over his property which included the power to sell the house if he thought that the price was reasonable. However, the failure by the (donee) to keep accounts of monies received as rent and the money used in repairs for over 20 years, was a serious anomaly that led to the inference that Ahmed was not entirely honest. Consequently, it was difficult to say that under the power of attorney, a fiduciary relationship existed between the deceased and the property owner. The agent was therefore estopped from obtaining advantage from the fiduciary relationship without first obtaining the consent of the owner.
25. Borrowing from the above decision, the facts of the present case to the extent that there was lack of the plaintiff’s consent or knowledge is itself a glaring indicator of bad faith. The defendant’s decision to proceed with selling an asset of the plaintiff without even a notification goes against the grain of fiduciary loyalty and transparency. If the defendant truly believed the sale was necessary or advantageous for the plaintiff, the minimally expected standard of conduct would have been to consult the plaintiff or seek ratification prior to finalizing the sale.
26. The defendant’s own evidence did not demonstrate any urgency such as an imminent foreclosure by the Bank that would have made prior consultation impracticable. On a balance of probabilities, the Court finds that the defendant did not have the plaintiff’s prior consent for the sale, nor did he inform the plaintiff promptly thereafter.
27. The plaintiff would have been entitled to avoid or nullify the sale transaction on that ground. The plaintiff, however, has elected to affirm the sale insofar as it was completed, and instead seeks an account of the proceeds. The next issue now shifts to examining how the defendant dealt with the proceeds of sale and rent, and whether he properly accounted for them.
Failure to account for the sale proceeds, rental income, and other assets:
28. One of the most fundamental duties of a fiduciary agent or trustee is the duty to render accounts of their handling of the beneficiary’s or principal’s property. Equity jealously enforces this obligation. As the Court of Appeal observed in Stephens & 6 Others V Stephens & Another, [1987] KECA 54 (KLR) “the duty to account is the main vehicle by which a court of equity enforces the trustee’s fiduciary duty”.
29. In practical terms, the defendant was required to keep clear records of all monies received and expended on behalf of the plaintiff, and to be ready to produce such records and remit any balance due to the plaintiff upon demand. This duty to account extends to sale proceeds, rental income, and any other funds of the principal that came into the agent’s hands or control. An agent or trustee who fails to account or who mingles the principal’s funds with his own without authority commits a breach of trust.
30. In the Mjasiri V Joshi case (supra), the attorney’s failure to keep accounts for rent over a long period was deemed a “serious anomaly” indicative of dishonesty. Likewise, in the present case, the plaintiff’s grievance is that the defendant has never provided a full and candid account of what he did with the money arising from the Kileleshwa sale, the rental incomes, or the Kshs. 2,000,000/= loan.
31. Regarding the proceeds of sale of Kileleshwa property, the plaintiff testified and produced documentary evidence that the property was sold for Kshs. 7,900,000/= as per the Transfer of Lease dated 15th August 2008 as well as the Official Search Certificate which indicate that the property is registered in the name of one Vincent Likabo Machanje. The defendant’s claim that the selling price was Kshs. 6,500,000/= is unsubstantiated. He did not produce any documentary evidence to counter the plaintiff’s evidence neither did he produce evidence that the money was banked in the plaintiff’s account. In fact, the defendant confirms that the money was banked into his (the defendant’s) account.
32. The defendant claims that the majority of the sale proceeds was used to settle the outstanding mortgage loan on the Kileleshwa property with HFCK. However, he only produced bank statements from HFCK relating to the Lavington property, and not the Kileleshwa property. Consequently, the assertion that the money was applied to the Kileleshwa property remains unsubstantiated. There is also no evidence of payment of brokerage fees as alleged. I therefore find that the defendant has failed to render a true and accurate account of the sale proceeds from the Kileleshwa property as required.
33. I have equally reviewed the schedule titled SUMMARY OF FINANCIAL EXPENSES PERTAINING TO LULU COURT HOUSE NO. 8. The said schedule lists several expenses incurred by the defendant over the Lavington property. He however produced no receipts or detailed records to back this up. The Court finds these explanations insufficient and unsupported. It was incumbent on the defendant to keep proper records of account and not just present figures to the court as evidence of maintenance expenses. His failure to do so amounts to a failure by an agent to account for money received on behalf of the principal.
34. Regarding the rental income from the properties, the plaintiff also accuses the defendant of failing to remit rental income from both the Kileleshwa property (prior to its sale) and the Lavington property (throughout the period of the agency). It is undisputed that during the years the defendant managed the properties, he was collecting rent from tenants. The defendant admitted as much, and attached a schedule indicating the amount collected for the Lavington property.
35. As a fiduciary, the defendant had the duty to either forward those rents to the plaintiff or to apply them only for authorized purposes and keep a record. The defendant has by his own documents admitted having collected rent of Kshs.17,450,000/= which he ought to pay back to the plaintiff absent a proper and substantiated accounting of the alleged expenses. Besides this amount which is expressly admitted, the plaintiff confirmed in his testimony that he did not know what the rent for the Lavington property was. Since no evidence has been led by the plaintiff to prove this aspect of the rent, the same cannot be granted.
36. Regarding the Kshs. 2,000,000/= loan top-up, a letter dated 2nd June 2009 from HFCK to Mamicha & Co Advocates confirms the facility of Kshs. 2,000,000/= with instructions to prepare a charge over the Lavington property. A further letter dated 10th August 2009 confirms that the facility of Kshs. 2,000,000/= was completed and the funds disbursed to the defendant. On his part, the defendant has not provided any proof of acquisition of a new property as purported. He only vaguely alludes to the purchase of a flat at cool breeze with no further details or documentary evidence to prove how the loan top up was utilized.
37. The plaintiff has produced a Transfer of Lease executed between the defendant and Vincent Likabo Machanje, indicating that the defendant purchased a flat for Kshs. 7,900,000/=. In the absence of any evidence to the contrary, the court is entitled to presume that the said purchase was unauthorized by the plaintiff and amounted to a misappropriation of the plaintiff’s funds entrusted to the defendant.
38. It is equally evident that the sum of Kshs. 2,000,000/= also remains unaccounted for. This money was effectively the plaintiff’s trust money in the defendant’s hands, entrusted to him for a specific purpose. When that purpose failed, the defendant had and still has an unyielding duty to return the money to the plaintiff or to obtain the plaintiff’s consent for any alternate use. Keeping it or spending it otherwise without consent is a breach of trust, plain and simple.
39. The Court finds, on the evidence, that the defendant persuaded the plaintiff to borrow Kshs. 2,000,000/= on a false premise, and then failed to apply those funds to any authorized purpose or to refund them. This was not only a breach of fiduciary duty but also comes perilously close to fraudulent misrepresentation.
Disposition
40. Having found in the plaintiff’s favor on the questions of breach of fiduciary duty and failure to account, judgment is entered for the plaintiff against the defendant in the following terms:
a) That within 30 days of the date of this Judgment:
i. The defendant shall account for all the money received during the exercise of the Power of Attorney and in the management of the two houses in Kileleshwa situated on No. NRB/BLOCK 209/2973 and House No. 8 situated in Lavington on LR. NO. 3734/929;
ii. The defendant shall surrender the Certificate of Lease to House No. 8 situated in Lavington on LR. NO. 3734/929 to the plaintiff;
b) Upon the taking or presentation of the account, the defendant shall pay to the plaintiff all sums that are shown to be due to the plaintiff, within a further 45 days. Without limiting the generality of the foregoing, the defendant is specifically liable to pay:
i. The sale proceeds of House B2 situate on LR. NO. NRB/BLOCK 209/2973 Kileleshwa to wit Kshs. 7,900,000/=;
ii. The rent money collected but not remitted to the plaintiff for House No. 8 situated in Lavington on LR. NO. 3734/929; to wit Kshs.17,120,000/=;
iii. Kshs. 2,000,000/= top up for the purchase of prime property;
iv. Interest at court rates on all amounts found due to the plaintiff upon taking accounts from the date of filing suit until payment in full;
v. The plaintiff shall have the costs of this suit.
DATED, SIGNED AND DELIVERED IN NAIROBI
THIS 22ND DAY OF APRIL 2025.
F. MUGAMBI
JUDGE