Background
1. This appeal arises from the judgment of the Small Claims Court at Milimani in SCCCOMM No. E6886 of 2023, delivered on 22nd December 2023, where the 1st Respondent herein (Bob Morgan Services Limited) had sued both the Appellant (Hass Consult Limited) and the 2nd Respondent (Enkasaara Apartments) over an outstanding debt of Kshs. 575,885.90 for security services rendered at the Enkasaara Apartments.
2. The Background of the matter is that the 1st Respondent, a provider of security services, filed the suit seeking payment for services rendered at the Enkasaara Apartments. It was the 1st Respondent’s case that it had been contracted by the Appellant, who was managing the Apartments, to provide guarding and alarm services. In support of its claim, the 1st Respondent produced invoices addressed to the Appellant, under the care of the 2nd Respondent, totaling Kshs. 575,885.90. Despite several demands for payment, the amount remained outstanding, prompting the 1st Respondent to seek the court’s intervention for recovery of the said sum, along with costs and interest.
3. The 1st Respondent argued that both the Appellant and the 2nd Respondent were jointly liable for the debt, alleging that while the Appellant contracted the services, the 2nd Respondent, as the management entity of the Apartments, also bore responsibility for the unpaid sums. The 1st Respondent claimed that both parties were shifting blame onto each other, further delaying the settlement of the debt.
4. The 2nd Respondent, Enkasaara Management Limited (described in the Statement of Claim as Enkasaara Apartments), denied liability, asserting that it was a mere beneficiary of the security services and had no direct contractual relationship with the 1st Respondent. It contended that all service contracts were entered into by the Appellant, Hass Consult Limited, under a Property Management Agreement dated 26th April 2015, which appointed the Appellant as the managing agent of the Apartments. The 2nd Respondent maintained that the Appellant collected and expensed service charges from apartment owners and independently engaged service providers, including the 1st Respondent, without any input from the 2nd Respondent.
5. The Appellant (Hass Consult Limited) similarly denied liability, arguing that it did not enter into any direct contract with the 1st Respondent. It contended that the invoices for security services were addressed to the 2nd Respondent, and any obligations to pay the 1st Respondent rested solely with the 2nd Respondent. The Appellant maintained that it was merely acting as an agent of the 2nd Respondent and could not be held liable for the debts owed by the principal. It further stated that its role was limited to facilitating the collection of service charges, which were deposited into accounts owned and controlled by the 2nd Respondent, leaving it with no authority over the funds or the decision to pay service providers.
6. Upon evaluating the evidence and submissions by all parties, the trial court dismissed the claim against the 2nd Respondent on the basis that Enkasaara Apartments, as sued, was a non-legal entity incapable of being sued. The court noted that the proper party should have been Enkasaara Management Limited, a distinction the 1st Respondent failed to correct despite being served with the Property Management Agreement. Consequently, the court dismissed the claim against the 2nd Respondent with no order as to costs.
7. The trial court, however, found the Appellant liable for the outstanding debt. It held that the Appellant, as the property manager, bore the responsibility of engaging service providers, including the 1st Respondent, and should have ensured payment for the services rendered. The court awarded the 1st Respondent a sum of Kshs. 327,399.36, after striking out time-barred invoices under Section 4(1) of the Limitations of Actions Act. The Appellant was also ordered to pay costs and interest from the date of filing the claim until full payment.
8. Aggrieved by this decision, the Appellant filed the present appeal, challenging the trial court’s findings on the following grounds:
i. That the learned magistrate erred in law and in fact in finding that the Appellant, who was an agent of its principal, ought to be held liable for debts to a contract that the Appellant was not a party to.
ii. That the learned magistrate erred in law and in fact in entering judgment entered against the Appellant in the sum of Kshs. 327,399.36 plus costs and interest.
iii. That the learned magistrate erred in law and in fact in disregarding the evidence tendered by the Appellant in the lower court and/or failing to consider the said evidence in its totality/as a whole.
iv. That the learned magistrate erred in law and in fact in failing to appreciate the significance of the documentary evidence tendered in support of the Appellant's case in the lower court.
v. That the learned magistrate erred in law and in fact in misapprehending the evidence on record.
vi. That the learned magistrate erred in law and in fact in failing to properly and exhaustively evaluate the evidence on record.
vii. That the learned magistrate erred in law and in fact in arriving at conclusions and inferences which are unsupported by evidence and/or based on no evidence.
viii. That the learned magistrate erred in law and in fact in appreciating and considering the Respondents’ submissions only to the prejudice and detriment of the Appellant.
ix. That in all the circumstances of the case, the learned magistrate failed to render justice to the Appellant.
9. The appeal was canvassed by way of written submissions. The Appellant filed its submissions on 12th August 2024, while the 2nd Respondent filed its submissions in response on 9th September 2024. The 1st Respondent did not file any submissions in the appeal.
Appellant's Submissions
10. The Appellant submitted that the trial court wrongly dismissed the suit against the 2nd Respondent (Enkasara Apartments) on the basis that it was not a legal entity capable of being sued without exploring remedies available under the Civil Procedure Rules. The Appellant cited Order 1 Rule 9 and Order 1 Rule 10 (1) and (2) of the Civil Procedure Rules, which provide that a suit should not be defeated by the misjoinder or non-joinder of parties. The trial court, instead of dismissing the 2nd, the Appellant argued, could have directed an amendment of pleadings to correctly name the legal entity responsible, Enkasara Management Limited, or ordered the joinder of the proper party.
11. The Appellant reinforces this point with the authority of Ruth Nyabio v Board of Directors Beverly School of Kenya [2017] eKLR, where the court emphasized the need to do substantive justice by allowing corrections of misjoinder rather than dismissing suits on technicalities.
12. On the question of whether the Appellant was liable for the sum claimed, it was the Appellant’s position that it was merely an agent of the 2nd Respondent, tasked with facility management, and never entered into any direct contractual relationship with the 1st Respondent. It relies on the Facility Management Agreement dated 26th April 2015, which explicitly appointed Hass Consult as the managing agent for the common areas of the 2nd Respondent’s property.
13. Relying on the principles of agency as articulated in Heifer Project International v Forest City Export Services Limited & Another [2017] eKLR, the Appellant asserted that an agent cannot be held liable for debts incurred on behalf of a disclosed principal unless there was clear evidence to the contrary.
14. It was further the Appellants' submissions that the invoices for services rendered by the 1st Respondent were addressed to the 2nd Respondent but only delivered through the Appellant as a matter of administrative convenience. The Appellant was never personally responsible for settling the debts.
15. In conclusion, the Appellant submits that the lower court misapprehended the legal standing of the parties and the concept of agency, thereby arriving at an erroneous decision. It, therefore, prays that this Honourable Court allows the appeal, sets aside the judgment delivered on 22nd December 2023, and dismisses the 1st Respondent’s claim in its entirety. Further, the Appellant seeks an award of costs for both the appeal and the proceedings before the lower court to be borne by the 2nd Respondent.
The 2nd Respondent’s Submissions
16. The 2nd Respondent’s case is anchored on the fundamental legal principle that "Enkasara Apartments" is not a legal entity capable of suing or being sued. It contends that the proper party ought to have been Enkasara Management Limited, a duly incorporated company tasked with managing the Apartments. The 2nd Respondent submits that the appeal is fatally flawed as it perpetuates the same misnomer and misjoinder of parties that the trial court rightfully identified and addressed. The court cannot issue enforceable orders against a non-legal entity, and as such, the appeal against the 2nd Respondent should be struck out.
17. Relying on among others, the decision in Janto Construction Company Ltd v Enock Sikolia & 2 others [2020] eKLR, the 2nd Respondent asserted that it is the duty of a claimant to ascertain the legal status of the party they intend to sue. Instituting a suit against a non-legal entity renders the claim a non-starter. The 2nd Respondent asserted that a party lacking legal capacity cannot be sued, and any proceedings against such a party are null and void. The case of Maurice Ooko Otieno v Mater Misericordiae Hospital [2004] eKLR was cited by the 2nd Respondent in support of this position.
18. The 2nd Respondent emphasized that the Appellant, despite being alerted to the error at the trial stage, failed to amend its pleadings and has now brought an appeal that suffers the same fatal defect.
19. Addressing the doctrine of privity of contract, the 2nd Respondent argued that it was never a party to the contract between the Appellant and the 1st Respondent for the provision of security services. The contractual relationship, the 2nd Respondent maintained, existed solely between those two parties. The 2nd Respondent cites Mark Otanga Otiende v Dennis Oduor Aduol [2021] eKLR, which reaffirmed that a contract cannot confer rights or impose obligations on non-parties. It was, therefore, the 2nd Respondent’s position that the Apartment Owners cannot be compelled to fulfill the Appellant’s obligations under a contract to which they were not a party.
20. Further, relying on the Court of Appeal decision in Aineah Liluyani Njirah v Agha Khan Health Services [2013] eKLR, the 2nd Respondent emphasized that even if a third party is mentioned in a contract, they have no right to enforce its terms unless expressly granted by the contract itself.
21. On the question of agency relationship with the Appellant, the 2nd Respondent submitted that there was no agency relationship between itself and the Appellant. According to the 2nd Respondent, the Appellant acted as an independent contractor under the Facility Management Agreement dated 26th April 2015, with full authority to engage service providers without the involvement of the Apartment Owners. The Agreement explicitly outlined the Appellant’s managerial duties, including the collection and management of service charges from apartment owners.
22. The 2nd Respondent, in its submissions herein, highlighted the Appellant’s breach of contract by depleting the security deposits and mismanaging the service charges collected from the apartment owners. That despite collecting monthly service charges amounting to Kshs. 707,500, the Appellant failed to pay service providers, including the 1st Respondent, and left the accounts empty at the time of handover. The 2nd Respondent, therefore, emphasized that these funds were solely under the Appellant’s control, and the Apartment Owners had no financial obligations beyond paying the agreed service charges. According to the 2nd Respondent, any shortfalls should have been addressed by the Appellant through legal action against defaulting apartment owners or by adjusting the scope of services to match the available funds.
23. Relying on the decisions in Micro-City Computers Limited v National Social Security Fund Board of Trustees [2020] eKLR and Dormakaba Limited v Architectural Supplies Kenya Limited [2021] KEHC 210 (KLR), the 2nd Respondent argued that liability for breach of contract rests squarely with the party that failed to meet its obligations, in this case, the Appellant. That the Appellant’s mismanagement directly resulted in the non-payment of the 1st Respondent, and that the trial court correctly held the Appellant liable.
24. In conclusion, the 2nd Respondent urged this Court to dismiss the Appellant’s appeal with costs.
Analysis And Determination
25. This court is now tasked with determining whether the trial magistrate erred in holding the Appellant liable for the unpaid security services rendered by the 1st Respondent and whether the claim against the 2nd Respondent was properly dismissed. The Appellant contends that the trial court misapprehended the law on agency, failed to properly analyze the evidence, and unjustly shifted liability solely to it, while the Respondents argue that the decision was sound and based on well-established legal principles.
26. Before delving into the substantive issues, I am guided by the principles that govern an appellate court's role in reviewing the decisions of lower courts. The Court of Appeal in Selle & Another v. Associated Motor Boat Co. Ltd & Others [1968] EA 123 held that:
"An appeal to this 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."
27. Similarly, in Mbogo & Another v. Shah [1968] EA 93, the court emphasized that an appellate court should not interfere with the discretion of a trial court unless it is demonstrated that such discretion was exercised on the wrong principles or resulted in a manifest injustice. The court stated:
"A court of appeal should not interfere with the exercise of discretion of a judge unless it is satisfied that the judge in exercising his discretion has misdirected himself in some matter and as a result arrived at a wrong decision, or unless it is manifest from the case as a whole that the judge has been clearly wrong in the exercise of his discretion and that as a result there has been misjustice."
28. With these guiding principles in mind, this court will now proceed to determine the following key issues:
i. Whether the trial court erred in dismissing the claim against the 2nd Respondent.
ii. Whether the trail court erred in finding the Appellant liable for the sum claimed by the 1st Respondent.
Whether the Trial Court Erred in Dismissing the Claim Against the 2nd Respondent
29. The trial court dismissed the claim against the 2nd Respondent on the basis that it had been wrongly sued as "Enkasaara Apartments," a non-legal entity, rather than "Enkasaara Management Limited." The trial magistrate held that since "Enkasaara Apartments" was a block of buildings and not a registered legal entity, it lacked the capacity to be sued. Consequently, the claim was struck out for misjoinder of parties.
30. Order 1 Rule 9 of the Civil Procedure Rules, 2010, provides clear guidance on the issue of misjoinder and non-joinder of parties:
‘’No suit shall be defeated by reason of the misjoinder or non-joinder of parties, and the court may in every suit deal with the matter in controversy so far as regards the rights and interests of the parties actually before it.’’
31. Further, Order 1 Rule 10(2) empowers the court to correct misjoinders at any stage of the proceedings:
‘’ The court may at any stage of the proceedings, either upon or without the application of either party, and on such terms as may appear to the court to be just, order that the name of any party improperly joined, whether as plaintiff or defendant, be struck out, and that the name of any person who ought to have been joined, whether as plaintiff or defendant, or whose presence before the court may be necessary in order to enable the court effectually and completely to adjudicate upon and settle all questions involved in the suit, be added.’’
32. The principles governing misjoinder were well articulated The Co-Operative Merchant Bank Ltd. v George Fredrick Wekesa (Civil Appeal No. 54 of 1999), where the Court of Appeal stated:
‘’Striking out a pleading is a draconian act, which may only be resorted to, in plain cases...Whether or not a case is plain is a matter of fact...Since oral evidence would be necessary to disprove what either of the parties says, the appellant’s defence cannot be said to present a plain case of a frivolous, scandalous, vexatious defence, or one likely to prejudice, embarrass or delay the expeditious disposal of the respondent’s action or which is otherwise an abuse of the process of the court.’’
33. In this case, while "Enkasaara Apartments" may have lacked legal capacity to be sued, it is evident from the pleadings and evidence that "Enkasaara Management Limited," the proper legal entity, was fully aware of the claim. The 2nd Respondent filed pleadings, participated in the proceedings, and defended itself comprehensively. There was no prejudice occasioned by the misdescription, as the entity managing the apartments was clear, and its legal representatives actively litigated the matter.
34. In Fubeco China Fushun v Naiposha Company Limited & 11 others [2014] eKLR, Justice F Gikonyo, when dealing with a situation similar to the instant case stated as follows on this issue:
“Court’s view on the issue of juristic personality
[14]……the Court takes the following view on the issue whether the plaintiff is a juristic person or not….. ….. the Defendant knew very well the person it was dealing with, and that it was a Registered Company called China Fushun No. 1 Building Engineering Company Limited. The Defendant was also aware of the trading name of FUBECO CHINA FUSHUN. The agreement subject of these proceedings became a subject of arbitral proceedings in which the Defendant fully participated and was fully aware of the other party to the proceedings to be China Fushun No. 1 Building Engineering Company Limited alias FUBECO CHINA FUSHUN…..Such misdescription of the Plaintiff is not fatal to the proceedings and does not defeat a party’s cause of action. In taking this decision, the Court is guided by the constitutional desire to serve justice which is the very reason why courts have been given unfettered discretion in ordering an amendment in such case in order to reflect and have the correct parties before the Court. Under that power, the Court would still allow the amendment to correct the misdescription. I so order for the avoidance of doubt. I hold and find that this is not a case of non-existent or faceless entity that would invariably be incapable of suing or being sued. It is a case of pure misdescription of a party and is governed by the same law on misdescription of parties in a contract.”
35. The Court went further in Fubeco China Fushun (supra) and stated as follows;
“I find support of that position in the words of Lenaola J in the case of NZOMO WAMBUA v WOTE TOWN COUNCIL (2008) eKLR while citing the case of JAMES MWANGAGI & 64 OTHERS VS WOTE TOWN COUNCIL HCC 113/ 2004 that: -
“Clearly, the advocates as did their client knew who was being sued and understood the misdescription in the name of the defendant but that fact does not change the cause of action against it nor the substratum of the suit as well as the questions in dispute.”
36. In EMK Advocates v Rhombus Construction Company Limited [2021] eKLR, it was similarly held by Majanja J that:
“I can only conclude that raising the issue that the Advocates are a non-existent entity is an afterthought. I find that from the onset, the Respondent knew that it was dealing with Ericson Mungami Khayota, Advocate under the name and style of ‘EMK Advocates’. The correspondence and dealings show that the Respondent was not in any way confused or misled by Ericson Mungami Khayota, Advocate that it was dealing with another party or entity.”
37. In this case, it is evident from the pleadings and the documents adduced at trial that vide a Property Management Agreement dated 26th April 2015, the Appellant was engaged by Enkasaaara Management Limited (described in the plaint as Enkasaara Apartments) to manage the apartments on behalf of the owners. In the circumstances, I do hold and find that the trial court erred in dismissing the 1st Respondent’s claim against the 2nd Respondent. This was a case of pure misdescription of a party which could not defeat the 1st Respondent’s claim against the 2nd Respondent, particularly in view of the fact that all parties herein knew who was the beneficiary of the security services which was the subject of the 1st Respondent’s claim.
Whether the trail court erred in finding the Appellant liable for the sum claimed by the 1st Respondent.
38. The Appellant contends that it was improperly burdened with the obligation to pay the 1st Respondent, asserting that it was merely acting as a managing agent on behalf of the 2nd Respondent, Enkasaara Management Limited. The Appellant argues that the trial court misapplied the law of agency by imposing liability on a party that did not have a direct contractual relationship with the 1st Respondent.
39. In its judgment dated 22nd December 2023, the trial court acknowledged that the 1st Respondent had sued the wrong party, Enkasaara Apartments, rather than Enkasaara Management Limited, the actual legal entity responsible for the property’s management. Despite this finding, the trial court proceeded to hold the Appellant liable for the outstanding sum, citing its role as the managing agent.
40. It is a settled principle of law that an agent is not personally liable for obligations incurred on behalf of a disclosed principal unless the agent expressly or impliedly assumes such liability. This was succinctly articulated by the Court of Appeal in Anthony Francis Wareheim T/a Wareham & 2 others v Kenya Post Office Savings Bank (2004) eKLR, where it was held: -
“It was also prima facie imperative that the court should have dismissed the respondent’s claim against the second and third appellants for they were impleaded as agents of a disclosed principal contrary to the clear principle of common law that where the principal is disclosed, the agent is not to be sued.”
41. In the present case, the Facility Management Agreement executed between the 2nd Respondent and the Appellant clearly outlines the Appellant's role as a property manager. The Agreement conferred certain powers upon the Appellant, including the authority to engage service providers, such as the 1st Respondent, to provide security services for the apartments. However, Article 1 of the Agreement explicitly designates the Appellant as an independent service provider, not as a principal party to any contract entered into on behalf of the 2nd Respondent.
42. A review of the trial court’s judgment reveals that it failed to give due weight to the Facility Management Agreement and the financial statements presented by the Appellant. These documents demonstrated that the Appellant was merely facilitating payment on behalf of the 2nd Respondent and that it was not intended that the Appellant was to meet any liability accruing thereunder from its resources. The ultimate liability always rested with the owners of the apartments. The Appellant, being an agent, was only expected to account for how the collected monies (service charge) were utilized. If, for any reason, the 2nd Respondent felt that the Appellant did not satisfactorily account for the monies received/collected from its members, then the remedy that would be available is for an action against the Appellants for the recovery of any shortfall, but not to make the Appellant liable for liabilities owed to third parties.
43. From the record of appeal, it is evident that the 2nd Respondents appointed Auditors – Ochieng & Onyango Associates- to look into its books with a view of establishing whether the Appellant properly accounted for the service charge collected from its members. There is no evidence on record that the said audit was completed and the Appellants were found culpable.
44. It is, therefore, this court’s position that the trial court committed an error of law in finding that the Appellant was directly liable to the 1st Respondent for the unpaid invoices.
Deposition
45. Accordingly, this Court makes the following orders:
a. The appeal is hereby allowed.
b. That the judgment of the Small Claims Court delivered on 22nd December 2023 in SCCCOMM No. E6886 of 2023 is hereby set aside.
c. Judgment is hereby entered in favour of the 1st Respondent for a sum of Kshs. 327,399.36 against the 2nd Respondent.
d. Costs of proceedings, both in the lower court and in this appeal, are to be borne by the 2nd Respondent.
46. It is so ordered.
SIGNED, DATED, and DELIVERED IN VIRTUAL COURT
THIS 13TH DAY OF MARCH 2025
ADO MOSES
JUDGE
In the presence of:
Moses – Court Assistant