Skip to content
AI-generated case briefs sourced from Kenya Law · Not legal advice
Caselaw
AI-generated case brief
Case Brief · caselaw.co.ke
Court of AppealDismissedCivil Appeal No. 246 of 2013

Arthi Highway Developers Ltd v West End Butchery Ltd & 6 others (Civil Appeal 246 of 2013) [2015] KECA 816 (KLR)

Court of Appeal
30 January 2015
PWP.N. WakiRNR.N. NambuyeGKG.B.M. Kariuki
15,008 words in judgment
View original judgmentRead on Kenya Law Watch case
AI-assisted case brief
·~60 min to read original · ~4 min brief

The bottom line

#

Kenya's Court of Appeal confirmed that land bought through forged company documents gives no valid title, even to innocent buyers who paid for it.

What this practically means

#

Executive summary

#
This was a first appeal to the Court of Appeal at Nairobi (Waki, Nambuye and G.B.M. Kariuki, JJ.A) by Arthi Highway Developers Ltd against a judgment of the High Court (Nyamweya, J.) which had declared fraudulent the forged transfer of shares and directorship of West End Butchery Ltd, the fraudulent transfer of the company's land (L.R. No. 7149/10, approximately 100 acres at Athi River) to Arthi, and the subsequent subdivisions and sales, and had ordered cancellation of the fraudulent registry entries and indemnities for the downstream purchasers. The Court of Appeal reduced the 34 grounds of appeal to three issues of law: whether the suit was procedurally filed, whether fraud was proved and its effect, and whether Sections 23 and 24 of the Registration of Titles Act protected Arthi and the subsequent purchasers. The court held the suit was properly instituted by the original directors on behalf of the company, the claim being multifaceted; that forged documents do not bind a company and constitute an exception to the rule in Turquand's case; that fraud was distinctly pleaded and proved, with Arthi and the Registrar of Titles party to it by abetting and perpetuating the fraud after knowledge of the challenge; and that indefeasibility under section 23 protects only title transferred by the proprietor, so no valid title passed to Arthi or to KMAH, Yamin or Gachoni. The court affirmed the trial judgment in its entirety and dismissed the appeal with costs. The judgment binds lower courts on the limits of the Turquand rule, the standard of proof of fraud, and the inapplicability of indefeasibility to title derived from fraudsters.

Questions the Court framed

#

The issues the Court set itself to decide, in its own words.

  1. 1.Whether the suit was procedurally filed in the High Court
  2. 2.Whether fraud was proved and if so, the effect of it on the transactions entered into by the parties
  3. 3.Whether Sections 23 and 24 of the Registration of Titles Act apply, and if so to what extent and effect

Key legal issues

#
01

Whether the suit was procedurally filed in the High Court without a board resolution

Holding

The suit was properly instituted. The original shareholders/directors gave instructions for the suit to be filed in the company's name; the claim was multifaceted (rectification of the company register and cancellation of land register entries), and no resolution by the purported fraudster-directors was required. The procedural issue had also been raised and rejected earlier without appeal.

Reasoning

The court held the claim was not merely about stolen shares but about a scheme to alter directorship to facilitate transfer of the company's land, so the company had the right to sue in its own name. It noted the Bugerere Coffee Growers rule requiring a resolution has been overruled in Uganda (United Assurance Co. Ltd v Attorney General) and applied in Kenya. The submission that the fraudsters could lawfully have passed a resolution to sue 'offends common sense.'

p. 11
02

Whether fraud was proved against Musa, Mwau, Arthi and the Registrar of Titles/Commissioner of Lands

Holding

Fraud in the share transfers and change of directors was proved; the documents were forgeries that did not bind West End, and the Registrar of Companies was complicit. Arthi, though not party to the initial fraud, abetted and perpetuated it by proceeding with subdivision and sales after knowledge of the challenge, and was found party to the fraud together with the Registrar of Titles.

Reasoning

The court re-evaluated the evidence as a first appeal: forged transfer instruments, a deceased transferor, forged signatures confirmed by a forensic examiner, no common seal, no entry in the register of members, and a missing registry file. Kamau's evidence showed knowledge of the challenge from March 2006 and of court proceedings, yet Arthi proceeded with subdivisions and sales, conduct amounting to complicity in and perpetuation of fraud.

p. 15
03

Whether Sections 23 and 24 of the Registration of Titles Act protected Arthi and the subsequent purchasers

Holding

Section 23 did not apply because West End never transferred the land as proprietor; the title Arthi exhibited was fake and passed no title to KMAH, Yamin or Gachoni. The bona fide purchaser defence, even if it arose, protects only against equitable interests and Arthi's conduct did not satisfy it.

Reasoning

The court confirmed the settled construction of section 23 (as in Dr. Joseph Arap Ngok v Justice Moijo ole Keiwua) that indefeasibility protects title issued on a transfer by the proprietor and is challengeable only for fraud or misrepresentation to which the owner is party. Since the transferor fraudsters had no title, no valid title passed, and neither Arthi nor downstream purchasers could claim indefeasibility.

p. 16

Legal principles established

#
  • A company that has been defrauded through forged instruments may sue in its own name; a forged change of directorship does not confer authority, and the original directors may instruct counsel to file suit on behalf of the company
  • Forged documents do not bind a company and constitute an exception to the rule in Turquand's case; outsiders dealing with a company are protected only against genuine internal irregularities, not forgeries
  • Fraud must be distinctly pleaded and proved to a standard above a balance of probabilities but not beyond reasonable doubt
  • Indefeasibility of title under section 23 of the Registration of Titles Act protects only title issued upon a transfer by the proprietor; a purchaser cannot invoke indefeasibility where the transferor was a fraudster who acquired no title, and a party who abets or perpetuates a fraud is a party to it

Court orders

#
  1. 1.The appeal is dismissed with costs
  2. 2.All the orders issued by the trial court are upheld, including the declarations of fraud and illegality of the share transfers and change of directors, the cancellation and expungement of the fraudulent entries from the Companies Registry, the declaration that the transfer of L.R. No. 7149/10 to Arthi and its subdivisions and sales were fraudulent, unlawful, null and void, cancellation of the relevant land registry entries, the orders for indemnity in favour of the 5th and 6th respondents, and the costs orders of the trial court

The bench

#

One judgment of the whole court — no separate or dissenting opinions.

PW
majority
RN
majority
GK
majority
On appeal from
High Court of Kenya at Nairobi
H.C.ELC. No. 167 of 2007
Jurisdiction invoked
First appellate jurisdiction over the High Court under the Constitution and the Court of Appeal Rules 2010 (appeal against entire judgment and decree)

Relief refused

#

Arthi's appeal on all 34 grounds, including the procedural challenge to the filing of the suit, the challenge to the finding of fraud, and the invocation of Sections 23 and 24 of the Registration of Titles Act

The original directors gave instructions for the filing of the suit; fraud was proved against Arthi and the Registrar of Titles; Arthi was not a bona fide purchaser and no valid title passed to it or to subsequent purchasers

p. 16

Costs

The appeal is dismissed with costs

Quotable passages

#

Verbatim from the judgment, each located to the page it appears on in the official PDF — so these can be cited and checked directly.

For the above reasons we find no merit in the procedural challenge and accordingly reject that ground of appeal.
p. 12Procedural challenge to institution of suit rejected
But the Rule does not apply, amongst other exceptions, where the corporate signature is forged or if the outsider knew of the internal non-compliance, or knew facts that would lead a reasonable person to inquire further.
p. 13Exception to the rule in Turquand's case for forgeries
Fraud was proved, and Arthi, as well as the Registrar of Titles were party to it. We so find
p. 15Finding of fraud against Arthi and the Registrar of Titles
Section 23(1) of the Act gives an absolute and indefeasible title to the owner of the property. The title of such an owner can only be subject to challenge on grounds of fraud or misrepresentation to which the owner is proved to be a party.
p. 15Settled law on indefeasibility of title under section 23 RTA
It is our finding that as between West End and Arthi, no valid Title passed and the one exhibited by Arthi before the trial court was an irredeemable fake. It follows that Arthi had no Title to pass to subsequent purchasers, and therefore KMAH, Yamin and Gachoni cannot purport to have purchased the disputed land or portions thereof.
p. 16No title passed to Arthi or subsequent purchasers
The upshot is that the decision of the trial court was right in principle and correct in law and we uphold it. We also uphold the various orders issued by that court. The appeal is dismissed with costs.
p. 16Disposition - appeal dismissed, trial judgment upheld

Issues in the judgment

#
minor

The judgment records the name of the appellant's counsel variously and the case 'Tatu Ngina & Co Emporium v. Virjee Brothers Ltd' is rendered elsewhere as 'Tatu Naiga & Emporium vs. Virjee Brothers Ltd', and 'Alberta Mae Gacii' appears as 'Alberta Mar Gacii' in the respondent's list of authorities

minor

The judgment spells the vendor's name inconsistently as 'James Alexander Sunds' and 'James Alexander Sand'

Key timeline

#

Practical implications

#

Frequently asked questions

#

Later judgments citing this (25)

#

Judgments in the corpus that rely on this one. Where the Court said how it treated the authority, that is shown.

Cite this brief

#

Cite this brief

Caselaw, "Arthi Highway Developers Ltd v West End Butchery Ltd & 6 others (Civil Appeal 246 of 2013) [2015] KECA 816 (KLR)", Case Analysis (2015). Civil Appeal No. 246 of 2013. Source: https://new.kenyalaw.org/akn/ke/judgment/keca/2015/816/eng@2015-01-30

Suggested citation format for research notes or client memos. Always verify the original judgment before relying on any point.