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Supreme CourtDismissedPetition 18 (E020) of 2022

Shah & 7 others v Mombasa Bricks & Tiles Limited & 5 others

Supreme Court of Kenya
28 December 2023
Philomena Mbete MwiluP. M. MwiluSmokin Charles WanjalaS. C. WanjalaNjoki Susanna NdunguNjoki NdunguIsaac LenaolaI. LenaolaWilliam OukoW. Ouko
13,692 words in judgment
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·~55 min to read original · ~4 min brief

The bottom line

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Kenya's top court says equity can override a registered land title or share ownership.

What this practically means

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The Supreme Court ruled that a constructive trust—a legal tool to fix unfairness—can cancel a registered land title or shareholding if the owner got it through wrongdoing. This means even if you hold a title deed or share certificate, a court can take it away if you acted unconscionably. The decision confirms that equity, not just paperwork, matters in Kenyan property and company law.

Executive summary

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This was an appeal from the Court of Appeal's decision in Mombasa Civil Appeal No 117 of 2018. The dispute arose from a business restructuring arrangement in 2005 where the 1st appellant, a close friend, advised the respondents on how to save their property from a bank auction. The arrangement involved incorporating several companies and transferring the suit property. The respondents later claimed the 1st appellant had misrepresented his intentions and taken advantage of their vulnerable position. The High Court found the transactions valid, but the Court of Appeal reversed, holding that the 1st appellant was in a fiduciary relationship and had exerted undue influence, imposing a constructive trust on both the land and shares. The Supreme Court certified two issues of general public importance: whether a constructive trust can be imported into a land sale agreement to defeat a registered title, and whether it can be imported into a shareholding to disentitle a registered shareholder. The Court dismissed preliminary objections on jurisdiction, finding the appeal properly before it. On the merits, the Court held that a constructive trust can be imported into a land sale agreement to defeat a registered title, as it is an overriding interest under section 28 of the Land Registration Act and a lawful limitation on the right to property under article 24 of the Constitution. The Court also held that a constructive trust can be imported into a shareholding of a company, as section 104 of the Companies Act does not bar trust arrangements but only their entry on the register. The Court affirmed the Court of Appeal's findings and dismissed the appeal, ordering each party to bear its own costs. The Court also directed that the security for costs be refunded to the appellant.

Questions the Court framed

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

  1. 1.Whether the petition satisfies the jurisdictional threshold under article 163(4)(b) as read with section 15 of the Supreme Court Act
  2. 2.Whether a constructive trust can be imported into a land sale agreement to defeat a registered title therefrom
  3. 3.Whether a constructive trust can be imported into a shareholding of a company as to disentitle a registered holder of shares in a company obtained for valuable consideration

Key legal issues

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01

Whether a constructive trust can be imported into a land sale agreement to defeat a registered title

Holding

Yes, a constructive trust can be imported into a land sale agreement to defeat a registered title.

Reasoning

The court held that the doctrines of equity, including constructive trusts, are part of Kenyan law by virtue of section 3 of the Judicature Act. While article 40 of the Constitution protects the right to property, this right is not absolute and can be limited by law under article 24. Sections 25 and 26 of the Land Registration Act provide for the indefeasibility of title, but section 28 subjects registered land to overriding interests, including trusts. The court found that 'trusts' under section 28 include constructive trusts, and therefore a constructive trust can override a registered title where the circumstances, such as unconscionable conduct, demand it.

p. 25
02

Whether a constructive trust can be imported into a shareholding of a company to disentitle a registered holder of shares obtained for valuable consideration

Holding

Yes, a constructive trust can be imported into a shareholding of a company to disentitle a registered holder of shares.

Reasoning

The court examined section 104(1) of the Companies Act, which prohibits the entry of any trust on the register of members. However, relying on case law and commentary, the court held that this provision does not bar trust arrangements themselves, but only prevents their notation on the register. Shares are property under article 260 of the Constitution, and where wrongdoing is established, a constructive trust may be imposed as a remedy. The court agreed with the Court of Appeal that the circumstances of the case, involving unconscionable behaviour, justified the imposition of a constructive trust on the shares.

p. 28
03

Whether the petition satisfied the jurisdictional threshold under article 163(4)(b) of the Constitution

Holding

Yes, the petition satisfied the jurisdictional threshold, and the preliminary objections were dismissed.

Reasoning

The court addressed two limbs of the jurisdictional challenge. First, regarding non-compliance with procedural rules (e.g., notice of appeal, record of appeal), the court found these were not fatal, citing article 159(2)(d) of the Constitution on administering justice without undue regard to procedural technicalities. Second, regarding the scope of the appeal, the court held that while its jurisdiction on certification is narrower, it has discretion to determine the certified issues. The court found that the appeal was properly confined to the two certified questions of general public importance and dismissed the objections.

p. 19

Legal principles established

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  • A constructive trust can override a registered land title as an overriding interest under the Land Registration Act.
  • A constructive trust can be imposed on company shares even if the holder paid for them, despite the Companies Act.
  • The right to property under Article 40 of the Constitution is not absolute and can be limited by law, including equity.
  • Section 104 of the Companies Act only bars noting trusts on the register, not creating trust arrangements themselves.
  • Courts can use constructive trusts to remedy unconscionable conduct in property and share transactions.

Court orders

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  1. 1.A constructive trust can be imported into a land sale agreement to defeat a registered title therefrom
  2. 2.A constructive trust can be imported into a shareholding of a company as to disentitle a registered holder of shares in a company obtained for valuable consideration
  3. 3.The appeal dated July 28, 2022 is hereby dismissed
  4. 4.Each party shall bear its own costs
  5. 5.The sum of Kshs 6,000/-, deposited as security for costs upon lodging of this appeal, be refunded to the appellant

The bench

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

Philomena Mbete Mwilu
P. M. MwiluDCJ
Currently serving
majority
Smokin Charles Wanjala
S. C. WanjalaSCJ
Currently serving
majority
Njoki Susanna Ndungu
Njoki NdunguSCJ
Currently serving
majority
Isaac Lenaola
I. LenaolaSCJ
Currently serving
majority
William Ouko
W. OukoSCJ
Currently serving
majority
On appeal from
Court of Appeal at Mombasa
Civil Appeal No 117 of 2018
Jurisdiction invoked
Article 163(4)(b) of the Constitution

Relief refused

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Setting aside the Court of Appeal judgment and reinstating the High Court judgment

The court declined to re-open the merits of the Court of Appeal decision, stating that 'Litigation has to come to an end' and that 'Re-opening the facts in our view is not appropriate under circumstances'.

p. 29

Costs

Each party shall bear its own costs

Quotable passages

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

A constructive trust can be imported into a land sale agreement to defeat a registered title therefrom
p. 8 Constructive trust overriding registered title
A constructive trust can be imported into a shareholding of a company as to disentitle a registered holder of shares in a company obtained for valuable consideration
p. 8 Constructive trust in shareholding
The appeal dated July 28, 2022 is hereby dismissed
p. 30 Final order dismissing appeal
Each party shall bear its own costs
p. 7 Costs order
A constructive trust is thus an equitable instrument which serves the purpose of preventing unjust enrichment.
p. 23 Purpose of constructive trust
We have also established that constructive trusts can arise in various circumstances, including in land sale agreements.
p. 25 Applicability of constructive trust to land sale agreements

Key timeline

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2005
Business restructuring arrangement between parties to save property from auction.
2018
Court of Appeal imposed constructive trust on land and shares, reversing High Court.
2022-07-28
Appeal lodged at Supreme Court challenging the constructive trust rulings.
2023
Supreme Court dismissed appeal, affirming constructive trust can defeat registered title and shares.

Practical implications

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For lawyers

Plead constructive trusts in property disputes

When advising clients with weak contractual claims, consider pleading a constructive trust based on unconscionable conduct. The Supreme Court confirmed this remedy can override registered title and share registers. Gather evidence of fiduciary relationships, undue influence, or misrepresentation to support the claim.

For businesses

Verify counterparty conduct in deals

If you acquire land or shares through a deal where the seller was vulnerable or you had a close relationship, a court may later impose a constructive trust. Conduct due diligence on the transaction's fairness, not just the title. Document arm's-length negotiations and independent advice to reduce risk.

For individuals

Title deeds are not absolute protection

Owning a registered title or shares does not guarantee you keep them if you obtained them unfairly. If you helped a friend or relative in a property deal and later took ownership, a court can reverse it. Keep records of fair dealings and avoid taking advantage of someone's distress.

Frequently asked questions

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What is a constructive trust in Kenya?+

A constructive trust is a court-created remedy to fix unfairness. It treats someone who holds property or shares as a trustee for the true owner, even if the legal documents say otherwise. The Supreme Court confirmed it can override registered titles in Kenya.

Can a registered land title be cancelled in Kenya?+

Yes, if the title was obtained through unconscionable conduct. The Supreme Court ruled that a constructive trust is an overriding interest under the Land Registration Act, meaning it can defeat a registered title even if the holder paid for it.

Does the Companies Act prevent trusts on shares in Kenya?+

No. Section 104 only stops trusts from being noted on the share register, but it does not stop courts from imposing a constructive trust on shares. The Supreme Court confirmed that shares are property and can be subject to trust remedies.

What does this Supreme Court case mean for property buyers in Kenya?+

Buyers must ensure the seller acted fairly, especially in close relationships. Even if you get a title deed, a court can take it away if the deal involved undue influence or misrepresentation. Always get independent legal advice and document the transaction properly.

Later judgments citing this (25)

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

Cite this brief

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Cite this brief

Caselaw, "Shah & 7 others v Mombasa Bricks & Tiles Limited & 5 others", Case Analysis (2023). Petition 18 (E020) of 2022. Source: https://new.kenyalaw.orghttps://new.kenyalaw.org/akn/ke/judgment/kesc/2023/106/eng@2023-12-28

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