Industrial & Commercial Development Corporation (ICDC) v Patheon Limited

Civil Appeal No 74 of 2011

Court of Appeal at Nairobi

Alnashir Visram, F Sichale & S ole Kantai, JJ A

December 18, 2015

Reported by Beryl A Ikamari

Brief facts

Pan Vegetable Processors Ltd (PVP), under an agreement, processed dried vegetables for export by the Respondent. The Appellant was a shareholder and creditor of PVP and when PVP went insolvent, pursuant to a debenture, the Appellant placed PVP under receivership and appointed Mr Ephraim Majani as a receiver.

Under a lease agreement dated December 31, 1992, the receiver leased PVP's factory to the Respondent for 3 years at a monthly rent of Kshs. 500, 000/=. Additionally, there was an agreement between the receiver and the Respondent, that the Respondent would repair the premises and the receiver would reimburse the costs of the repairs.

In July 1994, the receiver issued an eviction notice to the Respondent after finding a party interested in purchasing the premises. The Respondent went to court seeking to challenge the eviction notice and at the Principal Magistrates Court at Nakuru, PMCC No. 1376 of 1994, the Respondent succeeded in obtaining orders against the eviction. In response, the Appellant filed another suit, Misc. Applic. No. 1179 of 1994 which sought the grant orders of certiorari and prohibition which would effectively set aside the orders issued by the Principal Magistrates Court.

Thereafter, the parties entered into a compromise which was recorded in Court. Under that compromise the Respondent was to vacate the premises, the costs of the repairs were to be assessed and the Appellant was to reimburse the Respondent money relating to the repairs. Any sums that were due from the Respondent under the tenancy were to be assessed and the suit was stayed.

The Respondent vacated the premises and a third party purchased those premises. The amount spent on the repairs was assessed and it was found to be Kshs.10, 698, 844/=.  The Respondent made various attempts seeking the pay in relation to the assessed sum but the Appellant declined to make payments.  The Appellant stated that the claim for repayment had arisen during receivership and the Respondent owed PVP Kshs. 6, 000, 000/= 

Thereafter, the Respondent filed a suit at the High Court for Kshs.10, 698, 414/=. The Appellant’s defence included contentions that the suit was res judicata as there were prior suits touching on the same claim for payments and that the proper party to the suit was the receiver and not the Appellant. The Appellant also stated that when the company went into liquidation calls were made for all creditors to prove their claims but the Respondent did not prove any claim.

The High Court on June 13, 2008, entered judgment in favour of the Respondent in the sum of Kshs.10, 698, 844/=. The Appellant challenged that decision at the Court of Appeal.

Issues

1. Whether the Appellant was entitled to reimbursement for the costs of repairs carried out on the suit premises.
2. Whether the person who was bound to make payments for the costs of repairs in the suit premises was the Appellant, a debenture holder of the company under receivership, and not the receiver.
3. Whether the relationship between the debenture holder who was also a majority shareholder and the receiver was one of principal and agent.

Company Law-receivership-agreements made during receivership-parties bound by agreements made during receivership-whether a receiver could be deemed to be an agent of a debenture holder who was also a majority shareholder in the company under receivership-whether under the circumstances a debenture holder could be liable under agreements entered into by a receiver.

Agency Law-principal and agent relationship-the receiver as an agent of a debenture holder-circumstances in which a receiver was appointed by a debenture holder who was also a majority shareholder of the company under receivership-whether there was principal and agent relationship under those circumstances.

Held

1. The lease agreement related to the suit property which was a run-down factory that needed repairs. There was evidence that the Respondent undertook to conduct the repairs on condition that the receiver would reimburse him and the receiver accepted that the repairs would be done on those terms.
2. The relationship between the Appellant, a debenture holder and the receiver was one of principal and agent. The receiver was appointed by the Appellant who was both a majority shareholder and a debenture holder in PVP. In addition, the receiver was an employee of the Appellant.
3. There had been a clear indication by the Appellant's Executive Director in a letter dated September 4, 1997 that the Appellant intended to reimburse the Respondent. The Appellant could not claim that its Executive Director lacked the authority to bind it to pay for the repairs.
4. The rule in Turquand's case was to the effect that whether or not the Board gave consent for the offer to meet payments for repairs in the letter of September 4, 1997, was an internal management issue which could not afford a defence to the Appellant. The Respondent was entitled to assume that the internal rules and regulations had been complied with.

Appeal dismissed.