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City restaurant owner battles for ‘goodwill’ fees for sale of business

The traditional practice of paying “goodwill” to acquire rights to use an already established business name has become the subject of litigation, with claims that it amounts to extortion.

A trader on Monday filed the petition, seeking a refund of Sh2.2 million, which he claims two directors extorted from him when they set it as a condition for allowing him to sell his business to their company.

Mr Jones Muhia, the proprietor of Eateries Restaurant at the Kenya Cinema Building on Moi Avenue, Nairobi, says he was coerced by two directors of Gatatha Company Limited (which owns the building) — Mr George Muturi and Mr Lucas Kagwamba — to pay Sh3 million, but he only managed to pay them Sh2,250,000 before they could consent to an agreement for him to sell the business to Ndovu Company Ltd.

In the case filed under a certificate of urgency at the High Court in Nairobi, lawyer Titus Koceyo is asking the court to enforce the law and compel Gatatha, Mr Muturi and Mr Kagwamba to pay Mr Muhia damages for psychological trauma and financial loss.

The applicant says this practice goes against the grains of legal tenets and should be curtailed.

Mr Muhia states that he was coerced to pay the money to the two directors of Gatatha Company Ltd in the name of goodwill to enable them consent to him selling his food business.

“The two directors of Gatatha, with undue influence and coercion extorted and unlawfully obtained Sh2,250,000 from me, thereby unjustly enriching themselves with the said money,” states Mr Muhia.

Following the pressure exerted on him by the directors, he gave in to their demands, as he desperately needed money to take his sick son to hospital.

Mr Koceyo says Mr Muhia was a tenant of Gatatha “before he entered into a sale agreement to sell and transfer the business as a going concern to the current proprietor, Ndovu Capital Company Ltd at a consideration of Sh6.5 million.”

“For the sale contract to be completed, the plaintiff was required to get consent from the landlord, Gatatha,” Mr Koceyo says in the court papers. The completion date of the sale agreement was given as June 30, 2016.

The plaintiff, who recorded the discussions and has provided mobile phone call data on the alleged demands, says he paid the two directors between April 28 and May 23, 2016.

The defendants have been given 15 days to respond to the allegations,  failure to which judgment will be entered in favour of Mr Muhia.