By Nyakundi Nyamboga
When National Bank of Kenya agreed to part with Sh10 million to Bungu Investments Ltd sometime in 1990, it never intended it to be a gift.
It gave it out as a loan. This is why it created a charge over an immovable property — LR No 7336/14 — in Nairobi and demanded a guarantee from one Wilson Ndolo Ayah to secure repayment of the loan.
But the highest court in the land had a surprise for the bank. Nearly 20 years later, they made it clear the loan, which had since grown more than five-fold, was irrecoverable.
The court’s pronouncement was confirmation of early findings by the High Court the loan was irrecoverable on account of flaws in the documents that secured the loan.
The High Court decision, rendered in 2000, was based on the fact that two documents — Instrument of Charge and Deed of Guarantee — had been prepared by a lawyer who, at the time, did not hold a "current advocates practising certificate". The bank had accepted them as security for the Sh10 million initial loan.
In no uncertain terms the High Court declared the two documents null and void ab initio (from the word go) and any money they purportedly secured was irrecoverable.
Both documents were drawn by Veronica Nyamodi and executed by Ayah for the benefit of Bungu Investments Ltd.
Procedural irregularities
Apparently aggrieved by the High Court’s decision, the bank moved the Court of Appeal, citing 25 grounds of appeal.
But the Court of Appeal summed them into two complaints around the trial court’s finding that the charge and deed of guarantee were ab initio, and the manner the trial court framed its judgement.
The bank claimed there were serious procedural irregularities in the writing of the High Court’s judgement. Philip Ransley, then a Commissioner of Assize, who wrote the judgement, made reference to an amended plaint dated July 17, 1997, yet that was the date of the plaint. The bank claimed this anomaly adversely affected their case.
The other issue raised was the judgement’s failure to deal with the bank’s claim for Sh57.3 million and testimony from its witnesses to the effect that Ayah had at some stage admitted the debt and negotiated repayment arrangement on behalf of Bungu Investments Ltd.
In a 12-page judgement, the Court of Appeal did not think it was necessary for the Commissioner of Assize to deal with the counterclaim or the defence of the bank "upon a finding that the charge and deed of guarantee had been prepared in contravention of Section 34 of the Advocates Act".
Unqualified advocate
On the effect of failure to obtain a current practicing certificate on the validity of documents drawn by the advocate concerned, the three-judge Bench held that any such documents were invalid and of no legal effect on the principle that courts would not "condone or perpetuate illegalities".
The judges said the bank still had the assistance of the law, in spite of what they had decided. The bank could, for instance, file a suit against the unqualified advocate to recover any money received as fees.
Section 85 of the Advocates Act also provides a fine of Sh50,000 against an advocate for acting as one while not holding a practicing certificate.
The advocate is also liable to disciplinary proceedings.
The judges dismissed the bank’s appeal as lacking in merit, but declined to order it to pay costs.
—The writer (nnyamboga@standardmedia.co.ke) is Standard Group Associate Editor — Legal
