How KCB lost Sh9.9m in efforts to recover loan

Benchwatch

Republic of Kenya

IN THE COURT OF APPEAL AT NAIROBI

CIVIL APPEAL No 83 of 2003

BETWEEN

KENYA COMMERCIAL BANK ....... APPELLANT

AND

SPECIALISED ENGINEERING COMPANY ..... RESPONDENT

BENCH: JUSTICES RIAGA OMOLO, PHILIP WAKI AND ONYANGO OTIENO

JUDGEMENT: 16.07.2010

By Wahome Thuku

In May 1977, the Kenya Commercial Bank advanced a loan to Morris and Company Ltd. The company charged its land and movable property as security.

After failing to repay the loan, KCB appointed a receiver on January 18, 1978 to manage the company’s property.

By then Morris and Company had rented out part of its premises to Specialised Engineering firm for use as a workshop. The latter had put up temporary structures and brought their own fixtures and fittings.

In May 1979, Specialised Engineering decided to move out. KCB moved to court and obtained orders stopping the company from carrying any goods out of the premises. The bank took over the goods.

Specialised Engineering filed a defence, arguing they were tenants to Morris and Company, and the fixtures and fittings in the premises were their property and not subject to the mortgage.

They also filed a counterclaim that KCB be ordered to release either the property or its value and pay damages for the detention. They listed all items they were demanding back.

On August 6, 1979, Specialised Engineering filed an application to have the injunction discharged or set aside.

On November 9, 1979 the company and KCB recorded another key consent. The company was to have its goods back and access the premises to remove them.

But KCB retracted and applied to have the consent set aside or discharged. Justice Harris J dismissed the application on January 16, 1980.

KCB appealed, but three judges dismissed the appeal and adopted Justice Harris’ ruling. The November 9 consent remained in force, and KCB was required to return the goods.

Specialised Engineering lawyers wrote numerous letters to the bank demanding the property, but the goods were never returned.

On May 6, 1981, Specialised Engineering filed an application for orders that the November 1979 consent be deemed to have extinguished the allegations made by KCB in their suit.

They also sought determination that KCB’s case had lost substratum.

The company also wanted their counterclaim listed for hearing and KCB ordered to return their property according to the consent order.

Same verdict

High Court Judge Daniel Aganyanya (now Court of Appeal judge) heard the application and dismissed it. Specialised Engineering appealed.

On March 11, 1988, the three appeal judges wrote individual judgements, but reached the same conclusion.

They dismissed some prayers but ordered the counterclaim by Specialised Engineering be listed for hearing.

Most importantly, they upheld that KCB should return the goods subject to the consent order.

That meant if KCB did not return the items, the question of their value still remained an issue to be determined.

The matter went quiet until August 1993, when KCB applied to have the counterclaim dismissed for want of prosecution (lack of prosecution). The application was dismissed.

The counterclaim was finally heard by High Court Judge Aaron Ringera (now retired).

On May 3, 2002 the court determined the value of the property held by KCB as Sh9,998,000. The bank was required to pay this amount plus interests. The judge later awarded Specialised Engineering costs of the counterclaim and interests.

On April 25, 2003, KCB filed this appeal against Ringera’s judgement.

One of the six main grounds challenged Ringera’s decision to assess the goods at the current value instead of at 1979 value.

After considering arguments and submissions by lawyers, the Court of Appeal concurred with Ringera that his role was to assess the value of the goods if they had not been returned.

"Ringera cannot be faulted in assessing the subject properties which had been ordered to be returned way back on March 11, 1988," the court ruled.

If the return had not been effected by KCB, the claim for the value, as alternative did not fizzle out.

That was what their Court or Appeal colleagues had decided in 1988 and they could not sit on appeal of that decision.

And although the value of the goods had not been specifically raised in the prayers, it was contained in the body of the counterclaim.

Reap from delay

The judges said the issue of value had been fully argued by the parties before Ringera.

They also held that Ringera was right in assessing the value of the goods not as it was in 1979, but as at September 2000.

They said KCB was only seeking to reap from their delay or refusal to return the goods. The assessment date of September 9, 2000 was not arbitrary. The judges decided not to interfere with Ringera’s judgement, and on July 16, after 31 years in court, the dispute was settled.

KCB’s appeal was dismissed as lacking merit. The bank was ordered to pay Sh9.9 million to Specialised Engineering, plus costs of the appeal.

— The writer is a court reporter with the Standard Group

wthuku@standardmedia.co.ke