[1998] KECA 252 (KLR)

REPUBLIC OF KENYA

N THE COURT OF APPEAL

AT NAIROBI

(Coram: Gicheru, Pall & Owuor JJ,A)

CIVIL APPLICATION NO. NAI. 215 OF 1998 (86/98 UR)

BETWEEN

MAIMME MANAGEMENT LIMITED )

DAVY KOECH ) ..........................APPLICANTS

AND

HERITAGE BANK LIMITED (In Liquidation) ...............RESPONDENT

(Application for stay of execution from the ruling of the High Court of Kenya (Hon. Justice Kasanga Mulwa) dated 31st August, 1998

in

H.C.C.C. No. 1745 of 1998)

**********************

RULING OF THE COURT

The application before us has been brought under rules 5(2) (b) of the Rules of this Court. The 1st applicant is a limited liability Company known as Maimme Management Ltd., while the 2nd applicant Davy Koech is the registered owner of a property known as L.R. No. 3734/776 Nairobi. Registered against the Title of this property is a charge in favour of the respondent, Heritage Bank Limited.

On the 31st of August, 1998, the superior Court (Kasanga Mulwa J.) dismissed an application which sought to restrain the respondent from advertising, selling, disposing or transferring the 2nd applicant's property until the suit filed in the superior Court had been finalized.

The applicants were dissatisfied with the superior Court's ruling and have accordingly filed a Notice of Appeal.

The orders they now seek from this Court are firstly to stay the execution of the orders of the superior court and secondly restrain the respondent from dealing with the said property in any manner that would be detrimental to the 2nd applicant's interest. The three grounds upon which the applicants' application is based are that the appeal they intend to file would be rendered nugatory if the orders they are seeking are not granted, that they have an arguable appeal before this Court and that they would suffer irreparable loss and damage if the orders sought were not granted. The subjectmatter of the applicants' intended appeal is the piece of land referred to at the beginning of this ruling which was charged to secure an off-shore loan of K.Shs.30,000,000/-. It is of substantial value.

The 1st applicant applied for the off-shore loan facility from National Bank of Detroit U.S.A. The Detroit Bank agreed to provide the facility subject to the 1st applicant providing a suitable Letter of Credit from a local Bank to protect the former Bank's interest. This was the basis upon which the 1st applicant approached the respondent, Heritage Bank, then called Export Bank of Africa Ltd. The respondent agreed to provide the Letter of Credit subject to the 1st applicant providing a suitable security to protect their interest, should the 1st applicant default in payment.

The 1st applicant then approached the 2nd applicant, who offered his property for the required security and a charge was created over it on the 13th day of March, 1996.

On the 15th day of May, 1996, a draft Letter of Credit, apparently, approved by the Detroit Bank and all the other details including the off-shore co-ordinates, was submitted to the respondent. The respondent did not provide or issue the agreed Letter of Credit until it was placed under Statutory Management on the 13th of September, 1996, and thereafter under liquidation.

The story as given by the respondent by way of an affidavit sworn by Dan Obiero, the Assistant Liquidation agent, is a little different in that it had been agreed between the parties that the 1st applicant would bear the expenses involved in perfecting the said security. Failure to complete the transaction and issue the Letter of Credit was attributed to the 1st applicant in that the necessary details were not made available to the respondent until the respondent had been placed under liquidation. On this basis, the respondent was validly owed the money that it had spent in the transaction and as agreed. At the time of coming to court, the amount was Ksh.643,901. 60 plus interest all amounting to about KSh.800,000. 00 (Eight hundred thousand shillings), this being the amount that the liquidator wanted to recover by exercising his statutory power of sale.

The substantive ground put forward before us and which counsel for the applicants will canvas at the hearing of the intended appeal is that failure on the part of the respondent to provide the Letter of Credit amounted to the whole objective of the transaction being frustrated. In the result, there was total failure of consideration thereby rendering the charge unenforceable. Consequently, the statutory power of sale cannot be exercised over a defective or un-enforceable charge. This according to counsel for the applicants is a substantial and serious issue for submission in their intended appeal. That may be so and on that account their intended appeal cannot be said to be frivolous. The subject-matter of the intended appeal is the property referred to earlier in this ruling.

It is threatened with sale. If disposed of, the applicants' intended appeal, if successful, will be rendered nugatory. In the circumstances, we allow the applicants' Notice of Motion and grant the orders sought in prayer A and B of the said Motion, subject to the applicant depositing within 30 days the sum of KShs. 486,555/- into an interest earning account with a branch of Barclays Bank of Kenya in the joint names of counsel of both sides. The costs occasioned by this Motion shall be in the intended appeal.

Dated and delivered at Nairobi this 9th day of October, 1998.

J. E. GICHERU ............................

JUDGE OF APPEAL

G. S. PALL ...............................

JUDGE OF APPEAL

E. OWUOR .................................

JUDGE OF APPEAL

I certify that this is a true copy of the original.

DEPUTY REGISTRAR