https://new.kenyalaw.org/akn/ke/judgment/kehc/2026/6970

REPUBLIC OF KENYA IN THE HIGH COURT OF KENYA AT NAIROBI COMMERCIAL AND TAX DIVISION CORAM: F. MUGAMBI, J CIVIL CASE NO. E168 OF 2019 BETWEEN SBM BANK OF KENYA ........................................... PLAINTIFF AND SILTECH SYSTEMS LIMITED ………….…….……. 1ST DEFENDANT SILVERSTER KURIA KINYANJUI ……….….……. 2ND DEFENDANT CHRISTOPHER STAUBO …………………………… 3RD DEFENDANT JOHN THIONG’O MWANGI ……………..……….. 4TH DEFENDANT CARLO VAN WAGENINGEN …………………..…. 5TH DEFENDANT JUDGMENT Introduction and Background 1. The Plaintiff (“the Bank”) filed the present suit through the Plaint dated 7th June 2019 stating that on 10th June 2013, it advanced a Term Loan Facility of USD 3,649,514 to the 1st Defendant (“the HCCCOMM E168 OF 2019 JUDGMENT Page 1 Company”) that was to be repaid over 120 months, with the first installment due 60 days after disbursement. The loan was secured by Further Legal Charge over the property L.R. No. 4860/13, Ndumbuini, Kiambu owned by the 2nd Defendant (“the charged property”), a Fixed and Floating Debenture over the 1st Defendant’s assets and Personal Guarantees and Indemnities from the 2nd, 3rd, 4th and 5th Defendants. 2. The Bank claims that the Company failed to adhere to the repayment terms, causing the loan account to fall into arrears and that despite demand notices, the Defendants did not regularize the account and the Bank exercised its statutory right of sale over the charged property on or about 31st July 2018. The sale realized Kshs. 67,550,000.00, which was credited to the loan account, however, the Bank claims that a deficit remained and as of 17th September 2018, it informed the Defendants of a deficit of USD 5,327,356.21 and Kshs. 1,759,772.06. That despite further reminders and demands, all Defendants have refused or neglected to repay the outstanding amounts and the Bank specifically states that the 2nd - 5th HCCCOMM E168 OF 2019 JUDGMENT Page 2 Defendants have failed to honor their personal guarantees. 3. For these reasons, the Bank prays for judgment against the Defendants, jointly and/or severally, for the outstanding loan amounts as of 7th June 2019 being USD 5,713,166.41 and Kshs. 1,931,548.91, Interest on these amounts at commercial rates from 7th June 2019, until payment in full and; costs of the suit. 4. The Company and the 2nd Defendant responded to the suit by way of a defence and counterclaim that was amended on 27th August 2020. They deny most of the Bank’s claims regarding the arrears, demand notices, and the statutory right of sale and specifically, the 2nd Defendant states he was never served with statutory notices before the charged property was sold. They claim the nature of the loan changed because the other directors 3rd, 4th, and 5th Defendants failed to authorize the loan for the Company and the loan facility effectively became a personal loan to the 2nd Defendant, secured by his own property. The 2nd Defendant alleges the Bank sold the charged property at a throw-away price far below its value as he claims HCCCOMM E168 OF 2019 JUDGMENT Page 3 the property was valued at Kshs. 450,000,000.00 but was auctioned for only Kshs. 67,550,000.00. For these reasons, the Company and 2nd Defendants pray that the Bank’s suit be struck out with costs. 5. In their counterclaim, the Company and 2nd Defendants reiterate that the loan was intended for the Company but became a personal loan to the 2nd Defendant when the other directors failed to agree. That the 2nd Defendant's property was used as security and when he could not pay, the Bank sold the charged property without a forced sale valuation, resulting in the property being sold at an undervalue of Kshs. 67,500,000.00. That as a result, the Bank has been harassing the directors of the Company causing embarrassment and they pray for payment to the Bank and to the Defendants, a declaration that the Bank should clear their names as loan defaulters, general damages, costs of the suit and interest. 6. On their part, the 3rd – 5th Defendants also responded by way of a defence and counterclaim dated 18th July 2019. They deny the Bank’s claim HCCCOMM E168 OF 2019 JUDGMENT Page 4 that they owe the USD 5,713,166.41 and Kshs. 1,931,548.91 also stating that the loan agreement was invalid, illegal, and fraudulent because it was never properly approved by the Board of Directors of the 1st Defendant. They claim the alleged board meeting of 15th May 2013 never actually took place, was not properly convened, and lacked a quorum and they state they did not attend it. That the Bank failed to ensure the loan documents were properly executed as they are missing a company seal, there is no valid spousal consent and the same is not attested by an advocate. 7. They assert that they did not approve the charge over the property, the debenture over the Company’s assets, or the personal guarantees and that the Bank sold the charged property at an undervalue at auction and failed to issue required statutory notices. That if any loan existed, it was taken and used personally by the 2nd Defendant and another company, Siltech Technologies Limited, not by them or the Company. As such, they pray for the Bank’s case to be dismissed with costs. In their counterclaim, the Defendants aver that the 2nd Defendant and the Bank wrongly made HCCCOMM E168 OF 2019 JUDGMENT Page 5 it appear that the 3rd – 5th Defendants had signed the offer letters, guarantee letters, and Board minutes as they claim they never met the advocate who allegedly witnessed their signatures. 8. They claim that the 2nd Defendant failed to get proper board approval, did not follow the Company’s articles of association, and ignored conditions precedent in the loan offer. That the 2nd Defendant ran the company informally, without proper board meetings or minutes and as such, they seek declarations that the board minutes, loan offer, and personal guarantees are fraudulent, null, and void, a declaration that the Bank’s sale of the 2nd Defendant’s property was illegal, general, punitive, and exemplary damages against the 2nd Defendant and the Bank and special damages of Kshs 36,000,000.00 being legal fees incurred in this case, costs and interest. 9. At the hearing, the Bank called its Manager, Corporate Recoveries, Juliet Wanjiru Mwangi, (PW 1) who relied on her witness statement dated 23rd May 2023 and produced the List and Bundle of Documents dated 7th June 2019 (PExhibit 1) and HCCCOMM E168 OF 2019 JUDGMENT Page 6 Further List and Bundle of Documents dated 23rd May 2022 (PExhibit 2). The Bank also called Walter Odhiambo (PW 2), an auctioneer at Garam Investments Auctioneers who produced the documents numbered 4-14 in the Bank’s Further List and Bundle of Documents dated 23rd May 2023 (PExhibit 3). It also presented Stanley Juma Muli (PW 3), a valuer at Accurate Valuers Limited who produced the Valuation Report dated 4th April 2018 found in the Further List and Bundle of Documents dated 7th May 2021 (PExhibit 4). 10. On the Defendants’ part, the 2nd Defendant (DW 1) testified on his own behalf and that of the Company relying on his witness statement dated 6th February 2023 and producing the List and Bundle of Documents of the same date (DExhibit 1- 4). The 5th Defendant (DW 2) also testified and he relied on his witness statement dated 18th July 2019 and he produced the List and Bundle of Documents of the same date (DExhibit 1-18) and documents number 3 & 4 of the Supplementary List and Bundle of Documents dated 13th October 2021. The 3rd Defendant (DW 3) also testified relying on his witness statement dated 16th HCCCOMM E168 OF 2019 JUDGMENT Page 7 October 2019. After hearing the parties, the court directed them to file written submissions which are on record and since the same are a mirror of the parties’ positions highlighted above, I will not rehash the same but make relevant references in my analysis and determination below. Analysis and Determination 11. As these are civil proceedings, it should not be lost that the court’s determination is on a balance of probabilities and is guided by the principle that he who alleges must prove. Denning J., in Miller V Minister of Pensions, [1947]2 All ER 372 discussed the burden of proof and he stated as follows: “That degree is well settled. It must carry a reasonable degree of probability, but not so high as is required in a criminal case. If the evidence is such that the tribunal can say: ‘we think it more probable than not’, the burden is discharged, but, if the probabilities are equal, it is not. Thus, proof on a balance or HCCCOMM E168 OF 2019 JUDGMENT Page 8 preponderance of probabilities means a win, however narrow. A draw is not enough. So, in any case in which the tribunal cannot decide one way or the other which evidence to accept, where both parties’ explanations are equally (un) convincing, the party bearing the burden of proof will lose, because the requisite standard will not have been attained.” 12. The aforementioned position has been espoused by our superior courts (see for instance Ignatius Makau Mutisya V Reuben Musyoki Muli, [2015] KECA 612 (KLR)). This judicial stance is further reinforced by statutory provisions, specifically sections 107 and 108 of the Evidence Act which provide as follows: “107. Burden of proof. (1) Whoever desires any court to give judgment as to any legal right or liability dependent on the existence of facts HCCCOMM E168 OF 2019 JUDGMENT Page 9 which he asserts must prove that those facts exist. (2) When a person is bound to prove the existence of any fact it is said that the burden of proof lies on that person. 108. Incidence of burden. The burden of proof in a suit or proceeding lies on that person who would fail if no evidence at all were given on either side.” 13. From the parties’ submissions, I find that the court is being asked to determine the following abridged issues: i. Whether the 1st Defendant duly approved the loan facility; ii. Whether the 3rd – 5th Defendants duly executed a personal guarantee and indemnity guaranteeing the loan facility; iii. Whether the statutory sale of the charged property was legal; iv. Whether the Bank is entitled to the prayers sought; HCCCOMM E168 OF 2019 JUDGMENT Page 10 v. Whether the Defendants’ counterclaims are merited; and vi. Who bears the costs of the suit? i. Approval of the Loan: 14. As stated, the directors of the Company denied attending or being notified of the board meeting on 15th May 2013, that purportedly approved the loan and that the 5th Defendant produced passport stamps showing he was outside the country on the date of the alleged meeting. They further submit that the Board Resolution is invalid because it lacks the Company Seal, was signed before the Conditional Letter of Offer existed, and that the Bank failed to call the Company Secretary to testify. 15. In response, the Bank submitted that the loan of USD 3,649,514.00 was advanced to the Company based on the Board Resolution dated 15th May 2013 and it relies on the rule in Turquand that as a third party acting in good faith, the Bank was entitled to assume the company’s internal procedures and authorizations were followed correctly. The Bank disputes the 2nd Defendant's HCCCOMM E168 OF 2019 JUDGMENT Page 11 claim that the facility was a personal loan, noting the funds were deposited into the Company’s account and the offer letter was executed by directors in their corporate capacity. On the 3rd – 5th Defendants’ claims that their signatures on the Letter of Offer and Guarantees were forged, they submit that argues these claims are spurious as the Defendants failed to produce any handwriting expert reports or police reports to substantiate fraud. 16. In its evidence, the Bank produced the produced the Board Resolution signed by all directors, including the 3rd –5th Defendants, authorizing the borrowing of USD 3,649,514 by Siltech Systems Limited, the Company (pgs. 1&2 of PExhibit 1). When this resolution was put to DW 1 during cross- examination, he confirmed that the said directors were present in that meeting and that the loan was actually advanced to the Company and that this was a company loan. He admitted that the loan was never repaid in as much as they had offered a repayment plan and that the Bank sold the charged property by way of an auction. HCCCOMM E168 OF 2019 JUDGMENT Page 12 17. The Bank also produced the Company’s bank account statements which indicate that the loan was disbursed into its account (see pgs. 36-51 of PExhibit 1). Further, the Letter of Offer also indicated that the loan was being offered to the Company (see pgs. 3-15 of the PExhibit 1). All these documents bear the Company’s name and is sufficient and satisfactory evidence that the loan was indeed issued to the Company and not the 2nd Defendant in his personal capacity. 18. The 3rd – 5th Defendants stated that they never executed any security of facility documents and that they were never present in the meeting of 15th May 2013 and that they never signed any resolution. When the Board Resolution was put to the 5th Defendant (DW 2) during cross- examination, he stated that the Defendants did not produce any contrary board resolution to show disapproval of the Company’s previous resolution. He also admitted that even though he disputed the signature therein, no handwriting expert report or police report for forgery was produced. HCCCOMM E168 OF 2019 JUDGMENT Page 13 19. The 5th Defendant also admitted the same about his signature on the Letter of Guarantee and Indemnity. He testified that there was no formal documentation protesting the loan and that he never formally indicated his refusal to sign the Guarantee. He also admitted that the Company had an account with the Bank’s predecessor and that it had already obtained an overdraft facility with the Bank and that as per Clause 3 of the Letter of Offer, the facility was to be “…used to convert the Overdraft into a term loan”. 20. On his part, the 3rd Defendant (DW 3) also denied signing the resolution and the guarantee and stated that he knew nothing about the running and ongoings of the Company as he was mostly in Turkana. However, he admitted that companies communicate through board meetings and resolutions and that the Bank was expected to rely on communication from a Company’s secretary. He also stated that he did not formally communicate his rejection of the loan application in writing and in as much as he denied his signature in the Board Resolution and Guarantee, he never reported the alleged forgery or write to the Bank to protest the demand. HCCCOMM E168 OF 2019 JUDGMENT Page 14 21. The aforementioned evidence can only lead the court to conclude that the 3rd –5th Defendants’ claim that the meeting of 15th May 2013 never took place is unsubstantiated. The 5th Defendant’s passport showing he was out of the country does not disprove the meeting as it is possible that he could have authorized his attendance or signed the resolution later. He actually admitted that as of 2013, the Company had the technology to lift signatures and that meetings could be held virtually. 22. It follows that the Bank was entitled to rely on the Board Resolution as proof of internal approval and as the Court of Appeal in Samuel Mureithi Murioki & Another V Kamahuha Limited, [2018] KECA 38 (KLR) ; held third parties dealing with a company in good faith are not required to inquire into the regularity of internal proceedings. A person dealing with a company is entitled to assume, in the absence of circumstances putting them on inquiry, that there has been due compliance with all matters of internal management of the company (also see in HCCCOMM E168 OF 2019 JUDGMENT Page 15 Royal British Bank V Turquand, 1856 A 11 ER. 886 ; “ the Rule in Turquand ” ) . 23. I find that the Letter of Personal Guarantee and Indemnity found at pgs. 18-26 of PExhibit 1 bear the signatures of all four directors, including the 3rd–5th Defendants and the signatures were attested by Ms. Mugure Thande, an advocate and there is no evidence that the attestation was irregular. As stated, the 3rd–5th Defendants failed to produce any handwriting expert report, police report, or forensic evidence to support their forgery claim. 24. I am in agreement with the Bank’s submission that allegations of of forgery must not only be pleaded but proved and to a standard higher than a balance of probabilities which is the civil standard of proof (see Kiarie & 2 Others V Magera, [2018] KECA 467 (KLR ) and Vijay Morjaria V Nansingh Madhusingh Darbar & Another, [2000] KECA 223 (KLR ). It is therefore my overall finding that the Company duly approved the loan facility as per the Board Resolution of 15th May 2013 and that the 3rd – 5th Defendants duly HCCCOMM E168 OF 2019 JUDGMENT Page 16 executed a personal guarantee and indemnity guaranteeing the loan facility. ii. Legality of the sale of the charged property: 25. The Defendants also sought to invalidate the sale of the charged property on the grounds that statutory notices were never issued and that the property was sold at an undervalue. However, the Bank produced statutory notices dated 19th March 2015 under section 90 of the Land Act and 22nd June 2015 under section 96(2) and the Auctioneer’s 45-day Notification of Sale dated 25th May 2018. All these notices were sent by registered post to the Company through its known address provided by the Defendants and certificates of postage were produced (see PExhibit 2). The auctioneer (PW 2) testified that he personally served the 2nd Defendant on 25th May 2018 and he signed for the documents at Oilibya Petrol Station in Westlands. 26. On the valuation of the charged property, the 2nd Defendant stated in his testimony that the valuation report dated 15th March 2016 and produced as DExhibit 1 was commissioned by HCCCOMM E168 OF 2019 JUDGMENT Page 17 himself for purposes of advising him on current market values and it was for presentation to a UK firm. He admitted that the valuation had nothing to do with the Bank and that the charged property was valued for purposes of “…presentation at FF Strategy Consulting (UK) Limited, 71-75 Street, Covent Garden, London, for mortgage purposes”. On its part, the Bank produced the Valuation Report dated 7th May 2021(PExhibit 4) which set out an open market value of Kshs. 90,000,000.00 and a forced sale value of Kshs 67,500,000.00. 27. It should not be lost that the duty of the Bank is to act in good faith and obtain the best price reasonably obtainable under section 97 of the Land Act in exercising its statutory power of sale and the Bank was obligated to sell the charged property as per the forced sale value and not the market value (see Shah & Another V I&M Bank Limited, [2024] KEHC 16303 (KLR)) . PW 1 and PW 2 testified and produced the Certificate of Sale dated 31st July 2018 indicating that the sale fetched Kshs. 67,550,000.00 which is above the forced sale value. It is therefore my finding that the charged property was not sold at an undervalue as HCCCOMM E168 OF 2019 JUDGMENT Page 18 claimed by the Defendants and that the sale was proper. iii. Entitlement of the prayers sought by the Bank: 28. The Bank’s position is that even after the sale of the charged property at Kshs. 67,550,000.00, an outstanding balance of USD 5,713,166.41 and Kshs 1,931,548.91 remains as at 7th June 2019. It produced loan statements (pgs. 36-51 of PExhibit 1) indicating debit balances of these outstanding sums. Section 176 of the Evidence Act creates a presumption in favour of the Bank on the terms that: “A copy of any entry in a banker’s book shall in all legal proceedings be received as prima facie evidence of such entry, and of the matters, transactions and accounts therein recorded.” This statement of account was produced without objection, meaning the court ought to admit it as a true and accurate entry unless demonstrated HCCCOMM E168 OF 2019 JUDGMENT Page 19 otherwise. The Defendants did not demonstrate any false entry in the statement. 29. In his testimony, the 2nd Defendant admitted default and difficulties in repaying the loan. Further, by its very definition in the 11th Ed. of Black’s Law Dictionary, a guarantee means to assume a suretyship obligation; to agree to answer for a debt or default; to promise that a contract or legal act will be duly carried out; or to give security for. Under the Guarantee and Indemnity, the 2nd – 5th Defendants as guarantors are jointly and severally liable to pay on demand any outstanding sums due from the Company. It is therefore my finding that the Bank is entitled to the reliefs sought in its plaint as it has proved its case on a balance of probabilities. iv. Merits of the Defendants’ counterclaims: 30. I have already found that the claim that the loan was personal is contradicted by the Board Resolution, Letter of Offer, and disbursement into the Company account, Further, the claim that the charged property was undervalued fails for lack of credible evidence as the evidence on record HCCCOMM E168 OF 2019 JUDGMENT Page 20 indicates that the property was sold above the forced sale value. I have found that the Defendants, as guarantors, are indebted to the Bank for the Company’s outstanding debt after the sale of the charged property and therefore, their prayer to clear their names as defaulters cannot be granted because they are actually defaulters for not honoring the demand from the Bank. It was also my finding that the forgery claim failed as there was no expert evidence, police report or report to the Advocates’ disciplinary body regarding Ms. Mugure Thande’s alleged false attestation. 31. Their negligence claim also fails and as the Bank acted reasonably in relying on the Board Resolution and executed documents and any irregularity in internal company management is a matter between the directors, not against the Bank. If anything, DW 3 admitted in his testimony that he was the one who was negligent for not keeping up with the ongoings of the Company. On special damages of Kshs 36,000,000.00 as legal fees paid for this matter, DW 2 admitted that he did not have any proof of paying this sum. A party HCCCOMM E168 OF 2019 JUDGMENT Page 21 claiming special damages must demonstrate that they actually made the payments before compensation is permitted. 32. A natural corollary of this has been that the courts have insisted that a party must present actual receipts of payments made to substantiate loss or economic injury. In this regard, our courts have held that only a receipt or invoices endorsed with the word “Paid” meets the test (see Total (Kenya) Limited Formally Caltex Oil (Kenya) Limited V Janevams Limited, [2015] KECA 822 . (KLR)] No receipts, fee notes, or retainer agreements were produced and therefore, I find that this claim was not strictly proved. 33. On general, punitive, and exemplary damages, I find that there is no basis as there was no fraud, malice, or oppressive conduct by the Bank as it acted within its statutory and contractual rights. In summary, I find that the Defendants’ defence is an attempt to avoid liability for a debt they guaranteed. They cannot claim ignorance of a loan that was discussed in board meetings and documented in company records. Their failure to HCCCOMM E168 OF 2019 JUDGMENT Page 22 attend meetings or read documents they signed is a breach of their fiduciary duties as directors, not a defence against the Bank. v. Costs of the suit and counterclaims: 34. I have found that the Bank has succeeded in its claim and the Defendants have failed in their defences and counterclaims. Under section 27 of the Civil Procedure Act, costs are awarded to the successful party unless there is good reason to order otherwise. No such reason exists in this matter and I exercise discretion and award the Bank costs for both the suit and the counterclaims. Conclusion and Disposition 35. In the upshot, I now make the following dispositive orders: i. Judgment be and is hereby entered in favour of the Plaintiff against the Defendants jointly and severally as follows: (a) USD 5,713,166.41; (b) Kshs.1,931,548.91; HCCCOMM E168 OF 2019 JUDGMENT Page 23 (c) Interest on (a) and (b) above at commercial rates from 7th June 2019 until payment in full; (d) Costs of the suit. ii. The 1st and 2nd Defendants’ Amended Counterclaim dated 27th August 2020 is dismissed with costs to the Plaintiff. iii. The 3rd, 4th and 5th Defendants’ Counterclaim dated 18th July 2019 is dismissed with costs to the Plaintiff. DATED, SIGNED AND DELIVERED IN NAIROBI THIS 21 ST DAY OF MAY 2026. F. MUGAMBI JUDGE Delivered in presence of: Ms Gakure for Wairoto for 3rd, 4th, 5th defendants Ngugi for 1st, 2nd defendants Mbogo for plaintiff Court Assistants: Lillian & Gloria HCCCOMM E168 OF 2019 JUDGMENT Page 24