[1982] KECA 5 (KLR)

IN THE COURT OF APPEAL

AT NAIROBI

(Coram : Madan & Potter JJA & Kneller Ag JA)

CIVIL APPEAL NO. 9 OF 1982

BETWEEN

THOMSON SMITH AIKMAN, ALAN MALLOY & OTHERS..........PLAINTIFFS

AND

BERNARD KIMANI MUCHOKI & OTHERS..............................DEFENDANTS

JUDGMENT

(Appeal from the ruling and order of the High Court at Nairobi Muli J in Criminal Case No 654 of 1982 dated 18th March 1982)

JUDGMENT

Madan JAOn February 11, 1982 the first appellants were appointed joint and several receivers and managers (hereafter jointly referred to as the receivers) of all the property and assets, first, of the second appellant (Mbo) charged by it to East African Acceptances (Estate Management Division) Limited and Barclays Bank International Limited (Acceptances and Bank respectively) acting under several debentures issued and created by the second appellant in favour of Acceptances and the Bank; secondly, the receivers were also similarly appointed by Acceptances in respect of all the property and assets of the third appellant (Loresho) charged by it under its debenture dated November 27, 1979. Loresho is a wholly owned subsidiary of Mbo. The receivers took possession, on the day of their appointment, of the property and assets of Mbo and Loresho consisting of two coffee estates, and appointed certain persons as their servants and agents for their management under their directives.

A suit was instituted in the High Court in the names jointly of the receivers and Mbo and Loresho as three plaintiffs against the three respondents as three defendants complaining that the three defendants who were or claimed to be Directors of Mbo and Loresho, and who since the appointment of the receivers on February 11 had no rights whatsoever to interfere in the management of Mbo and Loresho or in their and Loresho’s property and assets, on March 3, 1982 entered into possession of the coffee estates belonging to Mbo and Loresho and wrongfully and forcibly ousted the servants or agents of the receivers from possession and management of the property and assets of Mbo and Loresho, and refused, and were continuing unlawfully to do so, to permit the receivers or their servants or agents entering the premises. The prayers in the suit were (1) declarations that for so long as their appointments subsisted the receivers and their servants and agents had the sole right to manage Mbo and Loresho and their respective property and assets (2) injunctions lasting during the subsistence of the appointments of the receivers, restraining the defendants from interfering in any way with the management or possession of Mbo and Loresho or their respective property and assets; (3) injunctions restraining the defendants from making any statements whether oral or in writing to the effect that the plaintiffs were not entitled to possession and management of the property and assets of Mbo and Loresho.

The plaintiffs applied for injunctions in terms of the prayers in their plaint: also a further order that the first defendant deliver up to the receivers all the accounting books, documents, statutory books and documents and register of members of both Mbo and Loresho in his possession. The affidavit in support of the application voiced the fears that unless the defendants were immediately restrained by injunction as prayed (1) the security of Acceptances and the Bank would be put in jeopardy (2) a continuing confusion in the minds of the employees as to who had the authority to instruct them what to do (3) proper and orderly management of the estates would be impossible at a time when correct coffee management was absolutely vital, and (4) the physical safety of the managers lawfully appointed by the receivers was threatened.

There was an answering affidavit sworn by the first defendant, Mr Bernard Kimani Muchoki, who deponed, inter alia,that he was the chairman of both Mbo and Loresho; that Mbo in 1976 and Loresho in 1978 appointed Acceptances managers of their estates. In that capacity Acceptances was responsible for keeping proper books of account and rendering accounts from time to time to Mbo and Loresho. In 1980 differences between the parties came to a head as to how moneys received from the Coffee Board of Kenya for coffee delivered from the two estates had been utilized. When Mbo and Loresho demanded these accounts in January, 1982 Acceptances claimed to be owed a balance of Kshs 29,000,000 without giving any breakdown as to how this sum was owed, and threatened to appoint a receiver. As a gesture of good faith Mbo paid to Acceptances a sum of Kshs 4. 1 million on January 15, 1982. Since the accounts had not been agreed, and since Mbo and Loresho were and had always been able, ready and willing to pay off Acceptances, provided accounts were settled, Mbo instituted proceedings in High Court, which were pending, seeking (1) an account and (2) injunction restraining Acceptances from appointing a receiver as threatened that on January, 22 1982 Muli J adjourned the plaintiffs’ injunction application so that the parties may themselves reach a settlement. It was adjourned again for the same reason on February 11. On leaving the court, and unknown to the defendants, acceptances appointed a receiver jointly with the Bank. Mbo and Loresho still demanded that Acceptances render an account and if any moneys were found owing to it the same would be paid forthwith; that on march 4 a sum of Kshs 18,450,000 was remitted being the principal sum and interest due to the bank. Also on March 4, a sum of Kshs 5,200,000 was authorized to be remitted to the advocates of Acceptances being the amount payable to it by Loresho. Mbo and Loresho were ready, able and willing to pay any additional sums lawfully payable to the Bank and Acceptances. In these circumstances the Bank and Acceptances had “no right whatsoever to continue the appointment of receivership”, and following the said payments the defendants lawfully took possession, and were lawfully in possession and continue to be in possession of both Mbo and Loresho since March 4. Finally, the managers appointed by the defendants to manage the two estates were the same managers who had been managing the estates since 1976.

The record of appeal, however, shows, that Muli J on February 4, recorded a consent order adjourning the hearing of the application to March 10; in the meantime, he said the status quobe maintained and the defendants were not to interfere with the management of the two companies.

Before Muli J there was agreement between the parties that the receivers took control and management of Mbo and Loresho on February 11, and trouble erupted about three weeks later. Muli J dismissed the application in its entirety. Many grounds of appeal are propounded in this appeal against his ruling. In addition the defendants have filed notice of grounds for affirming the decision of the learned judge.

I would expressly refer only to ground of appeal eleven which reads:

“11. The learned judge erred in failing to comment or take any action whatsoever in relation to the Respondents’ continued disobedience of the learned judge’s direction to them to desist from interference with management pending the hearing of the applications.”

On their own admission contained in Mr Muchoki’s affidavit the defendants acted in total disregard of the caution administered and directions given by the court on February 4. However unpleasurable the task, a court of law is obliged to discharge its functional duty to uphold the dignity of law.

I would put out of the way another matter which was raised before the learned judge, and also before us, by Mr Muite; in this court the first ground for affirming the decision is to the effect that the suit did not have any possibility/probability of success in that the debentures sued on are void in law under the provisions of the Land Control Act (cap 302). The learned judge said that he had not had the advantage of what the defendants had in mind by way of defence to the main suit. He would not make any decision on this point and the parties must make an appropriate defence. Before us Mr Muite accepted that consent of the land control board was obtained to charge the various parcels of land the subject matter of the debentures.

An error of thought occurred when the learned judge said that the liability of Mbo and Loresho under the debentures was fully satisfied by the two payments made by them respectively, and to that extent(italics mine), then there could never be any justification for the appointment or retention of the appointed receivers under the already satisfied debentures. This was a strange self-instruction as, notwithstanding the two payments, not only were the debentures not fully paid – Mr Muchoki had deponed that Mbo and Loresho were ready to pay any additional sum which may be lawfully payable, the learned judge himself also said that the indebtedness in dispute amounted to some Kshs 21 m. He referred to it as a contingent liability yet to be ascertained, and, therefore, of no significance insofar as the injunction application was concerned.

The appointments of the receivers were lawfully made under debentures created by Mbo and Loresho themselves much before the two payments were made, which neither did nor could invalidate the appointments which were terminable only in some legally recognized manner. In addition, when the learned judge finished saying all else in his ruling, as a last piece, he admonished the defendants that they must refrain (from action) until the receivers were removed or lifted by an order of court, or by the debentures holders. The learned judge recognized the true significance of the situation for he said he would leave it to the parties to seek rescission of the appointments of the receivers. He spoke thus:

“Both Mr Deverell and Mr Muite conceded that the position in law was that once the receivers/managers are appointed legally and validly, the receivers step into the shoes of the Board of Directors. That the Board of Directors retained certain residual powers which were not discussed or disclosed. I agree with these concessions.

According to Mr Deverell and Mr Muite agreed with the facts, the receivers took control and management of the companies. That three weeks later trouble erupted. Hence this application for temporary or interlocutory injunction against the three defendants.”

Whatever residual powers may have been contemplated they must be quite irrelevant in the context of these proceedings.

It was not in dispute that when trouble erupted the appointments of the receivers had not been terminated, nor had they filed notice of ceasing to act. As a necessary concomitant of their appointments they were entitled by superior legal title to possession of all the property and assets of Mbo and Loresho, and they were the only persons so entitled. In the absence of rescission of the appointments of the receivers by the debenture holders, or notice ceasing to act by the receivers, or agreement between the parties, the only legal way the defendants could resume possession of the estates was under an order of court. Until then the defendants could not lawfully take and continue in possession of the estates. The defendants acted without any legal right in taking possession of the estates and they were continuing in possession thereof completely unlawfully.

The conditions for the grant of an interlocutory injunction were correctly considered by the learned judge by reference to the decisions of the Court of Appeal in EA Industries Ltd v Trufoods Ltd[1972] EA 420, Giella v Cassman Brown & Co Ltd.[1973] EA p 358, and Nsubuga and another v Mutawe[1974] EA 487; The conditions are (1) the probability of success (2) irreparable harm which would not be adequately compensated for by damages, and (3) if in doubt, then on a balance of convenience.

The conditions spelled out above for the grant of an interlocutory injunction were rightly understood but wrongly applied as follows: first, the appellants being lawfully in possession of the estates under the authority of the debentures executed by Mbo and Loresho, and the defendants having unlawfully seized and continuing in possession of the estates, the appellants had shown a clear and overwhelming prima facieprobability of success; the court ought never to condone and allow to continue a flouting of the law. Those who flout the law by infringing the rightful title of others, and brazenly admit it, ought to be restrained by injunction. If I am adding a new dimension for the grant of an interlocutory injunction, be it so. Equity will not assist law-breakers. This disposes of the second ground for affirming the decision. It was, therefore a limited approach by the learned judge to say that the injury which the plaintiffs may have suffered as result of the defendants’ trespass or acts were capable of compensation by an award of damages. I will not subscribe to the theory that a wrongdoer can keep what he has taken because he can pay for it. The real injury arose from the unlawful seizure of the estates by the defendants in defiance of the law. As in the circumstances the plaintiffs could not fail to succeed the status quofirst had to be restored. This disposes of the third ground for affirming the decision.

It was also both irrelevant, and a wrong premise, to exonerate the defendants on the ground that the remaining indebtedness to Acceptances was payable ‘by the companies’ (Mbo and Loresho) and not the defendants as such, and capable of recovery against the companies through court actions. The receivers had their remedy under the debentures. The plaintiffs could take action only against the defendants for their wrongful acts. It was they who committed the trespass. The learned judge considered that as liability was in dispute, it would be unfair and most unjustifiable to issue an injunction based on a contingent liability yet to be ascertained. This is an abstract with which I cannot agree. Quite frequently when an interlocutory injunction is granted the liability has not yet been ascertained. Themis would say that the learned judge’s thesis would render totally valueless the concept of sanctity of contract, security of mortgage debts, charges and debentures by sweeping the lost under the carpet, and then leaving the field free for insurgents to play havoc by perpetrating illegal infringements. That’s not the kind of legal legacy to leave for posterity.

On Mr Muchoki’s own sworn statement Acceptances were managing the estates at the time when the receivers were appointed, and the receivers appointed the same six manager who had been managing the estates since 1976, and they were confirmed in turn by the defendants after they seized possession to continue managing the estates; it seems to me that, if relevant, the balance of convenience did not arise in this case. This disposes of the fourth and final ground for affirming the decision.

It was for these reasons that at the conclusion of the arguments addressed to us we announced our unanimous decision allowing the appeal in the terms of the order made by us then.

Porter JA.I have had the advantage of reading in draft the judgment of Madan JA with which I fully agree. I would only add the observation that, in the field of the civil law, it is of the utmost importance that the courts uphold the rights of parties to commercial transaction. It is the firm tradition of the common law courts to do so, and if this tradition is departed from, the nation will suffer.

Kneller Ag JA. I have read the draft judgment of Madan JA and I agree with it.

The appellants made out before Muli J a prima faciecase with a probability of success. They were in possession of the estates under the terms of the debentures and were ousted by the three respondents who at first blush had no right to be there or to re-enter them because the receivers and managers had not discharged themselves and their appointments had not been revoked by consent or by any court order and the three respondents were, it seems, three of the directors of the appellant companies in receivership. The principal and interest due under each debenture were either not known because the account books and documents of the companies had not been delivered to the appellant receivers and managers or were not paid or not agreed to have been paid in full when Muli J heard the application for the temporary injunction.

The appellants also showed on the balance of probabilities, that the respondents would cause irreparable harm to the assets of the companies if not restrained by the grant of this temporary injunction because they had illegally supplanted the receivers and managers who alone in law could run the estates and their finances. Damages as compensation could not be an alternative because it was unlikely that these three respondents could meet them.

The balance of convenience did not fall to the considered but if it had then clearly it was in favour of halting the three respondents in their tracks and restoring the receivers and managers to their rightful positions.

Dated and Delivered at Nairobi this 16th day of June , 1982

C.B MADAN

..................................

JUDGE OF APPEAL

K.D.POTTER

................................

JUDGE OF APPEAL

A.A.KNELLER

.........................................

AG. JUDGE OF APPEAL

I certify that this is a true copy of

the original.

DEPUTY REGISTRAR