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Court of AppealPartially AllowedCivil Application No. Nai. 71 of 1998 (UR.25/98)· [1998] KECA 181 (KLR)

Nasir Ibrahim Ali & 2 others v Kamlesh Mansukhlal Damji Pattni & another [1998] KECA 181 (KLR)

Court of Appeal of Kenya
24 April 1998
JGJ. E. GicheruROR. S. C. OmoloASA. B. Shah
4,879 words in judgment
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The bottom line

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Kenya's Court of Appeal let a court-appointed receiver stay in place but forced him to submit regular accounts to protect the company's owners.

What this practically means

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Executive summary

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This is a ruling of the Court of Appeal at Nairobi (Gicheru, Omolo and Shah, JJ.A.) dated 24th April 1998 on an application under rule 5(2)(b) of the Court of Appeal Rules by Nasir Ibrahim Ali, Dinky International S.A. and World Duty Free Company Limited seeking a stay of all proceedings and orders in Nairobi High Court Civil Case No. 418 of 1998 (Kuloba, J.) pending an intended appeal. The underlying suit by the first respondent, Kamlesh Pattni, sought specific performance of an alleged sale and purchase of 100% of the shares in the third applicant, temporary injunctions, and the appointment of a Receiver/Manager. On 24th February 1998 Owuor, J. (Mrs.), acting ex parte, granted the injunctions and appointed Michael Scanlon as interim Receiver/Manager of the third applicant. The applicants, alleging forgery of the foundational documents, moved to discharge those orders and to strike out the plaint as against the third applicant; Kuloba, J. ruled on 24th March 1998 that those questions be dealt with at the inter partes hearing of the Receiver application. The applicants then lodged a notice of appeal and sought a stay. The Court of Appeal held the intended appeal arguable, particularly as regards the position of the third applicant as a separate legal entity, but declined to adjudicate on the validity of the Receiver's appointment at that stage. Observing that the appointment had been made without the accountability safeguards of Order XL rules 3 and 4 of the Civil Procedure Rules, and relying on Mulla on Civil Procedure on the purpose of receivership, the court preserved the subject-matter by ordering the Receiver/Manager to account quarterly to the Registrar of the superior court, with copies to the parties and liberty to examine the accounts. The application succeeded only to that extent, with costs in the intended appeal.

Key legal issues

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01

Arguability of the intended appeal

Holding

The intended appeal was not frivolous; there were substantial issues for discussion, particularly concerning the third applicant, a corporation distinct from its shareholders.

Reasoning

The court accepted counsel's submission that the third applicant, being a separate legal entity from the first and second applicants, raised substantial questions regarding its joinder and the enforceability against it of the Sale and Purchase Agreement between its shareholders and the first respondent. On that basis the intended appeal was held arguable, satisfying the first limb of the rule 5(2)(b) test, though the court did not adjudicate on the validity of the Receiver's appointment at that stage.

p. 6
02

Accountability of a Receiver/Manager appointed without the safeguards of Order XL rules 3 and 4

Holding

The appointment of the Receiver/Manager by the superior court on 24th February 1998 was made without the necessary safeguards as to accountability envisaged by rules 3 and 4 of Order XL; the court therefore directed that he account for his management, control and operations by submitting accounts quarterly to the Registrar of the superior court.

Reasoning

The court noted that the Receiver was appointed ex parte without security, without any requirement to submit accounts, and without responsibility for loss occasioned by wilful default or gross negligence as prescribed by Order XL rules 3 and 4. Relying on Mulla on Civil Procedure, the court emphasized that a receiver is an officer of the court holding property in custodia legis for the benefit of all parties, and that to preserve the subject-matter of the intended appeal the Receiver had to be clothed with a measure of accountability.

p. 6
03

Whether the court could adjudicate on the validity of the Receiver's appointment on the stay application

Holding

It was not open to the court, on an application under rule 5(2)(b), to adjudicate on the validity or otherwise of the appointment of the Receiver/Manager under Order XL rule 1; that question was left to the intended appeal.

Reasoning

The court confined itself to the limited purpose of the stay application, namely preserving the subject-matter of the intended appeal. Although both parties were anxious about the operational viability of the third applicant, the merits of the appointment could not be determined at the interlocutory stage and had to await the hearing of the intended appeal.

p. 6

Legal principles established

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  • A receiver appointed by the court is an officer of the court, not the assignee or representative of any litigating party, and must be clothed with the accountability safeguards prescribed by Order XL rules 3 and 4 of the Civil Procedure Rules, including furnishing security and submitting accounts.
  • The object and purpose of appointing a receiver is the preservation of the subject-matter of the litigation pending judicial determination of the parties' rights; the receiver holds property in custodia legis for the person who can make title to it.

Court orders

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  1. 1.The Receiver/Manager, Mr. Michael Scanlon, is ordered in terms of Order XL rule 3(a) and (b) of the Civil Procedure Rules duly to account for the management, control and operations of the third applicant in the Kenya Duty Free Complex
  2. 2.The Receiver/Manager shall submit to the Registrar of the superior court his accounts on or before the 24th day of every third month with effect from the date of the ruling until the hearing and determination of the applicants' intended appeal
  3. 3.Certified copies of the accounts shall be furnished to the applicants and to the first respondent, each of whom shall have liberty to examine the accounts and to apply in the superior court in connection therewith
  4. 4.Costs occasioned by the application to be in the intended appeal

Authorities

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Legislation

  • Civil Procedure RulesOrder XXXIX rules 1, 2 and 3
  • Civil Procedure RulesOrder XL rule 1
  • Civil Procedure RulesOrder XL rules 3 and 4
  • Civil Procedure RulesOrder V rules 21 and 27
  • Civil Procedure RulesOrder VI rule 13(1)(a)
  • Civil Procedure ActSection 3A
  • Court of Appeal RulesRule 5(2)(b)
  • Court of Appeal RulesRule 74
On appeal from
High Court of Kenya at Nairobi
H.C.C.C. No. 418 of 1998
Jurisdiction invoked
Rule 5(2)(b) of the Court of Appeal Rules (application for stay of proceedings and orders pending an intended appeal)

Key timeline

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Practical implications

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Frequently asked questions

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Later judgments citing this (1)

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Judgments in the corpus that rely on this one. Where the Court said how it treated the authority, that is shown.

Cite this brief

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Cite this brief

Caselaw, "Nasir Ibrahim Ali & 2 others v Kamlesh Mansukhlal Damji Pattni & another [1998] KECA 181 (KLR)", Case Analysis (1998). Civil Application No. Nai. 71 of 1998 (UR.25/98). Source: https://new.kenyalaw.org/akn/ke/judgment/keca/1998/181/eng@1998-04-24

Suggested citation format for research notes or client memos. Always verify the original judgment before relying on any point.