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Court of AppealAllowedCivil Appeal No. 255 of 1998

TONONOKA STEELS LIMITED vs EASTERN AND SOUTHERN AFRICA TRADE AND DEVELOPMENT BANK [1999] KECA 124 (KLR)

Court of Appeal of Kenya
13 August 1999
RKR. O. KwachPhilip Kiptoo TunoiTunoiLALakha
2,809 words in judgment
View original judgmentRead on Kenya Law Watch case
AI-assisted case brief
·~11 min to read original · ~4 min brief

The bottom line

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Kenya's Court of Appeal ruled that PTA Bank could not hide behind immunity for a commercial loan, and Kenyan courts can protect borrowers even when arbitration is set in London.

What this practically means

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Executive summary

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Tononoka Steels Limited ('the Borrower') sued PTA Bank for damages for breach of contract and a perpetual injunction restraining the appointment of a receiver under a Loan Agreement and Facility Agreement secured by charges over its Embakasi land, a debenture and guarantees. PTA Bank raised a preliminary objection that, by virtue of the Privileges and Immunities Act (Cap 179), Legal Notice No. 265 of 1991 and its Charter, it enjoyed absolute immunity from legal process in Kenya, and that the disputes were referable to arbitration in London under English governing law. Ole Keiwua, J upheld the objection, dismissed the Borrower's injunction application and struck out the suit with costs. The Court of Appeal (Kwach, Tunoi and Lakha, JJA) allowed the appeal. It held that the Minister could not validly extend absolute immunity to cover the Bank's commercial operations; only a qualified immunity consistent with international law and the restrictive doctrine exemplified by Trendex Trading Corporation Ltd v Central Bank of Nigeria was lawful. The loan transaction was purely commercial, so PTA Bank was not immune from this suit. Further, the London arbitration clauses did not oust Kenyan courts' residual jurisdiction to grant interim relief, such as restraining illegal realisation of security pending arbitration. The Court set aside the ruling, reinstated the suit, dismissed the preliminary objection, granted a temporary injunction in terms of prayer 3 of the Chamber Summons, and awarded the Borrower the costs of the application and appeal, with refund of costs paid under the decree within 30 days with interest.

Questions the Court framed

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The issues the Court set itself to decide, in its own words.

  1. 1.Whether the preliminary objection on PTA Bank's immunity from legal process under the Privileges and Immunities Act (Cap 179) and Legal Notice No. 265 of 1991 was sustainable
  2. 2.Whether the arbitration clauses in the Loan and Facility Agreements ousted the jurisdiction of the Kenyan courts
  3. 3.Whether the learned Judge was right to decline jurisdiction, dismiss the injunction application and strike out the suit

Key legal issues

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01

Scope of immunity from legal process granted to PTA Bank under the Privileges and Immunities Act and Legal Notice No. 265 of 1991

Holding

The purported absolute immunity was invalid in so far as it covered the Bank's commercial operations; only a qualified immunity consistent with international law could be extended.

Reasoning

The court reasoned that Parliament could not have intended absolute immunity across the board for a bank providing commercial financial services, as this would be against public policy and in breach of international law. Relying on the restrictive immunity doctrine in Trendex Trading, the court held that the nature of the transaction is the material consideration, and the loan transaction here was purely commercial, so the Bank enjoyed no immunity from this suit.

p. 4
02

Whether the English governing-law and London arbitration clauses excluded the jurisdiction of Kenyan courts

Holding

No; the clauses conferred jurisdiction over substantive disputes on the ICC in London but left Kenyan courts with residual jurisdiction over peripheral and interim matters.

Reasoning

The court held it would be absurd if a borrower whose security was being illegally sold in Nairobi could not approach the High Court for a temporary injunction, since the ICC in London could not assist. The officious bystander test showed the parties intended Kenyan courts to retain power to preserve the position pending arbitration, including restraining realisation of security.

p. 5
03

Correct disposition where a preliminary objection on jurisdiction fails

Holding

The Judge should have dismissed the preliminary objection, granted the temporary injunction, and stayed further proceedings rather than striking out the suit.

Reasoning

Having found the preliminary objection unsustainable on both immunity and arbitration grounds, the court concluded the Judge was plainly wrong to decline jurisdiction and strike out the suit. The proper course was to dismiss the objection, issue the injunction restraining immediate repayment pending arbitration, and stay proceedings rather than extinguish the suit.

p. 5

Legal principles established

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  • A Minister cannot validly extend absolute immunity under section 9 of the Privileges and Immunities Act to an international bank's commercial transactions; only qualified immunity excluding commercial operations is lawful.
  • An international organisation is not immune from suit in respect of purely commercial transactions even where a legal notice purports to grant absolute immunity.
  • An arbitration clause referring substantive disputes to a foreign forum does not oust the residual jurisdiction of Kenyan courts over peripheral and interim matters such as restraining illegal realisation of security.

Court orders

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  1. 1.Appeal allowed
  2. 2.Ruling and order of Ole Keiwua, J set aside
  3. 3.Suit reinstated
  4. 4.Preliminary objection by PTA Bank dismissed
  5. 5.Temporary injunction granted in terms of prayer No. 3 of the Chamber Summons dated 26th February 1998 restraining PTA Bank from seeking immediate repayment pending arbitration
  6. 6.Costs of the Chamber Summons and of the appeal granted to the Borrower
  7. 7.Any costs paid by the Borrower to PTA Bank under the decree to be refunded within 30 days with interest at court rates

The bench

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One judgment of the whole court — no separate or dissenting opinions.

RK
majority

Wrote the judgment

Philip Kiptoo Tunoi
majority
LA
majority
On appeal from
High Court of Kenya at Nairobi
Jurisdiction invoked
First appellate jurisdiction over the High Court (ruling in a suit); appeal against a ruling striking out the suit on a preliminary objection

Quotable passages

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Verbatim from the judgment, each located to the page it appears on in the official PDF — so these can be cited and checked directly.

In my opinion, the only immunity the Minister could validly extend to the PTA Bank under section 9 of the Act could only be qualified immunity which would not cover its commercial operations as a bank.
p. 3Qualified immunity for international organisations' commercial acts
I entertain no doubt at all that the transaction under consideration here was purely commercial and was not covered by the absolute immunity granted by the Minister under the Legal Notice.
p. 4Restrictive immunity - commercial transaction test
the Kenya courts retain residual jurisdiction to deal with peripheral matters and see to it that any disputes or differences are dealt with in the manner agreed between the parties under the Agreements
p. 5Residual jurisdiction notwithstanding foreign arbitration clause
I would allow this appeal, set aside the ruling and order of Ole Keiwua, J and substitute therefor an order reinstating the suit. I would also dismiss the preliminary objection taken by PTA Bank and grant the Borrower a temporary injunction in terms of prayer No.3 of the plaintiff's Chamber Summons dated 26th February, 1998.
p. 5Final orders - appeal allowed, suit reinstated, injunction granted
I would order that any costs paid by the Borrower to PTA Bank under the decree be refunded to the Borrower within 30 days and with interest at Court rates.
p. 5Final orders - refund of costs paid under the decree

Issues in the judgment

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minor

The judgment is headed 'JUDGMENT OF KWACH, JA' and signed by R. O. Kwach, but the concluding passage states the appeal is allowed 'in terms of the orders proposed by Lakha, J.A.', which is inconsistent with the attribution of authorship on the face of the judgment.

Key timeline

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Practical implications

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Frequently asked questions

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Later judgments citing this (4)

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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, "TONONOKA STEELS LIMITED vs EASTERN AND SOUTHERN AFRICA TRADE AND DEVELOPMENT BANK [1999] KECA 124 (KLR)", Case Analysis (1999). Civil Appeal No. 255 of 1998. Source: https://new.kenyalaw.org/akn/ke/judgment/keca/1999/124/eng@1999-08-13

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