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Court of AppealDismissedCivil Application NAI 109 of 2005 (59-2005 UR)· [2005] KECA 205 (KLR)

Kenya United Steel Company Limited v Kenya Commercial Bank Ltd & another [2005] KECA 205 (KLR)

Court of Appeal
3 June 2005
Philip Kiptoo TunoiP.K. TunoiEOE.O. O'KubasuEGE.M. Githinji
1,565 words in judgment
View original judgmentRead on Kenya Law Watch case
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The bottom line

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Kenya's Court of Appeal let a bank appoint receivers over a struggling steel company, ruling that refusing the delay would not doom the company's appeal.

What this practically means

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Executive summary

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This is a single-judgment ruling of the Court of Appeal at Nairobi (Tunoi, O'Kubasu and Githinji, JJ.A.) on a notice of motion by Kenya United Steel Company Limited under rules 5(2)(b) and 49(1) of the Court of Appeal Rules, seeking stay of a High Court ruling by Azangalala, J. dated 14 April 2005 in H.C.C.C. No. 580 of 2003. The High Court had dismissed the applicant's interlocutory application restraining the bank from appointing receivers/managers over its Mombasa and Nairobi assets, the judge holding that the company did not challenge the 9 March 1998 debenture, that defects in the earlier debentures would not invalidate the financial facilities, and that the objections were an afterthought. Before the Court of Appeal, counsel for the applicant argued that the right to appoint a receiver must flow from a valid debenture and that receivership would kill the company; the respondents countered that no challenge had been raised to the debentures' validity and that the applicant's business had been non-operational since 2003. The court restated the twin rule 5(2)(b) criteria - an arguable appeal and nugatory-ness if stay is refused - and applied Hastings Irrigation, holding that the court will not interfere in the passage of a receivership absent serious oppression, departure from recognized principles of law and commercial practice, or clear and compelling reasons. Finding that even an arguable appeal would not be rendered nugatory, the court dismissed the application with costs to the respondents. The decision below was not disturbed; this ruling concerns only the interim stay.

Key legal issues

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01

Twin test for stay under rule 5(2)(b)

Holding

Both arguability and nugatory-ness must be satisfied; the applicant failed the nugatory-ness limb.

Reasoning

The court restated the well-established rule 5(2)(b) principles from Githunguri v Jimba and J.K. Industries. It observed that the applicant had been advanced money, its capacity to repay was weakening and its business had not been operational since 2003, so refusing stay would not render any success on appeal nugatory.

p. 3
02

Interference with receivership pending appeal

Holding

The court will not interfere in the passage of a receivership absent serious oppression, illegality or clear and compelling reasons.

Reasoning

Relying on Hastings Irrigation Ltd v Standard Chartered Bank, the court held that restraint of receivership requires proof that the receivers' conduct is seriously oppressive or contrary to recognized principles of law and commercial practice, or clear and compelling reasons - none of which the applicant demonstrated.

p. 3

Legal principles established

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  • An applicant under rule 5(2)(b) must satisfy the twin tests of an arguable appeal and that the appeal would be rendered nugatory if stay is refused.
  • The Court will not interfere in the passage of a receivership unless the receivers' conduct is seriously oppressive, contrary to recognized principles of law and commercial practice, or there are clear and compelling reasons to do so.

Court orders

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  1. 1.Application for stay of the order of Azangalala, J. delivered on 14th April 2005 dismissed
  2. 2.Costs of the application awarded to the respondents

Authorities

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Legislation

  • Court of Appeal Rulesrule 5(2)(b)
  • Court of Appeal Rulesrule 49(1)
  • Civil Procedure RulesOrder XXXIX rules 1, 2, 3 and 9

Cases cited (4)

  • Reliance Bank Limited (In Liquidation) v Norlake Investments Limited
    Civil Application No. NAI.93 of 2002 (unreported)
  • S.M. Githunguri v Jimba Credit Corporation Ltd
    [1988] K.L.R. 838
  • J.K. Industries Ltd v Kenya Commercial Bank Ltd
    [1982-88] 1 KAR 1088
  • Hastings Irrigation Ltd v The Standard Chartered Bank (K) Ltd & Others
    [1987] KLR 280
On appeal from
High Court of Kenya at Nairobi (Milimani Commercial Courts)
H.C.C.C. No. 580 of 2003
Jurisdiction invoked
Rules 5(2)(b) and 49(1) of the Court of Appeal Rules

Key timeline

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Practical implications

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Frequently asked questions

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Cite this brief

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Cite this brief

Caselaw, "Kenya United Steel Company Limited v Kenya Commercial Bank Ltd & another [2005] KECA 205 (KLR)", Case Analysis (2005). Civil Application NAI 109 of 2005 (59-2005 UR). Source: https://new.kenyalaw.org/akn/ke/judgment/keca/2005/205/eng@2005-06-03

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