Kenya United Steel Company Limited v Kenya Commercial Bank Ltd & another [2005] KECA 225 (KLR)
The bottom line
#Kenya's Court of Appeal allowed a bank's receivership to proceed because the debtor company could not show that delaying it would ruin its appeal.
What this practically means
#Executive summary
#Key legal issues
#What must an applicant demonstrate to obtain an order of stay or injunction pending appeal under rule 5(2)(b) of the Court of Appeal Rules?
The applicant must satisfy the court of two matters: that the appeal or intended appeal is arguable, that is, not a frivolous appeal; and that if the order of stay or injunction is not granted, the appeal or intended appeal, were it to eventually succeed, would have been rendered nugatory by the refusal to grant the stay or injunction.
The court restated the settled principles for rule 5(2)(b) applications, citing Reliance Bank Limited (in liquidation) v Norlake Investments Limited, and anchoring them in S.M. Githunguri v Jimba Credit Corporation and J.K. Industries v Kenya Commercial Bank. Both conditions are cumulative: the applicant must satisfy the court of both arguability and nugatory prejudice. The court stressed that it proceeds with caution, confining the inquiry to the stay conditions so as not to prejudice the hearing of the main appeal.
Would the intended appeal be rendered nugatory if the stay or injunction sought were refused?
The court assumed, without deciding, that the intended appeal was arguable, but held that refusal of the stay would not render it nugatory; the second and decisive condition for a rule 5(2)(b) order therefore failed and the application was dismissed.
The court observed that the applicant had been advanced money by the bank, that its capacity to repay was weakening, and that its business had not been operational since 2003. The High Court had found it obvious that the plaintiff owed a large sum to the bank and that its capacity to repay was weakening by the day. Counsel for the respondents did not dispute that money was advanced and noted six years of failed attempts to secure a financier. On those facts the nugatory limb was not satisfied.
When may a court interfere in the passage of a receivership?
It is not appropriate for the court to interfere in the passage of a receivership unless it is shown that the conduct of the receivers and managers was seriously oppressive, or not in accordance with recognized principles of law and of commercial practice, or that there are clear and compelling reasons to do so.
Relying on this Court's decision in Hastings Irrigation Ltd v Standard Chartered Bank (K) Ltd, the court endorsed restraint in supervising receivers and managers appointed under a debenture. The applicant's contention that the right to appoint a receiver must flow from a valid debenture, and that the debentures were under challenge in the suit, did not meet that threshold. The court applied the principle in concluding that this was not a proper case in which to grant an order of stay.
Legal principles established
#- For an application under rule 5(2)(b) of the Court of Appeal Rules to succeed, the applicant must satisfy the court of two cumulative matters: first, that the appeal or intended appeal is arguable, that is, not frivolous; and second, that if the order of stay or injunction is not granted, the appeal or intended appeal, were it to eventually succeed, would be rendered nugatory by the refusal to grant the stay or injunction.
- It is not appropriate for a court to interfere in the passage of a receivership unless it is shown that the conduct of the receivers and managers was seriously oppressive, or not in accordance with recognized principles of law and of commercial practice, or that there are clear and compelling reasons to do so.
- On a rule 5(2)(b) application the Court of Appeal must proceed with caution and confine itself to determining whether the conditions for granting a stay have been satisfied, so as not to prejudice the hearing of the main appeal.
Court orders
#- 1.The application for stay of the order of Azangalala, J. delivered on 14th April, 2005 is dismissed.
- 2.Costs of the application are awarded to the respondents.
- 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 (application for stay of execution/injunction pending appeal)
Key timeline
#Practical implications
#Frequently asked questions
#Cite this brief
#Cite this brief
Caselaw, "Kenya United Steel Company Limited v Kenya Commercial Bank Ltd & another [2005] KECA 225 (KLR)", Case Analysis (2005). Civil Appli. NAI 109 of 2005 (59/2005 UR). Source: https://new.kenyalaw.org/akn/ke/judgment/keca/2005/225/eng@2005-06-03
Suggested citation format for research notes or client memos. Always verify the original judgment before relying on any point.