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Court of AppealDismissedCivil Appeal No. 1 of 2008· [2013] KECA 59 (KLR)

Abdulkadir Shariff Abdirahim & another v Awo Shariff Mohammed T/A A. S. Mohammed Investments [2013] KECA 59 (KLR)

Court of Appeal of Kenya
20 December 2013
PWP. N. WakiGKG. B. M. KariukiKMK. M'inoti
7,279 words in judgment
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The bottom line

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Kenya's Court of Appeal confirmed that an oral loan agreement is enforceable, and defences like illegality must be raised at trial, not on appeal.

What this practically means

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Executive summary

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This was a first appeal from the judgment of Kasango, J (16th February 2006, HCCC No. 329 of 2003) which ordered the 1st appellant to pay the respondent US$200,000 and KShs.800,000 with interest and costs, the suit having been dismissed against the 2nd appellant. The claim arose from an oral agreement under which the respondent remitted US$200,000 to the account of D. K. Tosh Ltd in the UK on the 1st appellant's promise to repay it with a 'maturity profit' of KShs.800,000 within two weeks, supported by a written acknowledgement dated 23rd August 1997 on the letterhead of A. S. Abdirahim Enterprises signed by the 2nd appellant. The 28 grounds of appeal were reduced to six issues: weight of evidence, enforceability under section 3(1) of the Law of Contract Act, illegality as a wager or unlicensed banking business under the Banking Act, exclusion of handwriting expert evidence, and trial judge bias. The Court of Appeal, in a single judgment of the court delivered by Waki, G.B.M. Kariuki and M'inoti, JJ.A, rejected the appellants' invitation to apply Islamic Sharia law, holding that the dispute is governed by the laws of Kenya. It held that section 3(1) of the Law of Contract Act applies only to guarantees, that the agreement was not a wager and fell outside the Banking Act, and that in any event the illegality arguments failed because they were never pleaded or raised at trial. On the facts, the court independently re-evaluated the evidence, found the appellants were not witnesses of truth, and affirmed that the fraud was proved to the standard in R. G. Patel v Lalji Makanji. The appeal was dismissed with costs to the respondent and the High Court judgment affirmed.

Key legal issues

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01

Enforceability of an oral agreement under section 3(1) of the Law of Contract Act

Holding

Section 3(1) does not apply; it governs guarantees and special promises to answer for another's debt, not a direct loan agreement between the parties.

Reasoning

The provision traces to section 4 of the Statute of Frauds 1677, whose object was to protect guarantors. The 2nd appellant was not strictly a guarantor of the 1st appellant's debt. Nothing in section 3(1) requires a direct agreement between lender and borrower to be in writing or evidenced by a memorandum signed by the parties. The authorities cited by the appellants concerned contracts contrary to statute or section 3(3) land dispositions and were inapplicable.

p. 5
02

Whether the agreement was illegal as a wager, game of chance or unlicensed banking business

Holding

It was not; it was a specific private agreement for repayment of US$200,000 with a profit of KShs.800,000, outside the Banking Act and not a wager.

Reasoning

The Banking Act defines banking business as accepting deposits from members of the public and employing them. There was no evidence the respondent carried on such business publicly; this was a one-off transaction. Similarly, a fixed-profit short-term loan is not a game of chance or wager.

p. 5
03

Failure to plead illegality

Holding

Illegality grounds failed because they were never pleaded or raised at trial.

Reasoning

Under the former Order VI Rule 4 of the Civil Procedure Rules, matters showing illegality making a claim unmaintainable must be specifically pleaded. The appellants never pleaded them even when amending their defence; the respondent could not answer them and the trial court never considered them. The court cited Openda v Ahn and distinguished Standard Chartered Bank v Intercom Services, which applies only where the transaction is ex facie illegal.

p. 7
04

Whether the judgment was against the weight of evidence and whether fraud was proved to the requisite standard

Holding

The appeal court independently re-evaluated the evidence and found sufficient support for the trial judge's findings; fraud was proved to the standard in R. G. Patel v Lalji Makanji.

Reasoning

A first appeal is by way of retrial, but findings of fact are interfered with cautiously. The appellants' denial of knowledge of D. K. Tosh Ltd was contradicted by their advocates' pre-litigation letter mentioning that company before the plaint disclosed it, and they denied matters they had themselves pleaded. This evidence, assessed against credibility, met the standard of proof for fraud - more than a balance of probabilities but less than beyond reasonable doubt.

p. 11
05

Alleged bias of the trial judge and exclusion of handwriting expert evidence

Holding

Both complaints lacked substance; the judge accommodated the appellants and properly refused to admit documents not disclosed in discovery.

Reasoning

The record showed the appellants and their advocates repeatedly sought adjournments and attempted to stall the hearing. The judge allowed their summons to call further evidence but declined to let DW3 produce documents not subject to discovery. There was no basis for the charge of bias.

p. 12

Legal principles established

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  • Section 3(1) of the Law of Contract Act applies only to guarantees and special promises to answer for another's debt; it does not create a universal requirement that all agreements be in writing to be enforceable.
  • A party must specifically plead illegality in its defence; an appellate court will not entertain illegality arguments raised for the first time on appeal where the transaction is not ex facie illegal.
  • A private one-off money agreement does not constitute 'banking business' under the Banking Act merely because a profit element was charged.
  • A first appellate court re-evaluates evidence but will be slow to disturb trial court factual findings.

Court orders

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  1. 1.The appeal is dismissed with costs to the respondent
  2. 2.The judgment of Kasango, J ordering the 1st appellant to pay US$ 200,000 and KShs. 800,000 with interest from 5th June 2005 and costs of the suit is upheld

Authorities

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Legislation

  • Constitution of Kenya(general reference re application of Islamic law)
  • Judicature ActSection 3
  • Law of Contract ActSection 3(1), Section 3(3)
  • Banking Act(definitions of banking business and financial business)
  • Bills of Exchange ActSection 26
  • Civil Procedure RulesFormer Order VI Rule 4 (present Order 2 Rule 4)
  • Exchange Control Act(referred to in Patel v Singh)
  • Statute of Frauds, 1677Section 4

Cases cited (17)

  • Patel v Singh (No 2)
    (1987) KLR 585
  • Napier v National Business Agency Ltd
    (1951) 2 All ER 264
  • Machakos District Cooperative Union Limited v Philip Nzuki Kiilu
    Civil Appeal No. 122 of 1997
  • Paramount Bank Ltd v Qureishi & Another
    (2005) 1 KLR 730
  • Agricultural Finance Corporation & Another v Kenya Alliance Insurance Co Ltd & Another
    (2002) 1 KLR 231
  • Thorp v Holdsworth
    (1876) 3 Ch. D 637
  • Palmer v Guadagni
    (1906) 2 Ch 494
  • Scott v Brown, Doering, McNab & Co
    (1892) 2 QB 724
  • Mistry Amar Singh v Kulubya
    (1963) EA 408
  • Standard Chartered Bank Ltd v Intercom Services Ltd & 4 Others
    (2004) 2 KLR 183
  • R. G. Patel v Lalji Makanji
    (1957) EA 314
  • Urmila v Barclays Bank & Another
    (1979) KLR 76
  • Selle and Another v Associated Motor Boat Company Ltd & Others
    [1968] EA 123
  • Seascapes Ltd v Development Finance Company of Kenya Ltd
    (2009) KLR 384
  • Peters v Sunday Post
    (1958) EA 424
  • Susan Munyi v Keshar Shiani
    Civil Appeal No. 38 of 2002 (Unreported)
  • Openda v Ahn
    (1983) KLR 165
On appeal from
High Court of Kenya at Nairobi, Milimani Commercial Courts
HCCC No. 329 of 2003
Jurisdiction invoked
First appeal from the original jurisdiction of the High Court under the Court of Appeal's appellate jurisdiction (Judicature Act, Cap 8)

Key timeline

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Practical implications

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Frequently asked questions

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Later judgments citing this (10)

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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, "Abdulkadir Shariff Abdirahim & another v Awo Shariff Mohammed T/A A. S. Mohammed Investments [2013] KECA 59 (KLR)", Case Analysis (2013). Civil Appeal No. 1 of 2008. Source: https://new.kenyalaw.org/akn/ke/judgment/keca/2013/59/eng@2013-12-20

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