Kenya Sugar Board v Mumias Sugar Company Limited & 2 others [2016] KECA 505 (KLR)
The bottom line
#Kenya's Court of Appeal confirmed that consent orders procured by fraud can be set aside, and that a company in receivership can still sue when it protects its own interests.
What this practically means
#Executive summary
#Key legal issues
#Setting aside of consent orders for fraud
The consent orders were vitiated by fraud: BSC was unaware of the suit, its advocate acted without instructions, the Receiver colluded with MSC against the debenture holder, and the second consent bore a forged signature. The trial judge should have set them aside.
The Court found that MSC knew BSC was under receivership and that KSB held a debenture over all its assets, yet sued without notice to KSB. The Receiver, an employee of MSC, acted in concert with MSC. The advocate recording the consent had no instructions from BSC, and the signature on the second consent was plainly forged. The Land Registrar also could not comply because prohibitory orders existed. The trial court's discretion was therefore exercised on wrong premises and had to be interfered with.
Trial court's reliance on third-party registration
The trial judge erred in declining to interfere because the suit land was allegedly registered in the name of Kaplony Limited; there was no evidence of such registration and the purported sale had in fact been set aside.
Apart from the Land Registrar's letter stating he could not transfer the land due to prohibitory orders, the trial court itself had on 10th October 2011 set aside the purported sale and reinstated BSC as registered proprietor. Correspondence between Kaplony and KSB about a sugar project conferred no proprietary rights and did not estop KSB from claiming the land.
Capacity of a company under receivership to file an appeal
BSC's appeal was competent despite the receivership, since the directors retain power to pursue an action in the company's interest that does not prejudice the debenture holder, and no timely competence objection was raised.
Applying the Supreme Court's decision in Samuel Kamau Macharia and Newhart Developments, the Court held that a receiver and manager does not usurp all functions of the board. Here the Receiver could not have sanctioned an appeal challenging his own actions, so the directors' residual power subsisted. Further, rule 104(b) barred a late competence objection where no application under rule 84 had been made since the 2014 consolidation.
Legal principles established
#- A consent judgment may only be set aside on grounds of fraud, collusion, or any reason which would enable the court to set aside an agreement; the presumption that a consent order recorded with counsel's consent binds the parties is rebuttable.
- The power given to a receiver to bring proceedings is an enabling provision that does not divest the directors of the company of their power to pursue a right of action in the company's interest where it does not prejudicially affect the debenture holder's charged assets.
- Under rule 104(b) of the Court of Appeal Rules, a respondent may not, without leave of the Court, raise an objection to the competence of an appeal which could have been raised by application under rule 84.
Court orders
#- 1.The appeal lodged by KSB is allowed
- 2.The ruling delivered by the trial court on 7th May 2012 in Bungoma HCCC No. 66 of 2011 is set aside
- 3.MSC shall bear KSB's costs of the appeal as well as the costs in the High Court matter
- 4.No order as to costs in favour of BSC and Busia Outgrowers Company Limited
- 5.Appeal No. 230 of 2012 by BSC is competent and is allowed, with MSC to bear KSB's costs of that appeal and the costs in the High Court
- On appeal from
- High Court of Kenya at Bungoma
- HCCC No. 66 of 2011
- Jurisdiction invoked
- First appellate jurisdiction over appeals from the High Court under the Constitution and the Court of Appeal's Rules (rule 104(b) invoked on competence objections)
Key timeline
#Practical implications
#Frequently asked questions
#Later judgments citing this (1)
#Judgments in the corpus that rely on this one. Where the Court said how it treated the authority, that is shown.
- Allan Symon Njugi Maina & another v Development Finance Company of Kenya & another[2018] KEHC 10236 (KLR)15 Nov 2018followed
Cite this brief
#Cite this brief
Caselaw, "Kenya Sugar Board v Mumias Sugar Company Limited & 2 others [2016] KECA 505 (KLR)", Case Analysis (2016). Civil Appeal No. 238 of 2012 (consolidated with Civil Appeal No. 230 of 2012). Source: https://new.kenyalaw.org/akn/ke/judgment/keca/2016/505/eng@2016-06-14
Suggested citation format for research notes or client memos. Always verify the original judgment before relying on any point.