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Court of AppealDismissedCivil Appeal No. 158 of 2010· [2018] KECA 118 (KLR)

Sheetal Kapila & another v Sudhir K. Shah & 27 others [2018] KECA 118 (KLR)

Court of Appeal
12 October 2018
2,859 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 ruled that fraud claims over KSh 176 million in bank certificates must go to full trial, not be struck out early.

What this practically means

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Executive summary

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This Court of Appeal judgment dismissed an appeal by Sheetal Kapila and the legal representatives of Ishan Kapila (deceased), who sought striking out of High Court Civil Suit No. 728 of 2003 as against them. The underlying suit was brought by eighteen plaintiffs against twenty-eight defendants, including the appellants as advocates allegedly involved in the fraudulent conversion of Bearer Certificate Deposits worth Kshs 176,050,000 held with Reliance Bank (in liquidation). The plaintiffs pleaded that although they learnt in November 1998 that their certificates had been discounted, they only discovered the alleged fraud - including the incorporation of Lama Limited as a vehicle of fraud - in 2002 after forensic investigations. The High Court (Ochieng, J.) had declined to strike out the suit under Order VI rule 13(1)(a) and (d) of the Civil Procedure Rules, holding it disclosed a reasonable cause of action and was not an abuse of process. The Court of Appeal, in a single judgment of the court delivered by Ouko, M'inoti and Sichale, JJA, affirmed that decision. It held that the limitation and conversion issues raised contested questions of fact - notably how the certificates were encashed while the originals remained with the plaintiffs - which could only be determined at trial on evidence tested by cross-examination. Applying the established standard that pleadings are struck out only in the clearest of cases, the court found no misdirection in the judge's exercise of discretion and dismissed the appeal with costs, while marking the appeal against the deceased 20th respondent as abated under rule 99 of the Court of Appeal Rules.

Key legal issues

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01

Whether the suit was time barred under section 4(2) of the Limitation of Actions Act

Holding

The court declined to determine the limitation question definitively because the issues remain live before the trial court, and found the judge had not erred in exercising his discretion to refuse striking out.

Reasoning

It was common ground that the claim was founded on conversion, a tort, attracting a three-year limitation under section 4(2). The plaintiffs pleaded they learnt of the conversion in November 1998 but only discovered the fraud in 2002 after forensic investigations. The court declined to pronounce further since the issues were live before the trial court, holding the judge exercised his discretion properly.

p. 4
02

Whether the suit disclosed a reasonable cause of action against the appellants

Holding

Yes. The pleaded particulars of fraud, including that the certificates were encashed without production of the originals, raised serious triable issues that could not be resolved summarily.

Reasoning

The court held that the appellants' argument - that conversion could not be sustained because the plaintiffs still held the original bearer certificates under section 31(2) of the Bills of Exchange Act - was an invitation to determine contested issues without evidence tested by cross-examination. The pleading alleged the certificates were discounted without production of the originals, itself an alleged fraud, and that the appellants abused their positions as advocates. Such issues required a full trial.

p. 4
03

The standard governing striking out of pleadings

Holding

The power to strike out is discretionary, exercised sparingly and only in the clearest of cases; a merely demurrable pleading survives.

Reasoning

Relying on Halsbury's Laws of England and the enduring dictum of Madan JA in D.T. Dobie v Muchina, the court reaffirmed that no suit ought to be summarily dismissed unless it is plainly and obviously hopeless, discloses no reasonable cause of action, and is incurable by amendment. A suit showing a mere semblance of a cause of action should go forward for trial.

p. 4

Legal principles established

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  • A pleading will not be struck out where it raises triable issues; it must be so bad that no legitimate amendment could cure the defect, and suits should be sustained rather than summarily terminated.
  • A suit showing even a semblance of a cause of action, curable by amendment, should be allowed to go to trial rather than be summarily dismissed.
  • Contested issues, such as whether bearer certificates of deposit were fraudulently converted while in the claimant's possession, can only be determined after a proper hearing on evidence tested by cross-examination, not summarily on a strike-out application.

Court orders

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  1. 1.Appeal against the 20th respondent marked as abated under rule 99 of the Court of Appeal Rules
  2. 2.Appeal dismissed with costs
  3. 3.It is so ordered

Authorities

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Legislation

  • Limitations of Actions Actsection 4(2)
  • Bills of Exchange Actsection 31(2)
  • Civil Procedure RulesOrder VI rule 13(1)(a) and (d)
  • Court of Appeal Rulesrule 99

Cases cited (5)

  • Owners of the Motor Vessel Lilian S v. Caltex Kenya Ltd
    (1989) KLR 1
  • Thuranira Karauri v. Agnes Ncheche
    [1997] eKLR
  • D.T. Dobie Company (Kenya) Ltd v Muchina
    [1982] KLR 1; [1980] eKLR
  • Crescent Construction Co Ltd v. Delphis Bank Ltd
    [2007] eKLR
  • Mitsubishi Corporation v Anthony Massawa
    [1996] eKLR
On appeal from
High Court of Kenya at Nairobi
HCCC No. 728 of 2003
Jurisdiction invoked
First appellate jurisdiction under the Constitution and the Court of Appeal Rules over appeals from the High Court (appeal from ruling and order in HCCC No. 728 of 2003); no specific article invoked in the judgment.

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, "Sheetal Kapila & another v Sudhir K. Shah & 27 others [2018] KECA 118 (KLR)", Case Analysis (2018). Civil Appeal No. 158 of 2010. Source: https://new.kenyalaw.org/akn/ke/judgment/keca/2018/118/eng@2018-10-12

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