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Court of AppealPartially AllowedCivil Appeal No. 100 of 2011· [2018] KECA 639 (KLR)

Total Kenya Limited v David Njane t/a Argwings Twin Service Station & 2 others [2018] KECA 639 (KLR)

Court of Appeal of Kenya
20 April 2018
William OukoW. OukoSKS. Gatembu KairuKMK. M'inoti
3,111 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 courts must read the actual terms of a bank guarantee before blocking payment, and cannot skip the required tests for an injunction.

What this practically means

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Executive summary

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This was an interlocutory appeal against a ruling of the High Court (Apondi, J.) which had granted permanent injunctions restraining Total Kenya Limited from calling in a bank guarantee of Kshs 3,500,000 issued by Co-operative Bank of Kenya on behalf of David Njane and Twin Buffalos Safaris, and restraining the Bank from paying under it. The guarantee arose from a dealership agreement between Total and Njane, which required reconciliation of accounts upon termination. The High Court granted the injunction purely on the balance of convenience after doubting a prima facie case and irreparable injury. Allowing the appeal, the Court of Appeal held that the judge committed a fundamental misdirection by paying no regard to the terms of the guarantee, which required the Bank to pay unconditionally on demand, without proof of grounds, and waived prior demand on the principal debtor. The respondents had to show that the alleged disputes could lawfully prevent calling in the guarantee under its own terms, which they did not. The Court further held, following Nguruman Ltd v. Jan Bonde Nielsen, that the three Giella conditions are sequential hurdles; a judge cannot leap-frog to balance of convenience without establishing a prima facie case and irreparable injury. The Court set aside the High Court ruling and dismissed the respondents' chamber summons, awarding costs to Total and the Bank.

Key legal issues

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01

Failure to consider the terms of the bank guarantee in assessing a prima facie case

Holding

The trial judge committed a fundamental misdirection by paying no regard to the guarantee's unconditional payment and waiver provisions, entitling the appellate court to interfere with his discretion.

Reasoning

The respondents' claim rested on the dealership agreement and unreconciled accounts, but the injunction could only issue if calling in the guarantee infringed their rights under the guarantee itself. The guarantee obliged the Bank to pay unconditionally on demand without proof of grounds and expressly waived demand on the principal debtor first. By ignoring these provisions and failing to evaluate the alleged disputes against them, the judge misdirected himself in law, producing an entirely wrong conclusion.

p. 3
02

Sequential application of the Giella conditions for an injunction

Holding

The judge was not entitled to skip the first two conditions and grant the injunction solely on balance of convenience; the three conditions are separate, distinct and sequential hurdles.

Reasoning

Citing Nguruman Ltd v. Jan Bonde Nielsen, the court reaffirmed that a prima facie case, irreparable injury, and balance of convenience are logical hurdles to be surmounted in sequence. Having found the respondents had not established a prima facie case or irreparable injury, the judge could not properly fall back on balance of convenience. He also omitted consideration of whether calling in the guarantee would cause injury not compensable by damages.

p. 4

Legal principles established

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  • A court entertaining an injunction application against calling in of a bank guarantee must evaluate the alleged disputes against the terms of the guarantee itself; a party seeking to stop payment under an unconditional guarantee must show that calling it in would infringe its rights under the terms of the guarantee.
  • The three conditions for an interlocutory injunction must be considered sequentially; if a prima facie case is not established, irreparable injury and balance of convenience need not be considered, and there is no leap-frogging to balance of convenience.
  • An appellate court is slow to interfere with the exercise of discretion by the court below unless the judge misdirected himself in law, misapprehended the facts, took into account matters he should not have, failed to consider relevant matters, or the decision is plainly wrong.

Court orders

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  1. 1.Appeal allowed with costs to Total and the Bank
  2. 2.Ruling and order of the High Court dated 10th March 2011 set aside
  3. 3.Njane and Buffalos Safaris' Chamber Summons dated 23rd June 2010 dismissed with costs

Authorities

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Cases cited (10)

  • Giella v. Cassman Brown & Co Ltd
    [1973] EA 358
  • Platinum Traders Ltd v. East African Portland Cement & Co Ltd & Another
    [2012] eKLR
  • UP State Sugar Corporation v M/s Sumac International Ltd
    AIR [1997] SC 1644
  • Mbogo & Another v. Shah
    [1968] EA 93
  • Michael Gitau v. Pamela Savage & 4 Others
    [2002] KLR (E&L) 1
  • David Kamau Gakuru v. National Industrial Credit Bank Ltd
    CA No. 84 of 2001
  • United India Insurance Co. Ltd v. East African Underwriters (Kenya) Ltd
    [1985] E.A 898
  • Mrao Ltd v. First American Bank of Kenya Ltd & 2 Others
    [2003] eKLR
  • Nguruman Ltd v. Jan Bonde Nielsen & 2 Others
    [2014] eKLR
  • Kenya Commercial Finance Co. Ltd V. Afraha Education Society
    [2001] Vol. 1 EA 86
On appeal from
High Court of Kenya at Nairobi
HCCC. No. 433 of 2010
Jurisdiction invoked
First appellate jurisdiction under the Appellate Jurisdiction Act over appeals from the High Court (interlocutory appeal from a ruling of the High Court)

Key timeline

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Practical implications

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Frequently asked questions

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Later judgments citing this (11)

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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, "Total Kenya Limited v David Njane t/a Argwings Twin Service Station & 2 others [2018] KECA 639 (KLR)", Case Analysis (2018). Civil Appeal No. 100 of 2011. Source: https://new.kenyalaw.org/akn/ke/judgment/keca/2018/639/eng@2018-04-20

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