Eastlands Theatres Limited & 2 others v Kenya National Capital Corporation Limited [2018] KECA 670 (KLR)
The bottom line
#Kenya's Court of Appeal confirmed lenders can sue guarantors years after default, but interest above the agreed 15% rate is unlawful and recoverable.
What this practically means
#Executive summary
#Questions the Court framed
#The issues the Court set itself to decide, in its own words.
- 1.Whether the trial judge was casual in handling the matter and failed to appreciate the totality of the appellants' defence, evidence and submissions
- 2.Whether the respondent's claim against the guarantors was barred by the Limitation of Actions Act
- 3.Whether the principal sum of Kshs.23,978,096.30 comprised illegal rates of interest and illegal charges debited by the respondent
- 4.Whether the guarantees executed separately by the 2nd and 3rd appellants were void and unenforceable
- 5.Whether the respondent sold the suit property at an undervalue
- 6.Whether the respondent had failed to prove its claim
Key legal issues
#When does limitation begin to run against a guarantor under a demand guarantee?
Time began to run on 11th February, 1983 when formal demand was made on the guarantors; the letter of 16th March 1982 was a request for an instalment, not a formal demand. The suit filed in November 1988 was therefore within the six-year limitation period.
Clause 1 of the guarantees made payment payable 'on your demand in writing'. A contextual reading of the 16th March 1982 letter shows it requested payment of a capital instalment only and was addressed to the 2nd appellant alone. The advocate's letters of 11th February 1983 demanded the guaranteed sums from each guarantor and thus constituted the formal demand triggering the cause of action and the limitation period.
Whether separately executed guarantees were void and unenforceable
The guarantees were valid notwithstanding that they were contained in two separate documents rather than one joint and several guarantee.
The court found no statutory requirement that guarantees be contained in a single document. Clause 11 of the guarantee expressly contemplated separate execution, deeming each signatory liable as if each had signed separate instruments. Separate execution therefore created no additional liability beyond the guaranteed sum of Kshs.7,000,000 plus interest, and the guarantors could not escape liability on that basis.
Whether the judgment sum was inflated by unlawful interest computation
This ground succeeded: the sum of Kshs.23,978,096.30 was computed at rates exceeding the lawful rate of 13% to 15% per annum and was therefore erroneous.
The trial court had fixed the lawful rate at 13% per annum per the letter of offer, which allowed increase only up to 15%. There was no cross-appeal by the respondent. The respondent's own statement of account showed interest charged at rates up to 20%, well above the lawful rate. The correct amount was the advanced sum plus lawful charges and interest at no more than 15% per annum; computation of the exact figure was remitted to the High Court.
Whether the charged property was sold at an undervalue
The ground failed: the appellants pleaded no counterclaim for the difference and led no evidence establishing undervalue.
The appellants relied on subsequent charges registered over the property to infer a higher value, but no witness explained the circumstances in which those charges were created. The trial judge correctly noted that without a counterclaim for the difference between market value and the realised sum, and without appropriate pleadings and evidence, no finding of undervalue could be made.
Legal principles established
#- Where a guarantee requires a valid demand as an ingredient of the creditor's cause of action, limitation does not begin to run against the guarantor until formal demand is made.
- The issue of limitation goes to jurisdiction and must be dealt with first whenever raised.
- Separately executed guarantees by multiple guarantors of the same debt are valid and create no liability beyond the guaranteed amount.
Court orders
#- 1.The ground of appeal that the principal sum of Kshs.23,978,096.30 was wrongly arrived at by application of interest rates higher than the agreed rate was allowed
- 2.All other grounds of appeal were dismissed
- 3.The matter was remitted to the High Court for the sole purpose of computing the sum due at the appropriate interest rates
- 4.The appellants were awarded one quarter of the costs of the appeal
The bench
#One judgment of the whole court — no separate or dissenting opinions.
- On appeal from
- High Court of Kenya at Nairobi
- H.C.C.C. No. 4640 of 1998
- Jurisdiction invoked
- First appeal to the Court of Appeal under Article 164 of the Constitution (appellate jurisdiction over the High Court); the judgment does not cite a specific provision
Relief refused
#Claim that the suit was time barred
A formal demand was made on 11th February, 1983; time began to run from that date and the suit filed in November 1988 was within the six-year period
Claim that the guarantees were void and unenforceable
No statutory requirement that guarantees be contained in one document; separate signatures created no additional liability beyond the guaranteed amount
Claim that the suit property was sold at an undervalue
No pleadings, counterclaim or supporting evidence on the issue; the circumstances of subsequent charges were unexplained
Claim that Kshs.820,642.50 in charges was illegally debited
The borrower was liable under the letter of offer to pay all legal expenses incurred by the lender in suing for recovery of sums due
Costs
The appellants, having partially succeeded, were awarded one quarter of the costs of the appeal: "As the appellants have partially succeeded in this appeal, we award them one quarter of the costs of the appeal."
Quotable passages
#Verbatim from the judgment, each located to the page it appears on in the official PDF — so these can be cited and checked directly.
In our view, it is the letter dated 11 th February, 1983 that constituted a formal demand in terms of the guarantees.
The fact that they signed separate guarantee documents did not result in creation of any additional liability beyond the guaranteed amount.
As regards the actual amount payable by the appellants in light of our finding hereabove, we hereby remit this matter to the High Court for the sole purpose of computing the sum due at the appropriate interest rates.
As the appellants have partially succeeded in this appeal, we award them one quarter of the costs of the appeal.
Issues in the judgment
#The judgment inconsistently records the claimed judgment sum with differing decimals: Kshs.23,978,096.30 and Kshs.23,978,096.80 appear in different passages for what is described as the same debt.
The judgment refers to the demand letter of 11th February 1983 being sent to 'the 2 nd and 3 rd respondents' although they are designated appellants in the appeal.
The judgment states there is no cross appeal 'by the respondent, by the trial court' - an apparent drafting error obscuring whether the absence of cross-appeal is against the trial court's decision or this Court's decision.
Key timeline
#Practical implications
#Frequently asked questions
#Later judgments citing this (5)
#Judgments in the corpus that rely on this one. Where the Court said how it treated the authority, that is shown.
- Njagi v Mugo (Environment & Land Case 42 of 2018) [2022] KEELC 2635 (KLR)[2022] KEELC 2635 (KLR)30 Jun 2022
- Nkoroi v Nyaga & 2 others (Environment & Land Case 001 of 2021) [2022] KEELC 3915 (KLR)[2022] KEELC 3915 (KLR)24 May 2022
- Francis Kamau Gichane v Jemima Muthoni Muiruri [2022] KEELC 182 (KLR)[2022] KEELC 182 (KLR)28 Apr 2022applied
- Kenneth Nyakundi Makori v Ruth Wangari Mwangi & 2 others [2021] KEELC 3388 (KLR)[2021] KEELC 3388 (KLR)6 May 2021applied
- Peter Ndegwa Kimenju v Commandant, Law Enforcement Academy, Kenya Wildlife Service (KWS) & another [2019] KEELRC 2433 (KLR)[2019] KEELRC 2433 (KLR)18 Jan 2019
Cite this brief
#Cite this brief
Caselaw, "Eastlands Theatres Limited & 2 others v Kenya National Capital Corporation Limited [2018] KECA 670 (KLR)", Case Analysis (2018). Civil Appeal No. 248 of 2016. Source: https://new.kenyalaw.org/akn/ke/judgment/keca/2018/670/eng@2018-04-20
Suggested citation format for research notes or client memos. Always verify the original judgment before relying on any point.