Savannah Academy Limited v Charterhouse Bank Limited (Under Statutory Management) & another [2016] KEELC 951 (KLR)
The bottom line
#A Kenyan court cannot force a lender to accept a lawyer's undertaking to release a land charge; it can, however, order release if a bank guarantee or full payment is provided.
What this practically means
#Executive summary
#Key legal issues
#Whether the court could order execution of a discharge of charge by the Deputy Registrar based solely on a professional undertaking from the purchaser's financier's advocates
The court declined to order execution on the strength of the undertaking alone, holding that the chargee could not be compelled to accept an undertaking it found unacceptable
The court acknowledged that it is normal banking practice for financial institutions to release title documents and discharges on professional undertakings, but held that it cannot dictate to a chargee what undertaking it should accept. Forcing the Defendant to accept the Family Bank advocates' undertaking would not be proper. Instead, the court balanced the Defendant's right to its security with the Plaintiff's right of redemption by crafting conditional orders requiring an irrevocable bank guarantee or insurance bond, or outright payment, as the basis for executing the discharge.
Balancing the chargee's right to its security against the chargor's equity of redemption
Both rights must be balanced; the court fashioned conditional orders doing the best it could for the Plaintiff while securing the Defendant's debt
The court found the Defendant's demand for cash in exchange for the title and discharge not unreasonable, since it has a right to hold its security until paid in full. However, that right had to be weighed against the Plaintiff's right to redeem the property through the sale. The court resolved the tension by permitting execution of the discharge upon provision of an irrevocable bank guarantee or insurance bond approved by the Defendant's advocates, or upon unconditional payment, while expressly freeing Family Bank from any obligation to provide the security.
Legal principles established
#- A chargee has the right to hold onto its security until the debt owed is paid in full, and the court cannot dictate what form of undertaking or security the chargee must accept, though its decision must accord with common banking practice and must not stifle the chargor's right of redemption
Court orders
#- 1.The Defendant's Manager, Jimmy Muiwa, or any person authorized under the Kenya Deposit Insurance Act, 2012 or Central Bank of Kenya Act, Cap 491, shall execute a discharge of charge over L.R. No. 1376/49/3 within fourteen days of Family Bank Limited providing, in addition to its advocates' undertaking dated 10th February 2016, an irrevocable bank guarantee or irrevocable insurance bond approved by the Defendant's advocates that it will pay Kshs.12,274,748.96 within fourteen days and in any event within forty-five days of simultaneous registration of the transfer to the interested party and a charge in favour of Family Bank Limited
- 2.In the alternative, the discharge of charge may be executed as above within 14 days of unconditional payment of Kshs.12,274,748.96 by the Plaintiff, the interested party or Family Bank Limited
- 3.Family Bank Limited is not under any obligation to provide the security set out in paragraph 1 or to make the payment in paragraph 2
- 4.The parties are at liberty to agree on any other mode of securing the debt pending completion of the sale
- 5.Each party shall bear its costs of the suit
- Jurisdiction invoked
- Order 37 rule 4 of the Civil Procedure Rules (originating summons for relief relating to a charge/mortgage)
Key timeline
#Practical implications
#Frequently asked questions
#Cite this brief
#Cite this brief
Caselaw, "Savannah Academy Limited v Charterhouse Bank Limited (Under Statutory Management) & another [2016] KEELC 951 (KLR)", Case Analysis (2016). Originating Summons dated 2nd March 2016. Source: https://new.kenyalaw.org/akn/ke/judgment/keelc/2016/951/eng@2016-04-05
Suggested citation format for research notes or client memos. Always verify the original judgment before relying on any point.