Galot Industries Flimited v Kenya Finance Bank Limited (In Liquidation) & another [2017] KEELC 1760 (KLR)

Environment and Land Court

26 September 2017

KBK. Bor

977 words in judgment

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The bottom line

Kenya's Environment and Land Court confirmed that a bank cannot keep a caveat on your land after you've repaid the loan, even if a related company owes it money.

What this practically means

Executive summary

The Applicant, Galot Industries Limited, filed an originating summons dated 21 September 2016 before the Environment and Land Court at Nairobi seeking removal of a caveat registered as entry no. I.R. 57338/2 on 14 July 1993, and a court order registered as I.R. 57338/3 on 17 April 1994, both registered against L.R. No. 209/2663 (renumbered 209/11610). The Applicant contended that the mortgage debt secured by a 23 September 1982 charge of Kshs. 5 million had been fully repaid, the title discharged and returned, and that the court order from High Court Misc. Application No. 378 of 1994 could not survive that suit's compromise. The Respondents, Kenya Finance Bank Limited (in liquidation, through its Liquidation Agent) and the Deposit Protection Fund Board, opposed, claiming the Applicant had guaranteed advances to Manchester Outfitters (Suiting Division) Ltd, said to owe Kshs. 172,898,293.40 as at 11 December 2013, and that the Bank, as liquidator protecting depositors, was entitled to recover from the guarantor. The court framed a single question: whether the caveat could be maintained despite full payment simply because the Applicant was related to another company owing the Respondent money. Holding that the Respondent could only hold the title for the secured charge, that a caveat is not a charge, and that the companies are separate legal entities, the court ordered the Land Registrar to remove both registrations within 30 days and awarded costs to the Applicant.

Key legal issues

Whether a caveat survives full payment of the secured debt where the caveator claims a related company owes it money

Holding

It does not. Once the secured loan was paid, the charge discharged and the title returned in January 2004, the caveat and the registered court order ought to have been removed, notwithstanding any guarantee claims against a related company.

Reasoning

The Respondent could only hold the title in respect of the charge for which the property was offered as security. When it released the title in January 2004, it already knew of the debt allegedly owed by Manchester Outfitters (Suiting Division) Ltd. A caveat is not a charge and confers no right to realize the property. The companies are separate legal entities, so any guarantee claim must be pursued by other legal means. Maintaining the caveat served no useful purpose and denied the Applicant use and enjoyment of its property.

p. 2

Whether a court order registered against a title can persist after the suit in which it was made was compromised

Holding

No. Once the case was compromised, the registered court order should have been removed as it cannot survive the suit nor hang in a vacuum.

Reasoning

The order of mandamus issued in High Court Misc. Application No. 378 of 1994 was registered against the Suit Property, but that suit was compromised. The Applicant argued, and the court accepted, that a court order cannot survive the suit in which it was filed nor hang in a vacuum; accordingly, the registered order was directed to be removed along with the caveat.

p. 1

Legal principles established

A caveator can only hold a title in respect of the charge for which the property was offered as security; once the loan is repaid and the title discharged and returned, the caveat must be removed.
A caveat is not a charge and does not confer power to realize the property.
Separate legal entities cannot be made liable for each other's debts by maintaining a caveat; a creditor must pursue other legal means to enforce a guarantee.

Court orders

1.The Land Registrar directed to remove the caveat registered as entry number I.R 57338/2 against L.R. No. 209/11610 (originally L.R. No. 209/2663) within 30 days of the date of the judgment
2.The Land Registrar directed to remove the court order registered as I.R 57338/3 against L.R. No. 209/11610 (originally L.R. No. 209/2663) within 30 days of the date of the judgment
3.Respondents to pay the costs of the suit to the Applicant

Authorities

Legislation

Registration of Titles Act

Jurisdiction invoked: Original jurisdiction of the Environment and Land Court under the Registration of Titles Act over interests registered against land (L.R. No. 209/2663, now 209/11610)

Key timeline

Practical implications

Frequently asked questions

Cite this brief

Caselaw, "Galot Industries Flimited v Kenya Finance Bank Limited (In Liquidation) & another [2017] KEELC 1760 (KLR)", Case Analysis (2017). E.L.C. Case No. 1180 of 2016 (O.S). Source: https://new.kenyalaw.org/akn/ke/judgment/keelc/2017/1760/eng@2017-09-26

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