Tropicana Hotels Limited v Sbm Bank Kenya Limited Formerly Known As Fidelity Commercial Bank Ltd [2018] KEELC 3252 (KLR)
The bottom line
#The bank can pursue Tropicana Hotels for the loan, but any sale of the hotel property is blocked until it serves the legally required notice to the correct address.
What this practically means
#Executive summary
#Key legal issues
#Validity of the execution of the Charge
The Charge was validly executed; the directors' signatures on a document reciting that the seal was affixed in their presence and acknowledging explanation of statutory provisions bind the company
Both directors admitted signing the Charge before the common advocate. The document recited that the Common Seal was affixed in their presence and acknowledged explanation of Sections 90, 91, 93 and 94 of the Land Act. The court held they knew what they signed, could not deny the recitals, and could not rely on their own mistake after benefiting from the facilities. Any omission by the common advocate could not be visited on the Defendant.
Whether the Euros 1,000,000 was advanced to the Plaintiff
The Plaintiff is estopped from denying receipt of the Euros 1,000,000 because it requested in writing the transfer of the liability from PW2 to itself
PW2 admittedly received the Euros 1,000,000. By letters dated 21st and 25th June 2012 the directors asked the Bank to transfer the facility to the Plaintiff, and PW1 confirmed this agreement. Relying on estoppel by conduct, the court held the Plaintiff is deemed to have received the funds and cannot escape liability; lending to purchase shares did not invalidate recovery.
Alleged excessive and illegal interest
The claim failed for want of proof
The Plaintiff alleged the debt had been inflated by over Kshs 10 Million through arbitrary interest. It intended to engage the Interest Rate Advisory Centre to compute the correct interest but abandoned the exercise because of cost. No evidence was therefore led on the allegation, and the court declined to make any finding on it. The Plaintiff's own admission that it owed about Kshs 64 Million stood uncontradicted.
Credit Reference Bureau listing
The Bank was legally obliged to report loan performance despite the dispute; the objection was misconceived
Under Section 31 of the Banking Act and the Credit Reference Bureau Regulations, banks must report monthly on loan performance. Following the Odhiambo decision, the court held that a dispute over the amount owed does not excuse non-settlement. The Plaintiff admitted it had stopped servicing the loan after obtaining an injunction on 6th May 2016, so the Defendant's intended CRB disclosure was lawful.
Statutory notice and power of sale
No proper statutory notice was served as the demand letters went to the wrong address and overstated the debt; the equity of redemption had not matured
DW1 conceded the statutory letters were sent to a Malindi P.O. Box rather than the Mombasa address in the Charge and Further Charge, and that the demanded sum of Kshs 71,593,000/- exceeded the true debt by about Kshs 9 Million. Section 90(2)(b) of the Land Act requires three months' notice to the Chargor. The court therefore barred enforcement based on the defective notice but allowed fresh recovery on proper notices.
Legal principles established
#- Where a contract has been reduced to writing, extrinsic evidence is inadmissible to contradict, vary, add to or subtract from its terms
- A party cannot rely on its own mistake to treat a contract as a nullity after benefiting from it
- A borrower disputing the amount owed cannot bar the bank's mandatory reporting of loan performance to the Credit Reference Bureau
- Statutory notice under Section 90(2)(b) of the Land Act must be served on the Chargor at the address indicated in the Charge before exercise of the statutory power of sale
Court orders
#- 1.A bar restraining the Defendant from offering for sale the suit property based on the purported Statutory Notice sent to an address other than the one indicated in the Charge and Further Charge
- 2.Declaration that save for the failure to serve proper statutory notice, the Plaintiff's suit is misconceived and untenable in its entirety
- 3.Liberty to the Defendant to start the recovery process afresh and issue proper notices as required by law if the Plaintiff remains in default
- 4.Each party to bear their own costs
- Jurisdiction invoked
- Original civil jurisdiction of the High Court in a claim relating to land (charge over land parcels in Malindi)
Key timeline
#Practical implications
#Frequently asked questions
#Cite this brief
#Cite this brief
Caselaw, "Tropicana Hotels Limited v Sbm Bank Kenya Limited Formerly Known As Fidelity Commercial Bank Ltd [2018] KEELC 3252 (KLR)", Case Analysis (2018). Malindi High Court Civil Case (not specified in judgment beyond 'this suit'; filed 3rd December 2015). Source: https://new.kenyalaw.org/akn/ke/judgment/keelc/2018/3252/eng@2018-05-25
Suggested citation format for research notes or client memos. Always verify the original judgment before relying on any point.