Associated Warehousing Co Limited t/a Bamburi Beach Resort & 3 others v Clarkson & Southern Limited & 5 others (Civil Suit 218 of 2007 & 20 of 2008 & Civil Case 1540 of 1999 (Consolidated)) [2023] KEELC 569 (KLR)
The bottom line
#Kenya's Mombasa land court cancelled every transfer in a 2007 bank sale chain because the bank ignored a standing court order and buyers failed to prove they were genuine purchasers.
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 charge dated October 31, 1995 between Associated Warehousing Company Limited and Trust Bank Limited was valid and enforceable
- 2.Whether Associated Warehousing Company Limited breached the charge dated October 31, 1995
- 3.Whether there existed a court order restraining Trust Bank Limited (In Liquidation) from exercising its statutory power of sale over the suit property
- 4.Whether the sale of the suit property by Trust Bank Limited (In Liquidation) to Clarkson & Southern Limited passed good title
- 5.Whether the 1st defendant's counterclaim dated May 25, 2017 is merited
- 6.Whether the 4th defendant's counterclaim dated May 8, 2017 is merited
- 7.What orders ought to be granted by the court
Key legal issues
#Validity of the charge dated October 31, 1995 despite absence of a stipulated interest rate
The charge was valid and enforceable; failure to stipulate a specific rate of interest did not invalidate it, but the bank's unilateral variation of the rate without notice was unconscionable
The charge referred throughout to interest payable, though no specific rate was fixed. Relying on Shah v Guilders International Bank and Christopher Ndolo Mutuku v CFC Stanbic Bank, the court held parties are bound by the terms they willingly executed and the court cannot re-write the contract. However, citing Margaret Njeri Muiruri v Bank of Baroda and KCB Finance Co Ltd v Ngeny, the court found the bank's discretion to vary interest was not unfettered and the uncommunicated variation to 36%/39% was manifestly excessive and unconscionable.
Whether leave was required to continue the suit against a bank in liquidation
No dismissal for want of leave; the suit was instituted before liquidation and requiring leave would be inequitable given the bank's own counterclaim, contrary to Article 159(2)(d)
The 1st defendant raised the leave requirement under section 26(2) of the Kenya Deposit Insurance Act 2012 and section 228 of the Companies Act (Cap 486) only at trial, after pleadings closed. Applying Article 159(2)(d) of the Constitution and Kenya Ports Authority v Kenya Power & Lighting Co Ltd on procedural technicalities, the court held it would be inequitable to require leave where the bank itself pursued a counterclaim and no prejudice would be suffered.
Whether the October 19, 1999 injunctive order subsisted despite the Court of Appeal striking out the appeal against an 'unsigned' ruling
The order remained valid and binding; the Court of Appeal's striking out of the appeal meant the ruling was never discharged, appealed against, set aside nor varied
The court distinguished Nairobi City County Government v Kenya Revenue Authority (concerning an unsigned statutory statement, a pleading, not a ruling) and found a signed ruling in the court file. Relying on Hadkinson v Hadkinson and Ramesh Popatlal Shah v National Industrial Credit Bank, it held orders must be obeyed until discharged. The reinstatement of the suit on June 29, 2004 kept the injunction alive. The bank's sale was therefore in contempt.
Whether the sale to the 2nd defendant passed good title and whether it was a bonafide purchaser
The sale was in contempt of court and passed no valid title; the 2nd defendant failed to prove bonafide purchaser status
The bank's statutory power of sale was stayed by the order of October 19, 1999, so the sale, transfer and registration were nullified. The 2nd defendant, relying on section 69B(2) of the Transfer of Property Act (repealed), failed to discharge the burden under Katende v Haridas: it did not show what due diligence was done, and would have discovered the pending suit had it visited the property or inquired. Its casual conduct disqualified the bonafide plea.
Application of lis pendens to the chain of transactions
The doctrine applies to charges and mortgages during active litigation, and the impugned transactions breached it
The court canvassed two competing views: that lis pendens does not apply to mortgages/charges (B.B. Mitra; Aprotech Services Ltd v Savings & Loans; Al-Jalal Enterprises) and that it does during active litigation (Co-operative Bank of Kenya v Patrick Kangethe Njuguna, citing the Indian Supreme Court in KN Aswathnarayana Setty). The court adopted the latter view, finding the 1995 charge context, 2007 private sale, 2007 charge and 2008 auction all occurred while litigation was pending.
Fraud and irregularity in the downstream transactions (3rd and 4th defendants)
The 2nd, 3rd and 4th defendants acted fraudulently and in collusion, grossly undervaluing the property and flouting the 90-day statutory period; the 4th defendant's counterclaim failed
The court noted the same directors and company secretary across entities, the charge advertised for sale only 24 days after registration, no valuation by the 3rd defendant, sale at Kshs 32 million against a Kshs 80 million value, and no site visit by the 4th defendant. These casual and suspicious dealings, while the suit was pending, amounted to fraud, rendering the transfers nullities.
Legal principles established
#- A court ruling is a pronouncement of a court of competent jurisdiction and is not invalidated merely because it is unsigned; an order remains binding unless and until it is discharged, set aside or varied
- A party who knows of a court order, even one it believes to be irregular or void, must obey it or seek its discharge from the court; self-help interpretation of orders amounts to contempt
- The doctrine of lis pendens under section 52 of the (repealed) Indian Transfer of Property Act applies to mortgages and charges during active litigation
- A lender's contractual discretion to vary interest is not unfettered; the varied rate must be communicated to the borrower, and an unconscionable, unnotified variation will not be enforced
- The burden of establishing bonafide purchaser for value without notice lies on the party setting up the plea; casual due diligence fails to discharge it
- Transactions effected in breach of court orders are void and will be nullified
Court orders
#- 1.A declaration that the sale and/or transfers of plot No 1532 (original No 871/1) section I MN Mombasa title No CR 13476 from the 1st to the 2nd, 2nd to 3rd and 3rd to 4th defendants are a nullity and are set aside
- 2.An order directing the 5th defendant/Government Land Registrar to cancel the aforesaid transfers and restore the status quo prior to October 19, 1999
- 3.An order directing the 1st defendant to recalculate and render true and full accounts to the plaintiffs as at October 19, 1999 and as per the said court order of October 19, 1999
- 4.A permanent injunction restraining the defendants, their agents, servants or any other person acting under their authority from trespassing on, selling, dealing with, alienating or disposing of the suit property otherwise than in accordance with the law
- 5.Costs of the suit to the plaintiffs
The bench
#One judgment of the whole court — no separate or dissenting opinions.
Wrote the judgment
- Jurisdiction invoked
- Original civil jurisdiction of the High Court (land and charge dispute; parties pleaded under the Transfer of Property Act 1882 and Registration of Titles Act (repealed)); no specific constitutional provision invoked for jurisdiction
Relief refused
#Claim for Kshs 8,143,383 refund, punitive/exemplary damages and other monetary reliefs against the defendants
The court granted declarations, cancellation of transfers and accounts instead; the specific monetary damages and refund prayers were not awarded in the final orders
4th defendant's counterclaim for eviction, injunctions, damages for trespass and mesne profits
The 4th defendant failed to establish its counterclaim on a balance of probabilities
1st defendant's counterclaim of Kshs 53,570,575.25 plus interest and penalties
The counterclaim was based on an illegal sale effected in violation of the October 19, 1999 court orders, and the varied interest rate was unconscionable
Costs
Costs of the suit to the plaintiffs; the 1st and 4th defendants' counterclaims dismissed with costs to the plaintiffs.
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.
1. A declaration that the sale and/ transfers of parcel of land known as plot No 1532 (original No 871/1) section 1 MN Mombasa title No CR 13476 from the 1st defendant to the 2nd defendant and from the 2nd defendant to the 3rd defendant and from the 3rd defendant to the 4th defendant are a nullity and are hereby set aside.
2. An order directing the 5th defendant/Government Land Registrar to cancel the aforesaid transfers and restore the status quo prior to October 19, 1999.
3. An order directing the 1st defendant to recalculate and render true and full accounts to the plaintifis as at October 19, 1999 and as per the said court order of October 19, 1999.
5. Costs of this suit to the plaintifis.
A ruling of the court is not a pleading, it is a pronunciation or a decision of a court of competent jurisdiction on a certain legal issue before it and cannot be invalidated by the mere reason it has not been signed.
The appeal court having determined that the appeal was incompetent, it meant that the ruling dated October 19, 1999 has never been discharged, appealed against, set aside nor varied.
I hold the latter view that the doctrine is applicable in cases of mortgages and charges when there is active litigation. I find in the instant case the transactions concerning the suit property were in breach of the lis pendens rule.
The 1st defendant did not have a valid title to pass to the 2nd defendant hence the conclusion that the 2nd defendant was not a bonafide purchaser for value without notice.
The suit property was fraudulently and grossly undervalued and title irregularly and fraudulently passed to the 4th defendant.
Issues in the judgment
#The judgment inconsistently identifies the 2nd and 3rd defendants: the pleadings describe the 2nd defendant as the purchaser charged to the 3rd defendant (financier), yet the evidence shows Fidelity Shield Insurance Co Limited (sharing directors with Clarkson & Southern Limited) charged the property to Netcall Holdings Limited
The judgment refers to the 2nd defendant's charge to the 3rd defendant as 'November 28, 2008' in one passage, while elsewhere it is consistently dated November 28, 2007
The judgment inconsistently labels speakers in the 3rd defendant's defence paragraphs, stating 'The 2nd defendant averred' within the section headed 3rd Defendant's Defence
The prayer 'k' and the court's treatment of injunctions and specific monetary reliefs (damages, refund of Kshs 8,143,383) are not expressly disposed of in the final orders, which grant only declarations, cancellation, accounts, a general injunction and costs
Key timeline
#Practical implications
#Frequently asked questions
#Cite this brief
#Cite this brief
Caselaw, "Associated Warehousing Co Limited t/a Bamburi Beach Resort & 3 others v Clarkson & Southern Limited & 5 others (Civil Suit 218 of 2007 & 20 of 2008 & Civil Case 1540 of 1999 (Consolidated)) [2023] KEELC 569 (KLR)", Case Analysis (2023). Mombasa HCCC (as pleaded; suit concerning subdivision 1532 (original No 871/1) section I MN, Mombasa). Source: https://new.kenyalaw.org/akn/ke/judgment/keelc/2023/569/eng@2023-02-07
Suggested citation format for research notes or client memos. Always verify the original judgment before relying on any point.