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High CourtAllowedCivil Case 238 of 2005

Arts 680 Limited & another v Middle East Bank Kenya Limited

High Court of Kenya
4 April 2006
PRP. J. Ransley
928 words in judgment
View original judgmentRead on Kenya Law Watch case
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The bottom line

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A Kenyan bank cannot hold onto title documents for a debt claim that is only a possibility, not a certainty.

What this practically means

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Executive summary

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By Originating Summons dated 5th May 2005, Arts 680 Limited and Chunilal Gheta Samat Shah sought discharge of two charges given over L.R. No.209/102/2/11 and L.R. No.MN/111/3082, and release of the title documents over the latter property. Middle East Bank Kenya Limited opposed, asserting a debt covered by the terms of the charge and, alternatively, a common law lien over the security documents. The bank's position rested on money allegedly owed by one Joseph Muigai Wanene, said to have been introduced to the bank by the 2nd Plaintiff, in excess of Kshs.23 million; the court assumed the bank had a valid claim in misrepresentation or negligence against the 2nd Plaintiff but noted no proceedings had been brought and quantum was undetermined, making the claim merely contingent. Ransley J held that the 'contingent liability' wording in the charges referred to liability arising out of and connected with the sums secured by the charge, not an unrelated possible claim against the chargor. The English lien authorities relied on by the bank were distinguished because they involved existing debts or liabilities certain to arise, whereas here neither liability nor quantum was certain. The court found the Defendant had neither a right to refuse redemption of the securities nor a lien or set-off, dismissed the objections, and gave judgment as prayed with costs.

Key legal issues

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01

Scope of 'contingent liability' in the charges

Holding

The wide words in the charges did not cover the Defendant's hoped-for claim in misrepresentation or negligence against the 2nd Plaintiff

Reasoning

The court construed 'contingent liability' by reference to the charge's purpose: it captures liability arising out of and connected with the borrowing secured, not an unrelated possible claim against the chargor. The claim against the 2nd Plaintiff was at most contingent, with neither liability nor quantum determined in any proceedings.

p. 2
02

Common law lien over security documents

Holding

No lien or right of set-off arose in respect of the proposed claims

Reasoning

The authorities relied on involved existing debts or liabilities certain to arise. Here there was no certainty of either liability or quantum, and no proceedings had been taken against the 2nd Plaintiff. A lien therefore could not attach to the securities or the contingent claim.

p. 2

Legal principles established

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  • A contingent liability under a charge refers to future liability connected with the sums secured by the charge, not a separate possible claim against the chargor
  • A lien cannot attach where there is no certainty of either liability or quantum

Court orders

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  1. 1.Discharge of the charge by the 2nd Plaintiff over L.R. No.209/102/2/11 and the charge over L.R. No.209/102/2/11 and L.R. No.MN/111/3082 dated 18th September 1996
  2. 2.Release of the title documents over L.R No.MN/III/3082 to the 1st Plaintiff
  3. 3.Costs of the application to the Plaintiffs
Jurisdiction invoked
Original civil jurisdiction of the High Court (Originating Summons)

Key timeline

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Practical implications

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Frequently asked questions

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Cite this brief

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Cite this brief

Caselaw, "Arts 680 Limited & another v Middle East Bank Kenya Limited", Case Analysis (2006). Civil Case 238 of 2005. Source:

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