Uhuru Highway Development Limited v Central Bank of Kenya & 2 others [1995] eKLR

Key Facts

Transaction Type

Issues

• The judgment analyzed the legal validity of the charge, confirming it as an English mortgage under the Transfer of Property Act. It also addressed whether the Central Bank properly served statutory notice before enforcing the charge, as required by law.
• The court confirmed that Exchange Bank was a specified bank at the time of the loan, rendering the transaction legal under Section 36 of the Central Bank Act. The loan's legality was not a basis for invalidating the charge.
• The appeal challenged the High Court's reliance on the Giella case for granting injunctions. The Court of Appeal affirmed the use of Giella's principles, rejecting the argument to adopt the American Cyanamid framework, which prioritizes balance of convenience over strict criteria.
• The court examined if the appellant failed to disclose critical information, such as concealed agreements and dishonoured cheques, during the ex parte injunction application. This non-disclosure could invalidate the injunction under principles established in cases like R v Kensington Income Tax Commissioners.
• The judgment dismissed claims of fraudulent preference, noting the charge was created over six months before the bank's liquidation and no other creditors contested its validity. The dominant motive for the charge was not shown to be preferential treatment.

Holdings

• The High Court correctly applied the principles from Giella v Cassman Brown, requiring a prima facie case and irreparable harm for an injunction. The court found no evidence of irreparable harm and that the Central Bank could adequately compensate for any damages. The ex parte injunction was invalidated for lacking recorded reasons under Order 39 rule 3(1).
• The Court of Appeal affirmed the High Court's ruling to set aside the ex parte injunction granted to Uhuru Highway Development Limited. The court held that the ex parte injunction was improperly obtained due to material non-disclosure by the appellant, including the failure to disclose dishonoured cheques and concealed agreements. The appeal was dismissed with costs, and the learned judge's application of the Giella case principles was upheld as correct.
• The charge over the Grand Regency Hotel was determined to be a valid English mortgage under the Transfer of Property Act. The Central Bank's actions to enforce the charge were lawful, and the appellant's claims of illegality or fraud were rejected. The court emphasized that the charge was intra vires the company's powers and not a fraudulent preference.

Remedies

• The Court of Appeal dismissed the appeal, affirming the High Court's decision to set aside the ex-parte injunction. The ruling confirmed the Central Bank's right to proceed with the sale of the Grand Regency Hotel and awarded costs to the Central Bank.
• The ex-parte injunction granted by Githinji J was invalidated due to the appellant's concealment of material information, including dishonoured cheques and subsequent agreements. The Court of Appeal found the injunction lacked proper legal basis and was obtained through misleading the court.

Contract Value

Legal Principles

• The Court of Appeal affirmed the High Court's decision to deny an interim injunction by applying the established principles from Giella v Cassman Brown [1973] EA 358. These principles require: (1) a prima facie case with a probability of success, (2) irreparable harm that cannot be compensated by damages, and (3) a balance of convenience if in doubt. The court emphasized that the appellant failed to demonstrate a valid case for injunctive relief and that the Central Bank could adequately compensate any potential harm.
• The court held that the ex parte injunction was invalid due to the appellant's failure to disclose material facts, including dishonoured cheques and concealed agreements. This violated the principle of natural justice requiring applicants to make complete disclosures when seeking relief in the absence of the opposing party. The failure to record reasons for granting the ex parte injunction under Order 39 rule 3(1) further undermined its validity.

Precedent Name

• Giella vs Cassman Brown & Co Ltd
• R. H. Baddam v. Dhunput Singh
• Harshad Ltd vs Globe Cinema Ltd and others
• Stanley Munga Githunguri v Jimba Credit Corporation Limited
• Wairimu Mureithi vs City Council of Nairobi
• American Cyanamid Co v Ethicon Ltd
• Brink's MAT Ltd v Elcombe
• Noormohamed Janmohamed V Kasamali Virji Madhani
• University don's case Eric V J Makokha vs Lawrence Sagini
• Abdul Salim and others v Okong'o and others

Key Disputed Contract Clauses

• The court rejected the ultra vires argument, citing the company's memorandum which explicitly authorized guarantees and security for third-party obligations. The directors' power to execute such contracts was affirmed under Section 34 of the Companies Act.
• The court addressed the statutory notice obligation for mortgage sales, noting that no notice was provided. However, it ruled that the charge's terms allowed immediate sale upon default, and interest was overdue for over two months, waiving the notice requirement.
• The court evaluated the agreements' validity and found Agreement B superseded Agreement A. The failure to transfer assets under Agreement B left the debt unresolved, affirming the charge's enforceability.
• The court analyzed the legal nature of the charge as an English mortgage, confirming its enforceability under Kenyan law. The dispute centered on compliance with statutory requirements and the absence of a formal conveyance, which the court determined was unnecessary under the Registration of Titles Act.
• The court confirmed the loan's legality, as Exchange Bank was a specified bank at the time of the transaction. The challenge to the loan's validity was dismissed, as it did not affect the charge's enforceability.

Cited Statute

• Transfer of Property Act (1882) as amended in Kenya
• Interpretation and General Provisions Act (Cap 2)
• Central Bank of Kenya Act (Cap 491)
• Registration of Titles Act (Cap 281)

Judge Name

• P.K. Tunoi
• A.M. Akwimbi
• A.B. Shah

Passage Text

• The charge over the hotel was determined to be a valid English mortgage under the Registration of Titles Act and Transfer of Property Act. The court found the charge legal and enforceable, rejecting claims of ultra vires or fraudulent preference.
• The Giella v Cassman Brown case was cited as the binding precedent for granting temporary injunctions, requiring a prima facie case and irreparable harm. The court declined to adopt the American Cyanamid approach, maintaining the established legal framework.
• The learned judge held that the concealment of material facts, including bounced cheques and undisclosed agreements, justified setting aside the ex parte injunction. These facts, if disclosed, would have prevented the injunction from being granted.

Damages / Relief Type

• Damages for trespass against the Central Bank.
• Injunction to restrain the Central Bank of Kenya from selling the Grand Regency Hotel until the hearing and determination of the suit.
• Declaration that the charge dated 21st October 1993 is invalid, null and void.
• Damages against all defendants for breach of the agreement in paragraphs 9 and 10 of the plaint.