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

Key Facts

Transaction Type

Issues

• The applicant claimed the charge was an oral 'stop-gap arrangement' not to be enforced unless CBK first pursued remedies against the Bank and Kamlesh Pattni. The court evaluated whether this oral agreement created legally binding terms to restrict enforcement.
• The applicant contested the legality of a charge and guarantee secured over its property to the Central Bank of Kenya (CBK), alleging they were ultra vires the company's objects, beyond directors' powers, and violated the Central Bank of Kenya Act. The court also examined whether the charge constituted a valid English mortgage under the Transfer of Property Act.
• The applicant alleged CBK failed to serve a valid statutory notice of sale under section 69A of the Transfer of Property Act. The court found a notice was served via registered post to the company's last known address, though the applicant claimed it was sent to an incorrect postal box.
• The applicant argued CBK improperly sought to sell hotel furnishings and equipment not secured by the charge. The court confirmed the charge explicitly excluded chattels but found this issue insufficient to justify injunctive relief given the applicant's other claims.
• The applicant argued the debt was resolved through a 1994 agreement acknowledging CBK owed the Bank Shs 3.585 billion, which should have offset the Shs 2.5 billion guarantee. The court noted evidence the agreement was repudiated when Pattni failed to transfer assets as promised.

Holdings

• The court determined that the charge and guarantee executed by UHDL were valid and enforceable. It found the statutory notice of sale was properly served, and UHDL's claims of legal invalidity (e.g., breach of the Central Bank Act, invalid English mortgage) were rejected. The court emphasized that public funds must not be misused and that legal violations cannot be used to retain ill-gotten gains.
• The Court of Appeal dismissed the application for an injunction, finding that Uhuru Highway Development Ltd (UHDL) had concealed material facts from the High Court, including the dishonour of two cheques and a critical letter regarding the repudiation of an agreement. The court held that UHDL's ex parte injunction was improperly obtained due to lack of candour, and UHDL failed to establish an arguable appeal with a probability of success.

Remedies

Contract Value

Legal Principles

• The court rejected the applicant's attempt to shield itself from accountability for misappropriating public funds. It emphasized that equity requires disgorgement of gains obtained through violations of public laws, even if legal technicalities are claimed.
• The court rejected the applicant's claim of accord and satisfaction, noting that the 1994 agreement between CBK and Pattni was repudiated. No evidence of Pattni fulfilling his obligations under the agreement was presented, rendering the defense ineffective.
• The Court of Appeal reaffirmed that interim injunctions require showing a non-frivolous appeal with a realistic chance of success and that damages would be inadequate if the injunction is refused. The applicant failed to meet both criteria, as the court found no valid basis for restraining the sale of the hotel.
• The court emphasized that parties seeking ex parte injunctions must disclose all material facts without omission. Failure to do so, as in this case where the applicant concealed dishonoured cheques and repudiated agreements, justifies setting aside the ex parte order. This aligns with the principle of natural justice requiring fairness and transparency in judicial proceedings.
• The court upheld the validity of CBK's statutory notice of sale, even though it did not specify a three-month redemption period. The notice sufficiently demanded payment and warned of enforcement, meeting the legal threshold for effectiveness.

Precedent Name

• Stanley Munga Githunguri v Jimba Credit Corporation Ltd
• The Owners of the Motor Vessel 'Lillian S'
• R v Kensington Income Tax Commissioners ex parte Princess Edmond De Polignac
• Giella v Cassman Brown & Co Ltd

Key Disputed Contract Clauses

• The court addressed whether the directors of Uhuru Highway Development Ltd had the power to execute the charge and guarantee. The applicant alleged this exceeded their authority, but the court found no evidence of such a limitation in the articles, rejecting the claim.
• The court examined whether the charge created by UHDL contained a valid redemption date, which is a requirement under the English mortgage provisions of the Transfer of Property Act. The applicant argued the absence of this date rendered the charge invalid, while the CBK countered that the charge's registration date (31 December 1993) established its enforceability.
• Clause 7(c)(ii) of the charge limited its scope to land and buildings, excluding furniture and chattels. The applicant argued CBK's attempt to sell these items was unlawful, but the court found this issue insufficient to justify injunctive relief given the charge's overall validity.
• The applicant claimed the charge did not contain a personal covenant to pay the debt, distinguishing it from a valid English mortgage. The court noted the borrowers (not UHDL) included a personal covenant, but the charge itself did not, though this was deemed a technicality not disqualifying the mortgage.
• The validity of CBK's notice to UHDL demanding payment under the charge was contested. The applicant claimed the notice was improperly addressed and omitted the required three-month redemption period, while the CBK argued the notice met essential legal requirements and was sent to the company's last known address.

Cited Statute

• Transfer of Property Act, 1882
• Central Bank of Kenya Act (Cap 491)

Judge Name

• Kwach, J
• Omolo, J
• Cockar, J

Passage Text

• A man who is prepared to deceive a Court into granting it an order cannot validly claim that he has a meritorious case and would have been entitled to the order anyway. If the case is meritorious, there can be no reason for concealing some parts of it from the Court.
• The ease with which undeserving ex parte injunctions are being obtained in the High Court these days is a matter of great concern to this Court and I think a stage has been reached when judges should decline to issue them except in very exceptional circumstances.
• The principles which this Court applies when dealing with applications under rule 5(2) (b) of the Court of Appeal Rules have been adumbrated in a number of decisions. The guiding principles which emerge and are discernible from case law on this subject, are first, the appeal should not be frivolous or as is otherwise put, the applicant must show that he has an arguable appeal, and second, this Court should ensure that the appeal, if successful, should not be nugatory.

Damages / Relief Type