Lochab Brothers v Kenya Furfural Co Ltd [1983] KECA 51 (KLR)
The bottom line
#Kenya's Court of Appeal ruled that receivers cannot sue in their own name, and attached goods aren't lost until sold.
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 joint receivers and managers had locus standi to bring objection proceedings in their own name rather than in the name of the company or the debenture holder
- 2.Whether the receivers were lawfully appointed under clauses 8 and 9 of the debentures
- 3.Whether the security being in jeopardy was a necessary precondition to the appointment
- 4.Whether execution was complete upon attachment by the court broker, or only upon seizure and sale
- 5.What priority the crystallised floating charge created by the debentures had over the execution creditor
- 6.Whether the non-joinder of the debenture holder could be cured under order I rule 9 of the Civil Procedure Rules
Key legal issues
#Locus standi of receivers to object to attachment in their own name
Receivers and managers appointed out of court under a debenture are agents of the company and cannot bring objection proceedings in their own name alone; they must act in the name of the company or otherwise as deemed expedient under the debenture, and the non-joinder of the party with legal or equitable title was fatal.
The court followed Carver v MacJohn and the English authorities (Rhodes v Dawson, Re Sacker, Re Sartoris's Estate) that a receiver has no property vested in him and acquires no right of action by his appointment. Objecting in one's own name is no different from suing in one's own name. Order I rule 9 could not cure the defect because the receivers held no legal or equitable interest in the goods and never sought to amend by joining DFCK or the company.
When execution is complete
Execution is completed by seizure and sale of the attached property, not by seizure or attachment alone; until sale, the attached goods remain subject to the floating charge which crystallises on the appointment of receivers and takes priority over the execution creditor.
The court relied on Mackenzie v Pharmico (Simpson J) and Palmer's Company Law and the Supreme Court Practice to hold that attached goods in the custody of the court broker remain the company's property and subject to the floating charge; on appointment of a receiver the charge crystallises into a fixed charge with priority. Section 27 of the Sale of Goods Act was held inapplicable as the Act applies only to goods as defined therein.
Lawfulness of the receivers' appointment
Where the appointment is out of court, the debenture deed governs its propriety; the onus lay on the company and the debenture holder to prove the security had become enforceable under clauses 8 and 9, and that onus was not discharged, so this ground also succeeded.
Madan JA held that whether DFCK had made demand or whether Furfural had breached covenant 6(f) were matters within the knowledge of Furfural and the debenture holder, not the execution creditor, so the burden of proving lawful appointment fell on the appointing side, which produced no evidence. Whether the security was in jeopardy was irrelevant since the receivers were neither appointed under clauses 8 and 9 nor by the court.
Relevance of Colonial Blankets Trading Co and the Sale of Goods Act
Colonial Blankets was distinguished: it turned on section 27(1) of the Sale of Goods Act and letters of hypothecation, which create neither possession nor sale rights, and the receivers there had not seized the goods, so the case had no bearing on these proceedings.
The court differentiated hypothecation from a debenture: a hypothecation gives only a right of realization by judicial proceedings, without possession or sale rights. The judgment also noted that section 27 of the Sale of Goods Act applies only to goods as defined in that Act and is not of general application to execution proceedings.
Legal principles established
#- A receiver appointed out of court under a debenture acquires no right of action by his appointment and cannot sue or originate objection proceedings in his own name; he must sue in the name of the person entitled to the legal or equitable title
- Execution of a decree is completed by seizure and sale of the attached property, not by attachment alone; until sale the goods remain the property of the execution debtor and no property passes to the execution creditor
- A floating charge created by a debenture crystallises on the appointment of a receiver and, upon crystallisation, takes priority over execution creditors where the attached property has not yet been sold
- Objection to attachment may be made at any time prior to payment out of court of the proceeds of sale under order XXI rule 53(1)
Court orders
#- 1.Appeal allowed with costs
- 2.Order of the High Court (Mbaya J allowing the objection) set aside
- 3.Objection proceedings dismissed with costs
The bench
#One judgment of the whole court — no separate or dissenting opinions.
Wrote the judgment
Wrote the lead judgment. Held that the receivers had no locus standi to bring objection proceedings in their own name without joining the debenture holder or the judgment debtor, that their proceedings were a nullity, and that execution is completed only by seizure and sale. Allowed the appeal with costs.
The receivers were not entitled to take the objection proceedings in their name alone without joining the defendant, the owner of the goods, and the court ought to have non-suited them unless allowed to amend.p. 3
Wrote the judgment
Set out the factual history in detail and analysed the authorities on receivers' rights of action. Held that Queensway Trustees was not relevant authority, that a receiver acquires no right of action by his appointment, and that objecting in one's own name is no different from suing in one's own name. Agreed with the orders proposed by Madan JA.
In my view it does not. Lindley LJ declared it was clearly a mistake to make a receiver of a business the claimant in an interpleader summons: Rhodes v Dawson (ibid) 552: because the issue was between the owner of the business and the plaintiff.p. 6
Wrote the judgment
Wrote a separate concurring judgment. Held that the receivers' appointment was not shown to be lawful, that execution is completed by seizure and sale not seizure alone, that the crystallised floating charge took priority, and that the non-joinder of DFCK was fatal because order I rule 9 does not save proceedings by a party with no legal or equitable interest. Agreed with Madan JA's proposed orders.
The receivers had no locus standi in the matter and their action was a nullity in law.p. 10
- On appeal from
- High Court of Kenya at Eldoret
- Civil Suit No. 53 of 1982
- Jurisdiction invoked
- First appeal to the Court of Appeal under the constitution/statute establishing the Court of Appeal (provision not cited in judgment)
Relief refused
#Curing of the non-joinder of DFCK Ltd and the judgment debtor under order I rule 9
The receivers had neither rights nor interests in the property and did not apply to amend; their proceedings were a nullity
Costs
Appeal allowed with costs; order of the High Court set aside and objection proceedings dismissed with costs, costs of the appeal and objection awarded to the appellant
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.
For these reasons I would allow the appeal with costs, set aside the order of the High Court and substitute therefor an order dismissing the objection proceedings with costs.
I agree with the judgment of Madan JA which I had the advantage of reading in draft and would allow this appeal, set aside the High Court order and in substitution therefor dismiss the objection proceedings. I would award costs of the appeal and objection to the appellant.
The receivers had no locus standi in the matter and their action was a nullity in law.
The execution is completed after seizure and sale of the attached property, not before. Until then it remains the property of the execution debtor, and no property in the attached goods passes to the execution creditor.
A floating charge is valid against execution creditors.
Issues in the judgment
#Chronological inconsistency in the narration of execution: execution is said to have been levied on May 22, 1982, five days before the attachment orders were granted on May 27, 1982
Incomplete and inconsistent dates for the appointment of the receivers: '15, 18 and 22, 1982' lacks months and conflicts with the opening account which gives a single appointment date of June 15, 1982
The decretal amount is given differently in different parts of the judgment: Kshs 1,168,554.50 in one passage and Kshs 1,168,554.60 in another
The appeal number of this Court of Appeal appeal is not stated anywhere in the judgment
Key timeline
#Practical implications
#Frequently asked questions
#Cite this brief
#Cite this brief
Caselaw, "Lochab Brothers v Kenya Furfural Co Ltd [1983] KECA 51 (KLR)", Case Analysis (1983). Not stated in judgment (suit below: High Court Civil Suit No. 53 of 1982, Eldoret). Source: https://new.kenyalaw.org/akn/ke/judgment/keca/1983/51/eng@1983-11-21
Suggested citation format for research notes or client memos. Always verify the original judgment before relying on any point.