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Court of AppealDismissedInterlocutory appeal from the ruling of Commissioner of Assize Kassim Shah dated 21st June, 2000 (case number not stated in judgment)

Mrao Ltd v First American Bank of Kenya Ltd & 2 others (Civil Appeal 39 of 2002) [2003] KECA 175 (KLR)

Court of Appeal of Kenya
7 March 2003
RKRO KwachSBSEO BosireEOEO O'Kubasu
5,171 words in judgment
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The bottom line

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Kenya's Court of Appeal ruled that winning an injunction requires more than an arguable case — you must show your right was actually infringed.

What this practically means

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Executive summary

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This was an interlocutory appeal against the refusal by a Commissioner of Assize, Kassim Shah, to grant Mrao Limited an interlocutory injunction restraining First American Bank of Kenya and the receivers it had appointed from alienating or dealing with Mrao's charged assets. Mrao, which had borrowed over Kshs 50 million on a legal charge and later executed a further charge and debenture under a restructuring agreement of 3rd May 1999, alleged fraud, want of consideration, and absence of demand preceding the receivership. In a unanimous judgment of the Court of Appeal at Mombasa delivered on 7th March 2003, Bosire JA wrote the lead judgment, holding that a prima facie case is a standard higher than an arguable case: the applicant must show an apparent infringement of a right calling for rebuttal and a probability of success at trial. Although the Commissioner had improperly expressed concluded views on some facts at the interlocutory stage, no prejudice flowed, and on the established principles for interfering with judicial discretion his ruling could not be disturbed. Kwach JA, in a separate concurring judgment, emphasised that a mortgagee exercising a statutory power of sale will not be restrained merely because the debt is disputed; the mortgagor must pay the amount claimed into court. He cautioned against courts entertaining debtor defences that would cripple banks and deter investment. O'Kubasu JA concurred. The appeal was dismissed with costs both in the Court of Appeal and below. The judgment binds lower courts on the definition of a prima facie case and the limits of equitable relief for defaulting mortgagors.

Questions the Court framed

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The issues the Court set itself to decide, in its own words.

  1. 1.Whether the Commissioner of Assize erred in finally determining factual issues at the interlocutory stage
  2. 2.Whether the appellant had made out a prima facie case warranting an interlocutory injunction
  3. 3.Whether there was valuable consideration for the further charge and debenture
  4. 4.Whether a formal demand for payment was required before the appointment of receivers and managers
  5. 5.Whether the appointment of receivers and managers was wrongful, irregular or oppressive

Key legal issues

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01

Definition and standard of a prima facie case at the interlocutory stage

Holding

A prima facie case is more than an arguable case; the evidence must show an infringement of a right and the probability of success at trial. It is a higher standard than an arguable case.

Reasoning

Bosire JA distilled the standard from the authorities on interlocutory injunctions. He rejected counsel's submission that showing an arguable case sufficed, holding that the applicant must show an apparent infringement of a right calling for rebuttal, plus probability of success. On the material, the appellant admitted the debt and default, so no prima facie case existed.

p. 8
02

Interference with discretionary decisions of the court below

Holding

The Commissioner of Assize, though he improperly expressed concluded views on some factual issues at the interlocutory stage, took into account all relevant matters, committed no fundamental error of principle, and his decision was not plainly wrong; the appeal court would not interfere.

Reasoning

Applying the Carl Ronning criteria for appellate interference with discretion, Bosire JA acknowledged the Commissioner's occasional slips in finally determining facts but found no discernible prejudice to any party. The discretion had been exercised on the law and evidence, so the appellate court would not disturb the result.

p. 8
03

Consideration for the further charge and debenture

Holding

There was valuable consideration: the bank forwent its immediate rights to demand repayment and to foreclose under the first charge, and the appellant had admitted owing Kshs 68 million.

Reasoning

The court accepted the respondents' submission that the appellant's letter of 26th April 1999 admitted an indebtedness of Kshs 68 million and proposed a repayment schedule. By agreeing to defer immediate enforcement and foreclosure, and to grant a rebate and extended credit, the bank gave forbearance, which is good consideration for the new securities.

p. 5
04

Whether demand preceded and was necessary for the appointment of receivers and managers

Holding

A formal demand was made by the letter of 1st November 1999 from Messrs Salim Dhanji & Co for Kshs 99,625,025.10; receivers were appointed only when the appellant failed to pay, so the appointment was proper.

Reasoning

The appellant did not deny receiving the demand letter. It had also defaulted on the Kshs 5 million first instalment under the 3rd May 1999 agreement. Kwach JA added that a company served with a demand is not entitled to time to raise the money, so the complaint of lack of reasonable notice was groundless.

p. 6
05

Restraining a mortgagee's statutory power of sale

Holding

Per Kwach JA, the Superior Court erred in treating mortgagors' injunction applications like ordinary injunctions; a mortgagee will not be restrained from exercising the statutory power of sale merely because the debt is disputed; the mortgagor must pay the amount claimed into court.

Reasoning

Kwach JA deplored the tendency in the Superior Court to treat applications by mortgagors for temporary injunctions against mortgagees as ordinary injunction applications. Quoting Halsbury's Laws of England, he held that dispute over the amount due, a pending redemption action, or objection to the sale arrangements does not restrain the mortgagee; only payment of the amount claimed into court will, unless the claim is excessive on the terms of the mortgage.

p. 9
06

Conduct disentitling a party to equitable relief

Holding

The appellant, having admitted borrowing and never repaying a single cent, and having come to equity without utmost good faith, disentitled itself to an injunction.

Reasoning

Both Bosire JA and Kwach JA stressed that the appellant admitted obtaining money on the strength of the securities, made no repayment, and then sought to prevent enforcement by alleging invalidity it had never previously challenged. Equity withholds its discretionary remedy from a party who approaches it without clean hands or good faith.

p. 8

Legal principles established

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  • In civil cases a prima facie case is one in which, on the material presented, the court concludes that a right has apparently been infringed so as to call for an explanation or rebuttal from the opposite party; it is a higher standard than an arguable case.
  • An appellate court may only interfere with the exercise of judicial discretion if the judge misdirected himself on law, misapprehended the facts, took into account or failed to take into account relevant considerations, or his decision was plainly wrong.
  • A mortgagee will not be restrained from exercising his statutory power of sale merely because the amount due is in dispute, the mortgagor has begun a redemption action, or the mortgagor objects to the manner of the sale; he will only be restrained if the mortgagor pays the amount claimed into court, unless the claim is excessive.
  • A company served with a statutory demand is not entitled to any time to raise the money to avoid appointment of a receiver; only the time necessary to recover money already available to it is allowed.

Court orders

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  1. 1.Appeal dismissed
  2. 2.Costs of the appeal and of the court below awarded to the respondents

The bench

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One judgment of the whole court — no separate or dissenting opinions.

SB
majority

Wrote the judgment

Wrote the lead judgment. Held that a prima facie case is more than an arguable case; the Commissioner of Assize took into account all relevant matters, erred in no fundamental principle, and the appellant, having come to equity without utmost good faith and having made no repayment, was not entitled to an interlocutory injunction. Appeal dismissed with costs.

The applicant had come to a court of equity but having failed to show utmost good faith I cannot but hold that it was not entitled to the injunction it prayed for in its application.p. 8
RK
concurring

Wrote the judgment

Agreed entirely with Bosire JA but added separate remarks emphasising that a mortgagee exercising a statutory power of sale will not be restrained merely because the debt is disputed; warned against courts allowing debtors to avoid just debts, which would cripple banks and deter investment.

I agree entirely with the Commissioner of Assize Shah that the appellant was not entitled to an injunction upon any one of the grounds urged on its behalf. I would dismiss this appeal with costs to the respondents.p. 10
EO
majority
On appeal from
Superior Court (High Court), Mombasa
Jurisdiction invoked
First appellate jurisdiction over an interlocutory appeal from the Superior Court (the judgment does not cite the specific provision)

Relief refused

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Interlocutory injunction restraining the respondents from alienating, disposing of, dealing with or selling the appellant's assets covered by the debenture, and restraining the second and third respondents from acting as receivers and managers

The appellant failed to establish a prima facie case, having admitted the debt, defaulted on repayment, and come to equity without utmost good faith

p. 8

Costs

Appeal dismissed with costs both here and in the court below (costs to the respondents).

Quotable passages

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Verbatim from the judgment, each located to the page it appears on in the official PDF — so these can be cited and checked directly.

I would on my part, without the need of considering the remaining two tests in Giella v Cassman Brown & Co Ltd (supra), dismiss the appellant's appeal with costs both here and in the court below.
p. 8Final orders - dismissal of appeal with costs
As O'Kubasu JA also agrees, this appeal is dismissed in terms of the orders proposed by Bosire JA. Orders accordingly.
p. 10Final orders - unanimous dismissal
So what is a prima facie case? I would say that in civil cases it is a case in which on the material presented to the Court a tribunal properly directing itself will conclude that there exists a right which has apparently been infringed by the opposite party as to call for an explanation or rebuttal from the latter.
p. 7Definition of prima facie case
The evidence must show an infringement of a right, and the probability of success of the applicant's case upon trial. That is clearly a standard which is higher than an arguable case.
p. 8Prima facie case versus arguable case
He will be restrained, however, if the mortgagor pays the amount claimed into court, that is, the amount which the mortgagee claims to be due to him, unless, on the terms of the mortgage, the claim is excessive.
p. 9When a mortgagee's statutory power of sale may be restrained
I have always understood that it is the duty of any person entering into a commercial transaction particularly one in which a large amount of money is involved to obtain the best possible legal advice so that he can better understand his obligations under the documents to which he appends his signature or seal.
p. 10Duty to take legal advice on commercial obligations
The applicant had come to a court of equity but having failed to show utmost good faith I cannot but hold that it was not entitled to the injunction it prayed for in its application.
p. 8Equity - utmost good faith as condition of equitable relief

Issues in the judgment

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minor

The passage introducing the Giella v Cassman Brown principles appears truncated in the text provided; paragraph 16 begins the quotation mid-sentence and the full statement of the three Giella tests is not set out, though the court later refers to 'the remaining two tests'.

minor

Internal inconsistency on the date of the first charge: the judgment variously describes it as granted in or about October 1996, dated 4th November 1996, and interest default dated from 9th October 1996.

minor

The chronology in the text is anomalous: Ouna J's orders are described as made on or about 21st March, 2002, with ruling delivered 19th December, 2002, yet the trial ruling under appeal is dated 21st June, 2000 and this appeal was heard and determined on 7th March, 2003.

Key timeline

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Practical implications

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Frequently asked questions

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Later judgments citing this (25)

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Judgments in the corpus that rely on this one. Where the Court said how it treated the authority, that is shown.

Cite this brief

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Cite this brief

Caselaw, "Mrao Ltd v First American Bank of Kenya Ltd & 2 others (Civil Appeal 39 of 2002) [2003] KECA 175 (KLR)", Case Analysis (2003). Interlocutory appeal from the ruling of Commissioner of Assize Kassim Shah dated 21st June, 2000 (case number not stated in judgment). Source: https://new.kenyalaw.org/akn/ke/judgment/keca/2003/175/eng@2003-03-07

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