Pop In Kenya Limited, Rajnikant Khetshi Shah, Hasmukh Devchand Sumaria & Ratilal Khetshi Shah v Habib Bank A.G. Zurich [2016] KECA 206 (KLR)
The bottom line
#Kenya's Court of Appeal ruled that a Kshs. 10 million loan cap did not include interest, and the borrowers lost their appeal entirely.
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 1st appellant's liability under the security documents was limited to a maximum of Kshs. 10 Million or whether interest and other charges were payable over and above that sum
- 2.Whether the appointment of the receiver/manager was void for not being under the seal of the Bank
- 3.Whether the appellants strictly proved their claim for special damages of Kshs. 15,100,000/- for loss of profits and losses occasioned by the receivership
- 4.Whether the notices dated 11th March, 1986 and 30th January, 1987 were valid statutory notices and whether the sale of the mortgaged and charged property was lawful
Key legal issues
#Construction of the maximum sum secured under the debenture, mortgage and charge
The Kshs. 10 Million limit was the cap on the principal sum only; interest and other charges were payable in addition as expressly provided in the security documents.
The court examined clauses 1 and 2 of the debenture and the corresponding provisos in the charge and mortgage documents. Each proviso capped the secured principal at Kshs. 10 Million but expressly added interest, commission, charges and expenses. The court held the provisions were unambiguous and that a bank advancing a principal sum would commercially expect interest as a return, so the appellants' claim that total liability was capped at Kshs. 10 Million failed.
Validity of the appointment of the receiver/manager
The challenge that the appointment was not under the Bank's seal failed; it was a challenge on form and not substance, and the right to appoint a receiver under the debenture was beyond dispute.
The receivership lasted only a brief period (about 15 days), during which the appellants raised no complaint. The receiver's bona fides were not challenged, the 2nd appellant acknowledged the receiver was introduced by a Bank official, and clause 12 of the debenture entitled the Bank to appoint a receiver after lawful demand. The court characterized the complaint as an attempt to close the stable after the horse had bolted.
Proof of special damages for loss of profits
The claim for Kshs. 15,100,000/- failed for want of strict proof despite being pleaded.
The court affirmed that special damages must be specifically pleaded and strictly proved, with the degree of particularity depending on the circumstances (Hahn v Singh). A profitable business claiming monthly losses of Kshs. 630,000/- must have books of account, ledgers, cash books and profit and loss accounts, none of which were produced. The 2nd appellant's rough estimates of turnover and profit were mere figures plucked from the air and could not sustain the award of damages.
Validity of statutory notices and lawfulness of the sale of the charged properties
Both the notices of 11th March, 1986 (under section 69A(1)(b) TPA, interest being in arrear for more than two months) and the notice of 30th January, 1987 (giving three months' notice under section 69A(1)(a)) were valid, and the sale was lawful.
The judge's factual finding that interest was in default for at least two months by 11th March, 1986 could not be faulted since the appellants contended only the principal was repayable. The January 1987 notice expressly gave three months within which to pay, satisfying the requirements identified in Trust Bank Ltd v Eros Chemists, that a notice must state the sale will take place after the three months' period. The court declined to prescribe the form of notice.
Legal principles established
#- Where a debenture, mortgage or charge secures a principal sum with a proviso adding interest and other charges, liability is not capped at the principal sum; the principal sum limit does not include interest and other charges which are payable in addition.
- Special damages must be both specifically pleaded and strictly proved; a general assertion of monthly profit without production of books of account or business records does not amount to strict proof.
- A statutory notice seeking to exercise the mortgagee's power of sale need not take a prescribed form; it is sufficient that it gives the chargor or mortgagor the prescribed period of warning before the sale.
- Where some interest under the mortgage is in arrear and unpaid for two months after becoming due, the mortgagee is entitled under section 69A(1)(b) of the Transfer of Property Act to exercise the statutory power of sale without further notice.
Court orders
#- 1.The appeal is dismissed
- 2.Costs of the appeal are awarded to the respondent
The bench
#One judgment of the whole court — no separate or dissenting opinions.
Wrote the judgment
Wrote the judgment
Wrote the judgment
- On appeal from
- High Court of Kenya at Nairobi
- H.C.C.C. No. 2066 of 1986
- Jurisdiction invoked
- First appeal to the Court of Appeal under the appellate jurisdiction conferred on the Court over the High Court (the judgment does not cite a specific constitutional or statutory provision)
Relief refused
#Allowance of the appeal and the setting aside of the High Court judgment
All four grounds of appeal were found to lack merit; the security documents expressly provided for interest and charges over and above the principal sum, the receivership was lawful, the special damages were not strictly proved, and the statutory notices were valid
Special damages of Kshs. 15,100,000/- for loss of profits
The claim, though pleaded, was not strictly proved; no books of account, bank statements, balance sheets, ledgers or other business records were produced
Costs
The appeal was dismissed with costs thereof to the respondent.
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.
The upshot is that the entire appeal has no merit. We order that it be and is hereby dismissed with costs thereof to the respondent.
It is, in our view, plain that the principal sum advanced or to be advanced to the 1st appellant could not exceed Kshs. 10 Million and the sum attracted interest as stipulated in all the security documents.
In our view, this was a classic case where figures are plucked from the air and thrown before a court as proof of special damages.
As we, stated in the Trust Bank Ltd. case (supra), it is sufficient that the notice gives the chargor or mortgagor the prescribed period of warning.
Given the default in the payment of interest for at least two months, the respondent was entitled under section 69A(1) (b) of TPA to exercise its statutory power of sale.
This being a first appeal we are enjoined to re-appraise the evidence and draw our own inference of fact bearing in mind that we did not see the witnesses testify and must therefore give allowance for that
Issues in the judgment
#The judgment contains an apparent typographical error in a date within the narrative of the demand letter
The amount of the special damages claim is stated inconsistently within the judgment, as Kshs. 15,100,000/- in the grounds of appeal and Kshs. 15,337,460/05 (and Kshs.15,537,460.05 in the quoted trial judgment) elsewhere
The judgment records the sale proceeds inconsistently, as Kshs. 28.5 Million per the 2nd appellant's testimony and Kshs. 35,900,000/- per the respondent's witness
Key timeline
#Practical implications
#Frequently asked questions
#Cite this brief
#Cite this brief
Caselaw, "Pop In Kenya Limited, Rajnikant Khetshi Shah, Hasmukh Devchand Sumaria & Ratilal Khetshi Shah v Habib Bank A.G. Zurich [2016] KECA 206 (KLR)", Case Analysis (2016). Civil Appeal No. 246 of 2010. Source: https://new.kenyalaw.org/akn/ke/judgment/keca/2016/206/eng@2016-10-07
Suggested citation format for research notes or client memos. Always verify the original judgment before relying on any point.