Shah & 3 others v I&M Bank (Civil Appeal 133 of 2019) [2025] KECA 298 (KLR)
The bottom line
#Kenya's Court of Appeal confirmed that a bank is not obliged to sell pledged shares immediately when a margin facility is breached.
What this practically means
#Executive summary
#Questions the Court framed
#The issues the Court set itself to decide, in its own words.
- 1.Whether under clauses 9(c) and (d) of the Facility Letter the respondent bank was obliged to sell the pledged shares immediately the 70% margin was breached, or whether it had a discretion as to the timing of sale
- 2.Whether the appellants had the first obligation to regularize the margin before the bank could exercise its right of sale
- 3.Whether by selling the shares in May/June 2009 the respondent breached its contractual or fiduciary obligations to the appellants
- 4.Whether the learned Judge erred in relying on correspondence between the parties so as to amount to rewriting the contract
Key legal issues
#Interpretation of clauses 9(c) and (d) of the Facility Letter - obligation vs discretion to sell pledged shares
The contract gave the borrower the first obligation to restore the margin by payment or additional security; the bank's power of sale arose only upon failure to regularize after due notice, and was not an immediate obligation upon breach.
Reading clauses 9(c) and (d) objectively, two alternatives arise upon breach: the borrower pays or pledges additional securities to restore the margin, or the bank sells the pledged securities at its discretion. Both are preceded by the bank notifying the borrower of the breach. Best practice in stock loans confirms that sale is a last resort after the borrower is given an opportunity to right the breach.
Whether the bank breached its fiduciary or contractual duty by delaying the sale until mid-2009
No breach: the 1st appellant himself requested the bank to hold off the sale and pursued the restoration alternative, which deprioritized the sale option.
The letters show the 1st appellant repeatedly asked the bank to delay sale while he sought to top up the shortfall, and the guaranteeing appellants could not be discharged. Even absent discretion on timing, the borrower's pursuit of the top-up option meant the sale option was exercised one after the other; the borrower cannot discard his chosen option and blame the bank for not selling.
Whether the trial Judge rewrote the contract by relying on correspondence
The Judge did not err: the letters were exchanged in compliance with clause 9(c) and were relevant to ascertaining and realizing the intention of the parties.
The letters of demand, requests for indulgence and promises to top up were the means by which the parties implemented clause 9(c). They were therefore admissible to show the operation of the clause and did not amount to varying or rewriting the written contract, and the appellants who wrote them are estopped from complaining.
Legal principles established
#- On a first appeal, the Court of Appeal's duty is to re-evaluate, re-assess and re-analyse the evidence on the record and determine whether the trial court's conclusions should stand.
- Under a margin facility, forced sale of pledged securities by the lender is a tool of last resort: the lender must first notify the borrower of the breach and demand regularization, and may only sell the pledged shares upon failure to regularize.
- Where a borrower chooses the contractual alternative of restoring the margin rather than sale, that choice deprioritizes the bank's option of sale and the borrower cannot later blame the bank for not selling.
Court orders
#- 1.Appeal dismissed
- 2.Respondent awarded the costs of the appeal from the appellants
The bench
#One judgment of the whole court — no separate or dissenting opinions.
- On appeal from
- High Court of Kenya
- Not stated in the judgment
- Jurisdiction invoked
- First appellate jurisdiction under the Court of Appeal Rules, 2022 (Rule 31(1)(a)); appeal as of right from the High Court
Relief refused
#The appellants' claim that the bank was liable for the loss in value of the shares caused by the delay in disposing of the pledged shares
The contract gave the borrower the first alternative of restoring the margin; the 1st appellant himself sought to delay the sale and took the top-up option, and best practice treats forced sale as a last resort
Costs
The respondent will have the costs of the appeal from the appellants, costs following the event.
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.
In the end, this appeal must fail and is for dismissal, and we hereby dismiss it. As regard the costs, the principle that costs follow the event applies to this appeal as no reason has been advanced by the appellants for denying the respondent the costs of the appeal. The respondent will therefore have the costs of the appeal from the appellants.
From the foregoing scholarly sources, what emerges is that the exercise of the power of sale by the bank is regarded as a tool of last resort by practitioners in this field of trade.
It is only after the borrower fails to regularize the facility that the bank can sell the pledged shares. This sequence accords with the best practices in the field of stock loans and margins.
Consequently, it is our finding and we so hold that the learned Judge did not err in relying on the letters between the parties in reaching his decision.
Key timeline
#Practical implications
#Frequently asked questions
#Cite this brief
#Cite this brief
Caselaw, "Shah & 3 others v I&M Bank (Civil Appeal 133 of 2019) [2025] KECA 298 (KLR)", Case Analysis (2025). Not stated in the judgment. Source: https://new.kenyalaw.org/akn/ke/judgment/keca/2025/298/eng@2025-02-21
Suggested citation format for research notes or client memos. Always verify the original judgment before relying on any point.