Skycrapers Africaway Company Ltd & another v First Community Bank Ltd & another (Civil Appeal 134 of 2020) [2026] KECA 1615 (KLR)
The bottom line
#Kenya's Court of Appeal ruled that a 'Musharaka' Islamic finance label doesn't change a loan's substance: borrowers must repay even if the building collapses.
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 learned Judge misapprehended the nature of the transaction the Appellants entered into with the 1st Respondent (lender-borrower versus Musharaka partnership)
- 2.Whether the learned Judge erred in finding that the responsibility to take out and maintain insurance cover for the project rested on the Appellants and not the 1st Respondent
- 3.Whether the learned Judge erred in failing to find that the contract was frustrated by the collapse of the investment project, thereby discharging the parties' obligations
- 4.Whether the learned Judge erred in refusing to grant the reliefs sought by the Appellants
Key legal issues
#Whether the facility agreements created a partnership under Musharaka or a lender-borrower relationship
The relationship was that of a lender and a borrower, not a partnership. The Musharaka label did not change the substance: the Letter of Offer specified a repayment period, grace period, financing rate of 20.5% per annum, and security by charge.
The Court read the Letter of Offer, Musharaka agreement, Letter of Undertaking and Charge together. It found the agreements stated the 1st Respondent's contribution was a loan to be repaid; the 1st Appellant never obtained ownership or control rights for the bank; repayment was by instalments and unit purchases reducing the bank's share; and after the statutory notice the Appellants admitted indebtedness in writing and sought rescheduling. The Court also noted the Appellants never challenged the legality of the facility for non-compliance with Islamic law.
Who bore the obligation to insure the project property
The obligation to insure the suit property during the financing period rested on the Appellants under Clause 3(e) of the Letter of Offer, Clause 3.1 of the Musharaka agreement and Clause 6.5 of the Charge.
The Court found that Clause 3.8 of the Musharaka agreement, relied on by the Appellants, did not assign the insurance duty to both parties but merely reiterated the 1st Appellant's obligation to insure. The contractor's all-risks policy expired on 19th August 2015 and was not renewed before the collapse on 6th September 2015. The failure to maintain insurance was itself an event of default and could not found a frustration claim.
Whether the collapse of the building frustrated the facility agreements
No frustration. There was no clause linking repayment of the loan to completion of construction, and the Appellants could not invoke frustration because their own breach (failure to renew insurance) contributed to the loss.
The Court applied the doctrine of frustration, including the bar on self-induced frustration. It found the collapse was an anticipated and insured-against event; had the Appellants maintained the cover, the principal sum could have been recovered from the 2nd Respondent. The parties' repayment obligation was unconditional and did not depend on completion of construction, so the destruction of the building did not discharge the Appellants.
Whether the 1st Respondent was entitled to exercise its statutory power of sale and report the Appellants to Credit Reference Bureaus
Yes. The debt and default were admitted, the repayment proposal was not honoured, and the failure to keep the property insured was itself an event of default under the Charge.
The Court found that the failure to maintain insurance cover during the lending period constituted an event of default entitling the 1st Respondent to realise its security; the Appellants' letter of 8th February 2016 admitted default and sought rescheduling; and the 1st Respondent was obliged to report defaulters to the Credit Reference Bureaus.
Legal principles established
#- On a first appeal, the Court of Appeal must reconsider and evaluate the evidence and draw its own conclusions, while making due allowance for the fact that it neither saw nor heard the witnesses.
- Under the parol evidence rule, where the parties' intention has been reduced to writing, extrinsic evidence is generally not permissible to contradict, vary or add to the terms of the document; surrounding circumstances are admissible only where the language is ambiguous.
- The doctrine of frustration is not absolute: the party invoking it must prove the frustrating event occurred without their fault or contribution; self-induced frustration cannot be relied upon.
- Islamic banking products such as Musharaka are contractual arrangements to be interpreted according to their written terms; the label of the product does not displace the contractual relationship actually created by the facility agreements.
Court orders
#- 1.The appeal is dismissed with costs to the 1st Respondent
The bench
#One judgment of the whole court — no separate or dissenting opinions.
- On appeal from
- High Court of Kenya at Nairobi
- Not stated in the judgment
- Jurisdiction invoked
- First appeal to the Court of Appeal under the Court of Appeal's appellate jurisdiction (the judgment identifies it as 'a first appeal'); no specific constitutional or statutory provision is quoted.
Relief refused
#All reliefs sought in the further amended plaint, including declarations of frustration and Musharaka character, nullification of statutory notices, permanent injunctions against sale and CRB listing, and indemnity from the 2nd Respondent
The relationship created by the facility agreements was that of lender and borrower, not a partnership; the Appellants breached the agreements by failing to renew insurance and by failing to repay; the collapse did not frustrate the agreements; and the insurance policy was not valid at the time of the collapse.
Costs
The appeal is dismissed with costs to the 1st 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.
From our review of the facility agreements, we see no dificulty in agreeing with the learned Judge that the relationship created by these agreements was that of a borrower and a lender, and not a partnership as claimed by the Appellants.
the doctrine of frustration is not absolute. The alleging party must prove that the frustrating event occurred without their fault or contribution. Self-induced frustration, where the event results from the party's own actions or breach, cannot be relied upon to terminate a contract.
We will interpret the agreements between the parties as they are, an approach adopted by the learned Judge, which, in our view, was correct. The agreements were not ambiguous as claimed by the Appellants.
The upshot is that we find no basis for interfering with the superior court's judgment. The appeal is dismissed with costs to the 1st Respondent.
Key timeline
#Practical implications
#Frequently asked questions
#Cite this brief
#Cite this brief
Caselaw, "Skycrapers Africaway Company Ltd & another v First Community Bank Ltd & another (Civil Appeal 134 of 2020) [2026] KECA 1615 (KLR)", Case Analysis (2026). Not stated in the judgment. Source: https://new.kenyalaw.org/akn/ke/judgment/keca/2026/1615/eng@2026-07-31
Suggested citation format for research notes or client memos. Always verify the original judgment before relying on any point.