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Lender Security in Kenyan Law Cases

The document discusses a legal case involving Standard Chartered Financial Services and King Woolen Mills, focusing on whether lenders must register new securities for additional advances when previous securities are still in effect. It highlights two opposing views on the necessity of fresh securities versus the validity of existing ones, referencing judicial precedents and statutory provisions. The outcome of this case is expected to significantly influence the financial landscape in Kenya by reinforcing contractual obligations and financial accountability.

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20 views1 page

Lender Security in Kenyan Law Cases

The document discusses a legal case involving Standard Chartered Financial Services and King Woolen Mills, focusing on whether lenders must register new securities for additional advances when previous securities are still in effect. It highlights two opposing views on the necessity of fresh securities versus the validity of existing ones, referencing judicial precedents and statutory provisions. The outcome of this case is expected to significantly influence the financial landscape in Kenya by reinforcing contractual obligations and financial accountability.

Uploaded by

linetokaka22
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd

SECURING THE KING IN THE LENDING WORLD

Picture, if you will, a high-stakes chess match, yet, instead of bishops and rooks,
the pieces on the board represent not mere tokens of power, but the very core of
our financial topography. In check, is the lender’s king, his fate hanging
precariously in the balance as the game unfolds.
This was the game set in motion on the 23 rd of February 2023, when the
application in Standard Chartered Financial Services Ltd and King Woolen
Mills Ltd & 2 Others [2023] was allowed, which application granted leave to
appeal against the Judgment and Orders of the Court of Appeal in Nairobi Civil
Appeal No. 88 of 2000. To arrive at checkmate, the SCOK will be tasked with
deciding on two focal issues; firstly, whether financiers are obliged to register
fresh securities for every subsequent advance, even where previous securities
remain undischarged. Secondly, whether a borrowing devoid of proper security,
intentional or inadvertent, absolves the borrower of their fundamental obligation
to repay a loan.
It is not uncommon that financial institutions get called upon to make additional
advances on the basis of securities already perfected in their favour. Judicial
decisions such as Habib Bank AG Zurich v Rajni Khetshi Shah [2018] eKLR have
previously recognized the nature of a continuing security over a legal charge
until the debt is paid and the security is discharged. Not only this, but statutory
underpinnings including section 580(1)(b) of the Companies Act 2015, applicable
to debentures as is this matter, and section 81 of the repealed Registered Land
Act which required that discharge of securities only following deregistration.
It’s however clear that two schools of thought exist in this regard. The first is that
the securities should be discharged and fresh securities perfected as regard the
fresh advance. The other school of thought favours accommodating the fresh
advance within the limits of the securities already perfected.
Like a pawn, the court is limited to move a square forward in a matter of
contracts and must not engulf itself with re-writing a contract freely entered in to
between capable parties. The contract between the parties in this matter was
clear; the second advance would be secured by “the securities held”, and the
borrower undertook to repay the facility.
In any event the court finds that fresh registration is necessary for subsequent
security, surely the knight has the ability to jump over other pieces on the board!
The lender is entitled to recover the facility amount under the contract in a cause
for unjust enrichment. Courts have previously not shied away from moving their
knights. In Jordan Properties Limited v Maragret Njoki Migwi [2020] eKLR it was
held that enrichment is prima facie unjust if a party got enriched on the basis of
a consideration which failed, whether a promised counter-performance (whether
under a valid contract or not), an event or a state of affairs, which failed to
materialize.
The outcome of these deliberations stand to profoundly impact not only the
pieces on the immediate squares but significant pieces on the rest of the board,
the broader financial ecosystem of Kenya. One might only hope for a sound
determination whose upshot will be to maintain the sanctity of contractual
agreements and fosters financial accountability.

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