' 1. The Plaintiff, a limited liability company based in Kenya and engaged in the aviation industry, filed a suit against the Eastern & Southern African Trade and Development Bank (PTA Bank), a regional financial institution with operational offices in Nairobi.
2. The Plaintiff’s claim is set out in its further re-amended plaint dated 30/5/2023. It claimed that around July/August 1998, the Defendant had extended a term loan of USD 2.5 million to it for use in its aviation projects. This loan agreement, however, was undated, unstamped, and unsealed.
3. The Plaintiff claimed that various related agreements were signed, including a deed of variation, a deed of guarantee by two directors, a collection agreement, and a debenture, some of which were also unstamped and unsealed. Additionally, the Plaintiff executed a charge over its property at LR. 9042/583 Embakasi. Under a component of the loan (Tranche C), USD 100,000 was allocated for the purchase of aviation fuel from Kenya Shell Ltd and was not to be repaid for 180 days.
4. The Plaintiff stated that on 21/7/1999, the Plaintiff drew down this amount. However, on 29/7/1999, the Defendant declared this drawdown an event of default and demanded immediate repayment of the entire drawn amount of USD 2,162,690.91. The Defendant then appointed two individuals as receivers and managers, who took control of the Plaintiff’s premises. Initially, they did not interfere, but on 10/9/1999, they grounded an aircraft at Jomo Kenyatta International Airport that did not belong to the Plaintiff.
5. It was contended that the receivers then indicated an intention to realise the securities, including selling the charged property. The Plaintiff claimed that further appointments of receivers by the Defendant violated provisions of the Companies Act and were made without proper procedure. As of 17/2/2005, four different receivers had been appointed.
6. The Plaintiff denied being in breach of the loan agreement and argued that the receivership was illegal, unjustified, and had severely damaged its business. It sought court declarations to that effect, injunctions to restrain the Defendant and eject the receivers, and damages.
7. Specifically, the Plaintiff cited losses including the total write-off of aircraft 5Y AXI valued at USD 1,340,000, Boeing 707 spare parts worth USD 2,000,000 held by the receivers, the inability to develop its Embakasi property, projected lost profits of USD 2,671,000, as well as loss of goodwill and ability to service the facility.
8. The Plaintiff prayed for the following orders:-
“ l. The Declaration that the appointment of the Receivers by the Defendant was unlawful, illegal, improper and totally unjustified.
2. An injunction to restrain the Defendant from recalling, taking possession, selling or otherwise realizing any of the remaining/existing Plaintiff’s property.
3. Injunctions both prohibitory and mandatory to eject the Receivers and Managers and to prevent the Defendant from appointing any or any other Receivers whatsoever.
4.Deleted.
5. Damages for loss of business in the sum of USD. 2,671,000.00
6. Special Damages for loss of an Aircraft 5Yl AXl and loss of spare parts of Boeing 707 valued at USD 3,340.000[-.
7. Special damages for the illegal auction of L.R. No. 9042/583 valued at KShs. 250,000,000.00, or IN THE ALTERNATIVE, a value to be determined by the court subject to valuation carried out upon delivery of judgment.
g) Costs.
h) Interest.
i) Further and other relief.”
9. The Plaintiff filed a list of documents dated 4/3/2020 and relied on one witness named Captain Musa Hassan, who testified as PW1 and relied on two witness statements dated 31/5/2019 and 4/3/2020 as his evidence in chief.
10. The Plaintiff’s witness stated that he was a shareholder and director of African Airlines International Limited (AAI), the first indigenous Kenyan international airline. He had over 40 years of experience in the aviation industry. AAI initially had an expensive facility with Standard Chartered Bank before being introduced to PTA Bank, which offered seemingly better financial terms and eventually took over AAI’s debt.
11. PW1 stated that AAI entered into a Facility Agreement with PTA on 6/7/1998 for US$2.5 million to support its working capital. This was secured through a debenture and a charge over its assets, including L.R. No. 9042/583, Nairobi. PTA obtained a valuation of this property at US$3.4 million. At the time, AAI was a going concern operating a Boeing 707 and other aircraft, which were leased, insured, and certified for maintenance.
12. According to the witness, PTA had assured support to help AAI grow. The Facility Agreement included securities such as director guarantees, land charge, and a floating charge over receivables. However, AAI soon experienced cash flow difficulties and requested a variation, leading to a Variation Agreement on 4/8/1998. PTA appeared to become more involved in management, with an apparent intention to take over the business.
13. It was the Plaintiff’s case that on 29/7/1999, PTA abruptly enforced its security and placed AAI under receivership with minimal notice. That Mr. Silcock was appointed Receiver and Manager. The Plaintiff protested and sought a restructure, which culminated in a Restructuring Agreement dated 1/12/1999. Under this agreement, PTA was to carry out a legal audit and possibly lift the receivership, subject to certain conditions.
14. Although PTA paid outstanding airport fees as agreed, the receivership was never lifted, no operational strategy review was conducted, and AAI’s revenue-generating aircraft was grounded. The Plaintiff maintained that the alleged default triggering the receivership was unfounded. The disputed advance under Tranche C was within the agreed terms and made just days before receivership. At that time, only US$2.16 million of the facility had been drawn, most of it used to settle the Standard Chartered Bank Loan.
15. The Plaintiff argued that PTA’s receivership actions were intended to destroy AAI rather than support it. He claimed PTA failed to meet its obligations under the restructuring agreement and breached its promises. He expressed concern over the lack of transparency in the receivership process, including failure to file returns or disclose sale details of AAI’s assets, which he believed were sufficient to cover the facility.
16. PW1 noted that land was sold to Kenya Airways while a dispute was still in court, and AAI only learned of the sale in 2017 upon receiving eviction notices. There were also spare parts and aircraft assets of significant value unaccounted for. In 2013, a demand for over US$11 million was made, but AAI, under receivership, could not respond. The Plaintiff described this amount as excessive.
Defendant’s case
17. The Defendant opposed the application through a re-amended statement of defence dated 28/7/2023.
18. The Defendant denied all allegations in the further re-amended plaint except those expressly admitted. It admitted entering into a facility agreement with the Plaintiff 6 /7/1998 for a loan of USD 2.5 million, which was secured by a debenture and a charge over L.R. No. 9042/583, as well as through a variation and collection agreement.
19. The Defendant stated that it disbursed funds in three tranches, but the Plaintiff defaulted in repayment. Several demand letters were issued, and due to continued default, the Defendant exercised its right under the debenture and appointed receiver managers, initially Graham Silcock and Pratul Shah, followed by Raphael Oile and later Kameshwar Mishra, all of whom were said to have been properly appointed in accordance with the law.
20. The Defendant asserted that the Plaintiff acknowledged its indebtedness in a facility restructuring agreement, but nonetheless failed to honour it. It also stated that the property charged was lawfully sold by public auction for KES 150 million, following a valuation by Axis Real Estate Valuers, and that all statutory notices had been issued and injunction applications dismissed.
21. In response to the Plaintiff’s allegations of mismanagement, the Defendant maintained it had always exercised due care and complied with legal requirements. It denied the Plaintiff’s claim regarding a letter from the Registrar of Companies, alleged failures to file annual returns or accounts, and any unlawful continuation of the receivership.
22. Regarding arbitration, the Defendant stated it had always supported referral of the dispute to arbitration as provided under the facility agreement governed by English law. It denied causing delays and pointed out that the Plaintiff had also failed to prosecute the suit or seek arbitration. It contended that losses allegedly suffered—including loss of aircraft, spare parts, business revenue, and goodwill—were unsubstantiated, denied liability for the same, and emphasized that receiver managers were agents of the Plaintiff, who had not been joined to the suit.
23. The Defendant concluded that the plaint was fatally defective for procedural non-compliance and that the suit, save for prayer 4, should be dismissed with costs. It also challenged the court’s jurisdiction on grounds of res judicata and sub judice.
24. The Defendant filed a list of documents dated 18/12/2020 and relied on one witness named Alemayehu Kebede Ambaye, who produced and relied on a witness statement dated 18/12/2020.
25. During the trial, DW1 adopted the witness statement as his evidence in chief. He reiterated that the total amount of the facility was USD 2.5 million disbursed in 3 tranches and that the receivership was due to the default by the Plaintiff under the facility agreement.
Analysis and determination
26. The Plaintiff filed written submissions dated 4/12/2024 while the Defendant filed submissions dated 14/12/2024.
27. I have carefully analysed the same together with the pleadings and evidence adduced by the parties herein.
28. The issues for determination are the following:-
i. Whether the facility agreement, variation agreement and security documents are admissible.
ii. Whether the appointment of receiver managers by the Defendant was legal and justified.
iii. Whether there was mismanagement of the receivership.
iv. Whether the sale/auction of L.R No.9042/583 was done legally.
v. The legality of the sale of aircraft 5YI AXI and spare parts of Boeing 707, and whether the Plaintiff is entitled to damages for alleged loss of business.
vi. Whether the Receivership should continue
Issue 1: Admissibility of the Facility Agreement and Securities
29. During the trial, counsel for the Plaintiff questioned the authenticity and admissibility of the facility agreement and the accompanying security instruments on the ground that they had not been duly stamped in accordance with the Stamp Duty Act.
30. At the outset, it is important to note that the Defendant, PTA Bank, operates within a legal framework that expressly exempts it from domestic taxation, including duties ordinarily imposed on instruments under national law. This exemption is anchored in Article 43(6) of the PTA Charter, which is recognized and enforced in Kenya through the Privileges and Immunities Act. The relevant Legal Notices confirming the applicability of this exemption are contained at pages 1–3 of the Defendant’s bundle. Accordingly, there was no statutory obligation for documents executed by the Defendant to bear a stamp from the Collector of Stamp Duty.
31. In any event, the Defendant produced the impugned documents, which do in fact bear the requisite endorsements. While the visible markings appear faint—likely due to the reproduction process—they are discernible on the cited pages of the Defendant’s bundle: page 160 (facility agreement), page 185 (personal guarantee), page 197 (charge instrument), and page 210 (debenture). The presence of these stamps, albeit faded, contradicts the Plaintiff’s assertion that the documents were wholly unstamped.
32. In any event, the existing jurisprudence in Kenya makes it clear that a document’s admissibility is not necessarily defeated by an omission to affix stamp duty. In Mwanahamisi Omar Mzee alias Fatuma Mohamed Ali Omar v Chengo Kahindi Birya & another [2018] eKLR, the High Court held that the purpose of the Stamp Duty Act is to ensure government revenue, not to act as a procedural trap to bar substantive claims. Likewise, in Abok James Odera T/A A.J. Odera & Associates v John Patrick Machira T/A Machira & Co. Advocates [2013] eKLR, the Court of Appeal acknowledged that although the agreement before it had not been stamped as required, this deficiency was not fatal. Instead, the Court affirmed that trial courts retain the authority to either assess the applicable duty themselves and direct payment or refer the matter to the relevant tax authority for assessment and compliance.
33. From the foregoing, even if the instruments had been presented unstamped, the law provides a mechanism for regularization without invalidating their use in evidence. The Plaintiff’s objection is therefore without legal or factual foundation and ought to be rejected.
Issue 2: Legality of Appointment of Receivers
34. It is not in dispute that the Defendant extended to the Plaintiff a facility of USD 2.5 million, disbursed in three tranches under a facility agreement dated 6th July 1998, produced at pages 158–183 of the Defendant’s bundle.
35. The facility was secured by (a) a charge over L.R. No. 9042/583 dated 7th July 1998; (b) a floating debenture over the Plaintiff’s receivables and stock dated 7th July 1998; and (c) personal guarantees executed by its directors and shareholders on the same date. These documents appear in both parties’ bundles.
36. It is equally not in dispute that the Plaintiff experienced difficulties in servicing the facility and requested for a variation agreement, as is clear from the testimony by PW1 at paragraphs 11 and 12 of his witness statement. This led the parties to enter into a variation agreement of 4/8/1998, which is produced on pages 237-241 of the Defendant’s bundle.
37. The Defendant’s position is that the Plaintiff defaulted under the facility and variation agreement, thereby entitling it to appoint a receiver pursuant to the debenture. The Plaintiff contends, on the other hand, that the appointment of receivers on 29th July 1999 was unlawful, illegal, and unjustified.
38. Central to this dispute is tranche C of the facility, namely, a credit facility of USD 100,000 issued by way of a Standby Letter of Credit (“SBLC”) with a stated tenure of 180 days. The Plaintiff argued that the 180-day period afforded it time to settle obligations to Kenya Shell for fuel supplies.
39. The Court is not persuaded by the Plaintiff’s argument that the 180-day period afforded it time to repay Kenya Shell for fuel received. Rather, as evidenced in the facility agreement and the documentary record (pages 281–282, 305, 312, and 317–318 of the Defendant’s bundle), the 180-day period merely defined the lifespan of the SBLC; the window within which Kenya Shell could make a demand on the bank in case of the Plaintiff’s failure to pay.
40. This construction of the instrument is in line with the definition of a standby letter of credit in Black’s Law Dictionary, 8th Edition, at page 923:
“A letter of credit used to guarantee either a monetary or nonmonetary obligation (such as performance or construction work), whereby the issuing bank agrees to pay the beneficiary if the bank customer defaults on its obligation.”
41. The principle underlying such instruments is that they are that the instruments are autonomous and payable upon demand, independent of disputes under the underlying contract, as further captured in Halsbury’s Laws of England, 4th Edition, Vol. 41 at page 819, which states:
“A performance guarantee or bond commonly provides for payments to be made on the demand of the beneficiary. The contractual obligations arising under such guarantees or bonds are separate from and not dependent upon those existing under the sale contract between the seller and the buyer.”
42. It therefore follows that once Kenya Shell issued its demand, the Defendant was obliged to honour it. Whether a dispute existed between Kenya Shell and the Plaintiff was immaterial. This principle of autonomy was affirmed in the case of Eli Holdings Ltd v Kenya Commercial Bank (2020) eKLR, where the Court held that a demand guarantee is independent of the primary contract and unaffected by disputes between the contracting parties. The Court stated that:
“A bank guarantee is an autonomous contract which requires strict compliance to its terms. The Bank has no obligation to question the performance or otherwise of the obligations of the parties in the underlying contract... As a general proposition, a demand guarantee is independent of the primary contract and will not be affected by a dispute between the parties to the underlying transaction.”
43. The record indicates that the Plaintiff failed to pay Kenya Shell, which then led the bank to pay Kenya Shell on behalf of the Plaintiff under the SBLC. This constituted a default under Article XI(h) of the facility agreement (page 178 of the Defendant’s bundle), entitling the Defendant to accelerate repayment and enforce its securities.
44. Consequently, a formal demand was issued on 29th July 1999. Upon the Plaintiff’s failure to comply, the Defendant appointed a receiver pursuant to Clause 8 of the debenture. The fact that the demand and appointment occurred on the same day does not render the process unlawful. Clause 8 expressly authorized the lender to enforce immediately upon default, without a grace period.
45. In Showind Industries Ltd v Guardian Bank Ltd & another [2002] eKLR, the Court upheld a similar clause, holding that no demand was necessary for the appointment of a receiver once the security had crystallized. The Court in that case stated as follows: -
“Under clause 18 of the debenture, no demand was necessary for the appointment of a receiver if… the company failed to comply with any covenant, warranty or other obligation contained in the debenture… So the power to appoint a receiver had crystallized contrary to the affirmation by the Plaintiff.”
46. The Plaintiff’s claim that the deed of appointment was delivered prematurely was unsupported. The testimony of PW1 was hearsay, given his admission that he was outside the country on the relevant date. Moreover, correspondence from the Plaintiff dated 28th July and 6th August 1999 (pages 319–321B) acknowledged the appointment without protest.
47. The further argument by the Plaintiff that a court sanction was required under the Insolvency Act, 2015, is misconceived, as the debenture and appointment predated that statute.
48. Accordingly, the Court is satisfied that the appointment of the receiver manager was validly made under Clauses 8 and 9 of the debenture, which provided inter alia that the Defendant has the authority to appoint any person in writing once the security had become enforceable.
49. The upshot of the foregoing is that this Court finds that the appointment of the receiver manager(s) was legally sound and in line with the prevailing contractual and statutory framework.
Issue 3: whether there was mismanagement of the receivership.
50. The Plaintiff submitted that the appointment of the receiver manager was unlawful and that, consequently, it was just and proper for the Court to award compensation.
51. The Plaintiff further contended that such compensation should extend to losses allegedly occasioned by the receiver’s mismanagement and poor business decisions. Particular reliance was placed on a letter dated 9/10/1999, in which the receiver grounded the Plaintiff’s Boeing 707 indefinitely. The Plaintiff claimed that the aircraft, being the company’s main revenue earner, had been generating over USD 12,000 weekly, and that its grounding directly resulted in loss of income.
52. To support this position, the Plaintiff cited another letter dated 5/10/1999 by the receiver addressed to the Defendant. In that letter, the receiver expressly acknowledged that the aircraft was profitably operating on the Sharjah and Eldoret routes, and confirmed that weekly remittances from Sharjah alone exceeded USD 12,000—sufficient to cover the company’s operational and office costs in Kenya.
53. On its part, the Defendant denied the allegations of mismanagement, submitting that any operational challenges were due to the Plaintiff’s own non-cooperation. According to the Defendant, the receiver manager, PricewaterhouseCoopers (PWC), repeatedly requested the Plaintiff to provide financial and company documentation necessary for the receivership, including through a formal request dated 18/8/1999, which sought, inter alia, vehicle registration books, hire purchase agreements, company records, and most critically, a Statement of Affairs as required under sections 351 and 352 of the Companies Act. The Plaintiff, however, failed to comply with any of these requests, and the Statement of Affairs was never furnished.
54. I have considered the letters dated 5/10/1999 and 9/10/1999 as produced on pages 422-424 and 378, respectively, in the Defendant’s bundle of documents. In the said letters, it is evident that the receiver manager grounded the Plaintiff’s aircraft, Boeing 707-330B, setting out an elaborate list of reasons, including the withdrawal of insurance cover by the aircraft’s insurers and concerns about its airworthiness.
55. In my assessment, the receiver manager grounded the aircraft for cogent and legitimate reasons. The Plaintiff has not demonstrated how such action, taken in the interests of safety and compliance, could amount to mismanagement of the receivership.
56. Further, vide the letter dated 18/8/1999 (produced at pages 367–368 of the Defendant’s bundle), the receiver manager expressly requested the Plaintiff to provide key financial documentation, including the statutory Statement of Affairs. There is no evidence before this Court that the Plaintiff availed the requested documentation.
57. The Plaintiff’s failure to comply undoubtedly hindered the receiver’s ability to properly discharge his duties, including the preparation of a Statement of Affairs as required under the Companies Act.
58. The upshot of the foregoing is that I find that the Plaintiff has not discharged the burden of proving that the receivership was mismanaged. The allegations of mismanagement, therefore, fail.
Issue 4: Whether the sale/auction of L.R. No.9042/583 was legal
59. The Plaintiff submitted that it is entitled to special damages for the alleged illegal auction of L.R. No. 9042/583 valued at Kshs. 250,000,000.00 or, in the alternative, a value to be determined by the court, upon valuation to be carried out following delivery of judgment.
60. The Plaintiff argued that this claim is premised on the contention that the property was sold pursuant to an illegal receivership. According to the valuation report produced by PW1, the property was valued at Kshs. 250,000,000/= as of 27/3/2023, when the plaint was further amended.
61. On its part, the Defendant submitted that the claim is barred by the doctrines of res judicata and sub judice. It was argued that the Plaintiff had lodged a similar claim in ELC No. 770 of 2018, Captain Musa & another v. PTA Bank & 2 others, where the subject property was the same L.R. No. 9042/583, and in that case, the Court determined that the Plaintiff had no claim to the property.
62. The Defendant further contended that the valuation report relied upon by the Plaintiff was inadmissible as expert evidence, since it was not prepared or produced by a qualified valuer. Moreover, it was pointed out that the valuation related to the year 2023, whereas the auction in question took place in 2014.
63. During cross-examination, PW1 conceded that he had indeed filed ELC No. 770 of 2018, and that the subject matter in that suit was the very same property in dispute herein. He further admitted that the claim in the ELC case arose from the same facility agreement at issue in this case, and that the Court in ELC No. 770 of 2018 had found that the Plaintiff had no claim over the property.
64. I have perused the plaint in ELC No. 770 of 2018, which is contained at pages 1048–1053 of the Defendant’s bundle of documents. It is evident that the Plaintiff advanced a similar claim in that suit, and that the sale of the subject property was directly in issue therein.
65. In view of PW1’s admission that the ELC Court had already determined that the Plaintiff had no interest in the subject property, and considering that the issue of the legality of the sale remains within the purview of the ELC, this Court lacks jurisdiction to re-open or re-litigate the matter.
66. To pronounce on the legality of the auction in these proceedings would amount to a violation of the doctrines of res judicata and sub judice, which prohibit parallel litigation of the same subject matter between the same parties.
67. Accordingly, I find that the Plaintiff’s claim for special damages in respect of the alleged illegal auction of L.R. No. 9042/583 is unsustainable. This Court cannot determine the legality of the Defendant’s sale of the property, nor can it make findings on valuation or damages arising therefrom. The claim is therefore dismissed.
Issue 5: The legality of the sale of aircraft 5YI-AXI and spare parts of Boeing 707, and whether the Plaintiff is entitled to damages for alleged loss of business.
68. The Plaintiff relied on a valuation report dated 22/6/1998 to assert that the aircraft and its spare parts were worth USD 1,500,000. However, the report was not properly produced before the Court, as the expert valuer was not called to testify.
69. In the absence of such foundational evidence, and given that the report itself contains no justification or detailed breakdown to support the stated figure for the “aircraft parts stock,” the Court finds that little probative value can be attached to it.
70. The Plaintiff also alleged that DW1 failed to produce supporting documentation. This contention is not borne out by the record. DW1 produced his full bundle of documents (pages 1–1192 of the Defendant’s bundle), which included, inter alia: Engineer Njenga’s memorandum (pages 420–421), letters from the receiver manager addressing the condition of the aircraft (pages 369–377 and 422–424), and the advertisement for the sale of the aircraft (page 588).
71. On the sale itself, the evidence shows that the receiver took reasonable and transparent steps to obtain the best possible value. The aircraft was grounded following a decision communicated to PTA by the receiver on 5/10/1999, due to its deteriorated condition and the need for a mandatory C-check, estimated to cost USD 300,000, which the Plaintiff could not fund. Engineer Njenga’s report (pages 420–421 of the Defendant’s bundle) confirmed that the aircraft was unfit for operation, a position also reiterated in the receivers’ correspondence (pages 422–424 of the Defendant’s bundle).
72. Further, a memorandum of understanding dated 28/10/1999 (pages 430–438) was signed between PTA and the Plaintiff, under which the Plaintiff undertook to assist in identifying potential buyers. Despite this, the Plaintiff did not introduce any alternative purchaser offering a better price. On 22/2/2000, the receiver wrote to the Plaintiff inquiring whether any buyer had been secured (page 530), but received no response.
73. The record further shows that efforts were made to negotiate a better price with the identified buyer, but these were unsuccessful, as evidenced in the buyer’s letter of 15/11/2000 (page 561). The aircraft was also advertised for sale in the East African newspaper (page 588) and marketed privately (pages 589–590). The offers received were all below the initial one, and the eventual buyer further reduced its offer. Ultimately, the aircraft and spare parts were sold for USD 65,000, as confirmed by the correspondence and sale records (pages 543–545 and 591).
74. The Plaintiff’s claim for USD 2,671,000 in alleged lost profits is equally unsubstantiated. No expert report, computation, or evidentiary basis was presented to support this figure.
75. In the circumstances, the Court is satisfied that the receiver conducted the sale lawfully and transparently, and obtained the best price reasonably achievable in the prevailing market conditions.
76. Accordingly, I find that the Plaintiff has failed to prove any entitlement to damages for alleged lost business or undervaluation of the aircraft.
Issue 6: On the Continuation of Receivership
77. The Plaintiff submitted that the receivership should be terminated on account of its inordinate duration, now spanning over 25 years. It was argued that despite the sale of the Plaintiff’s assets, the Defendant continues to claim an excess of USD 20 million, notwithstanding that the lending was said to have been sufficiently secured. Relying on LTI Kisii Safari Inns v DEG [2011] eKLR, the Plaintiff urged this Court to bring the receivership to an end.
78. It is indeed borne out by the evidence that the receivership has persisted for over 25 years. This was confirmed by DW1, who, in cross-examination, conceded that he could not state when the receivership would end, noting that the question could only be addressed by the receivers themselves. While the initial appointment of the receiver was lawful, it is an equitable duty of the Court to ensure that receivership does not operate as a perpetual state of affairs.
79. In LTI Kisii Safari Inns v DEG [2011] eKLR, the Court of Appeal emphasized that receivership cannot last indefinitely. The Court underscored the necessity for transparency and accountability through audited accounts and observed that a receivership that had lasted 13 y
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2. The Plaintiff’s claim is set out in its further re-amended plaint dated 30/5/2023. It claimed that around July/August 1998, the Defendant had extended a term loan of USD 2.5 million to it for use in its aviation projects. This loan agreement, however, was undated, unstamped, and unsealed.
3. The Plaintiff claimed that various related agreements were signed, including a deed of variation, a deed of guarantee by two directors, a collection agreement, and a debenture, some of which were also unstamped and unsealed. Additionally, the Plaintiff executed a charge over its property at LR. 9042/583 Embakasi. Under a component of the loan (Tranche C), USD 100,000 was allocated for the purchase of aviation fuel from Kenya Shell Ltd and was not to be repaid for 180 days.
4. The Plaintiff stated that on 21/7/1999, the Plaintiff drew down this amount. However, on 29/7/1999, the Defendant declared this drawdown an event of default and demanded immediate repayment of the entire drawn amount of USD 2,162,690.91. The Defendant then appointed two individuals as receivers and managers, who took control of the Plaintiff’s premises. Initially, they did not interfere, but on 10/9/1999, they grounded an aircraft at Jomo Kenyatta International Airport that did not belong to the Plaintiff.
5. It was contended that the receivers then indicated an intention to realise the securities, including selling the charged property. The Plaintiff claimed that further appointments of receivers by the Defendant violated provisions of the Companies Act and were made without proper procedure. As of 17/2/2005, four different receivers had been appointed.
6. The Plaintiff denied being in breach of the loan agreement and argued that the receivership was illegal, unjustified, and had severely damaged its business. It sought court declarations to that effect, injunctions to restrain the Defendant and eject the receivers, and damages.
7. Specifically, the Plaintiff cited losses including the total write-off of aircraft 5Y AXI valued at USD 1,340,000, Boeing 707 spare parts worth USD 2,000,000 held by the receivers, the inability to develop its Embakasi property, projected lost profits of USD 2,671,000, as well as loss of goodwill and ability to service the facility.
8. The Plaintiff prayed for the following orders:-
“ l. The Declaration that the appointment of the Receivers by the Defendant was unlawful, illegal, improper and totally unjustified.
2. An injunction to restrain the Defendant from recalling, taking possession, selling or otherwise realizing any of the remaining/existing Plaintiff’s property.
3. Injunctions both prohibitory and mandatory to eject the Receivers and Managers and to prevent the Defendant from appointing any or any other Receivers whatsoever.
4.Deleted.
5. Damages for loss of business in the sum of USD. 2,671,000.00
6. Special Damages for loss of an Aircraft 5Yl AXl and loss of spare parts of Boeing 707 valued at USD 3,340.000[-.
7. Special damages for the illegal auction of L.R. No. 9042/583 valued at KShs. 250,000,000.00, or IN THE ALTERNATIVE, a value to be determined by the court subject to valuation carried out upon delivery of judgment.
g) Costs.
h) Interest.
i) Further and other relief.”
9. The Plaintiff filed a list of documents dated 4/3/2020 and relied on one witness named Captain Musa Hassan, who testified as PW1 and relied on two witness statements dated 31/5/2019 and 4/3/2020 as his evidence in chief.
10. The Plaintiff’s witness stated that he was a shareholder and director of African Airlines International Limited (AAI), the first indigenous Kenyan international airline. He had over 40 years of experience in the aviation industry. AAI initially had an expensive facility with Standard Chartered Bank before being introduced to PTA Bank, which offered seemingly better financial terms and eventually took over AAI’s debt.
11. PW1 stated that AAI entered into a Facility Agreement with PTA on 6/7/1998 for US$2.5 million to support its working capital. This was secured through a debenture and a charge over its assets, including L.R. No. 9042/583, Nairobi. PTA obtained a valuation of this property at US$3.4 million. At the time, AAI was a going concern operating a Boeing 707 and other aircraft, which were leased, insured, and certified for maintenance.
12. According to the witness, PTA had assured support to help AAI grow. The Facility Agreement included securities such as director guarantees, land charge, and a floating charge over receivables. However, AAI soon experienced cash flow difficulties and requested a variation, leading to a Variation Agreement on 4/8/1998. PTA appeared to become more involved in management, with an apparent intention to take over the business.
13. It was the Plaintiff’s case that on 29/7/1999, PTA abruptly enforced its security and placed AAI under receivership with minimal notice. That Mr. Silcock was appointed Receiver and Manager. The Plaintiff protested and sought a restructure, which culminated in a Restructuring Agreement dated 1/12/1999. Under this agreement, PTA was to carry out a legal audit and possibly lift the receivership, subject to certain conditions.
14. Although PTA paid outstanding airport fees as agreed, the receivership was never lifted, no operational strategy review was conducted, and AAI’s revenue-generating aircraft was grounded. The Plaintiff maintained that the alleged default triggering the receivership was unfounded. The disputed advance under Tranche C was within the agreed terms and made just days before receivership. At that time, only US$2.16 million of the facility had been drawn, most of it used to settle the Standard Chartered Bank Loan.
15. The Plaintiff argued that PTA’s receivership actions were intended to destroy AAI rather than support it. He claimed PTA failed to meet its obligations under the restructuring agreement and breached its promises. He expressed concern over the lack of transparency in the receivership process, including failure to file returns or disclose sale details of AAI’s assets, which he believed were sufficient to cover the facility.
16. PW1 noted that land was sold to Kenya Airways while a dispute was still in court, and AAI only learned of the sale in 2017 upon receiving eviction notices. There were also spare parts and aircraft assets of significant value unaccounted for. In 2013, a demand for over US$11 million was made, but AAI, under receivership, could not respond. The Plaintiff described this amount as excessive.
Defendant’s case
17. The Defendant opposed the application through a re-amended statement of defence dated 28/7/2023.
18. The Defendant denied all allegations in the further re-amended plaint except those expressly admitted. It admitted entering into a facility agreement with the Plaintiff 6 /7/1998 for a loan of USD 2.5 million, which was secured by a debenture and a charge over L.R. No. 9042/583, as well as through a variation and collection agreement.
19. The Defendant stated that it disbursed funds in three tranches, but the Plaintiff defaulted in repayment. Several demand letters were issued, and due to continued default, the Defendant exercised its right under the debenture and appointed receiver managers, initially Graham Silcock and Pratul Shah, followed by Raphael Oile and later Kameshwar Mishra, all of whom were said to have been properly appointed in accordance with the law.
20. The Defendant asserted that the Plaintiff acknowledged its indebtedness in a facility restructuring agreement, but nonetheless failed to honour it. It also stated that the property charged was lawfully sold by public auction for KES 150 million, following a valuation by Axis Real Estate Valuers, and that all statutory notices had been issued and injunction applications dismissed.
21. In response to the Plaintiff’s allegations of mismanagement, the Defendant maintained it had always exercised due care and complied with legal requirements. It denied the Plaintiff’s claim regarding a letter from the Registrar of Companies, alleged failures to file annual returns or accounts, and any unlawful continuation of the receivership.
22. Regarding arbitration, the Defendant stated it had always supported referral of the dispute to arbitration as provided under the facility agreement governed by English law. It denied causing delays and pointed out that the Plaintiff had also failed to prosecute the suit or seek arbitration. It contended that losses allegedly suffered—including loss of aircraft, spare parts, business revenue, and goodwill—were unsubstantiated, denied liability for the same, and emphasized that receiver managers were agents of the Plaintiff, who had not been joined to the suit.
23. The Defendant concluded that the plaint was fatally defective for procedural non-compliance and that the suit, save for prayer 4, should be dismissed with costs. It also challenged the court’s jurisdiction on grounds of res judicata and sub judice.
24. The Defendant filed a list of documents dated 18/12/2020 and relied on one witness named Alemayehu Kebede Ambaye, who produced and relied on a witness statement dated 18/12/2020.
25. During the trial, DW1 adopted the witness statement as his evidence in chief. He reiterated that the total amount of the facility was USD 2.5 million disbursed in 3 tranches and that the receivership was due to the default by the Plaintiff under the facility agreement.
Analysis and determination
26. The Plaintiff filed written submissions dated 4/12/2024 while the Defendant filed submissions dated 14/12/2024.
27. I have carefully analysed the same together with the pleadings and evidence adduced by the parties herein.
28. The issues for determination are the following:-
i. Whether the facility agreement, variation agreement and security documents are admissible.
ii. Whether the appointment of receiver managers by the Defendant was legal and justified.
iii. Whether there was mismanagement of the receivership.
iv. Whether the sale/auction of L.R No.9042/583 was done legally.
v. The legality of the sale of aircraft 5YI AXI and spare parts of Boeing 707, and whether the Plaintiff is entitled to damages for alleged loss of business.
vi. Whether the Receivership should continue
Issue 1: Admissibility of the Facility Agreement and Securities
29. During the trial, counsel for the Plaintiff questioned the authenticity and admissibility of the facility agreement and the accompanying security instruments on the ground that they had not been duly stamped in accordance with the Stamp Duty Act.
30. At the outset, it is important to note that the Defendant, PTA Bank, operates within a legal framework that expressly exempts it from domestic taxation, including duties ordinarily imposed on instruments under national law. This exemption is anchored in Article 43(6) of the PTA Charter, which is recognized and enforced in Kenya through the Privileges and Immunities Act. The relevant Legal Notices confirming the applicability of this exemption are contained at pages 1–3 of the Defendant’s bundle. Accordingly, there was no statutory obligation for documents executed by the Defendant to bear a stamp from the Collector of Stamp Duty.
31. In any event, the Defendant produced the impugned documents, which do in fact bear the requisite endorsements. While the visible markings appear faint—likely due to the reproduction process—they are discernible on the cited pages of the Defendant’s bundle: page 160 (facility agreement), page 185 (personal guarantee), page 197 (charge instrument), and page 210 (debenture). The presence of these stamps, albeit faded, contradicts the Plaintiff’s assertion that the documents were wholly unstamped.
32. In any event, the existing jurisprudence in Kenya makes it clear that a document’s admissibility is not necessarily defeated by an omission to affix stamp duty. In Mwanahamisi Omar Mzee alias Fatuma Mohamed Ali Omar v Chengo Kahindi Birya & another [2018] eKLR, the High Court held that the purpose of the Stamp Duty Act is to ensure government revenue, not to act as a procedural trap to bar substantive claims. Likewise, in Abok James Odera T/A A.J. Odera & Associates v John Patrick Machira T/A Machira & Co. Advocates [2013] eKLR, the Court of Appeal acknowledged that although the agreement before it had not been stamped as required, this deficiency was not fatal. Instead, the Court affirmed that trial courts retain the authority to either assess the applicable duty themselves and direct payment or refer the matter to the relevant tax authority for assessment and compliance.
33. From the foregoing, even if the instruments had been presented unstamped, the law provides a mechanism for regularization without invalidating their use in evidence. The Plaintiff’s objection is therefore without legal or factual foundation and ought to be rejected.
Issue 2: Legality of Appointment of Receivers
34. It is not in dispute that the Defendant extended to the Plaintiff a facility of USD 2.5 million, disbursed in three tranches under a facility agreement dated 6th July 1998, produced at pages 158–183 of the Defendant’s bundle.
35. The facility was secured by (a) a charge over L.R. No. 9042/583 dated 7th July 1998; (b) a floating debenture over the Plaintiff’s receivables and stock dated 7th July 1998; and (c) personal guarantees executed by its directors and shareholders on the same date. These documents appear in both parties’ bundles.
36. It is equally not in dispute that the Plaintiff experienced difficulties in servicing the facility and requested for a variation agreement, as is clear from the testimony by PW1 at paragraphs 11 and 12 of his witness statement. This led the parties to enter into a variation agreement of 4/8/1998, which is produced on pages 237-241 of the Defendant’s bundle.
37. The Defendant’s position is that the Plaintiff defaulted under the facility and variation agreement, thereby entitling it to appoint a receiver pursuant to the debenture. The Plaintiff contends, on the other hand, that the appointment of receivers on 29th July 1999 was unlawful, illegal, and unjustified.
38. Central to this dispute is tranche C of the facility, namely, a credit facility of USD 100,000 issued by way of a Standby Letter of Credit (“SBLC”) with a stated tenure of 180 days. The Plaintiff argued that the 180-day period afforded it time to settle obligations to Kenya Shell for fuel supplies.
39. The Court is not persuaded by the Plaintiff’s argument that the 180-day period afforded it time to repay Kenya Shell for fuel received. Rather, as evidenced in the facility agreement and the documentary record (pages 281–282, 305, 312, and 317–318 of the Defendant’s bundle), the 180-day period merely defined the lifespan of the SBLC; the window within which Kenya Shell could make a demand on the bank in case of the Plaintiff’s failure to pay.
40. This construction of the instrument is in line with the definition of a standby letter of credit in Black’s Law Dictionary, 8th Edition, at page 923:
“A letter of credit used to guarantee either a monetary or nonmonetary obligation (such as performance or construction work), whereby the issuing bank agrees to pay the beneficiary if the bank customer defaults on its obligation.”
41. The principle underlying such instruments is that they are that the instruments are autonomous and payable upon demand, independent of disputes under the underlying contract, as further captured in Halsbury’s Laws of England, 4th Edition, Vol. 41 at page 819, which states:
“A performance guarantee or bond commonly provides for payments to be made on the demand of the beneficiary. The contractual obligations arising under such guarantees or bonds are separate from and not dependent upon those existing under the sale contract between the seller and the buyer.”
42. It therefore follows that once Kenya Shell issued its demand, the Defendant was obliged to honour it. Whether a dispute existed between Kenya Shell and the Plaintiff was immaterial. This principle of autonomy was affirmed in the case of Eli Holdings Ltd v Kenya Commercial Bank (2020) eKLR, where the Court held that a demand guarantee is independent of the primary contract and unaffected by disputes between the contracting parties. The Court stated that:
“A bank guarantee is an autonomous contract which requires strict compliance to its terms. The Bank has no obligation to question the performance or otherwise of the obligations of the parties in the underlying contract... As a general proposition, a demand guarantee is independent of the primary contract and will not be affected by a dispute between the parties to the underlying transaction.”
43. The record indicates that the Plaintiff failed to pay Kenya Shell, which then led the bank to pay Kenya Shell on behalf of the Plaintiff under the SBLC. This constituted a default under Article XI(h) of the facility agreement (page 178 of the Defendant’s bundle), entitling the Defendant to accelerate repayment and enforce its securities.
44. Consequently, a formal demand was issued on 29th July 1999. Upon the Plaintiff’s failure to comply, the Defendant appointed a receiver pursuant to Clause 8 of the debenture. The fact that the demand and appointment occurred on the same day does not render the process unlawful. Clause 8 expressly authorized the lender to enforce immediately upon default, without a grace period.
45. In Showind Industries Ltd v Guardian Bank Ltd & another [2002] eKLR, the Court upheld a similar clause, holding that no demand was necessary for the appointment of a receiver once the security had crystallized. The Court in that case stated as follows: -
“Under clause 18 of the debenture, no demand was necessary for the appointment of a receiver if… the company failed to comply with any covenant, warranty or other obligation contained in the debenture… So the power to appoint a receiver had crystallized contrary to the affirmation by the Plaintiff.”
46. The Plaintiff’s claim that the deed of appointment was delivered prematurely was unsupported. The testimony of PW1 was hearsay, given his admission that he was outside the country on the relevant date. Moreover, correspondence from the Plaintiff dated 28th July and 6th August 1999 (pages 319–321B) acknowledged the appointment without protest.
47. The further argument by the Plaintiff that a court sanction was required under the Insolvency Act, 2015, is misconceived, as the debenture and appointment predated that statute.
48. Accordingly, the Court is satisfied that the appointment of the receiver manager was validly made under Clauses 8 and 9 of the debenture, which provided inter alia that the Defendant has the authority to appoint any person in writing once the security had become enforceable.
49. The upshot of the foregoing is that this Court finds that the appointment of the receiver manager(s) was legally sound and in line with the prevailing contractual and statutory framework.
Issue 3: whether there was mismanagement of the receivership.
50. The Plaintiff submitted that the appointment of the receiver manager was unlawful and that, consequently, it was just and proper for the Court to award compensation.
51. The Plaintiff further contended that such compensation should extend to losses allegedly occasioned by the receiver’s mismanagement and poor business decisions. Particular reliance was placed on a letter dated 9/10/1999, in which the receiver grounded the Plaintiff’s Boeing 707 indefinitely. The Plaintiff claimed that the aircraft, being the company’s main revenue earner, had been generating over USD 12,000 weekly, and that its grounding directly resulted in loss of income.
52. To support this position, the Plaintiff cited another letter dated 5/10/1999 by the receiver addressed to the Defendant. In that letter, the receiver expressly acknowledged that the aircraft was profitably operating on the Sharjah and Eldoret routes, and confirmed that weekly remittances from Sharjah alone exceeded USD 12,000—sufficient to cover the company’s operational and office costs in Kenya.
53. On its part, the Defendant denied the allegations of mismanagement, submitting that any operational challenges were due to the Plaintiff’s own non-cooperation. According to the Defendant, the receiver manager, PricewaterhouseCoopers (PWC), repeatedly requested the Plaintiff to provide financial and company documentation necessary for the receivership, including through a formal request dated 18/8/1999, which sought, inter alia, vehicle registration books, hire purchase agreements, company records, and most critically, a Statement of Affairs as required under sections 351 and 352 of the Companies Act. The Plaintiff, however, failed to comply with any of these requests, and the Statement of Affairs was never furnished.
54. I have considered the letters dated 5/10/1999 and 9/10/1999 as produced on pages 422-424 and 378, respectively, in the Defendant’s bundle of documents. In the said letters, it is evident that the receiver manager grounded the Plaintiff’s aircraft, Boeing 707-330B, setting out an elaborate list of reasons, including the withdrawal of insurance cover by the aircraft’s insurers and concerns about its airworthiness.
55. In my assessment, the receiver manager grounded the aircraft for cogent and legitimate reasons. The Plaintiff has not demonstrated how such action, taken in the interests of safety and compliance, could amount to mismanagement of the receivership.
56. Further, vide the letter dated 18/8/1999 (produced at pages 367–368 of the Defendant’s bundle), the receiver manager expressly requested the Plaintiff to provide key financial documentation, including the statutory Statement of Affairs. There is no evidence before this Court that the Plaintiff availed the requested documentation.
57. The Plaintiff’s failure to comply undoubtedly hindered the receiver’s ability to properly discharge his duties, including the preparation of a Statement of Affairs as required under the Companies Act.
58. The upshot of the foregoing is that I find that the Plaintiff has not discharged the burden of proving that the receivership was mismanaged. The allegations of mismanagement, therefore, fail.
Issue 4: Whether the sale/auction of L.R. No.9042/583 was legal
59. The Plaintiff submitted that it is entitled to special damages for the alleged illegal auction of L.R. No. 9042/583 valued at Kshs. 250,000,000.00 or, in the alternative, a value to be determined by the court, upon valuation to be carried out following delivery of judgment.
60. The Plaintiff argued that this claim is premised on the contention that the property was sold pursuant to an illegal receivership. According to the valuation report produced by PW1, the property was valued at Kshs. 250,000,000/= as of 27/3/2023, when the plaint was further amended.
61. On its part, the Defendant submitted that the claim is barred by the doctrines of res judicata and sub judice. It was argued that the Plaintiff had lodged a similar claim in ELC No. 770 of 2018, Captain Musa & another v. PTA Bank & 2 others, where the subject property was the same L.R. No. 9042/583, and in that case, the Court determined that the Plaintiff had no claim to the property.
62. The Defendant further contended that the valuation report relied upon by the Plaintiff was inadmissible as expert evidence, since it was not prepared or produced by a qualified valuer. Moreover, it was pointed out that the valuation related to the year 2023, whereas the auction in question took place in 2014.
63. During cross-examination, PW1 conceded that he had indeed filed ELC No. 770 of 2018, and that the subject matter in that suit was the very same property in dispute herein. He further admitted that the claim in the ELC case arose from the same facility agreement at issue in this case, and that the Court in ELC No. 770 of 2018 had found that the Plaintiff had no claim over the property.
64. I have perused the plaint in ELC No. 770 of 2018, which is contained at pages 1048–1053 of the Defendant’s bundle of documents. It is evident that the Plaintiff advanced a similar claim in that suit, and that the sale of the subject property was directly in issue therein.
65. In view of PW1’s admission that the ELC Court had already determined that the Plaintiff had no interest in the subject property, and considering that the issue of the legality of the sale remains within the purview of the ELC, this Court lacks jurisdiction to re-open or re-litigate the matter.
66. To pronounce on the legality of the auction in these proceedings would amount to a violation of the doctrines of res judicata and sub judice, which prohibit parallel litigation of the same subject matter between the same parties.
67. Accordingly, I find that the Plaintiff’s claim for special damages in respect of the alleged illegal auction of L.R. No. 9042/583 is unsustainable. This Court cannot determine the legality of the Defendant’s sale of the property, nor can it make findings on valuation or damages arising therefrom. The claim is therefore dismissed.
Issue 5: The legality of the sale of aircraft 5YI-AXI and spare parts of Boeing 707, and whether the Plaintiff is entitled to damages for alleged loss of business.
68. The Plaintiff relied on a valuation report dated 22/6/1998 to assert that the aircraft and its spare parts were worth USD 1,500,000. However, the report was not properly produced before the Court, as the expert valuer was not called to testify.
69. In the absence of such foundational evidence, and given that the report itself contains no justification or detailed breakdown to support the stated figure for the “aircraft parts stock,” the Court finds that little probative value can be attached to it.
70. The Plaintiff also alleged that DW1 failed to produce supporting documentation. This contention is not borne out by the record. DW1 produced his full bundle of documents (pages 1–1192 of the Defendant’s bundle), which included, inter alia: Engineer Njenga’s memorandum (pages 420–421), letters from the receiver manager addressing the condition of the aircraft (pages 369–377 and 422–424), and the advertisement for the sale of the aircraft (page 588).
71. On the sale itself, the evidence shows that the receiver took reasonable and transparent steps to obtain the best possible value. The aircraft was grounded following a decision communicated to PTA by the receiver on 5/10/1999, due to its deteriorated condition and the need for a mandatory C-check, estimated to cost USD 300,000, which the Plaintiff could not fund. Engineer Njenga’s report (pages 420–421 of the Defendant’s bundle) confirmed that the aircraft was unfit for operation, a position also reiterated in the receivers’ correspondence (pages 422–424 of the Defendant’s bundle).
72. Further, a memorandum of understanding dated 28/10/1999 (pages 430–438) was signed between PTA and the Plaintiff, under which the Plaintiff undertook to assist in identifying potential buyers. Despite this, the Plaintiff did not introduce any alternative purchaser offering a better price. On 22/2/2000, the receiver wrote to the Plaintiff inquiring whether any buyer had been secured (page 530), but received no response.
73. The record further shows that efforts were made to negotiate a better price with the identified buyer, but these were unsuccessful, as evidenced in the buyer’s letter of 15/11/2000 (page 561). The aircraft was also advertised for sale in the East African newspaper (page 588) and marketed privately (pages 589–590). The offers received were all below the initial one, and the eventual buyer further reduced its offer. Ultimately, the aircraft and spare parts were sold for USD 65,000, as confirmed by the correspondence and sale records (pages 543–545 and 591).
74. The Plaintiff’s claim for USD 2,671,000 in alleged lost profits is equally unsubstantiated. No expert report, computation, or evidentiary basis was presented to support this figure.
75. In the circumstances, the Court is satisfied that the receiver conducted the sale lawfully and transparently, and obtained the best price reasonably achievable in the prevailing market conditions.
76. Accordingly, I find that the Plaintiff has failed to prove any entitlement to damages for alleged lost business or undervaluation of the aircraft.
Issue 6: On the Continuation of Receivership
77. The Plaintiff submitted that the receivership should be terminated on account of its inordinate duration, now spanning over 25 years. It was argued that despite the sale of the Plaintiff’s assets, the Defendant continues to claim an excess of USD 20 million, notwithstanding that the lending was said to have been sufficiently secured. Relying on LTI Kisii Safari Inns v DEG [2011] eKLR, the Plaintiff urged this Court to bring the receivership to an end.
78. It is indeed borne out by the evidence that the receivership has persisted for over 25 years. This was confirmed by DW1, who, in cross-examination, conceded that he could not state when the receivership would end, noting that the question could only be addressed by the receivers themselves. While the initial appointment of the receiver was lawful, it is an equitable duty of the Court to ensure that receivership does not operate as a perpetual state of affairs.
79. In LTI Kisii Safari Inns v DEG [2011] eKLR, the Court of Appeal emphasized that receivership cannot last indefinitely. The Court underscored the necessity for transparency and accountability through audited accounts and observed that a receivership that had lasted 13 y
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