Background and Introduction
1. For determination is the Notice of Motion application dated 28th August 2024. It is brought under Articles 10, 40, 47 of the Constitution of Kenya 2010, Sections 90, 96 and 99 of the Land Act, 2012, Sections 56 (2), 55 (1) (o), and 45 (5) of the Kenya Deposit Insurance Act No. 10 of 2012, Sections 1A, 1B and 3A of the Civil Procedure Act CAP 21 and Rule 3 (1) and (2) of the High Court (Practice and Procedure) Rules.
2. The applicant seeks leave to enjoin and /or institute a suit against the 1st and 2nd respondents in Milimani MCCOMSU/E1274/2021 Leocadia Adhiambo Owegi V Robert Kimani Ndungu (hereinafter, the lower court suit).
3. She contends that she purchased Land Title No. NAIROBI/BLOCK140/516/045 (hereinafter the suit property), for a purchase price of Kshs. 7,500,000/=, which had been paid in full. She confirms that the suit property was purchased from Robert Kimani Ndungu, who had leased it from the National Social Security Fund (NSSF). She further states that she has been in possession of the suit property until she received an eviction notice and discovered that the property had allegedly been charged to the respondents as security for a loan borrowed by the NSSF, which had since defaulted. As a result, she initiated the suit in the trial court.
4. The applicant wishes to seek orders against the respondents including an order compelling them to release the title to the suit property to her. She also wishes to enable the court deliberate on all the issues pertinent to her claim at the lower court.
5. The application is opposed through the replying affidavit sworn on 14th October 2024 by Geoffrey Nyakundi, the Assistant Director in charge of bank resolution at the 1st respondent (KDIC). He confirms that KDIC was appointed as liquidator of the 2nd respondent by the Central Bank of Kenya, on 16th April 2021.
6. The respondents oppose the application on grounds that the subordinate courts lack jurisdiction over institutions in liquidation. They further argue that enjoining the KDIC in the suit would be a gross violation of Sections 55 (1)(o),45 (5) and 50 (5) of the Kenya Deposit Insurance Act (the KDI Act). Moreover, the respondents further contend that the applicant has not disclosed any cause of action against them as they are not privy to the contract between the applicant and Robert Kimani Ndung’u.
Analysis and Determination
7. I have considered the application, response, the evidence, submissions and authorities cited by the parties in support of their respective positions. The first issue for determination is whether KDIC ought to be enjoined in this suit as the 1st defendant.
8. The KDI Act establishes the KDIC, whose mandate is outlined in Section 5. Specifically, its role includes providing a deposit insurance scheme for customers of member institutions and overseeing the liquidation and winding up of any institution for which it has been appointed as receiver or liquidator, in accordance with the Act. The relationship between the KDIC and such an Institution is as specified in Section 45(5) of the Act.
9. Section 45(5) of the KDI Act provides:
“Where the Corporation or the appointed person has assumed control of an institution, the Corporation or the appointed person shall—
a) be deemed to be acting as the agent of the institution in carrying on the businesses and managing the assets, liabilities and affairs of the institution or in carrying out any transaction relating to the institution or its assets, businesses and affairs, including disposal of assets; and
b) note, by reason of having assumed control of the institution or any action taken by it, be held to have assumed or incurred any obligation or liability of the institution for its own account.”
10. Further, Section 50(5) of the KDI Act states:
“Where the Corporation exercises one or more powers under this section, the Corporation shall not, by reason of the exercise of such powers, be held to have assumed or incurred any obligation or liability of the institution for its own account.”
11. My understanding of the above provisions is that KDIC’s obligations include receiving, liquidating, and winding up any institution for which it is appointed. It performs these roles as an agent of the institution. However, by assuming control of a liquidation process, KDIC does not take on or incur the institution’s liabilities as its own.
12. This position was enunciated in the case of Metto V Chase Bank (Kenya) Limited, [2023] KEELC 1986 (KLR) where the court held:
“The law is clear that once KDIC has been appointed as a receiver or liquidator of an institution, it becomes an agent of that institution. The law then protects it from assuming any obligations or liability of the Institution for its own account…The only instance where the corporation can be sued for damages is where any person has sustained losses as a result of any action of the corporation. This is clear from section 46 (2) of the Act.”
13. The upshot of the foregoing analysis is that the KDIC cannot assume any liabilities of the 2nd respondent and as such, its joinder serves no useful purpose.
14. The applicant has attached a sale agreement dated 15th November 2016 in respect of the suit property, between herself and Robert Kimani Ndung’u, the defendant in the lower court case. It is evident that the 2nd respondent is not privy to this agreement. However, in paragraph 11 of his replying affidavit sworn on 6th October 2021, Robert Kimani Ndung’u acknowledges that he approached the 2nd respondent for financing over the suit property. This admission suggests that the 2nd respondent may have an interest in the property, which may potentially affect the parties’ ownership rights.
15. This, together with the assertions made by the applicant, if proved, places the 2nd respondent at the center of the row on ownership of the suit property, as detailed in the draft plaint dated 16th September 2021. It is a well-established principle of law that collateral contracts fall within the recognized exceptions to the doctrine of privity of contract. In this case, the financial arrangement between Robert Kimani Ndung’u and the 2nd respondent could constitute a collateral contract, making it necessary for the 2nd respondent to be enjoined in the proceedings. I do agree that their participation is essential to ensuring that the court can fully adjudicate the dispute, particularly concerning whether the property was charged to the 2nd respondent and the respective rights of the parties involved. These issues will ultimately be determined at trial, and the presence of the 2nd respondent will aid the court in arriving at a just and comprehensive resolution.
Disposition
16. Accordingly, the application dated 28th August 2024 succeeds in part, to the extent that leave is granted to the applicant to enjoin the 2nd respondent to the suit at the lower court, which is Milimani MCCOMSU/E1274/2021 Leocadia Adhiambo Owegi V Robert Kimani Ndungu. However, the application against the 1st respondent is unsuccessful and is therefore dismissed. The 1st respondent is awarded half of the costs.
DATED, SIGNED AND DELIVERED IN NAIROBI
THIS 23RD DAY OF MAY 2025.
F. MUGAMBI
JUDGE
1. For determination is the Notice of Motion application dated 28th August 2024. It is brought under Articles 10, 40, 47 of the Constitution of Kenya 2010, Sections 90, 96 and 99 of the Land Act, 2012, Sections 56 (2), 55 (1) (o), and 45 (5) of the Kenya Deposit Insurance Act No. 10 of 2012, Sections 1A, 1B and 3A of the Civil Procedure Act CAP 21 and Rule 3 (1) and (2) of the High Court (Practice and Procedure) Rules.
2. The applicant seeks leave to enjoin and /or institute a suit against the 1st and 2nd respondents in Milimani MCCOMSU/E1274/2021 Leocadia Adhiambo Owegi V Robert Kimani Ndungu (hereinafter, the lower court suit).
3. She contends that she purchased Land Title No. NAIROBI/BLOCK140/516/045 (hereinafter the suit property), for a purchase price of Kshs. 7,500,000/=, which had been paid in full. She confirms that the suit property was purchased from Robert Kimani Ndungu, who had leased it from the National Social Security Fund (NSSF). She further states that she has been in possession of the suit property until she received an eviction notice and discovered that the property had allegedly been charged to the respondents as security for a loan borrowed by the NSSF, which had since defaulted. As a result, she initiated the suit in the trial court.
4. The applicant wishes to seek orders against the respondents including an order compelling them to release the title to the suit property to her. She also wishes to enable the court deliberate on all the issues pertinent to her claim at the lower court.
5. The application is opposed through the replying affidavit sworn on 14th October 2024 by Geoffrey Nyakundi, the Assistant Director in charge of bank resolution at the 1st respondent (KDIC). He confirms that KDIC was appointed as liquidator of the 2nd respondent by the Central Bank of Kenya, on 16th April 2021.
6. The respondents oppose the application on grounds that the subordinate courts lack jurisdiction over institutions in liquidation. They further argue that enjoining the KDIC in the suit would be a gross violation of Sections 55 (1)(o),45 (5) and 50 (5) of the Kenya Deposit Insurance Act (the KDI Act). Moreover, the respondents further contend that the applicant has not disclosed any cause of action against them as they are not privy to the contract between the applicant and Robert Kimani Ndung’u.
Analysis and Determination
7. I have considered the application, response, the evidence, submissions and authorities cited by the parties in support of their respective positions. The first issue for determination is whether KDIC ought to be enjoined in this suit as the 1st defendant.
8. The KDI Act establishes the KDIC, whose mandate is outlined in Section 5. Specifically, its role includes providing a deposit insurance scheme for customers of member institutions and overseeing the liquidation and winding up of any institution for which it has been appointed as receiver or liquidator, in accordance with the Act. The relationship between the KDIC and such an Institution is as specified in Section 45(5) of the Act.
9. Section 45(5) of the KDI Act provides:
“Where the Corporation or the appointed person has assumed control of an institution, the Corporation or the appointed person shall—
a) be deemed to be acting as the agent of the institution in carrying on the businesses and managing the assets, liabilities and affairs of the institution or in carrying out any transaction relating to the institution or its assets, businesses and affairs, including disposal of assets; and
b) note, by reason of having assumed control of the institution or any action taken by it, be held to have assumed or incurred any obligation or liability of the institution for its own account.”
10. Further, Section 50(5) of the KDI Act states:
“Where the Corporation exercises one or more powers under this section, the Corporation shall not, by reason of the exercise of such powers, be held to have assumed or incurred any obligation or liability of the institution for its own account.”
11. My understanding of the above provisions is that KDIC’s obligations include receiving, liquidating, and winding up any institution for which it is appointed. It performs these roles as an agent of the institution. However, by assuming control of a liquidation process, KDIC does not take on or incur the institution’s liabilities as its own.
12. This position was enunciated in the case of Metto V Chase Bank (Kenya) Limited, [2023] KEELC 1986 (KLR) where the court held:
“The law is clear that once KDIC has been appointed as a receiver or liquidator of an institution, it becomes an agent of that institution. The law then protects it from assuming any obligations or liability of the Institution for its own account…The only instance where the corporation can be sued for damages is where any person has sustained losses as a result of any action of the corporation. This is clear from section 46 (2) of the Act.”
13. The upshot of the foregoing analysis is that the KDIC cannot assume any liabilities of the 2nd respondent and as such, its joinder serves no useful purpose.
14. The applicant has attached a sale agreement dated 15th November 2016 in respect of the suit property, between herself and Robert Kimani Ndung’u, the defendant in the lower court case. It is evident that the 2nd respondent is not privy to this agreement. However, in paragraph 11 of his replying affidavit sworn on 6th October 2021, Robert Kimani Ndung’u acknowledges that he approached the 2nd respondent for financing over the suit property. This admission suggests that the 2nd respondent may have an interest in the property, which may potentially affect the parties’ ownership rights.
15. This, together with the assertions made by the applicant, if proved, places the 2nd respondent at the center of the row on ownership of the suit property, as detailed in the draft plaint dated 16th September 2021. It is a well-established principle of law that collateral contracts fall within the recognized exceptions to the doctrine of privity of contract. In this case, the financial arrangement between Robert Kimani Ndung’u and the 2nd respondent could constitute a collateral contract, making it necessary for the 2nd respondent to be enjoined in the proceedings. I do agree that their participation is essential to ensuring that the court can fully adjudicate the dispute, particularly concerning whether the property was charged to the 2nd respondent and the respective rights of the parties involved. These issues will ultimately be determined at trial, and the presence of the 2nd respondent will aid the court in arriving at a just and comprehensive resolution.
Disposition
16. Accordingly, the application dated 28th August 2024 succeeds in part, to the extent that leave is granted to the applicant to enjoin the 2nd respondent to the suit at the lower court, which is Milimani MCCOMSU/E1274/2021 Leocadia Adhiambo Owegi V Robert Kimani Ndungu. However, the application against the 1st respondent is unsuccessful and is therefore dismissed. The 1st respondent is awarded half of the costs.
DATED, SIGNED AND DELIVERED IN NAIROBI
THIS 23RD DAY OF MAY 2025.
F. MUGAMBI
JUDGE