Background and Introduction
1. By a ruling delivered on 11th December 2024 in Milimani MCCC/MISC No. E2300 of 2024 the trial Court (Hon. Becky Cheloti Mulemia) issued a Mareva injunction which had the effect of freezing the 1st, 2nd and 3rd appellants accounts. That Ruling is the genesis of the present appeal and the application dated 20th January 2025. The application is brought under Section 1A, 3A and 63 (e) of the Civil Procedure Act as well as Order 42 Rule 6 (1) and Order 51 Rule 1 of the Civil Procedure Rules. The applicant seeks a stay of enforcement of the ruling and ex parte orders delivered on 11th December 2024 together with all consequential proceedings, pending the hearing and determination of the appeal.
2. The applicant contends that the 1st respondent has already instituted a substantive civil suit, being Milimani MCCOMMSU No. E1072 of 2024, which remains active and ongoing. Rather than pursuing interim relief within that suit, the respondents instead filed a separate miscellaneous application, Milimani MCCC/MISC No. E2300 of 2024, through which they obtained ex parte Mareva injunction orders.
3. The applicant alleges that this application was never served upon them. It views the decision to seek far-reaching ex parte orders in a standalone miscellaneous application, without notice, as indicative of bad faith and procedural mischief.
4. The applicant states that it developed a 16-storey residential complex known as Smarthome Apartments, completed in December 2023 and sold off-plan. Purchasers were contractually required to deposit the purchase price and related charges including legal fees, stamp duty, and registration costs into two designated accounts held by the applicant at the 2nd respondent bank. Sectional titles for all 305 units were issued in September 2024 and the applicant, through its advocates, has been actively processing title transfers to the buyers.
5. It is contended that the funds in the frozen accounts represent purchasers’ monies earmarked for registration and transfer of titles, and that continued enforcement of the freezing orders will unfairly prejudice innocent buyers. The applicant avers that its operations have been severely disrupted, and continue to hinder compliance with its contractual obligations, exposing it to potential legal claims and financial loss.
6. The applicant also argues that the 1st respondent has not demonstrated any risk of absconding or dissipation of assets to justify the orders issued. In view of these circumstances, it is urged that a stay of execution be granted pending the hearing and determination of the application and the appeal.
7. The application is opposed by way of a replying affidavit sworn on 18th March 2025 by the 1st respondent. He claims to be in possession of ‘reliable intel’ that the 2nd appellant, being a director of the applicant, is disposing of assets outside the jurisdiction of this Court. The respondent does not deny having filed MCCOMMSU No. E1072 of 2024 but claims that the said suit is yet to get a mention date hence the decision to file a separate suit. The respondents claim that the application was served and there is a return of service on record.
Analysis and Determination
8. The Court is not required at this stage to determine the merits of the appeal or the substantive questions raised by the parties. The issue for determination is whether the applicant has satisfied the threshold for grant of stay of execution pending appeal, as set out under Order 42 Rule 6(2) of the Civil Procedure Rules. The applicant must demonstrate that:
i. The application has been brought without unreasonable delay;
ii. It will suffer substantial loss if stay is not granted;
iii. It is willing to provide such security as the court may order for the due performance of the decree or order.
9. The application was brought timeously, barely a month after the ruling. On the second limb, the applicant has sufficiently demonstrated that it stands to suffer substantial loss if the stay is not granted. It has shown that its core operations have been severely disrupted following the freezing of its bank accounts, which hold funds received from third-party purchasers of residential units within its Smarthome Apartments project.
10. The funds in question were not intended for general corporate use but were specifically designated for the payment of statutory charges, legal fees, stamp duty, and other costs associated with the registration and transfer of sectional titles.
11. The applicant has annexed copies of sale agreements entered into with various purchasers, as well as proof of payments made directly into the frozen accounts. These documents support its claim that the affected monies are not solely its own but include trust funds held for the benefit of purchasers who have no connection to the dispute between the applicant and the 1st respondent. As a result of the injunction, the applicant is unable to complete registration processes and issue titles to the buyers, thereby exposing itself to claims for breach of contract, reputational damage, and potential litigation.
12. This situation in my view, presents a clear and imminent risk of interference with third-party rights. The impact of the orders extends beyond the parties to the suit and threatens to disrupt the legal and financial expectations of innocent purchasers who acted in good faith. In my view, this goes well beyond what may be considered normal commercial inconvenience. It constitutes a real and material risk of financial and legal harm, both to the applicant and to third parties, and therefore qualifies as substantial loss within the meaning of Order 42 Rule 6(2)(b) of the Civil Procedure Rules.
13. The appeal raises substantive and weighty issues that merit full consideration by the appellate court. Among these is the question of whether the respondent’s claim that the applicants are disposing of assets outside the jurisdiction was a sufficient basis for the issuance of a Mareva injunction. Furthermore, the procedural posture of the case under which the orders were issued also raises legitimate concerns.
14. That said, the Court acknowledges that the appeal is yet to be heard and that the interests of the respondent must also be preserved in the interim. A balanced and proportionate approach is therefore necessary to ensure that the respondent’s right to the fruits of a successful claim is not rendered illusory, while also protecting the applicant from the prejudicial consequences of premature execution.
15. The respondents confirmed in their oral submissions that their claim before the trial court is for a sum of Kshs. 9,845,440/= and USD 6,880, being the amount owed by the applicant. On its part, the applicant concedes that Kshs. 1,545,864/= is due and owing.
16. In light of this, and bearing in mind the guiding principles under Order 42 Rule 6(2)(b) of the Civil Procedure Rules, the issue of security must be approached in a manner that is proportionate, protective of both parties’ interests, and mindful of the nature of the funds under contest. I am particularly conscious of the applicant’s contention that the frozen accounts contain funds belonging to third-party purchasers, and that these monies are held in trust or escrow for the purpose of registering and transferring titles. These third-party interests must not be prejudiced in the course of preserving the respondent’s claim.
17. Accordingly, I am also satisfied that the admitted sum of Kshs. 1,545,864/= should be secured as a minimum threshold. As for the balance of the claim, I do not consider it just to require full security for a heavily disputed amount, particularly where it may interfere with third-party entitlements and ongoing commercial obligations. However, some modest form of additional conditional security, is warranted to safeguard the integrity of the appeal process without stifling the applicant’s operations.
Disposition
18. In the result, and for the reasons set out above, the Court finds merit in the application dated 20th January 2025 and makes the following final orders:
i. There shall be a stay of enforcement and/or execution of the ruling and orders delivered on 11th December 2024 in Milimani MCCC/MISC No. E2300 of 2024, together with all consequential proceedings, pending the hearing and determination of the appeal.
ii. As a condition for the grant of stay, the applicant shall deposit a sum of Kshs. 5,000,000/= into a joint interest-earning account to be opened in the names of the advocates for the applicant and the 1st respondent within thirty (30) days from the date of this order.
iii. In default of compliance within the stipulated period, the stay granted herein shall lapse automatically without further reference to the Court.
iv. The costs of the application shall be in the cause and shall abide the outcome of the appeal.
1. By a ruling delivered on 11th December 2024 in Milimani MCCC/MISC No. E2300 of 2024 the trial Court (Hon. Becky Cheloti Mulemia) issued a Mareva injunction which had the effect of freezing the 1st, 2nd and 3rd appellants accounts. That Ruling is the genesis of the present appeal and the application dated 20th January 2025. The application is brought under Section 1A, 3A and 63 (e) of the Civil Procedure Act as well as Order 42 Rule 6 (1) and Order 51 Rule 1 of the Civil Procedure Rules. The applicant seeks a stay of enforcement of the ruling and ex parte orders delivered on 11th December 2024 together with all consequential proceedings, pending the hearing and determination of the appeal.
2. The applicant contends that the 1st respondent has already instituted a substantive civil suit, being Milimani MCCOMMSU No. E1072 of 2024, which remains active and ongoing. Rather than pursuing interim relief within that suit, the respondents instead filed a separate miscellaneous application, Milimani MCCC/MISC No. E2300 of 2024, through which they obtained ex parte Mareva injunction orders.
3. The applicant alleges that this application was never served upon them. It views the decision to seek far-reaching ex parte orders in a standalone miscellaneous application, without notice, as indicative of bad faith and procedural mischief.
4. The applicant states that it developed a 16-storey residential complex known as Smarthome Apartments, completed in December 2023 and sold off-plan. Purchasers were contractually required to deposit the purchase price and related charges including legal fees, stamp duty, and registration costs into two designated accounts held by the applicant at the 2nd respondent bank. Sectional titles for all 305 units were issued in September 2024 and the applicant, through its advocates, has been actively processing title transfers to the buyers.
5. It is contended that the funds in the frozen accounts represent purchasers’ monies earmarked for registration and transfer of titles, and that continued enforcement of the freezing orders will unfairly prejudice innocent buyers. The applicant avers that its operations have been severely disrupted, and continue to hinder compliance with its contractual obligations, exposing it to potential legal claims and financial loss.
6. The applicant also argues that the 1st respondent has not demonstrated any risk of absconding or dissipation of assets to justify the orders issued. In view of these circumstances, it is urged that a stay of execution be granted pending the hearing and determination of the application and the appeal.
7. The application is opposed by way of a replying affidavit sworn on 18th March 2025 by the 1st respondent. He claims to be in possession of ‘reliable intel’ that the 2nd appellant, being a director of the applicant, is disposing of assets outside the jurisdiction of this Court. The respondent does not deny having filed MCCOMMSU No. E1072 of 2024 but claims that the said suit is yet to get a mention date hence the decision to file a separate suit. The respondents claim that the application was served and there is a return of service on record.
Analysis and Determination
8. The Court is not required at this stage to determine the merits of the appeal or the substantive questions raised by the parties. The issue for determination is whether the applicant has satisfied the threshold for grant of stay of execution pending appeal, as set out under Order 42 Rule 6(2) of the Civil Procedure Rules. The applicant must demonstrate that:
i. The application has been brought without unreasonable delay;
ii. It will suffer substantial loss if stay is not granted;
iii. It is willing to provide such security as the court may order for the due performance of the decree or order.
9. The application was brought timeously, barely a month after the ruling. On the second limb, the applicant has sufficiently demonstrated that it stands to suffer substantial loss if the stay is not granted. It has shown that its core operations have been severely disrupted following the freezing of its bank accounts, which hold funds received from third-party purchasers of residential units within its Smarthome Apartments project.
10. The funds in question were not intended for general corporate use but were specifically designated for the payment of statutory charges, legal fees, stamp duty, and other costs associated with the registration and transfer of sectional titles.
11. The applicant has annexed copies of sale agreements entered into with various purchasers, as well as proof of payments made directly into the frozen accounts. These documents support its claim that the affected monies are not solely its own but include trust funds held for the benefit of purchasers who have no connection to the dispute between the applicant and the 1st respondent. As a result of the injunction, the applicant is unable to complete registration processes and issue titles to the buyers, thereby exposing itself to claims for breach of contract, reputational damage, and potential litigation.
12. This situation in my view, presents a clear and imminent risk of interference with third-party rights. The impact of the orders extends beyond the parties to the suit and threatens to disrupt the legal and financial expectations of innocent purchasers who acted in good faith. In my view, this goes well beyond what may be considered normal commercial inconvenience. It constitutes a real and material risk of financial and legal harm, both to the applicant and to third parties, and therefore qualifies as substantial loss within the meaning of Order 42 Rule 6(2)(b) of the Civil Procedure Rules.
13. The appeal raises substantive and weighty issues that merit full consideration by the appellate court. Among these is the question of whether the respondent’s claim that the applicants are disposing of assets outside the jurisdiction was a sufficient basis for the issuance of a Mareva injunction. Furthermore, the procedural posture of the case under which the orders were issued also raises legitimate concerns.
14. That said, the Court acknowledges that the appeal is yet to be heard and that the interests of the respondent must also be preserved in the interim. A balanced and proportionate approach is therefore necessary to ensure that the respondent’s right to the fruits of a successful claim is not rendered illusory, while also protecting the applicant from the prejudicial consequences of premature execution.
15. The respondents confirmed in their oral submissions that their claim before the trial court is for a sum of Kshs. 9,845,440/= and USD 6,880, being the amount owed by the applicant. On its part, the applicant concedes that Kshs. 1,545,864/= is due and owing.
16. In light of this, and bearing in mind the guiding principles under Order 42 Rule 6(2)(b) of the Civil Procedure Rules, the issue of security must be approached in a manner that is proportionate, protective of both parties’ interests, and mindful of the nature of the funds under contest. I am particularly conscious of the applicant’s contention that the frozen accounts contain funds belonging to third-party purchasers, and that these monies are held in trust or escrow for the purpose of registering and transferring titles. These third-party interests must not be prejudiced in the course of preserving the respondent’s claim.
17. Accordingly, I am also satisfied that the admitted sum of Kshs. 1,545,864/= should be secured as a minimum threshold. As for the balance of the claim, I do not consider it just to require full security for a heavily disputed amount, particularly where it may interfere with third-party entitlements and ongoing commercial obligations. However, some modest form of additional conditional security, is warranted to safeguard the integrity of the appeal process without stifling the applicant’s operations.
Disposition
18. In the result, and for the reasons set out above, the Court finds merit in the application dated 20th January 2025 and makes the following final orders:
i. There shall be a stay of enforcement and/or execution of the ruling and orders delivered on 11th December 2024 in Milimani MCCC/MISC No. E2300 of 2024, together with all consequential proceedings, pending the hearing and determination of the appeal.
ii. As a condition for the grant of stay, the applicant shall deposit a sum of Kshs. 5,000,000/= into a joint interest-earning account to be opened in the names of the advocates for the applicant and the 1st respondent within thirty (30) days from the date of this order.
iii. In default of compliance within the stipulated period, the stay granted herein shall lapse automatically without further reference to the Court.
iv. The costs of the application shall be in the cause and shall abide the outcome of the appeal.