Firm's 35-year legal battle with lender lands in Supreme Court

The Supreme Court will now determine whether a 35-year battle between Standard Chartered Bank and clothes maker Manchester Outfitters raises issues of public importance to be admitted for hearing.

The dispute over a Sh9 million loan has resulted in a legal battle that has dragged on in court for three decades, with the amount at the heart of the dispute now reaching Sh32 billion.

The case, over the loan taken in 1990, is one of the longest-running commercial disputes in Kenya.

Manchester Outfitters offered to sell a piece of land, which at the time was valued at Sh38 million, to settle the loan balance, but the sale did not happen.

Standard Chartered appointed a receiver manager on default, sparking the 35-year-old case in which Manchester is now demanding Sh32 billion from the lender

On Tuesday, a five-judge bench composed of Justices Mohammed Ibrahim, Smokin Wanjala, Njoki Ndung’u, Isaac Lenaola, and William Ouko heard submissions from the bank’s lawyer George Oraro and Machester’s lawyer Phillip Nyachoti on whether the case over a Sh32 billion dispute goes beyond the two parties’ interests or not.

Nyachoti, on one hand, argued that there was “nothing novel or transcending to the interests of the banking industry and borrowers.”

He said the dispute between his client and the lender, and many other cases relating to similar issues, had been settled.

“The matters herein concerning the judgment are purely matters of a dispute between the first and second respondent, and on one hand, the petitioner and the third respondent on the other, on their own distinct and peculiar transactions as set out hereinabove and, therefore, do not transcend beyond the parties. The same should be dismissed with costs,” argued Nyachoti. According to him, his client did not unjustly enrich itself as there was no outstanding debt. He said the bank sold his client’s land but did not account for the same.

On the other hand, Oraro argued that there is an important question of whether a bank, which is holding a security, is required to register it afresh whenever a subsequent advance is made, even if the previous loan has not been discharged. According to Oraro, the banking industry has always operated on the basis that securities offered by a borrower continue in force for any other loan offered, unless and until all the amounts due are paid and a formal discharge is registered.

“It is the petitioner’s case that it would be impossible and untenable to conduct banking business in an atmosphere where securities are automatically discharged upon repayment of a facility and must be registered afresh upon each new advance. Such a state of affairs would cause chaos in the banking sector and result in numerous facilities presently existing being classified as unsecured by the stroke of a pen,” argued Oraro.

He also argued that it is a matter of general public importance for the Supreme Court to declare whether a party can be permitted in law to retain a benefit it has received from another without accruing a corresponding obligation for repayment.

In its application, the bank claimed that the clothes firm had started the process to force it to pay Sh32 billion.

It is alleged that the amount is too high and there is uncertainty whether Manchester would be able to repay the amount if the case succeeds.

“The applicant is apprehensive that if a stay is not granted forthwith, the assessment will be finalised, judgment given, and execution levied with grave and irreversible consequences to the applicant (Standard Chartered),” argued Oraro.

The lender claimed that Manchester, which is now called King Woollen Mills Ltd, stopped operating in 1990 when the High Court dismissed Gregory Cahill’s appointment as a receiver manager.

Oraro argued that there is no single bank in Kenya that could foot the amount demanded by Manchester.

According to the bank, Manchester is in the process of revoking the sale of two properties it had disposed of to recoup the loan at the heart of the dispute. In this case, Manchester is pursuing Foam Mattresses Limited, seeking to have two properties reverted to it.

The battle is now before the Supreme Court for a second time.

Court of Appeal judges Mohamed Warsame, Kathurima M’inoti and John Mativo certified the case to be of public interest.

The bench, led by Justice Warsame, also addressed the question of whether a borrower is obligated to repay an unsecured loan.