Lochab Brothers V Kenya Furfural Co Ltd EKLR
|Civil Appeal 78 of 1982||21 Nov 1983|
Zakayo Richard Chesoni, Alister Arthur Kneller, Chunilal Bhagwandas Madan
Court of Appeal at Nakuru
Lochab Brothers v Kenya Furfural Co Ltd
Lochab Brothers v Kenya Furfural Co Ltd eKLR
Lochab Brothers v Kenya Furfural Co Ltd
Court of Appeal, at Nakuru
November 21, 1983
Madan, Kneller JJA & Chesoni Ag JA
Civil Appeal No 78 of 1982
Company law - receivers - appointment of receivers out of court - appointment after attachment of goods - priority of assets seized in execution - whether receiver can sue in his own name - powers and duties of receiver.
Company law - debentures - title under a debenture duly registered - rights of a debenture holder.
Civil Practice and Procedure - parties - parties to an action - misjoinder and non-joinder of parties - whether suit can be defeated by reason of misjoinder or non-joinder of parties - amendment to cure defect in pleadings - locus standi.
Execution - execution proceedings - judgment in default of appearance - objection to execution - who may object - persons with locus standi - procedure after notice to proceed with attachment - when is execution complete - when objection proceedings should be lodged. T
he appellants filed a suit against the first respondent in the High Court claiming damages for goods sold and delivered and/or services rendered by the appellants. The first respondent failed to enter appearance and ex parte judgment was entered in favour of the appellants as prayed in the plaint. They obtained a decree and were granted warrants of attachment and sale of the first respondent’s movable property over which Development Finance Company of Kenya (DFCK) had a floating charge through two debentures properly registered in time at the Companies Registry under the Companies Act (cap 486). Execution proceedings were levied by the court brokers. The second respondents were appointed receivers and managers of all the property and assets charged to DFCK with powers to act jointly and severally and were entitled to exercise all the powers conferred upon receivers and managers by the said debenture and by statute and otherwise. The second respondent instituted objection proceedings under order XXI rule 57 and order XLVI rule 6 of the Civil Procedure Rules objecting to the attachment and seeking an order lifting the attachment of the goods. The court allowed the objection. The appellants appealed arguing that the learned judge had erred in failing to evaluate their arguments, in failing to find that the second respondents had no locus standi and could not bring proceedings in their own names, in holding that the second respondents were properly appointed and in holding that the execution was complete when the goods of the first respondent were attached by the court brokers.
1. Execution is completed after seizure and sale of the attached property, not before. Until then, it remains the property of the execution debtor and no property in the attached goods passes to the execution creditor.
2. Although the goods were under the control of the court broker but not having been sold, they remained subject to the floating charge created by the debentures, which crystallised by the appointment of the receiver, thus the decree holder (the appellants) were not entitled to proceed with the attachment.
3. A receiver cannot sue in his own name as receiver since he has no property vested in him and so acquires no right of action by his appointment. Nor can the court give a receiver leave to sue as receiver. The receiver’s duty is to take care of and receive the property which is put under his charge and he is not at liberty and is not entitled to bring an action in his own name. Thus the second respondents had no locus standi and they could not bring the proceedings in their own name. They were authorised to take proceedings only in the name of the company whose agents they were (Sartoris v Sartoris  1 Ch 11, 14, 22 & Parker v Dunn (1845) ER 195).
4. There was a non-joinder of parties. However, under order I rule 9 of the Civil Procedure Rules, a suit shall not be defeated by reason of the misjoinder or non-joinder of parties and the court may in every suit deal with the matter in controversy so far as regards the rights and interests of the parties actually before it. A mere misjoinder or nonjoinder which is capable of being cured will not defeat a claim and is no defence but that was not the case here. In this case, however, the receivers had no interest, legal or equitable, in the attached goods.
5. The legal interest was held by the debenture holder ie Development Finance Company of Kenya Ltd. The receivers weren’t entitled to bring objection proceedings against the execution creditors without joining the holders of the legal interest as parties. They had no locus standi and the action was a nullity in law.
6. Under order XXI rule 53 of the Civil Procedure Rules, any person entitled to or who has a legal or equitable interest in the attached property may object any time prior to payment out of court of the proceeds of sale of the attached property. The objection was therefore within time since the proceeds of sale had not been paid out of court before the objection.
7. If appointment of the receiver is made after attachment and sale of the goods but before the proceeds of sale are paid out, the execution creditors would have priority because the floating charge created by the debenture is crystallised by the appointment of the receivers after execution. If the receivers are appointed after attachment but before sale of the goods, the floating charge is valid and has priority over the seizure by the court broker.
8. A debenture usually creates a floating charge on a company’s assets, and only where the charge has been crystallised eg, by appointment of receivers by seizure and sale, do the rights of the debenture holder have priority over those of the execution creditor. When a debenture creates a floating charge over the whole movable property of a company which is a going concern, it attaches to the property as it varies from time to time. If the company’s property is subsequently attached in execution, that property, although in the custody of the court broker, remains the property of the company and is therefore subject to the floating charge. On appointment of a receiver, the floating charge becomes fixed charge over the movable property of the company as at that date including any attached property which has not yet been sold.
9. (Obiter Madan JA) “There is a difference of title between a letter of hypothecation and a debenture. To hypothecate property is to charge it with the payment of a sum of money on the performance of an obligation giving the person in whose favour it exists neither the right to the possession of the property nor the right to sell it, but merely the right of realisation by judicial proceedings in case of default by the person who made the hypothecation.”
1. Rhodes v Dawson (1886) 16 QBD 548
2. Sacker, Re, ex p Sacker (1888) 22 QBD 179
3. Sartoris v Sartoris  1 Ch 11
4. Campbell v London Pressed Hinge Company Ltd  1 Ch 576
5. Kantichandra v Rahman (1930) 127 IC 59
6. Carver v MacJohn [1938/39] 18 KLR 97
7. Quresh v Patel (1951) 18 EACA 1
8. Colonial Blankets Trading Co v National & Grindlays Bank Ltd  EA 537
9. Noor Khan v Ramji Kanji & Co and Others  EA 506
10. Dodhia v National & Grindlays Bank Ltd  EA 195
11. Mackenzie (Kenya) Ltd v Pharmico Ltd  KLR 270
12. Queensway Trustees Ltd v Official Receiver [1982-88] 1 KAR 128
13. Thomson Smith Aikman and Mbo-I-Kamiti Farmers Company Ltd v Bernard Kimani Muchoki Civ App No 9 of 1982 (unreported)
14. Parker v Dunn (1845) 50 ER 195
15. Wildy v Mid Hants Rly Co 16 WR 409
1. Schmitthoff, C.M. (1976) Palmer’s Company Law, London: Stevens & Sons, 22nd Edn para 43-15, p 464
2. Jacob, I.H. et al,(Eds) (1980) Atkin’s Encyclopaedia of Court Forms in Civil Proceedings, London: Butterworths, 2nd Edn Vol XXXIII p 147 para 20
3. Jacob, I.H. et al,(Eds) (1982) The Supreme Court Practice, London: Sweet & Maxwell, Vol I p 207 para 15/6/2; para 17/1/10
4. Burke, J. (1977) Jowitt’s Dictionary of English Law, London: Sweet & Maxwell, 2nd Edn Vol I p 933
1. Companies Act (cap 486) sections 99, 224
2. Sale of Goods Act (cap 31) sections 2(1), (2); 27(1)
3. Civil Procedure Rules (cap 21 Sub Leg) order 1 rules 9, 10; order XXI rules 38, 53, 56, 57; order XLVI rule 6
RL Aggarwal for Appellant
RO Kwach for Objectors