Effect of an  Unqualified Person preparing a Guarantee Agreement

East African Development Bank Limited v  Mujtaba Jaffer & 2 others [2016] eKLR

Civil Suit 153 of 2003

High Court at Mombasa

P.J.O. Otieno, J

December 20, 2016.

Reported by Kakai Toili

Advocate – documents prepared by advocates – guarantee agreements - whether a guarantee agreement was a document that had to be prepared by an advocate – Advocates Act, sections 2 and 34; Advocates Remuneration Order, Schedule I, Third Scale, Note 2

Advocate – documents prepared by advocates – guarantee agreements - what was the effect of an unqualified person preparing a guarantee agreement

Brief Facts:

 By a loan agreement between the Plaintiff and the Guaranteed, the Plaintiff agreed to extend to the Guaranteed a financial accommodation in various currencies equivalent Special Drawing Rights of 1,600,000 on condition that the Defendants gave their personal guarantees in form and substance acceptable to the Plaintiff. Pursuant to that agreement the 3 Defendants agreed to and guaranteed the obligations of the Guaranteed as a consideration of the Plaintiff entering into the loan agreement.

The Plaintiff filed a Plaint seeking to recover from the Defendants, jointly and severally, the sum of USD 3,578,413 together with interests at 12% per annum from the March 1, 2003 till payment in full. Pursuant to Chamber Summons dated July 9, 2010 and a consent order recorded in court, the Plaintiff was granted leave to amend the Plaint. The Defendant filed an Application seeking the Amended Plaint to be struck out and the suit dismissed with costs to the Defendant.  The Application to strike out was grounded on the allegations that the agreements sought to be enforced were the products of a securitization process that was illegal and void in law as the guarantee document was prepared by an unqualified person.

Issues:

1. Whether a guarantee agreement was a document that had to be prepared by an advocate.
2. What was the effect of an unqualified person preparing a guarantee agreement?

Relevant Provisions of the Law:

Advocates Act

Section 2 – Interpretation

“advocate” means any person whose name is duly entered upon the Roll of Advocates or upon the Roll of Advocates having the rank of Senior Counsel and, for the purposes of Part IX, includes any person mentioned in section 10;

Section 34 – Unqualified person not to prepare certain documents or instruments

 Unqualified person not to prepare certain documents or instruments

1. No unqualified person shall, either directly or indirectly, take instructions or draw or prepare any document or instrument:-
   1. relating to the conveying of property or
   2. for, or in relation to, the formation of any limited liability company, whether private or public; or
   3. for, in relation to, an agreement of partnership or the dissolution thereof; or
   4. for the purpose of filing or opposing a grant of probate or letters of administration; or
   5. for which a fee is prescribed by any order made by the Chief Justice under section 44; or
   6. relating to any other legal proceedings; nor shall any such person accept or receive, directly or indirectly, any fee, gain or reward for the taking of any such instruction or for the drawing or preparation of any such document or instrument.

Advocates Remuneration Order

Schedule I, Third Scale,

2.  In scales 1, 2 and 3—

1. “mortgage" includes a conveyance, assignment or other assurance, or an agreement to convey, assign or otherwise assure the immovable property or any estate, interest or other right therein to secure the payment of moneys;

Held:

1. Section 34 of the Advocates Act provided for documents in which unqualified persons were not to prepare. The documents being challenged were neither conveyances, did not relate to partnership, incorporation of a company nor legal proceeding. However, they were documents for which the Chief Justice had prescribed fees under section 44 of the Act. Section 34(1)e of the Act provided that unqualified persons were not to prepare documents for which a fee was prescribed by any order made by the Chief Justice under section 44.
2. Whether or not a guarantee was a document that the law required to be prepared by an advocate or not one had to look at the Advocates Remuneration order (ARO). schedule I, third scale, note 2 of the ARO provided that in scales 1, 2 and 3 a mortgage included a conveyance, assignment or other assurance, an agreement to convey, assign or otherwise assure the immovable property or any estate, interest or other right therein to secure the payment of moneys.
3. A reading of schedule I, third scale, note 2 of the ARO and the loan agreement left no doubt that the guarantee agreement was a document that the Kenyan law forbade an unqualified person from preparing or drawing as it showed to be an assurance for the payment of the money advanced to the Guaranteed.
4. Section 2 of the Advocates Act defined an advocate as a person whose name was duly    entered in the Roll of Advocates among others.  As much as the term unqualified person was not defined in the Act, for the purposes of the Act it meant one who was not an advocate.
5. There were public interest considerations and policies informing every enactment by Parliament.  The Court was a State Organ bound to observe the rule of law which was the bastion of democracy and well-being of every civilised society.  The law forbade an unqualified person, which the person who prepared the guarantee agreement was by the confirmation of the Law Society of Kenya, from preparing the document he prepared. He was therefore not qualified to act in preparation and drawing a document which it was the preserve of an advocate in Kenya to prepare. He contravened the law and that could not be blessed or countenanced by the Court.
6. A document prepared by an unqualified person was void for all purposes. The expression void for all purposes meant void for every intention to rely on it including an attempt at recovery of money advance and secured by it.
7. The guaranteed agreement was a document as defined under section 34 (1)g of the Advocates Act and was void for all purposes and the suit herein being grounded on the document, it followed that there was no suit that merited being sustained to be heard on the merits. There was no magic in hearing on merits where it was obvious that there was no suit to justify employment of court time.

Application allowed, Plaintiff’s Plaint dated July 2, 2013 as amended struck out with costs to the Defendants.