A court has dismissed SBM Bank Kenya's bid to lift a seven-year-old injunction against recovery of a Sh29.3 million debt from a tourists resort in Naivasha, upholding an interim order protecting the luxury hotel's prime properties from auction.
The debt is part of an unspecified amount of loan advanced to the hotel, Lake Naivasha Crescent Camp Limited, by the bank's predecessor Chase Bank in 2017.
In a ruling that underscores Kenya's delicate balance between creditor rights and borrower protections, the High Court dismissed SBM Bank's application to lift the 2018 injunction, finding the lender failed to prove the hotel operator abused court processes.
"The May 29, 2018 court orders were clear that status quo be maintained pending hearing and determination of this suit. There is no doubt that this suit is yet to be determined since hearing has just commenced," said the court.
The decision preserves the hotel's ownership of two Nakuru Municipality properties used as collateral for Chase Bank loans in 2017, leaving the SBM bank grappling with mounting losses since the borrower defaulted.
The court ruled that SBM Bank, which took over Chase Bank Kenya’s assets through receivership after its 2018 collapse, failed to prove that the injunction had outlived its purpose.
The decision extends a legal shield for the hotel.
The dispute started in 2018 when the borrower defaulted and the bank initiated recovery efforts, prompting the company to seek court intervention and protection from forced sale of the collateral.
A status quo order was issued on May 29, 2018, barring the bank from selling the properties pending the suit’s determination.
SBM Bank, which also assumed Chase Bank’s liabilities, accused the borrower of exploiting the injunction to avoid repayment. It alleged that as at February 2024 only Sh14 million of the outstanding Sh43.3 million debt at the time had been settled, leaving a balance of Sh29.3 million.
The case took a twist when Chase Bank collapsed in 2018 and was placed under receivership. SBM Bank later acquired its assets, including the disputed loan, inheriting the legal battle.
Despite a 2022 settlement agreement where the borrower paid the Sh14 million, SBM accused the firm of breaching terms and frustrating recovery by hiding behind the injunction.
In court filings, SBM’s legal officer argued that the status quo order, initially meant to be temporary, had become a "permanent shield" for the borrower. The bank warned that delays risked rendering the secured properties worthless as accrued interest ballooned the debt.
"The plaintiff has enjoyed six years of court protection without clearing the outstanding balance. This is an abuse of equitable remedies. Unless the status quo order is discharged, the outstanding sum would outstrip the value of the property thereby plunging the applicant (SBM Bank) into losses," SBM’s lawyers submitted.
In defense, the borrower countered that SBM lacked legal standing (locus standi) to seek the injunction’s discharge since it was never formally substituted as Chase Bank’s successor in the suit.
"No amount of averments can make it a party to these proceedings without substitution and amendment," said the borrower's advocate, citing the Civil Procedure Rules, 2010.
Arguing that SBM was a stranger to the proceedings, the borrower said a party "cannot assume a dead party’s role without court approval".
The court partially agreed, allowing SBM's belated entry as defendant but refusing to alter the injunction. The trial judge emphasized that asset acquisition did not automatically grant SBM rights to alter court orders.
While the ruling deals a financial blow to SBM in its debt recovery efforts, for borrowers it reinforces the judiciary’s reluctance to lift injunctions unless lenders demonstrate concrete abuse.
However, the court directed both parties to expedite the process, signaling the court’s impatience with the seven-year delay.
