The National Bank of Kenya (NBK) has escalated a legal fight in which it seeks to reverse a High Court order that it pays Sh711 million to eight customers for illegally selling their land after a botched sugar import deal.
The lender has moved the Court of Appeal hoping to overturn a High Court decision to bar it from amending its defence statement and the subsequent verdict that awarded the traders a total of Sh711.2 million as compensation for the unlawful sale of their properties.
The plots, which are situated in Che Shale Beach Ngomeni, Kilifi County, were sold after a botched sugar import deal.
Through lawyer Guto Mogere, the bank says the High Court got it wrong in finding that the traders deserved compensation.
Mr Mogere says the judgement followed the decision of the trial judge Alfred Mabeya to bar the bank from amending its defence before deciding on the issues in controversy.
In the said amendment, the bank wanted to introduce an argument to the effect that the traders' case was time-barred. The bank contended that during the hearing of the case it discovered from the documents filed that the cause of action arose prior to the year 2014 and therefore the case was technically barred by the Limitation of Actions Act.
"The court erred in law in failing to appreciate that an amendment can be made at any stage of the proceedings including post-trial provided that it does not occasion prejudice which cannot be compensated by an award of costs. The court erred in law in failing to evaluate whether the amendment would cause prejudice that cannot be compensated by an order of costs," says the lawyer.
He argues that the judge misunderstood the bank's request for an opportunity to amend its defence as an application to start the hearing of the case afresh. The bank is dissatisfied with the judge's finding that the application was meant to delay the process of justice.Â
The lawyer wants the Court of Appeal to set aside the ruling and replace it with an order allowing the bank's application to amend its defence.
In the contested verdict dated June 20, 2025, Justice Mabeya found that the lender had sold the properties despite no money having been advanced to the affected customers, whose intention to obtain a Sh160 million loan to facilitate the shipment of sugar to Mombasa failed.
The plots were owned by Koit Developers Limited, Saman Developers, Kenete Enterprises, Gilera Limited, Masole Enterprises, Baia Enterprises, Marimio Enterprises and Lingala Enterprises. They had submitted the titles of their respective parcels of land as security for a loan facility of Sh160 million in December 1994.
"The transaction for which the titles were offered having collapsed, the bank had no right to continue charging the suit properties, let alone to sell r them to any third party. The transfer of the suit properties was without any basis," said the judge.
They intended to enter into a joint venture arrangement with an entity known as Bethlehem Trading Company Ltd for the importation and sale of sugar.
Under that arrangement, Bethlehem was responsible for the opening of Letters of Credit with the bank and handling the actual importation of sugar. For their part, the eight companies were to provide security for the credit by allowing charges to be registered over their beach properties, which were valued at Sh205 million at that time.
They contended that they expected that the proceeds from the sugar sale would be used to clear the debt after which, the suit properties would be discharged and titles returned.
However, after the letters of credit were opened and the charges created over the titles, the joint venture arrangement failed because the bank canceled the advancement of the credit.
They said the titles were not to be used for any other purpose since the intended transaction had collapsed. Despite this, the bank failed to return the titles.
In November 2022, the companies discovered that the bank had transferred the suit properties to Orascom (K) Ltd under unclear and suspicious circumstances.
This prompted them to seek court redress on grounds that the said transfer was unlawful and it caused them substantial financial loss.
The court ruled in their favour, stating that it was unlawful for the bank to transfer the parcels of land, whose title deeds had been submitted to them as collateral, to a third party in the face of a collapsed loan transaction.
It was the court's finding that in commercial transactions, a creditor is entitled to enforce a charge only where there is an outstanding obligation secured by that charge.
"There was no evidence that there was any transaction that was secured by the suit properties after the letters of credit lapsed. Accordingly, the bank had no legal basis to continue holding the properties or to dispose of them. The court notes that the bank did not call any witnesses to support its defence," ruled Justice Mabeya.
He stated that there was no evidence produced to justify the transfer of the suit properties to a third party.
"There is no evidence that any funds were disbursed before the expiration of the letter of credit. Furthermore, Bethlehem Trading Company through its director, acknowledged that delivery of the sugar did not take place due to technical issues with the supplier. Given these facts, the court is convinced that the bank had no legal right to retain the plaintiffs' properties under the registered charges," he stated.
