Litigation and key cases: Security for stay applications in mortgage suits

Saturday January 11 2020



Lilian Kyaruzi (law@liliankyaruzi.com)

Lilian Kyaruzi (law@liliankyaruzi.com) 

By LILIAN KYARUZI

In a landmark majority ruling delivered on 14 March 2019 in Africhick Hatchers Ltd vs. CRDB Bank Plc, Civil Appeal No. 98 of 2016 (hereinafter, ‘Africhick case’), the Court of Appeal of Tanzania pronounced itself on the use of mortgaged property to fulfil the requirement to deposit security before a ‘stay of execution’ can be granted pending the hearing and final determination of an appeal.

In essence, a stay of execution is “a momentary suspension of a court order (encompassing rights declared in favour of the judgment creditor/decree holder” (Kibuuka, Paul. “Stay of execution of the decree of a court”. The Citizen. Saturday March 9, 2019). In what follows, I provide some background details to the Africhick case.

Four years ago, in 2016, CRDB Bank Plc, the Respondent, won a suit against Africhick Hatchers Limited, the Applicant, in Civil Case No. 97 of 2014 in the Commercial Division of the High Court of Tanzania at Dar es Salaam. Aggrieved with the High Court’s decision, the Applicant sought to challenge the decision by first filing a Notice of Appeal in the Court of Appeal of Tanzania.

The Applicant also filed an application for stay of execution for the purpose of ensuring that the Respondent bank does not execute the judgment and decree while the appeal is pending. In stay applications, there is a mandatory requirement for deposit of security before a stay of execution can be granted. To satisfy this requirement to furnish security for performance of the decree of circa 1.8 billion, the Applicant offered the same property which secured the loan advanced by the Respondent; the mortgaged property was worth sh20 billion.

The decision

In another welcome decision, the Court of Appeal of Tanzania (Justice Mmilla and Justice Mwangesi) ruled in favour of the Applicant and granted a stay of execution of the decree. The Court of Appeal held that an encumbered property (i.e. a property encumbered by a security interest e.g. a mortgage upon or against interest in the property) which secured payment of a loan, the referent of the dispute, and whose monetary value is higher than the amount of the decree can be good security for the purpose of obtaining a stay of execution.

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Consequently, the Court of Appeal allowed the Applicant to use the same mortgaged property as security for grant of stay of execution of the decree passed against it—and in favour of the Respondent bank—by the Commercial Division of the High Court. The Court of Appeal arrived at this decision after considering that the mortgaged property, which secured the loan and was in the hands of the Respondent bank, was not subject of litigation.

In addition, the Court of Appeal observed that to meet the condition for giving security for the due performance of the decree, “the law does not strictly demand that the security must be given prior to the grant of the stay order”. Furthermore, the Court of Appeal observed that “a firm undertaking by the Applicant to provide security might prove sufficient to move the Court, all things being equal, to grant a stay order, provided the Court sets a reasonable time limit within which the Applicant should give the same”.

Clearly, the Court of Appeal adopted a pro-business and balancing approach in pronouncing itself on the use of mortgaged property to fulfil the requirement to deposit security before a ‘stay of execution’ can be granted pending the hearing and final determination of an appeal. In this case, the Court of Appeal had to balance the interests of the Applicant in granting the stay vis-a-vis the interests of the Respondent bank to receive its money following the issuance of the decree in its favour.

The dissenting judge (Justice Mwambegele) adopted a conservative approach, opining that the encumbered property (mortgage property), regardless of whether its value is higher than the amount of the decree, cannot be used as good security since the property is no longer the property of the Applicant until the loan has been settled fully.

The Court of Appeal of Tanzania, through this ruling in the Africhick case, has shown that it can be flexible. Will this flexibility remain a rule of thumb?

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Lilian Kyaruzi (<law@liliankyaruzi.com>) is a legal director in Isi-dora & Company and an inter-national development enthusi-ast. The views expressed here do not necessarily reflect those of Isidora & Co.