Attachment of Assets in Kenya by B M Musau & Company, Advocates
- 1. What is the general nature and effect of judicial measures available for plaintiffs to obtain provisional relief affecting property of debtors to obtain security for judgments to be obtained (“attachments”)? Freezing property in place? Placing it in the custody of a third party, such as a court official, sheriff or marshall?
A plaintiff has the option of applying to the court for a mareva injunction for freezing of the property in place. In addition, a party can apply for orders that the property be placed in the custody of the court depending on the nature of the property, that is, whether the property is moveable or immovable.
2. What is the form of the attachment? Injunction? Other kind of judicial order? Specify.
The attachment can be of property in enforcement of judgements and arbitral awards. The injunction to be applied for is the mareva injunction stated in answer to question 1 above.
3. What is the jurisdictional basis for an attachment? Is the presence of the debtor’s property a sufficient basis for an attachment to be obtained, assuming other requirements are satisfied? To what extent may attachments be used as a basis for obtaining personal jurisdiction over a debtor? To what extent are attachments or similar orders intended to have extraterritorial effect?
The jurisdictional basis for an attachment is to prevent obstruction of justice by the absconding by the defendant from the local limits of the jurisdiction of the court. Secondly the defendant if not checked can dispose of or remove the property form the local limits of the jurisdiction of the court. The basis is laid out in section 63 of the Civil Procedure Act, Chapter 21 of the Laws of Kenya (the Act) and Order 39 rule 1 of the Civil Procedure Rules, 2010 (the Rules).
The presence of property and the debtor within the local limits of the jurisdiction of the Court is a requirement for an order of attachment to be obtained.
Where personal jurisdiction does not already exist over the debtor, attachment may not be used as a basis for obtaining judgement.
Extraterritorial effect of attachment or similar orders depends on whether there are reciprocity arrangements between the countries in question.
4. May an attachment be obtained in support of a proceeding on the merits in another country? If so, may the other proceeding be in court, arbitration or in another type of forum? Are attachments used as a mechanism in enforcing judgments or arbitral awards?
Attachment may not be obtained in support of proceedings on the merits in another country whether the proceedings are judicial or arbitral.
When a judgement or an award is finally obtained no further attachment is required. Any attached property may be sold by the court depending on the outcome of the proceedings.
5. What are the requirements for obtaining an attachment? Of property in your country? In support of a proceeding in another country, if different?
The grounds for a prayer of attachment of property of a debtor are set out in Order 39 rule 1 of the Rules. They are: (a) that the defendant with intent to delay the execution of any decree that may be passed against him – (i) has absconded or left the local limits of the jurisdiction of the court; or (ii) is about to abscond or leave the local limits of the jurisdiction of the court; or (iii) has disposed of or removed from the local limits of the jurisdiction of the court his property or any part thereof; or (b) that the defendant is about to leave Kenya under circumstances affording reasonable probability that the plaintiff will or may thereby be obstructed or delayed in the execution of any decree that may be passed against the defendant in the suit.
It appears any of the grounds listed above if proved will entitle the plaintiff to an order of attachment.
Under Order 22 rule 51 a third party may institute objection proceedings if the third party has legal or equitable ownership of the property attached.
The requirements of Order 39 rule 1 contemplate an attachment in execution of a decree. However, attachment of assets can also be by way of security, appointment of a receiver and issue of injunctions to prevent damage or alienation of property in dispute.
Attachment by way of security is made in the same manner as attachment in execution of a decree. Before a court makes an order it must be satisfied that the evidence produced before it is credible. Also, the court has to be satisfied that the facts show reasonable probability of damage to the applicant. Under Order 39 rule 9 of the Rules provision of security can discharge attached property.
Under Order 41 of the Rules a court may appoint a receiver of any property in the possession or under the authority of the cefendant. This mode of attachment of assets is applicable when it is impractical to apply for attachment of assets on execution of a judgement or to apply for attachment of assets by way of security. This is usually referred to as appointment of a receiver by way of equitable execution. The appointment of the receiver would be necessary before future sums can be recovered.
Injunctions will generally issue to prevent the damage or alienation of any property in dispute. Similarly, under Order 40 of the Rules a party can apply for an injunction for the foregoing purposes. In special cases the applicant may need to undertake to deposit security for costs. Such applications can be made ex parte for good cause to be shown (Order 40 rule 2 of the Rules). An interlocutory injunction which has been granted and is not determined within a period of 12 months shall lapse unless sufficient reason is shown for a Court to order otherwise (Order 40 rule 6 of the Rules)
6. May an attachment be obtained without notice to the debtor? If so, what are the requirements for notifying the debtor and what procedure is available to the debtor to challenge the ex parte attachment obtained? If not, what are the procedural requirements for obtaining an attachment on notice to the defendant?
An application for attachment is made ex parte in the first instance. The application must be served on the debtor for the inter partes hearing.
7. What are the elements that must be established to the satisfaction of the court for it to grant an attachment? E.g., likelihood of success on the merits, likelihood that the debtor is removing, or will remove, its assets from the jurisdiction, fraudulent activity by the debtor, need for the attachment as security, for an expected judgment or award?
The grounds set out in Order 39 rule 1 of the Rules (set out in the answer to question 5 above) are the elements that must be satisfied for a court to grant an attachment order.
8. What is the procedure for obtaining an attachment? What is the nature and extent of the evidence that must be presented to the court and how must it be presented?
The plaintiff will apply for the order or attachment by a Notice of Motion as prescribed by Order 51 rule 1 of the Rules setting the any or all the grounds mentioned in the answer to question 5 above, as the case may be. The application will often be under a certificate of urgency with the applicant stating the nature of urgency. The application ought to be supported by an affidavit setting out the evidence of the ground relied upon.
9. To what extent, and under what circumstances, is an undertaking, in the form of a third party bond or guarantee or a deposit, required in order to obtain an attachment? In what amount, in relation to the amount claimed, is the undertaking required? How are such undertakings generally obtained, as a matter of practice? How much do they cost?
Generally no undertakings are required when applying for an order of attachment. However in special cases the applicant may be required to furnish security for costs. In a case where an undertaking is required it may be given by some person or organization within Kenya.
10. What does the undertaking secure? Damages to the debtor if the attachment is ultimately vacated? Do such damages include interest? Other elements? Legal fees? To what extent? Court costs? To what extent?
Refer to our answer to question 9 above.
11. How specific must the application for an attachment be as to the nature, extent and location of the assets sought to be attached? How many potential garnishees may be served with an order of attachment?
An application for attachment of assets has to be specific as to the nature, extend and location of the asset sought to be attached. Where the property is a debt the garnishee has to be served with the attachment order.
The Plaintiff may also, in the application for attachment, pray for an order that a garnishee report on the nature and extent of the assets of the debtor in his possession and any encumbrances on such assets.
12. What are the obligations of a third party who is served with an order of attachment to report on the nature and extent of the assets of the debtor in his possession and the extent to which other persons, including the party served itself, have prior or competing liens on the property covered by the attachment order?
If the order is specific that the garnishee has to furnish such information then the garnishee has to oblige otherwise they will be in contempt of court. If there is no a specific order then the garnishee is not obligated to furnish any information especially if the garnishee is a bank bound by the duty of confidentiality on its customers’ affairs.
13. To whom are such reports given and what is the form of such reports? To the court? To the attaching plaintiff? What is the form of such reports? In writing? Oral? Informal? Hints?
Kindly refer to our answer to question 12 above.
14. What kind of property of a debtor may be attached? Debts of third parties to the debtor? Claims of the debtor against third parties? Expectancies?
Debts including due debts may be attached. However debts not yet payable such as unconfirmed letters of credit, claims and expectancies cannot be attached.
15. What is the effect of the service of an order of attachment on assets of the debtor that came into possession of the garnishee after the time of the service of the attachment order? Are there any time limits on the effectiveness of the order of attachment? In particular, what is the effect of the service of the order of attachment on a bank that has issued or confirmed a letter of credit of which the debtor is a beneficiary?
The assets of the debtor that comes into possession of the garnishee after the time of the service of an attachment order is subject to the order of attachment. The rationale of the foregoing is to defeat any mala fides actions by the debtor, that is, transfer of properties to third parties to defeat attachment.
Regarding time limitations the order of attachment is effective until the matter is determined on merit by the court or when the court makes other further orders. The court may review, set aside or quash the order.
A confirmed letter of credit is a payable debt hence it can be a subject of an attachment order.
16. Are there certain kinds of assets or property of a debtor that are immune, or in some other way protected from attachment, e.g., pension funds, salaries, wages, diplomatic property, other sovereign property, other property specified under consumer-protection laws?
There are certain kinds of assets or properties of a debtor that are immune or protected from attachment set out in section 44 of the Act. They include pension funds, sovereign and diplomatic property, personal equipment in use, tools of trade, two thirds of salary, maintenance and rights to sued in damages.
17. For how long may an order of attachment remain in effect? If the attachment order is in support of a proceeding in another forum, are there any requirements concerning when, in relation to the date of the issuance of the order of attachment, the proceeding in the other forum must be commenced? Completed?
Please refer to the answer in question 15 above.
18. What rights in the plaintiff are created by the service of an order of attachment? Priority over creditors attaching later? Do banks and other garnishees have set-off or other priority rights superior to those of creditors attaching assets of debtors who are also debtors of such garnishees?
Bank liens and set-offs existing at the date of service of the attachment order have priority over creditors who attach the property later.
19. How are attachments ultimately enforced as judgments? What is the procedure? What happens if multiple plaintiffs seek judgments against the same property at roughly the same time?
When the court delivers judgement in favor of the creditor, the attached property is sold in public auction to realize the money (s) owed.
In cases of multiple plaintiffs over the same property simultaneously, the first creditor in time will have priority over the rest.
20. What is the procedure for challenging or vacating an order of attachment?
The debtor applies under certificate of urgency vide a Notice of Motion application supported by an affidavit. The application prays for the setting aside of the attaching order. The affidavit sets out the material facts on which the application is made.
21. If there are any other aspects of attachment of law that have not been addressed in the questions, please discuss them here, or elsewhere, as appropriate.
We have exhausted the area of attachment of assets in our answers to questions 1 to 20 above.
Terminology
It is recognized that the word “attachments” used for the subject of these questions—and of the book that will result—may be referred to by many other terms. Such words include garnishments, embargoes, seizures, arrests—as well as a variety of other terms in languages other than English. The term “attachment” has been used as a generic term for all of these, and other, kinds of judicial orders that have the effect of immobilizing property of a debtor in connection with civil proceedings for damages, expected or already awarded. These may be in the form of orders removing property from the possession of a defendant or his debtor or of injunctions preventing the debtor from removing his property from the jurisdiction. Thus, “attachment orders,” as used herein, may refer to injunctions as well.
As can be seen, the term “plaintiff has been used for the party with a claim who is the applicant for an attachment order and “debtor” has been used for the person against whom the plaintiff has the claim and whose property the plaintiff seeks to attach. “Garnishee” has been used for the person—be it a bank or other obligor to the debtor—who holds property that is the subject of the order of attachment.
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Benjamin M Musau
May 18, 2011
I am a Kenyan Advocate and the Managing Partner of B M Musau & Co., Advocates, a position I have held since 1999. My work encompasses regulatory reforms, reduction of administrative burdens, the structure of business entities, joint ventures, acquisitions, banking, foreign investment and other general corporate areas
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