Circumstances in which orders for the freezing of assets would be granted

International Air Transport Association & another v Akarim Agencies Company Limited & 2 others

Civil Case No 15 of 2014

Brief facts
The 1^st plaintiff and the 1^st defendant entered into a Passenger Sales Agency Agreement on March 30, 1994. In the agreement, the 1^st defendant was to sell tickets for air passenger transportation, to hold the proceeds of the sales in trust for the 1^st plaintiff and to keep records, accounts and supporting documents in relation to the sales. The sale of air passenger tickets included all activities necessary to provide a passenger with a valid contract of carriage. The travel agent, the 1^st plaintiff, could also be authorised to sell ancillary services, under the agreement.
The 2^nd plaintiff provided insurance to the 1^st defendant against losses that could occur from default in making payments to the 1^st plaintiff. However, the 2^nd plaintiff, an insurance company, claimed that the insurance policy was obtained fraudulently by the 1^st defendant. Additionally, the 2^nd and 3^rd defendants entered into indemnity agreements in relation to the payment of the proceeds of ticket sales to the 1^st plaintiff by the 1^st defendant.
Between the period of September and October 2013, the 1^st defendant sold tickets amounting to Kshs. 115, 633, 360. 60/- and USD $ 1, 446, 906.06/-. There was a default in remitting the money to the 1^st plaintiff and the Passenger Sales Agency Agreement was terminated.
The plaintiffs sought remedies against the loss of the proceeds of the sales, which was property held in a trust situation by the 1^st defendant. The remedies sought included, the rendering of accounts, delivery of documents or records, orders for the freezing of assets and orders for issuance of a warrant of arrest.
Issues

1. Circumstances in which orders for the freezing of assets would be issued to prevent the dissipation or loss of property.
2. Whether the grant of orders for disclosure, production and inspection of documents, in civil proceedings, would be a breach of the right against self-incrimination.
3. Circumstances in which orders of arrest would be issued to prevent a defendant from absconding or leaving the court's jurisdiction or disposing or removing property from the court's jurisdiction.

Civil Practice & Procedure-injunction-freezing of assets-the circumstances in which the court would grant injunctive relief to prevent the dissipation or loss of assets-Civil Procedure Rules 2010; order 40 rule 7.
Constitutional Law-fundamental rights and freedoms-enforcement of fundamental rights and freedoms-right to a fair hearing-right against self-incrimination-disclosure, production and inspection of documents-whether the grant of orders for disclosure, production and inspection of documents, in civil proceedings, would be a breach of the right against self-incrimination-Constitution of Kenya 2010; article 50(2)(l).
Civil Practice & Procedure-arrest & attachment before judgment-circumstances in which the court would issue orders to prevent a defendant from absconding or leaving the court's jurisdiction or disposing or removing property from the court's jurisdiction-Civil Procedure Rules 2010; order 39 rule 1 & 5.
Held

1. Generally, the right against self-incrimination would not arise where there was a contractual or fiduciary relationship in which the defendant was required to keep records and provide documents relating to all transactions constituting the contract or the trust. Generally, the entire regime of discovery, disclosure, production and inspection of documents was permissible in civil proceedings.
2. The restriction arising from the right against self-incrimination would not apply to the enforcement of contractual obligations. The Constitution did not restrict the ability of parties to a contract to agree on the keeping of records and the production of documents.
3. Order 39 rule 1 & 5 of the Civil Procedure Rules 2010 related to the furnishing of security for appearance and the production of property, respectively. The rules required evidence to be adduced to demonstrate that the defendant had absconded or left the court's jurisdiction or had disposed or removed property from the court's jurisdiction. The rule would also apply where there was a real possibility that the defendant was about to abscond or leave the court's jurisdiction or to dispose or remove property from the court's jurisdiction.
4. Order 39 rule 1 & 5 of the Civil Procedure Rules 2010 also required the identification of the property that was at risk of disposal or removal.
5. Orders for arrest as provided for in order 39 rule 1 & 5 of the Civil Procedure Rules 2010, would not be issued as the evidence adduced was insufficient to support the grant of such orders.
6. To prevent the abuse of fiduciary authority, trust property or property into which that property was converted, as far as such property was capable of being identified and disentangled, could be followed and traced. Generally, the burden of tracing, identifying and disentangling recoverable property would lie with the applicant. However, where the defendant mixed such property with other assets, the burden of identifying the recoverable assets would fall on the defendant. Such a position would defeat the use of complicated designs to conceal misappropriated or stolen trust property.
7. The threshold for the grant of a freezing order required the existence of the following factors, namely;

1. The claimant having ‘a good arguable case’ based on a pre-existing cause of action;
2. The claim being one over which the court had jurisdiction;
3. The defendant appearing to have assets within the jurisdiction;
4. The existence of a real risk that those assets could be removed from the jurisdiction or otherwise dissipated if the injunction was not granted; and
5. The existence of a balance of convenience in favour of granting the injunction;
6. The court could also order disclosure of documents or the administration of requests for further information to assist the claimant in ascertaining the location of the defendant’s assets.

8. The applicant had established the existence of a fiduciary relationship between the 1^st plaintiff and the 1^st defendant, which arose from a Passenger Sales Agency Agreement. The agreement created trust property in the form of payments collected from the sale of passenger tickets.
9. An arguable case for breach of trust and a claim of Kshs. 115, 633, 360. 60/- and USD $ 1, 446, 906.06/-, as sums of money that were the proceeds of ticket sales and were not remitted by the 1^st defendant to the 1^st plaintiff. Therefore, the claim was not frivolous.
10. The risk of dissipation of assets could be inferred from dishonest or unlawful conduct. The evidence adduced was adequate to establish the risk of dissipation of assets and it had shown;

1. The existence of a fiduciary relationship, in which the trust property was cash.
2. That the trust property was cash and it could easy be dissipated.
3. That the 1^st defendant issued financial statements which did not reflect the company's true financial status but were later altered.
4. That the plaintiffs knew that the defendants had assets within the court's jurisdiction but they could not identify those assets.

11. In the circumstances of the case, the balance of convenience favoured the grant of the freezing order. Additionally, the court could also order disclosure of documents or the administration of requests for further information for purposes of ascertaining the location of the defendant's assets.

Application allowed in part. (Orders for arrest were not granted but orders for the freezing of assets worth Kshs. 350, 000, 000/- and disclosure, were issued.)