The High Court has allowed Mauritius Commercial Bank (MCB) to recover a $6.5 million (Sh841.7 million) debt from a Kenyan petroleum company after a decade-long financing dispute tied to the collapse of Imperial Bank.
The court ordered Jade Petroleum Limited to pay the debt after finding that MCB had paid the money to South Africa’s FirstRand Bank, trading as Rand Merchant Bank (RMB), when it called guarantees issued to secure debt by the petroleum firm.
The court declined a claim by the petroleum company that the collapse of its banker, Imperial Bank, had frustrated the repayment obligations under the loan facility by MCB.
The judge said that the bank’s receivership did not extinguish its debt. Imperial Bank collapsed into receivership on October 13, 2015, after the bank’s board alerted regulators to suspected fraud, with subsequent investigations finding substantial fraudulent activities and misrepresented financial statements.
‘Imperial Bank was an intermediary through which the facility was administered. The supervening event therefore affected the means by which the first defendant (Jade) ordinarily dealt with RMB, but did not transform the obligation to repay into something radically different or extinguish it,’ said the court.
At the same time, the MCB’s claim against Pankaj Vrajlal Vallabh Somaia, Amar Mahendra Chandra Pandya and Raj Harikrishna Mohanlal Devani, who were sued as guarantors of Jade Petroleum’s loan, was dismissed.
FirstRand Bank financed Jade Petroleum, while Imperial Bank acted as Jade’s banker and intermediary, and Mauritius Commercial Bank issued the standby letters of credit that secured part of Jade’s borrowing.
The court found that Jade had defaulted on its loan and that MCB became entitled to recover the $6.5 million after honouring the standby letters of credit issued on Jade’s behalf.
The September 17, 2026 judgment traces a chain involving Jade, Imperial Bank, FirstRand’s Rand Merchant Bank and MCB, with the dispute turning on liability after the guarantees were called.
The financing began in June 2007, when FirstRand (trading through Rand Merchant Bank – RMB) extended Jade facilities worth $10 million (Sh1.29billion), later increased to $14 million (Sh1.81billion).
Jade’s banker was Imperial Bank, while FirstRand required additional security in 2009. At Imperial Bank’s request, MCB issued five standby letters of credit worth $6.5 million for Jade’s obligations to FirstRand.
In November 2015, FirstRand told Jade that the guarantees were approaching expiry and demanded either their extension or repayment of the outstanding amount, which it put at $7.5 million (Sh971.10 million).
Jade replied that Imperial Bank had been placed under receivership and could not extend the guarantees or repay the debt. It asked for more time and said it was experiencing a liquidity constraint.
‘We shall unfortunately not be in a position to repay these sums as we are currently experiencing a liquidity constraint,’ Jade said in the letter signed by Mr Pandya.
FirstRand declared an event of default on November 18, 2015, and demanded immediate repayment. Jade did not pay, prompting FirstRand to call the MCB guarantees.
MCB paid FirstRand $6.5 million between December 4 and 31, 2015, with SWIFT confirmations identifying Jade Petroleum. FirstRand and MCB later signed a Subrogation and Transfer Agreement transferring FirstRand’s rights, securities and interests to MCB to the extent of the amount paid.
MCB then sued Jade and the three guarantors -Somaia, Pandya and Devani – in June 2016, seeking $6.5 million, interest and costs. Default judgment was entered, but set aside in October 2018, allowing the defendants to defend the claim.
At trial, Jade argued that Imperial Bank’s receivership had frustrated the financing arrangement and that a 2010 amendment had materially changed the facility. The guarantors also argued that the amendment discharged their obligations.
However, the court found Imperial Bank’s collapse affected how Jade dealt with FirstRand but did not remove its repayment duty.
‘Imperial Bank’s receivership did not render the first defendant’s obligation to repay RMB impossible or radically different,’ the High Court said. The court noted that the bank was only an intermediary through which the facility was administered.
‘Although Imperial Bank’s receivership was external to the parties, it did not make Jade Petroleum’s performance impossible or radically different. The frustration defence therefore fails,’ said the judge.
The court also rejected Jade’s claim that the 2010 amendment was obtained under duress. Security requirements rose from 20 per cent to 100 per cent, but Jade continued using the facility.
The court held that MCB became entitled to recover from Jade when it paid FirstRand. It rejected Jade’s argument that MCB could not sue because it had not been a party to the original facility agreement.
‘Upon paying $6.5 million to RMB under the Standby Letters of Credit (SBLC), the plaintiff (Jade Petroleum) became subrogated in equity to RMB’s rights to the extent of that payment,’ the court said.
It also found that the 2010 second amendment of the facility was not proved to be unconscionable or void for duress. This is because Jade continued to utilise the facility on the amended terms for several years.
‘Against that evidence, the fact that the amended terms were onerous is not enough, by itself, to establish unconscionability or duress. The 1st defendant continued to take the benefit of the facility for years after the amendment. I therefore find that the Second Amendment was not shown to be unconscionable or void for duress,’ said the judge.
The three guarantors faced a different outcome. Their guarantee remained valid, but required a formal demand before liability arose.
MCB produced demand letters dated April 21, 2016, but its witness admitted he had no proof showing that the letters had been dispatched or served.
‘I do not have evidence of service of the letter, or the certificate of posting of the demand,’ the witness told the court.
The court said the bank had failed to prove the contractual step needed to make the guarantors liable.
The court entered judgment against Jade alone for $6.5 million. Interest was awarded at LIBOR plus 3.5 per cent until filing, then 14 per cent until payment.