Afrikon Limited v Ecobank Kenya Limited & Geoffrey Kariuki t/a Direct “O” Auctioneers [2017] KEHC 9649 (KLR)

REPUBLIC OF KENYA

IN THE HIGH COURT OF KENYA AT NAIROBI

COMMERCIAL AND TAX DIVISION

CIVIL SUIT NO. 91 OF 2017

AFRIKON LIMITED……….………….………...………….…….....PLAINTIFF

VERSUS

ECOBANK KENYA LIMITED.................................................1ST DEFENDANT

GEOFFREY KARIUKI

T/A DIRECT “O” AUCTIONEERS………...……………….2ND DEFENDANT

RULING

1. The plaintiff, AFRIKON LIMITED, is seeking an interlocutory injunction to restrain the 1st defendant, ECOBANK KENYA LIMITED, from selling, transferring, leasing, alienating or in any other manner whatsoever from interfering with the trailers, vehicles, excavators, tippers and all other equipment whose particulars have been provided.

2. Secondly, the plaintiff asked the court to order the respondents to return all the keys and the machinery which had been taken away by the 2nd respondent, GEOFFREY KARIUKI Trading as DIRECT “O” AUCTIONEERS.

3. It is common ground that the plaintiff purchased various vehicles and other equipment and machinery, using financial facilities accorded to the plaintiff by the Ecobank Kenya Limited (“the bank?).

4. It is the plaintiff’s case that the bank was supposed to re-issue a Letter of Credit, which would have enabled the plaintiff to import 18 Prime Movers from Asia.

5. The said Prime Movers were required by the plaintiff to enable it use the trailers which had already been financed by the bank.

6. It was the plaintiff’s case that without the Prime Movers, the trailers could not be utilized.

7. Therefore, the plaintiff reasoned that when the bank refused to release the trailers to the plaintiff, and also refused to re-issue the Letter of Credit to fund the purchase of the prime movers, it caused the plaintiff to suffer substantial loss and damage.

8. In consequence of the said loss and damage, the plaintiff intends to claim Special and Aggravated Damages against the bank.

9. Meanwhile, the parties are in agreement about the extent of the plaintiff’s indebtedness to the bank.  The said agreement is embodied in a consent order which was recorded in ECOBANK KENYA LIMITED Vs AFRIKON LIMITED Hccc No. 121 of 2016.

10. The said consent order was in the following terms;

“Recognizing that the Plaintiff and the Defendant have agreed that the outstanding amount owed by the Defendant to the Plaintiff is Kshs. 331,370,748. 73 and USD 11,402,847. 28 as at 30th September 2016; and further recognizing that the Plaintiff and the Defendant have agreed that the aforesaid outstanding amount be restructured in terms of the facility letter dated 30th September 2016 (Restructure Facility Letter).

BY CONSENT

The above-noted suit be and is hereby marked as fully and finally settled on the following terms;

1. Costs of the suit are awarded to the Plaintiff, which costs are to be agreed upon between the parties.  In the event that parties do not agree, the Plaintiff’s costs are to be taxed by the taxing master.

2. That Afrikon Limited agrees at all times to provide access, tracking and joint registration of all the assets referred to in Schedule 1 attached herewith (“the Assets?) which assets are financed by Ecobank Kenya Limited.

3. Except with the prior express written approval of Ecobank Kenya Limited, the Assets are to be held by a Collateral Management Agent to be appointed by Ecobank Kenya Limited.

4. That Afrikon Limited guarantees that the Assets referred to in Schedule 1 may only be released for the Defendant’s) Afrikon Limited) use upon written instructions from Ecobank Kenya Limited, which instructions are to be on the Bank’s official letterhead, once tracking, joint registration and assignment of income is complete.

5. That Afrikon Limited guarantees to assign all the current and future rentals from the Assets referred to in Schedule 1 towards repayment of Afrikon Limited’s outstanding obligations with Ecobank Kenya Limited.

6. In the event of default with compliance of any of the aforementioned terms or conditions of the aforementioned Restructure Facility Letter, Ecobank Kenya Limited will be at liberty to attach, sell or in any way deal with the assets referred to in Schedule 1 without any reference to Afrikon Limited?.

11. On the one hand, the bank expressed the view that the plaintiff had violated the terms of the consent order, by defaulting in the payments which had fallen due.

12. But, on the other hand, the plaintiff accuses the bank of failing to perform its obligations under the consent order.

13. In the light of that state of affairs, it will be necessary for the court to determine if either of the parties had failed to honour their obligations under the consent order.

14. According to the bank, it is the plaintiff who had failed to provide Deeds and Notices of Assignment.

15. Therefore, if the court were to grant the injunctive reliefs sought, the bank believes that the court would have protected the plaintiff from its own willful default.

16. But the plaintiff insisted that it was the bank which had failed to implement the Restructuring Facility which had been agreed upon by the parties.

17. This is my take of the situation.  The plaintiff sought and was given financial facilitation by the bank.

18. The finances were used to purchase vehicles, equipment and machinery.  It was clearly understood between the two parties that the vehicles, equipment and machinery were to be used by the plaintiff in the execution of contractual works.

19. The money which the plaintiff earned from the execution of the contractual works were to be used, first and foremost, in servicing the facilities.

20. It does appear that at some point in time, the plaintiff experienced difficulties in servicing the facilities.  Therefore, as the security which the bank had was the various vehicles, machinery and equipment which had been purchased by the plaintiff, the bank decided to repossess the same.

21. At this point it is necessary for me to make it clear that although I have said that the plaintiff had purchased vehicles, equipment and machinery, there was no outright purchase.  The procedure they used was one of Hire Purchase, in which the bank was the hirer.

22. However, through a Letter of Offer dated 30th September 2016, the whole set-up was to be restructured. Instead of the Hire-Purchase process, the bank now converted the facilities into 2 loans.

23. The first loan was for Kshs. 175,000,000/-, which was repayable in 24 consecutive months.  The repayments were to be by way of the receivables from the contract which the plaintiff was executing.

24. It is noteworthy that the bank acknowledges the fact that the monthly installments would commence from the date of restructure.

25. The bank asserted that the plaintiff had defaulted and continued to default in the remittance of the monthly installments.

26. In the light of the said defaults, the bank served a Proclamation on the plaintiff, through Direct “O”Auctioneers.

27. As is stated in the Replying Affidavit of Elizabeth Hinga, the plaintiff initially resisted the auctioneer’s attempts to repossess the vehicles, machinery and equipment.

28. Thereafter, the auctioneers sought and were granted orders which enabled them carry out the process of repossession, under police escort.

29. It was the bank’s contention that the repossession was not unlawful, as had been alleged by the plaintiff.

30. It was the understanding of the bank that pursuant to the terms of the consent order, the bank was wholly justified to repossess the vehicles, machinery and equipment, because the plaintiff was in default.

31. Meanwhile, in relation to the second loan facility, of USD13,127,269, the bank acknowledged that the plaintiff was entitled to a Moratorium of 6 months.

32. However, the loan was also repayable over 24 months from the date of restructure.

33. It is thus clear that the 2 loans would be repayable over a period of 24 months, although in respect to the Dollars’ Loan, the plaintiff would enjoy a 6 month moratorium.

34. The repayment period would run from the date of restructure.

35. The bank has expressly conceded having not restructured the facilities in accordance with the Letter of Offer dated 30th September 2016.  Whilst the bank blames the plaintiff for the said failure to restructure the facilities, the plaintiff insists that it could not be held responsible for the banks default.

36. On a prima facie basis I find that the plaintiff cannot be said to have defaulted in the remittance of monthly installments.  I so find because, it is common ground that the repayments would start after the bank had restructured the facilities.

37. Considering that the bank failed to restructure the facilities, it is arguable that, upon a strict interpretation of the consent order, the period of 24 months, during which the loans should be paid-off, had not commenced.

38. In my considered opinion, it is the bank’s action of restructuring the facilities that will unlock everything.

39. Once the bank does the restructuring, the Loan No.1 (which was in Kenya Shillings) will become payable.  Meanwhile, the Loan No. 2 (which was in American Dollars) would become payable subject to the moratorium of six months.

40. In effect, the bank’s action of repossessing the vehicles, equipment and machinery before the bank had restructured the facilities, was premature.

41. If the bank were to be allowed to retain the vehicles, equipment and machinery which it had repossessed prematurely, the court would have assisted the bank to benefit from its own default.

42. Accordingly, the plaintiff is entitled to the protection of the law against the bank which had attempted to pollute the stream of justice, by repossessing vehicles, equipment and machinery prematurely.

43. It is important that I emphasize the fact that the consent judgement recorded in Hccc No. 121 of 2016 is binding on the plaintiff and the bank.  Therefore, there is no doubt that the plaintiff is indebted to the bank.

44. In the circumstances, if the plaintiff should default in remitting monthly installments after they become due, the bank would become entitled to take appropriate action.

45. In the event, the court cannot stop the bank from taking action until the suit was heard and determined.  Accordingly, I do now grant an interlocutory injunction to restrain the bank from selling, transferring, leasing or alienating the vehicles, trailers, excavators, tippers and all other equipment particularized in the application.

47. This order shall remain in force until either the case is heard and determined or until the bank first restructures the facilities and then thereafter, the plaintiff defaults; whichever comes earlier.

47. The defendants will pay to the plaintiff the costs of the application.

48. Meanwhile, before concluding this Ruling I feel obliged to say that the parties herein appear to have had very good intentions, which would be beneficial to both of them.  On the one hand, the machinery would become available to the plaintiff, who would use them to perform contracts, resulting in payments which would be utilized to pay off the bank.

49. When the machinery remains idle, that does not benefit any of the parties.

50. It is therefore my sincere hope that both parties will see the practical sense of giving effect to the consent orders.  In any event, I reiterate that the said consent orders remain binding on the parties, whether or not they find the same to be convenient.

DATED, SIGNED and DELIVERED at NAIROBI this30th dayof November2017.

FRED A. OCHIENG

JUDGE

Ruling read in open court in the presence of

Kang’ethe for the Plaintiff

Mueke for the 1st Defendant

Mueke for the 2nd Defendant

Collins Odhiambo – Court clerk.