Bevaj Furniture Limited v Gulf African Bank Limited [2022] KEHC 9942 (KLR)

Bevaj Furniture Limited v Gulf African Bank Limited (Civil Case E899 of 2021) [2022] KEHC 9942 (KLR) (Commercial and Tax) (14 July 2022) (Ruling)

Neutral citation: [2022] KEHC 9942 (KLR)

Republic of Kenya

In the High Court at Nairobi (Milimani Commercial Courts Commercial and Tax Division)

Commercial and Tax

Civil Case E899 of 2021

WA Okwany, J

July 14, 2022

Between

Bevaj Furniture Limited

Plaintiff

and

Gulf African Bank Limited

Defendant

Ruling

1. Through the application dated 3rd November 2021, the applicant seeks the following orders:-1)Spent.2)Spent.3)Spent.4)That pending the healing and determination of this suit an order of injunction does issue restraining the Defendant, their servants, licensees, agents or any other persons acting on their behalf from howsoever selling, advertising, offering for sale in any social media, media platforms, and of mobile applications or any other way, auctioning, alienating, transferring, disposing, valuing, dispossessing or in any way interfering with the plaintiff's right of ownership and peaceful possession of the Property Registered as L.R. Number 7785/951, IR No. 126723. Nairobi.5)That an order does issue directing the defendant to accept the plaintiff's offer to settle the outstanding loan amounts at Kshs. 130,000,000/= within 90 days from the date of the unreserved agreement or order of the court.6)That in the alternative to prayers 3 and 5 above, this honorable court be pleased to allow the plaintiff to revert to the usual loan repayment as per the restructured loan agreement contained in the letter dated 20th June, 2019 every month with effect from the date of the court order and without any penalties.7)That this honorable Court be pleased to issue such other equitable Order(s) as it may deem8)That the costs of this application be borne by the Defendant

2. The application is supported by the affidavit of the Plaintiff’s Director Ms. Rosaline Wambui and is based on the grounds that:-a)On or about the 16th of November, 2017 the Plaintiff approached the defendant bank for a loan and borrowed a total sum of Kshs. 150,000,000 which was secured by way of a charge L.R. Number 7785/951, IR No. 126723. Nairobi registered on 8th February, 2018. b)The plaintiff repaid the loan with much diligence and on the 19th of November, 2018 the bank agreed to give it a top up.c)In March of 2019 the loan fell into an arrear and the defendant without allowing the institution and application of available mechanism to ensure repay, issued a statutory notice dated the 1st of March, 2019. d)At the same time, the defendant engaged the plaintiff on a restructuring process.e)The consequent repayment schedule was beyond the plaintiff’s business scope and which was making the plaintiff strain severely in repaying the loanf)The plaintiff engaged Equity Bank Limited who gave an offer on the 14th of May, 2019 to take over the loan from the defendant Bank on more favorable terms.g)The defendant bank immediately softened their hard stand in the matter and agreed to restructure the plaintiff’s loan.h)The defendant completely refused the take-over of the loan facility by Equity Bank Limited which would have then settled the facility.i)The defendant then issued a letter of restructure on the 29th of May, 2019 and amended the same on the 20th of June, 2019 thereby completely changing the terms of the loan.j)The plaintiff had faithfully been meeting the remittances of the loan until April, 2021 when the plaintiff opted to pay off the loan wholly and engaged the defendant for a settlement by requesting the defendant to review & settlement of bank facilitiesk)The plaintiff willfully offered and in utmost good faith to settle the loan by paying a final amount of Kshs. 90,000,000/= being the entire and collective liability that was the plaintiff responsibility to settle a period of between 90 - 120 days given the economic conditions and circumstances facing the business sector.l)After a long back and forth in formal and informal negotiations and interviews, the plaintiff offered an improved offer of Kshs. 130,000,000/ = to which the defendant agreed as being the final settlement but on the other hand gave a very small time line of 14 days against the parties' agreement.m)The defendant unexpectedly and without explained reasons immediately withdrew and cancelled the offer of Kshs. 130,000,000/ = and without yet again exercising any diligence and or allowing the plaintiffs' rights to pursue available options including but not limited to a revert to existing terms.n)That the defendants have now engaged and instructed various auctioneers, agents and brokers who have posted and advertised the plaintiffs charged property in various social media forums and general public, to seek and sell the charged property as a property for quick sale.o)The plaintiff has clearly demonstrated the intention and willingness to settle the outstanding loan to the defendant at the agreed amount of Kshs 130,000,000 but within a reasonable time of 90 days from the date of unequivocal agreement as earlier communicated in al] the discussions but the defendant has failed to act in good faith and has deliberately used the negotiations process to put the plaintiff in suspense and has also effectively frustrated and pushed the plaintiff out of business.p)Under the ensuing circumstances, the plaintiff verily believes that the defendant has a hidden agenda and is keen on frustrating its right to redeem the loan by ensuring that the loan amount constantly remains high by inflicting illegal charges, interests and penalties.q)The defendant has also circulated a disputed valuation report by Zenith Management valuers Limited which has undervalued the property for Kshs 90Million.r)Surprisingly the defendant is now offering the plaintiff's charged property at a price of Kshs 90. 0Million and which amount they had rejected from the plaintiff.s)That it is apparent that someone in favour of the defendant wants to acquire the plaintiff forcedly at a price of Kshs 90. 0Million of less.t)The plaintiff is constantly receiving unknown visitors and valuers who want to view the subject charged property and which is a residential home.u)The plaintiff has been completely harassed and its directors who occupy the charged property with her children - some of school going age - have been violated, traumatized and psychologically destabilized by the frequent visitation by unknown visitors, callers and persons taking photos and Interest in the subject property.v)It is now apparent that the defendant sole Intention is to quickly sell the charged property by way of private treaty and of public auction without any notice to the plaintiff.w)Since the restructure of the loan and/or negotiation process, the plaintiff was never requested or directed of instructed to revert back to the existing loan terms nor has the plaintiff received any 90 days' nonce, or 40 days' notice and or any 45 days' notice from any auctioneer.x)The plaintiff is verily aware and apprehensive that the defendant is employing very non-procedural standards, is being tricky and fraudulently engaging in a private treaty procedure to sell off the charged property without notice to the plaintiff.y)The plaintiff is clearly not aware of any recent of its property and no valuer has officially been sent by the Bank to value the property.z)The subject property is the home of the plaintiff director and there is eminent danger of losing the same, aa) The plaintiff is in dire need of protection from this honourable court.bb)It is only just and fair that the application be allowed.

3. The respondent opposed the application through the replying affidavit of its Legal Officer Mr. Lawi Sato who confirms that the defendant granted the plaintiff a loan facility of Kshs 150,000,000 which was secured by a charge over LR No 7785/951. He further states that the plaintiff defaulted in the loan repayments thus precipitating the defendant’s exercise of its statutory power of sale by issuing the three-month’s statutory notice. It is the respondent’s case that the parties thereafter re-negotiated the terms of loan repayment through a supplemental letter of offer dated 20th June 2019, which the plaintiff did not comply with thus necessitating the initiation of the loan recovery process.

4. Parties canvassed the application by way of written submissions, which I have considered. The issue for determination is whether the application has meets the threshold set for the granting of the equitable remedy of injunction.

5. The principles for grant of temporary injunctions are set out in the case of Giella vs Cassman Brown and Company Limited (1973) E.A 385, at page 360 where Spry J. held that: -“The conditions for the grant of an interlocutory injunction are now, I think, well settled in East Africa. First, an applicant must show a prima facie case with a probability of success. Secondly, an interlocutory injunction will not normally be granted unless the applicant might otherwise suffer irreparable injury, which would not adequately be compensated by an award of damages. Thirdly, if the court is in doubt, it will decide an application on the balance of convenience.”

6. A prima facie case is well defined in the case of Mrao Limited vs First American Bank of Kenya and 2 Others (2003) KLR 125, where the Court of Appeal in determining what amounts to a prima facie case stated:-“A prima facie case in a Civil Case includes but is not confined to a “genuine or arguable” case. It is a case which on the material presented to the court; a tribunal properly directing itself will conclude there exists a right which has apparently been infringed by the opposite party as to call for an explanation or rebuttal from the latter. A prima facie case is more than an arguable case. It is not sufficient to raise issues but the evidence must show an infringement of a right, and the probability of success of the applicant’s case upon trial. That is clearly a standard, which is higher than an arguable case.”

7. It was not disputed that the plaintiff defaulted in the loan repayments and that the defendant was justified in exercising its statutory power of sale. The point of disagreement is the allegation that the defendant did not issue fresh notices of default after the restructure process but instead proceeded to exercise its statutory power of sale. The plaintiff contended it was entitled information on the extent of the default and the amount payable to the chargee.

8. The defendant, on the other hand, contended that it was justified to exercise its statutory power of sale as it had delivered notices to the plaintiff through registered post. The defendant maintained that it was not required to issue fresh notices after the loan restructure. The defendant added that the letters relied upon by the plaintiff were not binding in nature as they were written on a without prejudice basis.

9. I have perused the annexures to the plaintiff’s supporting affidavit and I note that they indicate that the parties herein entered into negotiations with a view to settling the plaintiff’s loan account. It was not disputed that the defendant issued notices on 11th March 2019 and that the parties renegotiated the loan after which the defendant restructured the loan through a letter dated 20th June 2019.

10. In Alpha Logistics Kenya Limited & 2 others vs Edcom Limited & Another[2012] eKLR the court held that:-“Therefore though at an interlocutory stage the Court is not required and indeed forbidden to purport to decide with finality the various relevant “facts” urged by the parties, the remedy being an equitable one, the Court will decline to exercise its discretion if the supplicant to relief is shown to be guilty of conduct which does not meet the approval of the Court of equity. Injunction being an equitable remedy, the court is enjoined to look at the conduct of the supplicant for the injunctive orders, the surrounding circumstances whether the orders sought are likely to affect the interests of non-parties to the suit, the issue whether an undertaking as to damages has been given as well as the conduct of the Respondent whether or not he has acted with impunity….”

11. It is trite that a chargee must issue a 90-day notice in writing under section 90(1) of the Land Act as a prerequisite for the exercise of the statutory power of sale. The notice, which must indicate the nature and extent of the default by the charger and if the default consists of the non-payment of any money due under the charge, must state the amount that must be paid to rectify the default. The time to be given for such payment must be not less than three months and the notice must also state the consequences of failure to rectify the default within the time specified in the notice which is, that the chargee will proceed to exercise any of the remedies provided for under the section, including sale of the property. The notice must also state the right of the chargor to apply to the court for relief in respect of certain remedies.

12. The purpose of service of the notice is to give the chargor an opportunity to remedy the breach or otherwise redeem the property. In Nyagilo Ochieng & Another vs Fanuel Ochieng & 2 Others [1995-1998] 2 EA 260, the Court of Appeal held that the burden of showing that the statutory notice has been served is on the chargee. Once the chargor alleges that he did not receive the notice, the burden shifts to the chargee to prove that such a notice was in fact served.

13. In Moses Kibiego Yator vs Eco Bank Kenya Limited NKU E& L No. 426 of 2013 [2014] eKLR it was held that: -“In instances where a chargor alleges that he did not receive the statutory notice, the burden shifts to the chargee, to demonstrate prima facie, that the statutory notice was served. If there is material to show that the notice was received or acknowledged, say, through an acknowledgement letter, that will clearly demonstrate that the notice was duly served and received. If the notice was served by way of registered post, the chargee ought to place before the court sufficient material to demonstrate prima facie, that the document was duly dispatched to the proper address of the chargee, and that in the ordinary course of events, the notice must have reached the chargee.”

14. In the instant case, it was not disputed that the chargee served the chargor with the initial statutory notice before the parties renegotiated the loan and that the plaintiff once again defaulted on the restructured loan terms. I find that the restructuring of the loan facility introduced new terms between the parties and the defendant was therefore required to inform the plaintiff of the default and the intention to sell the charged property. In this regard, the defendant was required to comply with the provisions of Section 90 of the Land Act on the issuance of statutory notices before exercising its power of sale. The defendant did not comply with the said section.

15. The issue that court has to deal with is the effect of non-compliance with the requirement for issuance of notices on the chargee’s exercise of its statutory power of sale. The question which arises is whether the alleged improper or lack of service of statutory notice is a proper ground for restraining the respondent, by way of injunction, from selling the suit property. The answer to this question can be found in the decision by the Court of Appeal in the case of National Bank of Kenya Limited vs Shimmers Plaza Ltd [2009] eKLR where it was held that: -“We venture to say that where the court is inclined to grant an interlocutory order restraining mortgagee from exercising its statutory power of sale solely on the ground that the mortgagee has not issued a valid notice, then in our view, the order of injunction should be limited in duration until such time as the mortgage shall give a fresh statutory notice in compliance with the law. We respectfully think that the learned judge did not exercise his discretion judicially in the circumstances of this case when he granted an order of injunction until the determination of the suit.”

16. The principle that emerges from the above cited decision is that lack of service of statutory notices can be remedied by granting the defendant an opportunity to issue proper service of the notices. In the present case, I also note that the plaintiff has indicated that it is ready to settle the outstanding debt of Kshs 130,000,000 within 90 days. The plaintiff has made an alternative plea to be allowed to revert to the agreed loan repayment plan.

17. I am of the view that the plaintiff’s proposal to settle the outstanding loan in 3 months is reasonable and will enable the parties reach a win-win settlement going by this court’s observation that defendant can be granted an opportunity to issue proper notices. I find that it will be in the interest of justice to allow the plaintiff to actualize its proposal to settle the outstanding debt and at the same time direct the defendant to issue fresh statutory notices before it can move to exercise its power of sale.

Disposal 18. My final views, in the circumstances of this case and by way of disposal are as follows.

19. It would not be proportionate to deny the defendant the right to exercise its statutory power of sale in the event that the plaintiff continues with the default despite its proposal to settle the loan within 90 days. I therefore direct the defendant to issue and serve the requisite statutory notices.

20. Consequently, I grant orders of temporary injunction, albeit for a limited period of 90 days only, from the date of this ruling to restrain the defendant from exercising its powers under the securities pledged to it by the Plaintiff and to enable the plaintiff settle the debt as it has proposed failure of which the defendant will be at liberty to issue fresh requisite statutory notices of sale. In view of the undisputed fact that the plaintiff defaulted in the loan repayments, I grant the defendant the costs of this application.

21. Orders accordingly.

DATED, SIGNED AND DELIVERED VIRTUALLY AT NAIROBI THIS 14TH DAY OF JULY 2022. W. A. OKWANYJUDGEIn the presence of: -Mr. Kirimo for Plaintiff/Applicant.Mr. Kongere for Defendant.Court Assistant- Sylvia