Eastmore School Limited & Joshua Musembi Ndolo v Faulu Microfinance Bank Limited & Joseph M. Gikonyo t/a Garam Investments Auctioneers [2020] KEELC 2978 (KLR)

REPUBLIC OF KENYA

IN THE ENVIRONMENT AND LAND COURT

AT NAKURU

CASE NO. 86 OF 2019

EASTMORE SCHOOL LIMITED ...........................................................................1STPLAINTIFF

JOSHUA MUSEMBI NDOLO..................................................................................2NDPLAINTIFF

VERSUS

FAULU MICROFINANCE BANK LIMITED........................................................1ST DEFENDANT

JOSEPH M. GIKONYO T/A GARAM INVESTMENTS AUCTIONEERS......2ND DEFENDANT

RULING

1. The plaintiffs commenced proceedings herein through plaint filed on 26th July 2019 in which they seek judgment against the defendants for a permanent injunction, restraining them from inter alia selling, transferring, alienating or interfering with the parcel of land known as Land Title Number Nakuru Municipality Block 16/303 which is situated within Eastmore Girls Secondary School in Lanet location, Nakuru town, damages for breach of contract and of statutory duty and costs. Simultaneously with the plaint, the plaintiffs also filed Notice of Motion dated 29th July 2019, which is the subject of this ruling. The following orders are sought in the application:

1. …

2. …

3. THAT pending the hearing and determination of this suit, the 1st and 2nd defendants, being Faulu Microfinance Bank Ltd and Joseph M. Gikonyo T/A Garam Investments Auctioneers. by themselves, their agents, servants, heirs, representatives, successors, assignees, or anyone acting or claiming through or under them, be and are hereby restrained by order of temporary injunction from selling, offering for sale, going ahead with or completing the intended sale set for 01/08/2019 or on any other future date, and from transferring, alienating, disposing off, entering into, remaining on, wasting, or in any other manner whatsoever interfering with the plaintiffs’ ownership, title, possession, occupation and use, of all that suit land/property known as Land Title Number Nakuru Municipality Block 16/303, situate within Eastmore Girls Secondary School, in Lanet location, Nakuru town.

4. THAT costs of this application be borne by the defendants.

2. The application is grounded on supporting affidavits sworn by the 2nd plaintiff and Sylvia Nduku Musembi and a supplementary affidavit sworn by the 2nd plaintiff. The 1st defendant opposed it through Grounds of Opposition, a replying affidavit and further affidavit both sworn by Sheila Maina, its Head of Legal department. The 2nd defendant neither entered appearance nor participated in the application.

3. The application was canvassed through written submissions. I have carefully considered the application, the affidavits, grounds of opposition and the submissions. The applicants seek an interlocutory injunction. To succeed, they must satisfy the test in Giella –vs- Cassman Brown & Co. Ltd [1973] E.A 358. They must establish a prima facie case with a probability of success. Even if they succeed on that first limb, an injunction will not issue if damages can be an adequate compensation. Finally, if the court is in doubt as to whether damages will be an adequate compensation then the court will determine the matter on a balance of convenience. All these conditions and stages are to be applied as separate, distinct and logical hurdles which the applicants are expected to surmount sequentially. If prima faciecase is not established, then irreparable injury and balance of convenience need no consideration. See Nguruman Limited v Jan Bonde Nielsen & 2 Others [2014] eKLR.

4. As to what constitutes a prima faciecase, the Court of Appeal defined it in Mrao Ltd vs First American Bank of Kenya Ltd & 2 Others (2003) KLR 125 as:

... a case in which on the material presented to the court a tribunal properly directing itself will conclude that there exists a right which has apparently been infringed by the opposite party as to call for an explanation or rebuttal from the latter… [it] is more than an arguable case. It is not sufficient to raise issues. 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.

5. The court clarified the definition further inNguruman Limited v Jan Bonde Nielsen & 2 Others (supra) as follows:

We reiterate that in considering whether or not a prima facie case has been established, the court does not hold a mini trial and must not examine the merits of the case closely. All that the court is to see is that on the face of it the person applying for an injunction has a right, which has been or is threatened with violation. Positions of the parties are not to be proved in such a manner as to give a final decision in discharging a prima facie case. The applicant need not establish title. It is enough if he can show that he has a fair and bona fide question to raise as to the existence of the right, which he alleges. The standard of proof of that prima facie case is on a balance or, as otherwise put, on a preponderance of probabilities. This means no more than that the Court takes the view that on the face of it the applicant’s case is more likely than not to ultimately succeed.

6. There is no dispute that the 2nd plaintiff is the registered proprietor of the parcel of land known as Land Title Number Nakuru Municipality Block 16/303 (hereinafter “the suit property”) and that the 2nd plaintiff created a charge dated 14th March 2017 and a further charge dated 7th November 2017 over the suit property to secure loans totalling KShs 14 million advanced by the 1st defendant to the 1st plaintiff. Although in an apparent afterthought the plaintiffs seemed to suggest in their supplementary affidavit that the charges were not registered, the case pleaded in the plaint is that the suit property was in fact charged. Besides, the 1st defendant has amply demonstrated that the charges were in fact registered.

7. The plaintiffs acknowledge that although they have made repayments of the loan, they have not regularly done so owing to serious financial difficulties occasioned by challenges in the 1st plaintiff’s business of a private boarding school. The financial challenges are said to have arisen due to recent government policy of 100% transition of students from primary to secondary schools. In a letter dated 18th April 2019 which is exhibited by the plaintiffs, the 2nd plaintiff refers to “outstanding arrears of KShs 2,290,605” and commits to pay it by 16th May 2018. It is clear that the promised payment was not made since in a subsequent letter dated 15th May 2019 the 2nd plaintiff sought an extension of 10 days. Clearly, the plaintiffs defaulted on their repayment obligations. The plaintiffs however state that they are making efforts source for funds to enable them repay the loans and that they have communicated to the 1st defendant as much. I will not dwell on what has been paid and what is due since the law is clear that dispute on the amount owing alone cannot be a basis for granting an injunction to restrain a chargee from exercising power of sale. SeeHabib Bank Ag Zurich v.  Pop­in (K) Ltd & Others   [1989] LLR 3069as quoted with approval inKenya Commercial Bank Ltd v Stephen Mukiri Ndegwa & another [2014] eKLR.

8. Arising from the circumstances of default in repayment, the 1st defendant threatened to sale the suit property by public auction in exercise of chargee’s power of sale and indeed instructed the 2nd defendant who advertised the property for sale by public auction on 1st August 2019.  The plaintiffs contend that the chargee’s power of sale has not crystalized since none of the requisite notices have been issued and further since no valuation has been done. In particular, they argue that no statutory notices were issued as is required under sections 90 (1)and96 (2)of theLand Act since according to them, notices dated 10th May 2018 and 18th January 2019 purportedly issued by the 1st defendant were not addressed to the chargor and that there is no evidence that the notices were served. The plaintiffs also contend that although the 2nd plaintiff was served with a notification of sale and 45 day redemption notice under rule 15of Auctioneers Rules, 1997 on 18th March 2019, it was in regard to a sale that was scheduled for 23rd May 2019 but which did not proceed and that in the circumstances a new notice ought to have been issued in respect of the sale that was scheduled for 1st August 2019. The plaintiffs further argue that no advertisement of the auction sale was done as is required byrule 16 (2)of Auctioneers Rules, 1997 and that no forced sale valuation was done as is required bysections 97 (1)and(2)of theLand Act. For these reasons, the plaintiffs maintain that they merit the orders sought in the application.

9. The law as spelt out under section 90 (1)of theLand Act is that when a chargor is in default of any obligation in a charge, or fails to pay interest or any other periodic payment or any part thereof due under the charge or fails to perform any covenant in the charge and continues in default for one month, then the chargee may serve on him a notice, in writing, to pay the money owing or to perform the obligation. In view of their acknowledged default, the plaintiffs do not dispute that occasion had properly arisen for issuance of a notice under section 90 (1). They simply take the position that no notice was issued and that if at all any was issued, it was not served.

10. From the material placed before the court, I am satisfied that the 1st defendant issued a notice dated 10th May 2018 addressed to the 1st plaintiff and copied to the 2nd plaintiff. The notice was sent by registered post through P.O. box 72 -20100 Nakuru which is the postal address specified in the charge documents. I have read the notice and I am satisfied that it complies with the requirements ofsection 90 (2)of theLand Act. The argument that the notice is defective for being copied to the chargor instead of being addressed to him does not hold. The purpose of the notice under section 90 (1)is to adequately inform the chargor of the matters specified undersection 90 (2). The chargor in this case was not only a recipient of the letter but is also a director of the borrower. I am equally satisfied that the plaintiffs were served with a notice to sell dated 18th January 2019 similarly by registered post through P.O. box 72 -20100 Nakuru in compliance with the requirements ofsection 96 (2)of theLand Act. I have also read the notice to sell and I am satisfied that it complies with the requirements ofsection 90 (3)of theLand Act. Since the plaintiffs confirm that they were served with a notification of sale and 45 day redemption notice under rule 15of Auctioneers Rules, 1997 on 18th March 2019, I am satisfied that the arrangements for the auction sale were properly executed up to that point. No legal basis has been laid either in case law or any legal provision for the argument that a new a notification of sale and 45 day redemption notice were needed for the auction that was scheduled for 1st August 2019.

11. So as to stage a valid auction sale, the auctioneer appointed by the chargee must comply with the mandatory provisions ofrules 15and16of Auctioneers Rules, 1997. An auction sale must be preceded by an advertisement in a newspaper. The defendants have not exhibited any copy of any advertisement in the auction that was scheduled for 1st August 2019. The plaintiffs’ contention that there was no advertisement therefore seems valid. It must however be remembered that the failure to advertise was in respect of a proposed sale whose date is now past. There is no longer any threat of sale on that date and if a new date of auction is scheduled, the requirements as to advertisement may be met. There would be no basis upon which to restrain the 1st defendant bank from staging a future sale if it complies with the law. As was stated inNguruman Limited v Jan Bonde Nielsen & 2 Others (supra):

… The party on whom the burden of proving a prima facie case lies must show a clear and unmistakable right to be protected which is directly threatened by an act sought to be restrained, the invasion of the right has to be material and substantive and there must be an urgent necessity to prevent the irreparable damage that may result from the invasion.  We reiterate that in considering whether or not a prima facie case has been established, the court does not hold a mini trial and must not examine the merits of the case closely.  All that the court is to see is that on the face of it the person applying for an injunction has a right which has been or is threatened with violation. …

12. In view of the foregoing, I see no threat of violation. The application is in fact overtaken by events and no prima facie case has been established. In the result, Notice of Motion dated 29th July 2019 is dismissed. Costs shall be in the cause.

13. This ruling is delivered remotely through video conference and e-mail pursuant to the Honourable Chief Justice's “Practice Directions for the Protection of Judges, Judicial Officers, Judiciary Staff, other Court Users and the General Public from the Risks Associated with the Global Corona Virus Pandemic” (Gazette Notice No. 3137 published in the Kenya Gazette Vol. CXXII—No. 67 of 17th April, 2020).

Dated, signed and delivered at Nakuru this 30th day of April 2020.

D. O. OHUNGO

JUDGE