Family Bank Limited v Tassels Enterprises Limited, Muturi Njoroge & Susan Nyambura Kasinga [2021] KEHC 8078 (KLR) | Statutory Power Of Sale | Esheria

Family Bank Limited v Tassels Enterprises Limited, Muturi Njoroge & Susan Nyambura Kasinga [2021] KEHC 8078 (KLR)

Full Case Text

IN THE HIGH COURT OF KENYA

AT NAIROBI

MILIMANI LAW COURTS

COMMERCIAL AND TAX DIVISION

CORAM: D. S. MAJANJA J.

CIVIL APPEAL NO. 12 OF 2020

BETWEEN

FAMILY BANK LIMITED.......................................................................APPELLANT

AND

TASSELS ENTERPRISES LIMITED..........................................1ST RESPONDENT

MUTURI NJOROGE....................................................................2ND RESPONDENT

SUSAN NYAMBURA KASINGA.................................................3RD RESPONDENT

(Being an appeal from the Ruling and Order of Hon.D. A. Ocharo, PM

dated 21st May 2020 at the Magistrates Court at Nairobi,

Milimani in Civil Case No. 3660 of 2020)

JUDGMENT

1. This is an appeal against the ruling and order of the Subordinate Court dated 21st May 2020 granting an injunction restraining the Appellant (“the Bank”) from exercising its statutory power of sale. The appeal is grounded on the Memorandum of Appeal dated 2nd July 2020 in which the Bank impugns the trial magistrate’s discretion in granting the injunction.

2. The essential facts leading to the filing of the suit before the subordinate court are not in dispute. The Appellant (“the Bank”) advanced the 2nd and 3rd Respondents trading as Tassells Enterprises KES. 15,150,000. 00 for the purpose of constructing a residential house and for asset finance. The 2nd and 3rd Respondents provided their property; RUIRU/RUIRU WEST BLOCK 3/2131 (“the suit property”) as security by way of a Charge. They also provided motor vehicles KCD 591 and KCD 458V as securities.

3. According to the Plaint dated 21st May 2020, the Respondents stated that on 26th December 2017 the 2nd Respondent issued a Promissory Note No. DMM013 dated 24th March 2017 for KES 12,172,000. 00 in respect of the overdue account at the Bank. The Respondents contended that the Bank failed and or neglected to present the Promissory Note to the 2nd Respondent for endorsement and clearing on its due date therefore leaving the Respondents discharged from any liability. Consequently, they are entitled to the discharge of the suit property. Further, the Respondents contended that the Bank failed to issue mandatory notices before attempting to exercise its statutory power of sale.

4. In its Statement of Defence dated 16th November 2020, the Bank accused the Respondents of attempting to unilaterally alter the terms and conditions of the Letter of Offer by purporting to issue a “Promissory Note” which is contrary to the express provisions of their agreements. It stated that it complied with all requirements before seeking to exercise of its statutory power of sale.

5. Although the Respondents cited, inter alia, under Order 42 rule 6(1), (2)(a) and 5 of the Civil Procedure Rules which deals with applications for stay pending appeal, the Notice of Motion dated 23rd May 2019 was clearly intended to be made under Order 40 rule 1 of the Civil Procedure Rules as it sought an interlocutory injunction restraining the Bank from selling the suit property in exercise of its statutory power of sale. The Bank opposed the application and after considering the application, depositions and written submissions, the trial magistrate held that the Respondents have made out a prima facie case with a probability of success on the basis that, “the applicant was making payment and the proclamation was premature, is genuine and arguable on the merits of during the hearing.” The trial magistrate held that damages were not payable if the case succeeded as a current valuation of the suit property had not been done. On the issue of balance of convenience, the trial magistrate was of the view that the Respondents were willing to comply and make good payment considering that they had paid a substantial amount of the debt.

6. Although the Bank has raised several grounds in the Memorandum of Appeal, both sides filed written submissions accompanied by various authorities. The respective counsel addressed the court on two issues. First, whether the Bank was entitled to exercise its statutory power of sale. Second, whether the trial magistrate erred in failing to consider, interpret and apply the legal principles for the grant of an injunction.

7. In Mbogo v Shah [1968] EA 93,Newbold P., expressed the nature and extent of the appellate court’s jurisdiction to interfere with the discretion of the lower court as follows;

A court of appeal should not interfere with the exercise of the discretion of a judge unless it is satisfied that the judge in exercising his discretion has misdirected himself in some matter and as a result has arrived at a wrong decision, or unless it is manifest from the case as a whole that the judge has been clearly wrong in the exercise of his discretion and that as a result there has been misjustice.

8. The same principle was reiterated in the seminal case of Giella v Cassman Brown& Co Ltd[1973] EA 358 by Spry VP who stated that:

I will begin by stating briefly the law as I understand it. First, the granting of an interim injunction is an exercise of judicial discretion and an appellate court will not interfere unless it be shown that the discretion has not been exercised judicially (Sergeant v Patel[1949] 16 EACA 63).

9. The court then laid down the now established principles governing the grant of an interlocutory injunction as follows:

The conditions for the grants of an interlocutory injunction are now, I think well settled in East Africa. First an applicant must show a prima faciecase 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 doubts, it will decide an application on the balance of convenience.

10. More recently, the Court of Appeal in Nguruman Limited v Jane Bonde Nielsen and 2 Others NRB CA Civil Appeal No. 77 of 2012 [2014] eKLRreiterated the settled principles in Giella v Cassman Brown (Supra)as follows:

In an interlocutory injunction application, the applicant has to satisfy the triple requirements to;

(a) establish his case only at a prima facie level,

(b) demonstrate irreparable injury if a temporary injunction is not granted, and

(c) ally any doubts as to (b) by showing that the balance of convenience is in his favour.

These are the three pillars on which rests the foundation of any order of injunction, interlocutory or permanent. It is established that all the above three conditions and stages are to be applied as separate, distinct and logical hurdles which the applicant is expected to surmount sequentially.

11. As to what constitutes a prima facie case, the Court of Appeal in Mrao Ltd v First American Bank of Kenya Limited and 2 Others MSA CA Civil Appeal No. 39 of 2002 [2003] eKLRexplained that it is, “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 to call for an explanation or rebuttal from the latter.”  A prima facie case is grounded on the cause of action pleaded by the applicant and supported by the depositions before the court. In this case, the Respondents had the burden of showing that their rights in the suit property had been violated by the exercise of its statutory power of sale in the manner pleaded in the Plaint.

12. In this case, the Respondents’ case was twofold; that they were not in default because the 2nd Respondent issued a Promissory Note and that the Bank failed to issue the requisite statutory notices that are a precondition for the exercise of the statutory power of sale. Unfortunately, and on the first issue, the trial magistrate did not consider whether in fact the Bank served the statutory notices on the Respondents yet the issue had been pleaded it as a ground for seeking the injunction and the Bank had responded to it. This, in my view, constitutes an error of law as the court failed to consider material facts.

13. In order to exercise its statutory power of sale, the Bank must issue a notice under section 90 of the Land Act, 2012 when the chargor defaults in any of its obligations under the charge. Such obligations include payment of interest or any other periodic payment or any part thereof due under the charge. If the chargor does not comply with the demand within 90 days after service of the notice, the chargee may proceed to sell the charged property. It is at this point that it is said the statutory power of sale has crystallised. Upon crystallization of the power of sale, the chargee is required to issue and serve on the chargor a 40-day notice to sell under section 96of the Land Act.

14. The Respondents denied that they received the notice and that the evidence of postage showed that the letters were sent to P O BOX 369-00232 instead of P O BOX 369-00620 which is his address as the Post Code for Ruiru is 00620 and not 00232. Since the Respondents denied service of the notice, the burden was on the Bank to show that it complied with the law by serving it. In Nyagilo Ochieng & Another v Fanuel Ochieng & 2 Others[1995-1998] 2 EA 260, the Court of Appeal held that the burden to show that the statutory notice has been served does not in any way rest on the chargor. Once the chargor alleges non-receipt of the statutory notice, it is for the chargee to prove that such notice was in fact served.

15. In order to establish that it had served the Statutory Notices, the Bank relied on the deposition of Lawrence Anthony Ouma, its Senior Legal Officer, who deponed that the statutory notice under section 90(1) of the Land Act dated 28th February 2017 was sent to the Respondents at their last known address “P O BOX 369-00232, RUIRU” as evidenced by the Certificate of Posting. The Notice of Intention to sell under section 96 of the Land Act dated 31st May 2017 was forwarded to the same address by registered post as evidence by a certificate of posting.

16. There is evidence that the Respondents address which is stated in the Charge they executed and in the joint affidavit confirming that they are married shows that their address is P O BOX 369-00232, RUIRU which is the same address the Bank used. It cannot be blamed for using the address the Respondents had given. On the whole therefore, there is evidence upon which the court could conclude that the Bank served the statutory notice on the Respondents which the trial magistrate ought to have considered before granting the injunction.

17. On the second issue whether the Respondents were indebted, the trial magistrate concluded that the Respondents were making payments. This position is inconsistent the Respondents’ case. They pleaded that they were not indebted as the 2nd Respondent had issued a Promissory Note to the Bank. I agree with Counsel for the Bank, the issuing of a Promissory Note is an admission of indebtedness. Further and in a case involving the Respondents; Muturi Njoroge and 2 Others v Barclays Bank of Kenya Limited HC COMM No. 141 of 2017 [2017] eKLR Onguto J., held that a promissory note is an acknowledgment of debt coupled with a promise or undertaking to pay and does not substitute or replace the debt. The learned judge dismissed the Respondent’s application for injunction in that case. I therefore find that the trial magistrate failed to consider this issue which was so clearly pleaded by the Respondents as a basis for seeking the injunction. The court relied on extraneous and irrelevant matters to find that the Respondents had made out a prima facie case with a probability of success.

18. By insisting that the condition for the grant of injunction must be satisfied sequentially as distinct and logical hurdles, the Court of Appeal in Nguruman Case(Supra) meant that if a party fails to establish a prima facie case, then the court need not consider the other grounds. But for completeness of the record, I shall consider the other conditions.

19. The Court of Appeal in the Nguruman Case (Supra) explained what amounts to irreparable damage as follows:

On the second factor, that the applicant must establish that he might otherwise suffer irreparable injury which cannot be adequately remedied by damages in the absence of an injunction, is a threshold requirement and the burden is on the applicant to demonstrate, prima facie, the nature and extent of the injury. Speculative injury will not do; there must be more than an unfounded fear or apprehension on the part of the applicant. The equitable remedy of temporary injunction is issued solely to prevent grave and irreparable injury; that is injury that is actual, substantial and demonstrable; injury that cannot “adequately” be compensated by an award of damages. An injury is irreparable where there is no standard by which their amount can be measured with reasonable accuracy or the injury or harm is of such a nature that monetary compensation, of whatever amount, will never be adequate remedy.

20. In cases concerning the exercise of the statutory power of sale, the question of whether the chargor will suffer irreparable damage which cannot be compensated by damages is answered by section 99(4) of the Land Act which states that, “A person prejudiced by unauthorized, improper or irregular exercise of the power of sale shall have a remedy in damages against the person exercising that power.”Notwithstanding the clear provisions of the Land Act, in order to convince the court that they will suffer irreparable damages, the Respondents would have to demonstrate that the Bank would not be in a position to pay any damages that may be found due in the event the suit succeeds. I would therefore hold that trial magistrate erred in holding that merely because the Bank did not have a current valuation was a misdirection as the value of the property is quantifiable and can be compensated by an award of damages as contemplated by the law.

21. Finally, the trial magistrate found that because the Respondents were willing to pay off the loan, then the balance of convenience rested in their favour. In Pius Kipchirchir Kogo v Frank Kimeli Tena ELD ELC No. 221 of 2017 [2018] eKLR, Ombwayo J., explained that:

The court should issue an injunction where the balance of convenience is in favor of the plaintiff and not where the balance is in favor of the opposite party. The meaning of balance of convenience in favor of the plaintiff is that if an injunction is not granted and the suit is ultimately decided in favor of the plaintiffs, the inconvenience caused to the plaintiff would be greater than that which would be caused to the defendants if an injunction is granted but the suit is ultimately dismissed. Although it is called balance of convenience it is really the balance of inconvenience and it is for the plaintiffs to show that the inconvenience caused to them would be greater than that which may be caused to the defendants. Should the inconvenience be equal, it is the plaintiffs who suffer. In other words, the plaintiffs have to show that the comparative mischief from the inconvenience which is likely to arise from withholding the injunction will be greater than which is likely to arise from granting it.

22. Again the learned magistrate failed to taken into account that the Respondents had defaulted in making payment. As I stated earlier the pleaded case was that they had met their obligation and were entitled to a discharge once the 2nd Respondent issued the Promissory Note in 2017. Since then no payments have been made and the Bank has been out of its money yet interest and expenses related to the securities continues to escalate, there is a risk that the suit property may be devalued in relation to the debt.

23. On the whole therefore and for reasons I have outlined, the trial magistrate failed to consider the facts material facts in the plaint in reaching the conclusion that the Respondents were entitled to an injunction. I therefore make the following orders:

a. I allow the appeal, set aside the order of injunction issued on 21st May 2020 and substitute the same with an order dismissing the Notice of Motion dated 18th August 2017 filed before the subordinate court.

b. The Respondents shall bear the cost of the application before the subordinate court and of this appeal.

DATED AND DELIVERED AT NAIROBI THIS 31ST DAY OF MARCH 2021.

D. S. MAJANJA

JUDGE

Mr Mukele instructed by Mukele Moni and Company Advocates for the Appellant.

Mr Nyaberi instructed by Omwoyo, Momanyi Gichuki and Company Advocates for the Respondents.