Gachoki v Fortune Sacco Society Limited & another [2024] KECPT 218 (KLR)

Gachoki v Fortune Sacco Society Limited & another (Tribunal Case 468 of 2019) [2024] KECPT 218 (KLR) (7 March 2024) (Judgment)

Neutral citation: [2024] KECPT 218 (KLR)

Republic of Kenya

In the Cooperative Tribunal

Tribunal Case 468 of 2019

BM Kimemia, Chair, B Sawe, F Lotuiya, P. Gichuki, M Chesikaw & PO Aol, Members

March 7, 2024

Between

Johnson Gakuru Gachoki

Claimant

and

Fortune Sacco Society Limited

1st Respondent

Restorers Consult Auctioneers

2nd Respondent

Judgment

1. Before this Tribunal are two Notices of Motion Applications, one dated 9/8/2019, which was filed on the same day and another one dated 9/9/2019 which was equally filed the same day by the Claimant. Both Applications are anchored under Section 3 A of the Civil Procedure Act, order 40 of the Civil Procedure Rules and any other enabling provision of the law.

2. The records availed to this Tribunal by the Claimant and the Respondent show that on or about 28/6/2017, the Respondent granted a business loan facility of Kshs. 10,000,000/= to the Claimant. This was secured by a legal charge of two (2) properties namely Kabare/Mukara/506 and Kabare/Njiku/2000 with agreed monthly repayment installments of Kshs. 243,180/= per month for a term of five (5) years. The interest pegged on the loan facility was 16% per annum on reducing balance and any defaulted sum would attract an interest of 5%.

3. It is the testimony of both the Claimant and the Respondent that on or about 2/10/2017, the Claimant was granted another loan also called “Asset finance Loan” of Kshs. 10,800,000/= which was used to purchase a motor vehicle Registration No. KCN 087N and which was registered jointly between the Claimant and the Respondent. this loan was to be repaid within a period of 60 months at monthly installments of Kshs. 263,000/= at the same rates as the first loan.

4. That both the Claimant and the Respondent had a good business relationship evidenced by their several negotiations and compromises especially where the Claimant failed to pay the installments in time. According to the Claimant, he experienced financial difficulty around July 2019 when the Lorry broke down of which he stated thus:“that sometime in July 2019 the lorry broke down and I was unable to service the loan as agreed nut I made sure I repaid the loan despite not meeting the target.”It is at this point in time that the rain started biting the claimant when the Respondent instructed the 2nd Respondent to attach the lorry because of failure to repay the installments as agreed.

Notice Of Motion. 5. The Claimant therefore moved the tribunal through a Notice of Motion dated 9/8/2019 seeking the following.i.That this Application be Certified as urgent and services be dispensed within the first instance and the same be heard ex-parte.ii.That pending the hearing and determination of this Application, this Honorable Court be pleased to issue an order of temporary injunction restraining the Defendants/Respondents either by themselves, their agents, employees, servants or otherwise from selling and/ or interfering with motor vehicle Registration No. KCN 087N Isuzu FVZ Lorry.iii.That pending hearing and determination of this Application, this honorable court be pleased to issue an order giving the custody of the motor vehicle Registration No. KCN 087N ISUZU FVZ Lorry to the Plaintiff/Applicant herein to continue with the investment on condition he will not sell/dispose it or otherwise destroy it.iv.That pending hearing and determination of this suit herein, this Honorable Court be pleased to issue an order of temporary injunction restraining the Defendants either by themselves, agents, employees, servants of otherwise selling and/ or interfering with motor vehicle Registration No. KCN 087N Isuzu FVZ Lorry.v.Costs of this Application be provided for.

6. The Notice of Motion Application is supported by a Supporting Affidavit Application sworn by Johnson Gakuru Gachoki, a Verifying Affidavit, List of Witnesses and a Claimant’s List of Documents all dated 9/8/2019.

7. In answer to the instant Notice of Motion Application, the Tribunal granted the following orders:i.That the Application is certified as urgent.ii.That, a temporary injunction restraining the Defendant/Respondent either by themselves, their agents, employees, servants or otherwise from selling and interfering with motor vehicle Registration No. KCN 087N Isuzu FVZ Lorry is hereby granted pending the hearing and determination of this Application.iii.That the Applicant to serve all the parties and come for inter-parties hearing on 30/9/2019.

8. However, within 1 month, another Notice of Motion Application dated 9/9/2019 was filed under Certificate of Urgency noting that the 1st and 2nd Respondents are in the process of selling/disposing the Claimants’ Parcels No. Kabare/Nyangati/5735, Kabare/Njuki/2000 and Kabare/Mikarara/506 by Public Auction on 24/9/2019 because of default in repayment of the Loan facility which was granted to him.

9. On the face of the Notice of Motion Application filed on the instant date, the Claimant sought for the following prayers:i.That the Application be certified as urgent and service of the same be dispensed within the first instance and the same be heard ex-parte.ii.That pending hearing and determination of the Application, the Honorable Tribunal be pleased to issue an order of temporary injunction restraining the Respondents either by themselves, their agents, employees, servants or otherwise from selling and interfering with the land Parcel Nos. Kabare/Nyagati/5735, Kabare/Njuki/2000 and Kabare/Mikarara/506 and or any other property deposited by the Claimant/Applicant as collateral with the 1st Respondent.iii.That pending hearing and determination of the Application, the Honorable Tribunal be pleased to issue an order of temporary injunction restraining the Respondents either by themselves, their agents, employees, servants or otherwise from selling and interfering with the land Parcel Nos. Kabare/Nyagati/5735, Kabare/Njuki/2000 and Kabare/Mikarara/506 and or any other property deposited by the Claimant/Applicant as collateral with the 1st Respondent.iv.Cost of this Application be provided for.

10. While taking cognizance of the imminent sale, the Tribunal made an order to stop the sale vide an order dated 10/9/2019 which stated as follows:“That a temporary injunction restraining the Respondents either by themselves, their agents, employees, servants or otherwise from selling and interfering with the Land Parcels Nos. Kabare/Nyagati/5735, Kabare/Njuki/2000 and Kabare/Mikarara/506 and or any other property deposited by the Claimant/Applicant as collateral with the 1st Respondent is hereby granted pending hearing and determination of their Application.”The Applicant was ordered by the Tribunal to serve all the parties the matter was set for hearing on 30/9/2019 at Nairobi.

11. Both Notice of Motion Applications one dated 9/8/2019 and the other dated 9/9/2019 were opposed by the 1st Respondent stating that the Claimant failed to honor the conditions agreed in both the Loan Agreements specifically by defaulting the repayment terms. Further, the Respondent stated that they had agreed with the Claimant as provided in the loan agreement that they were free to dispose off the securities offered to recover the amounts outstanding.

12. After several mentions, the Tribunal ordered the parties to canvass the matter through Written submissions, which was complied with. On 25/5/2021 the Tribunal delivered its ruling on the two (2) Applications by allowing the injunction sought. In the orders, the Tribunal had this to day at paragraph 13 and 14 of this Ruling.13“That the Claimant contends that the Respondent just went ahead and attached motor vehicle KCN 087N and the land parcels (the collaterals) without following the laid down procedure. In as much as the Claimant defaulted, these are laid down procedures in the exercise of the right of redemption and attachment of collateral in case of default.14. In this case, there having been no proof of compliance to the laid down procedures, we find that the Claimant has demonstrated a prima facie case in that, the Claimant’s legal right was infringed upon by the action of the Respondent that they followed the due process on laid down procedures in exercising the right of redemption.”

Hearing 13. At the hearing held at Nakuru on 9/8/2023, the Claimant reiterated that he took two (2) loans from the Respondent totaling to Kshs. 20,800,000/= which was to be repaid according to the Loan Agreement terms from the proceeds generated from the lorry business.

14. The Claimant testified orally that when the motor vehicle was released to him, he spent Kshs. 800,000/= on repairs and within a short period, the motor vehicle broke down again which wade him to default again

15. On the side of the 1st Respondent, Mr. Patrick Kariuki Mugo who is the Credit Administrator testified orally that the Claimant was not servicing the loan as per Agreement. There was some negotiations after the sale of the securities for him to pay Kshs.300,000/= per month which he never honored. He was even called by the debt recovery manager but he failed to come therefore the motor vehicle was impounded for the 2nd time.

16. He further stated that with a view to help the Claimant to restructure the loan, the Board of Directors requested him to pay half of the Kshs 1,800,000/= accumulated sum and Kshs 250,000/=. It was the Claimant’s testimony that when the Lorry was attached, he became paralyzed business wise and sought the intervention of the Tribunal to grant injunctive orders which were granted. However, negotiations went between the parties which resulted to an Agreement that one of the securities identified as Kabare/Nyanga/5735 was to be released to the Claimant to be sold on private treaty arrangements and the proceeds be paid to the 1st Respondent to offset the loan.

17. After the payment of Kshs. 9,000,000/= to the Respondent from the proceeds of the sale of the Sale of the Parcel of land, the motor vehicle was released to the Claimant with further arrangements that the Claimant would pay Kshs. 355,000/= to the 1st Respondent and Kshs. 35,000/= to the 2nd Respondent being Auctioneers’ fees. Thereafter, he would repay the balance of the loan at a monthly instalment of Kshs. 250,000/= which again he never honored. According to Mr. Peter Kariuki Mugo, the amount owed by the Claimant to the Respondent is over Kshs. 37,000,000/= made up of interest and defaulted penalties.

18. At the close of the oral hearings, the Tribunal directed the Claimants to file and serve their Written Submissions within 14 days and the Respondents to file and serve their Written Submissions within 14 days upon receipt. Parties were further directed that mention date to confirm compliance will be 15/9/2023.

Analysis. 19. All along, the Claimant maintained that the 1st Respondent repossessed the motor vehicle Registration No. KCN 087N ISUZU FVZ Lorry without any reason yet he has been paying installments though. Sporadically, due to the conduct of the 1st Respondent of impounding the motor vehicle for 4 years and at one time refusing to accept a proposal of payment of Kshs. 1,500,000/= immediately and Kshs.400,000/= per month. This is stated by the Claimant at Paragraph 7 of his Affidavit as:“That as a show of good faith, the Claimant on 6/11/2019 made a proposal to the 1st Respondent to be allowed to immediately pay Kshs. 1,500,000/= to the Loan Account and thereafter deposit Kshs. 400,000/= per month”.This proposal was declined by the 1st Respondent who demanded a total of Kshs 6,800,000/= which was outstanding on both the business account and the Asset Finance Account.

20. In reply to the action taken by the 1st Respondent to repossess the motor vehicle, Mr. John Muraguri for the Respondents swore an Affidavit dated 15/10/2020. The import of the Tribunal’s Ruling is that the Respondent does not have a blanket freedom to repossess and dispose securities without following the laid down procedures.

21. We have read through the said Loan Application and there is no where the Respondent has freedom to dispose securities at freewill. However, condition No. 15 provides for redemption of the securities deposited with the Respondent and state thus:“All asset bought through the loan/ advance issued shall be deemed as securities and the relevant documents will be deposited with fortune Sacco Limited and will be redeemed to offset the loan.”Once again it is important to state that the issue of redemption of securities was adequately dealt with by this Tribunal in their ruling which was delivered on 27/5/2021 specifically at paragraph 13 which pointed out that; “in as much as the Claimant defaulted, there are laid down procedures in the exercise of the right of redemption and attachment of collaterals in case of default. In this case, there having been no proof of compliance to the laid down procedures, we find that the Claimant has demonstrated a prima facie case in that the Claimant’s rights was infringed upon by the Respondent and that there was no rebuttal from the Respondent.

22. During the hearing in Nakuru, Mr. Patrick Kariuki Mugo had the opportunity to demonstrate that the Respondents followed the laid down procedures but he did not. He had the opportunity to produce the current status of the loan statement of the particular business account but he did not, however, he stated that the total outstanding amount for both accounts was Kshs 19,700,000/= plus interest.

23. In totality, having considered the oral testimonies and evidence produced pertaining to the business loan account of the Claimant, we find that the Respondents rushed to repossess the motor vehicle registration No. KCN 087N Isuzu FVZ while knowing that the said motor vehicle had broken down and that they were negotiating with the Claimant on the best way to repay the loan.

24. Moreover, we find that it is not enough to attach a Proclamation Notice of the attachment of the said motor vehicle without showing that the other laid down procedures well followed as provided under Section 12 and 15 of the Auctioneers Rules 1997.

25. By repossessing the motor vehicle and keeping it in the auctioneers’ yard for 4 years, made it to depreciate and wasted. It could not help either the Claimant or the Respondent. From a business point of view, we find this unreasonable.

26. On the issue of the second loan of Kshs. 10,800,000/= which was served by legal charge over Land Parcels registered as Kabare/Nyagati/5735, Kabare/Njuki/2000 and Kabare/Mikarara/506, we note that the 1st Respondent at paragraph 14 stated that they made several requests to the Claimant including formal letters of demand and loan arrears repayment notice. At paragraph 15, the 1st Respondent confirm that they instructed the 2nd Respondent to issue 1st and 2nd Demand Notice and thereafter a Statutory Notice a fact which was denied by the Claimant in paragraph 6 of his Supporting Affidavit where he stated as follows:“That the Respondents have gone ahead and advertised for sale by Public Auction the Applicants Land Parcels Nos. Kabare/Nyagati/5735, Kabare/Njuki/2000 and Kabare/Mikarara/506 even when well aware that the matter is set for hearing interparties on 30/9/2019 without giving notice or following the laid down procedures”.

27. This denial is further pointed out in the Claimant’s Written Submissions who cited the provisions of Section 90 of the Land Act 2012 which provides that the lender to give adequate (3) months notice to the borrower to cure the default and the amount due.

28. According to the Claimant as stated at paragraph 3 of page 5 of the Written Submissions, the Claimant state that he was given (7) days’ Notice by the 2nd Respondent to pay a sum of Kshs. 19,700,000/= which was too short and fell way below the Statutory Notice of three (3) months as provided under Section 90(2) of the Registered Land Act2012 which state as follows:“If the default consists of non-payment of any money due under the charge, the amount that must be paid to rectify the default and the time being not less than three (3) months”.

29. We have not found anywhere in the 1st Respondent’s submissions where it stated that Section 96(2) of the Land Act was complied with.This Section states that:“Before exercising the power to sell the charged land, the charge shall serve on the charger a notice to sell in the prescribed form and shall not proceed to complete any contract sale of the charged land until at least 45 days have elapsed from the date of the service of the notice to sell.”This provision is well affirmed in the case of ActFast Security Limited vs Equity Bank (2014)eKLR where the court stated that;“Before exercising that power of sale, the charge must give a further notice as required under Section 96(2)…”However, we note that this latter process was halted by the ruling of this Tribunal which was delivered on 27/5/2021 and we still hold that where a procedure is provided in law, it must be followed to the latter.Because the 1st and 2nd Respondent did not follow the procedure laid down under the Land Act 2012 and the Land Registration Act.We order that the power to foreclose the charge is not available to the Respondents and should be reinstated back to its original status under the same terms as they were previously.

30. To exercise her right of redemption and attachment of the collaterals. On this, the Tribunal cannot aid the 1st Respondent to deviate from the laid down procedures. However, although we are alive to the rights of the 1st Respondent to recover the money owed by the Claimant/Respondent through the Power of Sale as provided under Section 96(1) of the Land Act 2012 we are of the opinion that the 1st Respondent should re-start the process again when the time comes and follow step by step the laid down procedures to realize the securities that it is holding.

31. Having said that, we find that the Counter-claim has no merits therefore dismiss it with no costs to either party.

32. In summary, we issue the following ordersa.Judgment is hereby entered in favour of the Claimant against the Respondent. In consequently, an order is hereby made for the immediate release of Motor Vehicle registration No. KCN 087L to the Claimant within14 days herein.b.That the Counter -claim is not merited and is hereby dismissed with costs.c.It is trite law that costs follow the event, we therefore award costs to the Claimant.

Orders accordingly.

JUDGMENT SIGNED, DATED AND DELIVERED VIRTUALLY AT NAIROBI THIS 7TH DAY OF MARCH, 2024. HON. BEATRICE KIMEMIA - CHAIRPERSON SIGNED 7. 3.2024HON. BEATRICE SAWE - MEMBER SIGNED 7. 3. 2024HON. FRIDAH LOTUIYA - MEMBER SIGNED 7. 3.2024HON. PHILIP GICHUKI - MEMBER SIGNED 7. 3.2024HON. MICHAEL CHESIKAW - MEMBER SIGNED 7. 3.2024HON. PAUL AOL - MEMBER SIGNED 7. 3.2024TRIBUNAL CLERK JEMIMAHMaguta for ClaimantKamau holding brief for Kibue for Respondent.