George Mwangi Chege, Beatrice Wanjeri Kimiti & George Town Travel Tours Limited v SBM Bank Limited (formely Chase Bank (Kenya) Limited (In Receivership) [2021] KEHC 12583 (KLR)

REPUBLIC OF KENYA

IN THE HIGH COURT OF KENYA AT NAIROBI

MILIMANI LAW COURTS

COMMERCIAL AND TAX DIVISION

CORAM: D. S. MAJANJA J.

CIVIL CASE NO. E323 OF 2020

BETWEEN

GEORGE MWANGI CHEGE....................................................................1ST PLAINTIFF

BEATRICE WANJERI KIMITI................................................................2ND PLAINTIFF

GEORGE TOWN TRAVEL TOURS LIMITED.....................................3RD PLAINTIFF

AND

SBM BANK LIMITED

(formely CHASE BANK (KENYA) LIMITED (IN RECEIVERSHIP))...DEFENDANT

RULING

Introduction

1. The application before the court is the Plaintiffs’ Notice of Motion dated 27th August 2020 made, inter alia, under Order 40 of the Civil Procedure Rules seeking orders restraining the Defendant (“the Bank”) from selling two parcels of land; LR No. ****) (“1st suit property”’) in the name of the 3rd Plaintiff (“the Company”) and LR No. NGONG/NGONG/**** (“2nd suit property”) in the name of the 2nd Plaintiff (“the suit properties”) pending the hearing and determination of the suit, an order for taking forensic accounts to establish the amount owed to the Bank, an order that the 1st Plaintiff be allowed to sell the Company property by private treaty and an order for re-valuation of the 2nd Plaintiff’s property by the Ministry of Lands Government Valuer.

2. The application is grounded on the 1st Plaintiff’s supporting and supplementary affidavits sworn on 28th August 2020 and 11th November 2020 respectively. It is opposed by the Bank through the replying affidavit of its Legal Manager, Kevin Kimani, sworn on 2nd October 2020 and a supplementary affidavit sworn by its Debt Recovery Officer, Martha Kanyinge, sworn on 6th October 2020.

Plaintiffs’ Case

3. The Plaintiffs’ case as set out in the Plaint dated 27th August 2020 and the application is that Company was granted advances which were secured by a First Legal Charge and Further Legal Charge for KES 6,000,000. 00 and KES 10,000,000. 00 respectively over the 1st suit property. They state that they, “have fully repaid the charged amounts and interests further particulars are will within the Defendant(‘s) knowledge.” They also state that the 2nd suit property, “was never tendered to the Defendant/Respondent by the Plaintiff/Applicant as security for any loan or overdraft facility hence the Second Plaintiff is a stranger to the Notice of Statutory to sale.”

4. The Plaintiffs’ case is then outlined in paragraphs 7 and 8 of the Plaint which states as follows:

[6] The First Plaintiff avers that it has since the disbursements of the facility aforesaid by the Defendant repaid full amount but the Defendant has unlawfully lumped together repayments made by the Plaintiffs making it extremely difficult for the Plaintiffs/Applicants to decipher from the statements provided by the Defendant as to how much is actually owing from the loan account. The Plaintiffs/Applicants shall at the hearing hereof refer to the loan statements availed to it by the Defendants for its full meaning and purport.

[8] The Plaintiff avers that the loan statement availed to them by the Defendant shows that both the loan facility and the overdraft facility advances to the Third Plaintiff/Applicant on various dates and whose terms were quite distinct, with respect to repayment period, interest chargeable and other aspect of the loan have been lumped together and despite the fact that no Statement of account reconciliation have ever been made, the Defendant intends to realize the total alleged amount owing invoking its Statutory Power of sale.

5. The Plaintiffs also accuse the Bank of colluding with valuers to undervalue the suit properties with a view to disposing of the properties at a throw away price. They also claim that the Bank has debited on their accounts unlawful and inequitable rates of interest which are oppressive, unconscionable and punitive and have no legal basis. The Plaintiffs also complain that the Bank has lumped together overdraft facilities and other loans advanced to the Company in one statement of account making it difficult to know what is owed by the Plaintiffs.

6. In his deposition, the 1st Applicant depones that he has held several meetings with the Bank to accord him more time to offset any arrears that may be outstanding by allowing him to sell the 1st suit property by private treaty for which he had already found a willing power. He implores the court to stop the sale of the suit properties until accounts have been taken and that he is ready and willing to pay the amount found due once proper and forensic accounts have been taken and the exact amount owed. He depones that in the circumstances, the statutory notices issued by the Bank are malicious.

Defendant’s Case

7. The Bank’s case is that it provided facilities to the Company on the basis on the Conditional Offer of Banking Facility dated 8th May 2013 (“Facility I”) under which it took over the First and Further Charge dated 6th February 2012 and 20th February 2014 respectively over the 1st suit property. Under the said Facility granted Term Loan I for KES 20,000,000. 00, Term Loan II for KES USD 217,000. 00 and an Invoice Discounting Line for USD 150,000. 00

8. The Bank states that Term Loan 1 under Facility I was restructured an outstanding liability in account no.**** for KES 5,374,991. 75. Further, Facility I was secured by the Further Legal Charge for KES 10,000,000. 00 over the 2nd suit property which was in addition to the existing Legal Charge of KES 6,000,000. 00 making an aggregate of KES 16,000,000. 00, a First Legal Charge over the 1st suit property for KES 15,000,000. 00 and personal guarantees and indemnities for USD 150,000. 00 from the 1st and 2nd Plaintiffs as the directors of the Company and a personal guarantee from the 2nd Plaintiff for KES 10,000,000. 00.

9. In addition, the Bank states that in March 2016, the Company also requested for a loan restructure. The Bank acceded to the request and issued a Conditional Offer of Banking Facility dated 15th March 2016 (“Facility II”) under which the existing liabilities amounting to KES 26,930,152. 90 were converted to a term loan. Facility II was to be secured, inter alia, by existing charges on the suit properties.

10. The Bank contends that the when the Company fell into arrears, it issued a demand letter dated 21st January 2020 recalling the outstanding balance of USD 523,882. 87 due and owing as at 21st January 2020. When the letter did not elicit any response, the bank issued the first statutory notice dated 17th June 2020 under section 90 of the Land Act. At the time of filing the suit, the Bank contends that the time for issuing subsequent notices had not lapsed and has not issued any statutory notice in respect of the 2nd suit property although it was entitled to do so.

Determination

11. The respective advocates made brief oral submissions to support their respective positions. Their submissions mirrored what was set out in the pleadings and depositions.

12. The issue for determination is whether the Plaintiffs are entitled to interim relief restraining the Bank from exercising its statutory power of sale. The principles guiding the exercise of this court’s discretion are those settled in Giella v Cassman Brown [1973] EA 348. The Plaintiffs have to satisfy three requirements; establish that they have a prima facie case with a probability of success, demonstrate irreparable injury which cannot be compensated by an award of damages if a temporary injunction is not granted, and if the court is in doubt show that the balance of convenience is in their favour.

13. In Mrao Ltd v First American Bank of Kenya Limited and 2 Others MSA CA Civil Appeal No. 39 of 2002 [2003] eKLR, the Court of Appeal explained that a prima facie case 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.” It is in this respect that the argument that it has a prima facie case must flow from the Plaint and relate to a right which the Plaintiffs seek to protect. In this case, the Plaintiffs’ must satisfy the court that the Bank’s exercise of the power of sale is not warranted.

14. The Plaintiffs submit that the Company has paid off the facilities advanced to it. That the 2nd Plaintiff did not charge the 2nd suit property. As regards the demand by the Bank, they make the case that the amount claimed by the Bank should be subjected to a forensic examination and audit as it includes the wrong rate of interest, wrong debits and penalties.

15. Before I deal with the issues raised by the Plaintiffs, I wish to point out the when they filed this suit and the application, the only documents they annexed to the deposition in support of the application were the following; a copy of the Certificate of Title for the 1st suit property, a Certificate of Official Search for the 2nd Suit property and a statutory notice dated 17th June 2020. The Plaintiffs did not provide any letters of offers from the Bank showing the facilities taken by the Company or even copies of the securities they referred to. They did not provide any statements to support their contention that the Bank was making illegal debits or charging interest contrary to the agreements. They also did not provide any evidence to show that the Company had made payments to the Bank to discharge the debt.

16. The observation I have made is not an idle one. It is always the burden of the Plaintiff to establish a prima facie case with a probability of success by furnishing to the court all relevant material to enable the court exercise its discretion. A party who seeks an injunction is duty bound to disclose all relevant and material evidence bearing on its case. That is why it was held in Mrao’s Case (Supra) that a Plaintiff who seeks an injunction must establish a case that calls for the other side to rebut or explain.

17. When called upon to respond to the Plaintiffs’ case, the Bank provided a copy of the Conditional Offer of Banking Facility dated 8th May 2013. Clause 1 of the Facility I refers to the Term Loan I, Term Loan II and the Invoice Discounting Line and goes on to state:

The borrower hereby acknowledges that they are indebted to the Bank in the total sum of Kshs. 20,144,824. 10 ….. as at the 8th day of May 2013. In consideration of the bank not calling for the immediate repayment of the sum of Kshs. 20,144,824. 10 the borrower accepts the terms of this offer letter.

The letter then goes on to state that:

The borrower hereby acknowledges that they are indebted to the Bank in the sums of Kshs. 5,374,991. 75 …… as at the 8th May 2013 as detailed below;

Type of facility: Term Loan    Amount Outstanding: Kshs. 5,374,991,75Dr

18. The Facility letter then goes on to provide for the securities required which include a Further Legal Charge over the 2nd suit property for KES 10,000,000. 00 and a First Legal Charge over the 1st suit property for KES 15,000,000. 00. The Bank has produced the respective charge documents.

19. The Bank also provided the Conditional Offer of the Banking Facility dated 15th March 2016 converting the existing liabilities into a term loan. At the material part, the letter states as follows:

The Borrower hereby acknowledges that they are indebted to the Bank in the sums of Kshs. 28,930,152. 90 ….. and USD 612,296. 89 ….as at 15th March 2016 as detailed below:-

Type of facility                                                                Amount Outstanding

Current Account (. 004200851****1)           Kshs. 17,078,913. 65 Dr

Term Loan I                                                                      Kshs. 2,426,136. 15 Dr

Term Loan II                                                                    Kshs. 9,425,103. 10 Dr

Total                                                                                     Kshs. 28,930,152. 90 Dr

20. Apart from producing the Letters of Offer in respect of Facility I and II and the attendant securities for the suit properties, the Bank has furnished the Company’s Statement of Account for term loan running from 16th March 2016 to 28th September 2020 showing the Company owes USD 188,085. 00 in arrears. It is important to note that this statement runs from the date of the Facility II.

21. Based on the documents submitted by the Bank, it is evident that the Company obtained facilities, which were secured by the suit properties. Facility II is a clear and unequivocal admission of indebtedness by the Company. It rebuts the Plaintiffs’ contention that the Bank was lumping together all the facilities when in fact, the facilities were all restructured into a term loan. The Statement of Account shows that the Company is truly indebted. On the other hand, the Plaintiffs have not shown that they made any payments since March 2016 and that the payments are not reflected in the Statement of Account. They have also not pointed out in what way the Statement of Account provided by the Bank is deficient as alleged in their claim.

22. At this stage it is useful to point out that unless the Plaintiff demonstrates that the unlawful and illegal interest defeats the chargor’s right of redemption, the issue of interest would only affect the amount payable. It is not enough to make broad and sweeping statements that the interest is exorbitant or illegal. Reference must be made to the agreement between the parties and the applicable law to enable the court conclude that the indeed the right of redemption is being impeded in some way. In this case, the application principle is that the court will not restrain the chargee from exercising it statutory power of sale merely on the basis of disputed accounts or interest (see Mrao Limited v First American Bank of Kenya Limited and 2 Others (Supra) and Mohammed Khaled Khashoggi v Equity Bank Limited [2013] eKLRandJoseph Okoth Waudi v National Bank of KenyaCA NRB Civil Appeal No. 77 of 2004 [2006] eKLR).

23. Once the Company defaulted, the Bank was entitled to issue a notice under section 90 of the Land Act calling on the chargors to remedy default within 90 days from the date for service of the notice failing which it would proceed to sell the suit properties. The Plaintiffs admit that they have received the statutory notice dated 17th June 2020 sent to the 2nd Plaintiff and the Company and which are attached to their supplementary affidavits. Both notices refer to the Facility II as the basis for indebtedness. The Bank also issued Notices dated 19th October 2020 to Sell the charged properties under section 96(2) of the Land Act. The Bank has also produced a Valuation Report dated 22nd November 2019 prepared by Crystal Valuers Limited in respect of the 1st suit property.

24. Since the notices are admitted and Plaintiffs have not shown how they are defective, there is no reason to restrain the Bank proceeding to exercising the power of sale. The argument that the Bank may sell the property at an undervalue is speculative as there is no evidence placed before the court to show that the Bank will not comply with the necessary steps to realise the securities. Likewise, the Plaintiffs have not established any legal basis for the court to appoint the Government Valuer to conduct the valuation.

Conclusion

25. In Nguruman Limited v Jane Bonde Nielsen and 2 Others NRB CA Civil Appeal No. 77 of 2012 [2014] eKLR the Court of Appeal reiterated the three conditions to be fulfilled before an interim injunction is granted as set out in Giella v Cassman Brown (Supra) and further clarified that they are to be applied as separate, distinct and logical hurdles which the applicant is expected to surmount sequentially. This means that if an applicant does not establish a prima faciecase then irreparable injury and balance of convenience do not require consideration. On the other hand, if a prima facie case is established, then the court will consider the other conditions.

26. The Plaintiffs have failed to demonstrate that they have a prima facie case with a probability of success. The entire application fails.

Disposition

27. The Notice of Motion dated 27th August 2020 is now dismissed with costs to the Defendant.

DATED and DELIVERED at NAIROBI this 29th day of JANUARY 2020.

D. S. MAJANJA

JUDGE

Court of Assistant: Mr M. Onyango

Mr Owang instructed by Owang and Associates Advocates for the Plaintiffs.

Mr Akello instructed by Robson Harris and Company Advocates for the Defendant.