Githae v Equity Bank Limited & another [2022] KEHC 12407 (KLR)

Githae v Equity Bank Limited & another (Commercial Case E631 of 2021) [2022] KEHC 12407 (KLR) (Commercial & Admiralty) (17 June 2022) (Ruling)

Neutral citation: [2022] KEHC 12407 (KLR)

Republic of Kenya

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

Commercial and Admiralty

Commercial Case E631 of 2021

DO Chepkwony, J

June 17, 2022

Between

Peter Ngari Githae

Plaintiff

and

Equity Bank Limited

1st Defendant

Ernest Kyallo Simbii t/a Norern Auctioneers

2nd Defendant

Ruling

1. The Plaintiff/Applicant moved this court vide a Notice of Motion application dated 15th June, 2021 under Article 40 of the Constitution, Sections 90,96,97 and 98 of the Land Act, Section 3A and 63 of the Civil Procedure Act, Order 40 and Order 51 Rule 1 both of the Civil Procedure Rules seeking for the following orders:-a.Spent;b.Spent;c.That this Honourable Court be pleased to issue an order of injunction to restrain the Defendants, their employees, agents and/or servants from disposing by private treaty or public auction or transferring and/or in any manner dealing with or alienating the Plaintiff’s property known as Villa No.5 Situated on L.R No.330/270 (original No.330/185/2) (Volume N.93 Folio:50/1 File 27705) Crystal Villas, Thomson Estate, (the suit property) Nairobi situated in Nairobi county pending the hearing and determination of this suit;d.That pending the hearing and determination of the suit, the 1st Defendant do furnish the Plaintiff with the following documents; The Valuation report in respect of suit property prepared at the inception of the loan facility, and

The charge document in respect of the security.e.That pending the hearing of this suit, the 1st Defendant do furnish the Plaintiff with a written explanation on the purport and effect of the entries, made in the loan statement on 23/02/2019, 29/03/2019, 27/05/2019, 11/06/2019, 24/08/2019, 29/10/2019 and 24/02/2020 on the principal amount and interest;f.That in view of prayer (f) above, the Plaintiff and the defendant do carry out a joint reconciliation exercise to determine the correct outstanding loan before setting down the suit for hearing;g.That the costs of this application be borne by the Defendants.

The Plaintiff/Applicant’s Case 2. The Plaintiff adduced thirteen (13) grounds in support of the application and swore an affidavit on 15th June, 2021 and a Supplementary Affidavit on 16th August 2021. The Plaintiff further filed submissions dated 18th August, 2021 in support of the application as directed by the court.

3. His case is that he is the registered owner of the subject suit property which he charged with the 1st Defendant in February, 2014 to secure a loan facility of Kshs.20,300,000/= although the 1st Defendant did not issue him with a copy of the charge and a valuation report of the suit property at the time it was charged. He concedes that he fell into arrears owing to down fall of his business but at that moment he had repaid a substantial amount of the loan as evidenced by the statements of accounts he attached. However, those statements show that there were some anomalies on some of the entries made by the 1st Defendant and the Plaintiff avers it would be fair for the 1st Defendant to first offer an explanation on those entries so as to ascertain the real outstanding amount before pursuing any drastic action.

4. Nonetheless, the 1st Defendant through the 2nd Defendant issued to the Plaintiff a 45 days’ Redemption Notice dated 17th March, 2021 stating that the property would be sold on 26th May, 2021 by way of public auction if the outstanding amount was not paid. In the Plaintiff’s view, the intended sale would not only be illegal, but also premature for reasons that; the 1st Defendant/Respondent had failed to issue the Plaintiff with the mandatory notice for not less than three months, the Redemption Notice did not state the extend of the default and the amount to be paid to rectify the default, that no valuation was done on the property prior to the intention for sale, that the spousal consent for sale was not obtained and lastly that the statutory power of sale is the last remedy available for the 1st Defendant/Respondent and was prematurely invoked. Those irregularities coupled together are in the Plaintiff’s view an affront to his constitutional right to property and given that the Plaintiff does not have original copy of the charge document, it is unable to tell what rates were agreed on the interests chargeable.

5. The 1st Respondent opposed the application vide the Replying Affidavit of its Credit Manager, Mary Katoni sworn on 13th July, 2021. She accused the Applicant for material non-disclosure and deponed that the agreed terms were that, the loan would be repaid on 120 monthly instalments of Kshs.392,310/= and attract interests at the rate of 20% per annum. The Charge was then registered against the Applicant’s property known as L.R No. 330/270 (Original No. 330/185/2) and the Applicant collected a copy thereof contrary to his allegations. However, the Applicant defaulted in repayment of the loan as per the Letter of Offer thus prompting the bank to issue him with a Demand dated 21st May, 2019 and Statutory Notices dated 11th October, 2019 and 5th March, 2020 respectively. The Applicant was not moved to make payment on the loan and consequently the 2nd Respondent at the instructions of the 1st Respondent issued the Applicant with a 45-days’ Notice dated 17th March, 2021 with intentions to sell the property by auction. A Valuation Report dated 6th May, 2021 by Gimco Ltd was then done on the property prior to the intended sale.

6. The deponent added that as at 25th June, 2021, the Applicant was in arrears of upto Kshs.9,940,990. 83 and the Applicant has never lodged a complaint with the bank as to the accounts entries hence the allegation that some entries seem questionable is baseless.

7. The above averments prompted the Applicant’s further affidavit that he swore on 16th August, 2021. He averred therein that although he had signed the charge document, he had not received a copy of the same and the one send to his advocate was an incomplete copy. However, the record shows this was rectified as there is a Supplementary Affidavit by the 1st Respondent showing that the full copy of the charge was forwarded to the Applicant’s advocate.

8. The Applicant further deponed that he never received the Notices which the 1st Respondent avers to have served him as there is no postage receipts to confirm service. He also faults the valuation report since it is expressed to be based on another existing Report and as such it does not depict the true value of the property.

9. The application was canvassed by way of written submissions and the record reflects that the Plaintiff/Applicant filed written submissions dated 18th August, 2021 while those of the Respondent are dated 20th September, 2021. I have read through the said submissions and the case law relied on therein and since they reflect the summary of the grounds shown above, I wish not to replicate the same here.

Analysis and Determination 10. Having carefully considered the application, the affidavits tendered by both parties in support and in rebuttal of issues herein as well as the judicial precedence and the law applicable, I wish to take the following view of the matter. The issue for determination is whether or not the Plaintiff/Applicant has met the threshold for granting interlocutory injunctions and what other relevant orders this court can make in relation of the orders sought.

11. At this juncture, this court endeavors to briefly examine the legal principles governing an application of this nature. In applications for an interlocutory injunction, the burden resides with the Applicant to prove to the satisfaction of the court that the same should be granted. It is now well settled law that the grant of injunctive reliefs is a discretionary exercise predicated upon 3 interdependent and sequential limbs to wit: that the claimant has established a prima facie case with a probability of success; once established, the claimant ought to prove that an award of damages would be insufficient to alleviate any damage caused and finally, when in doubt, the court would decide the application on a balance of convenience. (See Giella v Cassman Brown & Co. Ltd [1973] EA 358 and Nguruman Ltd v Jan Bonde Nielsen & 2 Others, [2014] eKLR.)

12. However, in this case it is not denied that the Plaintiff/Applicant was advanced loan facility to the extend and in terms of the Charge document dated 11th December, 2013. The Plaintiff does not deny being in loan arrears but challenges the notices served on him and the manner in which the entries on the loan accounts were made. He does not dispute the bank’s right of sale but states that before the bank exercises such right, it has to first comply with the statutory requirements by issuing the proper notices and carrying out a current valuation report in the manner provided by the statutes.

13. The 1st Respondent Bank on the other hand has alluded that, proper notices were served on the Plaintiff and a valuation report done in compliance with the statutory threshold. It maintains that the Appellant is in breach of the Charge Agreement by failing to service the loan and which is to date accruing interests, so that even if an injunction was to be granted, then it would defeat the bank’s statutory right of sale which is protected under the statute.

14. Having considered the submissions tendered by both parties, the key issue by the Plaintiff is he manner in which the Notices were issued and the correct value outstanding of the Applicant’s loan given that the same is in dispute. Be that as it were, a dispute as to the amount owing between a borrower and a financier cannot be a ground for issuance of an injunction order. Further, where the Applicant does not dispute the default and the loan amount outstanding, issuance of an injunction in such circumstances does not benefit the parties.

15. The Plaintiff’s/Applicant’s account continues to accrue interest and eventually he will suffer detriment due to increasingly accummulated interest under the comfort of enjoying restraining orders.

16. On the other hand, the Defendant bank will be kept from recovering the amount due to it. Be that as said, when the Plaintiff concedes to be in default, it cannot be said to have established a prima facie case since it would hamper the bank’s statutory right of sale as stipulated under the charge document. However, this power of sale should be exercised within the legal confines and the relevant legal provisions are as follows

17. Section 90 of the Land Act, 2012 (Laws of Kenya) reads as follows:[1]If a Chargor is in default of any obligation, fails to pay interest or any other periodic payment or any part thereof due under any charge or in the performance or observation of any covenant, express or implied, in any charge, and continues to be default for one month, the Chargee may serve on the Chargor a notice, in writing, to pay the money owing or to perform and observe the agreement as the case may be.[2]The notice required by subsection (1) shall adequately inform the recipient of the following matters—a).the nature and extent of the default by the Chargor;b).if the default consists of the 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 months, by the end of which the payment in default must have been completed;c).if the default consists of the failure to perform or observe any covenant, express or implied, in the charge, the thing the Chargor must do or desist from doing so at to rectify the default and the time, not being less than two months, by the end of which the default must have been rectified;d).the consequence if the default is not rectified within the time specified in the notice, the Chargee will proceed to exercise any of the remedies referred to in this section in accordance with the procedures provided for in this sub-part; ande).the right of the Chargor in respect of certain remedies to apply to the court for relief against those remedies.

18. Section 90(1), above, lays down the circumstances under which a Statutory Demand Notice is issued by the Chargee bank to Chargor (borrower). It states that the same is issued where there is default of payment in performance of the expressed and implied covenants in a charge. That the notice must be served to the Chargor by the Chargee bank in writing clearly stating the payment of any amount owing or performance and observance of the agreement as the case may be. This notice is mandatory on the part of the Chargee thus it is mandatory that the bank, as the law requires, issues the requisite statutory notice notifying the Chargor of the intended sale of the charged property by auction.

19. Section 90(3) provides for the remedies available to the bank and states that if the Chargor does not comply with the Notice within three (3) months after the date of the Notice, the Chargee may either sue the Chargor for any money due and owing under the charge or Appoint a receiver of the income of the charged land; Lease the charged land, or if the charge is of a lease, sublease the land; Enter into possession of the charged land; or Sell the charged land.

20. Annexure “MK3A” attached to the application is the Demand Notice dated 21st May, 2019 and it does evince the nature and extent of default. That the Plaintiff was in arrears of Kshs.733,375. 08 and the amount outstanding was Kshs.12,715,783. 08 and the bank accorded the Plaintiff three months to rectify that default.

21. The Bank also issued the Redemption Notice dated 5th March, 2020 under Section 96 of the Land Act giving the Plaintiff 40 days to rectify the default, failure to which the property would be sold. Lastly, the Plaintiff was served with the 45 days Redemption Notice dated 17th March, 2021 pursuant to Rule 15(d) of the Auctioneers Rules and it is beyond doubt that the statutory notices served on the Plaintiff were necessitated by the dismal failure of the Plaintiff to repay the loan in the terms agreed by the parties.

22. I note that the Plaintiff only denies being served with the notices. The question to ponder with is whether the said notices were served and delivered to the intended recipient. Having read through the affidavits filed in court, the 1st Defendant has not deponed on how it served the notices There is no receipt of postage, or any proof whatsoever indicating on the modality of service adopted by the 1st Defendant bank. In my humble view, failure to notify a Chargor goes to the core of the validity of the issuance and service of the Notices provided under the statute.Notification of Sale is mandatory as it is a way of protecting the equity of redemption provided for under Section 89 of the Land Act, 2012. Since proof of service is in dispute, my view is that the 1st Defendant bank should be referred to reissue the notices and effect proper service of the Notices.

23. As regards the issue of valuation, the Plaintiff’s contention is that the suit property was undervalued since the basis of the Valuation Report was an earlier valuation done on the same property at the time of the charge. The question to ask here is whether the Defendant Bank discharged its duty in terms of Section 97 of the Land Act to ensure valuation of the suit property was undertaken by a qualified valuer. It is not in doubt that the general purpose of valuation is envisaged under Section 97(2) of the Land Act, 2012 and it is two-fold; to wit, to obtain the best price reasonably obtainable at the time of sale thus protecting the right of the Chargor to the property. It is also meant to ensure best and reasonable price which is comparable to interests in land of the character and quality is part of the right to property itself and to prevent unscrupulous Chargee from selling the charged property at a price which is peppercorn or not compatible with the interests in the property in terms of character and quality.

24. Further, the Chargor’s duty under Section 97(2) of the Land Act is a serious legal requirement which entitles to him to apply to court under Section 97(3)(b) of the Land Act to have any sale based on such breach to be declared void and the court on the required proof, should declare such sale void. That is the onerous nature of the duty. However, the question is, did the Defendant as the Chargee satisfy the requirement of Section 97(2) of the Land Act?

25. The 1st Defendant Bank annexed a Valuation Report dated 6th May, 2021 done by Gimco Limited. Although the Plaintiff avers that the report does not reflect the current value of the property, the Plaintiff has not filed a Counter Valuation to show that the subject property was undervalued. The law is that he who alleges must prove and in this case, the Plaintiffs have failed to prove by a counter valuation that the property was undervalued. What the 1st Defendant is obliged to do is to file engage a qualified valuer and this was obliged with.

26. On the prayer for supply of the document, I consider that to be a facilitating order that would obviate prospects of other interlocutory application. The 1st Defendant averred that it could not present the statements of account earlier on grounds that its system had not been updated. Well, I believe now it has been updated and the statements can be availed. I adopt the words of the Court of Appeal in the case of Barclays bank of Kenya Ltd v Christopher Kenyariri and say that on the facts of this case justice requires that the Plaintiffs should be put in possession of all the documents in possession of the Defendant and connected with the creation of the legal charges and the account on such facility. That should be done within 30 days from today.

27. In the end, whereas this court is alive to the principal that the 1st Defendant bank should not be prevented from exercising its Statutory Power of Sale to realize the charged securities, this court emphasis that the power of sale ought to be exercised in the confines of the law. And whereas this court has found no prove of service of the Statutory Notices, the circumstances of this case call for a relief which is appropriate to ensure compliance with the statutory requirements. Accordingly, I proceed to make the following orders:-a.That the 1st Defendant shall re-issue the sale Notices to the charged property afresh and any sale thereafter of the charged property will abide by all relevant provisions of law. The prove of service to be availed in the manner articulated under the statutes.b.The Plaintiff be at liberty to settle the outstanding amount before the expiry of the period for Notices to be served on him.c.The costs of the Application shall be in the cause of the main suit.It is so ordered.

RULING DELIVERED VIRTUALLY, DATED AND SIGNED AT NAIROBI THIS 17TH DAY OF JUNE, 2022D. O. CHEPKWONYJUDGEIn the presence of:Mr. Kiprono counsel for PlaintiffMr. Munga counsel holding brief for Mr. Oketch for the DefendantsCourt Assistant - Sakina