Harrogate Limited & another v Mwananchi Credit Ltd [2022] KEHC 11629 (KLR)

Harrogate Limited & another v Mwananchi Credit Ltd (Civil Suit E843 of 2021) [2022] KEHC 11629 (KLR) (Commercial and Tax) (3 June 2022) (Ruling)

Neutral citation: [2022] KEHC 11629 (KLR)

Republic of Kenya

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

Commercial and Tax

Civil Suit E843 of 2021

A Mabeya, J

June 3, 2022

Between

Harrogate Limited

1st Plaintiff

Alice Muthoni Thuo

2nd Plaintiff

and

Mwananchi Credit Ltd

Defendant

Ruling

1. Before court is a motion on notice brought, inter-alia, under articles 10 (2) (b) & 46 of theConstitution; sections 79(3), 84, 85(2), 89(2), 96(2), 96(3) (c) & (i), 105 of the Land Act 2012 and section 13 of the Consumer Protection Act, 2012.

2. In the motion, the plaintiffs sought an interlocutory injunction to restrain the defendant from exercising its power of sale and/or from interfering in any manner with the property known as LR Number 2327/252 located in Hardy Karen within Nairobi County (“the suit property”).

3. There was also a prayer to restrain the defendant from imposing, accruing and/or apportioning any further interest on the various credit facilities held by the 1st plaintiff. Finally, the plaintiffs prayed that 1st plaintiff be allowed to make repayment by instalments of Kshs 5,000,000/- per month from November 10, 2021 and on 10th of each subsequent month.

4. The application was premised on the grounds set out in its body and on the supporting affidavits sworn by the 2nd plaintiff and the 1st plaintiff’s director.

5. The grounds were that; the 2nd plaintiff is married to the 1st plaintiff’s director and they reside on the suit property as their matrimonial home; that the 1st plaintiff took various credit facilities from the defendant and offered the suit property as security. That the 2nd plaintiff did not execute any spousal consent in respect of the suit property being charged to the defendant by way of initial charge or any further charge.

6. The 1st plaintiff averred that the defendant had been in breach of the letter of offer dated January 20, 2020 in various ways including: fraudulently accruing interests when no funds had been disbursed and failure to disburse the full loan amount of Kshs 50,000,000/-.

7. Further, that the defendant was fraudulent and in breach of the charge and further charge dated January 27, 2020 and September 15, 2020 as it accrued astronomical interests and costs without effecting actual draw down on the facility thereby exceeding the secured amount. That it used duress and breached letters of offer dated September 9, 2020 and December 14, 2020. It charged interest when no funds had been disbursed and that it had charged a massive sum of Kshs 138,487,141/- being the principal and installments payable for a facility of Kshs 43,124,980/-. That the interest charged doubled the secured principal amount loaned to the 1st plaintiff which constitutes unjust enrichment.

8. It was contended that the letters of offer dated January 20, 2020, September 9, 2020 and December 14, 2020 should be set aside and interest be computed at court rates. That the defendant’s 90 day statutory notice was defective as it was issued under an irrelevant section 56 of the Land Registration Act instead of section 90 of the Land Act. Further, that the statutory notice was never served upon the 2nd plaintiff as a spouse of the 1st plaintiff’s director.

9. The 1st plaintiff’s director averred that he was coerced into executing the sale agreement and transfer of the suit property to the defendant. That he was therefore apprehensive that the defendant would transfer the suit property by private treaty thereby clog the 1st plaintiff’s equity of redemption.

10. The defendant opposed the application vide a replying affidavit of Dennis Mwangeka Mombo sworn on October 14, 2021. He averred that the defendant advanced various credit facilities to the 1st plaintiff who had defaulted on repayment thereof. In the premises, the defendant has a legal right to realize the security and had issued the requisite statutory notices.

11. The defendant explained in depth the nature of the facilities offered to the 1st plaintiff which were created pursuant to the first offer letter dated January 20, 2020 for Kshs 50,000,000/- which was advanced in 3 drawdowns. The second offer letter dated September 9, 2020 which created a further charge over the suit property and the third offer letter dated December 14, 2020. A second further charge was created on the suit property to secure additional sums of Kshs 12,169,016.

12. The defendant averred that at the time of filing its replying affidavit, the 1st plaintiff had accrued arrears of up-to Kshs 181,053,389. 48 which amount continued to attract interest, charges and penalties.

13. It was contended that the requisite 90 days’ notice dated April 28, 2021 had been issued to the 1st plaintiff notifying it that it was in default of the loan. A further 40 day notice dated July 29, 2021 in accordance with the Land Act had also been issued.

14. On the issue of interest rate, the defendant argued that the 1st plaintiff’s allegations that the interest rates are exorbitant was an attempt to avoid payment of the debt as the 1st plaintiff had executed three offer letters containing the interest terms and was fully aware of the same. That the existence of a dispute touching on the interest rate payable is not an excuse for non-repayment of the principal amount of the loan facility.

15. The 1st plaintiff responded to the replying affidavit vide a lengthy further affidavit sworn on October 25, 2021 by Shreedhar Girdharlal Hirji, its director. He stated the 1st plaintiff was willing to make monthly payments of Kshs 5,000,000/- pursuant to the court intervening on the correct interest to be charged.

16. The court has considered the pleadings and affidavits on record. The issue for determination is whether the plaintiffs have met the test for the grant of an injunctive relief.

17. The principles applicable for granting an interim injunction were established in Giella v Cassman Brown. They are: firstly, that an applicant must establish a prima facie case with a probability of success, secondly, such applicant must show that if the order sought is not granted, he will suffer loss that is incapable of being compensated by an award of damages, and thirdly, if in doubt, the court will determine the matter on a balance of convenience.

18. Prima facie case was defined by the Court of Appeal in Mrao Ltd v First American Bank of Kenya Ltd & 2 others [2003] eKLR, 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 to call for an explanation or rebuttal from the latter”.

19. In the present case, it is clear that the 1st plaintiff obtained various loan facilities from the defendant as illustrated in the letters of offer dated January 20, 2020, July 9, 2020 and December 14, 2020, respectively. They were secured by a charge, further charge and second further charge over the suit property. The charges were produced as ‘DM-5’, ‘DM-17’ and ‘DM-22’.

20. The letter dated September 15, 2021 and produced as ‘DM-26’ showed that the 1st plaintiff and the defendant engaged in discussions with the aim of restructuring and paying off the outstanding debt owed by the 1st plaintiff. It is therefore clear that the indebtedness of the 1st plaintiff is not in dispute. It is also not in dispute that the suit property was offered as security for the facilities in question.

21. The 1st plaintiff argued that the letters of offer should be set aside as the 2nd plaintiff did not execute any spousal consent in respect of the suit property to be charged. Further that, the defendant had charged astronomical interest rates in breach of the letters of offer.

22. In Capital Realty Limited v Housing Finance & another[2020] eKLR, Odunga J held: -“In this case, the plaintiffs’ case is not that there is no amount due. In fact, the plaintiff’s problems seem to be, according to them, partly due to constrained cash flows. In my view the defendants can only be restrained if the plaintiffs pay the amount claimed into court or claims that having repaid the sum that was lawfully due from them, the claim now being made by the defendants is, on the terms of the mortgage, excessive. That is not the case before me. Accordingly, the issue of exorbitant levies does not constitute a prima facie case for the purposes of restraining the defendants from exercising the statutory power of sale.”

23. I fully concur with the finding above. In the present case, the 1st plaintiff has not serviced the loan amounts even as it disputes the interest that has been charged. The evidence points to the fact that the 1st plaintiff is heavily indebted to the defendant as it kept obtaining additional facilities and not servicing them.

24. As it stands the amount owed to the defendant has ballooned due to penalties attributable to late payment of the loans.

25. The 1st plaintiff willingly accepted the offer letters. This is borne by the minutes and resolutions passed by its board of directors before any of the facilities were extended. Additionally, the directors duly executed the security documents.

26. Applying the Capital Realty case (supra) to the present matter, I am of the opinion that a debt is clearly owed pursuant to various loan agreements between the parties, a debt that has barely been repaid by the 1st plaintiff. In this regard, the issue of exorbitant interest and levies cannot constitute a prima facie case for the purposes of restraining the defendant from exercising its statutory power of sale.

27. As regards the statutory notices issued by the defendant, it was the plaintiffs’ case that they were defective. These were produced as ‘DM-24’ and ‘DM-25’ in the defendant’s replying affidavits. A scrutiny of the same shows that a 3 month notice was issued first and was followed by a 40 days’ notice. This is as per the requirements of the Land Act. Despite the fact that statutory notice ‘DM-24’ was brought under the Land Registration Act and not the Land Act, I find that the notice still serves its purpose in that a 90 day notice was issued to the 1st plaintiff.

28. On the issue of spousal consent, the 1st plaintiff argued that the charges and further charges were invalid as spousal consent was not obtained yet the suit property was matrimonial property.

29. Conversely, the defendant argued that the suit property is fully owned by the 1st plaintiff with Mr Shreedhar Hirji as the sole shareholder in the company. A CR 12 to back this up was annexed as “DM-27” in the defendant’s replying affidavit.

30. As of February 18, 2020, the CR 12 showed that there was only one shareholder Mr Shreedhar Hirji who held 1000 ordinary shares. The 2nd plaintiff is not a shareholder of the 1st plaintiff contrary to the assertions of the plaintiffs.

31. The various loans were advanced pursuant to resolutions by the directors of the 1st plaintiff namely Mr David Mwaura and Mr Shreedhar Hirji.

32. The 1st plaintiff approved the advancements of the loans as a company. After failing to service the loan, the plaintiffs now claim that spousal consent was never obtained prior to the advancement of these loans. I do not think that equity can come to the 2nd plaintiff’s aid.

33. There is nothing on record to indicate that the suit property is matrimonial property as opposed to the 1st plaintiffs company property. Accordingly, the Court finds that no prima facie case with any probability of success has been established.

34. In Nguruman Limited v Jan Bonde Nielsen & 2 others, CA No 77 of 2012, it was stated: -“Ifprima faciecase is not established, then irreparable injury and balance of convenience need no consideration. The existence of a prima facie case does not permit “leap-frogging” by the applicant to injunction directly without crossing the other hurdles in between.” (Emphasis added).”

35. I reiterate the foregoing here. Since the first limb to grant an interim injunction has failed there is no need to consider the remaining two limbs.

36. The prayer for an interim injunction pending determination of this suit fails. As such, the application dated October 4, 2021 is hereby dismissed with costs.It is so ordered.

DATED AND DELIVERED AT NAIROBI THIS 3RD DAY OF JUNE, 2022. A MABEYA, FCIArbJUDGE