Hatimy Investment Limited & another v Absa Bank Kenya PLC & another [2022] KEHC 14274 (KLR)

Hatimy Investment Limited & another v Absa Bank Kenya PLC & another (Civil Case E026 of 2021) [2022] KEHC 14274 (KLR) (5 October 2022) (Ruling)

Neutral citation: [2022] KEHC 14274 (KLR)

Republic of Kenya

In the High Court at Mombasa

Civil Case E026 of 2021

OA Sewe, J

October 5, 2022

Between

Hatimy Investment Limited

1st Plaintiff

Hadia Khamis Ramadhan

2nd Plaintiff

and

Absa Bank Kenya PLC

1st Defendant

Antique Auctions Agencies

2nd Defendant

Ruling

1. The plaintiffs’ Notice of Motion dated February 1, 2022 seeks that the Court be pleased to order the 1st defendant to acknowledge and offset the Kshs 7,000,000/= paid by the 1st plaintiff to the 1st defendant against the orders in the ruling dated November 26, 2021. They also prayed that the costs of the application be provided for. The application was premised on the grounds that the Court delivered its ruling herein on November 26, 2021 whereby the 1st plaintiff was ordered to pay the 1st defendant Kshs 1,000,000/= in further repayment of the loan and storage charges for the 2nd defendant’s motor vehicles; and that in addition, the 1st plaintiff was to continue repaying the loan in instalments of Kshs 700,000/= per month for 6 months.

2. It was the contention of the 1st plaintiff that it paid the 1st defendant Kshs 7,000,000/= prior to the delivery of the ruling aforementioned; and that the said amount should therefore be taken into account by way of a set-off towards the instalment payments. The 1st plaintiff added that, despite various communications to the 1st defendant and their advocates on record, the 1st defendant has refused to acknowledge the sums paid and has refused to offset the same against the sums as enumerated in the court order of November 26, 2021; with the effect that the 1st defendant is poised to unjustly receive a further Kshs 1,000,000/= and the the total sum of the 6 instalments ordered for by the Court.

3. The application was supported by the affidavit of a director of the 1st plaintiff, Nadia Khamis Ramadhan, in which the aforementioned grounds were reiterated. The deponent also annexed to the affidavit copies of the ruling dated 26th Novemer 2021, a receipt evidencing the payment of Kshs 7,000,000/= the subject of this application, as well as correspondence exchanged between the parties in connection with the payment. At paragraphs 7 to 11, the 1st plaintiff averred that it is only just and fair that the aforementioned sum, which sum was paid by it towards settlement of the debt it owes the 1st defendant, be taken into account to offset the payments ordered for by the Court vide the ruling dated November 26, 2021.

4. The application was opposed by the 1st defendant and a Replying Affidavit filed to that end on March 1, 2022, sworn by the 1st defendant’s Corporate Recoveries Manager, Mr Joseph Muli. It was averred by Mr Muli that the orders sought by the 1st plaintiff amount to an invitation for the Court to rewrite the contract between the parties. He further averred that, having exercised its review powers once on November 26, 2021, the Court lacks the jurisdiction to exercise any further powers of review.

5. At paragraphs 9 and 10 of the Replying Affidavit, Mr Muli averred that the sum of Kshs 7,000,000/= which is the subject of this application was in fact proceeds from the sale of two trucks, Registration Nos KCU 380W and KCQ 193V, which the 1st defendant held as security; and that to treat the amount as payment towards reduction of the loan would be to diminish the 1st defendant’s security and leave it unsecured to the tune of Kshs 7,000,000/=. In support of this assertion the 1st defendant relied on the correspondence annexed to the Replying Affidavit and marked Annexure JM-1.

6. (a)The application was canvassed by way of written submissions, pursuant to the directions given herein on February 22, 2022. Accordingly, Mr Akanga for the 1st plaintiff filed his written submissions on March 23, 2022 and proposed the following two issues for determination:(b)Whether the 1st plaintiff paid Kshs 7,000,000/= to the 1st defendant; and,(c)Whether the Court has jurisdiction to handle the application and order a set-off of in respect of the Kshs 7,000,000/= against the orders for instalment payment dated November 26, 2021.

7. Mr Akanga urged the Court to find, as a fact, that the 1st plaintiff paid Kshs 7,000,000/= to the 1st defendanat 14 days prior to the delivery of the ruling dated November 26, 2021; and therefore that, since the Court was unaware of the payment, it is only fair that the order be reviewed and a set-off ordered. He relied on Twiga Chemical Industries Limited v Rotam Agrochemical Co Ltd [2019] eKLR and Kenya Oil Company Ltd v Kenya Ports Authority [2009] eKLR in support of his prayer for set-off. Mr Akanga consequently posited that the Court has jurisdiction to entertain the instant application, as what is sought is not review but a form of enforcement of the orders issued on November 26, 2021 with a view of compelling the 1st defendant to a fair deal.

8. On his part, Mr Kongere for the 1st defendant, relied on his written submissions dated April 22, 2022. In his view, there is only one issue arising for determination; namely, whether the relief sought should be granted. According to Mr Kongere to grant the orders sought would, in effect, amount to a review of the ruling and orders made on November 26, 2021, as there is no way the Court can order for a set-off without undoing the previous order. Counsel then proceeded to pose the question as to whether such a review is permissible in law. He made reference toNational Bank of Kenya Limited v Ndungu Njau[1977] eKLR,Jacqueline Mach Damon & Another v Hugh George Cholmondeley & Others[2022] eKLR and Alpha Fine Foods Limited v Horeca Kenya Limited & Others[2021] eKLR in urging the Court to find that the 1st plaintiff has not met the threshold for review for purposes of Order 45 Rule 6 of the Civil Procedure Rules. Mr Kongere added that the only option available was for the 1st defendant to appeal the impugned decision.

9. Mr Kongere also urged the Court to take into consideration that the Kshs 7,000,000/= was paid as purchase price for 2 of the motor vehicles held by the 1st defendant as security; upon which payment the two motor vehicles were released to the new owners. He explained that the effect of that release was to diminish the security that the 1st defendant holds; and therefore that to order a set-off as proposed by the 1st plaintiff would be to irreparably prejudice the 1st defendant. He urged the Court, as a court of equity, not to countenance such a situation. Counsel further pointed out that, as matters stand, the 1st defendant has not paid the initial amount of Kshs 1,000,000/= or the storage charges; let alone the instalments that were payable with effect from the December 31, 2021. He relied on Hunker Trading Company Limited v Elf Oil Kenya Limited [2010] eKLR in urging the Court to dismiss the application dated February 1, 2022 with costs; for the 1st plaintiff has come back to Court seeking the very orders it had previously declined to obey.

10. I have given careful consideration to the application dated February 1, 2022 along with the affidavits filed in respect thereof. I have similarly paid attention to the written submissions filed by learned counsel on behalf of the parties. A perusal of the record confirms that The parties are in agreement that the 1st plaintiff was accorded certain financial facilities by the 1st defendant, including an overdraft facility for the purpose of financing the purchase of 7 motor vehicles. At paragraph 7 of the Plaint, the 1st plaintiff indicated that the said motor vehicles and their trailers were purchased at a combined value of over Kshs 35,000,000/=.

11. The record of the proceedings todate further show that the 1st plaintiff defaulted in servicing the facilities and blamed the global Corona Virus (Covid-19) pandemic for that state of affairs; which explanation was deemed plausible by the Court in the ruling dated November 26, 2021. The 1st plaintiff’s cause of action was that the 1st defendant, through the 2nd defendant, had prematurely repossessed the subject motor vehicles with the intention of realizing its security for the outstanding loans. It therefore prayed for the unconditional release of the motor vehicles, among other reliefs.

12. Contemporaneously, the 1st plaintiff filed a Notice of Motion dated March 9, 2021 seeking a temporary injunction to restrain the defendants from any precipate action in connection with the motor vehicles. In addition, the 1st plaintiff also prayed for an order for the immediate return of the motor vehicles as well as an order for instalment payment of the outstanding loan sum. That application was compromised by consent vide a consent letter dated March 25, 2021. The consent was accepted by the Court on March 30, 2021 and adopted as an order of the Court. Thereupon a Decree was issued on August 6, 2021.

13. On August 4, 2021, the 1st plaintiff filed yet another application, seeking that the consent order dated recorded on March 30, 2021 be set aside, varied or reviewed, in addition to the unconditional return of the subject motor vehicles. The said application was heard and determined on November 26, 2021 (Hon Chepkwony, J) and the following orders given:(a)The repayment of the loan arrears as at the date of the ruling be computed to be Kshs. 6, 565, 875. 35 and to be paid in monthly instalments of Kshs 700,000/= to commence on December 30, 2021 and continue on every 30th day or last date of each succeeding months till payment in full.(b)The Applicant to pay to the Respondent Kshs 1,000,000/= immediately plus costs of repossession and storage to date.(c)The normal terms of repayment of the balance of the loan to apply from July 30, 2022, that is to say, Kshs 1,200,000/= per month till payment in full.(d)On compliance with order No (2) above, the Respondent to release to the Applicant the attached Motor Vehicles KCU 373 ZF 9070, KCU 380W ZF 0793, KCU 508W ZF6936, KCU 489W ZD4570, KCU 491W ZC9654, KCQ 193V ZF6591 and KCQ 011W ZF4325. (5)Orders (1), (2), (3), (5), (7), (8) and (9) be and are hereby set aside/varied.(6)The suit be and is hereby marked as settled in the terms above.

14. Although Mr Kongere urged the Court to proceed on the basis that the application, in effect seeks a review of the ruling and orders issued on November 26, 2021, the 1st plaintiff was categorical that the application is for set-off and therefore essentially seeks the implementation of the orders made on November 26, 2021. I therefore will give it a simple approach and frame the issue for determination to be whether, in the circumstances, the 1st plaintiff is entitled to a set-off so as to be deemed to have complied with the orders of the Court dated November 26, 2021.

15. From the material placed before the Court, there appears to be no dispute that indeed, the 1st plaintiff paid Kshs 7,000,000/= to the 1st defendant about two weeks before the ruling of November 26, 2021. Two documents in proof of the payment were annexed to the 1st plaintiff’s Supporting Affidavit and marked as Annexure N1 along with other documents. There is no gainsaying that the Court was unaware of the payment by the time the ruling dated November 26, 2021 was delivered and therefore did not, and could not have taken that sum into account in its ruling. It is for this reason that the 1st plaintiff urged that the payment be accounted for and applied towards the reduction of the loan by way of a set-off.

16. According to Black’s Law Dictionary, Tenth Edition, a set-off is:“...a mode of defence by which the defendant acknowledges the justice of the plaintiff’s demand, but sets up a demand of his own against the plaintiff, to counter-balance it either in whole or in part.”

17. It is plain, then, that a set-off does not arise in the circumstances of this case. For one, Hatimy Investment Limited is not a defendant in this matter and therefore is in no position to raise such a defence. Indeed, Order 7 Rule 3 of the Civil Procedure Rules, is explicit that:“A defendant in a suit may set-off, or set-up by way of counterclaim against the claims of the plaintiff, any right or claim, whether such set-off or counterclaim sound in damages or not, and whether it is for a liquidated or unliquidated amount, and such set-off or counterclaim shall have the same effect as a cross-suit, so as to enable the court to pronounce a final judgment in the same suit, both on the original and on the cross-claim; but the Court may on the application of the plaintiff before trial, if in the opinion of the court such set-off or counterclaim cannot be conveniently disposed of in the pending suit, or ought not to be allowed, refuse permission to defendant to avail himself thereof.” (emphasis supplied)

18. I therefore agree entirely with the position taken by Hon Kimaru, J (as he then was) in Kenya Oil Company Ltd vs Kenya Ports Authority (supra) that:“It cannot be said that where the plaintiff has established its claim by providing documentary evidence, then the counterclaim and set off by the defendant should be tried separately and judgment be entered for the plaintiff as against the defendant. I think it would be a travesty of justice if the court were to discount a set off raised by the defendant in its defence on the sole ground that the transaction that resulted in the defendant’s claim in the set off is a separate cause of action from the set of facts that prompted the plaintiff to file suit against the defendant. The authors of Atkin’s Encyclopaedia of Court Forms in Civil Proceedings, 2nd Edition volume I, 1978 Issue, aptly set out the import of a set off in a defence:“59. Set-off. Where a claim by a defendant to a sum of money (whether of an ascertained amount or not) is relied on as a defence to the whole or part of a claim made by the plaintiff it may be included in the defence and set off against the plaintiff’s claim, whether or not it is also added as a counterclaim (h). A set-off is in its nature a defence rather than a cross-claim (j). A right of set-off normally arises where the plaintiff’s claim is a debt or liquidated demand and the defendant has cross-claim for a debt or liquidated demand which, if established, will extinguish or reduce the plaintiff’s money claim (k), and should be pleaded as such.”

19. Secondly, the 1st plaintiff expressly acknowledged, at paragraph 16 of its Plaint, that it received a combined loan of over Kshs 68,000,000/=; and that, although it had made repayments to the tune of Kshs 40,000,000/= or thereabouts, it was still indebted to the 1st defendant in the sum of Kshs 28,000,000/= as at March 2021 when this suit was instituted. Moreover, a perusal of the ruling dated November 26, 2021 reveals that the adjustment as to the repayment schedule was intended to subsist for only 6 months; after which, the balance of the arrears would still be due and payable with effect from May 2021 at the rate of Kshs 1,200,000/= per month. It is plain therefore that a set-off would hardly be applicable in such a scenario.

20. There is an additional reason why a set-off is untenable in the circumstances of this case, and it is this. The 1st defendant explained in its Replying Affidavit that the motor vehicles were themselves offered as collateral; and that the sum of Kshs 7,000,000/= was in fact proceeds from the sale of two of them to third parties. The 1st defendant annexed correspondence to its affidavit in proof of this assertion and contended that the funds invariably comprise its security for the facility. That assertion cannot be faulted given the admission by the plaintiff that that it is still indebted to the 1st defendant. It also goes to show that, ultimately, the 1st defendant will have to account for that payment.

21. It is in the light of the foregoing that I find no merit in the application dated February 1, 2022. The same is hereby dismissed with costs.It is so ordered.

DATED, SIGNED AND DELIVERED VIRTUALLY AT MOMBASA THIS 5TH OCTOBER 2022OLGA SEWEJUDGE