HFC Limited v Peter Musau Kituku [2022] KEHC 1270 (KLR)

REPUBLIC OF KENYA

IN THE HIGH COURT OF KENYA

AT MOMBASA

CIVIL APPEAL NO. E024 OF 2021

HFC LIMITED...............................................APPELLANT

-VERSUS-

PETER MUSAU KITUKU..........................RESPONDENT

(Being an appeal from the Ruling and Order of Hon. Patrick Wambugu Mwangi, Principal Magistrate,

delivered on 10th February 2021 in Kwale CMCC No. E7 of 2020)

JUDGMENT

[1]This is an interlocutory appeal arising from the ruling and orders issued by the Principal Magistrate in Kwale CMCC No. E7 of 2020: Peter Musau Kituku vs HFC Limited. The brief background of the matter is that the respondent, a customer of the appellant, had applied for and was granted a facility of Kshs. 2,000,000/= by the appellant. The loan was secured by a mortgage over the respondent’s property known as Kwale/Diani Complex/912 (hereinafter, “the suit property”). It was the contention of the respondent that he repaid the loan dutifully and completed payment in 2017; and that he was shocked to learn that the loan was yet to be fully repaid when he was served with a letter dated 7th January 2020 by the Auctioneers.

[2]    As at 8th October 2020 when the lower court suit was filed, the appellant was demanding Kshs. 3,120,056/=, which the respondent disputed. The respondent further claimed that he had not been served with the statutory notices as by law required. He accordingly filed Kwale CMCC No. E7 of 2020 praying for judgment against the appellant in the following terms:

[a]    A declaration that the appellant’s action in attempting to auction the suit property is illegal, unlawful and unwarranted;

[b]    An injunction restraining the appellants, their agents, servants and/or employees from selling, auctioning and/or interfering in any matter whatsoever with the suit property;

[c]    An order for reconciliation of the accounts with a specific finding on the total outstanding amount if any, the interest charged if any and/or the total outstanding amount if any;

[d]Costs of the suit; and

[e]    Any other relief that the Court may deem fit and just to grant.

[3]Contemporaneously with the Plaint, the respondent filed a Notice of Motion dated 7th October 2020 praying for a temporary injunction with a view of having the appellant restrained from selling the suit property pending the hearing and determination of the suit. The said application was disposed of by way of written submissions and a ruling delivered by the learned trial magistrate, dated 10th February 2021. The lower court was convinced that sufficient cause had been shown for the issuance of the interlocutory relief sought by the respondent. Hence, the lower court

took the following view of the matter:

“...I have considered the facts laid above and the law. There is a serious contention whether the loan was paid in full as the plaintiff alleges. If the same was paid in full the exercise of the statutory power of sale by the defendant would be illegal.

The plaintiff also contends that the interest and charges imposed on him were not contractual that is a serious claim that can only be demonstrated at trial.

Those two are triable issues that can be canvassed at trial. They may not necessarily succeed but are nonetheless issues prima facie for trial. Thus a prima facie case is established...

I have also considered that though the land was voluntarily mortgaged the completion of its redemption is in dispute. Also then the statutory power of sale is challenged.

I find that land is not capable of being replaced by damages. And thus the plaintiff might suffer irreparable injury if the statutory power of sale is exercised...

Having found in the affirmative on the two points above then the balance of convenience then tilts to the plaintiff.

In a nutshell the application succeeds...”

[4]    Being aggrieved by the lower court’s ruling, the appellant filed this appeal on the following grounds:

[a]    The learned magistrate erred in law and fact in finding that a dispute on the amount due or interest charged could attract an injunction to restrain the exercise of the statutory power of sale;

[b]    The learned magistrate erred in law and fact in finding that sale of the charged property is irreparable injury attracting an injunction;

[c]    the learned magistrate erred in law and fact in presuming irreparable injury when the respondent had not discharged his burden of proof;

[d]    the learned magistrate misapplied the principles in Giella v Cassman Brown thus ending up with a decision which was plainly wrong.

[5]    Consequently, the appellant prayed that the appeal be allowed and the ruling and orders of the subordinate court delivered on 10th February 2021 be set aside in their entirety, and be substituted with an order dismissing the respondent’s Notice of Motion dated 7th October 2020 with costs to the appellant. The appellant also prayed for costs of the appeal.

[6]    The appeal was urged by way of written submissions pursuant to the directions given herein on 2nd July 2021. In his written submissions, the appellant’s counsel submitted that, although the learned magistrate was alive to the principles for the grant of an injunction, he applied them wrongly. According to counsel, the respondent merely raised the issue of accounts; which is no ground for granting injunction. He further pointed out that the magistrate erred in concluding that the respondent was charged non-contractual interest, yet no such allegation was made by the respondent.

[7]Counsel further submitted that both normal and default interest was provided for in Clause 2 of the Charge; and therefore that the magistrate misunderstood the respondent’s complaint. He relied on National Bank of Kenya Ltd v Juja Coffee Exports Ltd [2021] eKLR; J.K. Ichatha v Housing Finance Co. of Kenya Ltd [2005] eKLR and Mrao Limited v First American Bank of Kenya Ltd & 2 Others [2003] eKLR.

[8]    Counsel further faulted the trial court for coming to the conclusion that “...land is not capable of being replaced by damages...” According to him, that statement is as unfortunate as it is law-defying. He made reference to the decision of the Court of Appeal in Samson Mwathi Nyutu v Savings & Loan Kenya Ltd [2015] eKLR to support the proposition that a charged property is ipso facto converted into a commodity for sale, and therefore available for purchase by all and sundry unless redeemed. Moreover, counsel cited Section 99 of the Land Act, 2012 which stipulates that a person prejudiced by an improper sale has recourse in damages. Hence, counsel urged the Court to find that the learned magistrate did not exercise his discretion judiciously; and thereby arrived at an erroneous conclusion.

[9]    Ms. Obiero for the respondent relied on her written submissions dated 8th November 2021. She started off by restating the principles guiding the grant of interlocutory injunctions as set out in East African Industries v Trufoods [1972] EA 420, Giella v Cassman Brown & Co. Ltd [1973] EA 358, among other authorities. She submitted that the respondent had made a good case for the issuance of temporary injunction, by demonstrating that the appellant had unlawfully and illegally imposed inordinately high interest on the loan facility, such that by 31st January 2020, the appellant was still claiming Kshs. 3,120,056/=; notwithstanding that the respondent had made payments to the tune of Kshs. 2,727,562. 90 at the time.

[10]  Counsel further submitted that, since the appellant completely failed to furnish the respondent with the requisite statutory notices as required under Sections 90 to 96 of the Land Act, its statutory power of sale had not accrued. She relied on Nyagilo Ochieng and Another v Fanuel Ochieng & 2 Others, 1995-98] 2 EA 260 and added that the requirement for service of the statutory notices is not to enable borrowers escape from their obligations, but was meant to enable the borrowers have sufficient time for redemption of their charged properties.

[11]  On whether the respondent had proved irreparable harm for which damages would not be adequate as a remedy, counsel reiterated the averment that the suit property is family property; and therefore that no value can be attached to it. Reliance was placed on Martha Khayanga Simiyu v Housing Finance Co. of Kenya & 2 Others [2001] EA 540 and Givan Okallo lngari & Another v Housing Finance Company of Kenya Ltd, Civil Case No. 79 of 2007, for the proposition that it is not an inexorable rule of law that where damages may be an adequate remedy, an interlocutory injunction should never issue; and that a temporary injunction is granted because prima facie the plaintiff has disclosed a threat or an infringement of his rights which needs protection or the intervention of the court pending the hearing and determination of the suit. Accordingly, counsel urged the Court to uphold the decision of the lower court by dismissing this appeal with costs.

[12]  This being a first appeal, it is the duty of this Court to re-evaluate the evidence placed before the lower court and make its own conclusions thereon. The words of Sir Clement de Lestang, VP, in Selle & Another v Associated Motor Boat Co. Ltd & Others [1968] EA 123, are apt, namely, that:

"...this court is not bound necessarily to accept the findings of fact by the court below. An appeal to this court ... is by way of retrial and the principles upon which this court acts in such an appeal are well settled. Briefly put they are that this court must reconsider the evidence, evaluate it itself and draw its own conclusions though it should always bear in mind that it  has neither seen nor heard the witnesses and should make due allowance in this respect..."

[13]Moreover, it was in the discretion of the lower court to review and set aside the order of1st August 2016or not; and therefore such exercise of discretion can only be interfered with by an appellate court if any of the circumstances set out in United India Insurance Co. Ltd v East African Underwriters (Kenya) Ltd [1985] E.A 898, are established. It was held therein thus by the Court of Appeal:

“The Court of Appeal will not interfere with a discretionary decision of the judge appealed from simply on the ground that its members, if sitting at first instance, would or might have given different weight to that given by the judge to the various factors in the case. The Court of Appeal is only entitled to interfere if one or more of the following matters are established: first, that the judge misdirected himself in law; secondly, that he misapprehended the facts; thirdly, that he took account of considerations of which he should not have taken account; fourthly, that he failed to take account considerations of which he should have taken account, or fifthly, that his decision, albeit a discretionary one, is plainly wrong.”

[14]The principles are equally germane to appeals from the subordinate court to the High Court. In addition, I must remind myself that this is an interlocutory appeal; and therefore that it is not in the interest of justice for the Court to make any dispositive findings on the issues in contest. This point was aptly made in Uhuru Highway Development Ltd v Central Bank of Kenya & Another[1995] eKLR as follows:

... one must be careful as far as possible in dealing with this appeal, not to pronounce on the dispute between the parties on its merits. After all, the suit is still pending in the High Court and to express concluded views on the merits of the dispute in this interlocutory appeal, would hamstring a decision on them by the High Court...

[15]That said, it is manifest from the Grounds of Appeal and the written submissions filed herein that the single issue for determination in this appeal is the question whether, in considering the interlocutory application for temporary injunction, the learned magistrate erred in his appreciation of the applicable law. A perusal of the impugned ruling reveals that the learned magistrate clearly set out the law at page 4 of thereof (see page 200 of the Record of Appeal). He then proceeded to make reference to and extensively quoted from the leading authorities on the subject, such as Giella v Cassman Brown (supra); Mrao Ltd v First American Bank of Kenya (supra); and Nguruman Limited v Jan Bonde Nielsen & 2 Others [2014] eKLR (see pages 201 – 204 of the Record of Appeal).

[16]  Thus, I would, at this juncture, reiterate the expressions of Hon. Ringera, J. (as he then was) in Dr. Simon Waiharo Chege v Paramount Bank of Kenya Ltd, Nairobi HCCC No. 360 of 2001 that:

“The remedy of injunction is one of the greatest equitable reliefs. It will issue in appropriate cases to protect the legal and equitable rights of a party to litigation which have been or are being or are likely to be violated by the adversary. To benefit from the remedy, at an interlocutory stage, the applicant must, in the first instance show he has a prima facie case with a probability of success at the trial. If the court is in doubt as to the existence of such a case, it should decide the application on a balance of convenience. And because of its origin and foundation in the equity stream of the jurisdiction of the Courts of Judicature, the applicant is normally required to show that damages would not be an adequate remedy for the injury suffered or likely to be suffered if he is to obtain an interlocutory injunction. As the relief is equitable in origin, it is discretionary in application and will not issue to a party whose conduct as appertains to the subject matter of the suit does not meet the approval of the eye of equity.”

[17]  As has been pointed out hereinabove, the learned magistrate based his decision on his finding that the respondent had raised two triable issues: firstly, that there was a serious contention as to the sum outstanding owing to the fact that the appellant may have charged non-contractual interest. The second point was the conclusion that loss of land in circumstances such as these, is not compensable by an award of damages.

[18]However, authorities abound to support the position that a dispute as to the amount owing is no ground for the grant of an injunction. For instance, in National Bank of Kenya Limited v Juja Coffee Exporters Limited (supra), the Court of Appeal held that:

“The claim that there was a contest as to the exact amount outstanding was also not a basis for restraining the Bank. Authorities for the proposition that a dispute on the outstanding loan should not scuttle the exercise by a chargee of its power of sale go back many years...”

[19]  Likewise, in Bharmal Kanji Shah And Another v Shah Depar Devji (Supra)it was held that:

"…the court should not grant an injunction restraining a mortgagee from exercising his statutory power of sale solely on the ground that there is a dispute as to the amount due under a mortgage…"

[20]The above case was followed by the Court of Appeal inFrancis J.K. Ichatha v Housing Finance Company of Kenya Ltd (supra)in which the Court reiterated that:

“...The dispute is essentially on the quantum of the arrears and of the loan at the time the statutory notice was issued. The applicant recognized in the plaint that the dispute was of “Mathematical nature”. Thus, this is truly a dispute on the accounts. The existence of such a dispute is not a valid ground for restraining the respondent from exercising its statutory power of sale.”

[21]  And, for good measure, in Halsbury’s Laws of England, Vol. 32 (4th Edition) paragraph 725it is opined that:

"The mortgagee will not be restrained from exercising his power of sale because the amount due is in dispute, or because the mortgagor has begun a redemption action, or because the mortgagor objects to the manner in which the sale is being arranged. He will be restrained, however, if the mortgagor pays the amount claimed into court, that is, the amount which the mortgagor claims to be due to him..."

[22]Clearly then, the mere fact that there was “...a serious contention...” between the parties as to the amount due was no valid ground for the learned magistrate to grant an injunction as he did. I therefore find that the learned magistrate misdirected himself in that regard. In the same vein, it was a misdirection for the learned magistrate to conclude that “...land is not capable of being replaced by damages...”.Two principles come to mind in this regard; the first is the freedom to contract; whereby the respondent willingly offered the suit property as security for a loan that he admittedly obtained from the appellant. He consequently expressly agreed that the suit property could be sold in the event of default in servicing the facility. In such circumstances, courts of law ought to be slow in intervening with what the parties mutually and expressly agreed on as forming the terms of their contractual arrangement.

[23]  In National Bank of Kenya Ltd v Pipeplastic Samkolit (K) Ltd & Another [2001] KLR 112 the Court of Appeal made this explicit thus:

"A Court of law cannot re-write a contract between the parties. The parties are bound by the terms of their contract, unless     coercion, fraud or undue influence are pleaded and proved. There was not the remotest suggestion of coercion, fraud or  undue influence in regard to the terms of the charge.

As was stated by Shah JA in the case of Fina Bank Limited vs Spares & Industries Limited(Civil Appeal No 51 of 2000) (unreported):

“It is clear beyond peradventure that save for those special cases where equity might be prepared to relieve a party from a bad bargain, it is ordinarily no part of equity’s function to allow a party to escape from a bad bargain”.

[24]The second principle is that, once land is offered as security for a loan, it becomes a commodity for sale with a value; and therefore can be sold and bought as any other such commodity. Hon. Nyamu, J(as he then was) aptly made this point inMaithya vs. Housing Finance Co. of Kenya & Another(supra) as follows:

"Charged properties are intended to acquire or are supposed to have a commercial value otherwise lenders would not  accept them as securities. The sentiment of ownership which  has been greatly treasured in this country over the years has in many situations given way to commercial considerations. Before lending, many lenders, banks and mortgage houses,     are    increasingly insisting on valuations being done so as to establish forced sale values and market values of the properties to constitute the securities for the borrowings or   credit facilities ... loss of the properties by sale is clearly contemplated by the parties even before the security is formalized."

[25]Similarly, in Isaac O. Litali v Ambrose Subai & AnotherHCCC No. 2092 of 2000,Hon. Ringera, J.(as he then was) held that:

"...the Plaintiff has in his pleading and affidavit made a mountain out of the fact that he has developed the land in   question into a home and its sale would therefore occasion pain and loss which cannot adequately be compensated in         damages... I am of the opinion that once land has been given as security for a loan, it becomes a commodity for sale    by that very fact, and any romanticism over it is unhelpful...For nothing is more clear in a contract of charge than that default in the payment of the    debt will result in the sale of the security. In that respect, land is no different from a chattel such as a motor vehicle or any other form of  security."

[26]Thus, the only valid ground for restraining a chargee from exercising its statutory power of sale would be if the sale is otherwise in disregard of the applicable law; for instance, where the requisite statutory notices have not been issued or served. I note that, at pages 3 to 7, counsel for the respondent adverted to and belabored the assertion by the respondent that he was not served with the requisite statutory notices as provided for inSections 90 to 96of theLand Act.However, a perusal of the impugned ruling reveals that this was not one of the reasons for the decision; and therefore the point did not feature in the Grounds of Appeal. It cannot therefore form the basis for this Court’s decision.

[27]I am fortified in this conclusion by the position taken by Hon. Muriithi, J. in Twaher Abdulkarim Mohamed v Independent Electoral & Boundaries Commission (IEBC) & 2 others [2014] eKLR, in which it was stated thus:

“How about a situation where although a matter is raised before the trial court, it is not raised initially in the grounds of appeal and it is subsequently sought to be raised by the appellant or indeed by the Respondent" Does the want of an appeal by way of a memorandum of appeal under rule 34 in this case prevent the court from entertaining the point proposed to be raised by the respondents" I think the matter may be resolved by reference to the analogy of the principles for raising a new point on appeal which was not dealt with at the trial court. Although the point had been raised in the trial court, having not been raised in a memorandum of appeal by the respondent, it amounts to a new point taken in the course of the appeal, and the considerations of the ability to give the appellant a fair trial are paramount in the same way as with the new point not previously raised in the trial court.”

[28]  In the result, I find merit in the appeal. It is hereby allowed with costs. The ruling and order of the lower court dated 10th February 2021 in respect of the Notice of Motion dated 7th October 2020 is hereby set aside and substituted with orders as hereunder:

[a]That the respondent’s application dated 7th October 2020 be and is hereby dismissed with costs;

[b]That the appellant be at liberty to proceed and realize its security upon serving all the requisite notices as by law required;

[c]That each party shall bear own costs of the appeal.

It is so ordered.

DATED, SIGNED AND DELIVERED VIRTUALLY AT MOMBASA THIS 1ST DAY OF MARCH 2022.

____________________

OLGA SEWE

JUDGE