Hiram & another v Jubilee Insurance Company Limited & another [2022] KEHC 16707 (KLR)

Hiram & another v Jubilee Insurance Company Limited & another (Civil Case 761 of 1999) [2022] KEHC 16707 (KLR) (Commercial and Tax) (8 December 2022) (Judgment)

Neutral citation: [2022] KEHC 16707 (KLR)

Republic of Kenya

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

Commercial and Tax

Civil Case 761 of 1999

WA Okwany, J

December 8, 2022

Between

Kishor Ramji Hiram

1st Plaintiff

Priyash Hirani (Suing as the Legal Representative, Administrator of the Estate of Ramji Govind Hiram)

2nd Plaintiff

and

Jubilee Insurance Company Limited

1st Defendant

Forefront Agencies

2nd Defendant

Judgment

1. The Plaintiffs are adults of sound minds and were at all material times to this suit the joint registered owners of LR No 7785/533 (Original No 7785/166/2) together with the developments thereon (hereinafter 'the Suit Property').

2. The 1st Defendant is a duly registered Company in Kenya carrying out business of insurance and other businesses in Kenya while the 2nd Defendant is a firm of Auctioneers, Court Brokers, Re-possessors and Private Investigators carrying out business in Kenya.

3. The original plaintiffs herein, Ramji Govind Hirani (deceased) and Mrs RG Hirani (also deceased), sued the defendants through the original plaint dated June 15, 1999 seeking the following orders: -i.A declaration that the First Defendant is not entitled to enforce any terms of the alleged Chargeii.An Order for the Discharge of the Charge and release of the security and title documents to LR 7785/533 (Original No 7785/155/2).iii.A detailed statement of account showing what the Defendant alleged to have advanced to the First Plaintiffiv.A declaration that the First Defendant is not entitled to enforce any terms of the alleged Charge.v.General damages for breach of contract.vi.As against the First and Second Defendants jointly and severally an Order that by themselves, agents, servants or assignees or any of them whatsoever be restrained from selling, transferring or disposing of the premises known as LR No 7785/533 (Original No 7785/166/2).vii.Costs and interest.

4. The case was initially heard by Lady Justice Khaminwa (deceased) who, in a judgment rendered on December 14, 2011 allowed the Plaintiff’s suit, albeit in part. The Court of Appeal however, set aside the said judgment and remitted the suit for retrial through its decision delivered on February 22, 2019.

5. Through an order issued by Kasango J on June 19, 2019, the case was referred to this court for hearing and determination.

6. The plaint was subsequently amended, through a consent order adopted on May 21, 2020, following the demise of the original plaintiffs to incorporate their duly appointed legal representatives/administrators.

The Plaintiffs’ Case 7. The Plaintiffs state that sometime in the year 1997, they applied for a loan of Kshs 6,000,000 (six) Million from the 1st Defendant to enable them complete the construction of their family home situate on the suit property. They contend that they informed the 1st Defendant that the loan would be utilized as follows:-i.KShs. Four (4) million for the construction of the house.ii.Kshs 650,000 to discharge a loan from Equatorial Finance Company Limited.iii.The balance of Kshs 1,350,000/ = for personal use towards furnishings, incidentals etc.

8. The Plaintiffs state that through a letter dated March 10, 1997, the 1st Defendant confirmed that it had approved the loan of Kshs. Six (6) Million but advised the 1st Plaintiff that it could not advance the approved monies as it was required to take security of the property when the house had been completed. They add that the 1st Defendant therefore negotiated for a bridging loan of Kshs Four (4) million to be granted by its associate company, Diamond Trust Bank Limited (DTB).

9. The Plaintiffs further state that by a letter dated April 3, 1997 DTB approved a bridging loan of Kshs Four (4) Million to the Plaintiff. The terms of the bridging loan as read together with the Agreement with the 1st Defendant were as follows:-a.Diamond Trust Bank Limited would advance Kshs Four (4) Million.b.The Kshs Four (4) million advanced by Diamond Trust Bank Limited would be used to complete construction of the premises within six months of the date of the advance.c.On expiry of six months the First Defendant would:-i.Take over the loan from Diamond Trust Bank Limited,ii.Advance a further Kshs Two (2) million to the Plaintiff,iii.Secure the total Kshs Six (6) million by a Charge over the suit property to be prepared and registered by their own Advocates.

10. On April 9, 1997, Diamond Trust Bank advanced the sum Kshs Four (4) Million to the Plaintiffs. In accordance with the terms of the Agreement, the plaintiffs executed the Charge documents thereby securing the sum of Kshs Six (6) Million.

11. The Plaintiffs aver that they expected the 1st Defendant to release to them a further sum of Kshs Two (2) Million upon the execution of the Charge document. They claim that the 1st Defendant however committed the following breaches:-a.Refused and/or neglected to furnish the Plaintiffs with a copy of the duly registered Charge.b.Failed to register the charge within the stipulated time so as to advance a sum of Kshs Two (2) million, and as a result, the First Plaintiff could not discharge their liability of Kshs 650,000/= to Equatorial Finance Company Limitedc.Failed to account as to when it discharged the liability to Equatorial Finance Company Limited and the delay thereon occasioned interest and penalty.

12. It is the Plaintiffs’ case that the 1st Defendant persisted with the breaches despite repeated reminders to remedy the breaches and despite the offer, by the Plaintiffs to pay Kshs 5. 8 Million in repayment of the loan from DTB in return for a Discharge of Charge of the suit premises.

13. The Plaintiffs claim that by a notification of sale dated 3rd May 1999 the 2nd Defendant, as Auctioneers Agents and Court Brokers, demanded a sum of Kshs 8,193,444. 25 from the Plaintiffs in default of which they would sell the property on August 14, 1999. The Plaintiffs deny liability for the claim and aver that the attempt to sell property is unlawful, invalid and improper thus precipitating the filing of this suit.

14. The plaintiffs fault the 1st Defendant for failing and/or refusing to avail to them the registered charge documents and to furnish them with proper statement of accounts showing the amount due.

15. The gist of the Plaintiffs’ case is that the 1st Defendant breached the terms of their agreement by keeping them in the dark about the extent of their indebtedness, failing to disburse the agreed Kshs 2 Million so as to discharge the Plaintiffs’ property from Equatorial Commercial Bank (hereinafter 'Equatorial'), failing to disburse the balance of the loan of Kshs 2 Million and failing to expeditiously take over Diamond Trust Bank's loan (hereafter DTB) thus putting the Plaintiffs to heavy and unmanageable indebtedness arising from interest that accrued from money owed to Equatorial and DTB.

The Plaintiffs’ Oral Evidence 16. .The Plaintiffs presented the evidence of its sole witness, Mr Kishore Ramji Hirani (PW1), who reiterated the contents the contents of the amended plaint. He testified that according to the terms of their agreement, since the loan from DTB was approved on March 10, 1997, the construction of the house on the suit property was to be concluded 6 months later in October 1997. He confirmed that he completed the construction of the house in October 1997 as agreed after which he proceeded to sign the charge documents with the 1st defendant.

17. PW1 stated that as at October 1997, the plaintiffs had an overdraft facility with Equatorial Bank who had a charge over the suit property a fact which they had disclosed to the 1st defendant. He stated that the 1st defendant delayed in remitting to them the remaining Kshs 2 Million that they could have used to offset the Equatorial overdraft. He testified that it was not until July 27, 1998 that they received the discharge of charge from Equatorial bank even though the said discharge was supposed to happen in October 1997.

18. PW1 further testified that no sooner had they received the Equatorial discharge than the 1st defendant issued them with a notice of intention to sell the suit property despite the fact that they had not received the loan balance of Kshs 2 Million in time or at all. He stated that they eventually received the auctioneer’s letter on May 31, 1999 notifying them of the 1st defendant’s intention to sell the suit property for a debt of Kshs 8,193,444. 25 after which they obtained an injunction to stop the sale with a rider that they deposit Kshs 5. 8 Million in court.

19. PW1 testified that the plaintiffs were to repay the bridging loan by monthly instalments of Kshs 110,000 but only paid 2 instalments before stopping the repayments on account of the 1st defendant’s failure to release the loan balance of Kshs 2 Million to them.

20. On cross examination, PW1 conceded that there was no reference to Equatorial overdraft in the Letter of Offer. He also conceded that the terms of the bridging loan did not provide for the payment of Kshs 2 Million to the Plaintiffs. He further confirmed that the terms of their agreement required them to pay the cost of preparing and completing the charge but added that they did not pay the said costs.

The 1st Defendant’s Case 21. The 1st Defendant filed an Amended Statement of Defence dated June 23, 2020 wherein it denied the Plaintiffs’ claim while arguing that it is unsustainable as the plaintiff obtained a loan facility from the 1st Defendant with no intention of repaying the same. The 1st Defendant states that, as admitted during trial, the plaintiffs did not make any repayment towards settling the principal loan as stipulated in the facility documents. The 1st Defendant noted that the Plaintiffs introduced new issues in their submissions contrary to the well-entrenched legal principle which states that parties are bound by their pleadings and cannot seek to introduce new issues not pleaded in their submission.

22. The 1st Defendant maintained that the determination of the issues presented in this matter turn on the construction of the express terms of the contract that the parties executed about which there is and there can be no credible dispute.

23. The 1st Defendant maintained that it had, through its letter dated February 28, 1997, (which was prior to the approval of the loan facility) notified PW1 that it does not give construction finance and that it was only agreeable to financing him to a maximum of 60% of the valuation of the suit property upon completion of the construction. It was the 1st Defendant’s case that there was absolutely no mention of any other purpose of the loan money as alleged by the Plaintiffs save for the express provisions of the Offer Letter.

24. On the Plaintiffs’ allegation that the 1st Defendant would on expiry of 6 months take over the loan from Diamond Trust Bank and advance a further Kshs 2 million to the Plaintiff, the 1st Defendant stated that the Letter of Offer dated April 3, 1997 does not contain such a provision.

25. On whether the 1st Defendant breached the terms of the Charge document by neglecting to furnish the Plaintiffs with a copy of the duly registered charge, by failing to register the Charge within the stipulated time in the Agreement or within reasonable time so as to advance a sum of Kshs 2 million hence the PW-1 could not discharge their liability of Kshs 650,000/- to Equatorial Finance Company Limited and that the 1st Defendant failed to account as to when it discharged the liability to Equatorial Finance Company Ltd, the 1st Defendant averred that it became apparent during cross-examination that under Letter of Offer, the Plaintiffs were obligated to bear the cost of preparing and completing the Charge including, legal fees, stamp duty and registration fees but had failed to pay for these costs to date. The 1st Defendant maintained that it had no legal obligation to provide the Plaintiffs with a copy of the registered Charge until they settled the payments in respect to completion of registration.

26. The 1st Defendant added that the loan was not for the purpose of discharging the liability to Equatorial Finance Company Limited but to the contrary, the Plaintiffs had undertaken that they held a clear title to the security provided.

1st Defendant’s Oral Evidence 27. The 1st Defendant presented the evidence of its sole witness, Ms Janet Kiunga, (DW-1), who testified that by an application for a mortgage loan dated February 19, 1997 the 1st Plaintiff applied for a loan of Kshs 6,000,000/= for a term of 10 years on the security of the suit property which they claimed had a clear title. She stated that by a letter dated February 28, 1997, the 1st Defendant clarified to the 1st Plaintiff that they did not give construction finance but were however agreeable to finance him on their normal terms and rules governing the advance of mortgage loans of up to 60% of the value of the security upon completion of construction.

28. DW1 testified that through a letter dated March 3, 1997 the 1st Plaintiff was notified that his loan application had been approved subject to completion of construction of their property and that the funds will only be made available after the requisite documentation had been finalized. She stated that an Offer Letter dated March 10, 1999 ('Offer Letter') was consequently issued to the 1st Plaintiff which contained the following salient terms:-a.It will be secured by a first legal charge over the Suit Property.b.Interest at the rate of 24% pa, calculated with yearly rates but payable by apportioned monthly payments and that interest shall be charged from the date of the issue of the cheque by the Company. There was also an additional penalty rate of 10% per annum in the event of default;c.Redemption of Principal and payment of interest shall be by 84 equal monthly instalments of KShs 154,210/= commencing from the last day of the month next after the issue of the loan by the company;d.And a Special Condition that the above loan will be advanced to you as end-finance after completion of construction to pay off Diamond Trust Bank Limited who are providing the bridging funds; ande.The cost of preparing and completing the Mortgage or Charge together with all expenses incidental thereto and including legal fees, stamp duty and registration fees are to be borne by the Plaintiffs.

29. DW1 stated that in order to facilitate the completion of the construction of a residential house on the Suit Property, the 1st Defendant arranged for a Bridging Facility from Diamond Trust Bank. She added that by a Letter dated April 3, 1997 ('Bridging Finance Agreement'), DTB agreed to advance the bridging finance of Kshs 4,000,000/= whose salient terms were as follows:-a.Interest on the Bridging loan will be charged monthly in arrears at the rate of 33% per annum on monthly reducing balance basis;b.The 1st Plaintiff was allowed a moratorium of a maximum period of six months (during the construction period) with regard to repayment of the principal only but during which period interest will be payable monthly commencing one month after the disbursement of the loan by six equal monthly installments of KShs 110,000/=;c.The entire loan of Shs 4,000,000/=, together with any interest and any other charges accrued thereon, shall be taken over by the Jubilee Insurance Company before or on expiry of the moratorium period of 6 months andd.The bridging finance would be secured by a Corporate Guarantee from the 1st Defendant covering the Bridging Loan amount of Shs 4,000,000/= together with any interest or other charges that may accrue thereon up to the time of full repayment of the same.

30. DW1 pointed out that the Corporate Guarantee issued by the 1st Defendant as security for the Bridging Facility extended to the Plaintiffs on condition that the principal amount was repaid together with interest thereon at the rate of 33% per annum. She added that the Guarantee further stipulated that in the event of default on payment of the principal interest by the Borrower (the Plaintiffs), the Guarantor (the 1st Defendant) will indemnify DTB against the loss of principal interest or other monies accrued and all costs charges and expenses whatsoever which DTB may incur by reason of default.

31. It was the 1st Defendant’s case that the Plaintiffs only paid two (2) instalments of the agreed interest and thereafter defaulted thus attracting penalty charges. DW1 noted that whereas the Plaintiffs executed the Charge instrument on October 15, 1997 the Suit Property was, to the Plaintiffs’ knowledge, charged to Equatorial Commercial Bank Ltd (“Equatorial”) at the material time and it therefore became necessary to first discharge the Charge to Equatorial before perfecting the 1st Defendant’s security. He added that it was after the discharge of the said charge to Equatorial that by a Charge dated February 24, 1998 was lodged for registration on or about March 3, 1998 and subsequently registered on July 31, 1998.

32. The salient terms and conditions of the Charge were: -a.To secure the sum of Kshs 6,000,000/=;b.The redemption date was April 1, 1998 and that the principal sum with interest thereon could;c.Repayment was to be repaid by Eighty-four (84) consecutive equal monthly installments of KShs 154,210/= with the first installment being due on April 1, 1998; andc.The Lender could require payment at such increased or reduced rate upon issuance of one (1) months’ notice.

33. The 1st defendant’s witness stated that it was upon the registration of the Charge that the 1st Defendant disbursed the loan amount by discharging the Plaintiffs’ loan obligations to DTB and Equatorial Bank as follows :-a.By a letter dated September 1, 1998 forwarding Cheque for Kshs 6,216,478/20 in respect of the principal and penalty interest as of September 1, 1998 in full settlement of the Bridging Finance Agreement entered into between DTB and the 1st Plaintiff and fully guaranteed by the 1st Defendant;b.By a letter dated September 2, 1998 forwarding Cheque No 253924 for Kshs 1,197,496/45 payable to Equatorial Commercial Bank Limited and Cheque No 007690 for Kshs 10,000/= being legal fees for RM Mwongo Advocates for Equatorial Bank;

34. The 1st Defendant contended that the Plaintiffs did not pay any of the agreed instalments by reason of which the right to realize the security crystallized.

35. It was the 1st Defendant’s case that in the event that there was any delay in the preparation and registration of the Charge, which is denied, then the same should be squarely blamed on the Plaintiff for the following reasons:-a.Failing to disclose to the 1st Defendant that the Plaintiffs had been served with a Statutory notice of Sale by Equatorial Bank and that the suit property was in the process of being auctioned by the said Equatorial Commercial Bank. (See page 42, 44 & 46 of P-Exhibit-1).b.The 1st Defendant had to first procure a discharge of the charge from Equatorial Bank to enable it to obtain the Original Certificate of Title No IR 53344 and then register the Charge dated February 24, 1998 on July 31, 1998 for purposes of securing the Loan. In any the event, the 1st Defendant registered the Charge immediately upon receipt of the discharge and the Original Certificate of Title from Equatorial Bank.c)Despite their clear obligation to do so, the Plaintiffs failed to pay for the registration fees on discharge of the charge to Equatorial Bank and valuation fees, stamp duty, registration fees, Advocates fees in respect of the Charge to the 1st Defendant and they have not to paid the same date.

36. On further upon re-examination, DW1 testified that both the Offer Letter and the Charge required the Plaintiffs to meet the costs of registration of the Charge including the Advocates fees, Valuation fees, stamp duties, which they did not pay.

37. It was the 1st defendant’s case that by virtue of the Plaintiff’s persistent default, the loan account has, pursuant to the terms of the contract, continued to accrue interest such that as at the time of trial, the outstanding balance was Kshs 247,592,384 which it is entitled to realize through the Security.

Analysis and Determination 38. I have carefully considered the pleadings filed herein, the parties’ documentary and oral evidence together with their respective written submissions. I find that the issues for determination are as follows:-a.Whether the Charge is valid.b.Whether the 1st Defendant was entitled to exercise its statutory right of sale of the Suit Property.c.Whether the Plaintiff is entitled to the reliefs sought.d.Who should bear the costs of this suit?

Validity of Charge 39. The Plaintiff submitted that the 1st Defendant’s right to exercise its statutory power of sale had not accrued for the reasons that: -a.The 1st Defendant had failed to supply it with statement of accounts showing how the interest had been calculated;b.The 1st Defendant did not disburse to it balance of the loan being Kshs 2 million;c.Failure to register the Charge within the stipulated time in the Agreement or within a reasonable time thereof; andd.The 1st Defendant failed to account as to when it discharged the Plaintiff’s liability to Equatorial Bank thereby attracting punitive interests.e.The terms of the Charge and loan documents were “harsh and oppressive” and that the interest rate charged by the 1st Defendant was not in accordance with section 44 of the Banking Act.

40. On its part, the 1st Defendant argued that even assuming that the Charge was registered late or that there was unreasonable delay, such a delay cannot invalidate the Charge. The 1st Defendant invited the court to take judicial notice of the fact that given the fines that attach to late registration, Charges are not dated by a Chargee until everything is in place for registration.

41. I however note that in this case, everything was not in place for registration as the Plaintiffs had not discharged their obligations to pay for the registration of the Charge and neither had they paid for the stamp duty, valuation fees and legal fees in respect thereof. I further note that the Plaintiffs had defaulted in their obligation to repay the loan facility advanced to them by Equatorial Bank and thereby redeem the Suit Property to enable them to grant a clear title to the 1st Defendant for perfection of its Security.

42. The 1st Defendant submitted that it is a basic proposition of law that a party in default under a contract cannot take advantage of his own wrong. For this argument the 1st Defendant cited the decision by the House of Lords in Alghussein Establishment vs Elton College (1991)1 ALL ER 267 at 273 d to f where it was held that; -'The principle that in the absence of clear express provisions in a contract to the contrary it was not to be presumed that the parties intended that a party should be entitled to take advantage of his own breach as against the other party was not limited to cases where a party was relying on his own wrong to avoid his obligations under the contract but applied also where a party sought to obtain a benefit under a continuing contract on account of his breach ...'The House of Lords in the decision above, relied on the often quoted speech by Lord Diplock in Cheall vs Association of Professional Executive Clerical and Computer Staff (1983) 1 All ER, thus;'This rule of construction, which runs parallel by the rule of law that a contracting party cannot rely upon an event brought about by his own breach of contract as having terminated a contract by frustration is often expressed on broad language as“A man cannot be permitted to take advantage of his own wrong.'

43. My finding is that the Plaintiff’s challenge on the validity of the Charge on the basis that it was not registered is, as rightly stated by the 1st Defendant, factually incorrect as the record reveals that the Charge was registered on July 31, 1998. I further note that through the Defendant’s letter dated March 3, 1998, the redemption date was changed to April 22, 1999 which was well after the registration of the charge. Moreover, even assuming, for arguments’ sake, that the Charge was unregistered, the same would still be binding as between the parties who executed it as stipulated under Section 36(1) of the Land Registration Act which provides that:Nothing in this section shall be construed as preventing any unregistered instrument from operating as a contract.

44. I further note that the act of registration of the Charge was not controverted by the Plaintiffs who did not deny that they benefitted from the loan advanced to them by the 1st Defendant. I therefore find that the said Charge was for all intents and purposes valid.

45. Regarding the Plaintiffs’ argument that the terms of the Charge together with the loan constituting documents are harsh and oppressive and is for setting aside on account of high interest rates, I find that this is an issue that was not canvassed in the Plaintiff’s pleadings. It is trite that pleadings filed by parties form the basis of the court proceedings and as such parties ought not, during submissions, to divert from the issues set out in their pleadings. (See David Sironga Ole Tukai vs Francis Arap Muge & 2 others [2014] eKLR).

46. It is also trite that parties are bound by the terms of their agreement unless coercion, fraud or undue influence are pleaded and proved. (See National Bank of Kenya Limited vs Pipeplastic Samkolit & Another [2001] KLR 112).

47. In the present case, the Plaintiff did not plead coercion, fraud or undue influence and the same was not proved at the hearing. I note that the Plaintiffs voluntarily entered into the contract and happily received the money from the 1st Defendant. I find that there is no basis for the argument that the Charge was invalid.

48. I similarly find that the Plaintiffs’ claim that the interest rates charged by the 1st Defendant was harsh and oppressive to be without basis as the same was not pleaded. It is also trite that interest rates are governed by the terms of the agreement which, as I have already noted in this ruling, the court cannot interfere with.

Statutory Power of Sale 49. The Plaintiffs’ case was the 1st Defendant is not entitled to exercise the statutory power of sale because they were not supplied with the detailed statement of account and copy of the registered Charge. They also stated that the 1st Defendant had not fully disbursed the total loan amount and that no demand or valid Statutory Notice or a valid Notification of Sale was issued.

50. The 1st Defendant, on its part, argued that the Plaintiff was at all material times represented by advocates who requested for statements of accounts and were, through a letter dated December 16, 1998, furnished with the Mortgage Loan Account providing the particulars of the outstanding amount. It was further submitted that the failure to provide account statements, does not ex facie prohibit the realization of a security if default thereof has been established.

51. On the service of the requisite notices, the 1st Defendant explained that its witness (DW-1) confirmed that the following notices were issued:a.By a letter dated May 31, 1999, the 2nd Defendant herein (a duly authorized auctioneers) issued a 45 days’ Notice to Owner of the Property which was addressed to PW-1 parents, the registered proprietors of the Suit Property;b.A notification of sale dated May 31, 1999 was issued indicating that the intended Auction would take place on August 4, 1999;c.A notice of intention to sell under Section 69(1) of the Transfer of Property Act dated September 8, 1998 issued to the proprietors of the Suit Property.

52. I have perused the above exhibits produced by the 1st Defendant and I note that even though they were addressed to the original Plaintiffs, no evidence, in the form of Certificate of posting, was presented to show that they were actually delivered to the plaintiffs.

53. The Plaintiffs claimed that they was not served with a 3 months’ statutory notice as provided under Section 65(2) of the Repealed Registered Land Act and in the form prescribed under Section 74 of the said Act which is a replica of Section 90 of the current Land Act 2012.

54. It is trite that the burden is at all times upon the Defendant to prove that notices were served and, in any event, failure to serve the requisite notice amounts to clogging the Plaintiff’s right of redemption. (See Nyagilo Ochieng & Another vs Fanuel B. Ochieng & 2 others (1996) eKLR). The question which arises is whether statutory notices were properly issued and served on the plaintiffs.

55. In the instant case, I have already found that there was a valid charge over the suit property executed in favour of the 1st Defendant. There is no doubt therefore that the defendant was ipso facto vested with the chargee's statutory power of sale in the event of a default and upon full compliance with the requirement that the chargee issues the various notices under the law. In the circumstances of this case and considering that the charge was executed during the currency of Registered Land Act (now repealed following the enactment of the Land Act No. 6 of 2012), I find that the Defendant was bound to issue and serve notices under Section 65 and 74 of the said repealed Act which states as follows:-'65 (2) A date for the repayment of the money secured by a charge may be specified in the charge instrument, and where no such date is specified or repayment is not demanded by the chargee on the date specified the money shall be deemed to be repayable three months after the service of a demand in writing by the chargee.'

56. InSusan K Baur & Another vs Shashikant Shamji Shah & 2 others [2017] eKLRit was held that:-'..This section 65(2) needs to be properly understood and it invokes two scenarios. In the first scenario, there is a debt but the date of repayment is not specified. Let us assume that Tom gives Jerry a loan of Kshs. 1 Million, which is secured by a charge over Jerry's property, but in their transaction, it is not mentioned when Jerry needs pay the debt to Tom. In other words, the date of repayment is not specified. In such a case, before Tom can move to sell, he must first call the debt by giving Jerry a notice of 3 months. It is on expiry of this 3 month notice that the debt can now be said to be payable. The second scenario is where there is a date specified for repayment of the debt. Let us say, that Tom agrees with Jerry that the debt is payable on 31 December of the given year. Here there is a specific date of repayment. In such a case, Tom in the event that he has not been paid by the due date, needs to demand the debt on the date specified. If he does not demand the debt on the date specified, and that day passes, then Tom needs to give Jerry a 3 month notice calling for the debt. I think the law envisages that if the call is not made on the date specified, then this is treated as a waiver, which means that a notice of 3 months calling for the debt, now requires to be made. That to me is the interpretation of what I would give to Section 65 (2) of the Registered Land Act.'

57. In the case of Kipsang Sawe Sisei vs Kenya Commercial Bank Limited [2005] eKLR, the court had this to say;-'However, the notice cannot be given until the principal sum has become due which in this case is three months after a demand has been made under Section 65(2).'

58. Taking a cue from the above cited authorities, I find that it was incumbent upon the 1st Defendant bank to issue a three months’ notice under Section 65(2) of the Repealed Registered Land Act.

59. On expiry of the notice under Section 65(2) is when a statutory notice under Section 74 would kick in. Section 74 provides that: -74 (1)If default is made in payment of the principal sum or of any interest or any other periodical payment or of any part thereof, or in the performance or observance of any agreement expressed or implied in any charge, and continues for one month, the chargee may serve on the chargor notice in writing to pay the money owing or to perform and observe the agreement, as the case may be.(2)If the chargor does not comply, within three months of the date of service, with a notice served on him under sub-section (1), the chargee may -(a)appoint a receiver of the income of the charged property; or(b)sell the charged property:Provided that a chargee who has appointed a receiver may not exercise the power of sale unless the chargor fails to comply, within three months of the date of service, with a further notice served on him under that subsection.

60. The notice under Section 74 ignites the Chargee’s Statutory right of sale. Under Section 74, the chargee is supposed to issue a three-month notice which takes effect on the date of service of the same as mentioned in subsection 2. It is therefore essential that this notice be served as required by law. The law on service is under Section 153 of the Registered Land Act, which provides as follows:-153. A notice under this Act shall be deemed to have been served on or given to any person -

(a)if served on him personally;(b)if left for him at his last known place of residence or business in Kenya;(c)if sent by registered post to him at his last known postal address or at his last known postal address in Kenya;(d)if served in any of the above-mentioned ways on an attorney holding a power of attorney whereunder such attorney is authorized to accept such service;(e)if service cannot be effected in one of the above-mentioned ways, by displaying it in a prominent place on the land.

61. Personal service is ordinarily considered to be the best service even though other forms of service are equally acceptable. For this reason a notice is deemed served if left at the person's last known residence or place of business; or if sent by registered post to his last known postal address; or if served upon his duly appointed attorney in law. Where service cannot be effected by any of the above means, service may be effected by displaying it at a prominent place on the suit property. In the present case, I note that the 1st Defendant did not adduce any evidence. As I have already stated in this ruling, it is the duty of the defendant to prove service once the plaintiff alleges lack of service.

62. In Nyangilo Ochieng & Another vs Kenya Commercial Bank, Court of Appeal at Kisumu, Civil Appeal No. 148 of 1995 (1996) eKLR the Court of Appeal while addressing the subject of the duty to serve and proof of service of notice stated as follows :-'It is for the chargee to make sure that there is compliance with the requirements of s 74 (1) of the Registered Land Act. That burden is not in any manner on the chargor. Once the chargor alleges non-receipt of the statutory notice it is for the chargee to prove that such notice was in fact sent.'

63. It is important to note that in Nyagilo’s case there was indeed a notice exhibited but the court faulted the bank for failure to lead evidence of service. As a consequence of that failure, and even though a transfer had been effected and other transactions registered against the said property the sale was all the same set aside and the proprietorship of the chargor restored.

64. In this case, I am not satisfied that the 1st Defendant demonstrated that it issued and served the requisite notices on the Plaintiffs. There is therefore no basis upon which one can infer there having been service. The argument by the defendant, in the filled submissions, that the notices were properly served cannot hold any probative value since there is no material evidence to support the same. I therefore find that the defendant failed on its legal duty to prove service and therefore I conclude that none was issued nor served.

65. The consequence of lack of proof of service is that no demand notice under Section 65 of the Act was sent, and no proper statutory notice was served upon the plaintiffs. This means that the intended sale of the suit property by public auction was unlawful and illegal for being contra statute. Without compliance with the law on notices, the chargee had no lawful power to sell the charged property for default in payment of the debt. I therefore find that the Defendant’s right to sale had not crystalized to justify any lawful sale.

66. Since it was uncontested that the Suit property remains registered in the plaintiffs’ names and since the 1st Defendant faulted in its intention to exercise its statutory power as provided by the law, I find that the court was justified in granting the order of injunction to restrain the defendant from disposing the suit property pending the hearing of this case.

67. In this case, I note that the Plaintiffs were of the view that they were indebted to the 1st Defendant to the tune of Kshs 5. 8 Million as at June 1999 which amount was deposited in interest earning account pending the hearing and determination of this case. The 1st Defendant however maintained, during the hearing, that the amount due and owing to them, at the time, was Kshs 8. 1 Million. In its written submissions, the 1st defendant indicated that the amount due to them as at October 25, 1999 was Kshs 11,378,993. 95.

68. In essence, parties were unable to agree on the actual amount due and owing to the 1st Defendant. What is not disputed was that the Plaintiffs defaulted in the loan repayments. The Plaintiffs conceded that they only paid two instalments of Kshs 110,000 thus making the total sum repaid at Kshs 220,000. The Plaintiffs also conceded that even though they were, under the terms of the contract supposed to pay all the charges relating to the preparation and registration of the Charge, they did not fulfil this part of the deal, which was undertaken by the 1st defendant. In this regard, PW1 testified as follows: -'I was to pay 110,000 moratorium for 6 months. I paid for only 2 months.'

69. My finding is that besides being indebted to the 1st defendant for the loan amount together with the agreed interest, the Plaintiff also owed the 1st defendant the money that it spent on the transaction costs. The 1st defendant argued that the plaintiffs were not entitled to the equitable remedies sought in the plaint because they had come to this court with unclean hands due to their indebtedness. The 1st defendant cited the decision in Jajbhay vs Cassim 1939 AD 537 where the court observed that no polluted hand shall touch the pure fountains of justice.

70. My finding is that, to the Plaintiffs’ credit, they acted in good faith by depositing the sum of Kshs 5. 8 Million in the bank as security being the amount that they considered to be the correct sum due to the 1st defendant.

71. The issue that this court has to determine, in concluding this judgment, is the actual amount that is due to the 1st defendant in respect to the loan that it advanced to the plaintiffs. I note that the Court of Appeal remitted the case to this court for retrial so that an order can be made in respect to the sums held as security for the injunction.

72. Quite regrettably, I note the parties did not furnish this court with an itemized breakdown of how they arrived at the sum due to the 1st defendant as at the time of filing this suit. It was also noteworthy that the 1st defendant did not make a counterclaim to the plaintiff’s case. In this regard, I will suspend the issuance of the final orders in this matter and direct the parties to present their respective comprehensive statements showing the total amount due to the 1st defendant specifying as at the time of filing the suit, the sum repaid (if any) and the interest rates applicable.

73. For clarity purposes, the calculation should indicate the amount due to the 1st defendant as at the time the sum of Kshs 5. 8 Million was deposited as security and as at the time the loan would have been settled in accordance with the terms of the agreement.

74. Mention on December 15, 2022 for final orders.

DATED, SIGNED AND DELIVERED VIRTUALLY AT NAIROBI THIS 8THDAY OF DECEMBER 2022. W. A. OKWANYJUDGEIn the presence of: -Mr. Rabut for Okoth for 1st defendant.Mr. Osiemo for the plaintiffCourt Assistant- Godfrey