Jan & Josh Company Limited v Equity Bank Limited [2021] KEELC 4487 (KLR)

REPUBLIC OF KENYA

IN THE ENVIRONMENT AND LAND COURT

AT NAIROBI

ELC CASE NO. 32 OF 2011

JAN & JOSH COMPANY LIMITED.......................PLAINTIFF

VERSUS

EQUITY BANK LIMITED......................................DEFENDANT

JUDGMENT

On 4th April, 2009, the defendant gave Samdove (K) Limited (“borrower”) a loan of Kshs. 7,000,000/=.  The loan was secured by a charge dated 17th March, 2009 over L.R No. 15065/54, Title No. I.R 79073 (“the suit property”) registered in the name of Idah Kagendo Kirauni (“the chargor”).  The postal address of the chargor in the instrument of charge was given as P. O. Box 5739-00200 Nairobi.  Clause 30. 3 of the charge provided as follows:

“30. 3 Notices

That any notice required or authorised by law or by this charge shall be deemed to have been properly served by the Bank on the Chargor and/or the Borrower if left at the charged property or at the principal place of business of the Chargor and/or the Borrower or sent by registered post to their last known postal address or sent by facsimile to the Chargor’s and/or the Borrower’s last known relevant address.  Any notice hand-delivered as aforesaid shall be deemed to have been given upon delivery at the relevant address and any notice sent by registered post shall be deemed to have been served on the addressee at 10:00a.m. on the seventh succeeding business day following the day of posting notwithstanding that it be undelivered or returned undelivered and in proving service, it shall be sufficient to prove that the notice or demand was properly addressed and posted.  Any notice or demand sent by facsimile shall be deemed to have been served at the time of transmission.”

The borrower did not honour its loan repayment obligations to the defendant.  On 2nd May, 2010, the defendant served the borrower and the chargor with a statutory notice issued under section 69(1) of the Indian Transfer of Property Act, 1882 (ITPA) (now repealed) demanding payment of a sum of Kshs. 6,126,738/= within 3 months in default of which the defendant would exercise its statutory power of sale over the suit property. The said statutory notice was served upon the borrower and the chargor by registered post through their postal address given in the charge instrument namely, P. O. Box 5739 – 00200 Nairobi.

Section 69(1) of the ITPA allowed the defendant in exercise of its statutory power of sale to sell the suit property by public auction or private contract.  On 26th October, 2020, the defendant in exercise of its statutory power of sale entered into an agreement of sale with the plaintiff in respect of the suit property in which the defendant agreed to sell to the plaintiff the suit property at a consideration of Kshs. 14,500,000/= on terms and conditions that were contained in the said agreement.  It was a term of the said agreement that the plaintiff would pay to the defendant a deposit of Kshs. 2,000,000/= prior to the date of the execution of the agreement and the balance in the sum of Kshs. 12,500,000/= on or before the completion date which was 90 days from the date of the agreement. The agreement was subject to the Law Society Conditions of Sale (1989 edition) in so far as the same was not inconsistent with the terms thereof.

The plaintiff paid to the defendant the deposit of Kshs. 2,000,000/= prior to the execution of the agreement and the balance in the sum of Kshs. 12,500,000/= through R.T.G.S on 1st December, 2010. The plaintiff was represented in the transaction by Muriungi & Company Advocates while the defendant was represented by Mamicha & Company Advocates.  On 18th November, 2010, the defendant wrote to its advocates aforesaid informing them that the borrower had paid the loan that was outstanding and as such the defendant did not wish to continue with the sale of the suit property.  The defendant asked its advocates aforesaid to inform the plaintiff’s advocates of that development. On 1st December, 2010, the defendant’s said advocates wrote to the plaintiff’s advocates informing them of the defendant’s said decision regarding the sale of the suit property.

The plaintiff brought this suit against the defendant on 1st February, 2011 seeking the following reliefs;

(i) A declaration that the plaintiff is entitled to an order of specific performance of the agreement of sale dated 26th October, 2010.

(ii) An order of specific performance of the said agreement by delivery of the completion documents.

(iii) An order compelling the defendant to execute an instrument of transfer of the suit property in favour of the plaintiff in default of which the same to be executed by the Registrar of the court.

(iv) In the alternative to the above, special damages in the sum of Kshs. 12,220,000/=.

(v) An injunction restraining the defendant from selling, transferring or in any way alienating the suit property to any other party other than the plaintiff and from releasing the title documents to or discharging the property in favour of the chargor.

In its plaint dated 31st January, 2011, the plaintiff averred that the defendant had no right to rescind the agreement of sale dated 26th October, 2010 without the notice required under the Law Society Conditions of Sale 1989 edition.  The plaintiff averred that in further repudiation of the said agreement, the defendant purported to refund to the plaintiff the purchase price of Kshs. 14,500,000/=.  The plaintiff averred that it refused to accept the repudiation of the said agreement.  The plaintiff averred that having paid the full purchase price for the suit property, it was entitled to specific performance of the agreement. The plaintiff averred that it had received an offer from a prospective purchaser, Property Development & Investment Company Limited which had agreed to purchase the suit property from the plaintiff at Kshs. 26,500,000/=.  The plaintiff averred that the sale of the suit property to the said prospective purchaser was frustrated by the defendant’s failure to release the completion documents.  The plaintiff averred that as a result of the defendant’s breach of the said agreement of sale, it had suffered loss and damage in the sum of kshs. 12,000,000/= being the difference between the purchase price that it had paid for the suit property and the offer that it had received at which it would have sold the property at the open market. The plaintiff averred that it had also incurred costs amounting to Kshs. 185,000/= in legal fees paid to Muriungi & Co. Advocates and Kshs. 35,000/= paid to Syagga & Associates for valuation of the suit property for which it held the defendant liable.

The defendant filed a statement of defence on 6th April, 2011.  The defendant admitted having entered into an agreement of sale dated 26th October, 2010 with the plaintiff in respect of the suit property.  The defendant admitted also that the plaintiff paid the entire purchase price in the sum of Kshs. 14,500,000/=.  The defendant averred that it entered into the said agreement of sale with the plaintiff in exercise of its statutory power of sale after serving the chargor with a statutory notice. The defendant averred that the said statutory notice was returned to it as unclaimed by the chargor.  The defendant averred that since the chargor did not receive the said statutory notice, the sale agreement that it entered into with the plaintiff in respect of the suit property in exercise of its statutory power of sale was premature, invalid and void ab initio for want of service of a statutory notice.

The defendant averred that the borrower and the chargor paid the outstanding loan thereby redeeming the suit property. The defendant averred that following this development, it rescinded the agreement of sale that it had entered into with the plaintiff through a letter to its advocates dated 18th November, 2010. The defendant averred that its decision was communicated to the plaintiff’s advocates by its advocates on 1st December, 2010.  The defendant averred that on 18th January, 2011, it refunded to the plaintiff the entire purchase price in the sum of Kshs. 14,500,000/=.  The defendant averred that the rescission of the said agreement was proper and that under the Law Society Conditions of Sale, the plaintiff was only entitled to a refund of the purchase price and nothing more.  The defendant averred that it was not in breach of the said agreement of sale and that the plaintiff was not entitled to an order of specific performance.  The defendant averred that the orders sought by the plaintiff if granted would be prejudicial to the chargor who had not been made a party to the suit.  The defendant averred that the plaintiff’s suit was incompetent and amounted to an abuse of the process of the court.

At the trial, the plaintiff called two witnesses, Joshua Kiilu (PW1) who was the plaintiff’s director and a valuer, Simon Omondi Ombado (PW2).  PW1 told the court how he came to know that the suit property was on sale and how the plaintiff entered into an agreement of sale in respect thereof with the defendant. PW1 told the court that the plaintiff performed its part of the agreement of sale before the defendant purported to rescind the same.  PW1 adopted his witness statement dated 31st January, 2011 as part of his evidence in chief and produced the documents in the plaintiff’s list of documents as exhibits.  PW2’s evidence was limited to the production of a valuation report dated 21st January, 2011 that was prepared by Syagga & Associates Limited.  He produced the said report in evidence and explained to the court how he arrived at a market value of Kshs.26,000,000/= for the suit property.

The defendant called one witness, John Mwathia Gakuru (DW1) who was the defendant’s debt recovery officer. DW1 adopted his witness statement dated 1st July, 2019 as his evidence in chief.  In the statement, DW 1 reiterated the contents of the defendant’s statement of defence that I have highlighted herein earlier.

After the close of evidence, the parties were directed to make closing submissions in writing. The plaintiff filed submissions and further submissions dated 2nd June, 2020 and 21st July, 2020 respectively.  The defendant on the other hand filed its submissions on 9th July, 2020.  I have considered the evidence and the submissions by the advocates for the parties.  In my view, the following are the issues arising for determination in this suit;

(i) Whether the plaintiff and the defendant entered into a valid and binding agreement for sale of the suit property.

(ii) Whether the said agreement was breached by the defendant.

(iii) Whether the plaintiff is entitled to the reliefs sought in the plaint.

(iv) Who is liable for the costs of the suit?

Whether the plaintiff and the defendant entered into a valid and binding agreement for sale of the suit property.

From the evidence on record, I am unable to see any invalidity or illegality in the agreement of sale dated 26th October, 2020 that the plaintiff entered into with the defendant.  I am satisfied from the evidence on record that the borrower defaulted in the payment of the loan that was advanced to it by the defendant and that the defendant served both the borrower and the chargor with a statutory notice in accordance with the terms of the charge.  In the circumstances, I am satisfied that the defendant’s power of sale had arisen as at the time the defendant entered into the said agreement of sale with the plaintiff.  Clause 30. 3 of the charge the contents of which I have reproduced earlier in this judgment provided expressly that, any notice required to be served under the charge or by the law was to be deemed duly served if served by registered post, seven working days after posting notwithstanding that the notice is undelivered or returned undelivered and that, to prove service, it was sufficient to demonstrate that the notice was properly addressed and posted.

Section 69 (3) of the ITPA allowed the defendant to vary the provisions of the ITPA as concerns the exercise of statutory power of sale. The defendant having varied the mode of service of notices provided for under section 102(2) of the ITPA by clause 30. 3 of the charge, it cannot be allowed to seek solace under section 102(2)(d) of the ITPA when it suits its purposes.  I am satisfied from the evidence before the court that the borrower and the chargor were duly served with a statutory notice prior to the sale of the suit property to the plaintiff.  The agreement of sale between the plaintiff and the defendant was therefore not void for want of service of a statutory notice.

Since the plaintiff and the defendant had entered into a valid agreement of sale in respect of the suit property, the chargor’s equity of redemption was extinguished and it was not proper for the defendant to allow the chargor to redeem the suit property an action that was prejudicial to the agreement of sale that it had entered into with the plaintiff.  I am not agreement with the defendant’s contention that the chargor’s equity of redemption could be exercised at any time before the charged property was transferred to the plaintiff.  I am satisfied from the authorities cited by the plaintiff that that is not the correct position of the law. I will therefore answer the first issue in the affirmative.

Whether the said agreement was breached by the defendant.

I have held above that the agreement of sale dated 26th October, 2010 between the plaintiff and the defendant was valid and binding.  It is not disputed that the plaintiff performed its part of the agreement. It is also not disputed that the defendant did not fulfil its obligations under the said agreement.  Instead of providing the plaintiff with the completion documents, the defendant purported to rescind the said agreement.  The reason that the defendant gave for the rescission was that the chargor and the borrower had redeemed the suit property.  From the evidence on record, that claim was not correct. The statement of the borrower’s loan account that was produced in evidence showed that by 18th November, 2010 when the defendant purported to rescind the said agreement, the borrower and the chargor had not completed paying the loan that was secured by a charge over the suit property.  In the circumstances, I am of the view that the defendant had other reasons for rescinding the said agreement of sale other than the alleged redemption of the suit property.  In any event, as at the date of the purported rescission of the said agreement of sale, the chargor’s equity of redemption had been extinguished. In the circumstances, the defendant allowed the chargor and the borrower to redeem the suit property at its own risk of a suit for damages for breach of the said agreement. The defendant’s purported rescission of the said agreement had no basis in law and as such was illegal. The defendant has not put forward any valid ground for its failure to complete the said agreement.  It is my finding therefore that the defendant breached the agreement of sale dated 26th October, 2010.

Whether the plaintiff is entitled to the reliefs sought in the plaint.

In its submission, the plaintiff abandoned its claim for specific performance. The plaintiff limited its claim to damages for breach of contract.  Having held that the defendant breached the agreement of sale dated 26th October, 2010 between it and the plaintiff, the defendant is liable for loss and damage flowing from that breach.  I am in agreement with the authorities cited by the plaintiff on how damages that results from a breach of an agreement for sale of land is to be assessed.  The plaintiff claimed Kshs. 12,000,000/= for loss of bargain and special damages in the sum of Kshs. 220,000/= being legal and valuation fees.  I am satisfied that special damages claimed by the plaintiff have been proved and that the plaintiff is entitled to the same.  For loss of bargain, I have no doubt that the plaintiff lost a bargain following the defendant’s refusal to complete the agreement of sale dated 26th October, 2010.  What is troublesome is the assessment of that loss.  I have noted that the offer letter dated 10th December, 2010 that the plaintiff relied on as a basis for its loss of bargain claim was written after the agreement of sale between the parties had been rescinded and the rescission communicated to the plaintiff through its advocates.  I have also noted that the valuation report by Syagga & Associates Limited dated 21st January, 2011 was prepared in contemplation of this suit.  Curiously, the value that was assessed by the said valuers is almost the same as what Property Development & Investment Co. Ltd. had allegedly offered for the suit property on 10th December, 2010.  For the forgoing reasons, I am not convinced that Kshs. 26,000,000/= was the fair open market value of the suit property when the defendant rescinded the agreement of sale dated 26th October, 2010.  I have noted from the material on record that on 26th July, 2010 barely 6 months before the suit property was valued by Syagga & Associates on 21st January, 2011, the suit property had been valued by Acumen Valuers Ltd. In its valuation report, Acumen Valuers Ltd. had given Kshs. 18,000,000/= as the open market value of the suit property.  No explanation was given by PW2 as to what could have caused a steep rise in the value of the suit property in less than a year.  Doing the best I can for the plaintiff in the circumstances, I would take the open market value of the suit property as at the time the agreement of sale dated 26th October, 2010 was breached as Kshs. 18,000,000/=.  I will therefore assess the loss of bargain suffered by the plaintiff at Kshs. 3,500,000/=.  The plaintiff is entitled to the said amount in addition to special damages of Kshs. 220,000/= making a total of Kshs. 3,720,000/= payable to the plaintiff as damages.

Who is liable for the costs of the suit?

Awarding of costs is at the discretion of the court.  As a general rule, costs follow the event.  In this case, the plaintiff has succeeded in its claim against the defendant. No reason has been given why the plaintiff should not be awarded the costs of the suit.  The plaintiff shall have the costs of the suit.

Conclusion:

In conclusion, I hereby enter judgment for the plaintiff against the defendant for:

1. Kshs.3,500,000/= being general damages for breach of contract together with interest at court rates from the date hereof until payment in full.

2. Kshs.220,000/= being special damages together with interest at court rates from the date of filing suit until payment in full.

3. Costs of the suit.

Delivered and Dated at Nairobi this 28th Day of  January 2021

S. OKONG’O

JUDGE

Judgment delivered virtually through Microsoft Teams Video Conferencing Platform in the presence of:

Mr. Issa for the Plaintiff

Mr. Thige for the Defendant

Ms. C.Nyokabi-Court Assistant