Kaguku v Equity Bank Limited & another [2023] KEHC 25492 (KLR)

Kaguku v Equity Bank Limited & another (Civil Appeal 99 of 2022) [2023] KEHC 25492 (KLR) (17 November 2023) (Judgment)

Neutral citation: [2023] KEHC 25492 (KLR)

Republic of Kenya

In the High Court at Bungoma

Civil Appeal 99 of 2022

DK Kemei, J

November 17, 2023

Between

John Karanja Kaguku

Appellant

and

Equity Bank Limited

1st Respondent

Remma Auctioneers

2nd Respondent

(Being an appeal arising from the decree & judgment by Hon. A. Odawo (S.R.M) in Bungoma Civil Suit no. 447 of 2017 delivered on 19th September,2022)

Judgment

1. Vide a Plaint dated 18th December,2018, the Appellant herein sued the Respondents claiming for a permanent injunction restraining the Defendants by themselves or by their servants from attaching and selling parcel of land No. E. Bukusu/S. Kanduyi/1630 (‘Suit property’) costs of the suit and any other relief the Honorable Court may deem fit to grant.

2. The Respondent vide a counterclaim dated 27th August,2021 claimed against the Appellant and sought for judgment for a sum of Kshs.2,057,832. 30 together with interest from 25th November,2011 until payment in full plus costs and interests at courts rates.

3. In its judgement dated 19th September 2022, the trial Court dismissed the Appellants case and upheld the Respondents counterclaim thereby entering judgment in favour of the Respondent for a sum of Kshs.2,057,832. 30 together with interest from 25th November,2011 until payment in full plus costs and interests at courts rates.

4. Aggrieved by the judgement of the trial Court, the Appellant lodged his Memorandum of Appeal dated 28th September 2022, on the following grounds:a.The learned trial magistrate fundamentally erred in law and fact by failing to appreciate the fact that the defence did not avail any evidence to warrant their claim of Kshs.2,057,832. 30. b.The learned trail magistrate clearly went against the evidence on record by failing to acknowledge that there was no further charge on land parcel No. East Bukusu/ South Kanduyi/1630 after charge of Kshs.2,880,000/= and that there was no charge for Kshs.2,057,832. 30/= as per offer letter produced.c.The learned trial magistrate totally erred in law and fact by totally failing to consider that the loan form produced by the Defendants was not for the suit land East Bukusu/ South Kanduyi/1630 but for land parcel No. Plot 05-317 Kayole for a facility of Kshs. 4,000,000/= that never matured.d.The learned trial magistrate totally erred in law and in fact by totally failing to consider that the suit property was not Plot 05-317 Kayole and that the defendnats were not clear on whether the loan amount was Kshs. 3,500,000/=, 4,000,000/=, 2880,000/= or 2,097,134/= as they stated in their evidence.e.The learned trial magistrate orally erred in law and fact by totally failing to acknowledge that a letter of offer is not a loan form or an acceptance formf.The learned trial magistrate apparently did not analyze the available evidence on record.g.The findings are contrary to the law, rules of natural justice, the Banking Act and common sense and have resulted in a miscarriage of justice.

5. The Appellant prayed for the appeal to be allowed, the judgment delivered on 19th September,2022 be set aside and that the court proceeds to reevaluate the evidence on record and come up with its own findings plus costs of the appeal.

6. The appeal was canvassed by way of written submissions. The parties duly filed and exchanged their respective submissions.

7. Vide submissions dated 3rd May 2023 and filed on even date, the Appellant submitted that his wife Lucy Njahira Karanja(“the principal borrower”) took up a loan of Kshs.2,880,000/= on 25th November,2011 and used Parcel of land No. East Bukusu/ South Kanduyi/1630 as security and as such a charge was registered in favour of the 1st Respondent. It was his argument that the averments by the Respondent that the Appellant had applied for a loan facility of Kshs.4,000,000/= were untrue since the same did not materialize because the intended security was not registered.

8. Further, the Appellant submitted that the offer letter addressed to the said principal borrower dated 8th August,2014 for Kshs.2,097,137/= is not supported by a any evidence to prove that the amount indicated therein was indeed advanced and a further charge registered over the suit property. It was the Appellant’s contention that the advance loan was paid through a development account and that the loan balance was Kshs.22,611. 45/=. Counsel submitted that it was not true that the Appellant took up a loan of Kshs 3,500,000/= on 25th November,2016 and used the suit property as security since the only encumbrance registered over the suit property was for Kshs.2,800,000/= on 25th November,2011.

9. The Appellant submitted that the Respondents evidence was marred with discrepancies and they did not prove their counter-claim. It was argued that the respondents ought to have attached Plot 05-317Kayole and not East Bukusu/ South Kanduyi/1630. It was stated that the Respondents failed to keep proper records and thus Appellant cannot be faulted for that. As such counsel urged the court to find that the appeal is merited and to have the same allowed as per the Memorandum of Appeal.

10. The respondents through their counsel submitted that the principal borrower was advanced a loan facility of Kshs.3,500,000/= and the suit property registered in the name of the Appellant charged as security. It was their submission that the principal borrower again took out a further facility and a charge of Khs.2,097,134/= registered in 2014. It was argued that the Appellant admitted to defaulting on repayment of the facility in his pleadings and to counter the Appellants allegation that the loan application form states a different figure from the letter of offer they submitted the letter of offer informs the charge.

11. It is submitted that the Appellant was served with all the necessary notices and informed of the outstanding loan and allowed time to rectify the accounts and that the trial court properly informed itself in rendering its judgment as it did. The Respondents urged the court that the appeal is aimed at unjustly enriching the Appellant and that the same ought to be dismissed with costs.

12. At this point, it is imperative to analyze the evidence tendered before the trial court. The Appellant called two witness PW1, John Karanja Kaguku who adopted his witness statement dated 15/6/2021 and list of documents of even date as Exhibit 1-3. It was his testimony that his wife had taken up a loan facility of Kshs.2,880,000/= which was fully repaid through her development account as shown in Exhibit 5 and therefore the Respondent did not have a right to exercise their statutory power of sale. He testified that he was never served with the various statutory notices since he had changed postal addresses and as such he did not receive the demands. He denied having taken other loans and stated that the figures as presented by the Respondent were fictitious. PW2 Gabriel Nyamboka the credit manager of the Respondent Bank Bungoma branch produced a loan statement as Exhibit4 & 5 and confirmed that the same emanated from the bank.

13. The Respondent on the other hand called one witness DW1 Gabriel Nyamboka the credit manager of the Respondent Bank Bungoma branch adopted his witness statement dated 31/8/2021 as his examination in chief and list of documents dated 27/8/20221 as D Exhibit 1-7. He testified that the loan balance as at 16/5/2022 was Kshs.1,596,205. 55/=. In cross examination, he stated that that the suit property had secured Kshs.2,880,000/= and that there was no further charge. He testified that he could not tell whether the full amount had been paid. On that date the witness was stood down to put in a supplementary document and when the matter later proceeded he adopted a witness statement dated 31/5/2022. In his testimony he introduced a Letter of Offer dated 8/8/2014 in respect to the suit property. In cross-examination he stated that the Appellant’s wife sought for a loan of Kshs. 4,000,000/= and offered Plot number 05-317 Kayole as security. In re-examination, he stated that the monies advanced as a result of the 4,000. 000/= loan application was 3,000,000/= and that the suit property was offered as security.

14. A first appellate court is mandated to re-evaluate the evidence before the trial court as well as the judgment and arrive at its own independent conclusion as to whether or not to uphold the decision of the trial court. A first appellate court is empowered to subject the whole of the evidence to a fresh and exhaustive scrutiny and make conclusions about it, bearing in mind that it did not have the opportunity of seeing and hearing the witnesses first hand. This duty was stated in Selle & another v Associated Motor Boat Co. Ltd.& others (1968)EA 123 and in Peters v Sunday Post Limited(1958) EA.

15. A first appellate court has jurisdiction to reverse or affirm the findings of the trial court. A first appeal is a valuable right of the parties and unless restricted by law, the whole case is therein open for rehearing both on questions of fact and law. The judgment of the appellate court, must, therefore, reflect its conscious application of mind and record findings supported by reasons, on all the issues arising along with the contentions put forth, and pressed by the parties for decision of the appellate court. While reversing a finding of fact, the appellate court must come into close quarters with the reasoning assigned by the trial court and then assign its own reasons for arriving at a different finding. This would satisfy the court hearing a further appeal that the first appellate court had discharged the duty expected of it. See Santosh Hazari vs. Purushottam Tiwari (Deceased) by L.Rs {2001} 3 SCC 179

16. A first appellate court is the final court of fact ordinarily and therefore a litigant is entitled to a full, fair, and independent consideration of the evidence at the appellate stage. Anything less is unjust. See Kurian Chacko vs. Varkey Ouseph AIR 1969 Kerala 316. The first appeal has to be decided on facts as well as on law. In the first appeal, parties have the right to be heard on both questions of law as also on facts and- that the first appellate court is required to address itself on all issues and decide the case by giving reasons. While considering the scope of Section 78 of Civil Procedure Act, a court of first appeal can appreciate the entire evidence and come to a different conclusion.

17. I have given due consideration to the appeal herein, the evidence before the trial Court, the grounds of appeal and the submissions by the parties in this appeal as well as the parties’ submissions in the lower Court. In my humble view, I find the issue for determination is whether the Appellant’s and the 1st Respondent’s claims had been proved on balance of probabilities.

18. The Court notes that it is not disputed by both parties that the principal borrower took up a loan facility and offered the suit property as security. What seems to be in contention is the amount of money that was advanced to the borrower or drawn by the borrower from the Bank on the loan, when such advances or drawings were done, the interest rate applied by the Bank and the timelines, the amount that was repaid by the borrower or the guarantors and the amount outstanding on the loan(if at all) as well as the current account and how it was made up. Normally, the answers to such questions can easily be answered by looking at the contents of the charge document and statement of accounts. Strangely, neither of the parties produced either of these documents in support of their case, instead what was presented was a loan application form dated 15/8/2011 (DExhibit1), letter of offer dated 8/8/2014 (D.Exhibit 2), a certificate of search dated 5/5/2021 (P.Exhibit 2) statutory notices dated 5/7/2016 and 20/12/2016 (D.Exhibit 3&4).

19. From the examination of these documents, the following emerges; the Laon application form informs that the principal borrower applied for a facility of Kshs.4,000,000/= and offered Plot No. 05-317 Kayole as security; the certificate of official search informs that a charge was registered in favour of the 1st Respondent on 25/11/2011 to secure Kshs. 2,880,000/=; the letter of offer informs that the principal borrower applied for a further loan facility for a loan restructure of Kshs. 2,097,134/= and offered the suit property as security. The statutory notices on the other hand informed that a charge was registered on 25/10/2011 for Kshs.2,880,000/= to secure an aggregate of Kshs.3,500,000/=.

20. These documents did not supply the answers to those questions. Indeed, they raised more questions than they answered. They were not only “indecipherable” but also wanting. The appellant in his testimony stated that the suit property secured a single facility and that repayments had been completed. The Bank’s witness, however, who would have shed light on the matter compounded the situation when in his oral testimony he testified contrary to his statement that Lucy Karanja took out a further charge on the property for Kshs. 2,097,131/= but instead stated that;“there was no further charge and from the statements before court I can not tell whether she has paid the entire sum.”

21. Surely, the bank was under some obligation to provide accounts that were clear, and that were a true representation of all charges, commissions and rates that were loaded onto those accounts, as well as showing the number of times the appellant was making repayments to offset the debt. This was clearly not the case here. One way of shedding light on the matter would have been to provide these accounts which neither of the parties committed to. The statements produced by the Appellant were never substantiated and no nexus was established to shed any light on the transaction.

22. At this juncture i wish to remind the parties on the issue of burden of proof that obligates them to discharge whenever they lodge claims in court. The legal basis for the legal burden of proof is provided in Section 107and 108 of the Evidence Act, Cap. 80 of the Laws of Kenya. It is a principle of law that whoever lays a claim before the court against another has the burden to prove it.107 “(1) Whoever desires any court to give judgment as to any legal right or liability dependent on the existence of facts which he asserts must prove that those facts exist.(2)When a person is bound to prove the existence of any fact it is said that the burden of proof lies on that person. 108. The burden of proof in a suit or proceeding lies on that person who would fail if no evidence at all were given on either side.”

23. The evidential burden of proof of admissibility is provided for under section 110 of the Evidence Act that provides as follows:“110 Proof of admissibility The burden of proving any fact necessary to be proved in order to enable any person to give evidence of any other fact is on the person who wishes to give such evidence”

24. I also refer to The Halsbury’s Laws of England, 4th Edition, Volume 17, at paras 13 and 14: describes it thus:“The legal burden is the burden of proof which remains constant throughout a trial; it is the burden of establishing the facts and contentions which will support a party’s case. If at the conclusion of the trial he has failed to establish these to the appropriate standard, he will lose. The legal burden of proof normally rests upon the party desiring the court to take action; thus a claimant must satisfy the court or tribunal that the conditions which entitle him to an award have been satisfied. In respect of a particular allegation, the burden lies upon the party for whom substantiation of that particular allegation is an essential of his case. There may therefore be separate burdens in a case with separate issues.”The legal burden is discharged by way of evidence, with the opposing party having a corresponding duty of adducing evidence in rebuttal. This constitutes evidential burden. Therefore, while both the legal and evidential burdens initially rested upon the appellant, the evidential burden may shift in the course of trial, depending on the evidence adduced. As the weight of evidence given by either side during the trial varies, so will the evidential burden shift to the party who would fail without further evidence?”

25. The standard of proof in civil cases is proof on the balance of probability.

26. Having stated the above, it is my considered view that the principal borrower took up a loan(s) facility with the 1st Respondent and used the suit property as security. Although the Appellant averred that they had cleared the loan with regard to the suit property, from the documents produced this has not been sufficiently explained. The Appellant has not provided bank deposit slips to prove how he repaid the loan facility; no evidence was led to indicate when the loan facility was cleared neither did he sufficiently explain why he did not obtain a discharge of charge upon the alleged completion. The certificate of official search provided by the Appellant is dated 5th May,2021, nothing would have been easier than for the Appellant to present a recent search to prove that no further charge was ever registered against the suit property. The flip of the foregoing would have equally assisted the Respondents to prove how many charges were registered against the suit property and for how much in the absence of the charge document.

27. Notably, the 1st Respondent issued statutory notices of sale to the Appellant which in my view were received as they form the basis of why this matter was filed and that the Appellant in his Plaint dated 18/12/2017 admitted to defaulting in repayment of the loan facility and offered his commitment to honouring the obligations arising from his borrowing by stating;Paragraph 6: That the Plaintiff suddenly fell ill in the year 2016 and has been on medication ever since. The Plaintiff has had to spend all finances to cater for his medical bills hence the failure to service the loan according to the agreed terms with Equity Bank (Kenya) limited the 1st Defendant herein.Paragraph 10: The plaintiff had no intention to default the loan but due to the unforeseen circumstances, he is physically and financially been unable to service the loan to the bank.Paragraph 11: The plaintiff is willing and able to continue to service the loan and intends to continue to deposit the agreed monthly amount.

28. The said pliant was never amended and it is by now well settled by precedent that parties are bound by their pleadings and that evidence which tends to be at variance with the pleadings is for rejection. Pleadings are the bedrock upon which all the proceedings derive from. It hence follows that any evidence adduced in a matter must be in consonance with the pleadings. Any evidence, however strong, that tends to be at variance with the pleadings must be disregarded.

29. That settled position was re-affirmed by the Court of Appeal in the case of Independent Electoral and Boundaries Commission & Ano. vs. Stephen Mutinda Mule & 3 others (2014) eKLR which cited with approval the decision of the Supreme Court of Nigeria in Adetoun Oladeji (NIG) vs. Nigeria Breweries PLC SC 91/2002 where Adereji, JSC expressed himself thus on the importance and place of pleadings: -“…..it is now trite principle in law that parties are bound by their pleadings and that any evidence led by any of the parties which does not support the averments in the pleadings, or put in another way, which is at variance with the averments of the pleadings goes to no issue and must be disregarded………In fact, that parties are not allowed to depart from their pleadings is on the authorities basic as this enables parties to prepare their evidence on the issues as joined and avoid any surprises by which no opportunity is given to the other party to meet the new situation.”

30. The Supreme Court of Kenya in its ruling on inter alia scrutiny in the case of Raila Amolo Odinga & Another v IEBC & 2 others [2017] eKLR found and held as follows in respect to the essence of pleadings in an election petition: -“In absence of pleadings, evidence if any, produced by the parties, cannot be considered. It is also a settled legal proposition that no party should be permitted to travel beyond its pleadings and parties are bound to take all necessary and material facts in support of the case set up by them. Pleadings ensure that each side is fully alive to the questions that are likely to be raised and they may have an opportunity of placing the relevant evidence before the court for its consideration. The issues arise only when a material proposition of fact or law is affirmed by one party and denied by the other party. Therefore, it is neither desirable nor permissible for a court to frame an issue not arising on the pleadings…...’”

31. Going back to the pleadings and the evidence in this matter, the evidence tendered by the Appellant does not support the pleadings. The evidence therefore that the Appellant completed repayment of the loan is for outright rejection. A defaulting party cannot rely on its fault. In Alghussein Establishment v Elton College [1991] 1 All ER 267, it was held:-“A party who seeks to obtain a benefit under a continuing contract on account of his breach is just as much taking advantage of his own wrong as is a party who relies on his breach to avoid a contract and thereby escape his obligations.”

32. As for the counter-claim by the 1st Respondent, the documents produced were rather casual with regard to the charge(s) and their terms. The 1st respondent did not produce to the court any banking records relating to the loan(s) and repayment account(s). No evidence was adduced to show the state of that account at any one stage of the relationship between the bank and its customer. There is no evidence of the principal borrower’s track record or performance with the bank. Such evidence was very important for the bank in more than one way.

33. Further, DW1 in his testimony spoke at cross purposes. He failed to provide crucial documentation such as the charge document or documents, statement of accounts to prove how much money was disbursed to the principal borrower and a statement of the repayment accounts to enable the court reconcile the two accounts. The figure as pleaded and prayed for by the 1st Respondent, in my view, is unsubstantiated since they failed to demonstrate how it was arrived at. Therefore, I am persuaded to conclude that it would defeat justice to draw any adverse inference from the weakness of their evidence. From the above analysis I find that the trial Court erred in allowing the 1st Respondent’s counter claim which was unsupported by documentary evidence. Hence the finding by the trial court is thus untenable and cannot be supported.

34. The Appellant sought for a permanent injunction against the Respondent restraining them from attaching and selling the suit property. The law on the grant of injunction in this country is well settled. Conditions for grant of interlocutory injunction as laid down in Giella vs. Cassman Brown & Co. Ltd [1973] EA 358 are as follows:.(i).prima facie case with a probability of success;(ii).the applicant might otherwise suffer irreparable injury, which would not be adequately compensated by an award of damages;SUBPARA (iii).if the Court is in doubt on the existence or otherwise of a prima facie case it will decide the application on the balance of convenience.

35. On what is a prima facie case, i wish to adopt the description given in Mrao Ltd v First American Bank of Kenya Ltd & 2 others [2003] KLR 125 fashioned a definition for “prima facie case” in civil cases in the following words:“In civil cases, a prima facie case is a case in which on the material presented to the court, a tribunal properly directing itself will conclude that there exists a right which has apparently been infringed by the opposite party to call for an explanation or rebuttal from the latter. A prima facie case is more than an arguable case. It is not sufficient to raise issues but the evidence must show an infringement of a right, and the probability of success of the appellant’s case upon trial. That is clearly a standard, which is higher than an arguable case.

36. I reiterate my above disposition on the status of the Appellants case and add that the Appellant sought for a permanent injunction which is a perpetual order and operates to determine the rights of a party with finality and is thus a decree of the court. A permanent injunction perpetually restrains the commission of an act by the defendant in order for the rights of the plaintiff to be protected. (see Kenya Power & Lighting Co. Limited v Sheriff Molana Habib [2018] eKLR ). The injunction is granted upon the merits of the case after evidence in support of and against the claim has been tendered.

37. Having stated that it is not in contention that the Appellant’s property was charged as security for a loan facility, it has also come to light that the Appellant defaulted in repaying the loan. The natural thing therefore is for the bank to exercise it statutory power of sale. On the issue, it is necessary to fall back on the legal position on the procedure regarding service of statutory notices on power of sale. Section 90 of the Land Act provides:“If a charger is in default of an obligation, fails to pay interest or any other periodic payment or any part thereof due under any charge or in the performance or observation of any covenant express or implied, in any charge, and continues to be in default for one month, the charge may serve on the charger a notice, in writing, to pay the money owing or to perform and observe the agreement as the case may be.”

38. The 1st Respondent stated that it served the principal borrower and the Appellant herein with two demand letters one dated 5/7/2016 issuing a 90 days’ notice and a second notice dated 20/12/2016 issuing a 40 days’ notice as Exhibit 2 & 3. It was further stated that the bank thereafter instructed the 2nd Respondents vide a letter dated 26/9/2017 to realize the facility and a redemption notice was issued to the Appellant dated 20th June,2017. A notification of sale was also issued dated 26/9/2017. To prove service of these notices, the Respondents produced a register of postage indicating that the Appellant was served via his postal address P.O. Box 358-50200 Bungoma. The Appellant in his evidence stated that he changed his address but did not notify the 1st Respondent. I therefore find that service of the notices was properly effected in compliance with section 90(2) of the Land Act. In the matter at hand, the 1st Respondent has sufficiently proved that it properly executed the provisions of section 90(1) of the Land Act and had sufficiently proved that its right under the above section had crystallized and was well within the law and rights to exercise it as per section 96 of the Land Act

39. Since the remedy being sought by the Appellant is an equitable one, the court should decline to exercise its discretion because the Appellant has been shown to be guilty of conduct which does not meet the approval of the court of equity. The Appellant failed to demonstrate that he has clean hands while coming to this court to seek equitable relief. Granting the prayer for a permanent injunction against the 1st Respondent would be unjust as it will deny it its right to claim what is owed to it and would be enabling the Appellant’s bad faith of not honouring his obligations towards the 1st Respondent. The Appellant had not made out a prima facie case with probability of success to warrant the grant of an order of injunction by the court.

40. Further in the case of Muhani & another v National Bank of Kenya Limited, Civil case No. 2280 of 1988 the court held that “An injunction will not issue to restrain a mortgagee from exercising his statutory power of sale merely because the amount is in dispute”, which principle was relied on in Joseph Okoth Waudi v National Bank of Kenya, Civil Application No. 77 of 2004, where the court of appeal in dismissing an appeal quoted from Halsbury’s Laws of England Vol. 32, 4th Edition page 752, stated that:“It is trite law that the court will not restrain a mortgagee from exercising its power of sale merely 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. It will be restrained however, if the mortgagor pays the amount claimed in court, that is, the amount which the mortgagee claims to be due to it unless on the terms of the mortgage, the claim is excessive”From the foregoing analysis, it has become quite apparent that the Appellant did not prove his claim on a balance of probabilities. Likewise, the 1st Respondent failed to prove its counterclaim against the Appellant on balance of probabilities. Hence, both parties lost their claims.

41. In the result, it is my finding that the appeal partially succeeds. The judgement of the trial court dated 19/9/2022 is hereby set aside and substituted with an order dismissing both the Appellant’s suit as well as the 1st Respondent’s counterclaim. Each party to bear their own costs of the appeal and in the lower court.It is so ordered.

DATED AND DELIVERED AT BUNGOMA THIS 17TH DAY OF NOVEMBER, 2023D.KEMEIJUDGEIn the presence ofNo appearance Kundu for AppellantNo appearance PN KAMAU for 1st RespondentKizito Court Assistants