Katsran Logistics Limited v Gulf African Bank Limited [2022] KEHC 259 (KLR)

Katsran Logistics Limited v Gulf African Bank Limited (Civil Case E014 of 2022) [2022] KEHC 259 (KLR) (Commercial and Tax) (25 March 2022) (Ruling)

Neutral citation: [2022] KEHC 259 (KLR)

Republic of Kenya

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

Civil Case E014 of 2022

A Mabeya, J

March 25, 2022

Between

Katsran Logistics Limited

Plaintiff

and

Gulf African Bank Limited

Defendant

Ruling

1. The application for consideration is the Plaintiff’s Notice of Motion dated 24th January 2022 made, inter alia, under Order 40 rules 1 and 4 of the Civil Procedure Rulesseeking an injunction restraining the Defendant (“the Bank”) from selling the property known as Chembe/Kibabamche/390 (“the suit property”) in exercise of its statutory power of sale pending the hearing and determination of the suit. The application is supported by the supporting and further affidavits of Henry Katambo, the Plaintiff’s Managing Director, sworn on 24th January 2022 and 18th February 2022 respectively. The Bank opposes the application through the replying affidavit of its Legal Officer, Lawi Sato, sworn on 25th January 2022. The application was canvassed by way of written submissions.

2. The Plaintiff’s case against the Bank is set out in the Plaint dated 24th January 2022. It states that in 2017, it borrowed KES. 17,000,000. 00 working capital from the Bank but it only received KES. 6,589,940. 00 without any explanation. It avers that its facility was restructured by a letter dated 22nd April 2020 by which time it had paid KES. 3,830,377. 03. The Plaintiff also adds that together with its related companies, it borrowed KES. 59 million secured by a total assets debenture for the same amount. It believes that it owes the Bank less that KES. 4,000,000. 00.

3. The gravamen of the Plaintiff’s case is that the Bank wishes to exercise its statutory power of sale in respect of the suit property contrary to the agreement reached between it and the Bank following a meeting between their representatives in July 2020 where it claims that the Bank withdrew and or suspended the 90-day statutory notice issued on 29th June 2020. It therefore contends that the 40-day notice issued on 9th July 2021 and all subsequent action to sell the suit property are null and void in view of the withdrawal of the 90-day statutory notice.

4. In response to the case, the Bank denies that it withdrew or suspended the 90-day statutory notice issued to the Plaintiff following the meeting between the Plaintiff and the Bank’s representatives. It points out that no evidence has been presented to support this averment and that in any case, the Plaintiff has admitted that the 90-day statutory notice is still in force by its letter dated 30th June 2020 addressed by the principal debtor to the Bank. It therefore urges that it was entitled to issue the 40-day notice following the failure by the Plaintiff and principal debtor, Kastran Auto Engineering Works Limited, to regularize the account.

5. The main issue for determination is whether the court should grant an injunction restraining the Bank from exercising its statutory power of sale in the circumstances outlined above. The principles for the grant of an injunction established in Giella v Cassman Brown [1973] EA 358 are still good law and hold that in order to succeed, an applicant must demonstrate that it has a prima facie case with a probability of success, demonstrate irreparable injury which cannot be compensated by an award of damages if a temporary injunction is not granted, and if the court is in doubt, show that the balance of convenience is in its favour.

6. In Nguruman Limited v Jane Bonde Nielsen and 2 Others NRB CA Civil Appeal No. 77 of 2012 [2014] eKLR the Court of Appeal reiterated the three conditions to be fulfilled before an interim injunction is granted as set out in Giella v Cassman Brown (Supra) and further clarified that they are to be applied as separate, distinct and logical hurdles which the applicant is expected to surmount sequentially. This means that if an applicant does not establish a prima facie case then irreparable injury and balance of convenience do not require consideration. On the other hand, if a prima facie case is established, then the court will consider the other conditions.

7. In order to exercise its statutory power of sale, the Chargee must establish that the Chargor is indebted or in breach of an obligation under the charge for a period of at least one month as a pre-requisite before issuing a 90-day notice under section 90 of the Land Act calling upon the Chargor to remedy the breach or pay the money outstanding failure to which the Chargee shall proceed to sell the subject property within 90 days from the date of service of the notice. Once the notice is issued and the Chargor does not comply with the notice, the Chargee may issue a notice to sell under section 96 of the Land Act notifying the Chargor that it intends to sell the subject property after 40 days in the event the default is not remedied.

8. The Plaintiff does not dispute the fact that the 90-day statutory notice was issued on 29th June 2020. If anything, I agree with the Bank that the principal debtor acknowledged this fact in the letter dated 30th June 2020 addressed to the Bank. The question for resolution is whether the Bank suspended, varied or withdrew the statutory notice as contended by the Plaintiff. The Plaintiff bears the burden of establishing this fact. Apart from the statement that there was a meeting, there is nothing else on record to show that the Bank suspended the notice.

9. The Plaintiff seems to suggest that it is not indebted to the Bank. This position is not borne out by the evidence on record. There is correspondence between the Bank and principal debtor acknowledging its indebtedness. The facility was first restructured by a Letter of Offer dated 30th September 2019 and later by a letter dated 31st March 2020, the Plaintiff requested a moratorium on, “principal, profits and any other incidentals to the facility” for a year ending March 2021. Following correspondence, the parties entered into a restructured agreement contained in the Letter of Offer dated 22nd April 2020. In further email correspondence, the principal debtor acknowledged that its business was affected by the COVID-19 pandemic and for that reason, it sought further indulgence in resolving the debt. All these documents show that the principal debtor remains indebted.

10. In its submissions, the Plaintiff contends that the facility is governed by Islamic law which provides that the loan only attracts profits and not interest and expenses claimed by the Bank. It argues that an injunction should be granted on that basis in these circumstances. I hold that this claim lacks any basis and is in fact an afterthought given that the principal debtor did not raise any issue regarding the manner in which the debt was calculated in correspondence and engagement with the Bank throughout its engagement. At the end of the day, the principal debtor is indebted to the Bank. The Bank has issued a statutory notice under section 90 of the Land Act hence its statutory power of sale has arisen. There is thus no reason to restrain the Bank from exercising its statutory power of sale in the circumstances.

11. The Plaintiff further complains that Bank is preparing to sell the suit property valued at KES. 85,000,000. 00 to recover a debt of KES. 4,685,459. 45 contrary to section 97(1) of theLand Act. It also contends that 40-day notice to sell the suit property is irregular and contrary to section 96 of the Land Act as the Bank was required to issue a demand notice concurrently following the 90-day notice. I do not find any merit in this submission as the Bank issued the proper and valid notice to sell the suit property under section 96 of the Land Act setting out the amount due to the Bank together with profit and default damages to be paid which the principal debtor did not paywithin 40 days from the date of service of the notice, otherwise the Bank would proceed to exercise its statutory power of sale.

12. The Bank instructed Nile Real Appraisers (EA) Ltd to value the suit property prior to the sale. In a report dated 10th September 2021, it established the market value of the suit property at KES. 30,000,000. 00 and forced sale value at KES. 22,500,000. 00. In the absence of another valuation report, I do not find any basis for the Plaintiff stating that the suit property is valued at KES. 80,000,000. 00. I therefore reject the Plaintiff’s complaint that the Bank would sell the suit property valued at KES. 85,000,000. 00 for a paltry debt of KES. 4,685,459. 45. The Plaintiff offered the suit property as security for the advances meaning that the Bank is entitled realise the security as long as the Chargor is indebted for whatever amount that is due. The Notice to sell gives the Chargor an opportunity to redeem the property otherwise the Chargee is entitled to sell the property.

13. The Plaintiff has failed to demonstrate that it has a prima facie case with a probability of success on the issues framed for determination. Following the dicta in the Nguruman Case (Supra), if the applicant does not establish prima facie case then irreparable injury and balance of convenience do not need consideration.

14. It must now be clear that the Notice of Motion dated 24th January 2022 is for dismissal. It is now dismissed with costs to the Defendant. The interim orders in force are now discharged.

SIGNED AT NAIROBID. S. MAJANJAJUDGEDATED ANDDELIVERED ATNAIROBI THIS25THDAY OF MARCH 2022. A. MABEYAJUDGECourt of Assistant: Mr M. OnyangoMs Fozah instructed by Kokul, Fozah and Partners Advocates for the Plaintiff.Mr Wafula instructed by Walker Kontos Advocates for the Defendant.