Kinyua v Consolidated Bank of Kenya Limited [2022] KEHC 11465 (KLR)

Kinyua v Consolidated Bank of Kenya Limited (Civil Suit 16 of 2018) [2022] KEHC 11465 (KLR) (2 June 2022) (Ruling)

Neutral citation: [2022] KEHC 11465 (KLR)

Republic of Kenya

In the High Court at Nyeri

Civil Suit 16 of 2018

FN Muchemi, J

June 2, 2022

Between

Michael Mwangi Kinyua

Applicant

and

Consolidated Bank of Kenya Limited

Respondent

Ruling

1. The application for determination dated December 16, 2021 brought under order 12 rule 7, order 45 rules 1, 2 & 3 and order 50 rule 6 of the Civil Procedure Rules, sections 1A, 1B, 3A & 80 of the Civil Procedure Act and article 51 (1) of the Constitution seeks for orders for stay of execution of the orders made by this court on 11/10/2019 emanating from the Mediation Settlement Agreement dated 11/09/2019 and for review and setting aside the orders dated 2/10/2019 emanating from the Mediation Settlement Agreement dated 11/09/2019.

2. In opposition to the application, the respondent filed a replying affidavit dated 22nd March 2022.

The Applicant’s Case 3. It is the applicant’s case that the court on 11/10/2021 adopted the Mediation Settlement Agreement dated 11/09/2019 as an order of the court. The said orders were issued based on the agreement between the parties that there was a loan balance of Kshs. 14,596,913. 15/- and that it would be paid over the remaining loan term of eighty four (84) months at a monthly instalment of Kshs. 265,546. 51/- and interest thereof to be charged at Central Bank rates as provided from time to time and specifically at 13% as then prevailing and interest on the overdue amounts to be charged at 10%.

4. The applicant contends that during the mediation he was not represented by his then advocates despite being represented by his erstwhile advocates, M/s Wahome Gikonyo & Company Advocates.

5. Moreover, the applicant states that upon conducting an audit of his loan account, he discovered that he had already repaid the principal sum and that his suit was for a declaration that the defendant had changed the terms of loan repayment in contravention of the letter of offer dated 27/03/2013 and the charge dated 21/03/2013. Based on the foregoing reasons, the purported mediation settlement agreement was illegal, null and void to the extent that it was premised on the impugned interests, penalties and default charges and further on the basis that the principal sum was Kshs. 14,596,913. 15 whereas the principal sum advanced to the applicant as per the letter of offer dated 27/02/2013 and the further charge dated 21/03/2013 was Kshs. 9,500,000/- and Kshs. 828,293/- respectively. As such, the loan outstanding as adopted in the mediation settlement agreement of Kshs. 14,596,913. 15/- was excessive, unfair and unconscionable. Thus, the mediation settlement agreement did not reflect the correct amount outstanding owing to the impugned interest, default charges and penalties that are not based on the letter of offer dated 27/02/2013 and the further charge dated 21/03/2013 which were contractual documents binding the applicant and the respondent. Therefore, the applicant states that he and the respondent could not later agree outside the four corners of the said binding contracts.

6. The applicant is apprehensive that he stands to suffer irreparable damages and loss as he will be liable to pay an exorbitant loan facility outside the terms that were agreed between him and the respondent unless the court reviews and/or varies the orders emanating from the mediation settlement agreement. Moreover, the applicant contends that the respondent may proceed to foreclose on the security offered for the loan being LR. No. 7623/4 (I.R No. 21615) as the respondent has already issued a statutory notice and advertised for the same in the Nation newspaper.

7. The applicant further contends that the respondent shall not suffer any prejudice if the orders sought are granted as it is engaged in an unfair and unconscionable scheme to enrich itself to the applicant’s detriment.

The Respondent’s Case 8. The respondent states that the application is an abuse of the court process and only meant to deny the respondent its right to recover money owing from the applicant after the applicant has once again defaulted in servicing the loan.

9. The respondent contends that the applicant has not demonstrated any reason for setting aside the consent order issued by this court on 2/10/2019 which emanated from the mediation settlement agreement dated 11/09/2019. The respondent further contends that failure to be represented by counsel during mediation does not form grounds for setting aside a consent order. The applicant ought to demonstrate that the consent order was obtained through fraud, collusion and that the consent is contrary to the policies of the court which is not the case here.

10. The respondent states that the applicant is acting in bad faith as he signed a new offer letter dated 23/10/2019 following the consent order of 2/10/2019. Essentially, the applicant’s loan at Kshs. 14,596,862/- was restructured whereby he was required to pay the sum of Kshs. 265,546/- in equal monthly instalments of eighty four (84) months.

11. The respondent states that the applicant once again defaulted in servicing his restructured loan and the respondent out of courtesy served him with a redemption notice as stipulated under section 96 of the Land Act on 14th December 2020. The loan as at that date stood at Kshs. 15,284,151/-. The applicant never heeded to the notice and subsequent redemption notices by the respondent auctioneer and ultimately his parcel of land LR. No. 7623/4 (I.R. No. 21615) that had been charged as security was advertised for sale on 7th September 2021. On 6th September 2021 the applicant filed a suit in the lower court being Nyeri E269 of 2021 Michael Mwangi Kinyua vs Consolidated Bank Kenya Limited seeking interim orders stopping the public auction and a number of prayers in the main suit. As such, the respondent contends that the said suit is a replica of the instant suit including the final prayers sought and the applicant never mentioned the consent order which he now seeks to set aside. Consequently, the lower court granted the interim orders stopping the public auction because of the material non disclosure by the applicant. The respondent further points out that it filed its replying affidavit in the lower court case on 28th September 2021 which unearthed all the lies that were being peddled by the applicant.

12. The applicant has now moved this court through his application dated 19th November 2021 and the instant application seeking to set aside the mediation settlement agreement. The applicant further filed a supplementary affidavit on 22nd November 2021 in the lower court file stating that he had filed an application seeking to set aside the mediation settlement agreement. On 1st March 2022, the lower court delivered its ruling on the interlocutory application by the applicant whereupon it dismissed the said application for being misconceived and an abuse of the court process. As such, the respondent states that the applicant is only abusing the court process moving from one court to another and not giving full disclosure of facts within his knowledge.

13. The respondent states that currently the loan stands at Kshs. 15,586,595/- plus other costs incurred during the recovery and the applicant has not been servicing his loan to the detriment of the respondent.

14. The respondent contends that since the applicant filed his case in the lower court and lost, this honourable court should not give him a chance to continue with the abuse of the court process. Needless to say, the interim orders granted to the applicant are prejudicial to the respondent. As such, the respondent prays that the application be dismissed with costs and the interim orders in place be vacated.

15. Parties canvassed the application by way of written submissions.

The Applicant’s Submissions 16. The applicant reiterates what he deponed in his affidavit and submits that the principal sum as per the letter of offer dated 27/2/2013 was Kshs. 9,500,000/- and the second charge dated 21/3/2013 was Kshs. 828,293/- amounting to Kshs. 10,328,293/-. The mediation settlement agreement however indicated the principal sum as Kshs. 14,596,913. 15/- which is manifestly excessive, erroneous and illegal. In any event, the applicant contends that the respondent does not dispute his position that the principal sum as indicated in the settlement agreement is illegal and excessive but rather holds the position that the applicant is bound by the same as he has not proved fraud and/or collusion, ignorance of facts and/or that the agreement is contrary to the policy of the court.

17. The applicant further submits that he was not represented by his advocates on record during the mediation and that the figures representing the principal sum owing do not tally with the principal sums as advanced by the respondents. Furthermore, the confirmation of the change of monthly loan repayment appears to be a casual document which is handwritten yet it changed the monthly loan repayment and terms of the loan facility. As such, the applicant reiterates that the court has jurisdiction to look at the mediation settlement agreement and uphold that it is illegal as it resulted to unjust enrichment by the respondent and therefore it is against the policy of the court. To support his contention, the applicant makes reference to the case of Kenya Commercial Bank Ltd vs Specialized Engineering Company Ltd [1980] eKLR and urges the court not to shut its eyes to an illegality.

18. The applicant relies onorder 45 (1) (b)of the Civil Procedure Rules and submits that the court has jurisdiction to review its orders on grounds of any other sufficient reason. The applicant submits that he has proved sufficient reasons to justify the setting aside of the consent orders as issued pursuant to the mediation settlement agreement. As such, the applicant contends that he has met the criteria for setting aside the consent orders as adopted in court pursuant to the said mediation settlement agreement and prays that the suit be set down for a second court annexed mediation and in the event parties fail to reach an amicable settlement, the suit be set down for hearing on priority basis.

The Respondent’s Submissions 19. The respondent reiterates what she deponed in her affidavit and submits that the application is incompetent as it has not met the threshold for setting aside the orders of 2/10/2019, which emanated from the mediation settlement agreement dated 11/09/2019. Further, the application is an abuse of the court process as the applicant instituted another suit in the lower court challenging the interests, penalties and charges charged on the applicant’s loan advanced to him by the respondent and yet the instant application was filed during the pendency of the lower court suit.

20. The respondent relies on the case of N.K. M vs S.M.M & Another (2019) eKLR where the court laid out the principles for setting aside a consent judgment and submits that the applicant has not met the threshold for setting aside the consent orders of 2/10/2019 emanating from the mediation settlement agreement dated 11/09/2019. The respondent submits that the applicant had defaulted in servicing his loan and on the eve of the auction of his parcel of land on 31st October 2018, he approached the court and filed the present suit on 25/10/2018 stating that the respondent had applied exorbitant interests, penalties and default charges. As at 25/10/2018, when the applicant approached the court, the outstanding loan amount was Kshs. 22,423,185/- Parties however agreed to the lower figure of Kshs. 14,596,913. 15/- in the mediation settlement agreement. The respondent submits that all the parties acceded to this agreement and the same was adopted as an order of the court on 2/10/2019.

21. In his pursuit to have the consent order set aside, the applicant relies on the fact that he was not represented by his advocate, which the respondent contends is not a ground for setting aside a consent order. The respondent further submits that the applicant fully understood the mediation settlement agreement and that is the reason why he signed the agreement.

22. The respondent submits that is has been over two years after the parties entered into the consent judgment and further the applicant has brought the instant application after he has defaulted once again in servicing his restructured loan and when the respondent was just about to sell the applicant’s parcel of land in exercise of its statutory power of sale. Moreover, the applicant has filed the instant application during the pendency of the lower court suit Nyeri E269 of 2021 after the disclosure of the existence of the mediation agreement by the respondent in that suit. The respondent thus submits that the instant application is an afterthought on the part of the applicant. Based on the above reasons, the respondent urges the court to find the application incompetent.

23. The respondent further submits that the applicant is forum shopping filing applications after applications to ensure that the respondent is not successful in exercising the statutory power of sale over the applicant’s parcel of land. To illustrate the abuse of the court process, the respondent submits that the applicant entered into an agreement on the outstanding loan amount and the applicant’s loan was restructured on 23/10/2019 requiring him to pay monthly instalments of Kshs. 265,546/- for 84 months. The applicant defaulted in servicing his loan and on 7/09/2021 the respondent was set to auction the applicant’s parcel of land. However, the applicant approached the lower court vide Nyeri CMCC No. E269 of 2021 on 6/09/2021 contesting the auction. Notably, the applicant in the lower court never mentioned the existence of the mediation settlement agreement and now the applicant has approached this court seeking to set aside the consent order of 2/10/2019. The lower court on 1/03/2022 dismissed the applicant’s interlocutory application leaving pending the substantive suit before the lower court and the applicant is pursuing the setting aside of the consent order while he still has a pending substantive suit in the lower court. The respondent submits that the two separate proceedings cover the same subject matter. As such, the respondent urges the court not to entertain the applicant. The respondent submits that the application lacks merit and ought to be dismissed with costs to the respondent.

Issue for determination 24. The main issue for determination is whether the consent order of 2/10/2019 emanating from the mediation settlement agreement dated 11/09/2019 ought to be reviewed set aside.The LawWhether the consent order of 2/10/2019 emanating from the mediation settlement agreement dated 11/09/2019 ought to be set aside.

25. It is not in dispute that the mediation settlement agreement dated 11/09/2019 upon adoption by this court on 2/10/2019 became a judgement of the court by consent. It therefore follows that a consent order would only be set aside on grounds which justify the setting aside of a contract. The case of S.M.N v Z.M.S [2017] eKLR summarizes the case law on grounds upon which a consent may be varied or set aside as follows:-a)Where the consent was obtained fraudulently;b)In collusion between affected parties;c)Where an agreement is contrary to the policy of the court;d)Where the consent is based on insufficient material facts;e)Where the consent is based on misapprehension or ignorance of material facts;f)Any other sufficient reason.

26. Similarly in the well established case of Flora N. Wasike v Destimo Wamboko [1988] eKLR Hancox JA (as he then) was said:-It is now settled law that a consent judgment or order has a contractual effect and can only be set aside on grounds which would justify setting a contract aside, or if certain conditions remain to be fulfilled, which are not carried out.

27. The Court of Appeal in Board of Trustees National Security Fund v Michael Mwalo [2015] eKLR stated as follows:-A Court of law will not interfere with a consent judgment except in circumstances such as would provide a good ground for varying or rescinding a contract between parties. To impeach a consent order or a consent judgment, it must be shown that it was obtained by fraud, or collusion or by an agreement contrary to the policy of the court.

28. Thus a consent order entered into by parties has a contractual effect and cannot be set aside or varied unless it is proved that it was obtained by fraud or collusion or by an agreement contrary to the policy of the court or where the consent was given without sufficient material facts or in misapprehension or ignorance of such facts in general or for reason which would enable the court to set aside the agreement.

29. In the instant case, the applicant gives his reason for seeking review/setting aside the consent judgement as that he did not have legal representation during the mediation process. He further contends that he carried out an audit of his loan account and discovered that he had already repaid the principal sum and that the respondent varied the terms of the loan agreement in contravention to the letter of offer dated 27/03/2013 and the charge dated 21/3/2013. As such, the mediation settlement agreement was illegal, null and void as it was premised on the impugned interests, penalties and default charges. The applicant signed a Statement of Understanding dated 19/6/2019 and he did not raise any issues of not having legal representation during the mediation proceedings. It is also noted that upon the conclusion of the mediation proceedings, the applicant and the respondent both appended their signatures on the mediation settlement agreement. The respondent has attached a letter of offer dated 23rd October 2019 which restructured the loan pursuant to the mediation settlement agreement. At the end of the letter there is an attestation by an advocate that the applicant did execute the letter of offer and understood its contents. He evidently agreed to the terms of mediation. As we stand, part of the judgment of the court entered on 2/10/2019 has been executed in that the parties moved to implement the contents of the Mediation Settlement Agreement. Firstly, the applicant signed the letter of offer on the restructured loan and commenced repayment as per the agreement. He defaulted on the repayment and the respondent is now moving to exercise its statutory powers of sale by public auction. If the judgment of the court resulting from the mediation settlement agreement has been partly executed, it would be absurd for the applicant to ask the court to set aside or to review the remaining part. I am convinced that this application is an afterthought and has been brought a bit late in the day.

30. I have also perused the pleadings in the matter and noted that the reasons expounded by the applicant that the respondent varied the terms of the letter of offer and the charge is the basis of contention when he instituted the suit vide his plaint dated 24th October 2018. The applicant also filed two cases in the lower court CMCC No. 47 of 2014 and E269 of 2021 which involve the same issues raised herein. Notably the issues raised in E269 of 2021 are similar to those raised in this suit.

31. The mediation process does not require representation of a party by an advocate and lack of representation by an advocate cannot form basis of setting aside the mediation agreement or the consent judgement of the court. Order 45 requires that the applicant must prove one or two things in an application of this nature. The applicant chose “Sufficient Cause” as the ground upon which his review application was based but he has failed to demonstrate that ground.

32. In my considered view, this application does not meet the threshold of setting aside consent judgment and neither does it meet the requirements of order45 (1) of the Civil Procedure Rules.

33. It is my finding that this application lacks merit and it is hereby dismissed with costs to the respondent.

34. It is hereby so ordered.

DELIVERED, DATED AND SIGNED AT NYERI THIS 2ND DAY OF JUNE, 2022. F. MUCHEMIJUDGERuling delivered through videolink this 2ndday of June, 2022.