Maina v Stanbic Bank Kenya Limited & 2 others [2022] KEHC 9943 (KLR)

Maina v Stanbic Bank Kenya Limited & 2 others (Civil Case E261 of 2022) [2022] KEHC 9943 (KLR) (Commercial and Tax) (12 July 2022) (Ruling)

Neutral citation: [2022] KEHC 9943 (KLR)

Republic of Kenya

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

Commercial and Tax

Civil Case E261 of 2022

WA Okwany, J

July 12, 2022

Between

Roseann Nyambura Maina

Applicant

and

Stanbic Bank Kenya Limited

1st Respondent

Liberty Life Assurance Kenya Limited

2nd Respondent

Joseph Gikonyo t/a Garam Investments Auctioneers

3rd Respondent

Ruling

1. This ruling is in respect to the application dated 13th June 2022 wherein the applicant/plaintiff seeks, inter alia, orders of temporary injunction to restrain the Respondents whether by themselves, their agents, servants, employees or whomsoever including the 3rd Respondent from selling by way of auction, alienating, transferring or in any other manner whatsoever interfering with the Applicant's property Title No. Kiambu Municipality Block 111/230 (hereinafter “the Suit Property”) pending the hearing and determination of the suit.

2. The application is supported by the applicant’s affidavit and is premised on the grounds that: -a.The Applicant took a home loan facility with the 1st Respondent for the principal amount of USD 610,000 which loan was conditional on the Applicant taking out insurance for domestic cover and mortgage protection from the 2nd Respondent.b.The Applicant inexplicably found that she had been signed up for insurance with the 2nd Respondent despite requesting to take out insurance from Sanlam Kenya PLC. No explanation was ever offered to the Plaintiff as to how this came to be.c.Nevertheless, the Applicant made payment on the insurance amount through her monthly mortgage repayments. The insurance policy with the 2nd Respondent provided that in case the Applicant suffered from loss of income, the 2nd Respondent would service the loan for a nine (9) month period.d.On or about 30th June 2021, the Applicant was retrenched by her employer, the United Nations - African Union Mission in Darfur following closure of the mission based in Darfur and her post consequently being declared redundant.e.It was the Applicant's expectation that the 2nd Respondent would service the loan facility on her behalf following her redundancy as per the terms of the mortgage insurance.f.The Applicant severally corresponded via email with the 1st Respondent's Personal and Business Banking department requesting confirmation that the 2nd Respondent would cover the repayment of the home loan facility as per the terms of the insurance contract.g)However, the 2nd Respondent, through the 1st Respondent, unreasonably requested the Applicant to furnish it with information relating to her employment with the United Nations - African Union Mission in Darfur such as a formal letter of employment. This is information which the 2nd Respondent is reasonably expected to have verified while conducting due diligence prior to insuring the Applicant.h.The 2nd Respondent has unreasonably refused and/or declined to service the loan facility on the Applicant's behalf despite consistent follow-ups and the existence of a legally binding contract between the Applicant and 2nd Respondent.i.The 1st Respondent thereafter served the Applicant with a 3 months' statutory demand dated 15th October 2021 despite the Applicant's concerns and requests for clarification.j.The Applicant having defaulted on payment of monthly instalments on her loan on or about July 2021, and the 2nd Respondent having undertaken to insure her and service the arrears in default for a nine (9) month period, the 9 months expired on 31st March 2022 and therefore any arrears that the Applicant is liable for should be tabulated as of then.k.The 1st Respondent unreasonable refused to even consider the ravages of the COVID19 pandemic and offer the Applicant a moratorium on the repayment of my loan.l.On or about 4th May 2022, the 3rd Respondent purported to issue, on the 1st Respondent's behalf, the Applicant with a 45 days' notice dated 28th April 2022 of intention to sell the suit property by public auction on 12th July 2022. The alleged notice is illegal and unprocedural for failure to adhere to the prescribed form as per section 96(2) of the Land Act, 2012 and for being issued by the 3rd Respondent rather than the 1st Respondent as the chargee.m.In the alleged notice served by the 3rd Respondent, the purported value of the suit property is given as Kshs 71,000,000/= which valuation is extremely low and is not a reflection of the current market value.n.The 1st Respondent has unreasonably elected to prematurely exercise their power of sale despite the existence of other less punitive measures to recover the loan arrears including claiming from the 2nd Respondent as the Applicant's insurer and/or appointing a manager over the suit property which is currently leased to a rent-paying tenant.o.Unless the reliefs sought against the said intended sale are granted, the Applicant will suffer irreparably as the Respondents will go ahead and sell the suit property at a grossly undervalued price contrary to section 97 of the Land Act.p.The Respondents will not be prejudiced in any way by the granting of the orders sought herein whereas the Applicant stands to suffer grievous and irreparable harm by way of being dispossessed of her property if the intended sale is not stopped.

3. The 1st and 3rd respondents opposed the application through the replying affidavit of the 1st respondent’s Manager, Business Support & Recoveries Officer Ms. Christine Mwangi who confirms that that the 1st Defendant advanced a loan facility in the sum of USD. 610,000. 00 to the Plaintiff which loan was secured through a Legal Charge registered over the suit Property. She states that the plaintiff acknowledged the terms of the said Charge which she freely and voluntarily executed before the 1st Defendant disbursed the Loan Facility to her in accordance with the terms of the Letter of Offer.

4. Ms. Mwangi avers that the Plaintiff mischievously and blatantly defaulted in making the monthly loan repayments despite extensive accommodation, concessions and indulgence extended to her thereby triggering the occurrence of an Event of Default. She states that the loan amount due and owing as at 14th April 2022 is USD. 690,677. 73 which sum continues to accrue interest. She avers that the plaintiff’s unreliability, inconsistency and inability to service the Loan Facility left the 1st defendant with no option but to initiate its statutory power of sale by issuing the requisite statutory notices, engaging a valuer to conduct a valuation of the suit property and thereafter instructing the auctioneer to sell the said property.

5. It is the respondent’s case that the application is not merited as the plaintiff acknowledges her indebtedness to the 1st defendant.

6. The 2nd defendant opposed the application through its Grounds of Opposition dated 24th June 2022 wherein it lists the grounds that: -a.The 2nd Defendant is improperly joined as a party to the suit since the Plaint as framed is purely a dispute between 1st Defendant and its Borrower (the Plaintiff).b.The 2nd Defendant is not a party to the loan facility agreement between the Plaintiff and the 1st Defendant.c.The 2nd Defendant is not a party to the 1st Defendant's exercise of the statutory power of sale under Section 96 of the Land Act, 2012. d.The Plaintiff has failed to prove a prima facie case against the 2nd Defendant, that it was an insured in a Mortgage Protection Policy with the 2nd Defendant since it has not produced the alleged Insurance Policy. Therefore, the Plaintiff is not entitled to any of the injunctive orders sought in the Notice of Motion dated 13th June 2022 as against the 2nd Defendant.e.The Plaintiff has not discharged its burden of proof under Section 107 of the Evidence Act, by producing the alleged mortgage protection cover where she claims she was insured by the 2nd Defendant. The existence of the mortgage protection cover and its terms remain in the realm of speculation.

7. The plaintiff filed a further affidavit in response to the replying affidavit and Grounds of Opposition wherein she states that even though she does dispute the fact that she obtained a loan facility from the 1st defendant, she vehemently denies the claim that she defaulted in the loan repayments. She maintains that the 1st defendant’s right to exercise its statutory power of sale had not crystallized owing to its failure to comply with the legal framework regarding service of statutory notices. She reiterates that the loan/mortgage facility was from the outset duly covered by Sanlam Insurance Company under the mortgage protection insurance before the 1st defendant changed the cover to the 2nd defendant.

8. The plaintiff maintains that she strictly complied with the terms of the loan agreement and the policy cover which ought to have taken care of the monthly instalments from the 2nd Defendant for a period of 9 months following mv redundancy as was agreed. The plaintiff contends that the default would not have arisen had the 1st and 2nd defendants fulfilled their obligations under the loan agreement and policy cover considering that she paid the sum of USD 11,000 in January 2022 in part settlement of the loan. According to the plaintiff, had the insurance policy been in place, she would have been required to make payments on the loan facility from March 2022 thereby making any notice issued prior to that date premature, unnecessary, and malicious.

9. Parties canvassed the application by way of written submissions which I have considered. The main issues for determination are whether the 2nd defendant is a proper party in this suit and whether the applicant has made out a case for the granting of the equitable remedy of injunction.

Proper Party 10. The 2nd defendant argued that it had been improperly been enjoined in this suit as it was not privy to the loan agreement. I note that even though the 2nd defendant is not a direct party to the loan agreement per se, its involvement in the case is in respect to the mortgage insurance policy that it allegedly issued to the plaintiff. The plaintiff argued that because the loan facility was insured by the 2nd defendant who undertook to service the loan arrears in the event of a default for a nine (9) month period, the 9 months expired on 31st March 2022 and that any arrears due should have been tabulated as of then.

11. My finding is that the plaintiff’s claim that the 2nd defendant insured the mortgage facility in question is a critical aspect of the case that can only be determined after hearing the parties’ respective cases. My finding is that the 2nd defendant is a necessary party in the determination of the dispute herein.

Injunction 12. The plaintiff advanced the following reasons for seeking the injunctive orders:-i.That she had not defaulted in the loan repayments and that the intended exercise of the statutory power of sale is malicious and premature.ii.That the 1st and 2nd defendants did not fulfil their obligations under the loan agreement and insurance policy respectively.iii.That the mandatory statutory notices were not served on her as required by the law.iv.That the 1st defendant is proposing to sell the suit property at a gross undervalue.

13. The three conditions under which the court may grant a temporary injunction were set out in the case of Giella vs Cassman Brown & Co. Ltd(1973) E.A 385, at page 360 where Spry J. held that:-“The conditions for the grant of an interlocutory injunction are ...well settled in East Africa. First, an applicant must show a prima facie case with a probability of success. Secondly, an interlocutory injunction will not normally be granted unless the applicant might otherwise suffer irreparable injury, which would not adequately be compensated by an award of damages. Thirdly, if the court is in doubt, it will decide an application on the balance of convenience."

14. In Mrao Ltd vs First American Bank of Kenya Ltd & 2 Others [2003] KLR 125, Bosire JA gave the following definition of what constitutes a prima facie case:-“...So what is a prima facie case? I would say that in civil cases it 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 as 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. The evidence must show an infringement of a right, and the probability of the applicant's case upon trial. That is clearly a standard which is higher than an arguable case."

15. The principles of injunction together with the mode of their application were restated in Nguruman Limited vs Jan Bonde Nielsen & 2 Others, CA NO. 77 of 2012 as follows:-“In an interlocutory injunction application, the applicant has to satisfy the triple requirements to;(a)establish his case only at a prima facie level,(b)demonstrate irreparable injury if a temporary injunction is not granted, and(c)allay any doubts as to (b) by showing that the balance of convenience is in his favour.These are the three pillars on which rests the foundation of any order of injunction, interlocutory or permanent. It is established that all the above three conditions and stages are to be applied as separate, distinct and logical hurdles which the applicant is expected to surmount sequentially. See Kenya Commercial Finance Co. Ltd V. Afraha Education Society [2001] Vol. 1 EA 86. If the applicant establishes a prima facie case that alone is not sufficient basis to grant an interlocutory injunction, the court must further be satisfied that the injury the respondent will suffer, in the event the injunction is not granted, will be irreparable. In other words, if damages recoverable in law is an adequate remedy and the respondent is capable of paying, no interlocutory order of injunction should normally be granted, however strong the applicant’s claim may appear at that stage. If prima facie case is not established, then irreparable injury and balance of convenience need no consideration. The existence of a prima facie case does not permit “leap-frogging” by the applicant to injunction directly without crossing the other hurdles in between.” (Emphasis added).

16. I will now turn to apply the above principles to the present case. The question which arises is whether the plaintiff established a prima facie case against the defendants. I note that the following facts are not disputed: -i.That the plaintiff is the registered owner of the suit property.ii.That the plaintiff offered the suit property as a collateral for a loan facility from the 1st defendant.iii.That the loan repayments fell in arrears and the suit property is under threat of being sold by the 1st defendant in exercise of its statutory power of sale.

17. Has the applicant established a prima facie case with probability of success? What was the applicant’s case? Having highlighted the uncontested facts of this case, I note that the contested issues were whether the statutory notices were served on the applicant and who between the plaintiff, the 1st and 2nd defendants was responsible for the default in loan repayments.

18. Regarding service of the statutory notices, the plaintiff stated the 1st defendant did not comply with the provisions of the Land Act in terms of the requisite notices, a defect which renders any purported sale null and void ab initio. It was submitted that failure by the 1st Defendant to comply with the provisions of Section 96 (2) of the Land Act is a serious issue that automatically invalidates any intended sale at the public auction slated for 12th July 2022. The 1st Defendant, on the other hand, contended that the said Notices were issued. I have perused the 1st defendant’s annexure to the replying affidavit marked as ‘CM-4', and I note that it indicates that the notice was sent by registered post. The 1st Defendant did not however attach evidence of postage, by way of Certificate of Posting to confirm that the same was dispatched by registered post as alleged. It is trite that once a chargor disputes receipt of any of the statutory notices, it is incumbent on the chargee to prove that indeed such notice was in fact sent.

19. In the circumstances of this case, I am not satisfied that the 1st defendant discharged the burden, on its part, to establish that it served the statutory notices on the plaintiff.

20. The plaintiff’s case was that she took out insurance for domestic cover and mortgage protection from the 2nd Respondent and that she paid the insurance premiums through the monthly mortgage repayments. The plaintiff added that the insurance policy provided that the 2nd Respondent would service the loan for a nine (9) month period in the event that the Applicant suffered loss of income. The plaintiff established that she was declared redundant on 30th June 2021 and that she expected that the 2nd respondent would service the loan facility on her behalf according to the terms of mortgage insurance. The plaintiff further expected the 1st defendant to recover the loan repayments from the 2nd defendant to whom she had paid the insurance premiums through the 1st defendant.

21. The plaintiff presented a string of email correspondence with the 1st defendant over the subject of mortgage insurance. I note that the 1st Defendant did not come out clean over the plaintiff’s claim that she signed up for an insurance cover for the Loan facility and paid the insurance premiums through her monthly mortgage repayments. Indeed, the statements of accounts produced as annexure marked 'CM-2 in the 1st Defendants replying affidavit show that she was charged for both short-term and long-term insurance payments on the loan account. The 1st defendant did not also deny the plaintiff’s claim that she paid USD 11,000 in January 2022 towards the loan repayments.

22. It is trite that when considering an interlocutory application such the one before me, the court should not make any conclusive findings that may have the effect of prejudicing or preempting the outcome of the main suit. My finding is that the affidavit evidence presented by the applicant disclose a prima facie case and raises critical issues that can only be unpacked after hearing the full extent of the evidence to be presented at the hearing of the main suit.

23. The next question is whether the applicant established that she will suffer irreparable loss if the sale is not stopped. The applicant contended that the 1st defendant has unreasonably elected to prematurely exercise its power of sale despite the existence of other less punitive measures to recover the loan arrears including claiming from the 2nd Respondent as the Applicant's insurer and/or appointing a manager over the suit property which is currently leased to a rent-paying tenant. The applicant emphasized that she stands to suffer irreparably unless the reliefs sought against the said intended sale are granted as the Respondents will go ahead and sell the suit property at a grossly undervalued price contrary to section 97 of the Land Act thus dispossessing her of the same.

24. It may be argued that the 1st defendant is a financial institution capable of meeting any damages that may awarded to the applicants should it be found that the sale of the suit property, if it proceeds, was erroneous. This is a very persuasive argument that should have the effect of tilting the balance of convenience in favour of the 1st defendant. I however find that there is a greater need to ensure strict compliance with the laws governing the exercise of the statutory power of sale as captured under the Land Act, 2012. Compliance with the statutory requirements and procedures is a matter that cannot be overlooked as it is the only that the interests of both the chargor and chargee can be secured. Compliance with the law is the only way that public can ensure that the business environment remains safe, stable and predictable. It is for the above reason that the court in Stars & Garters Restaurant & Another vs National Bank of Kenya Limited [2019] eKLR held that a chargor whose security is sold without compliance with the statutory provisions and the terms of the mortgage will suffer irreparable loss and that in such circumstances it cannot be said that money will be adequate compensation to the mortgagor.

25. Having found that the applicant has established a prima facie case which raises issues that require further interrogation by hearing the main suit, I find that the applicant will be prejudiced in an irreparable manner if the sale is allowed to proceed without compliance with the statutory provisions and before she gets her day in court.

26. I further find that in the instant case, the balance of convenience tilts in favour of the applicant who stands to suffer greater injustice if the sale is allowed to proceed before the critical issues she raised over the existence of mortgage insurance policy, service of statutory notices and valuation of the suit property are ironed out at a hearing.

27. Having regard to the findings and observations that I have made in this ruling I find that the instant application is merited and I therefore allow it in terms of prayer no. 3 thereof.

28. The order of injunction will however remain in force only on condition that the applicant continues servicing the loan as per the loan agreement between her and the 1st defendant except for the period of 9 months that is disputed on the basis that it was covered under the mortgage insurance policy. For avoidance of doubt, the disputed 9 months period will form part of the issues to be determined at the hearing.

29. In case of any default by the applicant, the 1st and 3rd defendants shall be at liberty to commence afresh and in accordance with the Land Act, 2012 and the loan agreement, the process of exercising its statutory power of sale. The applicants will, not later than 60 days from the date of the delivery of this ruling, list the matter before the Deputy Registrar for compliance with Order 11 of the Civil Procedure Rules, 2010 so that the same can be heard and determined on priority basis. The costs of this application shall abide the outcome of the main suit.

DATED, SIGNED AND DELIVERED VIRTUALLY AT NAIROBI THIS 12TH DAY OF JULY 2022. W. A. OKWANYJUDGEIn the presence of: -Mr. Eredi for the Applicant.Mr. Kimani for 1st and 3rd Defendants/RespondentsCourt Assistant- Sylvia