Melly & another v Consolidated Bank of Kenya Limited [2022] KEHC 9762 (KLR)

Melly & another v Consolidated Bank of Kenya Limited (Commercial Case 214 of 2018) [2022] KEHC 9762 (KLR) (Commercial and Tax) (5 May 2022) (Ruling)

Neutral citation: [2022] KEHC 9762 (KLR)

Republic of Kenya

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

Commercial and Tax

Commercial Case 214 of 2018

WA Okwany, J

May 5, 2022

Between

Stephen Kibiego Melly

1st Plaintiff

Naomi Melly

2nd Plaintiff

and

Consolidated Bank of Kenya Limited

Defendant

Ruling

1. The applicants/plaintiffs herein filed the application dated 5th November 2020 seeking leave to amend the plaint. The plaintiffs also seek orders of temporary injunction to restrain the Defendant and the proposed 2nd to 3rd Defendants from effecting any registration or completing any transfer of the suit properties, interfering with the Plaintiffs’ occupation therein and/or attempting to evict the Plaintiffs from properties known as Land Reference Number 209/18362 (original Number 209/12486/45) and Apartment Number A2. 3 erected on Land Reference Number1/270 (hereinafter, “the suit properties”).

2. The application is supported by the 1st plaintiff’s affidavit and is based the grounds that: -1. That the Plaintiff/Applicant herein instituted a suit by a Plaint filed on 15th November 2017 simultaneously with a Notice of Motion of even date filed under Certificate of urgency seeking injunctive Orders against the 1st Defendant herein.2. That the 1st Defendant did then through its Advocates file its response to the Notice of Motion dated 15th November 2017 and subsequently thereafter a consent as recorded by the parties setting the timelines within which this matter was to be heard.3. That for one reason or another the matter did not proceed and the said injunction was discharged by operation of law and the suit properties were subsequently sold on 19th March 2020 by public auction.4. That the said auction that was undertaken on the 19th March 2020 was null and void as there was no compliance with the provisions of Section 97 of the Land Act (2012)5. That the Plaintiffs have with further consultation with their advocates on record now seen the need to amend their Plaint as the issues in this suit are yet to be determined and there is thus need to amend the Plaint to include the new Defendants who purchased the suit properties together with the Principal Debtor.6. That the Plaintiff's case will be prejudiced if they are not allowed to amend the Plaint as they will not be able to ventilate all the issues and also this Court will not be in a position to grant the reliefs sought by the Plaintiffs without the amendments being made.7. That the Plaintiff is also apprehensive that the Auction purchasers of the suit properties being the 3rd and 4th Defendants may at any time move to evict them from the suit premises and thus subject them to loss and damage and in the process render this suit a nullity.8. That from the foregoing, it is in the interest of Justice and fair play that the orders sought be granted.

3. The 1st defendant opposed the application through the replying affidavit of its Recoveries Officer Mr. Billy Ubindi who states that the application is res judicata as a similar application for injunction was dismissed through a ruling delivered on 26th September 2019. He further states that the applicant breached the terms of their settlement thereby precipitating the 1st defendant’s exercise of its statutory power of sale.

4. The 1st defendant maintains that it carried out a valuation of the suit property prior to the sale and the sum of Kshs. 13,880,000 realized at the auction was above the forced sale value. It is the 1st defendant’s case that the plaintiffs’ equity of redemption was extinguished at the fall of the hammer and that the only remedy available to them, if any, is in an award of damages.

5. The 4th defendant opposed the application through the replying affidavit wherein she states that the suit against her is misconceived as she is not a party to the suit. She further contends that she is a bona fide purchaser for value and protected under Section 99(3) of the Land Act.

6. I have considered the application, the response made by the defendants and the parties’ respective submissions. The main issue for determination is whether the plaintiffs have made out a case for the granting of the orders sought in the application.

Amendment 7. The plaintiffs argued that there was need to amend the plaint to include the alleged purchasers of the suit property as defendants in order to avoid multiplicity of suits. The 4th proposed defendant opposed the amendment application and argued that she is not a necessary party to the suit as she was not privy to the loan agreement between the plaintiff and the 1st defendant.

8. In Ochieng and Others vs First National Bank of Chicago Civil Appeal Number 147 of 1 (unreported) cited with approval in St. Patrick’s Hill School Ltd vs Bank of Africa Kenya Ltd [2018] eKLR the Court of Appeal clearly discussed the principles governing courts when dealing with applications for leave to amend pleadings as follows: -a)the power of the court to allow amendments is intended to determine the true substantive merits of the case;b)the amendments should be timeously applied for;c)power to amend can be exercised by the court at any stage of the proceedings;d)that as a general rule however late the amendment is sought to be made it should be allowed if made in good faith provided costs can compensate the other side;e)The plaintiff will not be allowed to reframe his case or his claim if by an amendment of the plaint the defendant would be deprived of his right to rely on limitations Act subject however to powers of the court to still allow an amendment notwithstanding the expiry of current period of limitation.

9. In the case of Institute For Social Accountability & Another vs Parliament of Kenya & 3 others [2014] eKLR, the court considered an application to amend consolidated petitions observed that:“The object of amendment of pleadings is to enable the parties to alter their pleadings so as to ensure that the litigation between them is conducted, not on the false hypothesis of the facts already pleaded or the relief or remedy already claimed, but rather on the basis of the true state of the facts which the parties really and finally intend to rely on. The power of amendment makes the function of the court more effective in determining the substantive merits of the case rather than holding it captive to form of the action or proceedings.”

10. It is trite that the power to amend pleadings is at the discretion of the court. I have perused the amended plaint annexed to this application and I note that the issues raised therein relate to the same subject matter as the original plaint. I also note that the application was filed in good time, in which case, the defendants will suffer no prejudice if it is allowed since they will have an opportunity to amend their pleadings should they deem it necessary.

Injunction 11. The plaintiffs seek injunctive orders to restrain the 2nd and 3rd interested parties from effecting or completing registration of the suit properties. The interested parties however maintain that they were not privy to the agreement between the plaintiff and the bank.

12. The conditions to be fulfilled in order to obtain orders of temporary injunction were explained in the case of Giella vs Cassman Brown & Co. Ltd(1973) E.A 385, as follows: -“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."

13. In Mrao Ltd vs First American Bank of Kenya Ltd & 2 Others [2003] KLR 125, the court explained what amounts to a prima facie case as follows: -“...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."

14. The plaintiffs alleged that the 1st defendant used old forced valuation reports thus breaching the duty of care provided for under Section 97 of the Land Act.

15. The defendant, on the other hand, argued that the application is res judicata and that the plaintiffs’ equity of redemption was extinguished at the fall of the hammer. It was submitted that the application had been overtaken by events since the property had passed to third parties.

16. In the case of The Independent Electoral and Boundaries Commission v Maina Kiai & 5 others, Nairobi CA Civil Appeal No. 105 of 2017 ([2017] eKLR), the Court held as follows concerning the doctrine of res judicata:“Thus, for the bar of res judicata to be effectively raised and upheld on account of a former suit, the following elements must be satisfied, as they are rendered not in disinjunctive but conjunctive terms;a)The suit or issue was directly and substantially in issue in the former suit.b)That former suit was between the same parties or parties under whom they or any of them claim.c)Those parties were litigating under the same title.d)The issue was heard and finally determined in the former suit.e)The court that formerly heard and determined the issue was competent to try the subsequent suit or the suit in which the issue is raised.”

17. The Court explained the role of the doctrine thus: -“The rule or doctrine of res judicata serves the salutary aim of bringing finality to litigation and affords parties closure and respite from the spectre of being vexed, haunted and hounded by issues and suits that have already been determined by a competent court. It is designed as a pragmatic and commonsensical protection against wastage of time and resources in an endless round of litigation at the behest of intrepid pleaders hoping, by a multiplicity of suits and fora, to obtain at last, outcomes favourable to themselves. Without it, there would be no end to litigation, and the judicial process would be rendered a noisome nuisance and brought to disrepute or calumny. The foundations of res judicata thus rest in the public interest for swift, sure and certain justice.”

18. It was not disputed that a related application for injunction was dismissed by this court on 26th September 2020. I however not that the earlier application was to stop the sale of the suit property while the instant application seeks orders to stop the registration or transfer of the said property to third parties. I find that owing to the fact that the circumstances of the present application are different from those in the earlier application, the instant application cannot be said be said to be res judicata.

19. Turning to the issue of prima facie case, I note that it was not disputed that the suit property was sold to third parties in whose favour registration has already been effected. It is noteworthy that the instant application was brought later in the day after the third parties purchased the suit properties and became bona fide purchasers for value. While I appreciate the plaintiffs’ concerns with regard to valuation, I note that courts have taken the position that lack of or undervaluation of charged property cannot form a basis for the granting of orders of injunction. I am guided by the decision in Omega Foundation vs Chase Bank of Kenya [2018] eKLR where the court observed that: -“I find that even if the Plaintiff was to ultimately prove that the suit property was under-valued, that would not be a sufficient reason to warrant the grant of an interlocutory injunction in the circumstances prevailing.”

20. On whether the plaintiffs will suffer irreparable harm, I note that the suit properties were offered as security for the loan. The loan agreement was clear that the suit properties would be sold to recover the debt in the event of default. I find that, having offered the suit properties as security for the loan and having defaulted in the loan repayments, the plaintiffs’ claim that they will suffer irreparable loss if they are evicted from the suit properties cannot be sustained at this stage as any irregularity in the sale can be redressed by an award of damages. I am guided by the decision in David Mburu Githere vs Jamii Bora Bank Ltd (2017) eKLR where the court followed the decision of the Court of Appeal in Priscillah Krobought Grant vs Kenya Commercial Finance Co Ltd & Others, CA No 227 of 1995 and held as follows: -“Where a chargee had exercised its statutory power of sale and caused the property to be sold by public auction, the remedy of the chargor was a claim for damages if she would prove that there was improper or irregular exercise of the statutory power of sale.”

21. Similarly, in Andrew Muriuki vs Equity Building Society(2006) eKLR it was held that where the plaintiff offers property as security, he is conscious of the fact that failure to meet his obligations could lead to sale of the property. The court further observed that by offering the property as security, the plaintiff is in effect equating the same to a commodity for sale in case of default.

22. In conclusion, I find that the instant application does not meet the conditions for the granting of orders of injunction. The application however succeeds only with respect to the prayer for amendment. Consequently, I make the following final orders: -a)) The Plaintiffs are granted leave to amend the plaint.b)The amended plaint to be filed and served within 14 days from the date of this ruling.c)The Defendants are granted corresponding leave to amend file and serve an amended defence within 14 days from the date of service of the amended plaint.d)The costs of the application shall abide the outcome of the main suit.

DATED, SIGNED AND DELIVERED VIRTUALLY AT NAIROBI THIS 5THDAY OF MAY 2022. W. A. OKWANYJUDGEIn the presence of: -Ms Wairimu for Gathuru for the Applicant.Ms Leah Muhia for the Defendant.Mr. Kariuki for Muthama for 4th Intended Defendant.Court Assistant- Sylvia