Moracha v Co-operative Bank of Kenya; Jipa Oil Company (Interested Party) [2023] KEHC 24645 (KLR)

Moracha v Co-operative Bank of Kenya; Jipa Oil Company (Interested Party) (Civil Case E003 of 2023) [2023] KEHC 24645 (KLR) (2 November 2023) (Ruling)

Neutral citation: [2023] KEHC 24645 (KLR)

Republic of Kenya

In the High Court at Kisii

Civil Case E003 of 2023

PN Gichohi, J

November 2, 2023

Between

Josephat Mwangi Moracha

Plaintiff

and

The Co-Operative Bank Of Kenya

Defendant

and

Jipa Oil Company

Interested Party

Ruling

1. As discerned from the Plaint dated May 16, 2023 and filed by the firm of Oringe Waswa & Company Advocates, the Interested Party was allegedly the defendant’s customer. It acquired from the defendant an overdraft facility valued at Kshs. 63,000,000/=. The plaintiff was its guarantor and attached their matrimonial home located at Kisii County under the Title No. Wanjare /Bogiakumu /2636.

2. The interested party allegedly failed to service the loan and therefore, the defendant attempted to exercise its power of sale over the said property. The plaintiff alleged that the defendant’s purported power of sale is illegal, null and void, and of no legal effect in that the defendant failed to exhaust all available options in pursuit of the interested party including pursuit of fixed assets and floating debentures over assets of the interested party which were part of the security clause of the loan agreement.

3. Further, the plaintiff alleged that the defendant did not serve the plaintiff or his spouse the mandatory notices as required by law and failed to put due regard to the plaintiff’s family members sone of whom are aged and derive their full care from the suit property. He also alleged that the purported valuation was not done and therefore, the outstanding loan balance in the 1st defendant’s letter and in the Auctioneer’s, notice was at variance and unexplained.

4. He alleged that though the loan was non- performing, the arrears interest had been accumulating to the level where the interest equals the principal amount contrary to applicable principles. He therefore prayed for :a.a declaration that the defendant ‘s exercise of statutory power of sale over the property is unlawful, null and void and of no legal effect.b.A permanent injunction restraining the defendant by itself, , agents or otherwise howsoever from possessing and/ or in any way disposing the by public auction property known as Wanjare /Bogiakumu /2636 Kisii Municipality.c.A permanent injunction restraining the defendant by itself, agents or otherwise howsoever from selling and/ or in any way disposing the by public auction property known as Wanjare /Bogiakumu /2636 Kisii.d.An order of injunction permanent injunction to restrain the defendant by itself, agents or any one of them from interfering with the property known as Wanjare /Bogiakumu /2636 Kisii either by way of sale , auction , sale by private treaty , transfer or disposal by any means whatsoever and howsoever pending the hearing and final determination of the suit herein.e.Cists of the suit.f.Interest on (e ) and ( f) at court ratesg.Any other relief that this court may deem fit and just to grant.

5. The Plaintiff simultaneously filed a Notice of Motion on May 17, 2023 under a certificate of urgency more or less reproducing the material in the plaint and seeking both temporary and permanent injunction.

6. Through the firm of Diro Advocates LLP, the Defendant a replying a affidavit sworn on May 22, 2023. They also filed a Notice of Preliminary Objection dated May 22, 2023 seeking that the plaintiff’s application and suit be dismissed and or/ struck out with costs.

7. The ground thereof is that this Court has no Jurisdiction to entertain the instant suit as the nature of the dispute relates to enforcement of a legal charge under the Land Act, 2012, which falls within the Jurisdiction of the Environment and Land Court as per section 13(d) of the Environment and Land Court Act.

8. The interested party is yet to participate in these proceedings but parties present agreed to disposing of the Preliminary Objection first and by way of Written Submissions.

Plaintiff’s Submissions 9. In their submissions dated July 9, 2023, counsel for the plaintiff submitted that the substratum of the of the application before this Court relates to commercial disputes arising between the guarantor and financier where the plaintiff challenges the unreasonableness of the interests charged by the Bank against him as a guarantor/ secondary debtor.

10. In the circumstances therefore, counsel submitted that where under an instrument of charge, the amount owing and /or the tabulation was in issue, the High Court has always enjoyed jurisdiction but not the Environment and Land Court.

11. In support of that argument, counsel placed reliance on the case of TSS Investments Limited & Another v NIC Bank Limited [2019] eKLR where the Court of Appeal cited its own decision in Co-operative Bank of Kenya Limited v Patrick Kangethe Njuguna & 5others [2017] eKLR that the creation of security over land does not constitute land use as provided under article 162(2) of the Constitution.

Defendant’s Submissions 12. The Defendant filed its submissions dated 12th June 2023. Counsel submitted that under article 165 (5) (b) of the Constitution, High Court has no jurisdiction in respect of matters falling within the jurisdiction of Courts contemplated in article 162 (2) of the Constitution. He submitted that one of the said Courts is the Environment and Land Court whose jurisdiction is to hear and determine disputes in relation to the environment and the use and occupation of, and title to, land.

13. Further, counsel submitted that the jurisdiction of the Environment and Land Court is also emphasized by section 13 (2) of the Environment and Land Court Act which provides that: -“In exercise of its jurisdiction under Article 162 (2) (b) of the Constitution the Cour shall have power to hear and determine disputes-a.relating to environmental planning and protection, climate issues, land use planning, title, tenure, boundaries, rates, rents, valuations, mining, minerals and other natural resources;b.relating to compulsory acquisition of land;c.relating to land administration and management;d.relating to public, private and community land and contracts, choses in action or other instruments granting any enforceable interests in land; ande.any other dispute relating to the environment and land.”

14. To further buttress his argument, counsel further relied on several cases including the case of Lydia Nyambura Mbugua v Diamond Trust Bank Kenya Limited &another [2018] eKLR and Nyali Construction & Electrical Services Limited & 3 others v Barclays Bank of Kenya Limited & 2 others [2021] eKLR.

15. Lastly, counsel summitted that even though aware of Court of Appeal decision in Cooperative Bank of Kenya Limited vs Patrick Kangethe Njuguna & 5others [2017] eKLR, he still urged this Court to be persuaded that matters to do with commercial transactions such as mortgages and charges are matters reserved for High Court. He therefore urged this Court to uphold the Preliminary objection.

Determination 16. This Court has considered the Preliminary Objection and the submissions by parties together with the authorities cited by parties. While laying down the principles as to what constitutes a preliminary objection, the Court of Appeal in Mukisa Biscuit Manufacturing Co. Ltd -vs- West End Distributors Ltd (1969) EA 696 stated: -“…a preliminary objection consists of a point of law which has been pleaded, or which arises by clear implication out of the pleadings, and which if argued as a preliminary point may dispose of the suit. Examples are an objection to the jurisdiction of the Court, or a plea of limitation, or a submission that the parties are bound by the contract giving rise to the suit to refer the dispute to arbitration.” [Emphasis added].

17. It need not be emphasised that jurisdiction goes to the core of the matter. The must down its tools the minute it becomes aware that it has no jurisdiction in a matter.

18. There is no doubt that that jurisdiction of the High Court and the Environment and Land Court are well spelt out by the Constitution. Further, the Environment and Land Court Act further emphasises on the jurisdiction of that Court. The concerns however, are parties’ different interpretations of that jurisdiction where the issue of a charge is raised.

19. In Nyali Construction & Electrical Services Limited (supra), the applicant claimed that the Environment and Land Court no jurisdiction to hear and determine the suit as it related to a charge. Munyao Sila J held: -“…just because “charge” has been mentioned in a case, does not mean that the ELC has no jurisdiction. On the contrary, where “charge” is being mentioned, the presumption should be that it is the ELC with jurisdiction, unless it is discernible, that the case raises issues that have little or no relation to the charge. A charge is a proprietary transaction which creates a proprietary interest. It is contract over land. It is created by an instrument which is registered in the title to the land. A charge is an instrument that affects title. Issues relating to charges, the rights and obligations that arise in such instruments, are proprietary issues, that squarely fall within the jurisdiction of the ELC.”

20. In that case , the suit property was the subject of a statutory power of sale and indeed, the property was sold and title changed hands. The proprietor then sued seeking a declaration that the sale was illegal and irregular. He also sought order for cancellation of the sale and a permanent injunction.

21. The 2nd and 3rd Defendants filed a counter-claim seeking orders among them a declaration that the sale and transfer of the suit property was valid; a declaration that they were the absolute and indefeasible owners of the suit property; general damages for loss of use of the suit property; a permanent injunction restraining the Plaintiff’s agents, servants or anyone acting on his behalf from trespassing into and dealing with the suit property.

22. Similarly, in Lydia Nyambura Mbugua (supra) Munyao Sila J held:-“…just because “charge” has been mentioned in a case, does not mean that the ELC has no jurisdiction. On the contrary, where “charge” is being mentioned, the presumption should be that it is the ELCwith jurisdiction, unless it is discernible, that the case raises issues that have little or no relation to the charge. A charge is a proprietary transaction which creates a proprietary interest. It is contract over land. It is created by an instrument which is registered in the title to the land. A charge is an instrument that affects title. Issues relating to charges, the rights and obligations that arise in such instruments, are proprietary issues, that squarely fall within the jurisdiction of the ELC.”

23. In that case, the plaintiff sought among other orders, a declaration that the purported sale of the suit property by the 1st defendant to the 2nd defendant was inequitable, illegal, irregular, wrongful and null and void. The plaintiff sought cancellation of the entire sale; permanent injunction restraining the 2nd defendant by himself his agents, and servants from claiming any ownership on suit property and from evicting the plaintiff from the said parcel of land.

24. No doubt, the issues in Nyali Construction & Electrical Services Limited and Lydia Nyambura Mbugua (supra) were all within the jurisdiction of the Environment and Land Court and not the High Court.

25. In this case, the plaintiff herein acknowledges that the loan is non-performing and going into arrears. He disputes the amounts owing. He alleges that the defendant has not pursued the principal debtor; that the amount owing is in violation of the in-duplum rule contrary to section 44A of the Banking Act and that he was not served with the requisite statutory notices.

26. It is clear from the body of the Plaint and the prayers thereof, that the issues herein reflect those in Co-operative Bank of Kenya Limited (supra) and therefore this Court is properly guided by the pronouncement by Court of Appeal that: -‘By definition, a charge is an interest in land securing the payment of money or money’s worth or the fulfilment of any condition (see section 2 of the Land Act). As such, it gives rise to a relationship where one person acquires rights over the land of another as security in exchange for money or money’s worth. The rights so acquired are limited to the realization of the security so advanced (see section 80 of the Land Act). The creation of that relationship therefore, has nothing to do with use of the land (as defined above). Indeed, that relationship is simply limited to ensuring that the chargee is assured of the repayment of the money he has advanced the chargor.”

27. This court is therefore satisfied that the issues raised by the plaintiff herein do not fall within the jurisdiction of the Environment and Land Court. The Preliminary Objection is therefore dismissed with costs to the Plaintiff.

DATED, SIGNED AND DELIVERED (VIRTUALLY) AT KISII THIS 2ND NOVEMBER, 2023. PATRICIA GICHOHIJUDGEIn the presence of:Mr. Moriasi for ApplicantMr. Obuli for RespondentAphline Court Assistant