Mugo v Equity Bank Limited [2023] KEHC 24167 (KLR)

Mugo v Equity Bank Limited (Civil Appeal E62 of 2023) [2023] KEHC 24167 (KLR) (27 October 2023) (Ruling)

Neutral citation: [2023] KEHC 24167 (KLR)

Republic of Kenya

In the High Court at Eldoret

Civil Appeal E62 of 2023

JRA Wananda, J

October 27, 2023

Between

Rahab Waithera Mugo

Appellant

and

Equity Bank Limited

Respondent

Ruling

1. This Appeal is against a Ruling delivered on 23/03/2023 in Eldoret Chief Magistrate’s Court Civil Suit No. E933 of 2022. By the said Ruling, the Magistrate’s Court declined to grant an interlocutory injunction to restrain the Respondent from exercising its statutory power of sale by auctioning the Appellant’s property.

2. The Application now before Court is the Appellant’s Notice of Motion dated 18/04/2023 filed through Messrs Oscar Wachilonga & Associates Advocates. The same seeks the following orders;i.Spent.ii.Spent.iii.That pending the hearing of this appeal an order of temporary injunction do issue restraining the respondent, its agents, Razershap Auctioneers, from disposing of/selling land parcel number Eldoret Municipality Block 15 (Huruma)/99 by Public Auction on 12th May, 2023 or any other day thereafter.iv.That costs hereof be provided for.

3. The Application is premised on the grounds stated on the face thereof and on the Affidavit sworn by the Appellant. When the Application came before this Court at the ex parte stage on 18/04/2023, I issued an interim order barring the Respondent from proceeding with the intended public Auction pending further directions. The orders have been since extended inter partes and have been in place ever since.

4. In her Affidavit, the Appellant deponed that she filed the Notice of Motion dated 19/12/2022 at the Mgistrates Court and a Ruling thereof was delivered on 23/03/2023 dismissing the Application, upon such dismissal, the Respondent served a notice indicating that land parcel No. Eldoret Municipality Block 15 (Huruma)/99 would be sold by public auction on 12/05/2023, if the property is disposed of before the Appeal is heard it shall be rendered nugatory, the Appeal is not frivolous, this Court has the jurisdiction to apply the doctrine of lis pendens, the property to be disposed of comprises of her matrimonial home and if disposed of, she stands to suffer irreparable loss and that the Appeal raises substantial point of law based on Sections 90, 96 and 97 of the Land Act.

Response to the Application 5. The Application is opposed vide the Replying Affidavit filed on 3/05/2023, sworn by one Edwin Ndiwa who described herself as the Credit Manager, Eldoret Market Branch and filed through Messrs Mburu Maina & Co. Advocates.

6. He deponed that the Appellant voluntarily offered the suit property as security towards the grant of a financial facility granted by the Respondent to Samkiz Company Limited (borrower), the loan facility was repayable in 120 monthly instalments in the sum of Kshs 134,380/- commencing one month from the date of drawdown, in breach of its contractual obligations the borrower defaulted in monthly repayments thus causing the facilities to fall into arrears and economic losses to the Respondent, as a result of the borrower’s default the Respondent opted to exercise its statutory power of sale over the suit property and to that end, issued the Appellant and the borrower with the requisite statutory notices in compliance with Section 90, 96 and 97 of the Land Act, the Appellant has had enough time to exercise her equitable right of redemption given that she was aware of the borrower’s default and was served with statutory notices to rectify the default, the Appellant dos not dispute that the borrower is in default and the financial statements and their pleadings bear witness, therefore the Respondent is entitled to realize the security,

7. It was further deponed that as at the date of swearing the Affidavit, the outstanding sum stood at Kshs 12,776,985/- which amount continues to accrue interest at the contracted rates, as a result of the unmitigated default and the Court having dismissed the Application, the Respondent is entitled to proceed with its statutory power of sale and did serve a courtesy notice of public Auction, the timing of the Application confirms the same to be an afterthought and filed mala fides as the Applicant is trying to frustrate the Respondent’s statutory power of sale, the Application having been filed soon after service of the courtesy notice of public Auction and close to a month after the Ruling, the Appellant’s remedy, if any, lies in damages, no substantial loss shall be suffered by the Appellant if the Application is dismissed considering the Respondent is a reputable financial institution that can adequately compensate the Appellant in the unlikely event her suit is successful, any action by the Respondent seeking to recover the suit property is a lawful right and the Court could not restrain the Respondent from enjoying its statutory rights where it is not in breach of its contractual and statutory obligations as it will amount to rewriting the contract between the parties, the Courts are not avenues to renegotiate contracts or relieve a party from its obligations, the Respondent has not breached any covenant in the offer letters and charge document and therefore it should be allowed to proceed with the exercise of its statutory power of sale, the Appellant has had ample and sufficient notice to repay the amount owed, the assertion that the suit property comprises the Appellant’s matrimonial home is misplaced in law as the same upon being offered as security became a commodity with a determinable value available for sale in the event of default, the Appellant will not suffer any irreparable loss should the Respondent proceed to dispose the property and the balance of convenience tilts in favour of the Respondent being allowed to recover, the Respondent stands to suffer irreparably if it is inhibited from exercising its statutory power of sale as the outstanding amount is likely to outstrip the value of the suit property.

Hearing of the Application 8. It was then directed that the Application be canvassed by way of written Submissions. Pursuant thereto, the Respondent filed its Submissions on 03/07/2023. On her part, the Appellant did not file any Submissions.

Respondent’s Submissions 9. In his Submissions, the Respondent’s Counsel reiterated the matters deponed in the Replying Affidavit and stated that due to the Appellant’s default in settling the arrears, the Respondent issued the required statutory notices contemplated under Sections 90 and 96 of the Land Act thus giving the Appellant ample time to exercise her right of redemption, upon the lapse of the statutory notices, a licensed Auctioneer was instructed and the Appellant was served with a 45 day Redemption notice and a Notification of Sale, on Section 97(2) of the Land Act, the Respondent annexed a Valuation Report and that the issues raised in the Application are not issues that have met the threshold for granting of injunctions.

10. Regarding the principles for the grant of injunctions, Counsel cited the cases of Giella vs Cassman Brown & Co. Ltd (1973) EA 358. He then submitted that the prayers sought are equitable remedies granted at the discretion of the Court, for an Applicant to benefit from the equitable remedy he must comply with the principles of equity. He then cited the case of Bio Corn Products v Diamond Trust Bank Kenya Ltd [2020] eKLR.

11. On whether there is a prima facie with a probability of success, Counsel submitted that the Application does not meet the threshold as the Appellant admits that having secured a loan facility advanced to the borrower by the Respondent, the borrower has not been regularly servicing the loan and thus cannot be said to have a prima facie case with any chance of success, the Respondent has provided to the Court the loan statement showing the amount of money owing from the borrower, this information was also shared with the Appellant at the time of serving the statutory notices and thus the allegation that she has not been notified of the extent of default is a misleading statement. He cited the case of Nyagilo Ochieng & Another vs Fanuel Ochieng & 2 Others, Civil Appeal No. 148 of 1995 [1995-1998] 2 EA 260, Karige Kihoro v. Equity Bank Limited & Another [2016] eKLR, and Moses Kibiego Yator v Eco Bank Kenya Limited NKU E&L No. 426 of 2013 eKLR and added that the Respondent has proved beyond peradventure that it served all the notices through registered post via the last known address of the Appellant, the Respondent has provided certificate of postage to prove service, there is no evidence by the Appellant to disprove the service. He also cited the case of Kenya Breweries Ltd vs Okeyo [2002] 1EA quoted in John Edward Ouko versus National Industrial Credit Bank Ltd [2013] eKLR.

12. Counsel also submitted that even in the unlikely event of the Court finding that the Appellant was not served with the statutory notices, then the remedy would not be to issue a blanket injunction but to order the Respondent to comply with its statutory obligations prior to sell by issuing fresh notices. He cited the case of Yusuf Abdi Ali Co. Ltd v Family Bank Limited [2015] eKLR and added that the Courts have taken the position that lack of or improper service of statutory notices cannot be a ground for stopping the charge from exercising its statutory power of sale. He cited the case of National Bank of Kenya Limited v. Shimmers Plaza Limited [2009] eKLR.

13. Counsel submitted further that as regards the ground of Appeal relating to the Valuation Report, the Appellant’s contention that the subordinate Court could not have made a rightful holding without the benefit of the Valuation Report undertaken during the processing of the loan facility is a misconception of the law for the reason that Section 97(2) of the Land Act obliged the Respondent to undertake a Valuation Report only prior to the sale, there is no provision that requires the value at the time of sale to be compared with the value during the loan processing stage, moreover, the Appellant has not provided any other Valuation Report that could impeach the one commissioned by the Respondent.

14. Regarding the Appellant’s argument that that the suit property is matrimonial home and that she has sentimental attachment thereto, Counsel submitted that the same cannot be a basis for grant of injunction orders since the property, upon being offered for financial advances, becomes liable to be liquidated as a commodity in the property market. He cited the case of Anita Chelegat v Fredrick Kumah, Civil Appeal No. 300 of 2018.

15. Counsel further submitted that if the Application is granted, it will encourage the Appellant and others to avoid paying their debts and that this was stated in the case of Mrao Ltd versus First American Bank of Kenya Ltd [2003] KLR.

16. On irreparable loss, Counsel submitted that the Appellant has failed to show which injury she is likely to suffer, the land has a monetary value which can be easily determined through valuation, in the event that this Court finds that the Respondent ought not to have sold the land, then any loss that may have been suffered by the Appellant could be compensated in damages, the Appellant has not shown that the Respondent will not be in a position to pay any damages. She cited Section 99(4) of the Land Act, 2012 and also the cases of Davis Nyanjui & Another v National Bank of Kenya (supra) and Elizabeth Nthenya Wambua & 3 Others v Philip Masila & 3 others [2012] eKLR.

17. Counsel added that soon the debt might overrun the value of the suit property which will be detrimental to the Respondent not being able to recover the monies advanced and thus, suffer irreparable loss. He cited the case of Andrew Wanjohi (supra), Kitho Civil & Engineering v National Bank of Kenya (Civil Appeal (Application) E706 of 2021 [2023] KECA 387 and Nancy Wacici v Kenya Women Micro Finance Bank Ltd [2017] eKLR.

18. On balance of convenience, Counsel submitted that the same lies with the Respondent for it has not breached any of the Appellant’s rights contrary to the Appellant who has breached his contractual duty by defaulting in his loan repayment, as the Appellant defaults in her repayment obligations, the debts may outgrow the value of the property used as security, having admitted that he has not fully honoured his loan repayment obligation, the Application is brought with tainted hands contrary to the principles of equity that he who comes into equity must come with clean hands” and that the Appellant cannot therefore obtain an order of injunction while in breach.

19. It was also Counsel’s contention that the Appellant had sought independent legal advice and had been made aware of what happens in the event of default in payment. He cited the case of John P. O. Mutere & Another vs Kenya Commercial Bank Ltd.

20. On whether the Appeal will be rendered nugatory, Counsel referred to the case of Kitho Civil & Engineering v National Bank of Kenya (supra).

Analysis and Determination 21. Upon considering the Record and the parties’ submissions, I find the following to be the issue that arises for determination herein:“Whether, pending hearing and determination of this Appeal, a temporary injunction should be granted restraining the Respondent from selling the suit property by public Auction.”

22. I now proceed to analyze and answer the issues.

23. Generally, the law governing the grant or refusal of interlocutory injunctions is set out under Order 40(1) (a) and (b) of the Civil Procedure Rules 2010 which provides as follows:“Where in any suit it is proved by affidavit or otherwise—(a)That any property in dispute in a suit is in danger of being wasted, damaged, or alienated by any party to the suit, or wrongfully sold in execution of a decree; or ………………….;(b)That the defendant threatens or intends to remove or dispose of his property in circumstances affording reasonable probability that the plaintiff will or may be obstructed or delayed in the execution of any decree that may be passed against the defendant in the suit;the court may by order grant a temporary injunction to restrain such act, or make such other order for the purpose of staying and preventing the wasting, damaging, alienation, sale, removal, or disposition of the property as the court thinks fit until the disposal of the suit or until further."

24. Specifically, this Court’s power to grant an injunction pending Appeal is provided under Order 42 Rule 6(6) of the Civil Procedure Rules. The same is premised in the following terms:“Notwithstanding anything contained in subrule (1) of this rule the High Court shall have power in the exercise of its appellate jurisdiction to grant a temporary injunction on such terms as it thinks just provided the procedure for instituting an appeal from a subordinate court or tribunal has been complied with.”

25. The conditions for consideration in applications for injunctions were settled in the celebrated case of Giella v Cassman Brown & Company Limited (1973) E A 358, where the Court expressed itself in the following terms:“Firstly, 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."

26. The said test was also considered in the case of American Cyanamid Co. v Ethicon Limited (1975) AC 135 where the elements were broken down as follows:i.There must be a serious/fair issue to be tried,ii.Damages are not an adequate remedy,iii.The balance of convenience lies in favour of granting or refusing the application.

27. It is also settled that in interim applications, such as in this case, the Court should avoid making final determinations on matters of fact on the basis of the conflicting Affidavit evidence. In connection thereto, in Mbuthia vs Jimba Credit Finance Corporation & Another [1988] KLR 1, the Court of Appeal guided as follows:“…the correct approach in dealing with an application for an interlocutory injunction is not to decide the issues of fact, but rather to weigh up the relevant strength of each side’s propositions.”

a. Whether the Appellant has established a prima facie case 28. Although as aforesaid, I should not delve deeply into determining substantive matters, to make a determination whether a prima facie case has been established, I must examine the facts deponed in the rival Affidavits and apply them to the law.

29. As to what amounts to a prima facie case, the Court of Appeal, in Mrao Ltd vs. First American Bank of Kenya Ltd & 2 Others [2003] KLR 123 held as follows:“A prima facie case in a civil application includes but not confined to a genuine and arguable case. 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."

30. Upon perusing the record, it is clear that the Appellant does not deny offering the suit property as security for the loan of Kshs 9,000,000/- advanced to the borrower, Messrs Samkiz Company Limited. I observe that the loan was repayable in 120 monthly instalments comprising of both principal and interest in the sum of Kshs 134,380/- each. The loan contract is therefore not denied and neither has the Respondent been alleged to have breached any of its terms. The Appellant also does not deny that the loan account is in default insofar as repayment of the loan instalment arrears is concerned.

31. The default not having been denied, it is not in doubt that the Respondent is entitled to exercise its statutory power of sale. However, before doing so, the law requires the Respondent to chronologically issue notices to the Appellant as follows:a.90 days’ statutory notice of default, pursuant to Section 90(1) and (2) of the Land Act, 2012. b.40 days’ notice of intention to sell, pursuant to Section 96(2) of the Land Act, 2012. c.45 days’ redemption notice pursuant to Rule 15(d) of the Auctioneers’ Rules, 1997. d.14 days’ notification of sale, pursuant to Rule 25(e) of the Auctioneers’ Rules, 1997.

32. The Appellant alleges that she was not served with the said notices. In Nyagilo Ochieng & Another vs. Kenya Commercial Bank Limited [1996] eKLR the Court of Appeal when dealing with the issue of service of notices made the following observation:“…………….. Unless the receipt of statutory notice is admitted, posting thereof must be proved and upon production of such proof the burden of proving non-receipt of such notice or notices shifts to the addressee as is contemplated by section 3(5) of the Interpretation and General Provisions Act, Cap 2, Laws of Kenya."

33. In this case, the Respondent has exhibited documents to its Replying Affidavit, including certificates of posting, strongly indicating that indeed the notices were all served. The Appellant has not made any effort to disprove or controvert the evidence exhibited as proof of service. I therefore have no reason to disbelieve the Respondent.

34. In the circumstances, I find that the Appellant has failed to demonstrate the existence of a prima facie case. Granting the injunction in the absence of a prima facie case would be tantamount to rewriting the parties’ express contract. It is a settled principle of law that parties to a contract are bound by the terms and conditions thereof and that it is not the business of the Courts to rewrite contracts. In National Bank of Kenya Ltd vs. Pipe Plastic Samkolit (K) Ltd (2002) 2 E.A. 503, (2011) eKLR, the Court of Appeal stated as follows:“A court of law cannot rewrite a contract between the parties. The parties are bound by the terms of their contract, unless coercion, fraud or undue influence are pleaded and proved.”

35. In Ground 4 of the Memorandum of Appeal, the Appellant has raised the issue whether the Valuation Report produced by the Respondent can be deemed to be a fair valuation in the absence of the Valuation Report undertaken by the Respondent at the time of processing of the loan. On this point, I also agree with the Respondent’s Counsel that this argument appears to be a misconception of the law. In my understanding, Section 97(2) of the Land Act only requires the Respondent to procure a Valuation Report prior to the sale. Although under Section 97 a chargee who exercises a power to sell the charged land owes a duty of care to the chargor to obtain the best price reasonably obtainable, it has not been demonstrated that there is any provision requiring the value of the property at the time of sale to be fixed or determined in comparison to the value at the time of processing the loan. I also agree that in any event, the Appellant has not provided her own independent Valuation Report to challenge the one produced by the Respondent.

36. I therefore find that the evidence presented before this Court falls short of the threshold required to establish a finding of the existence of a prima facie case. My conclusion is therefore that no prima facie has been established.

b. Whether the Appellant shall suffer irreparable loss and whether the balance of convenience favours grant of the injunction 37. Having found that no prima facie case has been established, it is no longer necessary for me to consider the second and third limbs of the rule in Giella vs Cassman Brown. For this position, I refer to the case of In Nguruman Limited v Jane Bonde Nielsen and 2 Others, NRB CA Civil Appeal No. 77 of 2012 [2014] eKLR, where the Court of Appeal reiterated as follows:“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 prima facie case is not established, then irreparable injury and balance of convenience need no consideration ………...”

38. Nevertheless, suffice to mention that even on these other two limbs, I still rule against the Appellant. She has argued that she will be greatly prejudiced by the auction and stands to suffer irreparably since the suit property is her matrimonial home. However, Courts have on numerous occasions expressed their position regarding mortgages over family/matrimonial property. For instance, in the case of Maltex Commercial Supplies Limited & Another v Euro Bank Limited (In Liquidation), HCCC No. 82 of 2006), Warsame J (as he then was) observed as follows:“….. Any property whether it is a matrimonial or spiritual house, which is offered as security for loan/overdraft is made on the understanding that the same stands the risk of being sold by the lender if default is made on the payment of the debt secured”.

39. In the instant suit, the trial Court will be entitled to order the Appellant to compensate the Respondent should she prove her claims and succeed before it. In my view, the Respondent, one of the largest banks in Kenya, is capable of compensating the Respondent for any eventual loss or injury, if any.

40. On the balance of convenience, my view is that the fact that a property is matrimonial in nature or has a sentimental value does not stop it from being auctioned as long as the requisite procedures have been followed according to the law. When charging such property, the borrower is fully aware of the consequences of default. In the circumstances, I find that the balance of convenience, too, tilts towards allowing the Appellant to proceed with enforcing the default clause in the loan contract, namely, the charge document. On this, I find company in the holding of F. Ochieng J (as he then was) in the case of Andrew Muriuki Wanjohi v Equity Building Society Ltd & 2 others [2006] eKLR in which he stated the following:“In my considered view if the 1st and 2nd defendants were restrained from selling off the suit property until the suit was heard and determined, there is a very real risk that the debt may outstrip the value of the suit property, as the borrower has never made any repayments for more than three years. That fact, coupled with the status of the 1st and 2nd defendants, persuades me that the balance of convenience is in favour of the said defendants. If the property were sold, the plaintiff can find other accommodation. And if it were finally held that the property should not have been sold, the 1st and 2nd defendants would be able to compensate the plaintiff. In contrast, the stoppage of the intended sale by the chargor would result in the continued growth of debt, thus exposing them to potentially substantial irrecoverable losses. I therefore find that provided the chargee complies with all other legal requirements, he should be permitted to realise the security.”

41. For the above reasons, I find that the Appellant has not satisfied the principles guiding the grant of interlocutory injunctions. The Application therefore fails.

Final Orders 42. In the premises, the Application dated 18/04/2023 filed by the Appellant is hereby dismissed. with costs to the Respondent.

DELIVERED, DATED AND SIGNED AT ELDORET THIS 27TH DAY OF OCTOBER 2023……………………WANANDA J. R. ANUROJUDGE