Norbert Mungai Wambeti t/a Rock Asset Management v Kenya Deposit Insurance Corporation (as the Receiver of Chase Bank Kenya Limited, In Receivership),KCB Bank Kenya Limited & Robert Wawru Maina t/a Auntique Auctions Agencies [2017] KEHC 9994 (KLR) | Loan Default | Esheria

Norbert Mungai Wambeti t/a Rock Asset Management v Kenya Deposit Insurance Corporation (as the Receiver of Chase Bank Kenya Limited, In Receivership),KCB Bank Kenya Limited & Robert Wawru Maina t/a Auntique Auctions Agencies [2017] KEHC 9994 (KLR)

Full Case Text

REPUBLIC OF KENYA

IN THE HIGH COURT OF KENYA AT NAIROBI

MILIMANI LAW COURTS

COMMERCIAL AND TAX DIVISION

CIVIL CASE NO. 3 OF 2017

NORBERT MUNGAI WAMBETI T/A

ROCK ASSET MANAGEMENT.......................................PLAINTIFF

VERSUS

KENYA DEPOSIT INSURANCE CORPORATION(as the

Receiver of Chase Bank Kenya Limited, in

Receivership).....................................................1ST DEFENDANT

KCB BANK KENYA LIMITED.............................2ND DEFENDANT

ROBERT WAWRU MAINA T/A

AUNTIQUE AUCTIONS AGENCIES..................3RD DEFENDANT

RULING

[1]The Plaintiff/Applicant moved the Court vide his Notice of Motion dated 6 January 2017 for the following orders:

[a] Spent

[b] Spent

[c] That the Court be pleased to grant an order of injunction restraining the Respondents, their servants, officers, employees, assigns and/or agents or any other person acting for and/or on  their behalf, from doing the following acts or any of them, that is to  say, from advertising for sale, disposing off, alienating, dealing  with, selling by public auction or otherwise howsoever at any other  time from or by completing by conveyance or transfer of any sale concluded by auction and/or private treaty or leasing, letting or otherwise howsoever interfering with the ownership of title to and/or interest in all that property know as L.R. No. 12608/43 (IR No. 120721) Muthaiga North, Nairobi, pending the hearing and determination of the application(Spent).

[d] That the Court be pleased to grant an order of injunction restraining the Respondents, their servants, officers, employees, assigns and/or agents or any other person acting for and/or on their behalf, from doing the following acts or any of them, that is to say, from advertising for sale, disposing off, alienating, dealing with, selling by public auction or otherwise howsoever at any other time from or by completing by conveyance or transfer of any sale concluded by auction and/or private treaty or leasing, letting or otherwise howsoever interfering with the ownership of title to and/or interest in all that property know as L.R. No. 12608/43 (IR No. 120721)Muthaiga North, Nairobi (hereinafter, the Suit Property), pending the hearing and determination of the this suit.

[e] That the Court to issue an order directing the 1st and 2nd Defendants/Respondents to render and deliver to the Applicant a true, accurate and correct accounts and the entire statement of    account for the Applicant's current and loan accounts that were opened at Chase Bank Kenya Limited (in receivership) and now  managed by the 1st and 2nd Respondents.

[f]  That the costs of the application be borne by the Respondents.

[2] The application was brought pursuant to the provisions of Section 1A, 1B, 3A of the Civil Procedure Act, Chapter 21 of the Laws of Kenya, Order 37 Rule 4 and Order 40 Rules 1 and 4 of the Civil Procedure Rules, 2010; Section 734(2) of the Insolvency Act, No. 18 of 2015 as read with Sections 228 and 241(1)(a) of the Companies Act, 2015; Rules 5(2), 7(2) and 203 of the Companies Winding Up Rules, Section 4A of the Central Bank of Kenya Act, Chapter 491 of the Laws of Kenya; Sections 33 and 34 of the Banking Act, Chapter 488 of the Laws of Kenya; Section 3 of the Banking (Amendment) Act No. 25 of 2016, as well as Sections 4, 43(1) and (2) and 53(1) of the Kenya Deposit Insurance Act Chapter 487C of the Laws of Kenya.

[3] The grounds relied on by the Applicant are that vide a Kenya Gazette Notice No. 2320 dated 7 April 2016, the Central Bank of Kenya (CBK) placed Chase Bank Kenya Limited (CBKL) under receivership; whereupon the 1st Respondent was appointed as the receiver for a period of 12 months. It was the contention of the Applicant that the notice further invited the creditors of CBKL to direct their claims to the 1st Respondent, who had been given the mandate of assuming the management and control of CBKL to the exclusion of its directors. It was further contended by the Applicant that, in the exercise of its mandate, the 1st Respondent appointed the 2nd Respondent, with effect from 17 April 2016 to act as its agent in, inter alia, carrying out the business and management of the assets of CBKL, including overseeing the servicing of existing loan facilities of CBKL. It is noteworthy that the entire suit, including the application, was withdrawn against the 2nd Respondent by consent on 8 February 2017.

[4] It was the Applicant's case that he had an existing loan facility with CBKL of Kshs. 35,000,000, which had been granted on 28 August 2014 on the basis of a Letter of Offer dated 18 July 2014, a Supplemental Offer Letter dated 23 July 2014 and a Charge over the Suit Property dated 18 September, 2014. According to the Applicant, the facility advanced was to be in the form of a drawdown financing and that the loan would be serviced usingreceivables due to the Applicant from Maha Properties Limited and Mohideen Gilani within a period of 60 months. Accordingly, the Applicant felt aggrieved when, through the 3rd Respondent, the 1st Respondent issued a 45 day notice dated 25 November 2016 pursuant to Rule 15(d) of the Auctioneers Rules, 1997, intimating that it intended to sell the suit property in recovery of the loan.

[5] It was further the contention of the Applicant that the Respondents were intent on using the threat of sale of L.R. 12608/43 (IR No. 120721) Muthaiga North, Nairobi, to exert pressure on the Plaintiff to pay, yet the sums were not due under the contract between the parties. The Applicant was thus apprehensive that the Suit Property was in real danger of being disposed of, and that unless the orders sought herein were granted, his asset would be unlawfully alienated. Here is why the Applicant is convinced that the intended sale is unlawful, flawed and unjustified:

[a] That the 1st and 2nd Respondent have misrepresented and misconstrued the terms of the facilities to the detriment of the Applicant, and proceeded to base their actions on the    misrepresented and misconstrued terms;

[b] That the alleged liability is not due and even if it were due, the actions of the Defendants are premature; and therefore that the   Respondents are estopped from exercising any statutory power of  sale pending the hearing and determination of the suit;

[c] That there is a pending reconciliation process between the Applicant and the 1st Respondent which is intended to resolve the entire dispute now before the Court; that in the circumstances the attempt to dispose of the Suit Property is unwarranted and  therefore is in bad faith;

[6] It was thus averred by the Applicant that his protestations to the Respondents have been in vain as the 1st Respondent is determined to proceed with the intended sale, notwithstanding that CBKL has posted oppressive, illegal and non-contractual interest, charges and penalties on the subject account. The Applicant added that, in the circumstances, the 1st Respondent has acted capriciously, recklessly and has treated him oppressively, hence his prayer for interlocutory temporary injunction pending the hearing and determination of the main suit herein.The application is supported by the affidavit of the Applicant sworn on 6 January 2017 annexed thereto in which the grounds aforestated were explicated. Attached to the Supporting Affidavit are copies of the various documents that the Applicanthas referred to in his affidavit to support his version of the case; which I have carefully perused.

[7] The application was opposed by the 1st Respondent, to which end, an affidavit sworn by Kevin Kimani, the Legal Officer for CBKL on 13 February 2017, was filed herein on 14 February 2017. It was averred on behalf of the 1st Respondent that on or about 17 June 2014, the Applicant presented an application letter to CBKL seeking a financial facility of Kshs. 35,000,000 for the purpose of acquiring the suit property. The Plaintiff was then involved in the development of a project known as Runda Paradise Estate, which was being undertaken by Maha Properties Limited, to which the Applicant said he was the lead advisor. It was denied by the 1st Respondent that there was any representation in the said letter that the repayment of the loan would be contingent upon payments to the Applicant for services rendered to Maha Properties Limited.

[8] It was further averred on behalf of the Respondents that vide a Letter of Offer dated 18 July 2014, CBKL agreed to offer a term loan facility of Kshs. 35,000,000 to the Plaintiff for purposes of financing the purchase of property L.R. 12608/43 (IR 12072) Muthaiga North, Nairobi; and that it was an express term of the said Letter of Offer that the loan facility was to be advanced to the Applicant on the strength of a First Legal Charge over the Suit Property, which was registered on 18 September, 2014. According to CBKL, it was an express term of the Letter of Offer at Clause 3 thereof that the facility would be repaid in instalments over a period of 60 months.

[9] It was the contention of the CBKL that Clause 8 of the Letter of Offer aforementioned was replaced with a Supplemental Letter of Offer dated 23 July 2014, which made provision for additional conditions for the disbursement of the loan; and that these conditions included the requirement of a duly executed irrevocable Letter of Undertaking from Maha Properties Ltd confirming remittance of all proceeds through the Applicant's account with CBKL, duly executed Assignment of Receivables from both Maha Properties Ltd and Mahideen Gilani. The 1st Respondent further deposed that, in spite of the foregoing, the Applicant failed to supply the said documents, which then prompted CBKLto waive its right to have the same as a condition precedent to the disbursement. It was thus denied that the 1st Respondent was a party to any Escrow Agreement or any Deed of Receivables.

[10] In its Replying Affidavit, the 1st Respondent averred that several demand notices were issued to the Applicant, requiring him to regularize his account, and specifically stating that in the event of failure, the Bank would pursue whatever remedies were available to it. Copies of two of such letters were exhibited as Annexure "KK-5" to the Replying Affidavit, being letters dated 6 May 2015 and 23 September, 2015. Thus, it was the contention of CBKL that when, on or about 11 February 2016, it served the Applicant with a Statutory Notice under Section 90(1), (2) and (3)(e) of the Land Act, it was acting within its rights, and what was required of the Applicant was to rectify his default or indicate how he was going to do so. Instead, the 90 day Statutory Notice elicited no response and expired without rectification of the default by the Applicant.

[11]According to the 1st Respondent, in the absence of any response to the Statutory Notice, the Bank rightly caused a Notice to Sell pursuant to Section 96(2)(3) of the Land Act, to be issued dated 14 June 2016; and that upon the expiry thereof, the 1st Respondent proceeded to instruct its agents, Antique Auctions Agencies (the 3rd Respondent herein) to issue the Auctioneer's Notification of Sale. Thus, the 1st Defendant denied the contention of the Applicant that the facility was contingent on the payments by Maha Properties Ltd, asserting that it is a mischievous and blatant attempt by the Applicant to escape his obligations contingent upon the Letter of Offer and the Charge Instrument.

[12]  The 1st Respondent's urged the Court to note that as at January 2017 when the instant suit was filed, the Applicant's account had been in arrears to the tune of Kshs. 21,304,332. 55 in respect of a period of over 614 days; and that the total amount outstanding stood at Kshs. 42,929,748. 70. It was therefore deposed that the Bank stands to suffer damage in the event that the orders sought by the Applicant are granted, granted that he remains indebted to the Bank and continues to neglect his obligation to repay the loan when the monthly repayments fall due, while at the same time frustrating the recourse available to the Bank for recovering the amount owed.

[13]  The applicant filed a response to the Replying Affidavit vide his Supplementary Affidavit sworn on 13 March 2017. Other that providing a reiteration of his averments in the Supporting Affidavit, he corrected the averment by the 1st Respondent that the facility was to enable him purchase a unit at the Runda Paradise Project, which was being undertaken by Maha Properties Ltd; adding that he complied fully with the conditions for disbursement of the facility, including the duly executed Irrevocable Letter of Undertaking from Maha Properties Ltd, duly executed Assignment of Receivables from Maha Properties Ltd and a duly executed Assignment of Receivables from PCEA Kikuyu Hospital. He accordingly denied that the 1st Respondent waived it rights to have the documents aforementioned.

[14]  The Applicant also denied, in the Supplementary Affidavit, having been served with either the demand lettersexhibited herein or the statutory notices, contending that the postal address used had since be re-allocated to a different person. He exhibited a letter to that effect from the Postal Corporation of Kenya, dated 10 January 2016. The Applicant accordingly averred that, since the Runda Project has since been completed, he expects to be paid in excess of Kshs. 40,000,000 and that he intends to use the said funds in reducing the outstanding debt.

[15]  The application was disposed of by way of written submissions filed on 7 March 2017 and 15 March 2017, respectively, which I have carefully perused. Notwithstanding the numerous provisions of the law cited herein in support of the application, the two residual prayers are straightforward in that what is sought thereby is an order of temporary injunction to restrain the sale of the Suit Property; and accounts. Thus, the applicable provision, which has also been set out in the Notice of Motion, is Order 40 Rules 1 of the Civil Procedure Rules; which provides that:

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 wrongly 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 orders."

[16]  From a careful consideration of the material placed before me, there can be no doubt that this is an application that falls under Rule 1(a) above; for it is the Applicant's apprehension that the Suit Property may be disposed of before the hearing and determination of the issues in controversy herein. Accordingly, in terms of the principles set out in the renowned case of Giella Vs Cassman Brown and Company Limited [1973] E.A 358, the Court must be satisfied that the applicant has established, firstly that he has a prima facie case with a probability of success; secondly that he stands to suffer irreparable harm which would not adequately be compensated by an award of damages; and, if the Court is in doubt, it will give consideration to the balance of convenience.

[17]  As to what amounts to aprima facie case, the Court of Appeal in the case of Mrao –vs- First American Bank (K) Ltd had this to say:

“…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 success of the applicant’s case upon trial. That is clearly a standard which is higher than an arguable case.”(Per Bosire JA)

[18]  From the material placed before me, there appears to be no dispute that the Applicant did approachthe CBKL for a facility in the sum of Kshs. 35,000,000 vide his letter dated17 June 2014 (marked Annexure NMW-1 to the Supporting Affidavit). The loan was for the purpose of financing the purchase of L.R. 12608/43 (I.R. No. 120721) Muthaiga North, Nairobi(the Suit Property). The request was granted and the loan given on terms that were set out in the  Letter of Offer dated 18 July 2014 and the Supplemental Offer Letter dated 23 July 2014. The collateral was duly provided, by way of a First Legal Charge marked Annexure NMW-4 herein; and whereas the contention of the CBKL was that the Applicant had failed in discharging his repayment obligations as at January 2017 when this suit was filed, the Applicant was of the posturing that it was not only premature but also illegal for the Bank to purport to seek to realize the security without ensuring that the statutory notices had been duly served.

[19]  Accordingly, on the question to determine is whether the Applicant has demonstrated a prima facie case showing that he has a legal right which has been infringed by the 1st Respondent. In making this determination, it is instructive to bear in mind the standard of proof laid down by the Court of Appeal in Nguruman Limited Vs Jan Bonde Nielson & 2 OthersCourt of Appeal No. 77 of 2012in whichit was stated thus:

“We reiterate that in considering whether or not a prima facie case has been established, the Court does not hold a mini trial and must not examine the merits of the case closely. All that the Court is to see is that on the face of it, the person applying for an injunction has a right, which has been violated or is, threatened with violation. Positions of the parties are not to be proved in such a manner as to give a final decision in discharging a prima facie case. The Applicant need not establish title; it is enough if he can show that he has a fair and bona fide question to raise as to the existence of the right which he alleges. The standard of proof of that prima facie case is on a balance or, as otherwise put, on a preponderance of probabilities.”

[20]  As rightly pointed out by the Applicant in his written submissions, the dispute revolved around the terms of the loan facility and the conditions precedent to the disbursement thereof. Accordingly the key issues to determine in respect of the application, bearing in mind the standard of proof, are:

[a] Whether the Respondent was in order to call in the loan and realize the security.

[b] Whether the Applicant was served with the requisite Demand and Statutory Notices of Sale;

[21]  It is indubitable that, pursuant to Clause 7 of the Letter of Offer dated 18 July 2014, CBKL made it a condition that it would only disburse the loan facility upon compliance by the Applicant of the stipulations set  out therein, that comprised no less than 17 Conditions Precedent. In Paragraph 8, a set of six other conditions were set out, namely:

[a]  The Bank to confirm invoices before disbursement.

[b] Duly executed irrevocable Letter of Undertaking from Maha Properties confirming the remittance of all proceeds through the Borrowers account with CBKL unless otherwise advised by the     Bank;

[c] Duly executed Assignment of Receivables from Maha Properties with 70% of each receivable to be utilized towards     reducing the loan;

[d]  Duly executed Assignment of Receivables from PCEA Kikuyu Hospital;

[e]  Payments to be made directly to the vendor;

[f]  Any funds from Maha Project that are received before drawdown to be utilized towards the purchase price and thus reduce the loan to be disbursed by a similar amount.

[22]  The parties are in agreement that Clause 8aforestated was replaced by a Supplemental Letter of Offer dated 23 July 2014, exhibited as Annexure KK-4 to the Replying Affidavit; and a perusal thereof shows that the conditions in Clause 8 of the Letter of Offer aforementioned remained largely intact in the Supplemental Offer Letter. And in Paragraph 11 of the Replying Affidavit, it was averred on behalf of CBKL thus:

"THAT the Plaintiff failed to supply the aforestated documents despite the same being a condition for the disbursements of the facility and consequently the Defendant/Bank waived its right to have the same as a condition precedent to disbursing   the loan."

[23]  Although the Applicant denied that there was any such waiver, no evidence was availed to show that he complied and provided the documentation aforestated. Instead the Applicant relied on a Deed of Assignment, exhibited as Annexure NMW-6 to the Supporting Affidavit which evidently is a draft, and bears no signature of the parties. Accordingly, it is apparent that the contention by the Applicant that the facility was secured primarily by the receivables from Maha Properties Ltd may not be true; and that, prima facie, the Bank was under no obligation to first demand payment from Maha Properties Ltd before calling in the loan.

[24]  There appears to be no dispute that the Applicant was in default as at January 2017 when he filed this suit. According to the 1st Respondent, the default was in respect of no less that 614 days amounting to Kshs. 21,304,332. 55, thus bringing the total outstanding sum to Kshs. 42,929,748. 70. In proof thereof the Applicant's Statement of Account was exhibited as Annexure KK-9 to the Replying Affidavit. It is also manifest from the Applicant's averments in Paragraphs 17, 18, 19, 21 and 22 in his Supporting Affidavit that the default has been admitted, which default evidently stood at Kshs. 39,680,708. 55 as per the Bank Statements exhibited by the Applicant and marked AnnexureNMW-8to the Supporting Affidavit. That being the case, the 1st Respondent can hardly be faulted for calling in the loan and seeking to realize the security that the Applicant offered for the facility.

[25]  On whether the 1st Respondent complied with the law in terms of service of Demand and Statutory Notices, it was averred in the Replying Affidavit that the Bank issued various demand notices to the Plaintiff demanding that the account be regularized, failing which the Bank would pursue whatever remedies that were available to it, including realization of the security. Copies of two such letter dated 6 May 2015 and 23 September 2015 were annexed to the Replying Affidavit. The 1st Respondent further exhibited copies of the Statutory Notices issued pursuant to Sections 90 and 96of the Land Act, including spousal notice under Section 96(3)(c) of the Land Act, as well as the Notice to Sell under the Auctioneers Rules, together with Certificates of Postage.

[26]  In response to the prima facie evidence of service of the Demand and Statutory Notices as aforestated, it was the contention of the Applicant that he only got to learn of the notices after filing this case and got to learn that they had been sent to his postal address No. 11378-00100 Nairobi; which he then got to learn had be re-allocated to a different person since 2007. In proof of this the Applicant relied on a letter dated 10 January 2016 marked NMW-1. That letter is addressed"To Whom It May Concern",and it reads:

"This is to inform you that the above mentioned Postal address belonged to Mr. Norbert Mungai Wambeti the holder of identity card No. [...........] w.e.f. 1st April, 2001 to 1st April, 2007 when it was re-allocated to a different person due to non-  payment of the same..."

[27]  Thus, by 17 June 2014 when the Applicant used the said address in his loan application letter marked NMW-1, 7 years had elapsed since the address was re-allocated on account of non-payment. It would therefore be mischievous for the Applicant to blame the 1st Respondent for having sent the Demand and Statutory Notices to the wrong address when they were evidently sent to the very address that he had supplied to the 1st Respondent in the first place.Moreover, it does not help matters for the Applicant to aver that "...all along I justifiably believed that my Post Office Box was still active until I received the advice from Posta," for it is trite that one cannot be permitted in law to rely on his own default to gain advantage over another. In the case of NabroProperties Ltd vs. Sky Structures Ltd & 2 Others 2 [2002] 2 KLR this principle was expressed thus:

“It is a maxim of law, recognized and established, that no man shall take advantage of his own wrongs and this maxim which is based on elementary principles, is fully recognized in courts of law and of equity, and indeed, admits of illustration from every branch of legal procedure. The reasonableness of the rule being manifest…, we may observe that a man shall not take advantage of his own wrong to gain the favourable interpretation of the law.”

[28]  The Applicant also raised the question of whether the interest and penalties loaded on the account are warranted, and contended that this is one of the issues to be determined at the trial, on the basis of which a temporary injunction should be granted. Reliance was placed on Section 33B of the Banking (Amendment) Act No. 25 of 2016, which came into effect on 14 September, 2016. According to the Applicant, the interest charged on the loan after the effective date did not reflect compliance with the said law. The Applicant also relied on Section 84 of the Land Act, No. 6 of 2012, which stipulates that the Chargee should give a Chargor 30 days' notice of the increase of the interest rate where it was contractually agreed upon that the rate of interest is variable. He accordingly argued that the interest charged is excessive and oppressive to him. However, the Court of Appeal in the case of Fina Bank Ltd. V Ronak Ltd[2001] 1 EA 54 was explicit that a dispute on accounts was no basis for grant of an injunction. Indeed, as more succinctly stated in Halsbury’s Laws of England, Vol. 32 (4th Edition) paragraph 725:

The mortgagee will not be restrained from exercising his power of sale because the amount due is in dispute, or because the mortgagor has begun a redemption action, or because the mortgagor objects to the manner in which the sale is being arranged. He will be restrained, however, if the mortgagor pays the amount claimed into court, that is, the amount which the mortgagor claims to be due to him, unless, on the terms of the mortgage, the claim is excessive’’.

[29]  In the light of the foregoing, it is my considered finding that the Applicant has not made out a prima facie case in the sense envisaged by the definition given in the Mrao Caseaforestated. That being the case, it would be unnecessary to consider the second principle laid down in the Giella Case, namely whether he stands to suffer irreparable loss for which damages may not be adequate recompense. This is because, as was laid down in the Nguruman Case:

“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…if prima facie case is not established, then irreparable injury and balance of convenience need no consideration…”

[30]  In the result, it is my considered finding that the Applicant's application dated 6 January 2017 is devoid of any merit and is hereby dismissed with costs.

It is so ordered.

DATED, SIGNED AND DELIVERED AT NAIROBI THIS 7TH DAY OF SEPTEMBER, 2017

OLGA SEWE

JUDGE