Paul Gatete Wangai, Michael Kanyi Wambugu,Anne Stella Onyango, Jane Wanjira Njogu,Samuel Mwangi Nduati, Ruth Kwali, Daniel Stephen Ouma, Lucy Katilo Wamwandu,Dorothy Achieng Omolo, Charles Wahome Muriuki, John Waweru Karanja, Sulwe Agencies Limited, Damuma Investments Limited & William Kimani and Grace Tito Lekasi v Capital Realty Limited & Housing Finance Company Limited [2020] KEELC 2717 (KLR) | Jurisdiction Of Elc | Esheria

Paul Gatete Wangai, Michael Kanyi Wambugu,Anne Stella Onyango, Jane Wanjira Njogu,Samuel Mwangi Nduati, Ruth Kwali, Daniel Stephen Ouma, Lucy Katilo Wamwandu,Dorothy Achieng Omolo, Charles Wahome Muriuki, John Waweru Karanja, Sulwe Agencies Limited, Damuma Investments Limited & William Kimani and Grace Tito Lekasi v Capital Realty Limited & Housing Finance Company Limited [2020] KEELC 2717 (KLR)

Full Case Text

REPUBLIC OF KENYA

IN THE ENVIRONMENT AND LAND COURT AT MACHAKOS

ELC. CASE NO. 123 OF 2019

PAUL GATETE WANGAI..............................................1ST PLAINTIFF

MICHAEL KANYI WAMBUGU...................................2ND PLAINTIFF

ANNE STELLA ONYANGO..........................................3RD PLAINTIFF

JANE WANJIRA NJOGU...............................................4TH PLAINTIFF

SAMUEL MWANGI NDUATI........................................5TH PLAINTIFF

RUTH KWALI..................................................................6TH PLAINTIFF

DANIEL STEPHEN OUMA...........................................7TH PLAINTIFF

LUCY KATILO WAMWANDU......................................8TH PLAINTIFF

DOROTHY ACHIENG OMOLO...................................9TH PLAINTIFF

CHARLES WAHOME MURIUKI................................10TH PLAINTIFF

JOHN WAWERU KARANJA........................................11TH PLAINTIFF

SULWE AGENCIES LIMITED....................................12TH PLAINTIFF

DAMUMA INVESTMENTS LIMITED.......................13TH PLAINTIFF

WILLIAM KIMANI AND GRACE TITO LEKASI...14TH PLAINTIFF

VERSUS

CAPITAL REALTY LIMITED.....................................1ST DEFENDANT

HOUSING FINANCE COMPANY LIMITED.............2NDDEFENDANT

RULING

1. This Ruling is in respect to the 2nd Defendant’s Notice of Preliminary Objection dated 17th December, 2019.  In the said Notice of Preliminary Objection, the 2nd Defendant has averred that the jurisdiction of this court has been erroneously invoked.

2. It has been averred that the cause of action herein is the exercise of the chargee’s Statutory Power of Sale; that the suit pertains to Settlement of amounts due and owing to the 2nd Defendant on account of contractual relationship between the chargee and the chargor and that the suit is a commercial matter and should be tried by the High Court.

3. The 2nd Defendant averred in the Notice of Preliminary Objection that the exercise of a chargees’ Statutory Power of Sale does not constitute a dispute relating to the environment, use and occupation of and title to land within the meaning of Article 162(2) (b) of the Constitution as read with section 13 of the Environment and Land Court Act and that the Plaintiffs’ Notice of Motion and Plaint should be struck out with costs to the 2nd Defendant.  The Notice of Preliminary Objection proceeded by way of written submissions.

4. The 2nd Defendant’s advocate submitted that the 2nd Defendant is a mortgage financier which advanced a loan facility of Kshs. 350,000,000 to the 1st Defendant for the purpose of constructing 76 maisonettes on L.R. No.12715/11742; that the said facility was secured by a revolving charge and a Further charge over the suit property and that the 1st Defendant also executed Debentures, Personal and Corporate Guarantees and Escrow Agreements.

5. It was submitted by the 2nd Defendant’s advocate that the purpose of the Escrow Agreements was that all monies in respect of the sale of the 76 maisonettes were to be deposited  in the 1st Defendant’s Escrow Account with the 2nd Defendant; that as early as 2015, the 1st Defendant defaulted in the terms of the Escrow Agreement, the charge and further charge and that the 1st Defendant failed to provide proof of payment of the purchase price so that the sub-lessees and partial discharges would be registered.

6. Counsel submitted that the 2nd Defendant served the 90 day’s Statutory Notice to the chargor to perform its obligations under the charge; that the said notice period expired and that on 7th October, 2019, the 2nd Defendant issued a Notice to sell the charged property.

7. Counsel submitted that the jurisdiction of this court flows from Article 162 (2) (b) of the Constitution as read with Section 13 of the Environment and Land Court Act; that the jurisdiction of this court is limited to the hearing and determination of disputes, relating to the environment and the use and occupation of title to, land and that the jurisdiction of the court has been erroneously invoked.  Counsel relied on the cases of the owners of the Motor Vessel Lillian “S” vs. Caltex Kenya Limited [1989] eKLR and Ernest Kevin Luchidio vs. Attorney General & 2 Others (2015) eKLR.

8. The 2nd Defendant also relied on the circular of the Chief Justice which directed that all proceedings in which an injunction is sought to restrain the realization of securities, whether debentures or charges, are deemed to be commercial matters and should be heard by the High Court.

9. The 2nd Defendant’s Counsel also relied on the case of Co-operative Bank of Kenya Limited vs. Patrick Kangethe Njuguna & 5 Others [2017] eKLRwhere the court held as follows:

“Furthermore, the jurisdiction of the ELC to deal with disputes relating to contracts under Section 13 of the ELC Act ought to be understood within the context of the court’s jurisdiction to deal with disputes connected to “use” of land as discussed herein above.  Such contracts, in our view, ought to be incidental to the “use” of land; they do not include Mortgage, Charger, collection of dues and rents which falls within the Civil jurisdiction of the High Court.  By parity of reasoning, the dominant issue in this case was the settlement of amounts owing from the respondents to the appellant on account of a contractual relationship of a banker and lender.  While exclusive, the jurisdiction of the ELC is limited to the areas specified under Article 162 of the Constitution, Section 13 of the ELC Act and Section 150 of the Land Act, none of which concur the determination of accounting questions.  Consequently, this dispute does not tilt within any of the areas envisioned by the said provisions.  On the other hand, the jurisdiction of the High Court over accounting matters is without doubt, under Article 165(3) of the Constitution.”

10. The 2nd Defendant’s Counsel submitted that since the dispute touches on whether or not the 2nd Defendant should exercise its Statutory Power of Sale over the suit property, the same is a commercial dispute in nature and that the same should be heard by the High Court.

11. It was submitted by the 2nd Defendant’s advocate that under the charge, the 1st Defendant did not have authority to engage in any transaction over the suit property, including registering of Leases, without getting a written consent of the 2nd Defendant; that the transactions between the Plaintiffs and the 1st Defendant never received the 2nd Defendant’s approval and that the purchase price was never deposited in the Escrow account as agreed.

12. Counsel finally submitted that the key prayers in the Plaint are subject to the overriding interest of the 2nd Defendant and that the dominant issue in this matter is settlement of the amount owed to the financier, the 2nd Defendant.

13. On his part, the Plaintiffs’ advocate submitted that this suit goes well beyond the 2nd Defendant’s charge; that the suit involves more than just the exercise of the 2nd Defendant’s Statutory Power of Sale and that the suit is concerned with the performance of the Sale Agreements.

14. Counsel submitted that the 2nd Defendant’s Statutory Power of Sale is but one of the aspects challenging the Plaintiff’s possession of the maisonnettes and that the exercise of Statutory Power of sale is not an action beyond this court’s jurisdiction.  Counsel relied on the case of Lydia Nyambura Mbugua vs Diamond Trust Bank Kenya Limited & Another [2018] eKLR where the court held that if the issue is collateral to the process of sale, and not severable, the ELC would still have jurisdiction to hear the whole of the dispute including related issues such as the amounts payable, where those cannot be severed from the dominant issue.

15. Counsel submitted that the exercise of the 2nd Defendant’s Statutory Power of Sale is a collateral issue in this dispute; that the predominant issue is the enforcement of Sale Agreements and the protection of the Plaintiffs’ possession of the maisonettes and that the High Court does not have the same dexterity as this court to determine the suit.

16. The 1st Defendant’s Counsel adopted the submissions made by the Plaintiffs’ advocate. Counsel submitted that the predominant issue in this matter is whether the Plaintiffs met their bargain and that none of the Defendants have filed their Defences.

17. The only issue the court is supposed to determine in the current Notice of Preliminary issue is whether this court has jurisdiction to determine the dispute before it. While doing so, the court will confine itself to the Plaint filed in this matter, and not to the various Affidavits filed by the parties.  This is because the depositions in those Affidavits are in support of Applications, which Applications have not been heard by this court, or at all.

18. It is trite that the jurisdiction of this court is derived from the Constitution, the Environment and Land Court Act, and other statutes. The other statutes that confer jurisdiction on this court are the Land Act and the Land Registration Act.  The requirement that a court or Tribunal can only deal with a dispute in respect of which it has the requisite jurisdiction cannot be overemphasized.  In the case of Lillian “S” vs. Caltex Kenya Limited [1989] eKLR,the Court of Appeal held as follows:

“By jurisdiction is meant the authority which a court has to decide matters that are before it or take cognizance of matters presented in a formal way for its decision.  The limits of this authority are imposed by the statute, charter, or commission under which the court is constituted and may be extended or restricted by the like means.  If no restriction or limit is imposed the jurisdiction is said to be unlimited.  A limitation may be either as to the kind and nature of the actions and matters of which the particular court has cognizance, or as to the area over which the jurisdiction shall extend, or it may partake both of these characteristics.  If the jurisdiction of an inferior court or tribunal (including an arbitrator) depends on the existence of a particular state of facts, the court or tribunal must inquire into the existence of the facts in order to decide whether it has jurisdiction; but, except where the court or tribunal has been given power to determine conclusively whether the facts exist.  Where the court takes it upon itself to exercise a jurisdiction which it does not possess, its decision amounts to nothing.  Jurisdiction must be acquired before judgement is given…Jurisdiction is everything.  Without it, a Court has no power to make one more step.  Where a court has no jurisdiction there would be no basis for a continuation of proceedings pending other evidence.  A court of law downs its tools in respect of the matter before it the moment it holds the opinion that it is without jurisdiction”.

19. This court’s jurisdiction emanates from the provisions of Article 162(2) (b) of the Constitution and section 13 of the Environment and Land Court Act (the ELC Act).  Article 162(2)(b) of the Constitution provides as follows:

“Parliament shall establish courts with the status of the High Court to hear and determine disputes relating to–

(b) the environment and the use and occupation of, and title to, land.”

20. Parliament enacted the ELC Act in compliance with the provisions of Article 162(3) of the Constitution which provides as follows:

“(3) Parliament shall determine the jurisdiction and functions of the courts contemplated in clause (2).”

21. Article 165(5) of the Constitution divests the High Court the jurisdiction in respect of matters falling within the jurisdiction of the courts contemplated under Article 162(2) of the Constitution.

22. The Supreme Court delved into the issue of the jurisdiction of this court in great detail in the case of Republic vs. Karisa Chengo & 2 Others [2017] eKLR in which it held as follows:

“[52]In addition to the above, we note that pursuant to Article 162(3) of the Constitution, Parliament enacted the Environment and Land Court Act… From a reading of the Constitution and these Acts of Parliament, it is clear that a special cadre of Courts, with sui generis jurisdiction, is provided for.  We therefore entirely concur with the Court of Appeal’s decision that such parity of hierarchical stature does not imply that either ELC or ELRC is the High Court or vice versa...”

23. In the Plaint, the Plaintiffs have averred that between the years 2012 and 2017, they were issued with letters of offer by the 1st Defendant to purchase maisonettes situated on Land Reference number 12715/11742, which they accepted; that they entered into Agreements of Sale for the said maisonettes with the 1st Defendant and that they transmitted the purchase price as per the Agreements to the 1st Defendant.

24. The Plaintiffs have averred that they were granted vacant possession of the Units they bought and have been residing in the said houses with their families; that they have invested in the suit properties by sinking a borehole, building a bio-digester plant and renovated their respective maisonettes to the tune of Kshs. 1,822,002.

25. The Plaintiffs’ case is that in breach of its obligation under the Agreements, the 1st Defendant has from the date of purchase to date neglected, refused and/or failed to grant them the Lease Agreements, Title Deeds and the relevant completion documents for the maisonettes.

26. The Plaintiffs have further averred in the Plaint that due to the 1st Defendant’s breach of the Sale Agreements, they have suffered and continue to suffer enormous loss and damages to the tune of over Kshs. 141,000,000.

27. The Plaintiffs have averred that the 2nd Defendant had notice of their interest on account of the letters dated 29th August, 2019 and 10th September, 2019; that vide the two letters, the 2nd Defendant informed the Plaintiffs that they had financed the construction of the suit property and that the 2nd Defendant asked the Plaintiffs to provide proof of payment of the purchase price.

28. It is the Plaintiffs’ case that their advocate provided to the 2nd Defendant proof of payment of the purchase price; that the 2nd Defendant’s advocate asked for additional sums towards stamp duty and legal fees from the Plaintiffs, which the 2nd and 5th Plaintiffs paid and that on 14th October, 2019, the Plaintiffs were served with a 40 day statutory demand letter dated 7th October, 2019, by the 2nd Defendant and addressed to the 1st Defendant.

29. The Plaintiffs averred that they are strangers to any agreement between the 1st Defendant and the 2nd Defendant. The Plaintiffs prayed for an order of specific performance directing the 1st Defendant to complete the Sale Agreements, and in the alternative, the 1st Defendant to pay them a total sum of Kshs.146, 617,800 as special damages for breach of contract.

30. The Defendants have not filed Defences in response to the Plaint, meaning that the averments by the Plaintiffs remain uncontroverted. The 2nd Defendant’s counsel submitted that this court does not have the requisite jurisdiction to resolve the dispute herein because the cause of action, namely, the exercise of a chargee’s Statutory Power of Sale, does not constitute a dispute relating to the environment, use and occupation of and title to land within the meaning of Article 162(2) (b) of the Constitution as read with section 13 of the Environment and Land Court. Counsel cited the case of Co-operative Bank of Kenya Limited vs. Patrick Kangethe Njuguna & 5 Others [2017] eKLR in which the Court of Appeal held as follows:

“41. Furthermore, the jurisdiction of the ELC to deal with disputes relating to contracts under Section 13 of the ELC Act ought to be understood within the context of the court’s jurisdiction to deal with disputes connected to “use” of land as discussed herein above.  Such contracts, in our view, ought to be incidental to the “use” of land; they do not include Mortgage, Charges, collection of dues and rent which falls within the Civil jurisdiction of the High Court.  By parity of reasoning, the dominant issue in this case was the settlement of amounts owing from the respondents to the appellant on account of a contractual relationship of a banker and lender.”

31. The ratio decidendi in the Co-operative Bank case (supra), as I understand it, is that where the dispute concerns the contractual relationship between a chargor and a chargee, it is the High Court that has the jurisdiction to determine the issues arising out of such a contractual relationship, and not the Environment and Land Court.

32. Indeed, while considering if the court has jurisdiction in a matter where cross-cutting issues have been raised, like in this case, the court ought to look at the predominant issue at play, so as to establish if it has jurisdiction to deal with the matter or not.  As pointed out by the Court of Appeal in the Co-operative Bank case (supra), the dominant issue in that matter was the settlement of accounts, which is in the province of the High Court.

33. Considering the ratio decindendi in the Co-operative Bank case(supra), the question that arises in this case is whether the only issue before the court is the contractual relationship between the 1st Defendant, who is the chargor, and the 2nd Defendant, the chargee.

34. The perusal of the Plaint shows that the issues raised by the Plaintiffs go beyond the contractual relationship between the 1st and 2nd Defendants.  Indeed, as alluded in the preceding paragraphs, the Plaintiffs have averred that they entered into specific Sale Agreements with the 1st Defendant in respect to the maisonettes that have been constructed on L.R. NO.12715/11742.

35. The Plaintiffs’ case is that having paid to the 1st Defendant the purchase price as stipulated in the Sale Agreement, they are entitled to their houses, and if not, they should be reimbursed the purchase price together with other damages that they have incurred.

36. To show that they are not parties in the dispute between the 1st and 2nd Defendants, the Plaintiffs have averred that they were not parties to the arrangement that the 1st Defendant entered into with the 2nd Defendant.

37. Although the 2nd Defendant’s exercise of Statutory Power of Sale is one of the issues in this matter, from the Plaint, the 2nd Defendant will still have to address the issue of the validity or otherwise of the Sale Agreements that the Plaintiffs entered into with the 1st Defendant, and the role, if any, it played in respect to those Agreements.

38. Indeed, considering that the Plaintiffs have averred that they validly purchased the suit property, and that the Defendants should be compelled to transfer to them the suit properties, the predominant issue in this matter is the validity of the Sale Agreements the Plaintiffs entered into with the 1st Defendant, and not the contractual relationship between the 1st Defendant and the 2nd Defendant per se.  Where a third party claims that he is entitled to land which is charged to a bank, the issue ceases to be purely of a commercial nature, but rather, the use, occupation and title to land.

39. That being the case, I find and hold that this court has the requisite jurisdiction to deal with this suit.  The 2nd Defendant’s Notice of Preliminary Objection dated 17th November, 2019 is therefore dismissed with costs.

DATED, DELIVERED AND SIGNED IN MACHAKOS THIS 8TH DAY OF MAY, 2020.

O.A. ANGOTE

JUDGE