Pearl Beach Hotels Limited v KCB Bank Kenya Limited & another [2022] KEHC 11786 (KLR)

Pearl Beach Hotels Limited v KCB Bank Kenya Limited & another (Commercial Case E201 of 2022) [2022] KEHC 11786 (KLR) (Commercial and Tax) (12 July 2022) (Ruling)

Neutral citation: [2022] KEHC 11786 (KLR)

Republic of Kenya

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

Commercial and Tax

Commercial Case E201 of 2022

DO Chepkwony, J

July 12, 2022

Between

Pearl Beach Hotels Limited

Applicant

and

KCB Bank Kenya Limited

1st Respondent

Kamal Anatroy Bhatt

2nd Respondent

Ruling

1. The application herein is dated June 9, 2022and is seeking for orders that;i.Spent;ii.Spent;iii.Spent;iv.Spent;v.Spent;vi.Spent;vii.This honorable court do set aside and/or vacate the ex-parte orders issued by this honorable court (honorable Lady Justice Dorah Chepkwony) on June 7, 2022;viii.The costs of this application be borne by the plaintiff/respondent; and,ix.This honorable court be pleased to grant any other orders as it may deem fit for the expeditious and fair disposal of this application.

2. The application is premised on the grounds on the face of it and in the depositions in the supporting affidavit of Oscar Obuna sworn on the June 9, 2022. In summary, the applicant’s case is that in the period between 2010 and 2016, pursuant to various facility letters and debentures, the bank agreed to advance a loan facility to the plaintiff/respondent herein in the tune of Kshs 5,886,672,350. 35 for the purpose of construction and development of English Point Marina Project on the property known as Subdivision No 6228 Section 1 Mainland North in Mombasa. That the said facility was secured by various facilities inter-alia several charges, guarantees and fixed and floating debentures dated March 1, 2011, September 26, 2012 and April 30, 2014. It is averred that despite various moratoriums and restructuring agreements and accommodations accorded to the plaintiff/ respondent, it has failed and continue to default in its repayment of its loan obligations which default forced the bank to exercises its powers of appointment of a receiver manager by appointing the 2nd defendant as a receiver manager of all the property and assets of the plaintiff/respondent on May 31, 2022. The 2nd defendant then took physical and effective control of the said assets on May 31, 2022.

3. As a consequence of this appointment, the plaintiff/respondent illegally, fraudulently and by misrepresentation and non-disclosure of material facts procured ex-parte orders dated June 7, 2022 purporting to restrain the bank from appointing a receiver manager and restoring the status quo prior to the appointment of the receiver. That the said orders were premised on the alleged false and misleading grounds inter-alia that the debentures were not registered and that the bank’s right to appoint a receiver manager had not crystalized, hence averment that the orders are irregular and fraudulent. Further, that apart from the loan facility in the tune of Kshs 5. 2 billion, the plaintiff/respondent is in breach of the terms of a deed of assignment of rent dated March 1, 2011 to which the plaintiff/respondent was required to channel all the receivables collected from the English Point Marina to designated accounts. But, according to the applicant, the said receivables had been diverted to other accounts held by the respondent with Diamond Trust Bank Limited, which action is in breach of the deed of assignment.

4. According to the applicant, the directors of the plaintiff/respondent have attempted to access the said funds held at the Diamond Trust Bank after the appointment of receiver manager with the intention of placing the funds beyond reach of the receiver to the detriment of the bank. Therefore, without a court order in place, Diamond Trust Bank is constrained to allow the directors of the plaintiff/respondent to access the monies held on its behalf hence there exists an imminent danger that unless the injunction and status quo orders are vacated with expediency, the bank stands to suffer irreparable damage.

5. It is the applicant’s contention that the conduct of the plaintiff/ respondent is malicious, demonstrable of bad faith and unclean hands and with a clear intent and attempt to mislead this court hence unworthy of any equitable reliefs. It is further argued that the status quo order is overtaken by events in the sense that a receiver manager has already been appointed. That it will be absurd to grant the directors of the plaintiff/respondent any access orders when their powers stand suspended by virtue of appointment of the receiver manager. It is the bank’s prayer that it is in the interest of justice that the injunction and status quo orders be set aside ex-debito justiciae.

6. The plaintiff/respondent filed grounds of opposition dated June 6, 2022 and filed on June 12, 2022 which the counsel indicated to court he would rely on together with the exhibits attached to the supporting affidavit of Nazir Jilan in support of the notice of motion dated June 6, 2022. The plaintiff/respondent’s counsel stated that they would also rely on the exhibits submitted by the respondents in the notice of motion dated June 9, 2022.

7. Counsel for the plaintiff/respondent, Mr Cohen gave a background of the matter at hand and what the applicant/1st defendant’s application dated June 9, 2022 was all about. He indicated that effectively the said application is seeking to have the exparte orders issued by the court on June 7, 2022 in respect of the application dated June 6, 2022 discharged.

8. Counsel for the plaintiff/respondent went on to submit on how he believes the court should dispose of this whole matter. He submitted that the application dated June 6, 2022 in which the plaintiff is seeking injunctive orders should be determined based on the principles set out in the case ofGiella v Cassman Brown.

9. As for the 2nd application dated June 9, 2022 and filed by the respondent seeking to discharge the injunctive orders issued on June 7, 2022 in respect of the application dated June 6, 2022, counsel submitted that section 80 of the Civil Procedure Act, and Order 40 rule 7 of the Civil Procedure Rulesgives guidance on such applications together with the principles set out in the case of Felicita Chemanyi. He then says that there was then the main suit which would be guided by the evidence at the hearing.

10. Counsel for the plaintiff/respondent led the court through the various provision of law and documents relied on to justify their application dated June 6, 2022and the main suit which he states has raised triable issues to be determined at the hearing.

11. He denied that they had misrepresented and o failed to disclose any material to court with regard to the case before it. He said that nothing had been presented to court to indicate that there was any error or mistake or fraud or misrepresentation in the exparte orders it issued on June 7, 2022.

12. According to plaintiff/respondent’s counsel, the plaintiff does not deny that he owes the 1st defendant/applicant. All he disputes is the manner in which the debt has been handled and the appointment of receivers, which he believes should go for trial for the real status to be established. He urged the court to dismiss the application by the 1st defendant as no new evidence or issues had been raised.

13. In rejoinder, Mr Oraro counsel for applicant stated that counsel for plaintiff/respondent was defending the non-disclosure of facts without filing any document. He urged that the duty of an applicant is to make full disclosure of material facts even at exparte stage so that the judge is informed of the same before making a decision. He added that counselought to have made full inquiry of relevant facts before filing the application and then went on to discuss the issues of accounts, validity of debentures, appointment of receiver managervis a vis the legal provision that guide the same and documents filed in support thereof. He summed up by stating that they were not aware which orders the court had granted.

Analysis and Determination 14. Having listened to both counsel in their oral submissions in court, I have also carefully read through the application dated June 9, 2022and the supporting affidavit and grounds of opposition filed by plaintiff/respondent. I have also gone through the written submissions together with the bundle of authorities filed by the respondent/applicant alongside the courts proceedings of the oral submissions by counsel. The only issue for determination is whether a case has been made out to warrant the exparte orders issued by this court on June 7, 2022be set aside and or vacated.

15. The principles applicable in determining whether or not to set aside an ex-parte judgment and/or order were laid out by the Court of Appeal in the case of Pithon Waweru Maina v Thuka Mugiria[1983]eKLR as follows:“a)Firstly, there are no limits or restrictions on the judge’s discretion except that if he does vary the judgment he does so on such terms as may be just...The main concern of the court is to do justice to the parties, and the court will not impose conditions on itself to fetter the wide discretion given it by the rules. Patel v EA Cargo Handling Services Ltd [1974] EA 75 at 76C and E b).Secondly, this discretion is intended so to be exercised to avoid injustice or hardship resulting from accident, inadvertence, or excusable mistake or error, but is not designed to assist the person who has deliberately sought, whether by evasion or otherwise, to obstruct or delay the course of justice. Shah v Mbogo [1967]EA 116at 123B, Shabir Din v Ram Parkash Anand (1955) 22 EACA 48c).

16. Order 51 Rule 15 of the Civil Procedure Rules states:“The court may set aside an order made exparte”So that setting aside of an ex-parte order is the discretion of the court upon being satisfactorily moved by either party. The guiding principle is for a court to endeavor to do justice to both parties.

17. From the above cited decision and provision under Order 51 rule 15, it is clear that the court has unfettered discretion to set aside and or vacate ex-parte orders, which discretion should be exercised where the court is persuaded that the applicant is likely to suffer hardship or injustice as a result of the orders or where it is clear that the orders were granted inadvertently or by mistake.

18. In the instant case, there exist conflicting interests as between the parties herein and it is the duty of this court to ensure a balance is reached and justice for both parties is served. It is not denied that the respondent/plaintiff is owing substantial amount to the applicant who has consequently appointed a receiver manager to protect its interests. On the other hand, the plaintiff/respondent has an interest in the case and control of its assets including the monies held in the Diamond Trust Bank. Therefore, the court has the duty to balance these competing interests of the parties before determining whether substantive rights of either party have been infringed.

19. I have perused the plaintiff’s application dated June 6, 2022 wherein the plaintiff contends that the appointment of the 2nd defendant was unprocedural pursuant to clause 15 and 17 of the debenture. Secondly, the plaintiff questions the timelines within which the debentures were registered, that is, as to whether it was within 42 days as required by section 88 and 89 of the Company’s Act. Thirdly, while the plaintiff does not dispute being indebted to the 1st respondent, they are contesting the amounts being demanded as being hightly inflated. These issues, in my view, establish and or present a dispute on the questions of the appointment of the receiver manager, the validity or terms of the debentures and amounts owed as between the plaintiff and 1st defendant, which must concern a court out to do justice for the parties by setting them down for determination.

20. I wish to note that the orders in place, which are subject of the application were issued at interim stage in the application dated June 6, 2022. Whereas in that application, it is the respondent/ plaintiff averment that the bank’s right to appoint a receiver had not crystalized, the bank through the present application accuses the respondent/plaintiff for material non-disclosure, hence the grant of the impugned ex-parte orders.

21. I have also read through the orders issued on June 7, 2022, and find no inadvertence, mistake or error in their issuance on the part of the court. This court, in granting the said order was persuaded by the prevailing circumstances as brought out in the case and exercised its inherent jurisdiction and discretion to safeguard the applicant’s interest without adversely infringing upon the respondent’s rights.

22. It is my considered view that the application of June 9, 2022 is a is guised response to the application dated June 6, 2022 and the accusation therein would be better addressed when the application dated June 6, 2022 is canvassed.

23. As it stands now, and pursuant to a court order adopted by this court on June 14, 2022 as between the parties, this court is also persuaded that the applicant would not suffer any unnecessary hardship or prejudice if the orders of June 7, 2022 are not set aside at this stage. The best position the court can take in the interim is to balance the interests of the parties herein by merging the orders issued on June 7, 2022 and the terms of the consent order adopted on June 14, 2022 pending the hearing and determination of the application dated June 6, 2022.

24. Consequently, I proceed to grant the following orders;-a.That order No (2) of theex-parte orders issued on June 7, 2022 is hereby varied but only to the extend of staying and restraining the 2nd defendant from assuming his duties under the debenture dated March 1, 2021 and the supplementary debentures thereof, but maintain his appointment. The other orders to remain in subsistence pending the hearing and determination of the application dated June 6, 2022. b.The consent order adopted on June 14, 2022 to remain in subsistence until the determination of the application dated June 6, 2022. c.The 1st defendant be and is at liberty to file and serve a response to the application dated June 6, 2022 or adopt the supporting affidavit to the application dated June 9, 2022 or such response.d.The parties herein be and are at liberty to file and serve each other with supplementary affidavits, if need be, to the application dated June 6, 2022 within five(4) days of this ruling.e.The application dated June 6, 2022 to be canvassed by way of written submissions.f.The applicant to file and serve written submissions upon the expiry of 5 days as directed in order (c) above.g.The respondents are equally granted 7 days corresponding leave to file and serve written submission upon being served with the applicant’s submissions.h.Mention on September 20, 2022 for parties to confirm compliance and take further direction or highlight their respective submissions.It is so ordered.

RULING DELIVERED VIRTUALLY, DATED AND SIGNED THIS 12THDAY OF JULY, 2022. D. O. CHEPKWONYJUDGEIn the presence of:M/s Noella Lubano counsel holding brief for Mr. Oraro (SC) for 2nd Defendant/ApplicantMr. Mliyo counsel appearing alongside Mr. Maloba counsel for RespondentNBI HCCOMM. NO.E201 OF 2022 RULING- Page 15 of 12