Peter Mutua Mutiso v Stanbic Bank Kenya Limited [2020] KEHC 1450 (KLR)

IN THE HIGH COURT OF KENYA

AT NAIROBI

MILIMANI LAW COURTS

COMMERCIAL AND TAX DIVISION

CORAM: D. S. MAJANJA J.

CIVIL CASE NO. E307 OF 2020

BETWEEN

PETER MUTUA MUTISO …………………………………..…………………………. PLAINTIFF

AND

STANBIC BANK KENYA LIMITED …………….…………………………..…….… DEFENDANT

RULING

Introduction and background

1. The Plaintiff is the registered owner of Apartment No. 4 erected on Block C on LR No. 209/11872 situated within Nairobi (“the suit property”). He charged the suit property to the Defendant (“the Bank”) for a facility of Kshs. 8,000,000. 00 secured by a Charge dated 10th December 2008 and a further facility of Kshs. 3, 900,000. 00 secured by a further Charge.

2. The gravamen of the Plaintiff’s claim set out in a fairly short Plaint dated 19th August 2020 is that the Bank has wrongfully and before accrual of the statutory power of sale threatened to sell the suit property by public auction. It contends that the sale is unlawful for the following reason because the Bank did not issue a proper notice under section 96(2) of the Land Act, 2012(“the Land Act”) and the Bank did not prepare a forced sale valuation of the suit property pursuant to section 97 of the Land Act. The Plaintiff also complained that the Bank’s claim offends section 44 of the Banking Act (Chapter 488 of the Laws of Kenya). He also states he has been making efforts to liquidate the outstanding sum.

3. The Plaintiff therefore seeks a permanent injunction to restrain the Bank from selling or disposing of the suit property. The Plaint is accompanied by a Notice of Motion dated 19th August 2020 made, inter alia, under Order 40 of the Civil Procedure Rules seeking an injunction restraining the Bank from selling the suit property pending the hearing and determination of the suit. The application is grounded on the Plaintiff’s supporting affidavit sworn on 19th August 2020.

4. The application has been opposed by the Bank through the replying affidavit of its Senior Legal Officer, Elisha Nyikuli, sworn on 14th September 2020.

5. The parties agreed to canvass the application by written submissions which they filed in support of their respective positions.

Applicable principles

6. As the application before the court is for an interlocutory injunction, the applicable principles guiding the exercise of this court’s discretion are those settled in Giella v Cassman Brown [1973] EA 348. The Plaintiff has to satisfy three requirements; establish that it has a prima facie case with a probability of success, demonstrate irreparable injury which cannot be compensated by an award of damages if a temporary injunction is not granted, and if the court is in doubt show that the balance of convenience is in its favour.

7. In Nguruman Limited v Jane Bonde Nielsen and 2 Others NRB CA Civil Appeal No. 77 of 2012 [2014] eKLR the Court of Appeal reiterated the three conditions to be fulfilled before an interim injunction set out in Giella v Cassman Brown (Supra)can be granted and clarified that they are to be applied as separate, distinct and logical hurdles which the applicant is expected to surmount sequentially. This means that if the applicant does not establish a prima faciecase then irreparable injury and balance of convenience do not require consideration. On the other hand, if a prima facie case is established, then the court will consider the other conditions.

8. The fact that the Plaintiff was advanced money is neither disputed nor the fact that he is indebted to the Bank. He has stated in his deposition that he lost employment in 2018 and has been in a financial depression which the Bank was aware of. The Plaintiff did not dispute the fact that he has been served with the 90-day statutory notice under section 90 of the Land Act. It is upon service of this notice, calling upon the chargor to pay the outstanding amount within months from the date of service of the notice, that the statutory power of sale crystallizes.

Issues for determination

9. The issues for consideration which the Plaintiff must establish on a prima facie basis in order to succeed are clearly outlined in the plaint and are as follows:

(a) Whether the Bank issued a proper notice under section 96(2) of the Land Act.

(b) Whether a forced sale valuation has been undertaken by the Bank pursuant to section 96(2) of the Land Act.

(c) Whether the Bank’s claim offends section 44 of the Banking Act.

Whether the mandatory 45-day notice was served on the Plaintiff

10. The Plaintiff does not deny that he received the 90-day statutory notice issued under section 90 of the Land Act. He depones that he received a notification of sale from the Bank’s auctioneer on 3rd December 2019 but prior to that he had not received the mandatory 45-day notice to sell the suit property from the Bank which required under section 96 of the Land Actwhich provides as follows:

96(1) Where a chargor is in default of the obligations under a charge and remains in default at the expiry of the time provided for the rectification of that default in the notice served on the chargor under section 90 (1), a chargee may exercise the power to sell the charged land.

(2) Before exercising the power to sell the charged land, the chargee shall serve on the chargor a notice to sell in the prescribed form and shall not proceed to complete any contract for the sale of the charged land until at least forty days have elapsed from the date of the service of that notice to sell.

11. Since the Plaintiff has denied that he received the notice to sell, the burden rests on the Bank to show that it complied with the law by serving it. In Nyagilo Ochieng & Another v Fanuel Ochieng & 2 Others[1995-1998] 2 EA 260, the Court of Appeal held that the burden to show that the statutory notice has been served does not in any way rest on the chargor. Once the chargor alleges non-receipt of the statutory notice, it is for the chargee to prove that such notice was in fact served.

12. In order to discharge its burden, Mr Nyikuli deponed that the Bank, through its advocates, issued the 40-day notice dated 25th September 2019. The notice issued under section 96(2) of the Land Act called upon the Plaintiff to regularize the account by paying USD 156,267. 84 due as at 20th September 2019 within 40 days from the date of service of the notice failing which it would sell the property. The notice was sent by registered post to the Plaintiff known address as evidence by a certificate of posting showing that the notice was dispatched by registered post on 26th September 2019.  Since this evidence of postage was not controverted, I find and hold that the 40-day notice under section 96(2) of the Land Act was duly served on the Plaintiff.

Whether the Bank valued the suit property

13. Under section 97 of the Land Act the Bank, as chargee, has a duty of care towards a chargor, failing which it would be liable for breach of duty of care. The section provides as follows:

97(1) A chargee who exercises a power to sell the charged land, including the exercise of the power to sell in pursuance of an order of a court, owes a duty of care to the chargor, any guarantor of the whole or any part of the sums advanced to the chargor, any chargee under a subsequent charge or under a lien to obtain the best price reasonably obtainable at the time of sale.

(2) A chargee shall, before exercising the right of sale, ensure that a forced sale valuation is undertaken by a valuer.

(3) If the price at which the charged land is sold is twenty-five per centum or below the market value at which comparable interests in land of the same character and quality are being sold in the open market—

(a) there shall be a rebuttable presumption that the chargee is in breach of the duty imposed by subsection (1); and

(b) the chargor whose charged land is being sold for that price may apply to a court for an order that the sale be declared void, but the fact that a plot of charged land is sold by the chargee at an undervalue being less than twenty-five per centum below the market value shall not be taken to mean that the chargee has complied with the duty imposed by subsection (1).

14. The aforesaid provisions are also given practical effect under Rule 11(b)(x) of the Auctioneers Rules which requires that a professional valuation of the reserve price must be carried out not more than 12 months prior to the proposed sale. The collective effect of these provisions is that the Bank is required to obtain a forced sale value of the property within the year of the intended sale.

15. The Plaintiff deponed that he was not aware of any recent valuation of the suit property under section 97(2) of the Land Act. He further stated that the forced sale valuation of Kshs. 6,750,000. 00 at the time of the original charge in 2009 is way below the market price.

16. According to Mr Nyikuli, the Bank commissioned a valuation report from Metrocosmo Limited who prepared a report dated 10th June 2020. The Valuers concluded that the market value of the flat was Kshs. 15,000,000. 00, the forced sale value Kshs. 11,250,000. 00 and the insurance value Kshs. 15,000,000. 00.

17. The Plaintiff has not detailed how the Bank has violated section 97(2) of the Land Act in its pleading. It refers to a previous valuation which it has not produced. I hold that the Bank complied with section 97 of the Land Act which requires that the chargee conduct a valuation of the suit property within a year of the proposed sale. In respect of the valuation by Metrocosmo Limited, the Plaintiff has not complained that the Valuer is unqualified or challenged the manner in which the valuation was prepared. A Valuer is an expert and in order to cast doubt on the report, the Plaintiff must produce cogent evidence upon which the court may conclude that the valuation does not reflect the true value of the property (see Palmy Company Limited v Consolidated Bank of Kenya LimitedML HCCC No. 527 of 2013 [2014] eKLR). The Plaintiff failed to discharge this burden.

Whether the Bank violated section 44 of the Banking Act

18. The Plaintiff has pleaded that the Bank violated section 44 of the Banking Act, which provides that, “No institution shall increase its rate of banking or other charges except with the prior approval of the Minister.” He has not shown or set out in his deposition how the provision was violated in respect to him to enable the court consider relief.

Conclusion

19. The Plaintiff has not established a prima facie case with a probability of success on the issues pleaded in the plaint. He has admitted indebtedness and the Bank has complied with required statutory conditions necessary for the exercise of the statutory power of sale.

Disposition

20. The Notice of Motion dated 19th August 2020 is now dismissed with costs to the Defendant.

DATEDandDELIVEREDatNAIROBIthis20th day of NOVEMBER 2020.

D. S. MAJANJA

JUDGE

Court of Assistant: Mr M. Onyango

Mr Mutiso instructed by R. M. Mutiso and Company Advocates for the Plaintiff.

Mr Maondo instructed by Mulanya and Maondo Advocates for the Defendant.