Ravate & another v Agbeko & 2 others; Ravasam Development Co. Ltd (Interested Party) [2023] KEHC 17356 (KLR)

Ravate & another v Agbeko & 2 others; Ravasam Development Co. Ltd (Interested Party) (Civil Suit 450 of 2011) [2023] KEHC 17356 (KLR) (Commercial and Tax) (12 May 2023) (Ruling)

Neutral citation: [2023] KEHC 17356 (KLR)

Republic of Kenya

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

Commercial and Tax

Civil Suit 450 of 2011

A Mabeya, J

May 12, 2023

Between

Farouk Ravate

1st Plaintiff

Justin Samourgompoulle

2nd Plaintiff

and

Eric Agbeko

1st Defendant

Philip Nyambok

2nd Defendant

Spire Bank Limited (Formerly known as Equatorial Commercial Bank Ltd)

3rd Defendant

and

Ravasam Development Co. Ltd

Interested Party

Ruling

1. Before Court are two applications. The first application is dated 5/10/2022. It was brought under Article 48 and 50 of the Constitution of Kenya 2010, Section 1A, 1B and 3A of the Civil Procedure Act.

2. The application was brought by the proposed 2nd interested party. Prayers 1 and 2 were spent. The remaining prayer sought orders that the proposed 2nd interested party be allowed to file appropriate affidavits and other pleadings in answer to the proposed sale of the suit property.

3. The grounds for the application were set out on the face of the Motion and in the supporting affidavit of Qian Guo Jun sworn on 5/10/2022. It was contended that the proposed 2nd interested party was owed Kshs. 242,267,111. 40 being construction fee over the construction of Elysee Plaza on L.R. No. 2/186 (“the suit property”) owned by the interested party and a further Kshs. 25,588,025. 65 being costs awarded in the arbitral award on 9/11/2015. That the suit property was the only asset owned by the interested party.

4. That the award was adopted by court in Misc 546 of 2015 and the proposed 2nd interested party had a valid decree against the interested party and was an unsecured creditor. That despite numerous demands the interested party had failed to settle the decree and it was in the interest of justice that it be involved in the sale of the suit property.

5. The 3rd defendant bank opposed the application vide the replying affidavit sworn by Kenneth Ikoko Wanasunia on 25/11/2022. It was contended that the 3rd defendant bank was a secured creditor and its rights take precedent over the proposed 2nd interested party, and that the application would delay the suit further. That the proposed 2nd interested party could only address this court after the bank has successfully recovered its outstanding debt and there is surplus from the sale.

6. The parties canvassed the application by way of written submissions. This Court has considered those submissions as well as the rival pleadings.

7. The main issue for determination is whether the proposed 2nd interested party ought to be joined ought in this suit and allowed leave to file pleadings in response to the application dated 30/3/2022 seeking an injunction against the sale of the suit property.

8. In Kenya Medical Laboratory Technicians and Technologists Board & 6 others v Attorney General & 4 others [2017] eKLR, Mativo. J. explained when an interested party ought to be enjoined in a proceeding. He stated: -“A person is legally interested in the proceedings only if he can say that it may lead to a result that will affect him legally that is by curtailing his legal rights. In determining whether or not an applicant has a legal interest in the subject matter of an action sufficient to entitle him to be joined as an interested party the true test lies not so much in an analysis of what are the constituents of the applicant's rights, but rather in what would be the result on the subject-matter of the action if those rights could be established. It is apparent that a party claiming to be enjoined in proceedings must have an interest in the pending litigation, but the interest must be legal, identifiable or demonstrate a duty”.

9. InCommunications Commission of Kenya & 4 others v Royal Media Services Limited & 7 others [2014] eKLR, the Supreme Court of Kenya held that: -“In determining whether the applicant should be admitted into these proceedings as an Interested Party we are guided by this Court’s Ruling in the Mumo Matemo case where the Court (at paragraphs 14 and 18) held: “an interested party is one who has a stake in the proceedings, though he or she was not party to the cause ab initio. He or she is one who will be affected by the decision of the Court when it is made, either way. Such a person feels that his or her interest will not be well articulated unless he himself or she herself appears in the proceedings, and champions his or her cause…”

10. The proposed 2nd interested party has a valid decree against the interested party streaming from the arbitral award of 9/11/2015. The award has not been varied or set aside nor appealed against and the same stands valid. The debt owed was not disputed by the interested party nor the plaintiffs.

11. It is not in dispute that the plaintiffs are foreigners and are the only legal directors of the interested party. It is also not disputed that the suit property is the only known asset of the interested party and the commercial building erected on the suit property was indeed constructed by the proposed interested party and from which the decree emanate. These facts establish a legal interest in the proceedings on the part of the proposed interested party.

12. Having established that the suit property is the only known property of the interested party, it then goes without saying that the proposed interested party would be legally affected by the results of the ruling in the instant proceedings. If the suit property is disposed of without the involvement of the proposed interested party, the proposed interested party would be left with a decree which it would not be able to execute against the interested party.

13. It is this Court’s finding that the proposed interested party has met the test to grant orders joining it as an interested party. Consequently, the application dated 5/10/2022 is hereby allowed and the applicant is hereby joined to the instant suit as the 2nd interested party.

14. The second application is dated 30/3/2022. It was brought under Order 40 Rules 1(a) and 2 of the Civil Procedure Rules 2010 and section 1A, 1B and 3A of the Civil Procedure Act.

15. The application sought orders that pending the hearing of the suit, the 3rd defendant and all its agents and representatives be restrained from advertising for sale, selling or interfering with the suit property being L.R No. 2/186.

16. It also sought a declaration that the statutory notice dated 15/10/2021 and notice to sell dated 8/2/2022 issued to the plaintiffs and interested party by the 3rd defendant is null for being issued prematurely and without complying with the mandatory directions issued by Tuiyott J in the partial judgment made on 20/1/2020.

17. The grounds for the application were set out on the face of the Motion and in the supporting and supplementary affidavit sworn by Farouk Ravate on 30/3/2022 and 25/4/2022, respectively.

18. It was contended that amongst other orders made by Tuiyott J was that an account be taken by the plaintiffs, interested party and 3rd defendant in respect of the repayment of the facility of Kshs. 180 million pursuant to the credit agreement of 18/8/2011.

19. That a joint accountant was to be appointed by the parties within 21 days failure to which each party was to appoint their accountant. The accounts were to be filed in court within 90 days, and final orders would be made upon receipt of all accounts.

20. That the parties were unable to proceed with taking accounts as the 1st and 2nd defendant refused to relinquish the physical control of the interested party and frustrated the plaintiff’s efforts to take up management of the interested party including the 3rd defendant. That on 15/10/2021, the 3rd defendant served the plaintiffs and interested party with a statutory notice over the suit property and demanded payment of Kshs. 706,887,262. 92.

21. That the suit was yet to be fully determined and the notices were served prematurely. That the plaintiffs had a prima facie case and unless the orders sought were granted, they would suffer irreparable loss. That there was a real threat of execution and it would be unjust to dispense with the suit property before final determination of the suit as the same would render the entire suit nugatory.

22. The 1st and 2nd defendant as well as the interested party supported the application vide the replying affidavit sworn by Eric Agbeko on 28/4/2022. It was contended that the intended sale contravened the orders of the Court of Appeal issued in the ruling of 3/10/2018 in Civil Appeal No. 344 of 2017 which restrained the 3rd defendant from taking any precipitate action until this suit was fully heard and determined.

23. That only a partial judgment had been entered and the suit was yet to be determined thus the exercise of statutory sale was premature. That the 3rd defendant had also not obtained leave to execute judgment as per section 94 of the Civil Procedure Act. That several other courts have also issued restraining orders against the sale, and there is an appeal against the partial judgment in Civil Appeal No. E721 of 2021 which is pending. That the amount demanded in the notices contravenes section 44 of the Banking Act.

24. The 3rd defendant opposed the application vide the replying affidavit sworn by John Wageche on 19/4/2022. It was contended that the 3rd defendant treated the corporate guarantee and legal charge as two separate securities, thus the finding that the corporate guarantee was void did not affect the bank’s right to exercise its statutory power of sale. That the plaintiffs frustrated the process of appointing a joint accountant and the bank appointed an independent accountant Messrs. IXL Consultants Limited who submitted a report dated 30/1/2021 highlighting an outstanding loan of Kshs. 706,887,262. 92.

25. That the bank then proceeded to issue the notices in question demanding for that sum but none of the parties complied. That the notices were served in the interested party’s addresses indicated in the company search. That no payment was done and a notice to sell was issued. The same was ignored and the bank instructed M/s Garama Investment Auctioneers to sell the suit property in a public auction and a notification of sale was issued by the auctioneers on 1/4/2022.

26. That the bank had fully complied with the partial judgment and was a secured creditor and could not be stopped from exercising its statutory power of sale. That the debt of Kshs 180 million from the credit agreement of 18/8/2011 was acknowledged in the partial judgment and was not disputed by the parties. That even then, a dispute on the amount due was not a ground for granting injunctive orders.

27. That the matter was old and there was a 2-year delay in complying with the order for accounts, thus the balance of convenience lay with the bank and not the plaintiffs.

28. The application was canvassed by way of written submissions. The plaintiffs were dated 5/4/2022, the 1st and 2nd defendants 12/5/2022 whereas those of the 3rd defendant were dated 3/6/2022. This Court has considered those submissions alongside the affidavits on record.

29. This being an injunction application, the principles applicable were settled in the case of Giella vs Cassman Brown & Company Limited (1973) E A 358. These are that; 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 suffer an 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.

30. On prima facie case, there is no dispute as to the existence of the partial judgment of 20/1/2020. In it, the court affirmed the validity of the mortgage dated 13/9/2011 and ordered that accounts be taken by the parties in respect of the facility of Kshs. 180 million made pursuant to the credit agreement of 18/8/2011. The parties were also directed to appoint a joint accountant within 21 days failure to which each party would appoint its own accountant and the reports were to be filed in court within 90 days.

31. The Court also found that the plaintiffs were the true directors of the interested party and directed that the 1st and 2nd defendant be struck out as the directors and an order compelling transfer of shares to the plaintiffs was issued. The 1st and 2nd defendants were also ordered to render an account of all monies, assets, property and affairs of the interested party including the suit property.

32. The plaintiffs’ case was that the 1st and 2nd defendant had refused to hand over management and physical control of the interested party, thus they were unable to undertake the process of accounts. They complained that the 3rd defendant bank ought to have waited for that dispute to be resolved and contended that the bank issued the notices prematurely. That the matter had not been finalized and only a partial judgment had been delivered.

33. However, the bank was able to demonstrate that it took initiative to call for proposals for a joint accountant from the plaintiffs’ advocate vide emails dated 15/5/2020 and 8/7/2020, and when that failed, it proceeded to appoint an independent accountant who compiled a report dated 30/1/2021. It was however unclear whether the same was filed in court.

34. The Court notes that the 1st and 2nd defendant have been blamed for hindering the taking of accounts. They have continued to be in physical management of the interested party. It is not clear why the plaintiffs have not had the 1st and 2nd defendant evicted from the interested party and take control thereof.

35. It is unfortunate that it is now three years since the orders for accounts were issued. The Court is cognizant of the fact that the plaintiffs and by extension, the 1st and 2nd defendant have nothing to lose if the orders for injunction are issued. However, the bank which holds a valid partial judgment acknowledging a debt of Kshs 180 million will be curtailed from enjoying the fruits of its security.

36. The Court notes the existence of orders of injunction by other courts. Indeed, it was contended and was not denied nor challenged that the Court of Appeal had in CA NO 344 of 2017, restrained the sale of the suit property pending the determination of the suit. The suit has not been determined yet. Only partially. The suit is still pending.

37. Further, until and unless the orders of Tuiyott J are perfected, the exercise of the statutory power of sale will, in this Court’s view be premature.

38. In any event, the amount that was admitted was a facility of Kshs.180 million. The bank is claiming a whooping sum of Kshs. 706,887,262. 92. That is illegal.It is in breach of section 44 of the Banking Act. That is a serious issue that should be interrogated. That alone establishes a prima facie case with a probability of success.

39. Accordingly, I am satisfied that the plaintiffs have established the first principle of a prima facie case with a probability of success.

40. As regards the second limb of Giella Case, no doubt if the injunction is not granted, the suit property will be sold and were the suit to be concluded in favour of the plaintiffs, no amount of damages can recompence them.

41. In any event, the Court’s view is that the balance of convenience lies with maintaining the status quo. Accordingly, the application is allowed as prayed.

42. The Court is not oblivious of the fact that the bank and the 2nd interested party continue to suffer because of the conduct of the 1st and 2nd defendant. They are in utter breach and continued disobedience of the orders of Tuiyott J. The Court will not allow such state of affairs to continue.

43. Accordingly, I direct and reiterate that the parties do swiftly and immediately take steps to comply with the orders of Tuiyott J and report to Court within 21 days of the progress. In default, appropriate action in accordance with the law will be taken. Steps must be taken to have this matter concluded. Period!It is so ordered.

DATED AND DELIVERED AT NAIROBI THIS 12TH DAY OF MAY, 2023. A. MABEYA, FCIArbJUDGE