Rose Sandra Ndube v Equity Bank Limited [2014] KEHC 3843 (KLR)

REPUBLIC OF KENYA

IN THE HIGH COURT OF KENYA

AT MOMBASA

CIVIL SUIT NO. 110 OF 2013

ROSE SANDRA NDUBE ………….…..………...……………………. PLAINTIFF

V E R S U S

EQUITY BANK LIMITED ………..………….....…………………..… DEFENDANT

RULING

1.  The Plaintiff by her Plaint pleaded that the Defendant agreed to grant her a loan facility of Kshs. 15 million which amount was to be repaid by 84 monthly instalments.  The repayments of the principal sum was to commence 6 months after disbursement of the loan facility.  Plaintiff in her plaint stated that the Defendant in breach of that agreement only provided an amount of loan of Kshs. 13,597,000/-.  That that amount was disbursed on 21st April 2012 and the Defendant commenced recovery on 30th May 2012 contrary to the agreement of 6 months grace period.

2.  Plaintiff further pleaded in her plaint that the Defendant had failed to serve her with requisite statutory notices before embarking on the exercise of realizing its security of the Plaintiff’s charged property namely Subdivision No. 13444 (Original No. 11356/9) Section 1 MN at Utange Bamburi, Mombasa.

3.  The Plaintiff’s final prayers in the Plaint are for declaration that Defendant breached the agreement with Plaintiff by failing to provide Plaintiff with the loan of Kshs. 15 million and commencing recovery of the debt on 30th May 2012; a declaration that Defendant failed to serve the Plaintiff with Statutory Notice and; an injunction to restrain Defendant from realizing its security by sale of the charged property in the absence of Statutory Notices being served.

4.  An interim injunction was issued to restrain Defendant from selling the charged property by auction, which sale was set for 27th September 2013.  The interim injunction was granted on the prayers of Notice of Motion dated 26th September 2013.  It is that application that was argued inter partes which is the subject of this Ruling.

5.  That Notice of Motion is based on the following grounds-

That the Applicant’s property aforesaid is in danger of being sold by public auction by the Respondent and or its agents without the requisite statutory notices being served as provided for in the Land Act, 2012.

That the intended sale is in contravention of the Auctioneers Rules 1997 as the requisite notice prescribed under the said rules has not been served upon the Applicant.

The intended sale being in contravention of the law and equity would afford grave injustice upon the Applicant.

That the conduct of the Defendant and its agents has, even if that was not intended, curtailed or clogged the Applicants equity of redemption.

That the intended sale, illegal as it is, would expose the Applicant to a loss that may never be adequately compensated for in damages.

That the Court should not countenance an illegality even if the party committing the illegality can pay damages.

6.  Looking at those grounds I am of the view that the Plaintiff has widen her claim in the Notice of Motion contrary to what she prayed in her plaint.  In her plaint she did not claim that the Defendant was clogging her right of redeeming the charged property.  The Plaintiff cannot therefore be allowed to rely on a new ground not pleaded in the Plaint.  The Plaintiff through her Plaint only raised two grounds which can be considered in this Ruling.  The first is whether the Defendant served upon the Plaintiff requisite Statutory Notices.  The second is whether the Defendant breached the agreement when it only disbursed Kshs.  13,597,000/-and not Kshs. 15,000,000/-.

Statutory Notices

7.  The Plaintiff’s argument is that the Defendant did not serve her with Statutory Notices.

8.  The Defendant’s response was through the replying affidavit of Jackson Muriithi Kiura of 30th October 2013 which attached two letters both dated 14th November 2012.  One was to inform the Plaintiff that she had defaulted in the repayment of the loan which as at that date the letter informed her that she was indebted to the Defendant to the sum of Kshs. 14,126,804. 96.  The Notice went on to state as follows-

“We HEREBY GIVE YOU NOTICE under Section 69(1) of the Indian Transfer of the Property Act 1882 (as amended and applied in Kenya) THAT after expiry of THREE (3) MONTHS from the date of service of this letter/notice we shall exercise our statutory power of sale and sell the charged property namely: Subdivision Number 13444 (Original Number 11356/9) Section 1 Mainland North (C.R. 43987) without further notice to you and the borrower so as to recover the amount owed to us and secured by the said charge together with all interest accrued thereof and costs, charges and expenses, unless the amount owed to us is paid in full before then.”

9.    The second letter addressed to Plaintiff is entitled-“IMPORTANT NOTICE ABOUT YOUR ACCOUNT”

By that letter Defendant confirmed having sent the first letter and then stated as follows-

“Within the notice period, we would like to invite you to consider selling the property privately on a voluntary basis.  Such a sale would avoid high legal/auctioneers costs and may achieve a higher sale price than a forced sale.  In the event that you are agreeable to this cause of action, please contract the undersigned immediately.”

10.  Defendant through the affidavit of Jackson Kiura stated that those two letters were sent by Registered Post and to that end attached a list of about 12 items posted on 15th November 2012, as seen in the Postal Corporation’s Stamp.  The title of the document where those items are reflected is entitled “POSTAL CORPORATION OF KENYA – LIST OF REGISTERED POSTAL PACKETS, REGISTERED AND ORDINARY PARCELS POSTED BY:”

After that title the name of Defendant is entered as the sender.  Plaintiff’s name is reflected in that list as one of the persons who received one of the items.

11.  Further Defendant attached 45 days Notification of Sale by auction dated 24th July 2013 sent to Plaintiff by Antique Auctions.  That Notification was posted by Patrick Ngigi who swore an affidavit to that effect and exhibited a Certificate of Posting Registered Postal Article of the Postal Corporation of Kenya, which surprisingly was stamped by Postal Corporation with the date 22nd July 2013 two days before the Notification was written.

12.  Plaintiff by her submissions continue to deny receipt of the Statutory Notice. To that end Plaintiff swore a further affidavit dated 3rd December 2013.  She deponed that the Statutory Notices attached to Defendant’s Replying Affidavit did not comply with the provisions of Section 90 of the Lands Act 2012.  Further in regard to the Auctioneer’s Notification she deponed as follows-

“THAT as concerns the Auctioneers letter and notices dated 17th July 2013 said to have been sent to me by Registered Post, I have sought explanation from the General Post Office Mombasa as to the whereabouts of the registered letter as I never received the same.  An officer at the said Post Office who did not give me his name informed me and I verily believe that information to be true that according to the Post Office records the said parcel was collected from the Post Officer by an agent of Antique Auctions namely Josephat Onyango Ouma of ID No. [particulars withheld] on 30th July 2013. ”

Alleged Breach f Contract

13.  It is clear from the Plaint that in regard to the above issues that the Plaintiff pleaded that:-

The Defendant failed to disburse the whole of the loan  under contract;

The Defendant began recovery of the loan in breach of the 6 months grace period.

14.  On the amount of the loan disbursed Plaintiff by her affidavit in support of Notice of Motion deponed that Defendant only made available to her Kshs. 13,597,000/- and not Kshs. 15,000,000/-.  The Defendant’s Letter of Offer dated 16th March 2012 provided that the maximum amount of the loan that would be extended to Plaintiff was Kshs. 15 million.  The letter of offer also stated that the loan was to be utilized by Plaintiff to finance construction on the charged property.  One of the conditions of release of the facility was as follows-

“The loan funds to be disbursed in phases as per the Architects’ Certificates and upon a site visit by the Bank’s officials.  The Bank funds will only be disbursed after the customer has utilized their contribution which must be confirmed by way of an Architects’ Certificate.”

15.  The above condition is the one the Defendant relies upon to show its justification for not disbursing the whole loan facility.  Further Defendant in its Replying Affidavit deponed that the amount of Kshs. 13,597,000/- was deposited in Plaintiff’s account in error instead of Kshs. 7,797,000/- as the first instalment.  That to correct that error an amount of Kshs. 5,800,000/- was recovered from Plaintiff’s loan account.

Analysis

16.  What is before me is an interlocutory injunction application and I need to caution myself in my determination of the issues before me as the Court of Appeal set out in the case MBUTHIA –Vs- JIMBA CREDIT FINANCE CORPORATION & ANOTHER [1988]KLR page 1.  The Court of Appeal held in that case thus-

“The correct approach in dealing with an application for an interlocutory injunction is not to decide the issues of fact, but rather to weigh up the relevant strength of each side’s propositions.  The lower Court judge in this case had gone far beyond his proper duties and made final findings of fact on disputed affidavits.”

17.  On the question on whether Defendant served the Statutory Notices I do refer to the letters of demand referred to above in this Ruling.  It will be recalled that the Plaintiff deponed that her visit to the Post Office revealed that the 45 days notice by the auctioneer was received by someone else.  Plaintiff continued to deny receipt of the Defendant demand letters.

18.  The Plaintiff in my view did not shift the burden of proof as required under Section 107 of the Evidence Act Cap 80 by merely denying receipt of Defendant’s demand letters.  Plaintiff ought to have carried out inquiry at the Postal Corporation on the fate of those demand letters.  In my view it is not enough for Plaintiff to depone that she visited the Post Office and she got information from someone who refused to identify himself that a Postal item was collected by someone else.  Such an inquiry should have been done in writing and the response the Plaintiff would receive to that inquiry could have assisted the Plaintiff to shift that burden of proof.

19.   I am however in agreement with the Plaintiff’s contention that the Defendant’s letters of demand, or Statutory Notices failed to meet the standard of Notices required under the Lands Act.  Section 90 under that Act requires mortgagee to give the mortgagor no less than three months notice of such default.  Section 96 requires that a mortgagor be given no less than 40 days notice of the intention to sell a charged property.  There are stringent requirement that a mortgagee must fulfill under that Act and accordingly it is necessary to consider those Sections in detail.

20.  Section 90(1) provides as follows-

“(1)  If a chargor is in default of any obligation, fails to pay interest or any other periodic payment or any part thereof due under any charge or in the performance or observation of any covenant, express or implied, in any charge, and continues to be in default for one month, the chargee may serve on the chargor a notice, in writing, to pay the money owing or to perform and observe the agreement as the case may be.

(2)  The notice required by subsection (1) shall adequately inform the recipient ofthe following matters-

the nature and extent of the default of the chargor;

if the default consists of the non-payment of any money due under the charge, the amount that must be paid to rectify the default and the time, being not less than three months, by the end of which the payment in default must have been completed;

if the default consists of the failure to perform or observe any covenant, express or implied, in the charge, the thing the charger must do or desist from doing so as to rectify the default and the time, being not les than two months, by the end of which the default must have been rectified;

the consequence that if the default is not rectified within the time specified in the notice, the chargee will proceed to exercise any of the remedies referred to in this section in accordance with the procedures provided for in this sub-part; and

the right of the chargor in respect of certain remedies to apply to the court for relief against those remedies.”

21.  Section 96(1) and (2) provides-

“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.

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.”

22.  Looking at those requirements under those Sections, it becomes clear that the Defendant did not meet them.  Firstly the Defendant quoted in the Notice sent to Plaintiff the Indian Transfer of the Property Act 1882 which is wrong.  That Act was repealed by the Lands Registration Act of 2012.  The Act of Parliament applicable when a mortgagee wishes to exercise right of sale of charge is the Lands Act 2012 which commenced on 2nd May 2012.  The Defendant’s Statutory Notices were issued in November 2012 and should therefore have not only complied with its provision but also should not have quoted a repealed Law.  That undoubtedly could have led to confusion on the part of Plaintiff and therefore could have led to injustice.

23.  Further those Notices did not comply with the provisions of Sections 90 and 96 of the Lands Act.

24.  On the above finding Plaintiff is entitled to injunction prayer but as I will discuss later, that injunction can only be for a limited period.

25.  On issue of alleged breach of contract by the Defendant I find the Plaintiff on a balance of probability failed to prove, (i) that Defendant was obligated to disburse the whole sum of Kshs. 15 million; (ii) that Defendant failed to honour the six months grace period.

26.  The letter of offer clearly showed that Defendant would disburse the loan in phases as per Architect’s Certificates.  Plaintiff did not provide those Architect’s Certificates and cannot therefore be heard to say Defendant failed to disburse funds.

27.  The Plaintiff in the affidavit in support of her Notice of Motion attached her Bank Statement but those statements are of the Xatra International Enterprise, her firm.  In other words they were business account statements.  It became obvious from Defendant’s replying affidavit the funds were disbursed in the Loan Bank Account and not the Business Account.  Looking at the loan account attached to Defendant’s Replying Affidavit the alleged recovery of the principal loan repayment is not reflected.  The Defendant deponed in that Replying Affidavit and it was not contradicted that the debits seen in the loan account were in regard to interest payment, which payment were payable immediately the loan was disbursed as per the letter of offer.  The Defendant on a prima facie basis does not seem to have contravened the six months grace period.

28.  The alleged breach of contract, on a prima facie basis was not proved by the Plaintiff.

29.  Having found that Defendant’s Statutory Notices failed the test of the Land Act I am of the view that the charged property cannot be auctioned on the strength of those Notices.  There is however no reason why the Defendant cannot issue fresh Notices that comply with the Law.  In my reading of the Plaintiff’s affidavit and even the Plaint, it is clear the Plaintiff does not deny the debt.  Since there is no denial of the debt the holding in the case of MECHANICAL ENGINEERING PLANT LTD & OTHERS –Vs- STANDARD CHARTERED BANK LTD HCCC NO. 92 OF 2009 would be useful to consider.  It was held-

“…  that when part of the amount claimed is admitted or proved to be due, a chargee cannot be restrained by an injunction.”

Similarly in this case the Court will only restrain Defendant from relying on the Notices it has so far issued.  It will be necessary for Defendant to issue fresh Notices that comply with Law if it wishes to exercise its Statutory Power of Sale.  I am well guided by the holding in NATIONAL BANK OF KENYA LTD –Vs- SHIMMERS PLAZA LTD (2009) where the Court of Appeal stated-

“An injunction is an equitable discretionary remedy.  The duration of an order of injunction is at the sole discretion of the trial Judge and depends on the circumstances of each case.  In this case, the duration of the injunction until the determination of the suit frustrated the statutory right of the bank to realize the security upon giving a notice which complies with the law, we venture to say that where the Court is inclined to grant an interlocutory order restraining a mortgagee from exercising its statutory power of sale SOLELY on the ground that the mortgagee has not issued a valid notice then the order of injunction should be limited in duration until such time as the mortgagee shall give a fresh statutory notice in compliance with the law.”

30.  Accordingly I make the following orders-

The Defendant is restrained from exercising its Power of Sale over the parcel being Subdivision No. 13444 (Original No. 11356/9) Section 1 MN based on the Statutory Notice issued prior to today’s date.  This injunction does not bar the Defendant from exercising its Power of Sale after issuing fresh Statutory Notices.

The Plaintiff is granted costs of Notice of Motion dated 26th September 2013.

DATED  and  DELIVERED  at  MOMBASA   this   17th   day    of    JULY,   2014.

MARY KASANGO

JUDGE