Runo v Unison Sacco Society Ltd & another [2023] KECPT 845 (KLR)

Runo v Unison Sacco Society Ltd & another (Tribunal Case 429 (E707) of 2022) [2023] KECPT 845 (KLR) (26 October 2023) (Judgment)

Neutral citation: [2023] KECPT 845 (KLR)

Republic of Kenya

In the Cooperative Tribunal

Tribunal Case 429 (E707) of 2022

BM Kimemia, Chair, J. Mwatsama, Vice Chair, B Sawe, F Lotuiya, P. Gichuki, M Chesikaw & PO Aol, Members

October 26, 2023

Between

david Kamunya Runo

Claimant

and

Unison Sacco Society Ltd

1st Respondent

Charles wanyeki Wairagu t/a Hippo Auctioneers General Merchant

2nd Respondent

Judgment

1. The matter for determination is from the Statement of Claim dated 25/7/2022. The Claimant states that he is a member of the 1st Respondent. He confirms that he was advanced ksh 30,000,000/= as loan by the 1st Respondent on 16/2/2021. This loan was secured by the Claimants property BLOCK/6/497 NYAHURURU. The loan was to be repaid at ksh 1,440,960/= monthly from 15/3/2021. The Claimant defaulted in repayment and was issued with a demand notice on 25/8/2021 and a notice dated 24/9/2021 to repay ksh 9,114,086/= within two (2) months. There were negotiations between the Claimant and the 1st Respondent to restructure the loan repayment. The restructured repayment schedule was as hereunder:a.ksh 3,000,000/= by 20/5/2022b.ksh 2,000,000/= by 27/5/2022c.ksh 1,500,000/= by 27/6/2022d.ksh 1,500,000/= by 27/7/2022e.The outstanding arrears balance was to be cleared by 19/8/2022.

2. The Claimant states that he paid ksh 5,000,000/= to the 1st Respondent in compliance with the restructured repayment plan. He states that before the expiry of the agreed period, the 1st Respondent advertised the security property for sale by public auction in the Daily Nation Newspaper of 21/7/2022 to be sold on 5/8/2022. The Claimant states that he was not notified of the defaulted amount after the restructuring was done. He claims that he was not given notice before the advertisement to auction his property was done.The Claimant avers that he should have been issued a 40 days’ notice to sell and a 45 days’ notification of sale, which he was not given. He also avers that the security was advertised without undertaking a forced valuation. In his Witness Statement the Claimant collaborates his Statement of Claim. During the hearing on 5/6/23 the Claimant adopted his Witness Statement of 25/7/2022 as his Evidence -in Chief. He also produced a List of Documents to support his claim. He reiterated that his claim is as per his Statement of Claim. On Cross Examination, the Claimant confirmed he wrote the letter to the Sacco on the loan restructuring but the 1st Respondent did not respond in writing.He confirmed receiving a letter from the 1st Respondent reminding him of the loan default and that he responded to it. He also confirmed receiving notice of auction dated 16/3/2022. He avers that after his letter to the 1st Respondent dated 18/5/2022, he paid ksh 3,000,000/= and later ksh 2,000,000/= totaling to ksh 5,000,000/=. After the payment of ksh 5,000,000/=, no other notice was received from the Sacco until the advertisement on the auction.

3. The Claimant claims prays for judgement against the 1st and 2nd Respondents jointly and severally for: -a.A declaration that the intended or proposed sale of the Claimant’s Property Title no Nyahururu Municipality Block 6/497 by public auction by the Respondents is unlawful and illegal.b.A permanent injunction restraining the Respondents, their proxies, employees, servants or agents from selling, disposing of, re-advertising for sale or in any other manner dealing with or interfering with the Claimant’s Property Title no Nyahururu Municipality Block 6/497. c.Costs of this suit and interest thereon at court rates.d.Any other or further relief that this Honorable Tribunal may deem fit and just to grant to the Claimant.

4. The Respondents case is contained in his response to claim dated 26/8/2022. The Respondent confirms that the Claimant is his member and was advanced ksh 30,000,000/= by the Respondent to repay at ksh 1,440,960/= monthly with effect from 15/3/2021. He denies that any negotiations ever took place between the Claimant and the 1st Respondent over revision of loan terms. He categorically states that the Claimants’ letter dated 18/5/2022 was just a request by the Claimant to the 1st Respondent to consider the Claimants’ proposal. The Claimant partly honored his proposal by the time of filing this case. He states that the installment date on 27/6/2022 is still understanding.The 1st Respondent reiterates that they did not accept the Claimants’ offer and thus continued to realize its security. He avers that the 1st Respondents’ Auctioneer proceeded to advertise the security property for sale by public auction. This action was occasioned by the Claimants’ noncompliance to his repayment proposal. He avers that his letter of 24/9/2021 to the Claimant and the Claimants response on the same dated 3/11/2021 served as adequate notice under Section 90 of the Land Act,2012.

5. The 1st Respondent states that they complied fully with the provisions of Section 90(1) and 96(2) of the Land Act. The Respondent in response to paragraph 15 of the Statement of Claim states prior to advertising the sale, it undertook a forced sale valuation. In the Respondents’ Witness Statement, Mr. John Njogu Muchoki who is the Respondents’ Chief Executive Officer confirmed that indeed the Respondent Sacco charged Claimant’s property Title no Nyahururu Municipality Block 6/497 in favour of the Respondent to secure repayment of ksh 30,000,000/= advanced to the Claimant by the Respondent.He states that by 24/9/2021 the Claimant had not paid a single installment of the loan prompting the Respondents to write a demand letter to the Claimant for repayment of ksh 9,114,086/=. The Claimant acknowledged receiving the notice. A subsequent notice dated 16/3/2022 was issued and service effected by a licensed process server. He states that on 6/4/2022 the auctioneers on behalf of the 1st Respondent served the Claimant a 45 days’ notice and that the auction sale would be done on expiry of 45 days.He states that the Claimant’s failure to comply to notices occasioned the 1st Respondent advertising in Daily Nation on 21/7/2021. He states that the ksh 5,000,000/= repaid by the Claimant was just a normal repayment. He confirms that the 1st Respondent that the 1st Respondent did a forced sale valuation.

6. During the hearing on 5/6/2023, the Respondents’ witness, Mr John Njogu adopted his Witness Statement dated 14/9/2022 as his Evidence -in- Chief. He also produced his List of Documents in support of the case. He denied ever negotiating review of repayment of Claimants’ loan with the Claimant. The 1st Respondent did not agree with the Claimants request to restructure the loan.

7. On cross examination, he again denied any negotiations with the Claimant. He asserted that the Claimant just made an offer to the 1st Respondent. He confirmed that the 1st Respondent received the Claimants’ offer letter. He confirmed that though the Claimant repaid ksh 5,000,000/=, the loan was still understanding and that the auction process was ongoing. On re-examination, the witness reiterated that there were no negotiations on loan review and that the Claimant did not comply to his own proposals.The 1st Respondent witness stated that the Sacco is owed ksh 30,993,241/= with principal being ksh 26,000,000/=.

Issuesa.Whether the Respondents complied with the conditions precedent to sale of the charged property by public auction.b.Whether a permanent injunction should be issued.c.Who bears the costs of this suit.

AnalysisIssue One a. Whether the Respondents Complied with the Conditions Precedent to Sale of the Charged Property by Public auction.In Isaiah Nyabuti Onchonga v Housing Finance Company of Kenya Ltd & another [2020] the Court held that the chargee can exercise the statutory power of sale by following the procedure under the Land Act 2012 once chargor has defaulted. Section 90 of the Land Act 2012 provides:-“If a chargor is in default of any obligation, and continues to be 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. The notice required by subsection (1) shall adequately inform the recipient of the following matters—a.the nature and extent of the default by the chargorb.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 completedc.if the default consists of the failure to perform or observe any covenant, express or implied, in the charge, the thing the chargor must do or desist from doing so as to rectify the default and the time, being not less than two months, by the end of which the default must have been rectifiedd.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-parte.the right of the chargor in respect of certain remedies to apply to the court for relief against those remedies.In this case, the Respondent claims to have issued a notice dated 24th September 2021 as per Section 90 of the Land Act. We have perused the notice and note that it contains the nature and extent of default, indicates the amount the Claimant ought to pay to rectify the default and consequences of non-rectification. However, the letter required compliance within ninety days and at the same time required compliance within two months. This notice is contradicting itself. As per Section 90 of the Land Act, if the default consists of the non-payment of any money, repayment should be made within three months. 9. Further, the notice fails to inform the Claimant of his right as the chargor in respect to certain remedies and his right to apply to the court for relief against those remedies. The Respondent only indicated the remedies that they have as the chargee provided under Section 90(3) of the Land Act.In view of these reasons, the notice dated 24th September 2021 does not fully comply with Section 90 of the Land Act.If the chargor does not rectify the default, then the chargee has a right to exercise his statutory power of sale as per Section 96(2) of the Land Act which provides that before exercising the power to sell the charged land, the chargee shall serve on the chargor a notice to sell 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.

10. In the Respondent's Statement of Defence, they claimed that they did not issue the notice to sell because it is not an obligation of the chargee to give such notice. Therefore, the Respondent failed to issue the notice to sell as per Section 96 (2) of the Land Act.In the case of David Ngugi Ngaari v Kenya Commercial Bank Limited (2015) the court held that in the absence of a Notice to sell under Section 96 (2) of the Land Act, the Statutory Power of Sale cannot be exercised even if the Statutory Notice, the Notification of Sale and the Redemption Notice have been issued.Further, if the chargor does not rectify the default, the chargee is required under Rule 15 (d) of the Auctioneers Act to give in writing to the owner of the property a notice of not less that forty-five days within which the owner may redeem the property. This is a right of the charcoal to redeem themselves under Section 89 of the Land Act.

11. In the Statement of Defense, the Respondent claims to have filed and produced a Notice by the Auctioneer which is dated 16th April 2022 which the Claimant admits to have received at the proceedings. We have perused the Notice by the Auctioneer and note that it mentions the amount due is ksh 31,552,399. 24/= whereas from the statutory notice the outstanding arrears are in the sum of ksh 9,114,086/=. This notice is contradicting the first notice.Section 97 of the Land Act further provides that, a charger, shall before exercising the right of sale, ensure that a forced valuation is undertaken by a valuer. The Respondent claims that prior to advertising the property for sale they undertook a forced valuation and sent a letter dated 16th March 2022 to the Claimant. However, a close look at the letter indicates that the same was addressed to the Chief Executive Officer of Unison Sacco, John Njogu Muchoki, and not the Claimant. There is no evidence to show the same was delivered to the Claimant. The valuation report filed and produced by the Respondent is dated 8th February 2022 before the security property was advertised on 21st July 2022.

12. From the evidence adduced, it is clear that the statutory notice falls short on the provisions of Section 90 of the Land Act. The Respondent failed to issue the notice to sell as per Section 96(2) of the Land Act and the redemption notice is contradicting the statutory notice hence does not comply with Rules 15(d) of the Auctioneers Act.Therefore, the Respondent did not fully comply with the conditions precedent to sale of the charged property by auction.

Issue Two: b. Whether a Permanent Injunction Should be Issued.In Lucy Wangui Gachara v Minudi Okemba Lore [2015] eKLR the Court held that it will not grant a permanent injunction if the damage feared by the plaintiff is trivial, or where the detriment that the mandatory injunction would inflict is disproportionate to the benefit it would confer. A permanent injunction is different from a temporary/interim injunction since a temporary injunction is only meant to be in force for a specified time or until the issuance of further orders from the court. The permanent injunction will permanently refrain a person from doing a specific action. 13. The Respondent has proved that the Claimant has defaulted in his loan repayment, a fact the Claimant has not denied. The Respondent is entitled to realizing its security to recover the outstanding loan. The issue before the Court is on whether the Respondent fully complied with the relevant laws before executing the auction of the Claimants’ security. The Court has proclaimed itself in this matter.It would therefore, be unfair for this Court to grant a permanent injunction to the Claimant as this would deny the Respondent the security held against the Claimants’ loan with the Respondent.

Issue Three: c. Who Bears the Costs of this Suit.Costs follow the event.

Conclusion 14. We have observed that the Claimant was advanced ksh 30,000,000/= by the 1st Respondent on 16/2/2021. It has also been documented that the Claimants property Title no Nyahururu Municipality Block 6/497 was charged for ksh 30,000,000/= loan. The charge is dated 3/3/2021. The 1st Respondent has proved to court that the Claimant was notified of his loan being in default vide letter dated 24/9/2021.

15. We also note that the loan repayment offer by the Claimant to the 1st Respondent dated 18/5/2022 was not agreed as stated by the 1st Respondent. In this regard, the Claimants’ offer was not binding to the 1st Respondent. As regards the intended sale of the charged property, we note that the 1st Respondent did not fully comply to Section 90 of the Land Act and Rules 15(d) of the Auctioneers Act.

16. We find in favour of the Claimant against the Respondent and enter judgement in the following terms;a.A declaration is hereby issued that the intended or proposed sale of the Claimant’s Property Title no Nyahururu Municipality Block 6/497 as advertised for sale by public auction in the Daily Nation Newspaper on 21/7/2022 by the Respondents is unlawful and illegal.The Respondent is therefore still at liberty to pursue the loan in accordance to the law.b.A permanent injunction restraining the Respondents, their proxies, employees, servants or agents from selling, disposing of, re-advertising for sale or in any other manner dealing with or interfering with the Claimant’s Property Title no Nyahururu Municipality Block 6/497, is hereby denied.c.Each party to bear their own costs.

JUDGMENT SIGNED, DATED AND DELIVERED VIRTUALLY AT NAIROBI THIS 26TH DAY OF OCTOBER, 2023. HON. BEATRICE KIMEMIA CHAIRPERSON SIGNED 26. 10. 2023HON. J. MWATSAMA DEPUTY CHAIRPERSON SIGNED 26. 10. 2023HON. BEATRICE SAWE MEMBER SIGNED 26. 10. 2023HON. FRIDAH LOTUIYA MEMBER SIGNED 26. 10. 2023HON. PHILIP GICHUKI MEMBER SIGNED 26. 10. 2023HON. MICHAEL CHESIKAW MEMBER SIGNED 26. 10. 2023HON. PAUL AOL MEMBER SIGNED 26. 10. 2023TRIBUNAL CLERK JONAHMwangi Karimi Advocate for RespondentKinyua Njogu Advocate for the ClaimantHON. J. MWATSAMA DEPUTY CHAIRPERSON SIGNED 26. 10. 2023