Sargo v KCB Bank Limited & another [2022] KEHC 16375 (KLR)

Sargo v KCB Bank Limited & another (Civil Suit 23 of 2021) [2022] KEHC 16375 (KLR) (16 December 2022) (Ruling)

Neutral citation: [2022] KEHC 16375 (KLR)

Republic of Kenya

In the High Court at Eldoret

Civil Suit 23 of 2021

RN Nyakundi, J

December 16, 2022

Between

Kennedy Korir Sargo

Plaintiff

and

KCB Bank Limited

1st Defendant

James Onyango Josiah t/a Nyaluoyo Auctioneers

2nd Defendant

Ruling

1. By a Notice of Motion dated 11/8/2021, the Applicant, Kennedy Korir Sargo, seeks the following orders: -1. Spent.2. That an interlocutory injunction do issue against the Defendants restraining them jointly and severally from selling, transferring or in whatever way alienating the parcel of land knowns as Nandi/Kiminda/982 and Nandi/Kiminda/1233 pending the hearing and determination of this application in the first instance and thereafter pending the hearing and determination of the suit.3. That the costs of this application be provided for.

2. The Application is premised on the grounds set out therein, and is further supported by the affidavit of the Applicant sworn on 11/8/2021.

The Applicant’s Case 3. The Applicant deposed that he is the joint absolute proprietor of parcel of land known as Nandi/Kiminda/982 measuring 0. 21 Ha together with Robert Kipkorir Sargo. The Applicant further deposed that he is the sole proprietor of all that parcel of land known as Nandi/Kiminda/1233 measuring 0. 07 Ha.

4. The Applicant together with Robert Kipkorir Sargo charged the parcel of land known as Nandi/Kiminda/982 with the 1st Respondent for the sum of Kshs 4,000,000 and Kshs 6,000,000 being the charge and the further charge which were registered on 8/12/2009 and November 30, 2011 respectively. The Applicant also charged his parcel of land known as Nandi/Kiminda/1233 with the 1st Respondent for the sum of Kshs 26,400,00.

5. The Applicant deposed that he runs a hotel and rental business whose proceeds have been used to service 1st Respondents loans.

6. The Applicant’s case is that while he was in Uganda, he got information that the 2nd Respondent had visited the suit properties with the view of exercising the 1st Respondent’s statutory power of sale and left a notification of sale and a redemption notice seeking to realize a cumulative sum of Kshs 52,256,433. 68 as at 2/6/20221. The Applicant deposed that the notification of sale indicates the values of the suit properties as follows; Nandi/Kiminda/1233 – Kshs 43,120,000 and Nandi/Kiminda/982 – Kshs 25,125,000.

7. The Applicant deposed that not being aware of how the 1st Respondent arrived at the said sum he visited the 1st Respondent where obtained statements of the two accounts on 5th August, 2021 and same indicated as follows;a.xxxx the account commenced on 13/8/2016 and the principal amount disbursed was Kshs 5,161,040. 94 while the current principal was Kshs 1,857. 785. 09 and the maturity dated was 2/4/2022. The Applicant maintains that at the end of the last page there was no indication of any arrears.b.xxxx the account commenced on 13/8/2016 and the principal amount disbursed was Kshs 42,719,894. 43 while the current principal was Kshs 28,161,610. 83 and the maturity date was 13/3/2023. The Applicant maintains that at the last page the summary overdue was indicated as principal Kshs 8,344,664. 20, interest Kshs 10,490,563. 80, charges Kshs 13,650 and penalty interest Kshs 3,354,619. 22 making a total sum of Kshs 22,199,497. 22. The Applicant maintains that this is despite of him having deposited Kshs 3,210,000 on 23/8/2018 in the said account which amount was never reflected.

8. The Applicant deposed that at the time when the charge instrument was being made with respect to parcel of land known as Nandi/Kiminda/1233, him together with the 1st Respondent undertook a ground visit where it was established that one Simon Kiptonui Kitur was in occupation of the said parcel whereas the Applicant and Robert Kipkorir Arap Sargo were in occupation of the parcel of land known as Nandi/Kiminda/1232 which was however registered in the name of Job K A Tanui and thus the charge transaction on parcel of land known as Nandi/Kiminda/1233 was vitiated by mistake of fact.

9. The Applicant maintains that the Respondents have since advertised for the sale of the suit properties in the Daily Nation Newspaper of 9/8/2021 and 3/9/2021.

10. The Applicant argues that he has a prima facie case with a high probability of success as the intended sale is irregular and unlawful for reasons that: -a.The statutory power of sale over parcel of land known as Nandi/Kiminda/982 has no basis whatsoever as the account was not in arrears.b.Seeking to recover Kshs 52,256,433. 68 is a clear breach of the in-duplum rule and the provisions of Section 44 of the Banking Act.c.The notification of sale issued by the 2nd Respondent seeking to recover Kshs 52,256,433. 68 manifests an intention of the charge to engage in unjust enrichment a clear breach of Article 46 of the Constitution of Kenya.d.The demand of Kshs 52,256,433. 68 as embodied in the notification of sale amounts to unconscionable conduct on the part of the charge who has been collecting rental income and sales from the property and has received repayments that it has failed to acknowledge.e.The same amounts to a clog on the equity of redemption as the parties had agreed to incorporate the application of the Banking Act as part of the terms of the contract which the chargee is in breach by charging a higher interest rate that the maximum interest rate chargeable for a credit facility in Kenya set at not more that 4%, the base rate set and published by the Central Bank of Kenya.f.Despite having dispatched Kshs 3,210,000 to the 1st Respondent on the 23/8/2018 the same was never reflected in the statement.g.The charge has failed to issue and serve valid notices under Section 90(1) of the Land Act.h.The charge on the parcel of land known as Nandi/Kiminda/1233 is vitiated by a mistake of fact based on the report by the County Surveyor of Nandi, the ground occupation status does not correspond with the parcel number on the Registry Index Map (RIM).i.The chargee has failed to issue and serve compliant notices in tandem with Section 90(2) (a) of the Land Act.j.The chargee has failed to issue and serve notices in tandem with Section 90(2) (b) of the Land Act.k.The charge has failed to comply with Section 90 (2) (d) of the Land Act.l.The charge intends to sale the charged property without complying with Section 96(2) of the Land Act.m.That the 40 days’ notice provided for under Section 96 (2) of the Land Act has not been duly served upon the Applicant and his co-owner as provided for under Section 96(3) (f) of the Land Act.n.No valuation as to forced sale value of the charged property has been undertaken by the chargee as required under Section 97(2) of the Land Act.o.No reserve price has been set for purposes of public auction in breach of the provisions of Section 98 (1) of the Land Act.

11. The Applicant contends that an award of damages shall not be adequate in the circumstances as the Respondents have committed clear breaches of the law, the are extensive developments on the suit properties and the sale of the suit properties will only render the success of the main suit an academic exercise.

The 1st Respondent’s case 12. The 1st Respondent vide the Replying Affidavit sworn by Bruce Chemweno, Manager Credit, sworn on September 24, 2021 opposed the Applicant’s case.

13. The 1st Respondent deposed that on 8/12/2009, a charge was created over parcel of land known as Nandi/Kiminda/932 for Kshs 4,000,000 and a further charge o Kshs 6,000,000 was registered on 19/4/2013 in favour of the 1st Respondent to secure mortgage facilities for the Applicant. That on 10/4/2013 the first legal charge was created over parcel of land known as Nandi/Kiminda/1233 to secure a mortgage loan facility of Kshs 26,400,000/=.

14. The 1st Respondent maintains that the Applicant herein freely executed the charge instruments having understood that banks have the right of power of sale in the event of default of repayment by the borrower, that’s that the property would be sold to recover any outstanding loans.

15. The 1st Respondent maintains that the Applicant has failed to regularize the accounts thus accumulating huge loan arrears despite much accommodation and several reminders. That the applicant has failed to repay the mortgage loan facilities and the sums due as at 2/6/2021 were Kshs 52,256. 433. 68 and that the loan has not been repaid in full to date.

16. The 1st Respondent deposed that the Applicant deposited USD 30,000/= into his foreign currency account and or its equivalent was applied towards reduction of the loan.

17. The 1st Respondent’s case is that in light of the default in the repayment of the loans, it then moved to realize the securities in accordance with its statutory power of sale and that the intended sale of the security was grounded on the default in the repayment of the loan by the Applicant.

18. The 1st Respondent maintains that it is strange for the Applicant who has operated the account for more than 12 years to feign misapprehension of the account statements. The 1st Respondent contends that it is not enough for the Applicant to state that he does not understand how the current loan balance was arrived at even in face of statements of account supplied to him at his own request.

19. The 1st Respondent maintains that it served the Applicant with all statutory notices under the Land Act through his last known address with respect to parcels of land known as Nandi/Kiminda/932 and Nandi/Kiminda/1233.

20. The 1st Respondent deposed that the 2nd Respondent were instructed to sell the securities by way of public auction and they subsequently issued notices under the Auctioneer Rules.

21. The 1st Respondent contends that the Applicant’s application has to met the threshold to warrant the issuance of an injunction. The 1st Respondent contends that the Applicant has not proved that he has a prima facie case with probable chances of success, he has failed to demonstrate that damages would be adequate in the circumstances, that the balance of convenience tilts in favour of the 1st Respondent and that the Applicant has not provided security of costs.

22. The 1st Respondent maintains that any rental income collected by it was inadequate to regularize the huge loan arrears accumulated over the long period of default of the loan repayment.

23. The 1st Respondent contends that the fact that the suit properties were occupied by third parties is immaterial and inconsequential in so far as the premises were constructed on the suit properties were wholly funded by the 1st Respondent for construction of rental and commercial premises. The charges are valid and will not be vitiated at the instance of a debtor.

24. The 1st Respondent contends that the Applicant’s allegation that he has undertaken substantial developments on the suit properties is simplistic as the properties were wholly improved using credit facilities extended to him by it. The 1st Respondent maintains that the properties have been valued recently for purposes of sale in accordance with the provision of Section 96 (3) of the Land Act.

25. According to the 1st Respondent the charged properties became commodities for sale when they were offered as security for the repayment of the mortgage facilities which facilities have not been serviced resulting in huge loan arrears.

26. The 1st Respondent deposed that the compliant regarding the contravention of the in duplum rule under Section 44 of the Banking Act is misconceived and indeed misplaced as the aggregate sums borrowed by the Applicant as admitted by him was Kshs 36,400,000. The loan due for recovery is Kshs 52,256,433. 68 which amount is far less than twice the loan sums and hence the allegation of unjust enrichment is without factual or legal basis. Further the 1st Respondent contends that the rate or rates of the interest charged on the loan falls within the limits permitted by the law and that, the Applicant is not in breach of any law or covenants in the charge agreements.

27. The application was canvassed vide written submissions. The 1st Respondent filed written submissions dated ………while the Applicant did not file any.

Determination 28. I have considered the application, the affidavits both in support of the application and in opposition thereto, the submissions filed and the authorities relied upon. The Court’s task at this stage is not required to make any conclusive or definitive findings of fact or law, but to determine on the material placed before it, whether the applicant has put forward a case requiring the court to intervene and restrain the 1st respondent from exercising its statutory power of sale; that it will suffer irreparable injury that cannot otherwise be compensated by way of damages or that the balance of convenience tilts in its favour.

29. It is trite that the principles for grant of injunctive relief are well settled starting with the celebrated case on Giella v Cassman Brown Co Ltd1973 EA 358, the House of Lords case of American Cyanamid v Ethicon [1975] 1 All ER 504 where the courts have laid the foundational threshold as follows:"a).The governing principle is that the court should first consider whether, if the plaintiff succeeds at the trial, he would be adequately compensated by damages for any loss caused by the refusal to grant an injunction. If damages would be an adequate remedy and the defendant would be in a financial position to pay them, no interlocutory injunction should normally be granted, however strong the plaintiff’s claim appears to be at that stage.b).If, on the other hand damages would not be an adequate remedy, the court should then consider whether, if the injunction were granted the defendant would be adequately compensated under the plaintiff’s undertaking as to damages. If damages in the measure recoverable under such an undertaking would be an adequate remedy and the plaintiff would be in a financial position to pay them, there would be no reason upon this ground to refuse an interlocutory injunction.c).It is where there is doubt as to the adequacy of the respective remedies in damages that the question of balance of convenience arises.  It would be unwise to attempt even to list all the various matters which may need to be taken into consideration in deciding where the balance lies, let alone to suggest the relative weight to be attached to them. These will vary from case to case.”

30. In the case of Mrao Ltd vs First American Bank of Kenya Ltd & 2 Others [2003] KLR 125, the Court of Appeal held as follows:"The principles which guide the Court in deciding whether or not to grant an interlocutory injunction are, first, an applicant must show prima facie case with a probability of success. Secondly, an interlocutory injunction will not normally be granted unless the applicant might otherwise suffer irreparable 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...A mere scintilla of evidence can never be enough: nor can any amount of worthless discredited evidence. It is true that the Court is not required at that stage to decide finally whether the evidence is worthy of credit, or whether if believed it is weighty enough to prove the case conclusively: that final determination can only properly be made when the case for the defence has been heard. It may not be easy to define what is meant by “prima facie case”, but at least it must mean one on which a reasonable tribunal, properly directing its mind to the law and the evidence could convict if no explanation is offered by the defence...The terms “prima facie” case, and “genuine and arguable” case do not necessarily mean the same thing, for in using another term, namely a sustainable cause of action, the words “prima facie” are frequently used to refer to a case which shifts the evidential burden of proof, rather than as giving rise to a legal burden of proof in the manner of considering, which was in relation to the pleadings that had been put forward in the case. It would be in the appellant’s interest to adopt a genuine and arguable case standard rather than one of a prima facie case, the former being the lesser standard of the two...In civil cases a prima facie case is a case in which on the material presented to the Court a tribunal properly directing itself will conclude that there exists a right which has apparently been infringed by the opposite party to call for an explanation or rebuttal from the latter. A prima facie case is more than an arguable case. It is not sufficient to raise issues but the evidence must show an infringement of a right, and the probability of success of the applicant’s case upon trial. That is clearly a standard, which is higher than an arguable case.”

31. In the present case, the Applicant does not deny that he is indebted to the Bank. The Applicant however, contests the amount being claimed by bank on the ground the said amount manifestly high and encompasses a high interest rate. The Applicant also argued that the Respondents failed to render a proper service of the statutory notices, this is in accordance with the provisions of the Land Act.

32. Regarding the amount owing being Kshs 52,256,433. 68, the Applicant argues that he does not know how the bank arrived at the said sum. The Applicant argues that as at 5/8/2021 the principal amount with respect to the account No xxxx was Kshs 1,857,785. 09 and that there was no indication of arrears in the said account. For account No xxxx the amount owing in arrears as at 5/8/2021 was Kshs 22,199,497. 22.

33. The Applicant argued that on 23/8/2018 he dispatched the sum of USD 30,000 the equivalent of Kshs 3,210,000 which was never reflected in the said account. In response, the Bank has produced a Statement of Account for Account No xxxx held in the name of the Applicant in the said bank that shows that the USD 30,000 was deposited into the said account by the Applicant on 24/7/2018 and on the same day it equivalent was applied towards the reduction of the loan. Under section 176 of the Evidence Act (Chapter 80 of the Laws of Kenya) the Bank enjoys a presumption of regularity of the entries in its books of account. It states as follows: A copy of any entry in a banker’s book shall in all legal proceedings be received as prima facie evidence of such entry, and of the matters, transactions and accounts therein recorded.

34. I have also keenly perused the statement of account annexed by the Applicant marked as exhibit E & F being the Statement of Account for Account No xxxx and xxxx and I cannot actually ascertain the exact amount owing with respect to Account No xxxx from the entries made therein. The bank, save for annexing the statement of account with respect to the Applicant’s foreign currency account, it did not make any effort to present its own statements of account for subject accounts so as to aid the Court in making a conclusive determination on the issue. However, it must be noted that line with decisions of our Superior Courts, the Court will not ordinarily issue an injunction to restrain a chargee from exercising its statutory power of sale for reason only that the debt is disputed.

35. The Applicant has also raised concerns, regarding service of the statutory notices. The Applicant contends that the 1st Respondent has failed to serve statutory notices in accordance with the law. In Nyagilo Ochieng & Another Vs Fanuel Ochieng & 2 Others Civil Appeal No 148 of 1995 [1995-1998] 2 EA 260 the Court of Appeal while dealing with section 74(1) of the repealed Registered Land Act held that:It is trite that before a chargee can exercise his/her/its statutory power of sale there must be compliance with section 74(1) of the Registered Land Act (Cap 300 Laws of Kenya). This section obliges the chargee to serve, by registered post, the relevant statutory notice. Three months after the chargor’s receiving such notices the bank’s power of sale arises. This is the basis upon which the bank can put up the properties for sale. The appellants stated, in their plaint, that they did not receive any statutory notices. This averment should have put the bank on guard. It is for the chargee to make sure that there is compliance with the requirements of section 74(1) of the Registered Land Act. That burden is not in any manner 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 sent. Although the last known address of the appellants was correct, it must be understood that in face of the denial of receipt of statutory notice or notices it is incumbent upon the chargee to prove the posting. It would have been a very simple exercise for the bank to produce a slip or letters containing statutory notice or notices. The bank did not do so. Instead an officer from the bank simply produced file copies of the notices to prove that the same were sent. Even on a balance of probability it is not sufficient to say that a file copy is proof of posting. Unless the receipt of statutory notice is admitted, posting thereof must be proved and upon production of such proof the burden of proving non-receipt of such notice or notices shifts to the addressee as is contemplated by section 3(5) of the Interpretation and General Provisions Act, Cap 2, Laws of Kenya. It is quite possible that such notices were sent but that fact, in the face of the denial of receipt, must be proved. It is possible that the letters addressed to the two appellants were received by the first respondent who avoided telling the appellants of anything about the same as he was the “villain in the matter”. In the absence of proof of such posting the Court is constrained to hold that the sale by auction was void. The learned Judge fell into error and misdirected himself when he held that the notices were sent to their correct address on the supposition alone that the postal address of the appellants was P O Box 120, Sare…In coming to the conclusion, the Court has reached, it cannot but entertain the view that the bank ought to have been more careful in proving service of the statutory notices. Failure of such proof has resulted in an innocent purchaser for value being deprived of the title to the suit properties.”

36. Although the 1st Respondent has exhibited a copy of the statutory notice of sale dated 9/10/2018, that it issued to the Applicant and one Robert Kipkorir Sargo, pursuant Section 96 (2) (3) of the Land Act. There is no evidence whatsoever that the statutory notice under Section 90 (1) of the Land Act to redeem the properties were served upon the Applicant. Section 90(1) of the Land Act, provides that if a chargor is in default of any obligation and fails to pay interest or any other periodic payment or any part thereof due under a charge or in the performance or observation of any covenant, express or implied, in a charge, and continues to be in default for one month, the chargee may serve a notice in writing on the chargor requiring him to pay the money owing, or to perform and observe the terms of the agreement.

37. Section 90(2) requires that the notice to be served adequately inform the chargor the nature and extent of the default; 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 default must have been rectified. The notice should also inform the borrower consequences to follow if he fails to comply.

38. Section 90 (3) provides the options available to the 1st respondent if the applicant does not rectify the situation within two months. One of the options the 1st respondent has is to sell the charged property. That is the option the 1st respondent has chosen in the present situation. It instructed the 2nd respondent to advertise the applicant’s properties for sale giving rise to the present application.

39. As seen from section 90 above, the 1st respondent was required to serve the applicant with a notice calling on it to rectify the default which it did not.

40. Notably, although the notice marked as exhibit “BC(a)” refers to both of the suit properties the amount being displayed is with respect to Account No xxxx alone. I must point out that the bank has also not attached a Certificate of Posting showing that in deed the notices on record were in fact dispatched to the Plaintiff.

41. Given the particular circumstances, though the mortgage debt remained unpaid there is no question that the outlined legal position sanctioned under Section 90(1) - 96 (2) of the Land Act 2012 was not followed by the 1st Respondent.

42. On record there are two copies of valuation reports with respect to parcels land known as Nandi/Kiminda/1233 and Nandi/Kiminda/982 that were carried out by Fasteign Valuers Ltd. I have perused the same and it is my view that the 1st Respondent carried out a proper valuation before advertising the suit properties for sale.

43. The next issue is whether they have proved that they stand to suffer irreparable injury, which would not adequately be compensated by an award of damages. The general position is that an injunction ought not to be granted if an Applicant may be compensated by an award of damages.

44. In the case of Martha Khayanga Simiyu vs Housing Finance Co of Kenya & 2 Others Nairobi HCCC No 937 of 2001 [2001] 2 EA 540 the Court held as follows;"A statutory notice which does not give the plaintiff a period of three months from the date of service to redeem the charged property as required by Section 74(2) of the RLA is defective…The chargee has no lawful power to sell the charged property for default in payment of charge debt unless and until the chargor has been served with a notice in writing demanding such payment and the chargor has failed to comply within three months of the date of service of such notice…The irregularities in the exercise of the power of sale, which are remediable in damages, do not in the premises comprehend failure to serve adequate statutory notice…Service of both an adequate statutory notice and notification of sale are necessary conditions precedent for the valid exercise of the statutory power of sale under the RLA and without compliance with those statutory commands, there can be no valid exercise of the power of sale and therefore it cannot be said that the chargor’s equity of redemption is extinguished in any sale conducted in breach thereof. Neither can it properly contended that the chargor’s remedies if any such sale has taken place is in damages as provided in Section 77(3) of the Act. Without compliance with those conditions precedent, the purported sale would be void and liable to be nullified at the instance of the chargor…Once a property has been charged to secure financial accommodation it ipso facto becomes a commodity for sale and there is no commodity for sale whose loss cannot be compensated in damages but the law is not that an interlocutory injunction can never issue where damages would be an adequate remedy and the Respondent is in a position to pay them. That is the normal course but not the invariable course. The court has to take into account the conduct of the Respondent and the gravity of the breaches of law or contract alleged otherwise it would confer a carte blanche on those who are rich enough to pay all quantums of damages to ride roughshod over the rights of other persons. The rich do not fear to pay damages and they must be compelled to submit to the authority of the law by being put to other perils”.

45. In the case of Muigai vs Housing Finance Co Ltd & Another HCCC No 1678 of 2001, it is not an inexorable rule of law that where damages may be an appropriate remedy, an interlocutory injunction should never issue.

46. From the totality of the material placed before the Court, I find and hold that the balance tilts in favour of the Applicant in the circumstance. However, this does not mean that the Applicant has established a prima faciecase. The balance of convenience doctrine adverts that the courts of equity were invented for the better administration of justice. It would therefore be oppressive, inequitable to grant the drastic remedy of injunction. Accordingly where a right is doubtful or disputed the balance of convenience or inconvenience is an important factor in determining whether to grant or refuse an interlocutory injunction. Taking it by and large from the affidavit evidence I am of the view that applying this doctrine the 1st defendant takes the necessary steps to comply with the statutory power of sale in terms of the procedure provided for in the statute. The only bone of contention in my view, is in the service of the statutory notices by the Respondents.

47. Having said so, I exercise discretion in favour of the Applicant for issuance of temporary order of injunction against the Respondents for enforcement of the mortgage agreement until the Respondents serve fresh and proper legal notices.

48. The costs of this application will be in the cause.

49. It is ordered so.

DATED, SIGNED AND DELIVERED AT ELDORET THIS 16TH DAY OF DECEMBER, 2022. R. NYAKUNDIJUDGEIn the presence of:Mr Mogambi for the applicant