Simon Warui Kanoga, Rose Wangui Warui & Simken Agencies Limited v Guardian Bank Limited & Jeremiah Muchendu t/a Icon Auctioneers [2022] KEHC 1350 (KLR)

Full Case Text

REPUBIC OF KENYA

IN THE HIGH COURT OF KENYA

AT KIAMBU

CIVIL SUIT NO E019 OF 2021

SIMON WARUI KANOGA.....................................................................................1ST PLAINTIFF

ROSE WANGUI WARUI........................................................................................2ND PLAINTIFF

SIMKEN AGENCIES LIMITED...........................................................................3RD PLAINTIFF

VERSUS

GUARDIAN BANK LIMITED............................................................................1ST DEFENDANT

JEREMIAH MUCHENDU T/A ICON AUCTIONEERS................................2NDDEFENDANT

RULING

1. GUARDIAN BANK(The Bank) granted at the request of the 3rd plaintiff, SIMKEN AGENCIES LTD, financial facilities. Those financial facilities were guaranteed by the 1st plaintiff, SIMON WARUI KANOGA and the 2nd plaintiff, ROSE WANGUI WARUI.The 1st plaintiff offered his immovable properties, namely THIKA MUNICPALITY BLOCK 21/714 and BLOCK 21/1511 and BLOCK21/1512, as security for the repayment of the principal sum of Kshs.3 million. The 2nd plaintiff offered her property GATUANYAGA/NGOLIBA BLOCK 1/1109 as security for the repayment of Kshs.30 million. Part of the facility offered to the 3rd plaintiff was hire purchase demand loan for the financing the said plaintiff to purchase an excavator. The excavator and its hydraulic breakers were registered in the joint names of the Bank and the 3rd plaintiff also created and registered in favour of the Bank a commercial hire purchase agreement.

2. The plaintiffs filed this action seeking orders for declaration that the auctioneer’s notice and the newspaper advertisement of intent to sell by public auction the charged properties was null and void; for a permanent injunction restraining the Bank from selling the charged properties; and a mandatory injunction directing the Bank to render just and true statements of account.

3. The plaintiff’s interlocutory application, dated 11th August, 2021 was considered ex parte on 13th August, 2021 when the court granted injunction order restraining the Bank from proceeding with the scheduled public auction of the charged properties on 17th August, 2021.

4. The parties filed affidavit and submissions which are before court for consideration.

5. The plaintiffs by their affidavits deponed that the Bank unlawfully repossessed the excavator and sold it by private treaty at an under value.

6. The Bank in response deponed in its legal officer’s affidavit in reply that in repossessing the excavator on 28th May, 2016, it did so in exercise of its right conferred in the hire purchase agreement. That the 1st plaintiff as managing director of the 3rd plaintiff by his letter dated 15th June, 2016 addressed to the Bank confirmed that repossession of the excavator was carried out in exercise of the bank’s right. This is what the 1st plaintiff stated in regard to that repossession:-

“Sir, it has come to our notice that the bank have (sic) repossessed the asset they financed us that is the excavator from our site. Whereas, we have no objection on your (sic) action as it is within your legal right we have a proposal and a humble request which is purely on business aspect for both of us where you want to recover every shilling and of which we intend to pay in full.”

7. It would follow from the above, on prima facie basis that the repossession was not unlawful, as alleged in this claim nor was there evidence it was sold at undervalue.

8. Further, on the allegation by the plaintiffs that the repossession and sale of the excavator by the Bank was unlawful, I do concur with the submissions of the defendants learned counsel. He submitted that the plaintiffs do not seek any relief in this action in respect to that repossession and accordingly, this Court cannot make a finding on whether there was any unlawfulness in that repossession because it would be academic. The plaintiffs having not sought a relief in their plaint, the foundation of this action, the court is not required to determine if that repossession and sale of the excavator was unlawful.

9. The other issue raised by the plaintiffs that they stand to benefit from an arbitral award in the ICC Case No. 250/2 PTA is not material on whether interlocutory injunction should be granted as sought. I note, as rightly submitted by the defendants, that the 3rd plaintiff is not a party to that arbitration and it is indeed difficult to appreciate how that arbitration impacts this action.

10. The plaintiffs denied receipts from the Bank the statutory notices as required under Section 90 and 96 of the Land Act, 2012.

11. The Bank provided copies of those notices addressed to the 1st and 2nd plaintiffs with the Postal Corporation of Kenya certificate of registration dated 1st February, 2016 and 20th May, 2016. The plaintiffs did not on a balance of probability prove those registered letters were not sent and received. Section 107 of the Evidence Act required that they do so. That Section is in the following terms:-

“(1) whoever desires any court to give judgment as to any legal right or liability dependent on the existence of facts which he asserts must prove that hose facts exist.

(2) When a person is bound to prove the existence of any fact it is said that the burden of proof lies on that person.”

12. The plaintiffs bore the burden to prove that the registered mail was not received at their address. They did not do so.

13. When the plaintiff alleged they were not served with the statutory notices, the burden to prove they were served lay on the defendants. The defendant discharged that burden by providing copies of those notices served on the plaintiff and also by providing certificate showing the notices were sent to the plaintiff by registered post. Having discharged that burden, the burden shifted to the plaintiffs to disprove such service. See the case NATIONAL BANK OF KENYA LIITED VS. ISAAC MALIKA LUBANGA & A NOTHER (2018) eKLR as follows:-

“19. In the instant case, the Applicant has discharged his duty by having demonstrated that the statutory notice was send by a registered post to chargor’s last known address and as such the chargee discharged his duty on service as required by law and the burden of proof shifts to the chargor to demonstrate otherwise. In this case the 1st Respondent failed to demonstrate that the address used for service was not his nor the one he had provided to the chargee.

14. This Court makes a finding on prima facie basis that the Bank demonstrated it served upon the plaintiffs the requisite statutory notices of sale of the charged property.

15. The plaintiffs in support of their application deponed:-

“That despite the partial loan repayment, the 1st defendant is demanding a sum of Kshs.87,703,274 against a total facility of Kshs.37,000,000 which amount offends the induplum Rule and contrary to known accounting principles of interest.”

16. The defendant in response stated in part in the replying affidavit that:-

“... not a single repayment has since disbursement been disbursement been made in relation to the demand loan facility and therefore there is default from the initial instalment payment obligation, the last instalment payment on the hire purchase (HP) facility was made on 29th October, 2014 being delayed instalments for July and August, 2014 while the last credit into the overdrawn current account prior to the filing of this suit was 29th May, 2018. ”

17. The plaintiffs did not give particulars of their repayment of the financial facility. They therefore did not displace the Banks deposition above that there has been no repayment, as per the contract of the amount owed to the Bank. The bank attached the bank statement which did not show such repayment. It would therefore follow that the plaintiff claim for injunction is based on dispute of the outstanding amount. The plaintiff need to be informed that an injunction cannot issue on the basis that the amount due is disputed. This was clearly stated in the case JOHN NDUATI KARIUKI T/A JOHESTER MERCHANTS VS. NATIONAL BANK OF KENYA LIMITED (2006) eKLR thus:-

“The legal issue however is whether the dispute on the outstanding loan can scuttle the exercise by a chargee of its power of sale. On that legal proposition this Court has expressed itself before and we need only refer toJ.L. LAVUNA & OTHERS V. CIVIL SERVANTS HOUSING CO. LTD. &ANOTHER– Civil Appl. No. NAI 14/95 where Kwach J.A.stated:-

‘I have always understood the law to be that a court should not grant an injunction restraining a mortgagee from exercising its statutory power of sale solely on the ground that there is a dispute as to the amount due under the mortgage. The legal position on this point is to be found inHalsbury’s Laws of England, Volume 32, 4th editionat paragraph 7255:-

‘725 Whenmortgagee may be restrained from exercising power of sale.

The mortgagee will not be restrained from exercising his power of sale because the amount due is in dispute, or because the mortgagor has begun a redemption action, or because the mortgagor objects to the manner in which the sale is being arranged.’”

18. On whether the Induplum Rule was breached, the Bank submitted that the interest on the 3rd plaintiff’s accounts has been suspended. The 3rd plaintiff therefore fails to demonstrate how the InduplumRule has been breached.

19. Much more the plaintiffs have corresponded with the Bank severally acknowledging their indebtedness to the bank and with that, the holding in the case LABELLE INTERNATIONAL LTD VS. FIDELITY COMMERCIAL LTD & ANOTHER (2003) Z.E.A. becomes very relevant, as follows;-

“It is now established law that when part of the amount claimed is admitted or proved to be due, a charge cannot be restrained by an injunction.”

20. An injunction will not be issued hereof when the plaintiffs’ claim is that it disputes the amount owed to the bank. The plaintiffs do not dispute they owe the Bank but they dispute the amount owed.

21. The plaintiffs allege they will suffer irreparable injury because one of the charged properties is the 1st and 2nd plaintiffs’ matrimonial property and the other is used to house their aged parents.

22. The plaintiff having offered those properties as security for the financial facility offered to the 3rd plaintiff, they translated those properties into commodities for sale. In this regard, reference is made of the case KITUR VS. STANDARD CHARTERED BANK & 2 OTHERS (2002) IKLR as follows:-

“It must be noted that when a Chargor lets loose its property to a Chargee as security for a loan or any other commercial facility on the basis that in the event of default it be sold by a Chargee, the damages are foreseeable. The security is thenceforth a commodity for sale or possible sale, with the prior concurrence and consent of the Chargor. How then can he, having defaulted to repay loan arrears prompting a chargee to exercise its statutory power of sale, claim that he is likely to suffer loss or injury incapable of compensation by an award of damages? Such an argument is definitely misplaced and has no merits.”

23. An applicant seeking interlocutory injunction must establish the following requirement:-

(a) Establish a prima facie case;

(b) Demonstrate irreparable injury; and

24. The Court of Appeal in the case NGURUMAN LIMITED VS. JAN BONDE NIELSEN & 2 OTHERS (2014) eKLR held that those three requirements need to be established sequentially. This is what the court stated in that case:-

“...the fundamentals about the implications of the interlocutory orders of injunction are settled, at least for over four decades, sinceGIELLAcase (supra) they could neither be questioned nor be elaborated in detailed research. Since those principles are already codified by authoritative pronouncements in the precedents they may be conveniently noted in brief as follows:-

In an interlocutory injunction application, the applicant has to satisfy the triple requirements to;

(a) establish his case only at aprima facielevel,

(b) demonstrate irreparable injury if a temporary injunction is not granted, and

These are the three pillars on which rests the foundation of any order of injunction, interlocutory or permanent. It is established that all the above three conditions and stages are to be applied as separate, distinct and logical hurdles which the applicant is expected to surmount sequentially. SeeKENYA COMMERCIAL FINANCE CO. LTD V. AFRAHA EDUCATION SOCIETY [2001] Vol. 1 EA 86. If the applicant establishes a prima faciecase that alone is not sufficient basis to grant an interlocutory injunction, the court must further be satisfied that the injury the respondent will suffer, in the event the injunction is not granted, will be irreparable. In other words, if damages recoverable in law is an adequate remedy and the respondent is capable of paying, no interlocutory order of injunction should normally be granted, however strong the applicant’s claim may appear at that stage. If prima faciecase is not established, then irreparable injury and balance of convenience need no consideration. The existence of a prima faciecase does not permit “leap-frogging” by the applicant to injunction directly without crossing the other hurdles in between.

It is where there is doubt as to the adequacy of the respective remedies in damages available to either party or both that the question of balance of convenience would arise. The inconvenience to the applicant if interlocutory injunction is refused would be balanced and compared with that of the respondent, if it is granted.”

25. The above discussion clearly shows that the plaintiffs failed to establish a prima facie case with probability of success. The Bank on prima facie basis proved the 3rd plaintiff is indebted to it. The loan facilities were guaranteed by the 1st and 2nd plaintiff and the 1st and 2nd plaintiff offered their immovable property as security. The Bank proved on prima facie basis the statutory notices were served on the plaintiff. The auctioneer’s notice in respect of the public auction of the charged property which was scheduled on 17th August, 2021, whether they were valid is now mute because the auction of that day was stopped by this Court. This Court does however find that the auctioneer’s notice was short of the period set out in the Auctioneers Rules.

26. The plaintiff having however failed to show a prima facie case with probability of success in keeping with the holding of the case NGURUMANI LTD VS. BONDE NEILSON (supra) this Court shall not proceed to consider the other requirements of granting an interlocutory injunction.

27. In the end and bearing the above in mind, the notice of motion dated 11th August, 2021 is dismissed and the defendant is awarded ¾ of the costs of that application.

28. The interlocutory injunction issued hereof on 13th August, 2021 is hereby vacated.

29. At the reading of this Ruling, a pre-trial date of this matter shall be fixed.

RULING DATED AND DELIVERED AT KIAMBU THIS 24TH DAY OF MARCH, 2022.

MARY KASANGO

JUDGE

Coram:

Court Assistant : Mourice

For Plaintiffs: - Mr. Muthomi

For Defendants: - Ms. Murimi H/B Mr. Mutua

RULINGdelivered virtually.

MARY KASANGO

JUDGE