Speed Bird Travel and Safaris Limited v Bank of Baroda (Kenya) Limited [2022] KEHC 12377 (KLR)

Speed Bird Travel and Safaris Limited v Bank of Baroda (Kenya) Limited (Commercial Case 03 of 2020) [2022] KEHC 12377 (KLR) (Commercial and Tax) (20 June 2022) (Ruling)

Neutral citation: [2022] KEHC 12377 (KLR)

Republic of Kenya

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

Commercial and Tax

Commercial Case 03 of 2020

DAS Majanja, J

June 20, 2022

Between

Speed Bird Travel and Safaris Limited

Plaintiff

and

Bank of Baroda (Kenya) Limited

Defendant

Ruling

1. It is not in dispute that the plaintiff (“the company”) applied for and was advanced a loan facility by the defendant (‘’the bank’’) amounting to KES 30,000,000. 00 secured by a property; LR No 7158/151 IR 22614 registered in the name of Phylis Mwangi and Dave Mwangi (‘’the suit property’’). The bank has now threatened to sell the suit property in exercise of its statutory power of sale.

2. What is before the court is the company’s notice of motion dated February 11, 2022 made, inter alia, under order 40 rules 1, 2, 3 and 4 of the Civil Procedure Rules where it seeks an injunction restraining the bank from selling or otherwise dealing with the suit property pending the hearing and determination of the suit. The application is grounded on the supporting and supplementary affidavits of the company’s director, Phyllis Mwangi, sworn on February 11, 2022 and April 6, 2022. The bank opposes the application through the replying affidavit of its Koinange street branch Credit Manager, Felicien Kimeu, sworn on April 5, 2022. Both sides filed written submissions in support of their respective positions.

3. The substance of company’s claim from the plaint dated January 8, 2020 and the depositions in support of the application is that the claim is that it applied for and was advanced credit facilities on diverse dates by the bank.

4. The company states that in 2019, it requested the bank and was given its loan account statement which indicated that the amount due was KES 31,964,118. 00. Believing that this was the outstanding amount, it proceeded to pay KES 30,000,000. 00 leaving a balance of KES 1,964,118,00. The company contested this amount claiming that it was charged for a valuation report that was never conducted.

5. When the company requested to restructure the outstanding loan amounting to KES 1,964,118. 00, the bank informed it that it owed KES 6,000,000. 00. The company complains that this amount was illegally debited to its loan account on January 6, 2020. It further avers that on January 6, 2020, the bank only released the valuation report prepared by Daytons valuers Limited dated October 23, 2015.

6. The company urges that the valuation by Dayton valuers limited grossly undervalued the suit property by placing the forced sale value at KES 258,000,000. 00. The property was again valued by Dayton Valuers Limited, who by a report dated November 9, 2018, set the forced sale value at KES 277,500,000. 00. In the current valuation sanctioned by the bank, Gimco limited in its valuation report dated November 13, 2019 set the forced sale value at KES 202,500,000. 00. The company states that the last valuation which shows a drop in the value of the suit property and the conduct of the bank in refusing to release to it the valuation reports is evidence that the bank wishes to defraud it.

7. The company complains that the bank has advertised the suit property for sale by public auction several times in the past, on January 6, 2020 and December 16, 2019, and then proceeded to cancel the sale in unclear circumstances. It accuses the bank of incurring unnecessary and unreasonable costs to its detriment. it points out its loan account was illegally debited with an unjustified valuation fee of KES 950,000. 00 for the report dated November 9, 2018 as the valuer did not access the suit property.

8. The company impeaches the process of sale of the suit property on the ground that notices issued by the bank to the company are fatally defective since they are not addressed to the charger pursuant to the Land Act, 2015 and that the chargor is a different legal personality from the company.

9. Finally, the company complains that the bank has applied a higher rate of interest than is allowed under the law effectively overcharging the amount of interest and charging exorbitant interest rates. That it failed to re-issue any change of interest rates notices and that it failed to reschedule the loan to comply with interest rate capping regulations. It claimed that the bank failed to provide justification for illegal costs debited on its loan account. It therefore urges that it has established a prima facie case with a probability of success.

10. The bank maintains that the company has not made out a case for the grant of the orders it seeks. In response to the company’s case, the bank states that upon default of the loan facility, it initiated the process for recovery of KES 31,964,180. 00 by serving the required statutory notices. The bank further states that upon being served, the company through its advocates sought and was granted indulgence on the ground it claimed that it had secured a buyer for the suit property and that the proceeds of sale would be sufficient settle the loan facility.

11. When the sale did not materialize, the bank secured gimco limited to conduct a valuation of the suit property who prepared the valuation dated November 13, 2019. It also instructed auctioneers to proceed with the sale scheduled for January 10, 2020 but it put off the sale when the company filed the application dated January 8, 2020. The bank states that it called off the sale in order to indulge the company which had paid KES 30,000,000. 00 on the December 19, 2019 leaving a balance of KES 1,964,118. 10 plus unapplied interest of KES 6,003,329. 00 accrued from October 1, 2018 to January 6, 2020.

12. The bank contends that since the sale was called off, the company has neither prosecuted the case nor paid the outstanding balance. It states that as a result of the company’s inaction, it issued fresh notices via registered post; a 90-day notice dated March 22, 2021 and a 40-day notice to sell the suit property dated June 24, 2021. That despite the notices, the company still failed to pay the outstanding balance of KES 7,968,047. 10 as at March 16, 2022 excluding unapplied interest.

13. The bank submits that it is entitled to exercise its statutory power of sale on the ground that the company has failed to service the loan, that it is truly indebted and that the statutory notices have been issued in accordance with the law. It states that the company has not advanced any plausible reason to support the relief it seeks.

14. The conditions for the grant of an interlocutory injunction as one sought by the company were settled in Giella v Cassman Brown [1973] EA 385 where the court held that in order to succeed in obtaining an interlocutory injunction, the applicant must demonstrate that it has a prima facie case with a probability of success, that it will suffer irreparable loss which cannot be compensated by an award of damages if the injunction is not granted and if the court is in doubt regarding the nature of injury, determine the matter on a balance of convenience. In Nguruman Limited v Jane Bonde Nielsen and 2 Others NRB CA Civil Appeal No 77 of 2012 [2014] eKLR, the Court of Appeal reiterated those conditions and added that the they are to be considered as separate, distinct and logical hurdles a plaintiff is expected to surmount sequentially.

15. The Court of Appeal in Mrao Ltd v First American Bank of Kenya Limited and 2 Others [2003]eKLR explained that 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.” It also observed in the Nguruman Case (Supra) that that in reaching the decision whether the application has established aprima facie case, the court need not hold a mini trial and ought not examine the merits of the case closely. It must, however, be satisfied that on the face of it, the person applying for an injunction has a right, which has been or is threatened with violation as the parties will have an opportunity to prove their respective positions at the hearing of the case.

16. The prima facie case is in relation what is pleaded in the plaint. In this case, the company must show, on a prima facie, basis that its right is threatened to the extent that it is entitled to an injunction. As I stated in the opening paragraph, the suit property is owned by the directors of the company, Dave Mwangi and Phyllis Mwangi, who offered it as security for advances to the company. The directors of the company are separate person and distinct from the company. Their relationship with the bank is that of chargor and chargee. It governed by the charge document within the framework of the Land Act. Sections 96 to 98 of the Land Act dealing with the chargees power of sale, duties of the charges exercising the power of sale and powers incidental to the power of sale relate to the chargee who has served the chargor with the statutory and redemption notices. The company cannot therefore agitate matters concerning the suit property as it does not have any proprietary interest in that property (see Autofine Limited and 2 Others v Equity Bank Limited HC COMM No E092 of 2020 [2020]eKLR and Maxvictor Enterprises Limited v Gulf Africa Bank Limited and Another ML HCCC No E380 of 2020 [2020]eKLR).

17. This position was elucidated by Ringera J., (as he then was) in Nairobi Mamba Village v National Bank of Kenya [2002] 1 EA 197 where he stated as follows:An interlocutory injunction is an equitable remedy which may be issued at the instance of a party to the suit to protect his legal rights from violation by unlawful acts of another party. In the context of rule (1) of order 39 of the Civil Procedure Rules, the party seeking to prevent alienation, wastage or damage to the property in dispute therein must establish that he has legal rights in that property which he seeks to protect by the injunction sought…Whereas the plaintiff can legitimately complain of the alleged breaches of the loan agreements and seek other relief in connection therewith, he cannot properly seek to restrain the chargee from selling the charged property for the reason that the intended sale is pursuant to the exercise of the contractual and statutory powers of the chargee which were expressly or impliedly contained in the contract of charge to which the plaintiff is not a party. The only person who can legitimately complain that the power of sale is being exercised unlawfully, irregularly or oppressively is the chargor…Whereas it is true that a guarantor cannot be called upon to pay the debt guaranteed unless the principal debtor is default, the fallacy lies in the proposition that the principal debtor can object to the guarantor being sued or otherwise brought to shoulder his obligations under the guarantee…The mere fact that the plaintiff has an interest in the charged property does not suffice to give him locus standi to obtain an injunction against the chargee as the debtor’s interest in the property is not proprietary interest therein and cannot question the exercise of the power of sale.

18. The same position gained the imprimatur of the Court of Appeal in Venture Capital & Credit Ltd v Consolidated Bank of Kenya Ltd [2004] 1 EA 357 where it held that:Where the suit property does not belong to the applicant, and the owner is not a party to the suit and has not challenged the intended exercise of the statutory power of sale by the bank, the applicant has not shown that if the injunction is not granted, the appeal, if successful will be rendered nugatory so that even if the suit property is sold, the applicant will not lose any proprietary right to the property and in the circumstances, if the appeal succeeds damages would be the only relief appropriate to the applicant if it is not said that the respondent’s bank has no means to pay compensation that may be ordered.

19. On the basis of the aforesaid decisions, it is clear that in the absence of the chargors, as parties to the suit, the company cannot succeed in challenging the bank’s exercise of its statutory power of sale. It does not have a prima facie case with a probability of success as it will not lose any proprietary right if the suit property is sold.

20. In Nguruman Limited v Jane Bonde Nielsen and 2 Others (Supra), the Court of Appeal stated that, “If prima facie case is not established, then irreparable injury and balance of convenience need no consideration. The existence of a prima facie case does not permit “leap-frogging” by the applicant to injunction directly without crossing the other hurdles in between”. Since the plaintiff has failed the first hurdle in the inquiry, the court cannot move any further. The only option is to dismiss the application.

21. The application dated February 11, 2022 is now dismissed. Likewise, the notice of motion dated January 8, 2022 which is still on record is also dismissed. The plaintiff shall pay the costs of both applications to the defendant.

DATED AND DELIVERED AT NAIROBI THIS 20TH DAY OF JUNE 2022. D. S. MAJANJAJUDGECourt of Assistant: Mr M. OnyangoMr Mulongo instructed by Costin and Webster Law for the plaintiffMr Okech instructed by Mwaura and Wachira Advocates for the defendants.