Spire Bank Limited v Obora & 2 others [2022] KEHC 13791 (KLR)

Spire Bank Limited v Obora & 2 others (Civil Suit E640 of 2021) [2022] KEHC 13791 (KLR) (Commercial and Tax) (14 October 2022) (Ruling)

Neutral citation: [2022] KEHC 13791 (KLR)

Republic of Kenya

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

Commercial and Tax

Civil Suit E640 of 2021

A Mabeya, J

October 14, 2022

Between

Spire Bank Limited

Plaintiff

and

Humphrey Peter Ooko Obora

1st Defendant

Faith Mwenda Ouko

2nd Defendant

Benson Oguyo Juma

3rd Defendant

Ruling

1. Before court is the 1st and 3rd defendant’s (“the defendants”) application dated December 21, 2021. The same was brought under order 40 (1)(a),(2), (3) & (4) of the Civil Procedure Rules, section 90(3) and 90(2) of the Land Act 2012 and section 3A of the Civil Procedure Act.

2. The defendants sought to restrain the plaintiff and/or its agents from selling by public auction or otherwise the property known as Kisumu/Buoye/3872 pending the determination of the suit.

3. The application was predicated on the supporting affidavit of the first plaintiff sworn on December 21, 2022. The grounds for the application were that; on June 18, 2021, the plaintiff filed the instant suit against the 3 defendants jointly and severally for the recovery of an outstanding sum of kshs 163,448,595. 10; that the three defendants jointly borrowed the sum of kshs200,000,000/- from the plaintiff and as part of the security the defendants offered three properties, two in Nairobi and one in Kisumu.

4. That upon default in the repayment thereof, the plaintiff realized the two Nairobi properties to offset part of the loan debt leaving the claimed amount outstanding. The plaintiff claimed that it was unable to sell the Kisumu property due to its dilapidated condition prompting it to institute the current proceedings as the sale of the Kisumu property would have left a shortfall of over kshs100,000,000/-.

5. That as a result of the foregoing, the plaintiff purported to advertise the said property for sale in a bid to recover the sum of kshs 164,731,101/- being the outstanding amount as at October 18, 2021.

6. In the premises, the defendants contended that that the plaintiff was seeking to recover the outstanding amount through both the suit at the same time attempting to sell the charged property which remedies cannot be exercised simultaneously under the Land Act.

7. They further argued that if the Kisumu property was alienated via public auction, the substratum of the issue before court will be destroyed and the defendants will suffer irreparable loss and damage.

8. In opposition to the application, the plaintiff lodged a replying affidavit sworn on January 3, 2022. Sworn by its senior legal officer. It was averred that that the defendants have not established any prima facie case with any chances of success as they had not denied owing the plaintiff a colossal sum of kshs 163,448,595. 10 as of April 19, 2021. The same continued to attract interest at the contractual rate.

9. That on account of default, the plaintiff served the defendants with several statutory notices in compliance with the law. That the remedies of a chargee set out in section 90(3) of the Land Act are set in the alternatives whereby the chargee can choose any one or more of the remedies.

10. That even if the Kisumu property was to be sold at the market value, it would still leave a deficit of over kshs 90,000,000. 00 which will still necessitate a suit for recovery. That iny event, the plaintiff had commenced the statutory sale way before the filing of the present suit and therefore the same take precedence.

11. The plaintiff pleaded that, in the event the court found that the chargee was not to invoke the 2 remedies under section 90(3) simultaneously, the appropriate action would be to stay the suit pending the outcome of the intended sale. That the plaintiff would suffer immense prejudice in that it will likely suffer financial distress unlike the defendants who will not suffer any loss which cannot be compensated by award of damages.

12. The court has considered the pleadings, affidavits and annexures filed by the respective parties. This is an application for an interim injunction pending the determination of the suit.

13. As per Giella v Cassman Brown & Co Ltd[1973] EA 358), an applicant for an interim injunction must establish a prima facie case with a probability of success; he must show that he will suffer irreparable loss which cannot be compensated by award of damages and in case of doubt, the court will determine where the balance of convenience tilts.

14. On the first limb, a prima facie case was defined by the court of Appeal in the case ofMrao Limited v First American Bank Ltd & 2 others (2003) KLR 137 to be a case which, on the material presented to court, a tribunal properly directing itself will conclude that there exists a right which has apparently been infringed by the opposite party that calls for an explanation or rebuttal from the latter.

15. In the present case, the plaintiff extended a loan facility to the defendants of kshs 200,000,000 which was secured by three of the defendants’ properties. As a result of default, the plaintiff sold two of the properties. The same could not however, redeem the entire outstanding amount. The plaintiff has now sought to realise the remaining security.

16. The defendants’ case is that the plaintiff had already filed the present case wherein they had objected to the same on the ground that the plaintiff had taken possession of the Kisumu property without adhering to the Land Act. Further, that during the plaintiff’s said possession, the property incurred damages and led to its deterioration. The defendants therefore counterclaimed for a sum of kshs 332,850,000/-. That was the alleged loss that the defendants allegedly suffered during the period of the plaintiff’s possession of between October 2017 to March, 2020.

17. On the foregoing, there is no denial that there has been default. It is also not denied that the debt has not been paid. The fact that a suit for recovery had been lodged, that did not extinguish the plaintiff’s statutory right of sale of its security. The alleged losses suffered by the defendant can still be claimed by the defendants in the present suit. I find no prima facie case has been established.

18. The second limb is whether the defendants illustrated that they will suffer irreparable damage if the injunction is not granted.

19. They contended that if the property is sold by public auction the substratum of the present suit will be destroyed. Further, that the property is an international educational facility with students from across the globe and if sold the 1st and 3rd defendant will be exposed to suits for breach of contract.

20. The plaintiff countered this assertion by stating that the defendants have not provided any evidence of students. On the contrary, the plaintiff averred that reports prepared by various experts showed that the property was vacant and abandoned at separate times when they visited the institutions.

21. Having considered the respective arguments, the court is not satisfied that the defendants will suffer any irreparable damage if the orders sought are not granted. If ultimately the court determines that the counter claim on damages caused to the property is successful, the defendants may execute against the plaintiff in the usual manner.

22. Having found that the defendants have not illustrated that they would suffer irreparable damage, the prayer for an injunction fails. As to the balance of convenience, the same lies with the plaintiff being left to recover its outlay.

23. There was one issue that the defendants raised that requires a comment by this court. This is whether the plaintiff could pursue more than one method to recover the loan arrears.

24. The Land Act, section 90(3) provides: -“If the chargor does not comply within ninety days after the date of service of the notice under, subsection (1) the chargee may(a)sue the chargor for any money due and owing under the charge;(b)appoint a receiver of the income of the charged land;(c)lease the charged land, or if the charge is of a lease, sublease the land;(d)enter into possession of the charged land; or(e)sell the charged land.”

25. In Clesoi Holdings Limited v Prime Bank Limited [2016] eKLR the court held: -“In this matter, the applicant has chosen the remedy of realisation of the security vide the sale of the charged property. Under section 90 (3) of the Land Act 2012, the remedies available to the chargee cannot be exercised simultaneously. The chargee who sues for money secured, will have to realise the security first, and if the security is rendered insufficient, then can it resort to the other alternatives remedies which includes, suing of the chargor on the personal covenant under the charge document.”

26. Further, in David Karanja Kamau v Harrison Wambugu Gaita & another [2020] eKLR it was held: -“A proper reading of section 90(3), therefore, shows that the 2nd defendant, as chargee, was required to make an election on which of the remedies to go for. The subsection uses the word or which means the remedies are disjunctive and not conjunctive, distinct and not cumulative. The 2nd defendant could only choose one remedy and not more.”

27. I say no more on the meaning of section 90(3) of the Land Act. The remedies are in the alternative and not concurrent. It would be gravely prejudicial to a chargor if more than one remedy is exercised by the charge simultaneously.

28. Just like in Clesoi Holdings (Supra), it would be in the interest of justice for the plaintiff to realise its security in the Kisumu property first and if the returns prove to be insufficient, the plaintiff may continue with the present suit to recover any outstanding figure.

29. The upshot of the above is that the application dated December 21, 2021 lacks merit and is dismissed.

30. The court further orders the stay of these proceedings pending the sale of the Kisumu property by the plaintiff in exercise of its statutory power of sale.

31. Costs are awarded to the plaintiff in any event.It is so ordered.

DATED AND DELIVERED AT NAIROBI THIS 14TH DAY OF OCTOBER, 2022. A. MABEYA, FCIArbJUDGE