Tirus Macharia Mwangi & Pauline Wanjiru Macharia v Bank of Africa Kenya Limited & Joseph G. Muturi t/a Muga Auctioneers & General Merchants [2017] KEHC 2503 (KLR)

REPUBLIC OF KENYA

IN THE HIGH COURT OF KENYA

AT NAIROBI

COMMERCIAL & ADMIRALTY DIVISION

HCC.  NO. 444 OF 2016

TIRUS MACHARIA MWANGI......................................1ST PLAINTIFF

PAULINE WANJIRU MACHARIA................................2ND PLAINTIFF

VERSUS

BANK OF AFRICA KENYA LIMITED..........................1ST DEFENDANT

JOSEPH G. MUTURI T/AMUGA

AUCTIONEERS & GENERAL MERCHANTS...........2ND DEFENDANT

RULING

1. Tirus Macharia Mwangi (the 1st Plaintiff) and Pauline Wanjiru Macharia (the 2nd Plaintiff) are customers of Bank of Africa Kenya Limited (the 1st Defendant or Bank).

2. Sometimes in the year 2013, the Plaintiffs were granted credit facilities by the Bank of Khs.12,800,000/- being a mortgage facility and Khs.5,000,000/= as a Guarantee. The facilities were granted to the Plaintiffs in their trade name, Polimaks Investments.  As security therefor a charge dated 28th May 2013 and a further charge dated 7th May 2014 were drawn and registered in favour of the Bank to secure the Principle sum of Kshs.17,800,000/=.

3. It is conceded by the Plaintiffs or at least it is not controversial that, over time, there has been default in the repayment of the facilities.  That said the Plaintiffs have in the Plaint presented to Court on 1st November 2016 complained that the Bank has imposed an irregular, erratic and unpredictable rate of interest or have changed the rate of interest without prior notice to it.

4. Another complaint is that the Bank has attempted to exercise its Statutory Power of Sale without issuing a proper Statutory Notice under Section 96 of the Land Act.  In addition that the Bank has not undertaken a forced Sale Valuation of the charged property as required by Section 97 of the Land Act.

5. In the premises the Plaintiffs have sought the following orders:-

i. A permanent injunction restraining the Defendants either by themselves , their employees, servants and or agents from selling by way of public auction, private treat or in any other manner whatsoever, transferring, alienating, registering any transfer, executing a transfer as a charge or in any other manner whatsoever dealing with all that parcel of land known as Title Number Naivasha/Maraigishu 1/1137, either by way of transfer, sale, gift, charge, and or mortgage.

ii. An order of accounts for the sums so far paid by the Plaintiffs for the loan advanced by the 1st Defendant.

iii. An order that the 1st Defendant undertakes forced sale valuation before proceeding with the proposed auction.

iv. A declaration that the varying the interest rate of the loan advanced by the 1st Defendant without notice to the Plaintiffs was illegal and contrary to the law.

6. When filing the suit, the Plaintiff also sought an order of Temporary Injunction restraining the Respondents either by themselves, their employees, servants and or agents from selling by way of public auction, private treaty or in an any other manner whatsoever, transferring, alienating, registering any transfer, executing a transfer as a chargee or in any other manner whatsoever dealing with all that parcel of land known as Title Number Naivasha/Maraigishu 1/1137 either by way of transfer sale, gift, charge, and or mortgage. This was in the Notice of Motion dated 1st November 2016.  This is the Motion that this Court is determining.

7. The issues in dispute were considerably narrowed when on 9th November 2016, the parties herein entered a consent accepting that a joint valuation of the suit property be undertaken by the firm of Kinyua Koech Ltd.

8. By a Report dated 18th November, 2016, the Values  returned the following values of the charged property:-

Open market value ……………….Kshs.11,000,000/=

Forced sale value ……………………Kshs.8,250,000/=

9. The Plaintiff ask the Court to compare this with the valuation commissioned by the Bank.  The Bank’s Valuers, Accurate Valuers, had by a report dated 31st May 2016 placed the following values:-

Open market Khs.8,000,000/=

Forced sale Khs.6,000,000/=

It is then submitted by Counsel for the Plaintiff that the Valuation of Accurate Valuers was an undervaluation and the Notices issued by the Auctioneer were based on this undervaluation.  Consequently, it is argued, the said Notices were improper.

10. It is true that in the Notification of sale dated 26th August 2016 issued by Muga Auctioneers General Merchants (the 2nd Defendant) the valuation given by Accurate Valuers Ltd is quoted therein. But can anything turn on this? Even if accepted, for arguments sake, that there was an under valuation that can no longer be an issue because the Parties herein submitted to a joint valuation.  The argument against the valuation given by Accurate cannot be the basis for stopping the Bank from exercising Statutory Power of Sale because there is now an agreed valuation that has been undertaken.  If this Court were to allow the Bank to proceed with the Sale of the property then, by virtue of the Joint Valuation, the Bank would have fulfilled its obligation under Section 97(2) of The Act which provides:-

“(2) A chargee shall, before exercising the right of sale, ensure that a forced sale valuation is undertaken by a valuer”.

11. The next contention was in respect to the Notice purportedly issued under the provisions of Section 96(2).  That Notice is dated 22nd March 2016 and is reproduced below:-

“RE: 40 DAYS NOTICE UNDER SECTION 96(2) OF THE LAND ACT NO 6 OF 2012 IN RESPECT OF THE LEGAL CHARGE DATED 28TH MAY 2013 AND A FURTHER LEGAL CHARGE DATED 7TH MAY 2014 IN RESPECT OF PROPERTY KNOW AS TITLE NUMBER NAIVASHA/MARAIGUSHU BLOCK1/1137.

WHEREAS you were served with a Statutory Notice on 25th November 2015 wherein the Chargee required you to settle the outstanding debt of Kenya Shillings Twenty-four million, Three Hundred and Eighty Thousand, Seven Hundred and Fifty-Three and Ninety-Three cents (Kshs.24,380,753. 93) as at 12th November 2015 three (3) months from the date of service thereof, failing which the Chargee shall exercise its Statutory remedy of sale under section 90(3) (e) of the Land Act No.6 of 2012 Laws of Kenya;

AND WHEREAS  in breach of the said Statutory Notice requirements, you have refused, failed and/or neglected to fully settle the said outstanding debt which now stands at Kenya Shillings Twenty-Six Million and Twenty-One Thousand, Three Hundred and Sixty-seven and Twenty-Nine Cents (Khs.26,021,367. 29) as at 7th March 2016 as set out in the table below in Kenya Shillings:

Balance Interest Over Limit Interest Balance inclusive of Interest

Current A/C 01044790002 15,066,398. 73

71,627. 67 15,138,026. 40

Escrow Account 632,247. 62

3,014. 00 635,261. 62

Loan 7,608,536. 98 30,538. 46

7,639,075. 44

Arrears 2,435,309. 16

11,609. 42 2,446,918. 58

7/03/2016 Total Outstanding Balance  BOA 26,021,367. 29

The loan account continues to accrue interest at the rate of 21. 33% per annum (The Kenya Bankers’ Reference Rate currently at 9. 87% p.a plus a margin of 11. 46%).  The overdrawn current account, escrow and arrears that fall due attract an over limit interest of 29% per annum (the aforementioned rate plus 19. 13%) until settlement in full, subject to the Bank’s prevailing rates of interest from time to time.

NOTICE IS HEREBY GIVEN that unless full payment of the said debt of Kenya Shillings Twenty-Six Million and Twenty-One Thousand, Three Hundred and Sixty-Seven and Twenty-Nine Cents (Khs.26,021,367. 29) as at 7th March 2016 is made together with the accrued interest, the Chargee shall provide to exercise its Statutory remedy under section 96(1) as read with Section 90(3)(e) of the Land Act No. 6 of 2012 and sell the Charged property at the expiry of Forty (40) days from the date of service of this Notice;

AND TAKE FURTHER NOTICE that the sale of the Charged property shall be by public auction or by private contract and any part payment made by yourself shall be received the Chargee on account without prejudice and unless the entire amount together with accrued interest thereon shall have been received in full before then, the sale of the said property shall go on, such payment notwithstanding.

THIS NOTICE shall be deemed as a final notice.”

12. In the Plaint that Notice is criticised as being defective.  That is elaborated in the Supporting Affidavit of the 1st Plaintiff in which he points out what he sees as the flaws in the Notice.  These are:-

a) The Statutory notice demands the entire sum due of Kshs.24,380,753. 93

b) The statutory notice does not state the amount in arrears

c) The notice does not state the amount in arrears that needs to be paid so as to rectify the default.

13. It is true that the Notice calls for the entire outstanding debt being Kshs.26,021,367. 29 as at 7th March 2016 and requires its full payment. Does this make the Notice defective?

14. Section 96(1) and (2) of The Act reads as follows:-

(1) Where a chargor is in default of the obligations under a charge and remains in default at the expiry of the time provided for the rectification of that default in the notice served on the chargor under section 90(1), a chargee may exercise the power to sell the charged land.

(2) Before exercising the power to sell the charged land, the chargee shall serve on the chargor a notice to sell in the prescribed form 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”.

This Notice comes after the expiry of the time provided for rectification of the default in the Notice served on the Chargor under section 90(1).

15. Under section 90(2), the Notice must inform the recipient, if like here the default consists of non-payment of money due under the charge, the amount that must be paid to rectify the default and the time, being not less than 3 months, by the end of which the payment must have been made.

16. Under clauses 9 and 10. 1 of the charge made on 28th May 2013 and the further charge made on 7th May 2014, the Bank is entitled to demand for payment of monies secured by the security documents in the event of default.  As default is not disputed then the Bank’s right to call in the entire debt cannot be seriously challenged.  This Court is unable, to readily find any defect in the Notice issued under Section 96(2) of The Act.

17. A matter not pleaded or taken up in the Motion but raised in the Plaintiff’s submissions is that the Notice is also flawed because it is not a Notice to sell but only signifies an intention to sell.  First, parties are bound by their pleadings and to entertain this argument would be to allow an unpermitted expansion of pleadings.  However, even if I was to consider it, it will not further the Plaintiff’s case.  The Notice of 22nd March 2016 is unequivocal that the Bank shall proceed to sell the charged property if it shall not have received full payment of the demanded amount before the expiry of 40 days from the date of service of the Notice.  That is not a Notice of Intention to sell, it is a Notice that sale will proceed in the event of continued default. That complies with the provisions of Section 96(2) of The Act.

18. A matter pleaded but not pressed by the Plaintiffs is that the Bank imposed irregular, erratic and unpredictable rate of interest and further changed the rate of interest without prior notice to the 1st Plaintiff.  There is no evidence or elaboration that the interest charged by the Bank fell outside the Contract between the parties or Statute.  There is no evidence or elaboration that the rate of interest was changed and if so, it was done outside the contemplation of the Contract.

19. This Court can only reach one conclusion, the Plaintiffs have not made out a prima facie case with a probability of success. That is the first test in   GIELLA VS. CASSMAN BROWN [1973] EA 358 which sets out the conditions for the grant of an Interlocutory Injunction as being:-

a) An Applicant must show a prima facie case with a probability of success.

b) An Interlocutory Injunction will not normally be granted unless the Applicant might otherwise suffer irreparable loss which would not be adequately be compensated by an award of damages.

c) If the Court is in doubt, it will decide an application on the balance of convenient.

and cannot therefore be deserving of an order for Temporary Injunction.

20. However, I must observe this. If the Bank insists on proceeding with the sale of the charged property then the sale must be on the basis on valuation reached by the Joint Valuers on 18th November 2016.  If however the sale will happen outside 12 months of the date of the said valuation, then the Bank must obtain a further and more current Valuation from the same firm of Valuers (ie. Kinyua Koech Ltd).

21. Otherwise, the Notice of Motion dated 1st November 2016 is dismissed with costs.

Dated, Signed and Delivered in Court at Nairobi this 5th day ofOctober, 2017.

F. TUIYOTT

JUDGE

PRESENT;

Wanjohi for Plaintiff

Khayota for Defendant

Alex - Court clerk