Union De Banques Arabes Et Francaises-U.B.A.F v Chase Bank Kenya Limited (In Receivership) & 2 others [2022] KEHC 10838 (KLR)

Union De Banques Arabes Et Francaises-U.B.A.F v Chase Bank Kenya Limited (In Receivership) & 2 others (Commercial Case 206 of 2019) [2022] KEHC 10838 (KLR) (Commercial and Tax) (9 June 2022) (Ruling)

Neutral citation: [2022] KEHC 10838 (KLR)

Republic of Kenya

In the High Court at Nairobi (Milimani Law Courts)

Commercial and Tax

Commercial Case 206 of 2019

WA Okwany, J

June 9, 2022

Between

Union De Banques Arabes Et Francaises-U.B.A.F

Plaintiff

and

Chase Bank Kenya Limited (In Receivership)

1st Defendant

Kenya Deposit Insurance Corporation (as the receiver of Chase Bank Kenya Limited (in Receivership)

2nd Defendant

SBM Bank Kenya Limited

3rd Defendant

Ruling

1. Before this court for determination is the application dated July 20, 2021 wherein the applicant seeks the following orders: -1. Spent.2. A temporary injunction do issue restraining the 1st and 2nd defendants from distributing the sum of USD 4,888,240. 79 as part of the 1st defendants assets to the 1st defendant's creditors being prepayment made on February 18, 2016 pursuant to a Trade Credit Agreement dated January 27, 2016 through swift transaction reference number STO7xxxx deposited to account number 04xxxx.3. The 1st and 2nd defendants do deposit in a joint interest earning account in the name of Messrs Wamae & Allen and Issa & Company the sum of USD 4,999,888. 30; being security for the amount sought in the claim pending the hearing and determination of the suit.4. The 1st and 2nd defendants do furnish security for costs in the sum of kshs 14,442,000. 00 to be deposited in a joint interest earning account in the name of Messrs Wamae & Allen and Issa & Company.5. The costs of the application be awarded to the plaintiff.

2. The application is brought under article 10 of the Constitution, sections 1A, 1B, 3A & 69 (b) of the Civil Procedure Act; order 26 rule 1; order 39 rules 5 (1), (2), (3); 6(1), (7) and order 40 rules 1, 2 and 11 of the Civil Procedure Rules.

3. The application is supported by the affidavits of Ahlidja Romaric and Allen Waiyaki Gichuhi and is based on the grounds that: -a.Pursuant to a press release issued on April 16, 2021, the Central Bank of Kenya placed the 1st defendant in liquidation and appointed the 2nd defendant as the bank’s liquidator.b.The 2nd defendant subsequently issued a press release on May 10, 2021 advising the general public of the commencement of payment of protected deposits to all eligible depositors and calling upon the 1st defendant's creditors to lodge claims for the deposits held with the 1st defendant.c.By a ruling dated May 13, 2021, this honourable court held that the 1st and 2nd defendants had admitted that they owe the plaintiff a colossal sum of money to the tune of kshs 541 million paid to the 1st defendant as a pre-payment pursuant to trade credit agreement dated January 27, 2016. d.The plaintiff’s funds are held by the defendants in trust and do not form part of the 1st defendant's distributable assets. The money is therefore not available for distribution to the 1st defendant's creditors as part of the 1st defendant’s assets.e.The 1st and 2nd defendants have however declined to deliver up the plaintiff's funds and has instead threatened to distribute it amongst the 1st defendant's creditors as admitted in the defence.f.At paragraph 9 of their defence, the 1st and 2nd defendants admit that they hold the plaintiff's funds but allege that the plaintiff is a normal creditor and can only be paid after settlement of the other ranking liabilities which take precedence as provided for under section 50(9) of the Kenya Deposit Insurance Act, 2012. g.The plaintiff by the present suit seeks that the funds held by the defendants in trust for the plaintiff be traced and delivered to the plaintiff.h.The main issue in contention before this honourable court as evident from the pleadings filed is whether the plaintiffs funds are held in trust and therefore not available for distribution as part of the 1st defendant's assets to its creditors or whether the plaintiff is a normal creditor to be paid after preferential creditors, if at all their funds.i.The plaintiff is apprehensive that its funds, held in trust, may be wrongfully distributed to the 1st defendant's creditors as part of the 1st defendant's assets.j.Once the liquidation process is completed, and the funds held are distributed to the 1st defendant's creditors, there will be no asset left to recover from in the event that the plaintiff is successful.k.It is the interests of fairness and justice that the funds in contention be deposited in an escrow account pending determination by this honourable court, whether the funds are held in trust or whether the plaintiff is a normal creditor.l.The plaintiff's suit will be rendered a nugatory, unless the orders sought herein are granted.m.The defendants have intentionally refused to comply with case management directions by failing to file their documents hence dragging the suit.n.Unless the orders sought herein are granted, the plaintiff stands to suffer prejudice as there might be no funds to recover from, as the funds will have been wrongly distributed to the 1st defendant’s creditors and the 1st defendant eventually liquidated.o.The defendants do not stand to suffer any prejudice in the unlikely event that the court finds in their favour as the funds, which will be in a joint account, will be available for distribution.

4. The defendants opposed the application through the replying affidavit of its liquidation agent Mr Geoffrey Nyakundi who avers that the 1st defendant agreed to provide a United States Dollar trade credit facility through a trade credit agreement dated January 27, 2016. He states that the prepayment constituted a financial advancement made to the 1st defendant whose obligation was to ensure that the letter of offer was honoured upon maturity. He maintained that the prepayment was not a deposit.

5. I have considered the application, the respondent’s response and the parties’ respective submissions. The main issue for determination is whether the applicant is entitled to the reliefs sought in the application.

Injunction 6. The three conditions for the grant of a temporary injunction were explained in the case of Giella vs Cassman Brown & Co Ltd (1973) E A 385, at page 360 where Spry J held that: -“The conditions for the grant of an interlocutory injunction are ...well settled in East Africa. First, an applicant must show a 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."

7. In Mrao Ltd vs First American Bank of Kenya Ltd & 2 Others [2003] KLR 125, the court defined a prima facie case as follows: -“...So what is a prima facie case? I would say that in civil cases it 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 as 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. The evidence must show an infringement of a right, and the probability of the applicant's case upon trial. That is clearly a standard which is higher than an arguable case."

8. The plaintiff herein seeks orders to restrain the 1st and 2nd defendants from distributing sum of USD 4,888,240. 79 to the 1st Defendant’s creditors. According to the plaintiff, the funds are held by the Defendants in trust and do not form part of the 1st Defendant's distributable assets available for distribution to the 1st Defendant's creditors. The plaintiff claimed that the 1st and 2nd Defendants have declined to deliver up the funds and have instead threatened to distribute it amongst the 1st Defendant's creditors.

9. It was not disputed that the 1st and 2nd defendants are holding the plaintiff’s funds. At Paragraph 9 of their Defence, the 1st and 2nd Defendants admit that they hold the Plaintiff's funds. They however contend that the Plaintiff is an ordinary creditor who can only be paid after settlement of the other ranking liabilities that take precedence as provided for under section 50 (9) of the Kenya Deposit Insurance Act, 2012. I therefore find that the plaintiff has established that it has a prima facie case against the defendants.

10. On irreparable loss, the plaintiff stated that it is apprehensive that unless the funds in question are secured through an order of injunction or deposit in a joint interest earning account, the same may be wrongfully distributed to the 1st Defendant's creditors as part of the 1st Defendant's assets. On their part, the defendants argued that the funds are not held in trust for the plaintiff and added that the plaintiff is an ordinary creditor to be paid after the preferential creditors.

11. I note that the cause of disagreement in this application is whether the Plaintiffs funds are held in trust and therefore not available for distribution as part of the 1st Defendant's assets to its creditors or whether the Plaintiff is a normal creditor to be paid after preferential creditors. My finding is that this is an issue that can only be unpacked after the hearing of the evidence to be presented by the parties in the main suit. I hasten to add that at this interlocutory stage of the case, this court is cautious not to make any findings that can prejudice or preempt the outcome of the main suit.

12. Needless to say, considering the colossal amount of money claimed by the plaintiff herein and the undisputed fact that the 1st defendant is in receivership due to its shaky financial status, the plaintiff’s apprehension that it may not recover the said funds at the end of the case if the injunctive order sought herein are not granted is not without basis. It is clear that once the liquidation process is completed, and the funds held distributed to the 1st defendant's creditors, there may be no asset left to recover from in the event that the plaintiff is successful. I find that the plaintiff has established that it stands to suffer irreparable loss and has satisfied the second condition for the grant of order of injunction.

13. The balance of convenience in this matter tilts in favour of granting the orders of injunction to preserve the subject matter of the suit pending hearing and determination of the suit.

Security for costs 14. The plaintiff also seeks orders for security of costs against the defendants in the sum of kshs, 14,442,000. 00 to be deposited in a joint interest earning account in to be held by the parties’ advocates.

15. The applicable law in an application for security for costs is order 26 Rule 1 of the Civil Procedure Ruleswhich provides as follows;“(1) In any suit the court may order that security for the whole or any part of the costs of any defendant or third or subsequent party be given by any other party”.

16. Courts have taken the position that the grant for orders for security for cost is a matter of judicial discretion. This is the position that was taken in Shah and others vs Manurama Limited and others (2003) E A 294 cited with approval in the case of Ahmed Kulimye Bin & 2 others vs Kenya Revenue authority & another (2012) eKLR.

17. The rationale and or principles for security for costs was discussed in the case of Jayesh Hasmukh Shah vs Narin Haira & another (2015) eKLR in which the court held;“It is now settled Law the order for security for costs is a discretionary one as long as that discretion is exercised reasonably, and having regard to the circumstances of each case. Such factors as absence of known assets in the country, absence of an office within the jurisdiction of the court, inability to pay costs; the general financial standing or wellness of the plaintiff; the bonafides of the plaintiff’s claim, or any other relevant circumstances or conduct of the plaintiff or defendant may be taken into account”.

18. In an application for security for costs, the applicant ought to establish that the respondent, if unsuccessful in the proceedings, would be unable to pay costs due to poverty. It is not enough to allege that a respondent will be unable to pay costs in the event that he is unsuccessful. The same must be proven. This was the holding in the case of Kenya Education Trust vs Katherine S.M. WhittonCivil Appeal No 310 of 2009.

19. From the principles for security for costs and the wordings of order 26 Rule 1 of the Civil Procedure Rules, it is clear that an order for security for costs is only available to a defendant who is apprehensive of the plaintiff’s ability to pay his costs should the plaintiff be unsuccessful in his case. In the present case, it is noteworthy that it is the plaintiff seeking an order for security for costs from the defendant. I am, in the circumstances of this case, not persuaded that the plaintiff is entitled to an order for security for costs.

20. In the upshot, while I find merit in the prayer no 2 of the application for orders of injunction pending the hearing and determination of the suit, which I hereby allow, I find no merit in the prayer for security for costs. The costs of the application shall abide the outcome of the main case.

DATED, SIGNED AND DELIVERED VIRTUALLY AT NAIROBI THIS 9TH DAY OF JUNE 2022. W A OKWANYJUDGEIn the presence of: -Ms Leah Muhia for plaintiff/applicant.Mr Chege for 3rd defendant.Mrs Maina for Issa for 1st and 2nd plaintiffsCourt assistant- Sylvia