Utabibu Co-operative Savings and Credit Society Ltd v Bank of Baroda (Kenya) Limited & another [2022] KEHC 16587 (KLR)

Utabibu Co-operative Savings and Credit Society Ltd v Bank of Baroda (Kenya) Limited & another (Civil Case 005 of 2022) [2022] KEHC 16587 (KLR) (Commercial and Tax) (8 December 2022) (Ruling)

Neutral citation: [2022] KEHC 16587 (KLR)

Republic of Kenya

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

Commercial and Tax

Civil Case 005 of 2022

WA Okwany, J

December 8, 2022

Between

Utabibu Co-operative Savings and Credit Society Ltd

Applicant

and

Bank Of Baroda (Kenya) Limited

1st Respondent

Monarch Developers Limited

2nd Respondent

Ruling

1. The plaintiff instituted this suit against the defendant through a plaint dated February 8, 2022 seeking judgement against the defendant for:-a.Specific performance of agreement to lease dated April 1, 2015b.A permanent injunction be issued against the 1st defendant, its servants and agents from selling the subject property at undervaluec.A permanent injunction be issued to prevent the defendants, their servants and agents from interfering with the quiet possession of the suit property namely office number A1 and A2 of the development known as Doctor Park erected on 4th floor on LR no 209/17/4 Nairobi and three parkings being the entitlements thereof.d.Special and general damages in lieu of specific performance and on account of current market value of the suit property and costs of relocation on full indemnity basis to be paid by the 1st defendant from the residue of the auction and if insufficient the balance to be paid by the 2nd defendant.e.Costs of the suitf.Any other relief as court deems fit and justg.Interests on (d) and (e)

2. Concurrently with the plaint, the plaintiff filed the application dated February 8, 2022 seeking the following orders:-1. Spent

2. Spent

3. Pending the hearing and determination of the main suit, this Honourable court be pleased to issue an order of temporary injunction restraining the 1st respondent, their servants, agents or assigns or any person acting at their behest from auctioning office spaces A1 and A2 situated on fourth floor on property LR 209/17/4 located in the city of Nairobi.

4. Pending the hearing and determination of the main suit, an interlocutory injunction be granted restraining the 1st and 2nd respondents either by themselves, their servants, agents and or employees from interfering, trespassing, wasting, damaging, alienation, removal or disposition of office spaces A1 and A2 situated on fourth floor on property LR 209/17/4 located in the city of Nairobi.

5. An interlocutory injunction be granted restraining the 1st respondent whether by themselves, their servants, workers, agents and or employees from advertising in any of the office spaces A1 and A2 situated on fourth floor on property LR 209/17/4 located in the city of Nairobi.

6. Costs of this application be provided for.

3. The application was supported by the affidavit sworn by Mr Willis Julah the Chief Executive Officer of the applicant and is based on the following grounds:-a.Vide an agreement dated April 1, 2015, (the Agreement to lease) the plaintiff covenanted with the respondent to purchase the whole of office space A1 and A2 on fourth floor in the development known as Doctors park erected on LR 209/17/4 located in the City of Nairobi for a consideration of Kshs 44,689,000. b.The plaintiff paid for the purchase price in fullc.The 2nd respondent has failed to discharge title from the 1st respondent and to furnish the plaintiff with completion documents for the purpose of registration of the leased.The 2nd defendant defaulted on its loan obligations to the 1st defendant to the tune of Kshs 373,802,494. 68. e.Consequently, the 1st respondent is in the process of effecting its statutory power of sale and has issued a rectification notice, a statutory notice, of sale and has undertaken a pre-auction valuation.f.The 1st respondent through its agents Njihia Njoroge & Company has had the subject property valued at an open market value of Kshs 30,700,000 as at December 15, 2021g.notably the valuation is grossly undervalued in comparison to the purchase price of 1st April 2015 at Kshs 44,689,000 in view of the appreciation matricesh.The applicant upon payment of the purchase price in total enjoys unregistered interests over the subject parcel and are constructive proprietors having subrogated the 2nd respondents position.i.Consequently, the 1st respondent owes a duty of care to the applicant in ensuring that the subject property is properly valued at the current market value.j.The applicant’s interest as the purchaser is under real threat of being wasted away if the intended auction is not stopped.k.The applicant will suffer irreparable harm by way of loss of good will if the property is auctioned.l.It is in the interest of justice and fairness that the orders sought herein be granted by this Honourable Court.

4. The 1st respondent opposed the application through the replying affidavit by its Legal manager Mr Martin Karanu who states that the agreement that the applicant has relied upon was not signed and that the suit is therefore a nullity as it seeks to enforce an unsigned agreement. He contends that the property known as LR No 209/17/4 was at all material times charged to the 1st respondent and its consent was not sought in respect to the alleged purchase of the suit properties.

5. The Respondent further contends that the applicant did not make any payments towards the purchase of the suit property as the terms of the contract dictated that the 2nd respondent banks the proceeds of sale at the 1st defendant’s bank. He avers that as a condition of the charge, the respondent’s consent had to be sought before the transfer of the suit property. He further avers that there was no privity of contract between the applicant and the respondents and that the applicant could not claim entitlement or any duty under the charged document.

6. The respondent also filed notice of preliminary objection dated March 2, 2022 wherein it sets out the following grounds:-1. That the Honourable Court lacks the requisite jurisdiction to hear and determine the instant matter since the present suit is a dispute relating to title of land which jurisdiction is vested in the Environment and Land court pursuant to Article 162(2) (b) of the Constitution and section 13(2) (a) of the Environment and Land Court Act No 19 of 2011 Laws of Kenya.

2. That the plaintiff’s application, and suit is incompetent, incurably defective and amounts to an abuse of the process of this Honourable court as it lacks the necessary jurisdiction by virtue of section 162(2)(b) of the Constitution and Section 13(2)(a) of the Environment and Land Court Act No 19 of 2011.

3. That the plaintiff’s application and whole of the said suit is premature and void ab initio in view of the arbitration clause encapsulated in the Agreement to lease made between the plaintiff and 2nd defendant dated April 1, 2015.

7. The application was canvassed by written submissions which I have considered. Two main issues fall for determination, namely; whether the preliminary objection dated March 2, 2022 is merited and whether the Applicant has made out a case for the granting of the injunctive orders sought.

Preliminary Objection 8. What amounts to a Preliminary Objection was explained in the case of Mukisa Biscuits Manufacturing Co Ltd v West End Distributors Limited (1969) EA 696 thus:-“So far as I am aware, a Preliminary Objection consists of a point of law which has been pleaded, or which arises by clear implication out of pleadings, and which if argued as a preliminary point may dispose of the suit. Examples are an objection to the jurisdiction of the court, or a plea of limitation, or a submission that the parties are bound by the contract giving rise to the suit to refer the dispute to arbitration.”

9. In the same case Sir Charles Newbold, P stated:‘…..a Preliminary Objection is in the nature of what used to be a demurrer. It raises a pure point of law which is argued on the assumption that all the facts pleaded by the other side are correct. It cannot be raised if any fact has to be ascertained or if what is sought is the exercise of judicial discretion. The improper raising of preliminary objections does nothing but unnecessarily increase costs and on occasion, confuse the issue, and this improper practice should stop.’

10. In the present case, the Respondent challenges the jurisdiction of this court to entertain the suit on the basis that it deals with a land matter thus falling under the purview of the Environment and Land Court pursuant to Article 162(2) (b) of the Constitution and Section 13(2) (a) of the Environment and Land Court Act No 19 of 2011 Laws of Kenya.

11. It is trite that the issue of jurisdiction needs to be determined at the earliest time possible. In Owners of the Motor Vessel ‘Lillian ”(S) versus Caltex Oil (Kenya) Ltd [1989] KLR1, it was held as follows:-“Jurisdiction is everything. Without it, a court has no power to make one more step. Where a court had no jurisdiction, there would be no basis for a continuation of proceedings pending other evidence. A court of law downs tools in respect of the matter before it the moment it holds the opinion that it is without jurisdiction. ………..“By jurisdiction is meant the authority which a court has to decide matters that are litigated before it or to take cognizance of matters presented in a formal way for its decision. The limits of this authority are imposed by the statute, charter, or commission under which the court is constituted, and may be extended or restricted by the like means. If no restriction or limit is imposed, the jurisdiction is said to be unlimited. A limitation may be either as to the kind and nature of the actions and matters of which the particular court had cognizance, or as to the area over which the jurisdiction shall extend, or it may partake of both these characteristic. If the jurisdiction of an inferior court or tribunal (including an arbitrator) depends on the existence of a particular state of facts, the court or tribunal must inquire into the existence of the facts in order to decide whether it has jurisdiction; but except where the court or tribunal has been given power to determine conclusively whether the facts exist. Where a court takes it upon itself to exercise a jurisdiction which it does not possess, its decision amounts to nothing. Jurisdiction must be acquired before judgment is given.”

12. On whether the plaintiffs claim falls under the jurisdiction of the Environment and Land Court, Article 162 (2) (b) of the Constitution 2010, mandates Parliament to establish courts with the status of the High Court to hear and determine disputes relating to among others, the environment, use and occupation of and title to land.

13. In Suzanne Butler & 4 Others v Redhill Investments & Another (2017) eKLR the Court held that:-“When faced with a controversy whether a particular case is a dispute about land (which should be litigated at the ELC) or not, the Courts utilize the Pre-dominant Purpose Test: In a transaction involving both a sale of land and other services or goods, jurisdiction lies at the ELC if the transaction is predominantly for land, but the High Court has jurisdiction if the transaction is predominantly for the provision of goods, construction, or works. The Court must first determine whether the pre-dominant purpose of the transaction is the sale of land or construction. Whether the High Court or the ELC has jurisdiction hinges on the predominant purpose of the transaction, that is, whether the contract primarily concerns the sale of land or, in this case, the construction of a townhouse. Ordinarily, the pleadings give the Court sufficient glimpse to examine the transaction to determine whether sale of land or other services was the predominant purpose of the contract. This test accords with what other Courts have done and therefore lends predictability to the issue."

14. A perusal of the pleadings reveals that the dispute between the parties herein revolves around an alleged breach of contract and the rights that accrue with respect to various contracts. While I note that the issue of the purchase the suit property is still in dispute, I find that the main element of the dispute herein is a contract thus making the commercial element the predominant factor in the case. For this reason, I find that this court is vested with the jurisdiction to hear and determine the case.

15. On whether the application meets the threshold for the granting of orders of injunction, I note that applicant seeks injunctive orders to prevent the respondent from exercising its statutory power of sale in relation to the property LR No 12495/156(IR No 150385) Hillcrest Area Karen C Estate.

16. The principles governing the granting of temporary injunctions were set out in the case of Giella v Cassman Brown and Company Limited (1973) EA 385, at page 360 where Spry J held that: -“The conditions for the grant of an interlocutory injunction are now, I think, 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.”

17. A prima facie case was defined in the case of Mrao Limited v First American Bank of Kenya and 2 Others (2003) KLR 125, where the Court of Appeal, in determining what amounts to a prima facie case, stated:-“A prima facie case in a Civil Case includes but is not confined to a “genuine or arguable” case. It is a case which on the material presented to the court; a tribunal properly directing itself will conclude 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 but the evidence must show an infringement of a right, and the probability of success of the applicant’s case upon trial. That is clearly a standard, which is higher than an arguable case.”

18. The Court of Appeal adopted the same position in Nguruman Limited v Jan Bonde Nielsen & 2 Others [2014] eKLR where it was held that:-“The party on whom the burden of proving a prima facie case lies must show a clear and unmistakable right to be protected which is directly threatened by an act sought to be restrained, the invasion of the right has to be material and substantive and there must be an urgent necessity to prevent the irreparable damage that may result from the invasion...... The standard of proof of that prima facie case is on a balance or, as otherwise put, on a preponderance of probabilities. This means no more than that the Court takes the view that on the face of it the applicant’s case is more likely than not to ultimately succeed.” 19. It is the applicant’s case that it purchased the suit property through an agreement dated April 1, 2015 and paid the purchase price of Kshs 44,689,000. The applicant contends that it has unregistered interests in the suit property and that the 1st defendant owes it a duty of care to ensure that the property is properly valued at the current market value.

20. The respondent, on the other hand, argued that it was a term of the contract between the 1st and 2nd respondent that consent would be sought from the 1st respondent before selling the property to third parties. The respondent contended that the applicant did not seek its consent and that the alleged sale was therefore not valid. The respondent further stated that it was a stranger to the contract between the 2nd respondent and the applicant.

21. It was not disputed that the 1st respondent advanced a loan facility to the 2nd respondent who defaulted on its loan obligations. The 1st respondent therefore initiated the process of effecting its statutory power of sale by sending the requisite statutory notices.

22. A perusal of the record reveals that it was a condition of the contract between the 1st and 2nd respondent that consent be given by the chargee before the disposal of any interest in the charged property.

23. Section 87 of the Land Act, it provides that:-“If a charge contains a condition, express or implied that chargee prohibits the chargor from, transferring, assigning, leasing, or in the case of a lease, subleasing the land, without the consent of the chargee, no transfer, assignment, lease or sublease shall be registered until the written consent of the chargee has been produced to the Registrar.”

24. Similarly, Section 59 of the Land Registration Act provides that:-“If a charge contains a condition, express or implied by the borrower that the borrower will not, without the consent of the lender, transfer, assign or lease the land or in the case of a lease, sublease, no transfer, assignment, lease or sublease shall be registered until the written consent of the lender has been produced to the Registrar.”

25. I find that the Applicant did not present any evidence to show that it obtained the bank’s consent before purchasing the subject property. The applicant contends that it has some unregistered interest in the property. While I note that the applicant may have acquired some beneficial interest in the suit property, I find that the same cannot defeat/override the banks interest as a chargee. I am guided by the decision in Innercity Properties Limited v Housing Finance & 3 Others - HCCC No E030 of 2020 where the court stated:-“The Interested Parties’ case is that they purchased their apartments from the plaintiff and that they have paid the purchase price and are in possession thereof. Quite apart from the fact that they do not have any claim to be litigated against the defendants which would entitle them to an injunction, they have not shown that they have a legal claim against the bank. Since the bank is the chargee, it must give consent to the Plaintiff to sell the property. The Interested Parties have not shown that they received the bank’s consent to purchase the apartments or that they paid the Bank any money. Since they have not established a legal claim against the bank, the court cannot issue an injunction in their favour. As was stated in Agriculture Finance Corporation v Lengetia Ltd (Supra),As a general rule, a contract affects only the parties to it, and cannot be enforced by or against a person who is not a party, even if a contract is made for his benefit and purports to give him a right to sue or to make it liable upon it.

26. Similarly, in the case of Monica Waruguru Kamau & Anor v Innercity Properties Ltd(HCCC No E035 of 2020) the court in addressing a similar issue stated that:-“Even if the third parties were to obtain a beneficial interest in the suit property, the said interest would be subordinate to the 1st Defendant’s interest as Chargee.”

27. Having regard to the principle espoused in the above cited cases, I find that the Applicant did not follow the correct procedure in purchasing the subject property and that it has not established a prima facie case against the 1st Respondent so as to stop it from exercising its statutory power of sale.a.On irreparable harm, I am guided by the decision in the case of Paul Gitonga Wanjau v Gathuthi Tea Factory Company Ltd & 2 Others [2016] eKLR wherein the Court considered the Halsbury’s laws of England definition of what amounts to an irreparable loss as follows: - “first, that the injury is irreparable and second, that it is continuous. By the term irreparable injury is meant injury which is substantial and could never be adequately remedied or atoned for by damages, not injury which cannot possibly be repaired and the fact that the plaintiff may have a right to recover damages is no objection to the exercise of the jurisdiction by injunction, if his rights cannot be adequately protected or vindicated by damages.”

28. The applicant needed to demonstrate that it will suffer harm that cannot be quantified in monetary terms or which cannot be cured by an award of damages. In Nguruman Limited (supra) the Court stated as follows on irreparable injury or damage:-“On the second factor, that the applicant must establish that he “might otherwise” suffer irreparable injury which cannot be adequately remedied by damages in the absence of an injunction, is a threshold requirement and the burden is on the applicant to demonstrate, prima face, the nature and extent of the injury. Speculative injury will not do; there must be more than an unfounded fear or apprehension on the part of the applicant. The equitable remedy of temporary injunction is issued solely to prevent grave and irreparable injury; that is injury that is actual, substantial and demonstrable; injury that cannot “adequately” be compensated by an award of damages. An injury is irreparable where there is no standard by which their amount can be measured with reasonable accuracy or the injury or harm is such a nature that monetary compensation, of whatever amount, will never be adequate remedy.”

29. My finding is that the applicant has not demonstrated that the injury it might suffer, if any, will be irreparable such that it cannot be remedied by damages. I note that the suit property is an office block whose value is quantifiable and that damages would suffice as compensation should the applicant succeed in the suit.

30. My further finding is that the balance of convenience, in this matter, tilts in favor of the 1st respondent.

31. In the upshot I find that the application does not meet the conditions for the granting of orders of injunction. I find that the application dated February 8, 2022 lacks merit and I therefore dismiss it with costs to the 1st Respondent.

DATED, SIGNED AND DELIVERED VIRTUALLY AT NAIROBI THIS 8TH DAY OF DECEMBER 2022. W A OKWANYJUDGEIn the presence of: -Mr Kipkorir and Muturi for plaintiffs/applicantsMr Ndugaiti for Busaidy for 2nd defendant.Mr Gathaiya for 1st defendant.Court Assistant- Sylvia