Viazi Limited v Standard Chartered Bank [2022] KEHC 13973 (KLR)

Viazi Limited v Standard Chartered Bank (Commercial Case E947 of 2021) [2022] KEHC 13973 (KLR) (Commercial and Tax) (7 October 2022) (Ruling)

Neutral citation: [2022] KEHC 13973 (KLR)

Republic of Kenya

In the High Court at Nairobi (Milimani Law Courts)

Commercial and Tax

Commercial Case E947 of 2021

EC Mwita, J

October 7, 2022

Between

Viazi Limited

Applicant

and

Standard Chartered Bank

Respondent

Ruling

1. Viazi Limited (Viazi) took out a notice of motion dated December 8, 2021, under sections 3A of the Civil Procedure Act, sections 90, 96(2) and 103 of the Land Act and orders 40 rules 1, 2 and 4 and 51 of the Civil Procedure Rules. Viazi seeks orders compelling the respondent Standard Chartered Bank (Standard Chartered) to restructure the payment plan and reduce the installments payable to accommodate the financial situation of Viazi, and that the Officer Commanding the area Police Station be ordered to oversee compliance of that order.

2. The motion is based on the grounds on its face and the supporting affidavit sworn by Paul Asamba, a director, and written submissions dated August 5, 2022.

3. Viazi states that in about February 2019, it obtained a loan facility of Kshs 22,500,000/- from Standard Chartered and office suites numbers 3 and 10 situated on 3rd floor of Fortis Suites erected on LR No 209/11440 were used as security for the loan facility. Although Viazi had been making the regular payments to service the loan the payments became irregular when lost tenants due to the COVID-19 pandemic.

4. Standard Chartered offered to discuss a restructured payment plan through Joseph Mulandi, and made payments which were acknowledged Mr Mulandi on April 28, 2021 through email and regular payments had been made since August 2021 when it got a tenant.

5. By September 16, 2021, Viazi was in arrears of Kshs 1,370,110. 70 under the principal loan and outstanding loan balance of Kshs 22,995,362. 16. However, attempts to seek amicable settlement through a restructure were futile due to Standard Chartered’s inaction.

6. Standard Chartered now Standard intends to exercise the statutory power of sale of the suit property and Viazi is apprehensive that if the orders sought are not granted, it stands to lose the suit properties as well as suffer irreparable financial loss and damage.

7. Viazi asserts that it has established a prima facie case with a probability of success due to frustration of the loan agreement by Standard Chartered due to no responsiveness to its calls and correspondence to restructure the payments. Viazi relies on Giella v Cassman Brown & Company Limited [1973] EA 358.

8. Viazi also asserts that it will suffer irreparable injury that cannot be adequately compensated by an award of damages because it has employee who have families and financial responsibilities. Viazi relies on the definition of irreparable injury in Halsbury’s Laws of England, Third Edition, Volume 21, paragraph 739, page 352 as cited in Robert Ochanda Abuya v Kenya Power and Lighting and Company Limited [2021] eKLR.

9. Citing the decision in Paul Gitonga Wanjau v Gathuthis Tea Factor Company Ltd & 2 others [2016], Viazi again asserts that the balance of convenience tilts in its favour as it stands to suffer greater inconvenience if the order for restructuring of the loan is not granted.

Response 10. Standard Chartered has opposed the application through a replying affidavit sworn by Boniface Machuki, the recoveries unit on January 15, 2022 and written submissions dated July 18, 2022. Standard Chartered states that in October 2019, Viazi, applied for a term loan facility which was given subject to the terms and conditions set out in the letter of offer dated October 16, 2018. Viazi accepted the terms of the offer through a board resolution to borrow and operate accounts dated October 29, 2018. Viazi offered office suites numbers 3 and 10, erected on the third floor of Fortis Office Suites on Land Reference No 209/11440 as security for repayment of the loan and executed legal charges, both dated December 31, 2018 over the two offices.

11. The loan was on February 7, 2019 but subsequently, Viazi defaulted on its repayment obligations, despite demand for repayment. The three (3) months statutory notice dated September 17, 2021 was then served calling on Viazi to rectify the default which was not done.

12. Standard Chartered therefore argues that the present application is not only unfounded but is also a scheme to frustrate the exercising its statutory power of sale and evade voluntary and binding contractual obligations. Standard Chartered relies on Anthon Ongori Otundo & 2 others v Cooperative Bank of Kenya & another [2021] eKLR to argue that Covid 19 pandemic is not and cannot be a proper ground for stopping an accrued statutory power of sale, neither can it relieve Viazi from its obligations.

13. Standard Chartered also relies on the Giella v Cassman Brown [supra], to assert that the application does not meet the threshold for granting interim injunction. In any event, it is argued, an interim injunction cannot be granted to restrain a chargee from exercising statutory power of sale where the chargor is in default and there is no dispute as to the amount due and owing.

14. Standard Chartered again relies on Mrao Ltd v First American Bank of Keya and 2 others [2003] eKLR, for the proposition that Viazi has failed to establish a prima facie case with a probability of success. First, Viazi does not dispute the loan advanced, Second, there is no dispute that the loan is in arrears. According to Standard Chartered, once a property is given as security, it becomes a commodity subject to sale in case of default, and relies on Andrew Muriuki Wanjohi v Equity Building Society Limited & 2 others [2006] eKLR.

15. Standard Chartered further argues that Viazi has not shown that it would suffer irreparable damage should the court decline to grant the application. Rather, it contends that as one of the largest and most profitable banks and the value of the suit properties being ascertainable, it is able to compensate Viazi through damages in the event suit succeeded.

16. Standard asserts, therefore, that the balance of convenience does not favour granting the orders as this would make it impossible to recover the loan amount and interest accrued.

Determination 17. The application seeks an injunction to restrain Standard Chartered from exercising its statutory power of sale over the suit property due to default in repayment. Standard Chartered advanced Viazi a loan facility and charged the two office suits as security. Viazi however fell into default due to what it says was covid pandemic, and approached Standard Chartered for a restructuring of the facility which Standard Chartered was however not keen to do. Viazi argues that Standard Chartered’ reluctance to restructure the loan facility has caused it problems and is securities are sold it will suffer irreparable loss.

18. This being an application for interlocutory injunction, the law is settled that Viazi must demonstrate a prima facie case with probability of success; irreparable loss that cannot be adequately compensated by damages or that the balance of convenience is in its favour. (Giella v Cassman Brown & Company Limited (supra).

19. There is no denial that Viazi obtained a financial facility from Standard Chartered which that was secured by the suit properties. Viazi does not also deny default. Its argument is that due to financial difficulties caused by the covid pandemic, it requested Standard Chartered to restructure the loan facility which has not been done. Instead, Standard Chartered has moved sale the securities to recover the outstanding balance.

20. I have gone through this application, supporting affidavits, the response as well as submissions. There is no dispute that the property was given as security and that Standard Chartered could sell the security in the event of default after due notice.

21. The law requires Viazi to show a demonstrate a prima facie case with a probability of success in order to persuade this court to grant an interlocutory injunction in its favour. In Mrao Ltd v First American Bank of Kenya Ltd & 2 others [2003] eKLR, the Court of Appeal stated that a prima facie case in civil cases, 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 other.

22. In Nguruman Limited v Jan Bonde Nielsen & 2 others [2014] eKLR, the Court of Appeal again stated 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.

23. Similarly, in Amicabre Travel Services Limited v Alios Kenya Finance Limited [2014] eKLR, the court stated thus:The court requires tangible evidence when considering an application for interlocutory injunction pending the hearing and determination of the suit. It is therefore incumbent upon an applicant to submit a cogent case during the interlocutory stage to show that it has an arguable case. This is important because at this time, the court would not have had an opportunity to listen to all the evidence in support of each party’s case. This is a burden that lies on the applicant. Having failed to rebut the defendant’s assertions, the only inference the court can make is that the said instalment remained unpaid.

24. Viazi was under obligation to show that a right is being violated or is likely to be violated to shift the burden to Standard Chartered to explain or rebut that claim. It is not enough for Viazi to merely state that it has a prima facie case with a probability of success. That alone will not bring the matter within the meaning of a prima facie case as required by law.

25. I have considered the material placed before this court, the basis of the interlocutory injunction sought. As it is, this court is not conducting a mini trial of the case. The task at this stage is to determine on the material placed before it, whether Viazi has put forward a case requiring intervention and restrain Standard Chartered from exercising the statutory power of sale of the property given as security; show that the irreparable injury to be suffered cannot be compensated by way of damages or that the balance of convenience tilts in its favour.

26. As the court stated in Giro Commercial Bank Limited v Halid Hamad Mutesi [2002] eKLR, a mortgagee cannot be restrained from exercising his power of sale because the amount due is in dispute or that the mortgagee has commenced a redemption action or because the mortgagor objects to the manner in which the sale is being arranged. Where the debt is admitted as due and the loan is not being serviced, the court should not grant an injunction.

27. In the present case, Viazi has admitted default and has not shown that the loan is being repaid as required under the charge. On the other hand, Standard Chartered argues that Viazi has been in default, notwithstanding the time given to pay but no payment has been made even after notices were served. In fact, Viazi does not even challenge the notice issued by Standard Chartered. On the basis of the above facts, I am not persuaded that Viazi has satisfied the test for granting a temporary injunction. That is to say, Viazi has not demonstrated a prima facie case with a probability of success.

28. On whether Viazi will suffer irreparable injury which cannot be compensated by damages, I am not persuaded that this will be the case. Standard Chartered is a financial institution that would easily compensate Viazi were the suit to eventually succeed. The value of the properties is also known or can be ascertained and, therefore, Viazi can easily recoup the value of the security if the suit succeeded.

29. Regarding the balance of convenience, there can be no doubt that the loan amount continues to attract interest and could easily outstrip the value of the charged property. This means that if an injunction is granted until the suit is heard and determined, Standard Chartered may well not be able to recover the outstanding loan amount and interest by the time the suit will be determined. There is also no guarantee that the value of the security would be sufficient to cover the amount outstanding then. In that respect, I find the balance of convenience tilts in favour of Standard Chartered which, in any case, can easily pay the value of the property if the suit succeeded.

Conclusion 30. Having considered the application and the material placed before this court, the conclusion I come to, is that Viazi has not established a prima facie case with a probability of success; that it will suffer irreparable loss that cannot be compensated by damages or that the balance of convenience tilts in its favour. Whether or not Standard Chartered should restructure the loan repayment terms, is a matter between the parties and not this court.

31. In the circumstances, I find no merit in the application. It is declined and dismissed with costs.

DATED, SIGNED AND DELIVERED AT NAIROBI THIS 7TH DAY OF OCTOBER 2022E C MWITAJUDGE