Chege v Kenya Commercial Bank Limited (Civil Suit 23 of 2020) [2022] KEHC 10317 (KLR) (4 May 2022) (Ruling)
Neutral citation:
[2022] KEHC 10317 (KLR)
Republic of Kenya
Civil Suit 23 of 2020
OA Sewe, J
May 4, 2022
Between
Mary Muthoni Chege
Applicant
and
Kenya Commercial Bank Limited
Respondent
Ruling
1.This ruling is in respect of the notice of motiondated June 18, 2021. It was filed by the plaintiff/applicant pursuant to sections 1A, 1B,3A and 95 of the Civil Procedure Act, Chapter 21 of the Laws of Kenya; and Order 50 Rule 1 of the Civil Procedure Rules, 2010, for the following orders:(a)Spent.(b)Spent.(c)That pending the hearing and determination of this suit, the defendant/respondent by itself, its servants and/or agents be restrained by an order of temporary injunction from alienating, selling, advertising for sale or in any other way dealing with the plaintiff’s properties known as L.R No. MN/1/13774 and 13775 – Shree Enclave Estate – Nyali Area Mombasa Malindi Road.(d)Alternatively and without prejudice to Prayer [c], that the Court be pleased to extend the time for compliance with the condition imposed on 18th March 2020 and it be deemed that the plaintiff has complied with the said condition(e)That the costs of the application be provided for.
2.The application was premised on the grounds that on March 18, 2020, the court granted an order of injunction which was conditional on the plaintiff depositing Kshs 5,000,000 into her account with the defendant within ten days from the date of the order; but that on account of the problems spawned by the Covid-19 pandemic, the plaintiff was unable to pay the said sum within the required time, but nevertheless complied on by making three separate deposits of Kshs 5,000,000 on June 6, 2020, Kshs 1,000,000 on April 19, 2021and Kshs 2,000,000 on May 31, 2021.
3.The plaintiff complained that the aforementioned payments notwithstanding, the defendant served her with a notification of sale dated May 4, 2021with the clear intention of having the suit properties sold in a public auction on July 7, 2021. She asserted that the intended auction was patently unlawful; and therefore that the court has the inherent jurisdiction to issue appropriate orders to ensure that the defendant does not continue abusing the process of the court. She further contended that she will suffer irreparable loss and damage if the sale proceeds as intended.
4.The foregoing grounds were reiterated in the plaintiff’s supporting affidavitsworn on June 18, 2021. She averred in paragraph 3 thereof that she was surprised that the defendant wanted to sell the suit properties by public auction, yet it had not served her with the requisite notices. She explained why she was unable to comply with the order dated March 18, 2020and annexed documents to demonstrate that she ultimately paid Kshs 8,000,000 in three tranches. Accordingly, the plaintiff sought the intervention of the court in forestalling the sale, pending the hearing and determination of her suit against the defendant.
5.The defendant opposed the application and filed a replying affidavit to that end on July 7, 2021. The said affidavit was sworn on behalf of the defendant by Ms. Bertha Oduor. She averred that the defendant entered into a mortgage facility agreement with one George Kithi as the borrower for the purposes of financing the purchase of all that property on Plot No LR No 13774 and LR No 13775 in Nyali. A copy of the Facility Letter was annexed to the Replying Affidavit as Annexure “BO-1”. The said facility was for a term of 10 years, with a scheduled repayment of Kshs 1,382,110 per month.
6.Ms. Oduor further deposed that the facility was secured by, inter alia, a first legal charge of Kshs 80,000,000 over the suit properties and a Deed of Assignment of rental income from the property; and that the borrower was fully aware of and consented to the terms of the mortgage. She added that, subsequently, the borrower fell into arrears in the sum of Kshs 1,461,246.75 as at 2nd March, 2018, prompting the defendant to send reminders to the said borrower. Ultimately, and on account of continued default by the borrower, the defendant commenced the process of sale of the charged property with a view of actualizing its statutory power of sale.
7.According to Ms Oduor, the defendant issued all the statutory notices in accordance with the relevant provisions of the law, starting with the 3 months’ notice to the borrower to rectify his default, as provided for in section 90 of the Land Act. She further deposed that upon expiry of the section 90 notice, the defendant instructed M/s Active Valuers to provide a professional valuation report of the suit properties; after which the defendant issued a notice to sell under section 96 of the Land Act. Thereafter, the defendant instructed an auctioneer to sell the property by way of public auction; whereupon the redemption notice provided for in rule 15(d) of the Auctioneers Rules was issued. That it was only thereafter that the suit property was advertised for sale.
8.It was, consequently, the assertion of the defendant that it has no privity of contract with the plaintiff, having all along dealt with George Kithi, the borrower. She further denied that the property in question is not matrimonial property. Ms Oduor also mentioned, at paragraph 25 of her replying affidavit that the application is res judicata, having been the subject of the court order dated March 18, 2020; and therefore that the plaintiff has not come to court with clean hands. She annexed several documents to the replying affidavit in proof of her assertions.
9.The application was canvassed by way of written submissions pursuant to the directions given herein on July 8, 2021. Ms. Murage, learned counsel for the plaintiff, submitted that various illegalities having been uncovered by the plaintiff, the attempt by the defendant to exercise its statutory power of sale must be curtailed. She relied on Mistry Amar Singh v Serwano Wofunira Kulubya UCA No 74 of 1960 in support of the principle that illegality unravels everything. She added that, whether or not the alleged illegalities exist is a matter of fact, to be determined by the Court after hearing the parties; and urged the Court to find, on the basis of Giella v Cassman Brown & Co Ltd [1973] EA 358 and Albert Mario Cordeiro & another v Vishram Shamji [2015] eKLR that a prima facie case has indeed been made out by the plaintiff.
10.In addition to the foregoing, Ms. Murage submitted that the suit property is matrimonial property; and therefore the plaintiff has a beneficial interest in it. She argued that to deprive her of her interest without notice would undoubtedly occasion her irreparable loss. Counsel added that the defendant ought not to be allowed to continue with a flawed process on the basis that it can pay damages thereafter. The case of Sharok Kher Mohamed Ali & Another v Southern Credit Banking Corporation Limited [2008] eKLR was cited in support of this proposition. Counsel accordingly urged the Court to find that the plaintiff has not only made a good case, entitling her to the relief she has prayed for, but has also demonstrated that the balance of convenience also tilts in her favour.
11.Mr. Weloba, learned counsel for the defendant, relied on his written submissions dated October 15, 2021. He likewise made reference to Giella v Cassman Brown and Nguruman Limited v Jan Bonde Nielsen & 2 Others, Civil Appeal No 77 of 2012 as to the applicable principles and added that he who comes to equity must come with clean hands. In this regard, he cited Peter Kairu Gitu v KCB Bank Kenya Limited & Another [2021] eKLR to underscore his submission that the plaintiff’s conduct does not meet the approval of a court of equity. Mr Weloba particularly faulted the plaintiff for filing the application dated March 18, 2020, obtaining orders for injunction and thereafter failing to comply with the terms set vide the order of March 18, 2020. According to Mr. Weloba it is telling that the plaintiff abandoned that initial application and then proceeded to file the instant application seeking for the exact same orders. He therefore urged the court to find that she is not deserving of the orders sought in the instant application. Counsel relied on Yusuf Abdi Ali Co Ltd v Family Bank Ltd [2015] eKLR to emphasize his argument; and urged the Court to dismiss the application with costs.
12.Ms Murage filed supplementary written submissions on November 1, 2021with the leave of thecourt and reiterated her earlier arguments. In response to Mr. Weloba’s arguments she relied on the maxim Ex Dolo Malo Non Oritur Actio to accentuate the argument that it would amount to nothing were the defendant to exercise its statutory power of sale illegally. She cited Holman v Johnson [1775-1802] All ER 98 to support his plea that the Court ought not to lend its assistance to the defendant; which in his view, would be the effect of granting the orders sought by the plaintiff.
13.From the foregoing, it is manifest that there are two key issues arising for determination; the first being a technical one; namely, whether the instant application is res judicata. Should the court find that the application is not res judicata, then it will have to determine whether the applicant has made out a good case for the grant of a temporary injunction.
14.On res judicata, the defendant was of the posturing that, having filed the initial application dated March 18, 2020and obtained conditional injunction, the plaintiff was precluded, by dint of the res judicata doctrine, from filing another application of the same nature. Thus, at paragraphs 23 – 26 of the defendant’s replying affidavit, it was averred that the instant application is untenable; particularly because the plaintiff obtained orders, failed to comply therewith and thereafter abandoned that application to pursue a fresh application for temporary injunction.
15.Indeed, section 7 of the Civil Procedure Act, Chapter 21 of the Laws of Kenya, does provide that:
16.Needless to mention that the res judicata principle is as applicable to main suits as it is to interlocutory applications. Hence, in Uhuru Highway Development Ltd v Central Bank of Kenya & 2 others) Civil Appeal No 36 of 1996), the Court of Appeal held that:
17.A perusal of the court record confirms that the plaintiff filed a Notice of Motion datedMarch 18, 2020 seeking the same orders that she has asked for in the instant application. It is also true that, when the initial application was placed before the duty judge, the plaintiff’s prayer for ex parte interim injunction was granted on condition that she deposits Kshs 5,000,000 into her account with the defendant within 10 days of the order, to be applied towards reducing the debt and to meet the auctioneer’s charges in connection with the aborted sale. The application was then fixed for inter partes hearing on 1st April 2020. It was further ordered that failure to comply would lead to the automatic discharge of the injunction.
18.The record further shows that no action was thereafter taken in the matter until June 18, 2021 when the instant application was filed. In effect therefore the plaintiff abandoned the application dated March 18, 2020 in favour of the instant application. She therefore sought to explain, in the instant application, that she was unable to comply with the terms set in the order of March 18, 2020. Her explanation is to be found at paragraphs 8 – 10 of her supporting affidavit sworn on June 18, 2021.
19.The test in determining whether a matter is res judicata was well laid in the case of DSV Silo v The Owners of Sennar [1985] 2 All ER 104 as applied in the Kenyan case of Bernard Mugo Ndegwa v James Nderitu Githae and 2 others [2010] eKLR. Thus, an applicant, alleging res judicata, must show that:[a]The matter in issue is identical in both suits;[b]That the parties in the suit are substantially the same;[c]There is a concurrence of jurisdiction of the court;[d]That the subject matter is the same; and finally.[f]That there is a final determination as far as the previous decision is concerned.
20.It is plain therefore that, in so far as there was no final decision in respect of the first application, the principle of res judicata is inapplicable to the circumstances hereof. Secondly, it is manifest from some of the annexures to the supporting affidavit filed with the 2nd application that they were prepared by a different firm of auctioneers in May 2021. Indeed, the respondent conceded that after the plaintiff failed to comply with the terms set by the court on 18th March 2020, the defendant proceeded to issue notices afresh with a view of exercising its statutory power of sale. Thus, at paragraphs 26 and 27 of the replying affidavit, it was averred that:
21.In the circumstances, it is plain that the 1st application was overtaken by events flowing directly from the orders granted on 18th March 2020; and therefore the 2nd application is not res judicata. Moreover, since the circumstances on the ground had greatly changed by 18th June 2021, the prayers set out in the initial application could hardly have served the applicant’s predicament over one year later. For instance, at paragraph 4 of the Grounds in support of the initial application dated March 18, 2020, it was averred that:
22.A similar assertion is to be found at paragraph 5 of the plaintiff’s supporting affidavit, in respect of which copies of the advertisements were annexed as Annexure “MM-1”. These are not the same allegations relied on in support of the 2nd application dated 18th June 2021. In Ground No. 2 of the 2nd application, it was averred that a Notification of Sale dated May 4, 2021 had been issued evincing the intention to sell the suit property in a public auction on July 7, 2021. Accordingly, the plaintiff relied on a copy of that fresh Notification of Sale as well as a further notice dated May 4, 2021, served on the borrower by a different auctioneer known as Lydiah N. Waweru, trading as Purple Royal Auctioneers.
23.In the circumstances, it is my finding that the 2nd application is not res judicata and is therefore competently before the Court.
24.As to whether the plaintiff is, in the circumstances, entitled to a temporary injunction pending the hearing and determination of the suit, I note that one of the enabling provisions cited by the plaintiff is order 40 rule 1 of the Civil Procedure Rules. It provides that:
25.Since the relief is discretionary, enduring principles have been developed to guide the courts in the exercise of such discretion. Accordingly, in Giella vs. Cassman Brown & Co. Ltd (supra), it was held that:
26.In the premises, the first question to pose is whether the plaintiff has established a prima facie case. In Mrao Ltd v First American Bank of Kenya Ltd & 2 others [2003] KLR 123 a prima facie case was defined thus:
27.It is trite that, in considering whether or not a prima facie case has been made out, the court is not required to go into an exhaustive evaluation of the merits of the plaintiff's case. This caution was aptly expressed by the Court of Appeal in Nguruman Limited vs. Jan Bonde Nielsen & 2 Others [2014] eKLR thus:
28.The basic contention of the plaintiff is that, as the registered owner of the charged property she was not served with the statutory notices as required by sections 90 and 96 of the Land Act. She further contended that section 97 of the Land Act, which requires that a current valuation of the charged property be obtained prior to sale, was also not complied with. It is therefore crucial to ascertain whether these allegations have been proved, albeit on a prima facie basis.
29.In response to the assertions by the plaintiffs, the defendant exhibited copies of the statutory notices issued for purposes of sections 90 of the Land Act, which provides that:(1)If a chargor is in default of any obligation, fails to pay interest or any other periodic payment or any part thereof due under any charge or in the performance or observation of any covenant, express or implied, in any charge, and continues to be in default for one month, the chargee may serve on the chargor a notice, in writing, to pay the money owing or to perform and observe the agreement as the case may be.(2)The notice required by subsection (1) shall adequately inform the recipient of the following matters--(a)the nature and extent of the default by the chargor;(b)if the default consists of the non-payment of any money due under the charge, the amount that must be paid to rectify the default and the time, being not less than three months, by the end of which the payment in default must have been completed;(c)if the default consists of the failure to perform or observe any covenant, express or implied, in the charge, the thing the chargor must do or desist from doing so as to rectify the default and the time, being not less than two months, by the end of which the default must have been rectified;(d)the consequence that if the default is not rectified within the time specified in the notice, the chargee will proceed to exercise any of the remedies referred to in this section in accordance with the procedures provided for in this sub-part; and(e)the right of the chargor in respect of certain remedies to apply to the court for relief against those remedies.(3)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.
30.A perusal of the defendant’s replying affidavit confirms that no less than 5 demand letters were served on the borrower between 2nd March 2018 and February 1, 2019, requiring the plaintiff to rectify his default in servicing the subject facility. Copies of those letters were exhibited as annexures to the replying affidavit filed by the defendant on July 7, 2021. In addition thereto, the defendant annexed copies of the statutory notice issued pursuant to section 90 of the Land Act, dated February 20, 2019, marked as Annexure “B0-7”. The said notice accords well with the strictures of section 90 and shows on its face that it was sent by registered post to the address that the borrower used for purposes of the Facility Letter dated February 27, 2015.
31.Similarly, it was the contention of the defendant it complied with the provisions of section 96 of the Land Act. That provision requires that:(1)Where a chargor is in default of the obligation under a charge and remains in default at the expiry of the time provided for the rectification of the 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.
32.In this connection, the defendant exhibited a copy of the notice to sell dated September 6, 2019 as Annexure “BO-9” that was issued to the borrower for purposes of section 96 of the Land Act. The said notice was also sent by registered post to the same address as aforementioned and is explicit as to the particulars set out in section 96 of the Land Act; including the 40-day notice period. In addition; and pursuant to section 98(1) of the Land Act, the defendant invited the borrower to refer any interested buyers to the bank with a view of enhancing the quality of the sale and achieving the market value of the property. It is noteworthy too that the plaintiff acknowledged service of the notification of sale and the auctioneer’s redemption notice for purposes of rule 15(d) of the Auctioneers Rules and annexed copies of those notices to her supporting affidavit filed on June 18, 2021.
33.In the light of the foregoing, and the prima facie demonstration of service of both notices under sections 90 and 96 of the Land Act, the burden of proof shifted to the borrower, Mr. George Kithi, to demonstrate that he did not and could not have received the said notices. In Nyagilo Ochieng & another vs. Phanuel B. Ochieng & 2 others [1996] eKLR, the Court of Appeal pronounced itself on this point thus:
34.And, section 3(5) of the Interpretation and General Provisions Act, provides that:
35.In the premises, there being no indication to the contrary, I am satisfied that there is prima facie evidence to the effect that service herein was duly made on the borrower of the section 90 and section 96 notices. It is not lost on the court that Mr. Kithi has not sworn any affidavit to challenge the attempt by the defendant to realize the securities. The question to pose then, granted the provisions of section 90 of the Land Act is whether the defendant was under obligation to serve the plaintiff. The plaintiff’s contention at paragraph 2 of her supporting affidavit is that she is the legal and beneficial owner of the suit property; and that, as a chargor she was entitled to be served with all the statutory notices aforementioned before any precipitate action could be taken by the defendant.
36.I have looked at the plaintiff’s supporting affidavit and note that, although she asserted that she is the legal and beneficial owner of the suit property, she annexed neither the document evidencing title nor the charge that she allegedly signed in favour of the defendant. On the other hand, the defendant has exhibited the letter of offer dated February 27, 2015; and it confirms that the facility was to be secured by, among others, a first legal charge over the suit property “...registered in the name of the Borrower...”
37.It is also noteworthy that in the valuation report prepared by active valuers ltd dated August 7, 2019, it is clearly stated that the two titles comprising the suit property are registered in the name of George Kithi. In the premises, the defendant was under no particular obligation to serve the plaintiff with the statutory notices. In arriving at this conclusion, I have taken into account Ms. Murage’s submission that the suit property is matrimonial property; and therefore that as a spouse the plaintiff ought to have been served with the notices. But even in this regard, there was no proof that spousal consent was a requirement or that the same was given by the plaintiff.
38.Indeed, in the valuation report at page 32 of the defendant’s Replying Affidavit, it is stated that the development on the two plots comprising the suit property is being operated as a guest house, offering short and long term accommodation, attracting a net estimated income of Kshs. 617,400/= per month. On a prima facie basis therefore, the argument that the property is matrimonial property is not tenable. But even if, arguendo, it was, authorities abound that even matrimonial property is amenable to sale if charged as security. This point was aptly made by Ringera, J. in Isaac O. Litali vs Ambrose Subai & another HCCC No. 2092 of 2000 thus:
39.Turning now to the question whether the defendant failed to comply with section 97 of the Land Act, there is no gainsaying that a chargee is under obligation to obtain a current valuation of the charged property. In this regard section 97 of the Land Act provides as follows:(1)A chargee who exercises a power to sell the charged land, including the exercise of the power to sell in pursuance of an order of court, owes a duty of care to the chargor, any chargee under a subsequent charge or under a lien to obtain the best price reasonably obtainable at the time of sale.(2)A chargee shall, before exercising the right of sale, ensure that a forced sale valuation is undertaken by a Valuer.(3)If the price at which the charged land is sold is twenty-five per centum or below the market value at which comparable interests in land of the same character and quality are being sold in the open market-(a)There shall be a rebuttable presumption that the chargee is in breach of the duty imposed by subsection (1); and(b)The chargor whose charged land is being sold for that price may apply to a court for an order that the sale be declared void, but the fact that a plot of charged land is sold by the chargee at an undervalue being less than twenty-five per centum below the market value shall not be taken to mean that the chargee has complied with the duty imposed by subsection (1).
40.Hence, while the provision imposes a duty on the chargee to ensure the best interest of the chargor while exercising its statutory power of sale,that duty is limited to ensuring the best sale price is obtained by undertaking a forced sale valuation before sale. In this instance, the defendant relied on the valuation report dated prepared by active valuers Ltd dated August 7, 2019 as the basis of the intended sale. The report clearly shows both open market value as well as the forced sale value of the suit property. I am therefore satisfied that there was compliance for purposes of section 97 of the Land Act.
41.The foregoing being my view of the matter, I am not convinced that a prima facie case has been made out by the plaintiff to warrant the issuance of the orders sought in her application dated June 18, 2021. In the premises, there would be no need to consider the question as to whether the plaintiff stands to suffer irreparable harm, or in whose favour the balance of convenience tilts. In Nguruman Limited v Jan Bonde Nielsen & 2 Others (supra) the Court of Appeal held that:
42.In the premises, the plaintiff's notice of motion dated June 18, 2021 fails and is hereby dismissed with costs.It is so ordered.
SIGNED, DATED AND DELIVERED VIRTUALLY AT MOMBASA THIS 4TH DAY OF MAY 2022..........................OLGA SEWEJUDGE