Kassam v Gulf African Bank Limited & another (Civil Suit E094 of 2021) [2022] KEHC 17035 (KLR) (7 October 2022) (Ruling)
Neutral citation:
[2022] KEHC 17035 (KLR)
Republic of Kenya
Civil Suit E094 of 2021
MN Mwangi, J
October 7, 2022
Between
Mohamedali Hassan Kassam
Plaintiff
and
Gulf African Bank Limited
1st Defendant
Colt Petroleum Limited
2nd Defendant
Ruling
1.There are two applications filed by the plaintiff for determination by this Court. The first one is a Notice of Motion dated 16th September, 2021, seeking the following orders-1.Spent;2.Spent;3.That this Honorable Court be pleased to grant an injunction barring the 1st defendant either in (sic) themselves or their agents, from selling the property known as Mombasa/Block XVI/144 until this matter is fully heard and determined;4.That this Honorable Court do issue an order of prohibition against the 1st defendant, either in their own capacity or through agents, from interfering with the subject property up until determination of the matter;5.That this Honorable Court do issue an order for maintenance of status quo during pendency of the suit; and6.That costs of this application be provided for.
2.The application is anchored on the grounds on the face of it and the affidavit sworn on 16th September, 2021 by the plaintiff. The application was opposed through the 1st defendant’s replying affidavit sworn on 28th September, 2021 by Lawi Sato, the 1st defendant’s Senior Legal Officer.
3.The second application is a Notice of Motion dated 26th November, 2021 seeking the following orders-1.Spent;2.Spent;3.That this Court be pleased to grant an injunction barring the 1st defendant either by themselves or their agents, from selling the property known as Mombasa/Block XVI/144 until this matter is fully heard and determined;4.That should the interim orders requested not be granted, this Honorable Court be pleased to hear this suit on (sic) an earlier date in the interest of justice;5.Spent;6.That the costs of this application be provided for.
4.The application is premised on the grounds on the face of it and the supporting affidavit sworn on 26th November, 2021 by the plaintiff herein. On 28th February, 2022, the 2nd defendant filed an undated replying affidavit sworn by Samir Farah, the 2nd defendant’s Managing Director in support of the instant application. The 1st defendant opposed the application through a replying affidavit sworn on 10th December, 2021 by Lawi Sato, the 1st defendant’s Senior Legal Officer.
5.It is discernable that both applications have sought orders to injunct the 1st defendant from exercising its statutory power of sale over the property known as Mombasa/Block XVI/144.
6.The plaintiff averred that he was persuaded by the 2nd defendant to offer the suit property as security for a loan facility which was successfully advanced to the 2nd defendant in the sum of Kshs 26,000,000/=. That he signed a personal guarantee, and subsequently a charge was registered against the suit property in favour of the 1st defendant on 3rd June, 2020. The plaintiff further averred that other properties were charged alongside the suit property, that is, Title No Kajiado/Dalalekutuk/12635 and that it was a term of the facility that should the 2nd defendant default in its obligations to the bank, then the bank had the power to exercise its statutory power of sale over the charged properties.
7.It is the plaintiff’s contention that on 3rd September, 2020, he entered into a Consideration Agreement with the 2nd defendant and he was subsequently granted a consideration for issuance of the guarantee, indemnity and charge in form of a loan amount of Kshs 3,000,000/= from the proceeds of the 1st defendant’s facility. It was averred that the said amount was to be payable within 24 monthly instalments of Kshs 125,000/= with an option of early settlement. He deposed that it the relationship between them became one of guarantor and principal debtor and that the amount recoverable against the premises, would be limited to Kshs 7,458,448.00.
8.The plaintiff averred that it was also agreed that despite the monies secured by the charge, guarantee and indemnity being recoverable against the premises, and the surety in person, it would be the sole responsibility of the borrower to service the loan account with the bank. The plaintiff averred that he was at liberty with the consent of the 1st defendant to withdraw all such securities made in favour of the bank to secure the facility advanced to the 2nd defendant should the latter fail to observe all the terms in the credit facility. It was stated that the rider to the withdrawal of the security was that the plaintiff ought to have finished the repayment of the principal amount advanced to him by the 2nd defendant and the obtaining of prior consent of the bank.
9.The plaintiff averred that on 16th April, 2021, a statutory demand was served upon him confirming that the 2nd defendant had been in breach of various express and implied covenants and that the default by the 2nd defendant had continued for several months prior to the date of the notice. He deposed that he was further informed that the 2nd defendant was required to rectify the default by paying a sum of Kshs 28,691,819.86 due as at 30th March, 2021, and if the default continued within three months after service of the notice, the 1st defendant would proceed to sell the suit property in exercise of its statutory power of sale.
10.In response to the statutory notice from the 1st defendant, the plaintiff’s Counsel through a letter dated 8th July, 2021 copied to the 2nd defendant informed the 1st defendant that the other properties belonging to the directors/guarantors were sufficient to offset the facility that amounted to Kshs 4,311,535.93. In rebuttal, the 1st defendant bank pointed out that a charge was willingly registered against the suit property and it was the term of the charge that all the monies borrowed were recoverable under the charge as though the same were requested and advanced to the plaintiff as the sole and principal debtor and that the plaintiff acknowledged and understood the repercussions of the charge and the remedies available to the 1st defendant. The plaintiff stated that he was given an option of settling the amount due in the statutory notice, with the option of pursuing the 2nd defendant for the same.
11.The plaintiff deposed that it had come to his knowledge that the 2nd defendant was in the process of acquiring a loan facility with DIB Bank Kenya, with the view of offsetting the current bank facility. The plaintiff stated that it would be prudent to stay the statutory power of sale as the 2nd defendant awaits facilitation of the other bank facility.
12.Through a replying affidavit filed on 12th November, 2021 in support of the plaintiff’s application, the 2nd defendant averred that it was the entity that benefited from the credit facility and not the plaintiff herein, and that the 2nd defendant was in the finalization of obtaining a credit facility with DIB Bank.
13.It was further averred that to resolve this dispute, the 2nd defendant was willing to make a monthly deposit of Kshs 2,000,000/= to defray the loan arrears and that it had been engaging the 1st defendant in a bid to have its facility restructured, since Covid-19 pandemic had taken a toll on its business. It was also averred that the 2nd defendant had legitimate expectation that its loan would be restructured after the Government gave a directive for institutions to restructure loan facilities to borrowers.
14.It is the 2nd defendant’s case that the plaintiff’s application ought to be allowed since there is need to allow the finalization of taking over of the facility by DIB Bank Kenya.
15.The 1st defendant in response to the application through its Senior Legal Officer deposed that the plaintiff offered the suit property as security for a loan of Kshs 26,000,0000/= advanced to the 2nd defendant and a charge dated 3rd June, 2020 was registered in favour of the 1st defendant. That the said charge was neither made conditional to any contract between the plaintiff and the 2nd defendant nor was the charge to be read together with the Consideration Agreement.
16.It was averred that the Consideration Agreement was a contract between the plaintiff and the 2nd defendant, to which the 1st defendant was not a party and its terms could not be a basis to interfere with the 1st defendant’s statutory power of sale after it had been admitted that there had been default in repayment of the loan. It was further deposed that the plaintiff had been notified of the default and given the requisite statutory notices, which he did not heed.
17.It was averred that the 1st defendant’s right to sell was not affected by the plaintiff and the 2nd defendant’s proposals. Furthermore, the alleged credit facility coming from the plaintiff was baseless since the plaintiff was not a party to the letter of offer dated 19th August, 2021 from DIB Bank Limited.
18.The 1st defendant averred that the plaintiff cannot dictate to it which security it should realize first. It stated that the charge over Kajiado/Dalalekutuk/12635 was for an aggregate sum of Kshs 8,000,000/=, yet the outstanding amount was Kshs 28,691.819.60 as at 30th March, 2021.
19.The deponent also averred that in the charge document, the plaintiff was emphatic that the suit property was not matrimonial property and that he did not require consent from his family since the suit property was not held in trust for anyone. The 1st defendant stated that it is very unlikely that the plaintiff’s family resides. He also stated that the suit property was voluntarily charged and the 1st defendant ought to be allowed to proceed to exercise its statutory power of sale.
20.Through a supporting affidavit sworn on 26th November, 2021, in support of the application of even date, the plaintiff averred that on 1st October, 2021, he was served with a 45 days’ statutory notice indicating the 1st defendant’s intention to sell the suit property via public auction by the 9th December, 2021 at 11: 00 am. The plaintiff urged that unless this Court stops the proposed sale of the suit property, the suit shall be rendered null and void.
21.The plaintiff also averred that the 2nd defendant did not serve the plaintiff with its replying affidavit dated 12th November, 2021 and as a consequence thereof, the said replying affidavit was neither canvassed in the plaintiff’s submissions filed on 10th November, 2021 nor the 1st defendant’s submissions filed on 1st November, 2021.
22.It was also averred that the 2nd defendant had admitted its indebtedness and had proposed to pay the 1st defendant Kshs 2,000,000/= monthly, until payment in full so as to avoid occasioning on the plaintiff any inconvenience and hardship. It was deposed that the plaintiff had made a case for grant of an injunction.
23.The 2nd defendant in support of the plaintiff’s application dated 26th November, 2021 averred that this Court had issued injunctive orders on condition that a sum of Kshs 2,500,000/= be paid. That the same had been paid and there was need to allow the finalization of taking over the credit facility, which was delayed after the 1st defendant listed the 2nd defendant adversely on the Credit Reference Bureau, thereby making it difficult for other banks to take over the bank facility.
24.The 1st defendant opposed the application dated 26th November, 2021 by reiterating the contents of its replying affidavit sworn on 28th September, 2021 in so far as the plaintiff relied on the same grounds. The deponent further averred that it was only prayer 3 of the Notice of Motion which was capable of being granted by this Court. The 1st defendant averred that the orders sought by the plaintiff ought to be declined for the reasons stated in the replying affidavit sworn on 28th September, 2021, and the submissions dated 1st November, 2021 and 18th November, 2021.
25.The Counsel for the parties herein filed written submissions in the disposal of the two applications. In respect to the first application, the plaintiff’s submissions were filed on 16th November, 2021 by the law firm of Ahmed Luqmaan & Company Advocates, while the 1st defendant’s submissions were filed on 1st November, 2021 and 18th November, 2021 by the firm of Muriu Mungai & Company Advocates. The 2nd defendant’s submissions were filed on 16th December, 2021 by the law firm of N. K Patricks & Company Advocates. Regarding the application dated 26th November, 2021, the plaintiff relied on the 2nd defendant’s submissions that were filed on 28th February, 2022, while the 1st defendant relied on its submission relating to the first application.
26.Mr Ahmed, learned Counsel for the plaintiff submitted that the plaintiff and his family reside on the suit property in issue, namely, Mombasa/Block XIV/144, therefore, the suit property is matrimonial property and its loss will result to irreparable damage since the plaintiff’s spouse had not been issued with the requisite statutory notice, thus the 1st defendant’s statutory power of sale is yet to accrue. He cited the decision in Jimmy Wafula v. Fidelity Bank Limited [2014] eKLR, where the Court held that the consent of a spouse has to be sought before the charging of matrimonial property and that before the mortgagee exercises its power of sale, statutory notices have to be issued to the spouse who consented to the mortgage.
27.He also submitted that there had been further breach of Section 96(2) of the Land Act since the 1st defendant had not issued the plaintiff with a Notice to Sell as contemplated by the Land Act. He stated that in the absence of the said notice, the statutory power of sale can not be exercised.
28.Mr Ahmed submitted that the requirement under the case of Giella v Cassman Brown Co. Ltd (1973) EA 358 had been met by the plaintiff since it had been proved that the applicant has an arguable case on merits, and that the 1st defendant has infringed upon the plaintiff’s right by failing to comply with a mandatory procedural step before exercising its statutory power of sale.
29.Mr Njeru, learned Counsel for the 2nd defendant submitted that Courts have taken judicial notice of the ramifications of the Covid-19 Pandemic on businesses and that this Court has been presented with a case that warrants grant of an interlocutory injunction. He cited the case of Mariakani Cottage Hospital Limited v Gulf African Bank Limited [2021] eKLR, where the Court granted an injunction to an applicant that had incurred severe losses due to the Covid-19 Pandemic.
30.On the issue of irreparable damage, Counsel submitted that as a sign of good faith the 2nd defendant had remitted a sum of Kshs 2,000,000/= obtained from alternative sources and that unless an injunction was issued against the 1st defendant, the 2nd defendant’s business would be crippled, and/or completely paralyzed, and the plaintiff stood to lose his matrimonial home and his family would be rendered homeless.
31.On the issue of whether a prima facie case has been established, Mr Kongere learned Counsel for the 1st defendant submitted that the 1st defendant’s statutory power of sale cannot be curtailed by a Consideration Agreement which the 1st defendant is not party to. He cited the finding in Waruhiu K’owade & Ng’ang’a Advocates v Mutune Investment Limited [2016] eKLR, where the Court of Appeal held that a person cannot acquire rights or be subject to liabilities arising under a contract which he or she is not a party.
32.On whether the 1st defendant should sell Kajiado/Dalalekutuk/12635, Mr Njeru cited the finding in Crested Acres Investment Limited v National Bank of Kenya Limited [2017] eKLR, where the Court held that a lender is at liberty and has the option to decide which security to realize first, unless expressly prohibited by the law and it should not be for the debtor to suggest to the lender which security to realize first.
33.On the takeover of the credit facility by DIB Bank, Mr Kongere submitted that it had been seven (7) months since the offer was made, yet there was nothing to show for it. Further, Counsel submitted that the plaintiff was not a party to the takeover by DIB Bank and could not rely on the said takeover.
34.On the issue of whether the suit property is matrimonial property, Mr Kongere submitted that once land is charged, it becomes a commodity for sale. He relied on the case of Samson Mwathi Nyutu v Savings & Loan Kenya Limited [2015] eKLR, where the Court held that charging a matrimonial property to secure a loan converts the property into a commodity for sale available for purchase by all and sundry, if they fail to pay the debt.
35.In response to the plaintiff’s submissions on matrimonial property, and issuance of statutory notices, Mr Kongere submitted that parties are bound by their pleadings, and must not travel beyond them. He stated that the introduction of a new ground regarding service of statutory notices on the ‘spouse of the chargor’ is frowned upon.
36.He also submitted that nowhere in the plaintiff’s pleading has the suit property been referred to as “matrimonial property”. He stated that the reference to matrimonial property in submissions is a case of the Advocate improving on the facts. He pointed to the fact that the plaintiff swore an affidavit on 29th May, 2020 wherein he unequivocally and unflinchingly declared that he was unmarried and that the suit property did not form part of his matrimonial property.
Analysis and Determination
37.This Court has considered the two applications, the supporting affidavits, replying affidavits, and submissions filed including the various authorities cited. The issue that arises for determination is whether the orders for injunction can issue.
38.The principles guiding the grant of interlocutory application are now well settled. The principles were set out in East African Industries v. Trufoods (1972) EA 420 and Giella v Cassman Brown & Co. Ltd (supra). In Nguruman Limited v Jan Bonde Nielsen & 2 others [2014] eKLR, the Court restated the law as follows:
39.The first issue for determination is whether the plaintiff has established a prima facie case with a probability of success. In Mrao Ltd v. First American Bank of Kenya Ltd& 2 others [2003] eKLR, Bosire, JA defined a prima facie case as follows:
40.The applicant averred that the suit property was matrimonial property hence spousal consent was required before the transaction could be entered into, and in case of an intended sale, the requisite statutory notices ought to have been issued to the plaintiff’s spouse, which is not the case herein and as such, the 1st defendant’s statutory power of sale had not lawfully accrued. It is also the plaintiff’s case that there was a further breach by the 1st defendant for not having complied with Section 96(2) of the Land Act by failing to issue a Notice to Sell as contemplated by the said Act.
41.On the other hand, the 1st defendant argued that its statutory power of sale cannot be curtailed by a Consideration Agreement which the 1st defendant is not party to. Mr Kongere further argued that parties are bound by their pleadings, and must not go beyond them. He submitted that the introduction of new grounds regarding service of statutory notices on the ‘spouse of the chargor’ and the reference to matrimonial property in submissions is a case of the Advocate improving on the facts from the bar.
42.It is trite that issues for determination in a suit generally flow from the pleadings unless the pleadings are amended in accordance with the Civil Procedure Rules, or from an unpleaded issue where it appears from the course followed at the trial, that the issue has been left to the Court for decision which is left for determination by the Court. See Odd Jobs v Mubia (1970) EA 476. As a rule of law, subject to the exception stated in the above case, the evidence adduced should not deviate from the pleadings. This legal position was reaffirmed by the Court of Appeal in the case of David Sironga Ole Tukai v Francis Arap Muge & 2 others [2014] eKLR in the following words -
43.The Court of Appeal in the case of Independent Electoral and Boundaries Commission & another v. Stephen Mutinda Mule & 3 others [2014] eKLR, cited with approval the decision of the Supreme Court of Nigeria in Adetoun Oladeji (NIG) v. Nigeria Breweries PLC SC 91/2002 where Adereji, JSC expressed himself thus on the importance and place of pleadings-
44.This Court has carefully considered the two applications filed by the plaintiff. Having gone through the affidavits, it is worth noting that in the two affidavits, there is neither mention of the suit property as being the plaintiff’s matrimonial property nor that the 1st defendant did not issue a Notice to Sell contrary to Section 96(2) of the Land Act. The aforesaid issues have been introduced for the first time at the submission stage.
45.Having found that the aforementioned issues were never raised in the plaintiff’s pleadings, and being guided by the aforementioned authorities, I hold that the issues of the suit property being matrimonial property and the failure to issue the Notice to Sell do not qualify for consideration because the same depart from the plaintiff’s pleadings; and if considered by this Court, they will be detrimental to the 1st defendant, since it will be denied an opportunity to be heard on the said issues raised at submissions stage.
46.Having disregarded the contention that the property in issue is matrimonial property and the need of having the requisite statutory notices issued by the 1st defendant, I find that the remaining issues to be determined in order to establish whether the plaintiff has established a prima facie case are whether the 1st defendant is subject to the Consideration Agreement executed between the plaintiff and the 2nd defendant; whether the 1st defendant should wait for the takeover by DIB Bank; what security should be realized first by the 1st defendant and whether the 1st defendant should restructure the credit facility because of the Covid-19 Pandemic.
Whether the 1st defendant is subject to the Consideration Agreement executed between the plaintiff and the 2nd defendant;
47.The Court of Appeal had considered the doctrine of privity of contract at length in Savings & Loan (K) Limited v. Kanyenje Karangaita Gakombe & another [2015] eKLR and rendered itself as hereunder: -
48.It is the Plaintiff’s case that the Consideration Agreement executed between him and the 2nd defendant limited the amount recoverable from the suit property to the sum of Kshs 7,458,448.00, and should the loan facility not be repaid by the borrower, the plaintiff would be at liberty with the consent of the 1st defendant to withdraw all the securities made in favour of the bank. On the other hand, the 1st defendant argues that the Consideration Agreement cannot be a basis to interfere with the 1st defendant’s statutory power of sale because it is not a party to the said agreement.
49.This Court has carefully perused the Consideration Agreement and it is my finding that it relates to the property known as Mombasa/Block XVI 144 that was charged by the 1st defendant. This Court notes that if it deals with the issue of privity of contract conclusively at this interlocutory stage, then the pending suit and the rights of the parties will be greatly prejudiced. This Court must tread cautiously so as not to determine with finality the issues which call for proper interrogation before a Trial Court. Such issues include whether the doctrine of privity of contract has a legal leg to stand on based on the Consideration Agreement, the conduct of the parties, among several others issues. Having so held, I return the verdict that this Court cannot render itself on whether there was any privity of contract in the circumstances of this matter at this stage. It is only imperative that the issue should be dealt with at a full hearing before the Trial Court where documents shall be produced and witnesses examined.
50.On the issue of whether the plaintiff can dictate which security should be realized first, and the issue of the takeover of the subject credit facility by DIB Bank, this Court notes that there is no denial by the plaintiff and the 2nd Defendant that the 1st defendant had the right of exercising its statutory power of sale under the charge instrument. It is also not denied that the 2nd defendant is indebted to the 1st defendant bank. The plaintiff raised issues with regard to the process undertaken by the 1st defendant bank in exercising its statutory power of sale. That on its own is not sufficient to establish a “prima face” case with a probability of success. The Court of Appeal in Francis J.K Ichatha v Housing Finance Company of Kenya Civil Application No 108 of 2005 held as follows-
51.The plaintiff together with the defendant were required but did not provide credible and sufficient evidence showing an infringement of a right by the 1st defendant bank against them for this Court to exercise discretion in their favour on account of a prima facie case with a probability of success but failed to do do.
52.On whether the 1st defendant should restructure the credit facility because of the Covid-19 Pandemic, this is a matter that is best left at the 1st defendant’s discretion which this Court cannot force it to do, except where circumstances compel the Court to come in. This Court takes judicial notice that the Covid-19 Pandemic negatively affected several businesses but the Court cannot make decisions based on unsubstantiated allegations as he who alleges must prove.
53.The 2nd defendant has not exhibited anything to prove that indeed its business suffered due to the Covid-19 Pandemic. There is also no conclusive evidence that the 2nd defendant approached the 1st defendant for restructuring of its loan facilities in line with the advisory issued by the Central Bank of Kenya in March 2020. What is exhibited by the 2nd defendant is a copy of the Policy Brief showing the requirements for banks to restructure loans for its borrowers. In any event, it suffices to note that the 2nd defendant’s alleged financial woes did not stop the 1st defendant’s statutory power of sale from accruing. In the circumstances, I find that it was justifiable for the 1st defendant to initiate its statutory power of sale and therefore, on this issue, the 2nd defendant has not established a prima facie case with a probability of success.
54.With regard to the second principle for grant of an interlocutory injunction, the plaintiff was required to demonstrate that he will suffer irreparable injury if he is not granted a temporary injunction. In the Nguruman Limited v Jon Bonde Nielsen case (supra), the Court held as follows-
55.In Maithya v Housing Finance Co. of Kenya & another [2003] 1 EA 133 at 139 Judge Nyamu stated as follows-
56.Having considered all the facts, and having found that the plaintiff’s Advocate’s submissions that the property in issue is a matrimonial property is misleading since it was not pleaded, it is my finding that even if the plaintiff was to suffer any loss, such loss would be easily compensated by an award of damages. The plaintiff has failed in establishing the second principle for grant of an interlocutory injunction.
57.As to the third principle, the balance of convenience would in this Court’s view tilt more in favour of the 1st defendant rather than the plaintiff for the main reason that the plaintiff has not met the requirement as to a prima facie case with a probability of success, and have also failed to show how he stands to suffer irreparable harm. Furthermore, the 1st defendant would be capable of compensating the plaintiff by way of damages should the suit property be disposed of by sale and if the Court later finds out that he had a valid case.
58.In conclusion, the applications dated 16th September, 2021 and 26th November, 2021 are devoid of merit and are hereby dismissed. Cost of the applications are awarded to the 1st defendant.
It is so ordered.
DATED, SIGNED AND DELIVERED AT MALINDI ON THIS 7TH DAY OF OCTOBER, 2022. RULING DELIVERED THROUGH MICROSOFT TEAMS ONLINE PLATFORM.NJOKI MWANGIJUDGEIn the presence of:Mr Ahmed for the plaintiff/applicantMr Gikandi h/b for Mr Kongere for the 1st defendantMr Oliver Musundi – Court Assistant.