[2006] KEHC 2727 (KLR)

REPUBLIC OF KENYA IN THE HIGH COURT OF KENYA AT NAIROBI (MILIMANI COMMERCIAL COURTS)

Civil Case 203 of 2005

ANDREW MURIUKI WANJOHI………...............................……………………PLAINTIFF

VERSUS

EQUITY BUILDING SOCIETY LTD……...........................……………1ST DEFENDANT

EQUITY BANK LIMITED…………………..........................………......2ND DEFENDANT

ELIJAH KIMANI NDEGWA…………..........................……………......3RD DEFENDANT

R U L I N G

The plaintiff’s application is for a temporary injunction to restrain the 1st and 2nd defendants from proceeding with the intended public auction of the plaintiff’s property L.R. No. RUIRU/KIU/BLOCK3/49, until the suit is heard and determined.

In his Amended Chamber Summons dated 18th July 2005, the plaintiff cites six grounds for his application. The said grounds are as follows:-

“(a) The purported exercise of statutory power of sale by the 1st and 2nd defendants is unlawful in that the Statutory Notices have not been served on the plaintiff contrary to Rule 15 of the Auctioneers Rules.

(b)The charge documents of 07/11/2002 were not effected and cannot therefore be enforced.

(c) The amount agreed in the charge is not the amount disbursed.

(d) The amount was disbursed for a party not known to the plaintiff i.e. stranger as opposed to the 3rd defendant herein.

(e) The 1st and 2nd defendants intend to exercise a power of sale arising out of an absolute charge and hence the purported exercise is illegal, null, and non-existence.

(f) The defendants breached the terms of agreement hereof.”

When making his submissions, Mr. Kithi, advocate for the plaintiff, stated that the statutory notice of sale was unlawful as it was not served on the plaintiff.

Faced with those submissions, Miss Njoroge, advocate for the 1st and 2nd defendants contended that the plaintiff should be taken to have abandoned ground (d) above, of his application. The said defendants submitted that that must be the case, as there was no mention, by the plaintiff, of Rule 15 of the Auctioneers Rules.

My records show that the plaintiff faulted the “statutory notice” which was issued by SHEFLO AUCTIONEERS, on the grounds that the said auctioneers were not the mortgagee or chargee. It was emphasized that the chargee was the 1st defendant, and presumably that implied that the statutory notice ought to have been issued by the 1st defendant, as opposed to the auctioneers.

It was the plaintiff’s case that the said statutory notice was illegal, not only because it was issued by an auctioneer, but also because it was pegged on a sum of money which the plaintiff had never agreed to provide security for. The notice was pegged on a loan of KShs. 2. 5 million, whereas the plaintiff had only agreed to offer the suit property as security for a loan of Kshs. 2. 3 million, submitted the plaintiff.

The other factor which rendered the statutory notice illegal, was the fact that the 1st defendant disbursed funds to a stranger, whom the plaintiff had never agreed to offer his property to, as security.

Now, as is clear from ground (a) above, the plaintiff was challenging the 1st defendant’s right to realise the security, on the grounds that “the statutory notices have not been served on theplaintiff contrary to Rule 15 of the Auctioneers Rules.”

In my considered view, the only way to enable us appreciate the plaintiff’s submissions, on the issue of the alleged non-service of statutory notices, is by first setting out herein the provisions of Rule 15 of the Auctioneers Rules. The said rule stipulates as follows:-

“Upon receipt of a court warrant or letter of instructions the auctioneer shall in the case of immovable property –

(a) record the court warrant or letter of instruction on the register;

(b) prepare a notification of sale in the form prescribed in Sale Form 2, set out in the Second Schedule indicating the value of each property to be sold;

(c) locate the property and serve the notification of sale of the property on the registered owner or an adult member of his family residing or working with him or where a person refuses to sign such notification, the auctioneer shall sign a certificate to that effect;

(d) give in writing to the owner of the property a notice of not less than forty-five days within which the owner may redeem the property by payment of the amount set forth in the court warrant or letter of instruction;

(e) On expiry of the period of notice without payment arrange sale of the property not earlier than fourteen days after the first newspaper advertisement.”

The first notable fact is that in Rule 15, there is absolutely no reference whatsoever to a “statutory notice.” All through that rule there are only references to “notification of sale.”

Secondly, the plaintiff cannot be correct, for contending that the notification of sale, pursuant to Rule 15 of the Auctioneers Rules, should have been served by the 1st defendant. By its own express wording, that rule lays down the steps to be undertaken by the auctioneer, as opposed to the chargee.

Indeed, it should be borne in mind that the said rules were formulated by the Hon. Chief Justice, pursuant to powers conferred upon him by Section 30 of the Auctioneers Act. The preamble to that Act of Parliament reads as follows:-

“An Act of Parliament to consolidate and amend the law relating to auctioneers, to provide for the licensing and regulations of the business and practice of auctioneers and for connected purposes.”

Clearly, the said statute was intended to govern only auctioneers. Therefore, insofar as the 1st and 2nd defendants are not auctioneers, the provisions of the Auctioneers Rules would be inapplicable to them, in general. And in particular, the said defendants would not have been required to serve the plaintiff with any statutory notice, or any other notice, pursuant to Rule 15 of the Auctioneers Rules. Therefore, the failure by the 1st and 2nd defendant to serve such a notice would not be a bar to their right, if it had otherwise accrued, to realise the security.

The other argument that was advanced by the plaintiff was to the effect that the loan was not advanced to the person in relation to whom he had given the security.

In that regard, the plaintiff said that he had given his property as security to secure lending to ELIJAH KIMANI NDEGWA, only. That notwithstanding, the 1st and 2nd defendant advanced money to SARAGAT TRADERS, instead of Elijah Kimani Ndegwa.

As if that was not bad enough, the 1st and 2nd defendants gave a loan of KShs. 2. 5 million, instead of the KShs. 2. 3 million, which the plaintiff had been made aware of, and to which he had agreed.

In the light of the variations effected by the 1st and 2nd defendants, the plaintiff insists that he was discharged from liability.

The other issue raised by the plaintiff was that his contract was only with the legal entity known as EQUITY BUILDING SOCIETY. He says that he is a stranger to EQUITY BANK LIMITED. Therefore, the said Equity Bank Limited was not entitled to have the suit property sold by public auction, as they were not party to the contract constituted in the legal charge.

In response to the application, the 1st and 2nd defendants first pointed out that the plaintiff had failed to elaborate on the meaning of ground (b) of the application. On my part, Imust confess that I did not comprehend the message which the plaintiff wished to relay by asserting that the charge document “was not effected and cannottherefore be enforced.”

In any event, as the plaintiff did not make any submissions on that issue, I deem it as having been abandoned.

As regards the quantum of the loan secured by the charge over the suit property, the 1st and 2nd defendants explained that it was at material times, Kshs. 2. 3 million. It was further explained that the borrower did ask for an extra loan of Kshs. 200,000/=. However, that loan was not secured by the suit property. The 3rd defendant did charge is own property, L.R. No. MUTIHI/STRIP/700, as security for KShs. 200,000/=.

In effect, the 1st and 2nd defendants submit that the contract between them and the plaintiff was not varied, as to amount. They also submit that there was no variation as to the person in favour of who the loan proceeds were disbursed.

It is the case of the 1st and 2nd defendants that the borrower, Elijah Kimani Ndegwa, was one and the same person as Saragat Traders. In an endeavour to prove that assertion, the said defendants produced evidence of a certificate of registration dated 27th August 1996, showing that Elijah Kimani Ndegwa had registered a business in the name of Saragat Traders.

However, even though the plaintiff has had sight of the said certificate of registration of business name, he emphasises that he had never intended to provide security for the borrower’s business.

The question that the 1st and 2nd defendants must confront is why they did not simply get the plaintiff to charge his property to Elijah Kimani Ndegwa Trading As Saragat Traders. Why did they get the plaintiff to execute a legal charge in favour of Elijah Kimani Ndegwa, yet they then went ahead to open an account for Saragat Traders?

To my mind, if the said defendants intended to lend to money to Elijah Kimani Ndegwa in his business; and they wished to have the plaintiff offer security in that regard, there would have been nothing easier than to have the plaintiff know those facts, so that he could execute a legal charge in favour of Elijah Kimani Ndegwa, Trading As Saragat Traders. The defendant having failed to do so, I hold the view that the plaintiff has made out a prima facie case with a probability of success.

As regards the contention that the 2nd defendant has no legal authority to realise the security, as he was not party thereto, I find that the 1st defendant has provided an adequate answer. The said answer was in the form of the gazette notice No. 652, dated 7th January 2005, which was annexed to the affidavit of Daniel Muiruri, which was sworn on 9th May 2005. The said gazette notice embodied a notice of the transfer of business, under The Building Society Act. By virtue of the said notice, Equity Building Society converted itself into a bank, “by transferring all its business, assets andliabilities to Equity Bank Limited.”

At paragraph (d) of the said notice, it was expressly stated as follows:-

“All charges, mortgages guarantees, pledges, bonds and other security documents, contracts, agreements, instruments and transactions entered into by or made in favour of Equity Building Society remain and continue to be valid and in full force and shall at all times be deemed to be held by, issued to, entered into and binding on Equity Bank.”

Accordingly, I find that the transfer of the rights and liabilities of the 1st defendant, to the 2nd defendant did not, in any way, stand in the 2nd defendant’s way towards realising the security. If anything, the 2nd defendant did become expressly empowered to realise the security which had been issued in favour of the 1st defendant. Therefore, on the face of it, the 2nd defendant does have every right to realise the security.

The 1st and 2nd defendants did also submit that the plaintiff had no business in making the assertion that money had not been disbursed to the 3rd defendant. Their reason for so saying is that the 3rd defendant had not supported the plaintiff’s position.

It is true that the 3rd defendant did not, at any time, say that no money was disbursed to him. But, it is also important to note that the said 3rd defendant has not filed any defence or replying affidavit. Therefore, from a factual perspective, we cannot state with any degree of certainty whether or not the 3rd defendant did receive the loan proceeds.

Section 3 (4) of the Evidence Act stipulates that:-

“A fact is not proved when it is neither proved nor disproved”

Therefore, the failure by the 3rd defendant to say anything, can only be taken to mean that it has not been proved that he received the loan proceeds.

Of course, one might point at the statements of accounts. However, it must be borne in mind that the said statements of account are in the name of Saragat Traders.

In GIELA V. CASSMAN BROWN & CO. LTD [1973] 358 at 360, the Hon. Spry V.P. held as follows:-

“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 in damages. Thirdly, if the court is in doubt, it will decide an application on the balance of convenience.”

Applying those principles to this case, I have already held that the plaintiff has established a prima facie case with a probability of success, on one aspect of the case.

The next issue to consider is whether the applicant will suffer irreparable loss, in the event that an injunction was not granted.

It was the plaintiff’s case that he resides in the suit property, together with his family. Therefore, if the property were sold off, he would suffer irreparable loss.

On the other hand, the 1st and 2nd defendants believe that even if no temporary injunction was granted, the plaintiff would not suffer any irreparable loss.

Having given due consideration to this matter, I hold the considered view that it was not enough for the plaintiff to say that he would suffer irreparable loss if the house which he and his family, stays in, was sold before the suit was heard and determined. Did he imply that the family had some sentimental attachment to the property? I am afraid he did not. But even if that were the position, that would not be reason enough to hold that the loss would be incapable of compensation. Why do I say so?

Whenever the applicant offered the suit property as security, he was fully conscious of the fact that if the borrower did not meet his obligations, the suit property could be sold off. Therefore, in the event that it later became necessary for the suit property to be sold off, by the chargee, the chargor could not be heard to complain that his loss was incapable of being compensated in damages. He had had the said property evaluated in monetary terms. He had then told the chargee that he knew the property to be capable of providing the chargee with the peace of mind, of knowing that the money given as a loan would become recoverable, even if the borrower did not pay it.

By offering the suit property as security the chargor was equating it to a commodity which the chargee may dispose of, so as to recover his loan together with interest thereon. Therefore, if the chargee were to sell off the suit property, the chargor’s loss could be calculable, on the basis of the real market value of the said property.

In a nutshell, sentimental attachment to the charged property should play no role in the matter. So that, if any person felt that he or his family attached great sentimental value to any property, he should never offer it as security.

Therefore, on the basis of the material presented by the plaintiff, I find that he has not persuaded the court that if the court declined to grant an injunction to stop the sale of the suit property, he would suffer irreparable loss.

Having arrived at that conclusion, I need not consider the issue of balance of convenience. However, in the event that I am wrong on the issue as to whether or not the plaintiff’s losses could be compensated in damages, I need to examine the balance of convenience.

According to the plaintiff, he is staying on the suit property, and the court should allow him to remain there until the suit was heard and determined. On the other hand, the 1st and 2nd defendants feel that the balance of convenience tilts in their favour, as the borrower has not paid any part of the loan.

The 3rd defendant, who is the borrower, has said absolutely nothing.

Meanwhile, the statement of account shows that the loan was disbursed on 15th November 2002. Since that date, the borrower has failed to remit any payments to the chargee, resulting in an outstanding balance of Kshs. 4,290,737, as at 28th February 2005.

In my considered view if the 1st and 2nd defendants were restrained from selling off the suit property until the suit was heard and determined, there is a very real risk that the debt may outstrip the value of the suit property, as the borrower has never made any repayments for more than three years. That fact, coupled with the status of the 1st and 2nd defendants, persuades me that the balance of convenience is in favour of the said defendants. If the property were sold, the plaintiff can find other accommodation. And if it were finally held that the property should not have been sold, the 1st and 2nd defendants would be able to compensate the plaintiff. In contrast, the stoppage of the intended sale by the chargor would result in the continued growth of debt, thus exposing them to potentially substantial irrecoverable losses. I therefore find that provided the chargee complies with all other legal requirements, he should be permitted to realise the security.

In conclusion, I find no merit in the application. It is therefore dismissed, with costs to the 1st and 2nd defendants.

Dated and Delivered at Nairobi this 1st day of March 2006.

FRED A. OCHIENG

JUDGE