[2022] KEHC 15000 (KLR)

Cedarwood Hotels & Resorts Investment Company v Kenya Commercial Bank Limited & another (Civil Case E008 of 2022) [2022] KEHC 15000 (KLR) (10 November 2022) (Ruling)

Neutral citation: [2022] KEHC 15000 (KLR)

Republic of Kenya

In the High Court at Nyeri

Civil Case E008 of 2022

FN Muchemi, J

November 10, 2022

Between

Cedarwood Hotels & Resorts Investment Company

Applicant

and

Kenya Commercial Bank Limited

1st Defendant

Garam Investments Auctioneers

2nd Defendant

Ruling

Brief Facts 1. The applications for determination are the ones dated May 30, 2022 and June 29, 2022. The application dated May 30, 2022 is brought under order 40 rule 1 and order 51 rule 1 of theCivil Procedure Rules and section 97 of the Land Act No 6 of 2012, section 1A, 1B and 3A of the Civil Procedure Act seeking for orders of an injunction restraining the respondents from alienating, advertising for sale, offering for sale, selling, taking possession of, leasing, transferring, charging or otherwise in any manner whatsoever interfering with title No Nyeri/municipality Block 1/175 (White Rhino Hotel) pending the hearing and determination of the suit. The applicant further seeks to have the notification of sale issued by the 2nd respondent be revoked/rescinded/voided and, or to be postponed.

2. The application dated June 29, 2022 seeks for extension of time for the applicant to depositKshs 50,000,000 in the 1st respondent’s account having been granted thirty days to do so on June 2, 2022.

3. In opposition to the application dated May 30, 2022, the respondents filed grounds of opposition and a replying affidavit dated June 28, 2022. The application dated May 30, 2022 will hereby be referred to as the first application while the one dated 29th June as the 2nd application.

4. On May 31, 2022, the court granted interim orders for stay of execution in regard to the 1st application on the condition that the applicant deposits a sum of Kshs 50,000,000/- in the 1st respondent’s account within 30 days.

5. Pursuant to the orders, the applicant filed its application dated June 29, 2022 under section 1A, 1B and 95 of the Civil Procedure Act and under order 40 rule 6 and order 50 rule 6 of the Civil Procedure Rules seeking for orders of extension of time to deposit Kshs 50,000,000/- for a period of nine months or such other period as the court deems just in the circumstances. The respondents opposed the application and filed their grounds of opposition dated July 28, 2022. However on July 19, 2022 the court extended the interim orders issued on May 31, 2022 on condition that the applicant deposit a sum of Kshs 10,000,000/- in the 1st respondent’s account within 14 days. The applicant complied with the said orders and as such, the application dated June 29, 2022 was compromised in that the orders for stay were to remain in force until application was disposed of. Furthermore, the period the applicant has had since the filing of this application for extension of time to date is over five (5) months. The court will now deal with the first application.

The Applicant’s Case 6. The background facts are that pursuant to a charge dated November 22, 2013, the 1st respondent advanced to the applicant a loan facility of Kshs 295,000,000/-. The 1st respondent advanced a further loan facility of Kshs 175,000,000/- by a further charge dated April 2, 2015 owing to the applicant’s positive credit score. The applicant further contends that in 2017, the 1st respondent amalgamated all the existing facilities into one loan term of Kshs 520,665,987/- pursuant to a letter dated August 10, 2017.

7. The applicant avers that in 2019, the corona virus pandemic hit and it was undeniably affected and forced to shut down its operations from February up to September 2020 thus its obligation to make scheduled payments fell short due to cash flow difficulties resulting from the total closure of its business. In a bid to continue paying its debt, the applicant states that it sort to use the property as a hospital by engaging various local and overseas hospital groups to put the property into an alternative use.

8. The applicant further states that by a letter dated July 29, 2019, it proposed settlement of the outstanding facilities by paying a full and final settlement of Kshs 450,000,000/- on barding a hotel operator and securing an equity investor. Pursuant to a letter dated November 4, 2019, the 1st respondent declined the said proposal leaving the applicant with the only option of securing a hotel operator. In view of the challenging circumstances, the applicant proposed through its letter dated May 19, 2022, to make payments of Kshs 1,500,000/- every 45 days with a request to the 1st respondent to allow negotiations with the strategic hotel operator to crystallize. The 1st respondent declined to allow the request an advised the applicant to seek an equity partner to dispose of the suit property. Despite the active negotiations with the 1st respondent and with other hotel operators, the 1st respondent instructed the 2nd respondent to publish and advertise an auction for the subject property on June 2, 2022. The applicant avers that the said notice set back the advanced negotiations and made strategic operators withdraw from negotiations which jeopardized and subverted all efforts to secure any remedial options.

9. The applicant avers that the suit property has been undervalued pursuant to the valuation report dated August 27, 2021 valuing the property at a market value of Kshs 841,955,463/- and forced sale value of Kshs 631,466,597/-. The applicant avers that pursuant to the valuation carried out in 2019, the market value was Kshs 1,223,181,000/- and a forced sale value of Kshs 975,000,000/-. Moreover, from previous valuations done on instructions of the 1st respondent on March 1, 2016, September 7, 2017 and June 6, 2019, the property had been valued at Kshs 950,000,000/-, Kshs 1,322,993,000/- and 1,223,181,000/- respectively. Furthermore, on July 15, 2021, the 1st respondent carried out another valuation which was valued at Kshs 741,000,000/- and with a recorded forced sale value of Kshs 555,750,000/-. The applicant states that it objected to the said valuation vide its letter dated July 26, 2021 which resulted to another valuation dated August 27, 2021, which is currently being relied on by the 1st respondent.

10. The applicant further objected to the current valuation vide its letter dated September 14, 2021, and the 1st respondent undertook to respond within 7 days with clarifications from Centenary Valuers and Acumen Valuers on the reports made on June 6, 2019, July 15, 2021 and August 27, 2021. However, the 1st respondent did not revert with the said explanations prompting the applicant to value the suit property to ascertain the true value of the same. The property was valued at Kshs 1,150,223,800/- with a recorded forced sale value of Kshs 862,667,850/- which figures are over and above those of the 1st respondent’s reports. Moreover, the applicant states that the suit property has been valued by valuers approved by and on the 1st respondent’s panel of valuers. As such, the applicant avers that it is evident that the property has been grossly undervalued in an effort to deprive it its commercial market value. The applicant further states that the said under valuation of the property is ill conceived and in bad faith and contrary to section 97 of the Land Act No 6 of 2012.

11. The applicant is apprehensive that if the 1st respondent auctions the subject property with the 1st respondent’s valuation, the same will not cover the outstanding loan which is still accruing interest and the balance will be a liability on the applicant. The applicant further states that by December 31, 2021, it had repaid close to Kshs 205,000,000/- in principal and interest and its last payments towards the loan of Kshs 1,750,000/- were on November 29, 2021 and December 29, 2021.

12. The applicant states that the auction of the suit property would not be favourable as that would mean a denudation of the commercial property as an iconic historical hotel. As such, the applicant prays that the court directs a fresh valuation to be carried out and sets aside the current valuation set to be relied on June 2, 2022. The applicant prays that this honourable court grants the orders sought.

13. In regard to the application for extension of time the applicant cites some of the foregoing reasons for inability to repay the loan. It is further submitted that the applicant has experienced cash flow challenges caused by the proposed auction of the properties and that the 1st respondent has resisted the requests of the applicant to sell the property as a going concern and raise funds to repay the loan. The applicant argues that in the said state of affairs, it is not in a position to raise the Kshs 50,000,000/= and deposit within thirty days as ordered by the court on June 2, 2022.

The Respondents’ Case 14. The 1st respondent contends that by a facility letter dated August 10, 2017, it agreed to convert the overdraft facility advanced to the applicant to a term loan facility and amalgamated all existing facilities to one term loan facility totalling to Kshs 520,665,987/-. Further, it was an express term of the term loan facility that it would be secured by the various securities in particular by the charge dated November 22, 2013 over title No Nyeri/municipality Block 1/175.

15. The 1st respondent contends that it made available to the applicant the term loan facility totalling to Kshs 520,665,987/- however the applicant failed to repay all sums due under the facility. Thus on March 9, 2018, the 1st respondent issued a statutory notice pursuant to section 90 of the Land Act 2012. The 1st respondent stated in its letter that it was demanding payment of the outstanding arrears and in the event the arrears were not settled in three months, it would proceed to exercise its statutory power of sale. The 1st respondent states that the applicant did not male payment of the arrears within the time set out in the statutory notice dated March 9, 2018 and it issued a statutory notice dated July 15, 2019 under section 96 of the Land Act, 2012 in respect to the debt owed by the applicant. The 1st respondent avers that the applicant did not make payment of the total outstanding amount after the notice was issued. Further, the applicant never challenged any of the amounts set out in the letters dated March 9, 2018 and July 15, 2019.

16. The 1st respondent avers that on July 1, 2021, it engaged Acumen Valuers Limited to conduct a valuation of the charged property and they prepared a valuation report dated August 27, 2021. The applicant wrote to the 1st respondent on September 14, 2021 objecting to the valuation carried out by Acumen Valuers alleging that there had been an undervaluation of the suit property and stating that the values set out in Centenary Valuers Limited’s report dated June 6, 2019 reflect the true value of the charged property.

17. The 1st respondent states that it wrote to the applicant informing them that it would seek an explanation from Centenary Valuers Limited on why the value of the property dropped. Pursuant to a letter dated September 21, 2021, Centenary Valuers Limited wrote to the 1st respondent and stated that the difference in value of the valuation reports was due to a decline in property values from 2019 due to economic challenges caused by the covid 19 pandemic. Furthermore, Centenary Valuers Limited clarified that loose assets depreciate with time depending on use. As such, the 1st respondent denies that it undervalued the applicant’s property in an effort to deprive the applicant its market value as alleged.

18. The 1st respondent states that it instructed the 2nd respondent to put up the charged property for sale as the applicant failed to make payment of the outstanding amounts. The 2nd respondent thus served the applicant with the notification of sale as required by the Auctioneer’s Riles on January 26, 2022. Meanwhile, the applicant made a payment proposal of an interim payment of Kshs 1,500,000/- every 45 days which the 1st respondent declined on the basis that the said amount was too low to make an impact on the total outstanding amount. The 1st respondent further states that it informed the applicant that the proposal to stop the auction scheduled for June 2, 2022 was not acceptable but the applicant was at liberty to continue looking for an equity injection and marketing the Industrial Area Property next to Cedarwood Hotel to help liquidate the debt. Further, the 1st respondent avers that there is no legal foundation for the assertion by the applicant that the proceeds from the auction should cover the entire balance of the loan.

19. The 1st respondent avers that the applicant is still indebted to the bank and as at May 31, 2022, the total outstanding debt owed by the applicant was Kshs 670,104,696. 20/- which sum continues to accrue interest. The 1st respondent avers that it issued all the requisite notices and thus it is entitled to exercise its statutory power of sale.

20. The 1st respondent further avers that the applicant has not established a prima facie case with a probability of success because the applicant has admitted that it is in default and further that it charged title No Nyeri/municipality Block 1/175 to secure its indebtness. As such, the 1st respondent contends that there is no legal basis to prevent it from exercising its power of sale by public auction. Furthermore, the 1st respondent contends that the allegation that it has undervalued the suit property is not a sufficient ground to stop the intended sale by public auction. Moreover, the 1st respondent states that it is a matter to be determined at trial and in the event the applicant is successful, it can be compensated by an award of damages.

21. The 1st respondent further contends that the applicant has not demonstrated the irreparable harm that it will suffer which cannot be compensated by an award of damages. The 1st respondent states that once the suit property was charged, it became a commodity of sale that could be sold to recover the facilities advanced to the applicant. As such, any loss that the applicant may suffer is calculable and cam be compensated by damages.

22. The 1st respondent states that the balance of convenience tilts in its favour as it is owed Kshs 670,104,696. 20/- as at May 31, 2022, which sum continues to accrue interest. It is the 1st respondent’s case that the sums owed exceed the forced sale value of the charged property and the longer the debt remains outstanding the harder it will be for it to recover the monies advanced to the applicant.

23. The 1st respondent states that the applicant has been indolent and is therefore undeserving of the equitable remedy of an interlocutory injunction. Despite being served with the notification of sale on May 12, 2022, the applicant did not take any steps to move the court to stop the auction until May 30, 2022, two days before the date of the public auction.

The Applicant’s Submissions 24. The applicant relies on section 97 of the Land Act No 6 of 2012 and the case of Koileken Ole Kipolonka Orumos v Mellech Engineering & Construction Limited & 2 others (2018) eKLR and submits that the purpose of the valuation is to obtain the best price reasonably attainable at the time of sale, thus protecting the right of the chargor and to prevent an unscrupulous charge from selling the charged property at a price which is peppercorn. The applicant contends that the valuation report dated August 27, 2021 valuing the property at a market value of Kshs 841,955,463/- and forced sale value ofKshs 631,466,597/- was solely prepared to facilitate the intended auction and does not reflect the value of the property. The applicant submits that in 2017, the bank commissioned a valuation by Advent Valuers Limited which valued the property at a market value ofKshs 1,322,993,000/-. At the bank’s request, the applicant states that it took a comprehensive insurance cover for the amount of Kshs 1,322,993,000/-. The applicant further submits that in 2019, the 1st respondent commissioned a valuation of the property by Centenary Valuers Limited which valued the property at a market value of Kshs 1,223,181,000/- and a forced sale value of Kshs 975,000,000/-. When the applicant gave a proposal for settlement on July 29, 2019, the 1st respondent rejected the offer stating that the proposal ofKshs 450,000,000/- was way below the forced sale value of Kshs 975,000,000/-. As such, the applicant contends that the 1st respondent was in agreement with the valuation given by Centenary Valuers Limited. Further in 2021, the 1st respondent instructed Acumen Valuers Limited to value the land which returned a total market value of Kshs 741,000,000/- and a forced sale value of Kshs 555,750,000/-. The applicant submits that it objected to the said valuation to which the 1st respondent indicated that the valuation report was for recovery purposes and did not include the valuation of the loose assets. As such, the applicant contends that the valuation was solely customized to facilitate recovery and accordingly intentionally undervalued the property.

25. The applicant further submits that the bank subsequently instructed Acumen Valuers Limited to value and include loose assets and they submitted a report dated August 27, 2021 which returned a total market value of Kshs 841,955,463 and a forced sale value ofKshs 631,466,597/-. The applicant submits that it objected to the said valuation report and requested the 1st respondent to authorize an independent and comprehensive valuation to determine the true value of the charged property to which the 1st respondent declined. The applicant thus submits that the valuation report does not explain the unbelievable difference from the market value in November 2019 of Kshs 1,223,181,000/- and the alleged market value of Kshs 841,955,463/- in August 2021, a difference of about Kshs 400,000,000/-. As such, the applicant contends that such a large unexplained difference shows that the valuation by Acumen Valuers Limited either did not take into consideration of some relevant factors and accordingly returned very low values or took irrelevant factors into consideration thereby returning an erroneous figure. The applicant relies on the 1st respondent’s email dated July 29, 2021 where the bank admits that the valuation was done solely for recovery purposes and valuation of part of the assets were not part of the bank’s instructions. The applicant relies on the case of Koileken Ole Kipolonka Orumos v Mellech Engineering & Construction Limited & 2 others (2018) eKLR to support its contention.

26. The applicant further submits that the law requires that a valuation be undertaken before the actual sale. The valuation report by Acumen Valuer Limited was undertaken in July 2021, which is over a year since the valuation was done. The applicant submits that the most efficient way to resolve the matter is by granting an order for an independent valuation prior to subsequent auction. Moreover, the applicant contends that it authorized valuation of the charged property by one of the bank’s approved valuers, Advent Valuers Limited which returned a market value of Kshs. 1,150,223,800/- and a forced sale value ofKshs. 862,667,850/-. From the foregoing, the applicant contends that there was a gross understatement of the value of the suit property by the respondents and that there was a great disparity in the valuation of the subject property.

27. The applicant relies on rule 10 of the Auctioneer’s Rule 1997 and the decisions ofZum Investments Limited v Habib Bank Limited(2014) andLevi House Construction and Engineering Ltd v ABC Bank Limited & Another[2021] eKLR and requests the court to authorize an independent valuer before the suit property is sold. As such, the applicant submits that it has made out aprima facie case for an order for an independent valuation to be done and relies on the case of Mrao Ltd v First American Bank of Kenya & 2 others (2003) KLR 123 to support its contention.

28. The applicant relies on the cases ofEast African Development Bank v Hyundai Motors Kenya Limited [2006] eKLR andJoseph Siro Mosioma v Housing Finance Company of Kenya & 3 others[2008] eKLR and submits that the purpose of the valuation is to obtain the best price reasonably attainable at the time of the sale. Thus the right of the plaintiff to obtain the best price reasonably attainable at the time of the sale is a statutory right and it cannot be sacrificed at the altar of the bank’s convenience. The applicant further submits that the respondent’s actions are tainted with mala fides as they are excessively eager to dispose off the property and if they sold the suit property at a loss, it would occasion damage to the applicant thus causing irreparable damage which cannot be compensated by way of damages.

29. The applicant further submits that the balance of convenience is in its favour as the 1st respondent is the author of the current misfortune. Had the bank conceded to the request for an independent valuer, which the applicant contends was made over a year ago, the instant dispute would not be before the court. The applicant further contends that an independent valuation would take at most, 3 months which would cause no prejudice to the 1st respondent. Furthermore, the applicant contends that it would suffer great prejudice if due to failure by the bank its prevented from obtaining the best market value for the property. To support its contention, the applicant relies on the cases ofLevi House Construction and Engineering Ltd v ABC Bank Limited & another [2021] eKLR and Alice Awino Okello v Trust Bank Limited and another LLRNo 625 (CCK). As such, the applicant prays that the court allow its application dated May 30, 2022 as prayed.

The Respondents’ Submissions 30. The respondents reiterate what they deponed in their affidavit and submit that the bone of contention is the valuation of the charged property for the purposes of the auction which is an issue for determination at the hearing of the main suit.

31. The 1st respondent submits that it has complied with the requirement as set out in section 97(2) of the Land Act 2012. The 1st respondent contends that a dispute over the valuation of a charged property is not sufficient to warrant the grant of an interlocutory application. The 1st respondent further relies on the cases of Zum Zum Investment Limited v Habib Bank Limited[2014] eKLR and Olkasasi Limited v Equity Bank Limited [2015] eKLR and submits that courts have rejected the proposal that a party ought to be stopped from exercising its statutory power of sale because it has presented a valuation that provides for a higher market value than the valuation report. That notwithstanding, the 1st respondent submits that the reduction in market price has been explained by a letter dated September 21, 2021 by Centenary Valuers Limited that the decline in property values was as a result of the economic challenges caused by the covid 19 pandemic.

32. The 1st respondent relies on the decision in Nest Manor Residence & Suites Ltd & another v African Banking Corporation Ltd & another [2021] eKLR and submits that it has demonstrated that there is a valuation by a qualified person and thus there is no reason to order a fresh valuation to be undertaken. Moreover, the 1st respondent contends that the applicant has not challenged the qualifications or the competence of Acumen Valuers Limited who prepared the report dated August 27, 2021. Further, the applicant has not alleged that irrelevant factors were considered as part of that valuation. As such, there is no basis for alleging that the 1st respondent has undervalued the charged property. The 1st respondent contends that the applicant has not demonstrated that there is a prima facie case and thus the injunction application ought to be dismissed on that sole ground.

33. The 1st respondent relies on the cases ofKitur & another v Standard Chartered Bank & 2 others [2002] eKLR; Al-Jalal Enterprises Limited v Gulf African Bank Limited [2014] eKLR; David Mburu Githere v Jamii Bora Bank Limited [2017] eKLR and Maithya v Housing Finance Co of Kenya & another [2003] 1 EA 133 at 139 and submits that once property is charged it becomes a commodity which absent any lawful reason can be sold and there cannot be any irreparable loss. Moreover, pursuant to section 99(4) of the Land Act 2012, any damage that the applicant alleges it will suffer as a result of the sale of the charged property by public auction can be compensated by way of damages. The 1st respondent further states that it is a stable bank and there is no suggestion that it would be unable to compensate the applicant in the event the applicant is successful at the trial.

34. The 1st respondent submits that the balance of convenience tilts in its favour as it is owed a colossal amount of money to the tune ofKshs 670,104,696. 20/- which sum continues to accrue interest. The 1st respondent is apprehensive that if it is restrained from exercising its statutory power of sale, there is a risk that the sums owed will exceed the value of the charged property. The longer the debt remains outstanding the harder it will be for the 1st respondent to recover the monies from the applicant. The 1st respondent relies on the case of Andrew Muriuki Wanjohi v Equity Building Society Ltd & 2 others [2006] eKLR to support its contention. As such, the respondents pray that the application dated May 30, 2022 be dismissed with costs.

Analysis and Determination 35. As I have said earlier, the application dated June 29, 2022 seeking for orders of extension of time was compromised by the orders granted on May 31, 2022 pending the hearing and determination of the first application seeking orders for injunction.

36. As for the application dated May 30, 2022, this court is bound to determine whether the applicant has satisfied the requirements of granting an injunction.

37. The principles of interlocutory injunction are now well settled. Those principles were set out in East African Industries v Trufoods[1972]EA 420 and Giella v Cassman Brown & Co Ltd [1973]EA 358. Restating the said principles, Ringera J, (as he then was) in Airland Tours & Travel Limited v National Industrial Credit Bank Nairobi (Milimani) HCCC No 1234 of 2002 set them out as follows:-a.A prima facie case with a probability of success at trial;b.The applicant is likely to suffer an injury, which cannot be adequately compensated in damages;c.If the court is in doubt about the existence or otherwise of a prima facie case it should decide the application on a balance of convenience;d.The conduct of the applicant meets the approval of the court of equity.

38. Similarly in Dr Simon Waiharo Chege v Paramount Bank of Kenya Ltd Nairobi (Milimani) HCCC No 360 of 2001, Ringera J, (as he then was) held:-“The remedy of injunction is one of the greatest equitable relief. It will issue in appropriate cases to protect the legal and equitable rights of a party to litigation, which have been, or are being or are likely to be violated by the adversary. To benefit from the remedy, at an interlocutory stage, the applicant must, in the first instance show that he has a prima facie case with a probability of success at the trial. If the court is in doubt as to the existence of such a case, it should decide the application on a balance of convenience. And because of its origin and foundation in the equity stream of the jurisdiction of the courts of judicature, the applicant is normally required to show that damages would not be an adequate remedy for the injury suffered or likely to be suffered if he is to obtain an interlocutory injunction. As the relief is equitable in origin, it is discretionary in application and will not issue to a party whose conduct as pertains to the subject matter of the suit does not meet the approval of the eye of equity.”

A Prima Facie Case With A Probability Of Success At Trial 39. What then constitutes a prima facie case? In the case of Mrao Ltd v First American Bank of Kenya Ltd & 2 others [2003] KLR 125,“The principles which guide the court in deciding whether or not to grant an interlocutory injunction are, first, an applicant must show prima facie case with a probability of success. Secondly, an interlocutory injunction will not normally be granted unless an 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….A mere scintilla of evidence can never be enough; nor can any amount of worthless discredited evidence. It is true that the court is not required at that stage to decide finally whether the evidence is worthy of credit, or whether if believed it is weighty enough to prove the case conclusively: that final determination can only properly be made when the case for the defence has been heard. It may not be easy to define what is meant by “prima facie case” but at least it must mean one on which a reasonable tribunal, properly directing its mind to the law and the evidence could convict if no explanation is offered by the defence…The terms “prima facie” case, and “genuine and arguable” case do not necessarily mean the same thing, for in using another term, namely a suitable cause of action, the words “prima facie” are frequently used to refer to a case which shifts the evidential burden of proof, rather than as giving rise to a legal burden of proof in the manner of considering, which was in relation to the pleadings that had been put forward in the case. It would be in the appellant’s interest to adopt a genuine and arguable case standard rather than one of prima facie case, the former being the lesser standard of the two…In civil cases a prima facie case 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 being infringed by the opposite party 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.”

40. Notably, it is not disputed that the applicant took a credit facility with the 1st respondent. Further, the applicant does not dispute that it is in arrears of the said loan facility and that the respondents issued the requisite notices in exercise of the statutory power of sale. The applicant’s contention is that the 1st respondent did not comply with section 97 of the Land Act as it grossly undervalued the suit property.

41. The primary provision on forced valuation is section 97 (1) and (2) of the Land Act which provides:-1. A charge who exercises a power to sell the charged land, including the exercise of the power to sell in pursuance of a court, owes a duty of care to the charger, any guarantor of the whole or any part of the sums advanced to the charger, any charge under a subsequent charge or under a lieu to obtain the best price reasonably obtainable at the time of sale.2. A charge shall, before exercising the right of sale, ensure that a forced sale valuation is undertaken by a valuer.

42. From the above provision, it is evident that the respondent is under a statutory duty to:-a.Ensure that a forced valuation is undertaken by the valuer ;b.To obtain the best price reasonably obtainable at the time of the sale.

43. The importance of undertaking a forced valuation was explained in the case of Koileken Ole Kipolonka Orumos v Mellech Engineering & Construction Limited & 2 others (2018) eKLR where Gikonyo J. held that:“..the forced sale valuation is not only for purposes of carrying through the public auction or solely for recovering the debt, but reinforces the rights of the charger to have reasonable value for his property. That is why the duty under section 97(2) of the Land Act is statutory and obligatory. It is not left to the whims of the charge and its agents especially the auctioneers.”

44. The applicant in the present case contends that the 1st respondent did not discharge its duty under section 97 of the Land Act 2012 because it grossly undervalued the suit property pursuant to the 1st respondent’s valuation report dated August 27, 2021 by Acumen Valuers Limited. The applicant argues that previous valuation reports made on the property in 2017 and June 2019 placed the market value of the charged property at 1,322,993,000/- and 1,223,181,000/- respectively. The applicant further argues that the 1st respondent, for purposes of the sale by public auction, instructed a valuer to valuate the suit property which returned a market value of Kshs 841,955,463/- and a forced sale value of Kshs 631,466,597/-. The applicant contends that the report made by Acumen Valuers Limited does not explain the discrepancy in the market values between 2019 of Kshs 1,223,181,000/- and the August 2021 value of Kshs 841,955,463/-. The 1st respondent on the other hand contends that the difference in market value was due to a decline in property values resulting from the economic challenges caused by the covid 19 pandemic. In any event, the 1st respondent stated that a valuation report presenting a higher market value than the one it sought to rely on did not warrant the grant of an injunction.

45. The principles that guide the courts in determining whether or not to order an independent valuation have been discussed in the case ofZum Zum Investments Limited v Habib Bank Limited (2014) eKLR where the court held:-It is not sufficient for the applicant to merely claim that the intended selling price is not the best price obtainable at the time by producing a counter valuation report. The applicant must satisfactorily demonstrate why the valuation report that the respondent intends to rely on in disposing of the suit property does not give the best price obtainable at the material time….The applicant needs to show, for instance, that the respondent’s valuer is not qualified or competent to carry out the valuation, or that the valuation was carried out in consideration of irrelevant factors or that the valuation was done before the time of the intended sale.

46. Similarly in the case of Palmy Company Limited v Consolidated Bank of Kenya Limited [2014] eKLR the court held:-The onus of establishing on prima facie basis, that the applicant’s right has been infringed by the respondent by failing to discharge the duty of care under section 97(1) of the Land Act lies on the applicant…The court needs cogent evidence and material in order to say that prima facie, there has been an undervaluation of the suit property which is an infringement of section 97(2) of the Land Act by the respondent as to entitle the court to call for an explanation or rebuttal from the respondent.

47. Guided by the principles set out in the cases above, it is my considered view that the applicant has not offered evidence to show that the valuation done was a complete undervaluation of the suit property. The applicant has not demonstrated that the Valuer Acumen were unqualified. Furthermore, the applicant did not outline any irrelevant factors considered by the valuers in undertaking their valuation. In any event, the applicant’s main focus is that there has been a drastic drop in the market price of the suit property. This discrepancy has been explained by the 1st respondent through its letter dated September 21, 2021 by Centenary Valuers Limited who attributed the drop in market price to the covid 19 pandemic. The court takes judicial notice that the covid 19 impacted negatively on the economy and the hotel sector was one of the worst hit. As such, I am satisfied that the 1st respondent discharged its duty of care under section 97 of the Land Act.

48. In pursuance of issue of the requisite statutory notices, the defendant complied with section 97(2) of the Land Act. The applicant has not challenged the said notices as being invalid or having been irregularly issued. the applicant’s bone of contention herein refers to the valuation of the property.

49. For the above reasons, it is my considered view that the applicant has failed to establish that it has aprima facie case with a probability of success.

Irreparable Injury 50. In Paul Gitonga Wanjau v Gathuthi Tea Factory Company Ltd & 2 others [2016]eKLR the court considered Halsbury’s Laws of England on what irreparable loss is and stated that:-“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.”

51. Similarly, in Maithya v Housing Finance Co of Kenya & another[2003] 1 EA 133 at 139 where Honourable Nyamu J, stated as follows:-“Charged properties are intended to acquire or are supposed to have a commercial value otherwise lenders would not accept them as securities. The sentiment of ownership which has been greatly treasured in this country over the years has in many situations given way to commercial considerations. Before lending, many lenders, banks and mortgage houses are increasingly insisting on valuations being done so as to establish forced sale values and market values of the properties to constitute the securities for the borrowings or credit facilities….Loss of the properties by sale is clearly contemplated by the parties even before the security is formalised. For these reasons, I hold that damages would be adequate remedy and it has not been suggested that the respondent cannot pay damages should it become necessary.”

52. The applicant submits that the 1st respondent has grossly undervalued the suit property as it is eager to dispose of the property. The applicant further states that if the suit property is sold at a loss, it shall cause irreparable damage that cannot be compensated by way of damages. The 1st respondent on the other hand submits property once charged becomes a commodity of sale and in any event, any damage that the applicant alleges it shall suffer can be compensated by way of damages.

53. Section 97(2) imposes a duty on the charge to ensure that a forced sale evaluation is undertaken by a qualified valuer. The 1st respondent has complied with this requirement by availing the report by Acumen Valuers Limited dated August 27, 2021. The applicant challenges this report on grounds that the security was grossly undervalued. A report dated June 6, 2019 by Centenary Valuers Limited was filed by the applicant that gave the property a value of way aboe tht of Acumen Valuers. The defendant explains that the difference between the two reports was due to the inset of Covid-19 which depressed market values of properties and had a significant impact on businesses especially the hospitality industry.

54. I have perused the two reports and noted the substantial difference in the applicants and the respondent’s reports. However, it was held in the Olkasasi Limited v Equity Bank[2015]eKLR:-“It should be known that the fact that the latest valuation by the applicant places a valuation which is significantly higher than that by the valuer appointed by the bank does not mean the respondent undervalued the suit property. The report must be dislodged on real items, terms and legal parameters which are acceptable in the practice and profession of valuers.

55. The principle in the case of Olkasasi applies to this case that it has not been shown that the respondent’s valuation is incompetent. It is trite law that any loss suffered due on irregular exercise of statutory power by the chargee shall be remedied by way of damages. Any undervaluation if any is not a good ground to grant an interlocutory injunction against the chargee.

56. It should be borne in mind that a security for a facility is understood by both parties to be a commodity for sale in case of default from the time of signing the contract. It is not in doubt that the 1st respondent has the capacity to pay any damages in case of any loss due to under valuation.

57. I have closely analysed the arguments of both parties herein and I am of the considered view that irreparable loss has not been established by the applicant.

58. It is my considered view that irreparable loss has not been demonstrated herein.

Balance of Convenience Test 59. It is worth noting that the applicant has not met the requirement of a prima facie case and has also failed to show how it stands to suffer irreparable loss. The 1st respondent is a reasonably sound financial institution which stands better chances to compensate the applicant should the applicant succeed in this trial. If an injunction is granted to restrain the 1st respondent from exercising its statutory power of sale, the amount of debt shall continue to rise exponentially and the security may prove to be insufficient to cover the ultimate balance. My view is that the balance of convenience tilts against granting of the interlocutory injunction.

60. Moreover, the applicant herein has not denied being indebted to the 1st respondent and in failing to honour the terms of the contract. As such, the applicant does not deserve to enjoy the fruits of equity. I make reference to the case of Daniel Kamau Mugambi v Housing Finance Company of Kenya Ltd[2006] eKLR the court quoted with approval the Court of Appeal decision in Francis J.K Ichatha v Housing Finance Company of Kenya, civil applicationNo 108 of 2005 as follows:-“A plaintiff should not be granted an injunction if he does not have clean hands, and no court of equity will aid a man to derive advantage from his own wrong, for the plaintiff seeks this court to protect him from his own default. He who seeks equity must do equity….”

61. Similarly, in Samson Aliton Okello v Barclays Bank of Kennya Limited [2009] eKLR, Lessit J observed that “an injunction is an equitable remedy and a party seeking such a remedy must conduct himself in relation to the suit and the matter at hand in a manner that will meet the approval of a court of equity.”

Conclusion 62. Having considered the material placed before me and bearing in mind the principles set out in the cases cited herein, I am of the considered view that the applicant has not met the threshold of granting an injunction.

63. I find no merit in this application dated May 30, 2022 and it is accordingly dismissed with costs.

64. It is hereby so ordered.

DATED AND SIGNED AT NYERI THIS 10TH DAY OF NOVEMBER, 2022. F. MUCHEMIJUDGERULING DELIVERED THROUGH VIDEO LINK THIS 10TH DAY OF NOVEMBER, 2022