[2022] KEHC 12956 (KLR)

I & M Bank Limited v Xplico Insurance Company Limited & 5 others; Munge (Interested Party) (Commercial Case E804 of 2021) [2022] KEHC 12956 (KLR) (Commercial and Tax) (16 September 2022) (Ruling)

Neutral citation: [2022] KEHC 12956 (KLR)

Republic of Kenya

In the High Court at Nairobi (Milimani Commercial Courts Commercial and Tax Division)

Commercial and Tax

Commercial Case E804 of 2021

A Mabeya, J

September 16, 2022

IN THE MATTER OF:SECTION 58 OF THE CIVIL PROCEDURE ACT & ORDER 34 OF THE CIVIL PROCEDURE RULES. IN THE MATTER OF:INTERPLEADER, RELEASE FROM LIABILITY AND QUESTIONS ON LIABILITY OF A BANK

Between

I & M Bank Limited

Plaintiff

and

Xplico Insurance Company Limited

1st Defendant

Kenya Revenue Authority

2nd Defendant

Musili Mbiti and Associates

3rd Defendant

Wambua Kilonzo & Co Advocates

4th Defendant

Ogowe & Associates

5th Defendant

Ngaywa & Kibet Partners LLP

6th Defendant

and

George Ndinye Munge

Interested Party

Ruling

1. This is an interpleader suit commenced by way of Originating Summons dated September 17, 2021 pursuant to order 34 of the Civil Procedure Rules and section 58 of the Civil Procedures Act.

2. The summons sought a raft of orders. These included; the stay of execution of the agency Notice by the 2nd defendant dated September 15, 2021 demanding payment of kshs 43,187,619/= in respect of tax owed by the 1st defendant; stay of proceedings in 30 different court cases in different courts in Nairobi, Malindi, Kilifi and Kiambu wherein garnishee orders nisi and absolute had been issued against the accounts of the 1st defendant; stay of any future garnishee proceedings.

3. It further sought that out of the sum of kshs 7,714,056. 48 held in the 1st defendant’s account numbers 0390xxxx and 0040xxxx, kshs 3 million be held in escrow by the plaintiff as a charge for its legal costs and kshs 4,714,056. 48 be paid into court.

4. The plaintiff further sought that it be released from any liability upon the court’s directions on the disposal of the money held in credit in the 1st defendant’s accounts. That the court do give directions on how monies belonging to the 1st defendant and held by the plaintiff should be distributed amongst the claimants. Finally, that the court make a finding on whether a decree order absolute for attachment of monies in a debtor’s account can extend to the attachment of the bank’s property in the absence of an express court order finding the bank to have failed to comply with a garnishee order.

5. The summons was supported by the affidavits of Doreen Otieno sworn on September 17, 2021, September 23, 2021 and November 10, 2021, respectively.

6. The plaintiff’s case was that the 1st defendant held several accounts with itself. Various garnishee proceedings had been brought against it whereby the 3rd defendant had caused the plaintiff’s tools of trade to be proclaimed by auctioneers.

7. That at the time, the plaintiff had complied with the various garnishee orders and the same was communicated to the 3rd defendant vide a letter dated September 9, 2021. However, the 3rd defendant insisted on full compliance before discharging the plaintiff. This necessitated the plaintiff to file various applications before the magistrate’s courts in Milimani for stay.

8. On its part, the 1st defendant opposed any payments being made from its accounts and demanded a refund from the plaintiff. It threatened court action against the plaintiff despite that the latter was only complying with court orders. The 1st defendant had since filed a criminal application in Misc Cr App no E3288 of 2021 wherein it accused the plaintiff with the offence of stealing. Subsequently, the 2nd defendant served the plaintiff with agency notices for kshs 43,187,619/= thereby freezing any payment from the 1st defendant’s accounts.

9. That since the filing of the summons, the plaintiff had been served with 17 more garnishee applications and orders and had since instructed its advocate on record to enter appearance in those matters despite the interim orders granted by this court on September 24, 2021.

10. That the 4th defendant had instructed auctioneers to proclaim the plaintiff’s goods despite the existence of stay orders. That the 3rd and 4th defendant’s attachment of the plaintiff’s property was illegal as the same were tools of trade as per section 44 of the Civil Procedure Act.

11. The plaintiff asserted that it was incurring legal costs in all these garnishee proceedings as well as possible future proceedings. In the premises, a sum of kshs 3 million ought to be set aside to cater for those costs in the present suit and other 47 garnishee proceedings.

12. The defendants filed their various responses and grounds of opposition in opposition to the summons as follows: -a)a notice of preliminary objection and grounds of opposition both dated October 4, 2021 by the 3rd defendant;b)a notice of preliminary objection dated October 12, 2021 by the 4th defendant;c)grounds of opposition dated November 3, 2021 by the interested party;d)a replying affidavit dated November 8, 2021 sworn by Viola Odipo on behalf of the 1st defendant;e)a replying affidavit dated November 12, 2021 sworn by Victor Mino on behalf of the 2nd defendant;f)a replying affidavit dated October 12, 2021 sworn by Geoffrey Kilonzo on behalf of the 4th respondent;g)a replying affidavit dated November 3, 2021 sworn by Fredrick Ogowe on behalf of the 5th defendant; andh)a replying affidavit dated November 4, 2021 sworn by Kibet Kemboi on behalf of the 6th respondent.

13. The preliminary objections in clauses a) and b) above were to the effect that the 4th defendant was an unnecessary party to the suit and no cause of action had been established against it. That the 3rd, 4th and 5th defendants were not body corporates capable of suing and been sued.

14. The defendants and interested party contended that the suit offended section 58 of the Civil Procedure Act due to the pendency of other suits in the magistrates courts. That there was no dispute to the entitlement of the garnisheed amounts that would necessitate the interpleader proceedings as the amounts were ascertainable to each party and payments rank in order of priority as per the garnishee orders absolute.

15. That any opposition to garnishee proceedings could only be heard by the court where the proceedings were pending as per section 6 of the Civil Procedure Act. That the plaintiff had not disputed the debts in the primary suits before the lower courts hence the courts could order execution against the garnishee in terms of section 23 rule 4 of the Civil Procedure Rules. That the plaintiff had already complied with garnishee orders absolute in respect of money owed to the 3rd defendant. In the premises, the legal obligation owed had been extinguished making the suit unnecessary.

16. The defendants also contended that the plaintiff was not entitled to the setting aside of kshs 3 million for costs. That costs had not been assessed and the plaintiff should pursue the 1st defendant for its costs. The 1st defendant contended that the estimated legal costs of kshs 600,000/= was exaggerated and the plaintiff was attempting to enrich itself from it’s money.

17. It was contended that the summons wasn’t interpleader as the plaintiff had laid an interest in the subject matter. That this court lacked jurisdiction to direct how the funds held in the 1st defendant’s accounts is to be disbursed. That jurisdiction lay with the courts hearing the garnishee proceedings.

18. The 1st defendant contended that it had filed Nairobi Insolvency Notice no E003 of 2020 in response to the 3rd defendant’s statutory demand notice demanding kshs 28,906,257/= in respect of various decrees. The 1st defendant paid kshs 10,941,272/=. The 3rd defendant then instituted garnishee proceedings against the 1st defendant in various matters leading to garnishee orders absolute. The plaintiff paid the 3rd defendant kshs 38,587,674. 40.

19. The 1st defendant further contended that the plaintiff had not notified it of the garnishee proceedings or of the funds transferred from its accounts without authority. It only became aware of it on September 8, 2021. That the plaintiff had failed to respond to the garnishee proceedings.

20. On its part, the 2nd defendant contended that it had statutory authority to issue agency notices under section 42 of the Tax Procedures Act. That the 1st defendant was aware of its tax arrears and had entered into a debt repayment agreement with the 2nd defendant on December 16, 2020. That section 34 of the Tax Procedures Act provides for priority of taxes before any other debts are settled. That the 1st defendant not having objected to the taxes, there should be no stay to the collection of taxes.

21. The 3rd and 5th defendants contended that the letter from the 2nd defendant did not amount to agency notices. That there was collusion between the 1st and 2nd defendant to ensure that the 3rd defendant does not access the bank accounts. That since the garnishee proceedings in the lower courts were unchallenged, the 2nd defendant could not attach an account that had already been attached.

22. The 5th respondent contended that no garnishee absolute orders had been issued in its proceedings. In the premises, it should not have been enjoined in these proceedings.

23. The parties filed their various submissions which the court has considered along with the affidavits on record.

24. Section 58 of the Civil Procedure Act cap 21 defines interpleader as follows: -“Where two or more persons claim adversely to one another the same debt, sum of money or other property, movable or immovable, from another person, who claims no interest therein other than for charges or costs and who is ready to pay or deliver it to the rightful claimant, such other person may institute a suit of interpleader against all the claimants, or where a suit dealing with the same subject-matter is pending may intervene by motion on notice in such suit, for the purpose of obtaining a decision as to the person to whom the payment or delivery shall be made, and of obtaining indemnity for himself:…”

25. Order 34 Rule 2(a-c) of the Civil Procedure Rules is founded on the above section and lays out the characteristics of an interpleader. According to this provision, an interpleader must satisfy: -“a)That the applicant claims no interest in the subject matter in dispute other than for charges or costs;b)That there is no collusion between the applicant and any of the claimants;c)That the applicant is willing to pay or transfer the subject matter into court or to dispose of it as the court may direct.”

26. In Safina Properties Limited & another v Barclays Bank of Kenya Limited & another [2015] eKLR, the court stated: -“Interpleader is, therefore, a person who holds a debt, sum of money or other property, movable or immovable, to which two or more persons lay claims adverse to one another, but does not himself claim any interest therein except for charges or costs appurtenant to the property so held. The Interpleader should also be ready and willing to pay or deliver the property so held. A good example is a vehicle held in a garage after repairs but whose ownership is being claimed by two or more persons. The vehicle repairer is an Interpleader … He should not have or lay any proprietary claim on the vehicle.”

27. In the instant case, it is not in dispute that the plaintiff holds a total of Kshs 7,714,056. 48 held in the 1st defendant’s accounts. It is also not in dispute that numerous garnishee proceedings were instituted against the plaintiff in respect of that money. There was also an agency notice by the 2nd defendant. The plaintiff prayed that out of the said sum, Kshs 3,000,000/= be set aside for its costs.

28. The court’s opinion is that, the prayer to set aside the said sum for the costs incurred and to be incurred does not make the same an interest on the monies held. All the defendants are claiming the said amount. All the plaintiff sought was to know to whom the same should be paid.

29. Accordingly, the contention that this is not an interpleader perse holds no water.

30. The contention by the 3rd defendant that it had been paid in full and legal obligations extinguished has no basis. The 3rd defendant itself claimed that the 1st and 2nd defendant were in collusion on the issue of taxes in order to bar it from accessing the subject accounts. It meant that it was still eyeing those accounts for payment of some monies. That defendant cannot approbate and reprobate at the same time. That contention is rejected.

31. The 5th defendant contended that its garnishee proceedings had not yet resulted into garnishee order absolute and should not therefore have been enjoined in these proceedings. That contention also lacks basis. By filing a garnishee proceeding, that was a claim of a debt owed by the plaintiff to the 1st defendant. That alone made the 5th defendant a claimant of the sums in those accounts. Accordingly, it was a proper party to these proceedings.

32. There was the contention that the letter by the 2nd defendant did not amount to an agency notice. The court saw the letter. It was issued under section 42 of the Tax Procedures Act. There is no specific format that is set out in the Act on how the agency notice should be like. All that is required of the 2nd defendant is to make a demand under that section and the same qualifies to be an agency notice.

33. Accordingly, I hold that the agency notice by the 2nd defendant was valid in so far as there was no tax objection by the 1st defendant. Indeed, the 2nd defendant proved that the 1st defendant had entered into a tax repayment agreement with it.

34. As regards priority, the other defendants submitted that the agency notice could not take priority to the garnishee orders absolute already made. With due respect, the amount held by the plaintiff on behalf of the 1st defendant is a debt. The general rule is that payment of taxes ranks in priority in the settlement of debts.

35. In this regard, in the settlement of the 1st defendant’s debts, the agency notice by the 2nd defendant takes priority.

36. As regards the prayer to stay the agency notices, the court’s view is that the plaintiff is not the proper party to seek such orders. The agency notices were directed towards the 1st defendant’s accounts. The plaintiff’s only role was to comply. If it lacked funds to apply, it should have notified the commissioner within seven days of receiving the notices as provided for by section 42(6) of the Tax Procedures Act.

37. In Eastern and South Africa Trade Development Bank vs Kenya Revenue Authority HCCC No 811 of 2009, the court held: -“Apart from the above analysis, it is also apparent that there is no tax assessment which has been directed at the plaintiff in this case. The court is of the considered opinion that it is only a person who has been assessed who has the right to attack the notice which is in issue in this particular case. A stranger to an assessment cannot attack an assessment.”

38. Accordingly, the order for stay of the agency notices cannot be available to the plaintiff.

39. The next issue is the prayer for the setting aside of kshs 3 million to carter for plaintiff’s costs. It was the 1st defendant’s case that the plaintiff failed to appear in the garnishee proceedings leading to the issuance of the garnishee orders absolute. It was also its case that the plaintiff did not notify it with the garnishee proceedings thus denying it a chance to object the proceedings.

40. The court finds that, if the plaintiff failed to participate in the garnishee proceedings wherein it would have raised the issue of its costs, it cannot attempt to raise the same here. It should have appeared in those proceedings and secured its costs.

41. The complaint by the 1st defendant that the plaintiff did notify it of those garnishee proceedings does not lie. It was for the decree holders in those proceedings to serve the 1st defendant as the judgment debtor with the garnishee proceedings. It would be highly irregular, and indeed illegal if those courts made garnishee orders absolute without the decree holders having served the judgment debtor with those proceedings.

42. However, the court has found that the present proceedings were necessary. That there are likely to be other garnishee proceedings against the plaintiff. The court therefore holds that a sum of kshs 750,000/- would be sufficient to cover the attendant costs.

43. On the issue of the various proclamations issued by the 4th defendant, the court refers to order 23 Rule 4 of the Civil Procedure Rules for guidance. In a situation where a garnishee fails to appear or attend the garnishee proceedings, the court is entitled to order execution against the garnishee and its property attached. That is usually the effect of a garnishee order absolute. The garnishee becomes lible to settle the amount decreed in the garnishee order absolute.

44. In this regard, the plaintiff having failed to defend the garnishee proceedings, it has itself to blame for the consequent proclamations and attachment. It became liable to settle the garnishee order absolute. Accordingly, the execution proceedings against it were lawful and regular.

45. As the prayer for an order staying all other garnishee proceedings and an invite to future claimants to enjoin their claims in these proceedings, the same cannot issue. That is a prayer which is supposed to be made before the court where garnishee proceedings are pending.

46. In the end, the court finds the proceedings to have been partially successful and makes the following orders: -a.The funds held by the plaintiff in the accounts of the 1st defendant be paid over to the 2nd defendant in settlement of the taxes owed by the 1st defendant less kshs 750,000/- to be held as the costs of the plaintiff.b.Consequently, if there are no further funds in those accounts after payment of taxes to the 2nd defendant, all proclamation notices are hereby declared to be unprocedural and set aside.It is so ordered.

DATED AND DELIVERED AT NAIROBI THIS 16TH DAY OF SEPTEMBER, 2022. MABEYA, FCIArbJUDGE