[2022] KEHC 17056 (KLR)

I & M Bank Limited v Ufanisi Freighters Limited & 3 others (Civil Appeal E114 of 2021) [2022] KEHC 17056 (KLR) (13 May 2022) (Ruling)

Neutral citation: [2022] KEHC 17056 (KLR)

Republic of Kenya

In the High Court at Mombasa

Civil Appeal E114 of 2021

MN Mwangi, J

May 13, 2022

Between

I & M Bank Limited

Appellant

and

Ufanisi Freighters Limited

1st Respondent

Premier Flour Mills Limited

2nd Respondent

Atta (Kenya) Limited

3rd Respondent

Milling Corporation Kenya (2009) Ltd

4th Respondent

Ruling

1. The appellant/applicant on October 1, 2021 filed an application under the provisions of Sections 1A, 1B, 3A of the Civil Procedure Act, Cap 21 Laws of Kenya and Order 42 Rule 6 and Order 51 Rule 1 of the Civil Procedure Rules. The applicant seeks the following orders-(i)Spent;(ii)Spent;(iii)That pending the hearing and determination of the substantive appeal, there be a stay of any further proceedings in Mombasa CMCC No 1477 of 2017: Ufanisi Freighters (K) Limited vs Premier Flour Mills Limited & 3 Others; and(iv)That the Court be at liberty to make any further orders in the interest of justice; and(v)That the costs of and/or incidental to this application do abide the outcome of the appeal

2. The application is supported by the affidavit of Andrew Muchina, the applicant’s Senior Manager, Legal Department, sworn on October 1, 2021. The respondent filed a replying affidavit sworn on October 19, 2021, by Lawreence Muteithia King’ora, the 1st respondent’s General Manager. The applicant’s Counsel filed his written submissions on November 15, 2021, while the Counsel for the respondent filed hers on November 16, 2021.

3. This Court has perused the submissions filed by the Counsel for both parties and noted that to a large extent, they addressed the conditions applicable in applications for stay of execution and not for stay of proceeding, yet the application before this Court sought orders for stay of proceedings and not stay of execution. This Court will however deliver the ruling in this matter on merits, based on the prayers sought, depositions made, the submissions that are relevant to the issue of stay of proceedings and the applicable law, as well as legal precedents.

4. In his written submissions, Mr Wawire, learned Counsel for the applicant indicated that in order for this Court to exercise its discretion in favour of the applicant under the provisions of Order 42 Rule 6 of the Civil Procedure Rules, it must show that substantial loss would ensue from a refusal for grant of stay of proceedings. It was submitted that the amounts owed by the 2nd respondent to the applicant is a colossal amount of over 1 Billion Kenya Shillings. It was submitted that the applicant is likely to suffer substantial loss if the 1st respondent is allowed to sell its properties, since the 2nd respondent will default and the bank will be unable to recover the debt if the appeal succeeds. He also stated that the debt owed by the 2nd respondent will outstrip the value of the charged assets due to the accrued interest, thereby causing irreparable harm to the bank.

5. It was also submitted that the 1st respondent had not demonstrated in its replying affidavit what resources it has to compensate the applicant in case of its appeal being successful. It was contended that the mere statement of it being financially stable and that it has been in existence for over thirty years was not sufficient proof that the 1st respondent can pay a sum of over 1 Billion Kenya Shillings.

6. Mr Wawire relied on the decision in the case of Rhoda Mukuma vs John Abuoga[1998] eKLR, where the Court held that it was necessary to preserve thestatus quo to prevent a loss that would render the appeal nugatory.

7. On the second condition for grant of orders sought, the applicant’s Counsel submitted that the application had been made timeously and without unreasonable delay.

8. In regard to the third condition for deposit of security, Mr Wawire stated that it is both undesirable and unnecessary in this application because the applicant is not the Judgment debtor, and that Order 42 Rule 6 of the Civil Procedure Rules never contemplated a situation whereby an objector is the applicant, whereas both the decree holder and Judgment debtor are respondents in the appeal. Further, it was submitted that the subject matter of this application is against the ruling dismissing an objection application. He urged this Court to exercise its discretionary powers by not making an order for the applicant to deposit security.

9. He relied on the case of James Wangalwa & another vs Agnes Naliaka [2012] eKLR, where it was held that it is the Court held that it is the Court that orders the kind of security the applicant should give as may ultimately be binding on the applicant. He added that the said modeling of the law is to ensure the discretion of the Court is not fettered.

10. Ms Osino, learned Counsel for the 1st respondent submitted that although the granting of orders for stay of execution pending appeal is an exercise of discretion, but it is fettered by the conditions set out in Order 42 Rule 6(2) of theCivil Procedure Rules. She conceded to the fact that the present application was made without undue delay. It was however submitted that the applicant had not demonstrated that it has an arguable appeal. She was of the view that the attached Memorandum of Appeal is not arguable because the attached goods are not listed in any schedule annexed to the debenture documents that were exhibited in the affidavit filed in Court in support of objection proceedings. She stated that the objection proceedings were a nullity and contrary to the provisions of the Companies Act and Movable Property Security Rights Act, 2017, which require registration of the debenture under two Acts i.e. under Section 96(2) of the Companies Act and Section 92 of the Movable Property Security Rights Act, 2017. She submitted that the attachment of the decree cannot be challenged by the applicant as there was no proof that the charges and debentures are currently in force and that the attached goods are owned by the appellant. She contended that no documents of crystallization of debentures had been availed and there was no proof that a Receiver Manager had been appointed to date or legally appointed as required by law.

11. On the issue of substantial loss, Ms Osino submitted that the burden of proof remains on the applicant to prove that the 1st respondent will not be in a position to refund the decretal sum of Kshs 16,799,916. 59 and that the said burden had not been discharged. She cited the case of New Wide Garments EPZ (K) V Ruth Kanini Kioko [2019] eKLR, where the Court stated that where the allegation is that the respondent will not be able to refund the decretal sum, the burden is upon the applicant to prove that the respondent will not be able to refund to the applicant any sums paid.

12. The respondent also relied on the case of Machira T/a Machira & Co Advocates vs East Africa Standard (No 2)2002 KLR, where the Court held that in this kind of application for stay, it is not enough for the applicant to merely state that substantial loss will result, but he must prove specific debate and particulars and that where no pecuniary or tangible loss is shown to the satisfaction of the Court, the Court will not grant a stay.

13. On the condition for deposit of security, the respondent submitted that an objector is not exempted from the legal requirements under Order 42 Rule 6 of the Civil Procedure Rules, since the applicant has sought to stop an execution process against the respondents to recover the sum of Kshs 16,799,916. 59 by stopping the attachment and the sale of goods attached. She argued that the 1st respondent is also entitled to security in case the exparte order issued by the Trial Court is confirmed.

14. Ms Osino cited the case ofNew Wide Garments EPZ (K) V Ruth Kanini Kioko (supra), where it was stated what a Court ought to do when confronted with such circumstances, and that by considering the twin overriding principles of proportionality and equality of arms which are aimed at placing the parties before the Court on equal footing and see where the scales of justice lie considering the fact that it is the business of the Court, so far as possible, to secure that any transitional motions before the Court and not to render nugatory the ultimate end of justice.

15. She stated that the applicant’s further affidavit and submissions were delayed and filed out of time defeating the provisions of Section 1B of the Civil Procedure Act. She urged this Court to dismiss the application with costs.

Analysis And Determination 16. The issue for determination is if the applicant has met the necessary conditions for grant of stay of any further proceedings pending the hearing and determination of the appeal.

17. In the applicant’s supporting affidavit the deponent averred that the applicant was aggrieved by the ruling by the Trial Court and filed an appeal which raises substantive issues that require determination by this Court, as particularized in the grounds in the Memorandum of Appeal. He averred that unless the prayers sought are granted, the appellant shall suffer irreparable and substantial loss.

18. The application was opposed vide the 1st respondent’s replying affidavit wherein, it was deposed that the instant application lacked merit and was in bad faith since the applicant to date has failed to appoint a Receiver even after the ruling by the Trial Court, which clearly demonstrates that the applicant and the 2nd, 3rd and 4th respondents are conspiring to defeat the ends of justice by allowing them to continue receiving services without paying as is the case herein, and then proceeding to hide behind an alleged debenture which never crystalizes when execution is imminent.

19. The deponent also averred that the decree giving rise to the objection still subsists and there is no appeal filed against the original decree and that granting stay of proceedings will be equivalent to stay of execution of the Judgment that has not been challenged. The deponent also averred that since the applicant’s objection had already been found to be a nullity by the Trial Court, the applicant’s, the 2nd, 3rd and 4th Respondent’s claim of rights as objectors as well as respondents in the primary suit is not sustainable in law.

20. The deponent averred that the applicant had not demonstrated how the appeal would be rendered nugatory if stay of further proceedings was not granted. He deposed that the 1st respondent is in a position to refund the decretal sum if at all the appeal will be successful. He expressed the view that the instant application was a ploy by the applicant to deny the 1st respondent enjoyment of the fruits of its judgment.Whether the applicant has met the threshold for grant of stay of proceedings.

21. A decision on whether or not to grant stay of proceedings is discretionary and this Court has powers to stay proceedings pending an appeal. This jurisdiction is derived from of Order 42 Rule 6(1) of the Civil Procedure Rules.

22. The Court in the case of Kenya Wildlife Service vs James Mutembei [2019] eKLR held as follows-“…Stay of proceeding should not be confused with stay of execution pending appeal. Stay of proceeding is a grave judicial action which seriously interferes with the right of a litigant to conduct his litigation. It impinges on right of access to justice, right to be heard without delay and overall, right to fair trial. Therefore, the test for stay of proceeding is high and stringent…”

23. Similarly, in the case of Mark Omollo Agencies & 2 Others vs Daniel Kioko Kaindi & another [2004] eKLR, the Court held thus-“Turning to the facts of the matter before me and the points for determination, the facts and points are unique in that it is actually not a stay of execution which is being sought and my finding is that what is being sought is a stay of proceedings and the monetary conditions set out in (a) and (b) above do not apply to applications for stay of proceedings. They only apply to applications for stay of execution. The applicant seeks a stay of hearing so that a major legal point he intends to pursue on appeal is determined. If the hearing were to proceed on the basis of the amended pleadings this would render the appeal nugatory. I consider that the applicant is correct in that if fresh causes of action were to be added and the matter proceeds to full hearing the intended appeal would certainly be rendered nugatory. The fact that he could still file an appeal against the ultimate judgment would not in the opinion of the court make any difference to the intended appeal being nugatory because the Court of Appeal Rules require the institution of an appeal against each order or decree and there is no clear provision for consolidation. In addition, proceeding with the hearing while an appeal is pending would constitute an abuse of the court process.”

24. In the case ofRe Global Tours & Travel Ltd High Court Winding Up Cause No 43 of 2000, the Court held as follows -“…As I understand the law, whether or not to grant a stay of proceedings or further proceedings on a decree or order appealed from is a matter of judicial discretion to be exercised in the interest of justice .... the sole question is whether it is in the interest of justice to order a stay of proceedings and if it is, on what terms it should be granted. In deciding whether to order a stay, the court should essentially weigh the pros and cons of granting or not granting the order. And in considering those matters, it should bear in mind such factors as the need for expeditious disposal of case, the prima facie merits of the intended appeal, in the sense of not whether it will probably succeed or not but whether it is an arguable one, the scarcity and optimum utilization of judicial time and whether the application has been brought expeditiously…”

25. In order for this Court to grant stay of proceedings, the applicant ought to have shown that it has an arguable appeal with high chances of success such that if stay of proceedings is not granted, the appeal will be rendered nugatory. Regarding the consideration of whether the appeal is arguable, the Court of Appeal inStanley Kang’ethe Kinyanjui v Tony Ketter & 5 others [2013] eKLR elaborated on the issue as follows:“vi)On whether the appeal is arguable, it is sufficient if a single bonafide arguable ground of appeal is raised. Damji Pragji Mandavia v Sara Lee Household & Body Care (K) Ltd, Civil Application No Nai 345 of 2004. vii.An arguable appeal is not one which must necessarily succeed, but one which ought to be argued fully before the court; one which is not frivolous. Joseph Gitahi Gachau & Another v Pioneer Holdings (A) Ltd & 2 others, Civil Application No 124 of 2008. ”

26. It is not in dispute that the present application was filed expeditiously. I have read through the proceedings of the Trial Court and the ruling by the said Court on the applicant’s objection proceedings. The Trial Court found that the applicant herein had not presented to Court any evidence to demonstrate that its debentures had been registered under Section 96(2) of the Companies Act and Section 92 of the Movable Property Security Actand that the applicant had failed to comply with clause 7. 1 and 7. 1.5 on when the debenture crystalized. Additionally, in respect to floating debentures, the Trial Court found that the floating debenture on movable property would have crystalized upon the appointment of a Receiver by the applicant. Consequently, since the applicant had not appointed a Receiver, then the floating debenture could not take priority over the execution by a creditor. The applicant in its grounds of appeal argues that the Trial Court failed to appreciate that one of the events that may lead to crystallization of the floating charge was the execution of any final Judgment or order against the assets of the 3rd respondent or any decree, order, warrant, sequestration or distress against the said assets. Further, that the Trial Court misdirected itself on the law pertaining to the question of crystallization and appointment of a Receiver thereby reaching a wrong conclusion.

27. It is evident that the issues raised by the grounds of appeal are sufficient to demonstrate that the appeal is arguable and not frivolous since the applicant’s appeal may be rendered nugatory if the proceedings in Mombasa CMCC No 1477 of 2017 are not stayed. I therefore hold that the proceedings in the said suit must be stayed for a specific period that would allow the applicant to prosecute its appeal.

28. In order for the stay of proceedings not operate in perpetuity, I direct the applicant to ensure that the Record of Appeal is prepared and directions on the appeal taken within 45 days from the date of this ruling. In default, the orders for stay of proceedings issued herein shall stand vacated.

It is so ordered.DELIVERED, DATED, and SIGNED VIRTUALLY at MOMBASA this 13th day of May, 2022. Ruling delivered through Teams Online Platform.NJOKI MWANGIJUDGEIn the presence of-Ms Wamuyu h/b for Mr Wawire for the appellant/applicantMs Osino for the 1st respondentMs Sidinyu h/b for Mr Malombo for the 2nd, 3rd and 4th respondentsMr Oliver Musundi – Court Assistant.