[2022] KEHC 3071 (KLR)

Iravuhah v Standard Chartered Bank & another (Civil Case E019 of 2021) [2022] KEHC 3071 (KLR) (18 May 2022) (Ruling)

Neutral citation: [2022] KEHC 3071 (KLR)

Republic of Kenya

In the High Court at Eldoret

Civil Case E019 of 2021

RN Nyakundi, J

May 18, 2022

Between

Jackson Iravuhah

Applicant

and

Standard Chartered Bank

1st Respondent

Philips International Auctioneers

2nd Respondent

Ruling

Introduction & Background 1. The plaintiff/applicant moved this court vide a notice of motion application dated the 8th of July 2021 seeking primarily a temporary injunction restraining the defendants from selling, transferring or dealing in any manner with the plaintiff’s parcel of land known as Eldoret Municipality/block 14/115 (suit property) and all the developments on the land pending the hearing and determination of the application and the suit.

2. The application was supported by an affidavit sworn by the applicant herein on even date.

3. The thrust of the application is that the applicant secured a loan of Kshs 32,000,000 from the 1st defendant/respondent on the 29th of March 2012 and charged the suit property as security for the said loan by depositing the title deed of the said property together with three institutional developments in the suit property. However, the applicant/plaintiff defaulted on the said loan at which point the 1st defendant sought to exercise its statutory power of sale by issuing notices dated the 19th of February 2020 and 28th of May 2020. In this regard, the 2nd defendant served the plaintiff/applicant with an auctioneer’s notice necessitating the instant application by the applicant/plaintiff.

4. The gravamen of the application as gleaned from the applicant’s/plaintiff’s affidavit is that the three institutional developments on the suit property serve as academic/learning centres for students hence any auction of the property would result in the detriment of the students who are pursuing their education in those schools. Secondly, the applicant/plaintiff posits that he will suffer irreparable loss and damage if the orders sought herein are not granted to stop the respondent from disposing off his matrimonial home (suit property) and the developments thereon. His position was that he has paid the principal amount in question save for the interest which he averred has risen abnormally. He however admits not paying the interest on the loan stating that he fell ill and was not in a position to repay the loan due. Furthermore, the applicant noted that he has on several occasions written to the 1st defendant seeking to restructure his loan but received no response from the 1st defendant bank.

5. He thus seeks this court’s intervention to stop the defendants from selling, disposing off or in any way dealing with the suit property.

6. His application was vehemently opposed by the defendants through their replying affidavit sworn on the 18th of August 2021 by Ms. Stella Mburu, the 1st defendant’s Group Special Asset Management Head. In particular, Ms Mburu detailed how the applicant entered into a financial loan agreement with the 1st defendant registering a charge over the suit property. She further averred how the plaintiff stalled in repaying the loan which she pointed out as at 13th of August 2021 stood in arrears of Kshs 22,141,794. 04 as outstanding principle and the interest at Kshs 7,852,866.

7. In this regard, Ms. Mburu confirmed that the bank sought to exercise its statutory power of sale and issued notices of the same after its demand to the applicant were rendered futile. She confirmed that the 1st defendant carried out valuation of the suit property which came to Kshs 95,000,000 market value and Kshs 71,625,000 as forced sale value. Ms. Mburu further averred that the bank did receive letters from the applicant/plaintiff on the 9th of October 2018 and 23rd May 2019 seeking to restructure the loan but that the same were declined and responses given to the plaintiff vide letters dated the 24th of October 2018 and 19th October 2019.

8. To this end, the 1st defendant prayed that the court grants leave to the defendants to proceed and exercise its statutory power of sale arguing that there is real risk that the debt may outstrip the value of the suit property. Finally, the 1st defendant averred that the plaintiff/applicant will not be prejudiced by the sale of the property and that in the alternative, if the plaintiff/applicant becomes prejudiced by the exercise of the power of sale, he will have a remedy in damages.

Determination 9. The main issue that is easily discernible from the application, the evidence on record and the submissions of parties is whether this court should grant the applicant the reliefs sought. That is, whether the applicant has met the threshold for grant of the injunction sought.

10. In delving into this question I bear in mind the following principles Swiss Bank Corporation v Lloyds Bank Ltd(1982) AC 584 in which the following observations were made “An equitable charge may, it is said, take the form either of an equitable mortgage or of an equitable charge not by way of mortgage. An equitable mortgage is created when the legal owner of the property constituting the security enters into some instrument or does some act which, though insufficient to confer a legal estate or title in the subject matter upon the mortgagee, nevertheless demonstrates a binding intention to create a security in favour of the mortgagee, or in other words evidences a contract to do so: see Fisher and Lightwood's Law of Mortgage, 9th ed. (1977), p 13. “The essence of any transaction by way of mortgage is that a debtor confers upon his creditor a proprietary interest in property of the debtor, or undertakes in a binding manner to do so, by the realisation or appropriation of which the creditor can procure the discharge of the debtor's liability to him, and that the proprietary interest is redeemable, or the obligation to create it is defeasible, in the event of the debtor discharging his liability. If there has been no legal transfer of a proprietary interest but merely a binding undertaking to confer such an interest, that obligation, if specifically enforceable, will confer a proprietary interest in the subject matter in equity. The obligation will be specifically enforceable if it is an obligation for the breach of which damages would be an inadequate remedy. A contract to mortgage property, real or personal, will, normally at least, be specifically enforceable, for a mere claim to damages or repayment is obviously less valuable than a security in the event of the debtor's insolvency. If it is specifically enforceable, the obligation to confer the proprietary interest will give rise to an equitable charge upon the subject matter by way of mortgage. It follows that whether a particular transaction gives rise to an equitable charge of this nature must depend upon the intention of the parties ascertained from what they have done in the then existing circumstances. The intention may be expressed or it may be inferred. If the debtor undertakes to segregate a particular fund or asset and to pay the debt out of that fund or asset, the inference may be drawn, in the absence of any contra indication, that the parties' intention is that the creditor should have such a proprietary interest in the segregated fund or asset as will enable him to realise out of it the amount owed to him by the debtor: compare In re Nanwa Gold Mines Ltd. [1955] 1 W.L.R. 1080 and contrast Moseley v. Cressey's Co.(1865) L.R. 1 Eq. 405 where there was no obligation to segregate the deposits. But notwithstanding that the matter depends upon the intention of the parties, if upon the true construction of the relevant documents in the light of any admissible evidence as to surrounding circumstances the parties have entered into a transaction the legal effect of which is to give rise to an equitable charge in favour of one of them over property of the other, the fact that they may not have realised this consequence will not mean that there is no charge. They must be presumed to intend the consequence of their acts.”

11. It is trite that there are circumstances in which the applicant seeking an injunction comes with unclean hands to the adjudication forum that as a matter of discretion he/she is debarred from relief by way of an injunction. Notwithstanding that proposition the court has the power and discretion to distill the specific facts and circumstances in regard to refusal or grant of temporary injunctions. The nature of the relief is such that it should not occasion substantial prejudice or injustice to either of the parties to the contract. The court in National Bank Jamaica Ltd v Olint Corporation Ltd(2009) UKPC 16 where Lord Hoffman said “The court may order a defendant to do something or not to do something else, but such restrictions on the defendant's freedom of action will have consequences, for him and for others, which a court has to take into account. The purpose of such an injunction is to improve the chances of the court being able to do justice after a determination of the merits at the trial. At the interlocutory stage, the court must therefore assess whether granting or withholding an injunction is more likely to produce a just result. As the House of Lords pointed out in American Cyanamid Co v Ethicon Ltd [1975] AC 396, that means that if damages will be an adequate remedy for the plaintiff, there are no grounds for interference with the defendant's freedom of action by the grant of an injunction. Likewise, if there is a serious issue to be tried and the plaintiff could be prejudiced by the acts or omissions of the defendant pending trial and the cross-undertaking in damages would provide the defendant with an adequate remedy if it turns out that his freedom of action should not have been restrained, then an injunction should ordinarily be granted”.

12. The applicant/plaintiff relied on the case of Giella vs Cassman Brown & Co. Ltd [1973] EA 358 submitting that he has a prima facie case with a probability of success. In particular it was his submission that the 1st defendant did not comply with Section 97(2) of the Land Act before seeking to exercise its statutory power of sale. Secondly, he was of the view that the terms of the charge, specifically the amount of loan the respondents are claiming, is an exaggerated interest charged at an exorbitant rate and submitted that this requires court’s intervention.

13. The applicant/defendant further submitted that he stands to suffer irreparably if he loses the charged property since the same is his matrimonial home and that students within the suit property would be affected education wise if the property is sold.

14. With this in mind, I will now turn to the real issue in controversy that is; whether applicant’s application for injunction is merited and whether the applicant will be prejudiced as a consequence of denial of the same. In the celebrated case of Giella v Cassman Brown(supra), the principles governing issuance of injunctive orders were settled as; proof of a prima facie case with a probability of success; likelihood that the applicant will suffer irreparable damage which cannot be compensated in monetary terms; balance of convenience with the scales of justice tilting in favour of the applicant and, for any other sufficient cause.

15. The burden therefore lies with the applicant to establish the existence of those ingredients. However, the court has the discretion to grant such orders or refuse after due consideration. It is therefore not automatic that by merely filing a suit the orders must issue as of right. I am nevertheless alive to the fact that a court seized of those powers must act judicially and not arbitrarily. This position was held in Madhupaper international limited vs Kerr(1985) KLR.

16. In the instant case, the applicant pegs his case on four substantive grounds namely; That the 1st defendant did not comply with Section 97(2) of the Land Act before seeking to exercise its right of sale; that the terms of the charge, specifically the amount of loan the respondents are claiming, is an exaggerated interest charged at an exorbitant rate and finally that there was failure to comply with the requirement in Section 96(3)(c) of the Land Act by failing to serve the notice of sale upon the plaintiff and his wife who had given spousal consent.

17. Concerning the issuance of mandatory notices of sale, the applicant submitted that he was never served with the same and that there was no compliance with Section 97(2) of the Land. In particular, Section 97(2) of the Land Act provides that;“(2)A chargee shall, before exercising the right of sale, ensure that a forced sale valuation is undertaken by a valuer.”

18. In the instant case, whereas the applicant submitted that no valuation was ever undertaken, the defendants submitted that a valuation was undertaken. In this regard, the 1st defendant produced a valuation report carried out by Acumen Valuers property dated the 30th of October 2020 and marked SM12 which indicates that the valuation of the suit property took place and the market value was pegged at Kshs 95,000,000 while forced sale value was Kshs 71,625,000. The applicant has not contested the validity of the valuation report and hence I find that there was valuation of the property pursuant to Section 97(2) of the Land Act.

19. The applicant also submitted that he was not issued with a notice of sale which he correctly pointed out is a pre-requisite before exercising power of sale. In this regard, it is instructive to make due reference to Section 96(2) of the Land Act which is the enabling provision on notice to sell. Indeed Section 96(2) is to the effect that the chargee must serve a notice to sell to the chargor in the prescribed form. It provides:“Before exercising the power to sell the charged land, the chargee shall serve on the chargor a notice to sell in the prescribed form and shall not proceed to complete any contract for the sale of the charged land until at least forty days have elapsed from the date of the service of that notice to sell.”

20. Section 96 (2) of the Land Act brings to the fore a notice to sell of at least forty days while Rule 15 of the Auctioneers Rules describes a redemption notice of at least 45 days. The redemption notice is in line with Section 89 of the Land Act on the equity of redemption. At the same time the notice under Section 96 (2) gives the chargor at least 40 days to remedy the default or else the Chargee will proceed to sale.

21. It has been argued time and again that the requirements under Rule 15 of the Auctioneers Rules, 1997are sufficient for purposes of Section 96 (2) of the Land Act. It has also been argued that the redemption notice by the Auctioneers can also serve as a notice to sell by the chargee as envisaged by Section 96 (2) of the Land Act because it is issued by an agent of the Chargee duly acting on instructions and also informs the chargor that the property will be sold after 45 days unless he/she redeems it. However, the two notices serve distinct purposes and are served by different persons as was canvassed by Gikonyo J in Albert Mario Cordeiro &another vs Vishram Shamji [2015] eKLR.

22. In the instant case, there is every indication that the applicant/plaintiff was indeed served with all the relevant statutory notices. For example, it is clear that the 1st defendant served the plaintiff/applicant with statutory notices under Section 96(2) of the Land Act. The same is dated the 28th of May 2020 and was received by Eldoret Aviation Training Institution, which is owned by the applicant. He admits this himself. The same was copied to him directly. I therefore find that the same was properly served on him. In any case, the notices were served in accordance with clause 15 of page 18 of the charge agreement between the applicant and the 1st defendant which provided that:“Any notice required or authorized by law or by this charge to be served by the Bank on the chargor and/or borrower shall be deemed to have been properly served on the charger and/or borrower if served on the Chargor and or Borrower personally or if left for the chargor and or Borrower at the Chargor’s and/or Borrower’s last known place of residence or business in Kenya or if sent by registered post or facsimile at the Chargor’s and/or Borrower’s last known postal address..”

23. As concerns sale of matrimonial property, the applicant quoted various authorities which point to the fact that matrimonial property cannot be sold for lack of consent of a spouse. With the Land Act in place consent of a spouse was made mandatory. In this present case, spousal consent was sought and duly granted with his wife signing the charge document a fact that is not disputed. In fact, the same is visible in the supplemental charge and the spousal consent made on the 10th of December 2012 and registered on the 24th of December 2012.

24. With this in mind, I pose what was the objective of the applicant in knowingly subjecting his matrimonial property to the risk of sale in case of defaulting? was it a case of trying to obtain funds from the bank through false pretenses? I dare add that choices have consequences. By charging their matrimonial property willingly, the applicant and his family, in this case the wife, lifted the protection vail and therefore converted the property into a trading commodity. See Wilstone Mdindi Mwawugunga vs Kenya Women Microfinace Bank Plc[2022] eKLR

25. I certainly associate myself with the sentiments of court in Wilstone Mdindi vs Kenya Women Microfinance Bank(supra) where the learned judge was of the view that if courts were to entertain defaulters to escape liability on ground that matrimonial property cannot be sold after defaulting, banks will have to close down shop. There is no free man in the bank. Money in the banks belong to investors who are in business the same way the applicant obtained a loan to enhance his business.

26. In the case of Julius Mainye Anyega vs Eco Bank limited [2014] eKLR, the court dismissed the claim that the subject security was matrimonial property after confirming that necessary spousal consents were obtained and requisite notices of sale properly issued. The court went on to state;“…The true position of the law on matrimonial properties is that a mortgage will not be created on such property without first obtaining the consent of the spouse. Similarly, no sale of the matrimonial property will be carried through without giving the necessary notices to the spouse or spouses of the mortgagor. These protections once availed will not prevent sale of a matrimonial home where the necessary consents have been obtained and all notices given to all parties with an interest in the matrimonial home, which is given as security for a loan or credit facility”

27. Similar position was held in the case of Maltex Commercial Supplies Limited &Another vs Euro Bank LimitedH.C.C.C. No.82 of 2006 where the court stated that, any property whether it is matrimonial or spiritual house, which is offered as security for loan/overdraft is made on the understanding that the same stands the risk of being sold by the lender if default is made on the payment of the debt secured.

28. In our present case, whereas the applicant contends that his spouse was not served with the notice, I find this to be an escapist argument to try and save the inevitable-which is that- the applicant defaulted on his loan which he admits but provides excuses for the same and the bank sought to exercise its statutory power of sale. It also seeks to cover for the fact that both the applicant and his spouse consented to the charge over their property knowing very well the same would be at risk of being sold should the applicant default in repaying his debt. It is clear that the applicant/plaintiff was not coerced to execute the charge which after due execution and registration is legal and binding hence cannot be withdrawn or altered at his whims. See Eric Jean Daniel Stolz &Another vs Mohamed Jaffer H.C.C.C.No. 26 of 2004 (Milimani). For those reasons, I find the argument that the spouse was not served to be an afterthought hence a ground lacking merit. In the end, I find that the plaintiff/applicant has not established that he has a prima facie case.

29. On the question whether the applicant is likely to suffer irreparable loss which cannot be compensated in monetary terms, one can ask the question whether the property was valued and then quantified in monetary terms. There is no dispute that the property has a known and ascertainable value which is capable of monetary compensation by the 1st defendant/respondent which is a reputable financial institution. In case of any possible damage caused, the same in my view is capable of monetary compensation. This position was upheld in the case of Andrew Muriuki Wanjohi vs Equity Building Society Ltd & 2 others [2006] eKLR. For those reasons, that ground fails.

30. As to whether on a balance of convenience justice tilts in the applicant’s favour, I do not think so. The only remedy or cure in the treatment of a debt is, repayment. It will not be in the interest of justice for a lending institution which has discharged its obligation in a contract to keep begging for its money which is a key tool in trade. Courts should not be summoned to cover the guilt where such coverage will be at the detriment of the other party. On a balance of convenience justice tilts in the defendants/respondent’s favour. The set of facts and the reality facing the court in this application is lather peculiar. The mortgagee has a right to sue for the debt which encompasses the proprietary rights in the security offered by the mortgagor.

31. It is this court’s conclusion that the issues forming the subject matter of this case cannot transcend the interlocutory stage. The motion is denied costs are awarded to the respondents.

DATED, SIGNED AND DELIVERED VIA EMAIL AT ELDORET THIS 18th DAY OF MAY, 2022. R. NYAKUNDIJUDGE