[2021] KECPT 271 (KLR)

REPUBLIC OF KENYA

IN THE CO-OPERATIVE TRIBUNAL AT NAIROBI

TRIBUNAL CASE NO. 456 OF 2020

JOSPHAT MAGUT & 6 OTHERS....................................................CLAIMANTS

VERSUS

KITISURU SACCO SOCIETY LIMITED..............................1ST RESPONDENT

EDWARD MUTIE NDIKU.......................................................2ND RESPONDENT

RULING

This Application concerns itself with the role of a guarantor to a loan, and the process of claiming from them. The Claimant, in their Application dated 18th November 2020 contends that the 1ST Respondent has distressed their salaries in order to satisfy a Kshs. 1,602,771loan that the said 1st Respondents granted the 2nd Respondent, and which loan was guaranteed by the Claimants.

The Claimants contend that they were never issued with a Default Notice, and essentially they are being treated as though they are the principal debtors. They have sought an injunction, to proscribe the 1st Respondent from deducting their salaries, pending hearing and determination of the Application and Suit.

The Respondents did not put in any response, but filed their Submissions. The parties thus proceeded by way of Written Submissions, which this Tribunal has been invited to rely on.

We have read and considered the Pleadings and elaborate submissions of both parties, which have assisted this Tribunal to come to the determination of these present issues.

ISSUES FOR DETERMINATION

Having carefully considered the documents and arguments by both parties, we have framed the following issues for determination:

a. Whether the Claimants have proved a prima facie case with probability of success;

b. Whether the Claimants stand to suffer irreparable harm not compensable by way of damages; and

c. Whether justifiable grounds have been proffered to this Tribunal to warrant issuance of interlocutory injunctive orders.

We thus proceed to dissect the issues as follows:

ANALYSIS OF THE ISSUES

a. Whether the Claimants have proved a prima facie case with probability of success

The Claimants have averred that they are indeed guarantors, but due to acts of connivance between the Respondents, they are essentially being treated as though they are principal debtors, since the 1st Respondent has not made any effort to claim the monies owed to themselves by the 2nd Respondent. The Claimants have alleged that they have never been served with any Default Notice, which instrument they would have been used to inform the Claimants of a default, and for them to try and make the loanee pay his debt. The first point of interaction between the Claimants and the 1st Respondents in regard to the loan advanced to the 2nd Respondent was a Notice of Deduction of salaries of the Claimants.

The Respondents have not disputed this. The Respondent has not demonstrated any effort towards claiming the monies owed to them by the 2nd Respondent. The 1st Respondents have not adduced any evidence to show that they notified the Claimants that the loanee had defaulted, in order to give the guarantors a chance to make the loanee pay the debt. The 1st Respondents have relied on the case of Martin Kirima Baithambu -vs- Jeremiah Miriti [2017] eKLR, which has the following part – referring to Halsbury’s Laws of England, Fourth Edition Reissue) Vol 20(1) para 239 that this Tribunal cites with affirmation:

“...[it] does not mean that the guarantor does not have rights to call upon the principal debtor to pay the guaranteed debt... the guarantor is entitled to call upon the principal debtor to pay the amount of debt guaranteed, so as to relieve the guarantor from his obligation.”

“The Law of Guarantees” by Geraldine Andrews & Richard Millet 2nd Edition, at page 156 provides as follows:

“A contract of guarantee is an accessory contract, by which the surety undertakes to ensure that the principal performs the principal obligations. It has been described as a contract to indemnify the Creditor upon the happening of a contingency namely the default of the principal to perform the principal obligation. The surety is therefore under a secondary obligation which is dependent upon the default of the principal and which does not arise until that point.”

From the foregoing, the point of default is a crucial point which needs to be communicated to the guarantor, as this is when a cause of action ripens as against the guarantor. We point out that the role of a guarantor is not merely to indemnify the creditor, but essentially to ensure that the principal debtor performs their principal obligations.

The Default Notice is an imperative instrument used by the lender to inform the guarantor that the loanee has defaulted, and the guarantor to use all their means to persuade the loanee to pay the debt. If this notice is not given, the guarantors are left in the dark, as that is the only way that the can keep abreast with the performance of a loan. Failure to inform the guarantors is a breach of fiduciary duty owed to them by the lender, especially because of the remedies adverse to them in performance of the contract.

On the face of the uncontested Application, we find that a prima faciecase has been established by the Claimants, and we so hold.

b.Whether the Claimants stand to suffer irreparable harm not compensable by way of damages

The Claimants have averred that they are parents, with financial obligations. This Tribunal takes judicial notice that parents have constraints in view of their children, especially owing to the pandemic and a disorganized learning calendar. It is thus unsafe to plunge the Claimants to a sea of inconvenience that will see the suffering of their children, and we are convinced that the harm likely to be occasioned will not be adequately compensated by way of damages. This is accentuated by the fact that the Respondents not contested this ground. We thus find in favour of the Claimant.

c. Whether justifiable grounds have been proffered to this Tribunal to warrant issuance of stay orders.

Prima facie, the actions of the Respondent’s in the present case smacks of bad unreasonableness and breach of fiduciary duty owed to the guarantors. The 1st Respondent’s stance hereof has not in the least satisfied this Tribunal that the 1st Respondent has done anything that is required of them to secure repayment of the debt owed to them by the 2nd Respondent.

In the interest of justice, we find that the Orders sought should be granted and the applications dated 18th November 2020 be allowed.

ORDERS

We therefore Order as follows:

a. The Claimant’s Application dated 18th November 2020 is allowed with costs;

b. Pending the Hearing and determination of the Claim, a Prohibitory Injunction be and is hereby issued restraining the Respondents by themselves, their servants, agents, employees and/or anyone within their authority from making any deductions against the Claimants’ accounts in a bid to offset the 2nd Respondent’s loan;

c. The matter to proceed to main Hearing: parties to file and exchange their witness statements and documents within 30 days hereof; and

d.Mention for Directions on 10. 11. 2021.

Ruling signed, dated and delivered virtually at Nairobi this 2ndday of September,2021.

Hon. B. Kimemia Chairperson Signed 2. 9.2021

Hon. J. Mwatsama Deputy Chairperson Signed 2. 9.2021

Mr. Gitonga Kamiti Member Signed 2. 9.2021

Mr. B. Akusala Member Signed 2. 9.2021

Tribunal Clerk R. Leweri

Miss Jeruto holding brief for Ondieki for Claimant: Present

Mr. Muriuki for Respondent : Present

Hon. B. Kimemia Chairperson Signed 2. 9.2021