[2023] KEHC 25069 (KLR)

Kimani & 2 others v Equity Bank (Kenya) Limited & another (Civil Case E103 of 2023) [2023] KEHC 25069 (KLR) (Commercial and Tax) (10 November 2023) (Ruling)

Neutral citation: [2023] KEHC 25069 (KLR)

Republic of Kenya

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

Commercial and Tax

Civil Case E103 of 2023

A Mabeya, J

November 10, 2023

Between

Andrew Mwangi Kimani

1st Plaintiff

ECS Limited

2nd Plaintiff

Ranberry Limited

3rd Plaintiff

and

Equity Bank (Kenya) Limited

1st Defendant

Phillips Intertnational Auctioneers

2nd Defendant

Ruling

1. This ruling determines three applications. The applications dated 13/3/2023 and 24/3/2023 by the plaintiffs for an injunction and the defendant’s application dated 15/5/2023 for stay of proceedings pending arbitration. I propose to start with the first two application.

Application dated 13/3/2023 2. This was brought under Order 40 rules 1,2,3,4, Order 51 rule 1 of the Civil Procedure Rules 2010, section 3 and 3A of the Civil Procedure Act, Chapter 21 of the Laws of Kenya, The Constitution of Kenya. It sought injunctive orders to restrain the defendants from selling the 2nd plaintiff’s property known as LR NO 209/11548 and the 3rd defendant’s property known as L.R NO 11832. It also sought an account in order to ascertain the legitimate amount payable.

3. The application was supported by the affidavit of Andrew Mwangi Kimani sworn on 13/3/2013. The applicants’ case was that the 2nd and 3rd plaintiffs obtained various financial facilities from the 1st respondent. The facilities were secured by a charge dated 27/10/2008 over L.R No 209/11548 in the name of the 2nd plaintiff, separate letters of guarantee by Andrew Kimani Mwangi, Screencheck Africa Limited and Roselyn Wanjiku Gichira, a charge dated 6/3/2018 over L.R No 11832 for Kshs. 315,000,000/-, a deed of variation and further charge dated 6/3/2018 over L.R No 11832, Guarantee and Indemnity dated 6/3/2018 by Andrew Kimani and Ranberry Limited.

4. The applicants admitted that the facilities fell into arrears and the 1st plaintiff had actively engaged the 1st plaintiff (“the bank”) to find purchasers for the secured properties. That although the parties had agreed that the properties be sold at the best market price and the proceeds be utilized to settle the debt, the bank had gone against that agreement and had opted to sell the properties via public auction.

5. The plaintiffs contended that, on the 1st plaintiff’s instructions, the bank had on 6/7/2017 sold his 67,879882 shares at Kshs. 2,524,083,510. 15 and deposited the same into his personal bank account. However, on the same day, the bank debited the said amount without his approval. In that regard, the plaintiffs offered to have the bank set off the loan amount from the debited sum.

6. The bank opposed the application vide grounds of opposition Dated 21/3/2023 and a replying affidavit sworn by its legal services manager Kariuki King’ori. It was contended that the bank offered facilities to the 2nd and 3rd plaintiff who defaulted on the same. That pursuant thereto, the bank issued statutory notices demanding Kshs. 202,596,095/- from the 3rd plaintiff and Kshs. 46,819,586/- from the 2nd plaintiff.

7. That discussions between the parties for sale of the properties by private treaty were unsuccessful whereby the properties were advertised for sale. That the two properties were sold by public auction on 15/3/2023. That the 1st plaintiff’s account number 0010101201534 had no connection to the debts.

8. The 2nd defendant filed a replying affidavit DATED 21/3/2023 sworn by George N Muiruri. He stated that, as auctioneer, he had been instructed by the 1st defendant to auction LR Nos. 209/11548 and 11832 owned by the 2nd and 3rd plaintiff, respectively. That LR. No. 11832 was sold for Kshs. 383,000,000/- at 11. 30 am. That the sale had been completed before the order restraining the sale of the properties had been issued.

Application dated 24/3/2023 9. This application was brought under Order 40 rules 1,2,3,4, Order 51 rule 1 of the Civil Procedure Rules 2010, section 3 and 3A of the Civil Procedure Act, Chapter 21 of the Laws of Kenya, section 68 of the Land Registration Act 2022, the Constitution of Kenya.

10. It sought to restrain the defendants from transferring the property known as L.R No 11832 and inhibit the registration of the property. The plaintiffs contended that the defendants had admitted that the said property had been sold via public auction and it was at risk of being transferred to the detriment of the 3rd plaintiff. They maintained that the bank was truly indebted to the 1st plaintiff in the sum of Kshs 2,524,083,510. 15 which was more than enough to settle the debt claimed.

11. In its response to the application, the bank filed a replying affidavit dated 17/4/2023 sworn by its legal services manager Kariuki King’ori. He stated that the 3rd defendant’s equity of redemption was extinguished at the fall of the hammer when the property was sold. He denied the bank owing the 1st plaintiff the alleged Kshs. 2,524,083,510. 15 and that the three plaintiffs were separate entities. It was the bank’s case that the 1st plaintiffs account number 0010101201534 had no connection to the debt owed by the 2nd and 3rd defendant.

Application dated 15/5/2023 12. The Chamber Summons was brought under section 6(1) of the Arbitration Act 1995, Rules 2 and 8 of the Arbitration Rules 1997 and under the inherent powers of the Court.

13. The application sought to stay the 1st plaintiffs claim pending reference to arbitration. In support of the application, the bank relied on the grounds on the face of it and the supporting affidavit of Kariuki King’ori sworn on 15/5/2023.

14. It was contended that the bank and the plaintiff had entered into a custody service agreement dated 9/7/2014. That the terms of the agreement were that any dispute arising from the said agreement would be settled by arbitration. That the 1st plaintiff’s claim against the bank was the unlawful debit of the 1st plaintiff’s custody account maintained by the bank which forms a dispute under the Custody Service Agreement.

15. The plaintiffs opposed the application vide a replying affidavit dated 17/5/2023 sworn by the 1st plaintiff, Andrew Mwangi Kimani. He stated that his claim was based on a breach of bank customer relationship by the bank of its fiduciary duty by illegally debiting his personal account with the sum of Kshs 2,524,083,510. 13.

16. According to him, there was no dispute capable of being referred to arbitration since the dispute involved the customer client relationship between him and the bank. That upon issuing instructions for the sale of the shares in the bank, the bank credited his account and on the same day debited the same without his instructions. He contended that the bank did not deny that the account in dispute was his and it had received the sum of Kshs.2,524,083,510/-.

17. The applications were canvassed by way of written submissions which I have considered.

18. The plaintiffs’ submissions were dated 3/5/2023 and 17/5/2023, respectively. They submitted that they had a prima facie case with a probability of success since they gave evidence that the sum of Kshs.2,524,083,510/ had been wrongly debited from the 1st plaintiff’s account with the bank. That the said debiting had not been denied.

19. That the plaintiffs would suffer irreparable injury that could not be compensated by way of damages and balance of convenience lies in their favour since the bank already held money belonging to them.

20. On its part, the bank’s submissions buttressed the facts laid out in the replying affidavits. It was submitted that the bank had sought to realize the securities belonging to the 2nd and 3rd plaintiffs and not the 1st plaintiff. That the plaintiffs had admitted the inability of the 2nd and 3rd plaintiff in servicing the subject facilities extended to them. That the 1st plaintiff’s allegation of unauthorized debit of funds had been denied by the bank and it amounted to a hope of money which did not demonstrate a prima facie case as it was a separate claim. That the bank had met all the statutory requirements and was therefore entitled to exercise its statutory power of sale.

21. That the 3rd defendant’s equity right of redemption was extinguished at the fall of the hammer as a valid contract had been entered between the 1st defendant and the purchaser.

22. I have considered the three applications, the rival submissions and the authorities relied on by Learned Counsel. There are two issues for determination. Whether the plaintiffs are entitled to the injunctive orders sought and whether there should be a stay of the 1st plaintiff’s case and the same be referred to arbitration.

23. With regard to injunctions, the law is clear as the guiding principles were well set out in the case of Giella of Giella –versus- Cassman Brown and Company Limited (1973) E.A 385. These are that an applicant must show a prima facie case with a probability of success, that an interlocutory injunction will not normally be granted unless the applicant might otherwise suffer an injury that would not adequately be compensated by an award of damages and thirdly, that if the court is in doubt, it will decide an application on the balance of convenience.

24. There is no dispute that the bank extended financial accommodation to the 2nd and 3rd plaintiff. The 2nd plaintiff was advanced a total of Kshs 290,000,000/-. The 3rd plaintiff was granted a sum of Kshs 450,000,000/- to finance the purchase of L.R. no 11832. There is also no dispute that the said plaintiffs have defaulted on those facilities. The service of the requisite notices is not disputed either. The plaintiffs’ case is that the bank owes their guarantor money that should be used to set off the amount owed.

25. According to the 1st plaintiff, in July, 2017, he instructed the custody services arm of the bank to sell 67,879,882 shares which it did and the proceeds therefrom in the sum of Kshs 2,524,083,510/- was credited to his account with the bank. That however, without his authority or approval, the bank debited the said sum on the same day and has to-date refused to account therefor or set off the same against the said facilities.

26. In its response, the bank contended that the said debit did not take place and it was a different transaction which was with respect to the 1st plaintiff and not the 2nd and 3rd plaintiff. According to the bank, it had done all that was legally required of it in the exercise its statutory power of sale.

27. I have considered the facility letters executed by the plaintiffs as well as the charge documents. The facilities were secured by the properties in issue as well as the director’s guarantee and in this case the 1st plaintiff. The total amount owing to the bank is alleged to be Kshs. 585,529,169/- as per the 45-day redemption notice.

28. There is evidence that the plaintiffs requested the bank to set off the said debt from the amount it had debited the 1st plaintiffs account in the sum of Kshs. 2,524,083,510/-. However, that request was not honored.

29. On the bank statement attached to the plaintiff’s supplementary affidavit shows that on 10/7/2017, there was a credit and a debit of the 1st plaintiffs account in the sum of Kshs. 2,524,083,510/-. The bank did not give any explanation on the same. The 1st plaintiff swore that the said amount were proceeds for the sale of his 67 million plus shares in the bank. That he did not authorize or approve the said debit. Surely, with such an allegation, it called for an explanation by the bank. There is no denial that there existed a bank-customer relationship between the two.

30. While the Court appreciates that the plaintiffs are separate and independent entities, as a guarantor of the 2nd and 3rd plaintiff’s facilities, the 1st plaintiff has an interest in them. He is entitled to direct the chargee how the debts may be liquidated. The chargee doubles to be his banker also. The 1st plaintiff had the authority and right to direct the bank to do the set-off.

31. The Court’s take is that, selling off the properties would subject the plaintiffs to double jeopardy bearing in mind that there is an allegation that the bank owes money that is sufficient to pay the outstanding debts. The right to a set off is not foreign as it is provided for under the letters of offer.

32. In terms of Mrao vs. First American Bank of Kenya, I find that the plaintiffs have demonstrated that they have a right that has been breached that require a rebuttal by the bank. They have established a prima facie case with a probability of success.

33. There is the issue that one of the properties has already been sold. I am alive to the allegation that the order restraining the sale was served after the sale. The question is, was there a public auction in which the sale took place? Can it be said that the sale went the highest bidder and therefore extinguished the plaintiffs’ equity of redemption. The Court entertains doubts. That is debatable.

34. Black’s Law Dictionary, 10th Edn, at page 155 defines an auction as follows: -“A public sale of property to the highest bidder; a sale by consecutive bidding, intended to reach the highest price of the article through competition for it ...”

35. From the evidence of the auctioneer, there was only one bidder whose bid was accepted. The said bidder only competed with himself. Ca it be said that there was successive bidding with a view to reach the highest price in the circumstances? I entertain doubt.

36. On irreparable injury that cannot be compensated, in Nguruman Limited v Jan Bonde Nielsen & 2 Others [2014] eKLR, the Court of Appeal held that: -“If the applicant establishes a prima facie case that alone is not sufficient to grant an interlocutory injunction, the Court must further be satisfied that the injury the applicant will suffer, in the event the injunction is not granted, will be irreparable. In other words, if damages recoverable in law is an adequate remedy and the respondent is capable of paying, no interlocutory order of injunction should normally be granted, however strong the applicant’s claim may appear at that stage The existence of a prima facie case does not permit “leap-frogging” by the applicant to injunction directly without crossing the other hurdles in between.…“On the second factor, that the applicant must establish that he “might otherwise” suffer irreparable injury which cannot be remedied by damages in the absence of an injunction, is a threshold requirement and the burden is on the applicant to demonstrate, prima facie, the nature and extent of the injury. Speculative injury will not do; there must be more than an unfounded fear or apprehension on the part of the applicant. The equitable remedy of temporary injunction is issued solely to prevent grave and irreparable injury; that is injury that is actual, substantial and demonstrable; injury that cannot “adequately” be compensated by an award of damages. An injury is irreparable where there is no standard by which their amount can be measured with reasonable accuracy or the injury or harm is such a nature that monetary compensation, of whatever amount, will never be adequate remedy.”

37. In Paul Gitonga Wanjau vs. Gathuthi Tea Factory Company Ltd & 2 Others [2016] eKLR, the court cited the 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.”

38. In this case, the Court is faced with a situation whereby the plaintiffs’ assets stand the risk of being sold off despite there being a possibility that the bank holds money belonging to the 1st plaintiff. The 1st plaintiff is a guarantor of the subject facilities. Surely, if the two properties are sold, they will be beyond the reach of the plaintiffs and no amount of damages can compensate them, having in mind that the bank holds the guarantor’s funds that are capable of clearing the alleged outstanding monies.

39. On the balance of convenience, the same lies in favour of protecting the plaintiffs’ properties pending the hearing and determination of the suit. The prayers for injunction are merited.

40. The second issue is with respect to the application dated 15/5/2023. By that application, the bank sought to stay the 1st plaintiff’s claim and refer the same to arbitration.

41. The court’s jurisdiction to stay proceedings and to refer a dispute to arbitration is founded on section 6(1) of the Arbitration Act which provides as follows: -“(1)A court before which proceedings are brought in a matter which is the subject of an arbitration agreement shall, if a party so applies not later than the time when that party enters appearance or otherwise acknowledges the claim against which the stay of proceedings is sought, stay the proceedings and refer the parties to arbitration unless it finds: -(a)That the arbitration agreement is null and void, inoperative or incapable of being performed; or(b)That there is not in fact any dispute between the parties with regard to the matters agreed to be referred to arbitration.”

42. It was the bank’s contention that the application had met the legal requirements. That it had only entered appearance in the proceedings save for giving responses to the plaintiffs’ applications. Further, that the plaintiffs’ claim was with respect to the sale of the shares under the agreement and therefore bound by clause 20. 1 of the agreement.

43. The plaintiffs submitted that there was no dispute between the 1st plaintiff and the bank arising from the Custody Service Agreement capable of being referred to arbitration. That the dispute was purely based on the bank-customer relationship between them.

44. Clause 20 of the Custody Service Agreement provided that: -20. 1. Any disputes, arising out of or in connection with this Agreement or for the breach hereof, which cannot be settled amicably by the parties hereto, shall be settled by a sole arbitrator such arbitration to be held in Nairobi, under the Arbitration Act20. 2 If the Parties are unable to resolve the dispute within a period of thirty (30) calendar days from the service of such notice, either Party may give to the other notice in writing that it is referring the same to arbitration.”

45. In Niazsons (K) Ltd versus China Road & Bridge [2001] KLR 12, the court held that: -“All that an applicant for a stay of proceedings under section 6 (1) of the Arbitration Act of 1995 is obliged to do is to bring his application promptly. The court will then be obligated to consider the threshold things: -(a)Whether the applicant has taken any step in the proceedings other than the steps allowed by the section;(b)Whether there are any legal impediments on the validity, operation or performance of the arbitration agreement; and(c)Whether the suit intended concerned a matter agreed to be referred to arbitration”

46. Further, in Blue Limited vs. Jaribu Credit Traders Limited Nairobi (Milimani) HCCS No. 157 of 2008, Kimaru, J (as he then was) held: -“It is now settled law that where parties have agreed to resolve any issue arising out of a commercial agreement, the courts are obliged to give effect to the said agreement of the parties by staying proceedings and referring the dispute for resolution by arbitration. … At the stage of the application for stay of proceedings, the court is not called upon to determine the merits or otherwise of the plaintiff’s suit nor the counterclaim filed by the defendant. The court is further not required at this stage of proceedings to consider the validity, legality or otherwise of the agreement that was entered between the plaintiff and the defendant. The court is only required to consider whether there was a valid arbitration clause in the agreement capable of being enforced by the court...That principle recognizes the fact that where there is an arbitration clause in an agreement, such clause is considered as a separate and severable agreement between the parties who have agreed to resolve any dispute arising from the agreement by arbitration. … The court’s concern is whether the arbitration clause in the agreement is valid and therefore capable of being performed as envisaged by section 6(1)(a) of the Arbitration Act, 1995. ”

47. In the present case, it is not in dispute that the parties executed the Custody Service Agreement whose clause 20 provided for settlement of disputes via arbitration. The Court has considered the plaintiffs’ amended plaint and note that, the 1st plaintiff’s claim is not on the aforesaid agreement. It is on the alleged wrongful debit of his account by the bank. That the action of the bank constituted a breach of its fiduciary duty to him.

48. In this regard, the Court finds that the scope of the dispute does not lie with the Custody Service Agreement but alleged breach of bank-customer fiduciary relationship. Even the pleadings by the bank do not plead the said Agreement. It was not alleged that the alleged debit was pursuant to the provisions or in furtherance of the said Custody Service Agreement.

49. In view of the foregoing, the issue of reference to arbitration is far-fetched. The application of the said Custody Service Agreement remained fully performed and discharged the moment the 67m odd shares were liquidated. Upon crediting the proceeds thereof into the 1st plaintiff’s account, the provisions of the said Agreement ceased to apply and the normal bank-customer relationship came into operation. It is the alleged breach of that relationship that is before this Court. The 3rd application therefore fails.

50. Accordingly, in view of the foregoing, the Court makes the following orders: -a.The applications by the plaintiffs dated 13/3/2023 and 24/3/2023 are allowed as prayed.b.The application dated 15/5/2023 is dismissed with costs.It is so ordered.

DATED AND DELIVERED AT NAIROBI THIS 10TH DAY OF NOVEMBER, 2023. A. MABEYA, FCI ArbJUDGE