[2022] KEHC 10913 (KLR)

Kimani (Suing through Joseph Obudho Oware) v Housing Finance Corporation Ltd & another (Civil Case 49 of 2019) [2022] KEHC 10913 (KLR) (18 May 2022) (Ruling)

Neutral citation: [2022] KEHC 10913 (KLR)

Republic of Kenya

In the High Court at Eldoret

Civil Case 49 of 2019

RN Nyakundi, J

May 18, 2022

Between

Rita Wanja Kimani

Plaintiff

Suing through Joseph Obudho Oware

and

Housing Finance Corporation Ltd

1st Respondent

Hegeons Auctioneers

2nd Respondent

Ruling

1. Before me for determination is the Applicant’s Notice of Motion application dated 18th December, 2019 which seeks the following orders;1)Spent.2)Spent.3)That pending hearing and determination of the main suit, an order of temporary injunction be issued restraining the Defendants/Respondents by themselves through their agents, servants, officers, or otherwise from selling, disposing off, advertising, transferring, alienating or dealing whatsoever with that property known as Eldoret Municipality Block10/1673. 4)That pending the hearing and determination of this suit the 1sr Defendant/Respondent be ordered to furnish the plaintiff with bank statements from the date of charge.5)The costs of this application be provided for.

2. The application is premised on the grounds on the face thereof and the Supporting Affidavit of Joseph Obudho Oware sworn on 18h August, 2019 in which he deposed that; the Plaintiff donated power of attorney to him to institute this instant suit on her behalf. That the aforesaid power of attorney was registered on 4th December, 2019.

3. Further he averred that the Plaintiff/Applicant herein is the registered owner of that developed property known as LR No. Eldoret Municipality Block 10/1673. That the 1st Defendant advanced the Applicant herein a loan of Kshs. 2,500,000/= for purposes of completing construction of rental houses and as a security the Applicant charged the suit land with the 1st Defendant and deposited the title thereto as security.

4. The Plaintiff/Applicant has substantially repaid the aforesaid loan facility and 1st Defendant further collected rent from the suit property between February 2010 to 30th September, 2018 and the proceeds thereto are utilized in offsetting the said loan facility. That numerous attempts by the registered owner to be supplied with bank statement detailing how she has been repaying the loan facility have been in vain.

5. The Applicant contends that the 1st Respondent vide an email dated 15th November, 2019 purported to give a breakdown of repayments made instead of supplying a bank statement as demanded. That the purported breakdown of repayments of Kshs. 8,987,076. 30 made did not factor in or take into account the rent collected by the 1st Respondent between February, 2010 to 30th September, 2018.

6. The Applicant maintains that she was shocked to learn from her uncle, James Kamara, that the 1st Respondent has since instructed the 2nd Respondent to sale the suit property in purported exercise of the chargee’s statutory power of sale. That she immediately wrote to the 1st Respondent inquiring why her why her property was due for sale and was sent via mail a copy of 45 days redemption notice dated 4th November, 2019 and notification of sale dated 4th November, 2011.

7. The Applicant contends that the Defendants herein have now scheduled to conduct an auction sale of the suit property on 10th January, 2020 as demonstrated in the notification of sale.

8. The Applicant contends that she has never been served with any valid statutory notice, redemption notice and notification of sale. Joseph O. Oware the deponent hearing contends that upon reading the redemption notice and the notification of sale by the 2nd Defendant, the chargor had been indicated as him and not the Applicant. Further he contends that the address indicated in the said notices is P.O Box 2301-30100 Eldoret which address is for the Applicant whose place of residence in Switzerland.

9. The Applicant contention is that the 1st Defendant’s statutory power of sale is yet to crystallize so as to enable it instruct the 2nd Defendant herein.

10. The Applicant maintains that the notices and the intended exercise of the statutory power of sale are a nullity for reasons inter alia;a)The 1st defendant has not issued any valid statutory notice as required under the lawb)The 45 days redemption notice by the 2nd Defendant seeks to recover the sum of Kshs. 4,688,163. 90/= whereas the amount demanded vide notification of sale is Kshs. 6,825,088. 50/= which amount are inconsistent and are not subject of the charge.c)That the amount sought to be recovered flouts the in duplum principle under section 44 A of the Banking Act taking into consideration that the same does not factor in the substantial amount already paid.d)No redemption notice and notification of the sale were duly served as required under the law.e)The charge has not specified the exact breach of the loan and charge that has been flouted.f)The charge, being the 1st Defendant herein, has also not specified the nature and extent of the default by the plaintiff as required under section 97(2) of the Land Act.g)That no valuation prior to the sale has been conducted as required under Section 90(2) of the Land Act.h)No notice has been issued to the Chargor’s spouse as required under Section 97 of the Land Act.i)The Chargor has failed to furnish the Plaintiff with statement of account to enable her ascertain the true and correct state of her indebtness if any.j)The Plaintiff herein has over repaid the loan and the 1st Defendant has failed to take consideration the rent proceeds it collected from the suit properties for more than 8 years.

11. The Applicant maintains that she has fully discharged her responsibility in the premises and that unless the orders sought are granted, she stands to be condemned unheard and suffer irreparable loss and damage that cannot be compensated by way of damages.

12. The application was opposed by the 1st Defendant vide Grounds of Opposition dated 19th December, 2019. The 1st/Respondent also filed a replying affidavit sworn on 7th January, 2020 by one Oliver Kirior who deposed that he is the branch manager of 1st Defendant’s branch in Eldoret. He averred that in the year 2009, the Applicant herein approached the 1st Respondent a loan facility of Kshs. 2,500,000/= which facility was duly granted to the 1st Respondent. Further, he stated that the Applicant offered parcel of land known as Eldoret Municipality Block 10/1673 as security for the said loan and that the said parcel of land is registered in the name of Rita Wanja Kimani.

13. Further, the 1st Respondent averred that the aforementioned charged dated 22nd July, 2010 was lawfully and duly registered at the land’s office on 22nd July, 2010.

14. On 22nd July, 2010 the Applicant and the 1st Respondent herein entered into a deed of Assignment of Rental income which allowed the 1st Respondent to collect rent from all the houses situated on the above- mentioned suit property.

15. The 1st Respondent maintains that it did disburse to the Applicant an aggregate sum of Kshs.2,500,000/= in compliance with the terms of the charge instrument.

16. In the year 2011, the Applicant herein approached the 1st Respondent for a further loan facility of Kshs.4,400,000/= which facility was duly offered to her and security for the same was offered as parcel of land known as Eldoret Municipality Block 10/1673. That the further charge dated 31st May, 2011 was lawfully and duly registered on 31st May, 2011. The 1st Respondent maintains that the said amount was accordingly disbursed to the Applicant in accordance with the charge instrument.

17. The 1st Respondent’s case that it had disbursed a total of Kshs. 6. 900,000/= to the applicant as per the Charge dated 22nd July, 2010 and the further charge charged dated 31st May 2011.

18. The 1st Respondent contends that the Applicant has failed to service the said loan facilities by making payment of the monthly installments and that the loan account is in arrears of a sum of Kshs. 1,527,302/= and the outstanding amount as at 19th December, 2019 is Kshs.7,471,324. 39/=. The bank further contends that the Applicant’s failure to service the said loans is in dereliction of clause 1 on page 1 of the charge and the further charge instruments.

19. The bank contends that it has made demands for payment to the Applicant to no avail.

20. The 1st Respondent further contends that it did serve statutory notices to the Applicant as provided for under the law. The bank alleges to have issued the Applicant with statutory notice dated 20th December, 2018 as provides for under section 90 of the Land Act, the Statutory notice dated 10th April, 2019 as provided for under Section 96(2) and finally the redemption notice 4th November, 2019 as provided for under Rule 15(d) of the Auctioneers Rules.

21. The 1st Respondent maintains that the aforementioned notices were dispatched to the Applicant in accordance with charge and the further charge instruments.

22. The 1st Respondent maintains that the Plaintiff having blatantly failed to settle the loans, it went ahead and reported her to the Credit Reference Bureau and it also gave her a notice of the same.

23. The 1st Respondent contends that to date the said loan facilities have never been settled despite several demands and acknowledgment of receipt of notices by the Plaintiff. That section 96 of the Land Act provides for remedies of a charge in case of default by the chargor. The contention is that its right to exercise the statutory power of sale over the charged land had accrued.

24. With regard to the valuation of the suit property the bank maintains that it instructed Kenstate Valuers Limited to carry out a valuation of the property in accordance with Section 97 of the Land Act. That the suit property was valued at Kshs.12,000,000/= market value and Kshs. 9,000,000/= for the forced sale value.

25. The 1st Respondent’s case is that any sale upon accrual of the chargee’s statutory power of sale is justified and does not clog an Applicant’s equity of redemption. Further, that the Applicant had time to exercise her equity of redemption given that she was aware of her default and had been served with the statutory notices to make good her default.

26. According them 1st Respondent, the Applicant’s herein is only avoiding to pay her debt and in the said process cripple the bank from conducting its business. That the Applicant has admitted to her default and that the financial statements are proof of the same.

27. The 1st Respondent further contends that the Applicant has never visited her offices as a sign of good faith to request for a rescheduling of her loan account, which request the bank has discretion to either accept or reject.

28. In response to paragraph 7 of the Applicant’s affidavit, the bank denies allegations by the Applicant that it did not furnish her with her bank statements.

29. In response to the contents of paragraph 14 of the Applicant’s affidavit, the bank maintains that the redemption notice dated 4th November, 2019 was addressed to the applicant and not Joseph Oware.

30. In response to paragraph 17 of the Applicant’s affidavit, the bank contends that the allegations that the statutory power of sale is a nullity since the amount sought to be recovered flouts the in duplum principle is not factual since the total interest accrued for the two loans in the period of (9) years is Kshs.3,641,722. 9/= which interest is less that the outstanding amount demanded in the notification of sale and less than the total principal loan amount of Kshs. 6,900,000/= for the two loans.

31. According to the 1st Respondent, it will be in the interest of justice that the sale proceeds as the 1st Defendant’s Statutory power of sale has accrued and failure to sale might result in the risk of the debt surpassing the value of the suit property and therefore the balance of convenience is in favor of the bank.

32. The 1st Respondent contends that the Applicant has approached court with unclean hands and is guilty of non-disclosure of material facts and therefore undeserving of the orders sought. Further, the 1st Respondent contends that the Applicant will not be prejudiced by the sale of the suit property and even if she were to be prejudiced, she can be adequately compensated by way of damages.

33. The 1st Respondent urged court to dismiss the Plaintiff’s application with costs.

Determination 34. I have read through the founding as well as the opposing affidavits. I have also read the Motion itself and considered the parties respective submissions. The core issue is whether the Plaintiff is entitled to the interlocutory orders sought.

35. With regard to injunction applications, the law is relatively clear. The considerations as laid out in the case of Giella V. Cassman Brown & Co Limited (supra) nearly one half of a century ago still hold sway. The claimant is expected to establish a prima facie case with a probability of success and not just an arguable one. He must then also show that he was likely to suffer irreparably if the injunction is denied and where,in doubt, the court is to apply the balance of convenience by ascertaining where the greater hardship would lie if the injunction was granted or denied: See Mrao Ltd V. First American Bank of Kenya Ltd & Others [supra].

36. The Court of Appeal in Mrao also did make it clear that when it comes to injunctions sought to restrain mortgagees and chargees from realizing their security additional care and consideration of the circumstances of the transaction is very relevant with the focus being on whether the payment of the debt is being made and further that a dispute as to the amounts due was not good enough reason to halt the realization process even if the dispute had been occasioned by alleged illegal and contested interest.

37. In Dr. Simon Waiharo Chege vs. Paramount Bank of Kenya Ltd.Nairobi (Milimani) HCCC No. 360 of 2001, Ringera J (as he was) then held as follows:“The remedy of injunction is one of the greatest equitable relief. It will issue in appropriate cases to protect the legal and equitable rights of a party to litigation which have been, or are being or are likely to be violated by the adversary. To benefit from the remedy, at an interlocutory stage, the applicant must, in the first instance show he has a prima facie case with a probability of success at the trial. If the Court is in doubt as to the existence of such a case, it should decide the application on a balance of convenience. And because of its origin and foundation in the equity stream of the jurisdiction of the Courts of judicature, the applicant is normally required to show that damages would not be an adequate remedy for the injury suffered or likely to be suffered if he is to obtain an interlocutory injunction. As the relief is equitable in origin, it is discretionary in application and will not issue to a party whose conduct as appertains to the subject matter of the suit does not meet the approval of the eye of equity.”

38. Temporary injunctions are equitable remedies and the principles of equity will apply including the fact that the court will closely look at the conduct of the applicant. It must also not be lost that at this stage of the proceedings; the court must not make any definitive and conclusive findings of law or fact. Rather the court should be contented with a finding that on the basis of the material before the court there is need to have the rights apparently infringed further interrogated and protected. The party accused of wrong doing is then to be called to account. The court has nonetheless to sway away from holding a mini trial: see Nguruman Limited v Jan Nielsen Bonde & 2 OthersCACA No 72 of 2012.

39. The undisputed facts of the case are that the Applicant was advanced a loan facility of Kshs. 2,500,000/= by the Defendant which was secured by the suit property herein and the charge instrument was registered on 22nd July, 2010. Although not mentioned by the Applicant herein it is further not in dispute that further loan facility of Kshs. 4,400,000/= was advanced to the Applicant herein and the same was still secured by the suit property herein and a further charge registered on 31st May, 2011. The 1st Respondent’s case is that to date the Applicant has failed to service the said loans by paying the monthly instalments and the loan account is in arrears of Kshs.1,527,302 and the outstanding amount as at 19th December, 2019 is Kshs.7,471, 324. 39/=

40. That due to the default the bank served the Applicant with the following statutory notice with the view of realizing its statutory power of sale:a)The bank sent the Applicant its first statutory notice dated 20/12/2018 notifying her of the default and requesting her to rectify the default in 3 months.b)A 2nd statutory notice dated 10/4/2019 was sent to the Applicant giving her 40 days’ notice in accordance to section 90(3) (e) of the Land Act 2012 to rectify the default.c)On expiry of the aforementioned 40 days the 1st Respondent instructed Hegeons Auctioneers who issued by registered post a 45 days’ notice to the Applicant in respect to public auction to take place on 10/01/2020 unless the amount of Kshs. 4,688,163. 90/= million was repaid by the Applicant.d)On 4/11/2019 a notification of sale was issued to the Applicant in respect to the sale. The said documents were served upon the Applicant as stated in the affidavit of service dated 2/5/2019.

41. Section 90(1) – (3) of the Land Act states as follows;“If a chargor is in default of any obligation, fails to pay interest or any other periodic payment or any part thereof due under any charge or in the performance or observation of any covenant, express or implied, in any charge, and continues to be in default for one month, the chargee may serve on the chargor a notice, in writing, to pay the money owing or to perform and observe the agreement as the case may be.(2) The notice required by subsection (1) shall adequately inform the recipient of the following matters—(a)the nature and extent of the default by the chargor;(b)if the default consists of the non-payment of any money due under the charge, the amount that must be paid to rectify the default and the time, being not less than three months, by the end of which the payment in default must have been completed;(c)if the default consists of the failure to perform or observe any covenant, express or implied, in the charge, the thing the chargor must do or desist from doing so as to rectify the default and the time, being not less than two months, by the end of which the default must have been rectified;(d)the consequence that if the default is not rectified within the time specified in the notice, the chargee will proceed to exercise any of the remedies referred to in this section in accordance with the procedures provided for in this sub-part; and(e)the right of the chargor in respect of certain remedies to apply to the Court for relief against those remedies.(3) If the chargor does not comply within ninety days after the date of service of the notice under, subsection (1), the chargee may—(a)sue the chargor for any money due and owing under the charge;(b)appoint a receiver of the income of the charged land;(c)lease the charged land, or if the charge is of a lease, sublease the land;(d)enter into possession of the charged land; or(e)sell the charged land;

42. I am satisfied that the 1st Respondent has complied fully with the statutory procedure provided by the law in exercising their statutory power of sale. Further I am also satisfied that the Applicant was served with the Notice to sell in accordance with Section 96 (3) (h) of the Land Act No 6 of 2012 and in accordance with the terms of service envisaged in the charge document on record. In the end I find and hold that the 1st Respondent’s statutory power of sale had crystallized and that the 1st Respondent is at liberty to exercise its statutory power of sale as per the provisions of the law.

43. Halsbury’s Laws of England, Vol 32(4th edition) paragraph 725 states as follows;“The Mortgagee will not be restrained from exercising his power of sale because the amount due is in dispute, or because the mortgagor has begun a redemption action or because the mortgagor objects to the manner in which the sale is being arranged. He will be restrained, however, if the mortgagor pays the amount claimed in Court, that is, the amount the mortgagee claims to be due him, unless, on the terms of the mortgage, the claim is excessive.”

44. From the record it is clear that the Plaintiff enjoyed a bank facility which she has continued to be in default prompting the 1st Respondent to issue demand notices for payment as well as statutory notices as required under the Land Act 2012. The Applicant has not paid the outstanding arrears or the full loan only contending that the bank did not furnish her with a bank statement as she had requested but rather purported to give her a breakdown of the repayments she had made. It is trite law that “he who comes to equity must come with clean hands”. The law cannot be invoked to aid an indolent, defaulting or guilty party. The Applicant herein should have been upright in the performance of her contractual obligations under the charge instrument. I find and hold that the 1st Respondent’s right to exercise its power of sale has accrued and I find no basis to restrain the same.

45. In the case of HCCC No. 3125 of 1995 John P.O Mutere & AnothervKenya Commercial Bank Ltd it was held that;“Once a power of sale has arisen a mortgage has the right to exercise it. The Court has no power to prevent the exercise of that power if it is being properly exercised. It is a power parliament has granted a mortgagee and Courts cannot and ought not to interfere if it is being exercised.

46. There is on record a valuation report prepared by Kenstate Valuers Limited on behalf of the 1st Respondent herein. The Applicant’s contention is that the 1st Respondent did not carry out valuation of the suit property prior to the purported sale as provided for under Section 97(2) of the Land Act. As it stands, the Applicant herein has not placed before court, any other valuation report to suggest that the one carried out by Kenstate Valuers Limited undervalued the suit property herein. It is my finding therefore that in the absence of an alternative report the values denoted by Kenstate Valuers Limited are a true reflection of value the suit property herein.

47. In case of Andrew Muriuki Wanjohi –vs- Equity Building Society Ltd (2006) eKLR the Judge states as follows;“Whenever the Applicant offered the suit property as security, he was conscious of the fact that if the borrower did not meet his obligations, the suit property could be sold off. Therefore, in the event that it later became necessary for the suit property to be sold off, by the charge, the chargor could not be heard to complain that his loss was incapable of being compensated in damages. He had the property evaluated in monetary terms. He had then told the chargee that he knew the property to be capable of providing the chargee with the peace of mind, of knowing that the money given as a loan would become recoverable even if the borrower did not pay it.”

48. By offering the suit property as security the chargor was equating it to a commodity which the chargee may dispose of, so as to recover its loan together with interest thereon. Therefore, if the chargee were to sell off the suit property, the chargor’s loss could be calculable on the basis of the real market value of the said property.

49. The in duplum rule was elucidated by the Court of Appeal in the case of Housing Finance Company of Kenya Limited Vs Scholarstica Nyaguthii Muturi & Another (2020) eKLR in the following terms;“As we have shown section 44A of the Banking Act came into force on 1st May 2007. That provision of law sets up the maximum amount of money a banking institution that grants a loan to a borrower may recover on the original loan. The banking institution is limited in what it may recover from a debtor with respect to a non performing loan and the maximum recoverable amount is defined as follows in section 44A(2):“The maximum amount referred in subsection (1) is the sum of the following-a)The principal owing when the loan becomes non-performing;b)Interest, in accordance with the contract between the debtor and the institution, not exceeding the principal owing when the loan becomes non-performing; andc)Expenses incurred in the recovery of any amounts owed by the debtor”.By that provision if a loan becomes non-performing and the debtor resumes payment on the loan and the loan becomes non-performing again the limitation under the said paragraphs shall be determined with respect to the time the loan last became non-performing. In addition, by section 44A (6) it is provided:“This section shall apply with request to loans made before this section comes into operation, including loans that have become non-performing before this section comes into operation.”Section 44A has retrospective effect and this as explained by this Court in the case of James Muniu Mucheru V. National Bank of Kenya Civil Appeal No. 365 of 2017.

50. The Applicant has submitted that the amount sought to be recovered flouts the in duplum principle under section 44 A of the Banking Act taking into consideration that the same does not factor in the substantial amount already paid. The 1st Respondent on the other contends that the allegations that the statutory power of sale is a nullity since the amount sought to be recovered flouts the in duplum principle is not factual since the total interest accrued for the two loans in the period of (9) years is Kshs.3,641,722. 9/= which interest is less that the outstanding amount demanded in the notification of sale and less than the total principal loan amount of Kshs. 6,900,000/= for the two loans. The court is in no position to verify the assertions by the Applicant as she has not attached any statement of account to show the amount she has since paid in service of the outstanding loan amount. The bank on the other has provided its statement of accounts attached and marked annexures BK9 and BK10 for the two loan accounts which clearly indicates that interest on the debt is not more than the outstanding principal amount owed.

51. As to whether damages could be adequate remedy, the Plaintiff freely and voluntarily charged the subject property and was clearly aware that in the event of default in servicing the debt the property would be liable to be sold. I find and hold that damages would be adequate remedy and therefore an injunction cannot be granted in the circumstances.

52. There is no doubt that the balance of convenience in this case tilts in favour of the Respondents. From the record it is manifestly clear that the Applicant defaulted in making repayments towards the loan that was advanced to them by the 1st Respondent. Further, the Applicant has not shown any attempts she made towards repaying the loan nor proposals she made towards repaying the same. The interests of the chargee are in imminent need of protection at this point, this Court is unable to agree with the Plaintiffs’ contention that she is more likely to suffer more inconvenience if the injunction is disallowed.

53. From the foregoing and in line with the principles enunciated in the locus classicus of Giella –vs-Cassman Brown I am not convinced that the Applicants have demonstrated the existence of a prima facie case with a probability of success. Further, evidence placed before this court will show that the Applicants herein are default of repaying the loan advanced to them by the 1st Respondent and cannot claim that they will suffer irreparable harm if they were to evicted from the suit properties.

54. I cannot resist emphasizing obiter that the terms of the contract of mortgage contains very distinct features which governs the two parties. The courts therefore must take a different view in construing and interpreting such contracts for the very purpose of protecting and enforcing the clause on liquidating the debt. Clearly in Warner v Jacob(1882) 20 CH D 220 way back in the 18th century the law as it was then on mortgage contracts has transformed minimally as expressed in the said court as follows “The result seems to be that a mortgagee is strictly speaking not a trustee of the power of sale. It is a power given to him for his own benefit, to enable him the better to realize his debt. If he exercises it bona fide for that purpose, without corruption or collusion with the purchaser, the Court will not interfere even though the sale be very disadvantageous, unless indeed the price is so low as in itself to be evidence of fraud.”

55. Respectively, so the allegation raised in the notice of motion against the 1st respondent on exercising the power of sale it has not been shown to be in contravention of the terms in the mortgage contract. The proposition on statement of accounts and other incidentals do no longer represent the Law of Kenya on the whole question of creditor/lender relationships. The role of security offered to the 1st respondent was simply to enable it get back its money in the event of default by the borrower. It is important to note from the outset that execution of the mortgage instrument as a matter of law matrimonial property is not precluded in the statutory scheme on mortgagor/mortgagee contracts.

56. The upshot, given what I have said heretofore, is that the application herein is not meritorious at all. Accordingly, I hereby dismiss it with costs to the Respondents.

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