[2022] KEHC 15381 (KLR)

Kinjunje Gardens Limited v NCBA Bank (K) PLC & 2 others (Civil Case E653 of 2021) [2022] KEHC 15381 (KLR) (Commercial and Tax) (11 November 2022) (Ruling)

Neutral citation: [2022] KEHC 15381 (KLR)

Republic of Kenya

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

Commercial and Tax

Civil Case E653 of 2021

DAS Majanja & A Mabeya, JJ

November 11, 2022

Between

Kinjunje Gardens Limited

Plaintiff

and

NCBA Bank (K) PLC

1st Defendant

B. Gathiru T/A Regent Auctioneers

2nd Defendant

Equity Bank(Kenya) Limited

3rd Defendant

Ruling

1. The 3rd defendant ('Equity') has filed an application dated September 28, 2022 made, inter alia, under sections 80 of the *Civil Procedure Rules** and order 45 rule 1 of the Civil Procedure Rules. Equity seeks an order for review and setting aside of the ruling and order dismissing its application dated July 6, 2021 and discharging the interim orders issued on July 8, 2021. It further prays for a temporary injunction restraining the 1st defendant ('NCBA') from in anyway selling or otherwise dealing in any manner with the property known as LR No 209/1817(IR No 2630) and registered in the plaintiff’s name ('the suit property') pending hearing and determination of this suit and/Equity’s counterclaim.

2. The application is supported by the affidavit and supplementary affidavits of Equity’s officer, Kariuki Kingori, and the director of Henkam Limited ('Henkam'), John Kahigu Magu, sworn on September 28, 2022 and November 1, 2022 respectively. The application is opposed by NCBA through the replying affidavit of its officer, Jackson Nyaga, sworn on October 17, 2022. Both parties have filed written submissions.

3. Since Equity seeks to review the order dated February 23, 2022, I think it is necessary to reprise what led to the ruling and particularly the facts leading to this suit. Sometime in 2014, the plaintiff approached NCBA for a loan facility through the offer letter dated June 16, 2014. NCBA agreed to advance it Kshs 160,000,000. 00, 'to finance the purchase of a commercial building in Nairobi City' that was to be secured by a charge over the suit property. The plaintiff defaulted in its repayment obligations to NCBA whereupon NCBA initiated the process of exercising its statutory power of sale by selling the suit property by instructing the 2nd defendant ('the auctioneer’) to advertise the suit property for sale. This action caused the plaintiff to file this suit and with it an application for injunction restraining NCBA from exercising its statutory power of sale.

4. Equity was joined to this suit as the 3rd defendant on July 8, 2021. It also lays claim to the suit property. It states that by the letter of offer dated August 7, 2014, it also agreed to finance the plaintiff by advancing Kes 160,000,000. 00 to it for the acquisition of the suit property from Henkam. As a result, a transfer was effected in the company’s name and a first legal charge was registered in its favour over the suit property on October 9, 2014 to secure the facility. In view of the threat to sell the suit property, Equity also filed an application seeking an injunction.

5. I considered both applications and this is what I stated before dismissing both of them:(40)The company accuses the bank of purporting to issue instructions to the auctioneer to realize a security it does not hold, failing to provide the company’s directors with an alternative mode of settlement of the monies advanced, failing to serve the mandatory statutory notices, laying a false claim to a non-existent charge proving that the actions of the bank are actuated by malice and not been done in good faith but as a way of coercing the company, failing to act honestly and with due regard to the company’s interests as required by law and simply failing to accept a mistake that was their own making. Equity also claims that NCBA holds an invalid security as the same was created and registered before the transfer of the suit property from Henkam Limited to the company.(41)From the facts and arguments, I have set out above, the parties have exchanged accusations of fraud, forgery and illegalities against each other in respect of the title and securities held in respect of the suit property. These allegations cannot be determined at this juncture and would require calling evidence at the main trial. The court can only make a prima facie findings whose conclusiveness will be determined at trial. This position was restated by the Court of Appeal in Patrick Okuku & 7 others v James Kutsushi Atindo & 8 others KSM CA Civil Appeal No 242 of 2011 [2016] eKLR where it was held that serious allegations of fraud and other wrong doing can only be decided during a proper trial and not on the basis of conflicting affidavit evidence. This however, does not mean that the court should shirk from its responsibility determining whether a prima facie case with a probability of success has been established as a basis for grant of an injunction.(42)In their depositions, both NCBA and Equity have annexed letters of offer, transfers, charges, certificates of mortgages which indicate that they both hold securities in respect of the suit property. The face of the charge annexed by NCBA shows that it was executed by the company’s directors and that the same was registered on July 18, 2014 as entry number 29 by the land registrar. The face of the charge and suit property title annexed by Equity indicate that the charge was registered on October 9, 2014. It is therefore evident, at least on a prima facie basis, that NCBA’s security is first in time as it was registered before that of Equity and as such, NCBA’s charge must prevail against Equity’s charge and any other subsequent charges registered against the title of the suit property. Section 57(1) of the Land Registration Act, 2012 provides that a sale under a second or subsequent charge shall be expressed to be subject to all prior charges unless those charges have been discharged. Further, section 57(2) as amended, provides that where a second or subsequent charge is to be created the consent for the first chargee should be obtained before the second or subsequent charge is created (see Commercial Bank of Africa v Wardpa Holdings Limited & 7 others NRB CA Civil Appeal No 244 of 2018 [2019] eKLR)(43)It is because of this prima facie finding of the existence and priority of NCBA’s charge that Equity’s own prima facie case collapses and thus an injunction cannot issue in favour of Equity. Further, I would only state at this stage that Equity has not filed a counterclaim against NCBA to assert its claim. Essentially, the company is using the claim by the Equity as a shield against NCBA exercising its statutory power of sale. Since there is no claim by Equity against NCBA, I have exercised great restraint in going through the minutiae of allegations and resolving the dispute save to state on a prima facie basis that the security by NCBA takes priority over that of Equity.

6. Equity’s now seeks to review the order dated February 23, 2022. Both parties agree on the principles governing the resolution of an application for review under section 80 of the Civil Procedure Act and order 45 rule 1 of the Civil Procedure Rules. The latter provision states as follows:45 Application for review of decree or order(1)Any person considering himself aggrieved-(a)By a decree or order from which an appeal is allowed, but from which no appeal has been preferred; or(b)By a decree or order from which no appeal is hereby allowed, and who from the discovery of new and important matter or evidence which, after the exercise of due diligence, was not within his knowledge or could not be produced by him at the time when the decree was passed or the order made, or on account of some mistake or error apparent on the face of the record, or for any other sufficient reason, desires to obtain a review of the decree or order, may apply for review of judgement to the court which passed the decree or made the order without unreasonable delay.

7. Equity’s case is based on the discovery of new and important matters which were not available despite the exercise of due diligence or for any other sufficient reason for the court to review. In considering this ground, the Court of Appeal in Rose Kaiza v Angelo Mpanjuiza MSA CA Civil Appeal No 225 of 2009 [2009] eKLRcited with approval the following passage inMulla on Civil Procedure (15thEd) at page 2726:'Before a review is allowed on the ground of a discovery of new evidence, it must be established that the applicant had acted with due diligence and that the existence of the evidence was not within his knowledge; where review was sought for on the ground of discovery of new evidence but it was found that the petitioner had not acted with due diligence, it is not open to the court to admit evidence on the ground of sufficient cause. It is not only the discovery of new and important evidence that entitles a party to apply for a review, but the discovery of any new and important matter which was not within the knowledge of the party when the decree was made.'

8. Further in DJ Lowe & Company Ltd v Banque Indosuez NRB CA Civil Application No 217 of 1998 [1998] eKLR, the Court of Appeal observed that:'Where such a review application is based on fact of the discovery of fresh evidence the court must exercise greatest of care as it is easy for a party who has lost, to see the weak part of his case and the temptation to lay and procure evidence which will strengthen that weak part and put a different complexion. In such event, to succeed, the party must show that there was no remissness on his part in adducing all possible evidence at the hearing.'

9. What then is the new and important matter or evidence that Equity puts forward to support its plea? Equity’s case is that in September 2022, it discovered that Henkam, the vendor of the suit property to the plaintiff, confirms that it only received payment of the balance of the purchase price from Equity and that it never received payment from NCBA. Further that John Kahigu Magu depones that the directors of Henkam never executed the sale agreement dated January 20, 2014 which formed the basis for the sale of the suit property to the plaintiff financed by NCBA. They state that the only sale agreement that Henkam executed was one dated February 14, 2014 hence the one submitted by NCBA is a forgery.

10. According to Henkam, its directors never executed the transfer dated June 3, 2014 transferring its interest in the suit property to the plaintiff and purportedly to have been registered together with the charge issued in favour of the NCBA dated July 18, 2014. That the only transfer executed by the directors of Henkam is dated July 16, 2014 hence the one produced by NCBA Bank is a forgery. Henkam also denies that it was represented by Khaemba and Associates Advocates and that in the transaction in question it was represented by LJA Associates LLP Advocates. The firm of Khaemba & Associates Advocates never acted for Henkam as deponed to by Mr Jackson Nyaga in his said replying affidavit.

11. Equity therefore urges that the discovery of the aforesaid facts is significant and impugns the validity of the NCBA’s title and its charge over the suit property registered on the July 18, 2014. In its view, it holds a valid first legal charge over the title of the suit property.

12. As to whether the new and important matter or evidence was within Equity’s knowledge at the time the ruling dismissing its application was delivered, it states that Henkam was not its customer with reference to the sale transaction in question and the said information was only known personally to the directors of Henkam as the purported sale agreement was only between the plaintiff and Henkam. It also submits that NCBA has not discharged the burden on it to prove that the Kshs 160,000,000. 00 allegedly disbursed to Khaemba & Associate Advocates was paid to the legitimate vendor Henkam and that nothing would have been easier than for NCBA to get a corroborative affidavit from Khaemba Advocates in support of their claim.

13. NCBA states that Equity’s evidence produced through Henkam’s affidavit does not constitute new and material evidence for several reasons. It submits that the information contained in deposition has been available to the parties and to the court from the very onset.

14. It states that the receipt of the funds by LJA Associates Advocates who acted for Henkam does not constitute new and material evidence. It points out that it was within the knowledge of all parties as per the pleadings filed in opposition to the plaintiff’s and Equity’s applications that pursuant to the sale agreement dated January 20, 2014 the firm of Khaemba & Associates Advocates and not LJA Advocates LLP Advocates acted for both the Plaintiff and Henkam in the sale transaction wherein NCBA was the financier and that Khaemba & Associates Advocates were to receive and indeed received the financed amount in the sum of Kshs 160,000,000. 00 for and on behalf of Henkam on completion as is the common practise in conveyancing transactions of such nature as evidenced by the swift transfer which was produced by NCBA.

15. NCBA also states that as is the normal practice, the transfer and charge in its favour were registered simultaneously and this is verifiable from the official search produced which has not been impugned. In addition, it points out that Henkam does not disown the Agreement for sale and Transfer document executed in respect of the transaction preceding the charging of the property in favour of NCBA.

16. According to NCBA, the plaintiff, has in various correspondences and multiple suits it has filed in various court admitted that the suit property is charged to it and does not refer to Equity.

17. I have considered all material placed before the court and I take the following view of the matter. When the court was considering the application for injunction filed by the plaintiff and Equity, the central issue before the court was the validity or otherwise of the charge issued by the plaintiff to NCBA as is evidenced from the excerpts I have set out above. All the documents from NCBA and Equity were placed before the court with each party asserting the validity of their respective documents. It is therefore difficult to conclude that Equity, which was asserting the validity of its documents and impugning those of NCBA, would not have exercised due diligence to investigate the entire transaction which it impugns.

18. In establishing a case for review, the applicant must establish that the evidence is not only new but important. This is because the evidence must be relevant and geared towards proving its case as pleaded. In its defence and counterclaim dated September 27, 2022, Equity’s case is for breach of contract by the plaintiff hence it seeks judgment for Kshs 154,930,265. 00, interest and costs. There is no claim against NCBA in respect of the charge over the suit property or relief against the suit property. The only allegation in respect of Henkam is that Henkam only received payment from Equity and that it never transacted with NCBA. The accusations regarding the sale agreement and transfer between the plaintiff and Henkam being a forgery are not pleaded. It follows that even if I were to accept that the material and evidence proffered by Equity is new, it is not important because it is not based on what is pleaded and no relief is sought by Equity against the suit property. At the end of the day, what Equity seeks is judgment for the amount due to it from the plaintiff.

19. It is also for the aforesaid reason, the court cannot grant an injunction pending the hearing and determination of the suit as Equity has not sought any relief in respect of the suit property.

20. The totality of what I have set out above is that the 3rd defendant’s application dated September 28, 2022 lacks merit. It is therefore dismissed with costs to the 1st defendant.

SIGNED AT NAIROBID.S. MAJANJAJUDGEDATED AND DELIVERED AT NAIROBI THIS 11TH DAY OF NOVEMBER 2022. A. MABEYAJUDGECourt Assistant: Mr Michael Onyango.Mr Siagi instructed by Moses Siagi and Company Advocates for the Plaintiff.Mr Kabaiku instructed by Wainaina Ireri Advocates LLP for the 1st and 2nd Defendant.Mr Mbaji instructed by Igeria Ngugi Advocates for the 3rd Defendant.