[2021] KECPT 7 (KLR)

REPUBLIC OF KENYA

IN THE CO-OPERATIVE TRIBUNAL

AT NAIROBI

TRIBUNAL CASE NO. 035 OF 2021 (253 OF 2021)

MICHAEL MUHUYI KIVEU..........................................................CLAIMANT

-VERSUS-

IG SACCO LIMITED...................................................................RESPONDENT

RULING

1. The Claimant filed a Notice of Motion Application dated 2nd June 2021 under Certificate of Urgency. The crux of the matter is to stop the Respondent from pursuing the Claimant’s guarantors in satisfaction of a debt that the Claimant owes the Respondent.

The Claimant has listed a myriad of transgressions that the Respondent has suffered upon the said Claimant, and most notable is the refusal by the Respondent to avail a statement of accounts for the advisement of the Claimant, and this Tribunal as ordered thereby on 4th June 2021.

2. The Parties disposed of the Application by way of Written Submissions, which we have read and deliberated upon.

3. ISSUES FOR DETERMINATION

The following are the issues that are considered vital for determination by this Tribunal:

(a)Whether the pursuit of Guarantors is regular;

(b)Whether the Applicant has satisfied the principle in Giella -vs- Cassman Brown;

ANALYSIS OF LAW ON FACTS

(a) Whether the pursuit of Guarantors is regular

Guarantors are constitute persons under a secondary obligation: persons that come in to satisfy the debt in the event that the principal debtor fails to service the loan. Guarantors are like the back-up plan for the Creditor, and only become relevant once the Debtor lacks facilities and/or ability to pay the debt. As such, a guarantor must not be treated as a principal debtor. Their role sets in once the principal debtor has been pursued, and all possible avenues of compelling the principal debtor have been exhausted.

4. In the case of Nairobi HCCC Number 573 of 2011(Talewa Road Contractors Limited & Another-vs- Jamii Bora Charitable trust Registered Trustees & Another) the court noted that parties to a commercial contract are bound by the terms thereof. The court also observed that a party should not be permitted to benefit from its breaches. Abandoning the principal debtor is actually permitting the said principal debtor to benefit from their breaches.

The principal debtor must be pursued, all attempts made to recover from him; then and only then should guarantors be notified of the default by the principal debtor, and that they are required to pay the debt. As a last resort, the guarantors will be coerced to pay the dues once the principal debtor has defaulted. That is, in the eyes of this Tribunal, the correct approach towards recovery of a guaranteed debt, as was held in the case of Ebony Development Co. Ltd v Standard Chartered Bank Ltd[2008] eKLR where Khaminwa, J on delivering on the issue of the liability of guarantors held that:

“The security of charge was a guarantee. The obligation of a guarantor is clear. It becomes liable upon default by the principal debtor...”

5. In Martin Kirima Baithambu -vs- Jeremiah Miriti [2017] eKLR, the court stated that as a general rule, a guarantor is not entitled to relief until the guaranteed debt has become payable by him. He may not, therefore, call upon the principal debtor to make provision for payment of the debt before the debt is due. However, this does not mean that the guarantor does not have rights to call upon the principal debtor to pay the guaranteed debt until and unless he has paid the guaranteed debt. Needless to state that guarantor’s rights accrue from the relationship created by the guarantee, and not merely when he discharges the principal debtor’s obligations. Therefore, it is not the law that the guarantor has no rights- equitable or otherwise- until he has paid the guaranteed debt. Halsbury’s Laws of England, Fourth Edition Reissue) Vol 20(1) para 239 provides that:-

“When a creditor has acquired a right to immediate payment of the debt from the guarantor, the guarantor is entitled to call upon the principal debtor to pay the amount of the debt guaranteed, so as to relieve the guarantor from his obligation, even though the guarantor, has paid nothing under the guarantee, even though the creditor has not demanded payment from him or the principal debtor’’.

6. The notion that guarantors are the first stage home once the principal debtor sneezes is premature and pedestrian, which must be dissuaded by all means. This practice will see to the diminishing availability and willingness of guarantors to execute loan agreements in support of principal debtors, to the detriment of the businesses of most SACCOS. It would be inappropriate for the principal debtor to hide themselves in the hope that the guarantors will be cast into inconvenience of being surcharged and having to pursue the debtor through court processes later on.

The Respondent in his present case has not demonstrated that they have pursued all avenues of recovery against the Claimant [the principal debtor] prior to involving the guarantors, and on the strength of the foregoing cases, we find fault in that.

(b) Whether the Applicant has satisfied the principle in Giella -vs- Cassman Brown

The Claimant is seeking mandatory injunctions as well as prohibitory injunctions. For the grant of mandatory injunctions, the principles were set out by the Court of Appeal in Kenya Breweries Ltd and Another -vs- Washington Okeyo (2002) 1 E.A. 109wherein it was held that that there must be special circumstances shown over and above the establishment of a prima facie case for a mandatory injunction to issue, and even then, only in clear cases where the court thinks that the matter ought to be decided at once.

What constitutes a prima facie case? The Court of Appeal in Mrao Ltd -vs- First American Bank of Kenya Ltd & 2 Others [2003] eKLR statedas follows:

“...a prima facie case in a civil application includes but is not confined to a “genuine and arguable case.” It is a case which, on the material presented to the court, a Tribunal properly directing itself will conclude that there exists a right which has apparently been infringed by the opposite party as to call for an explanation or rebuttal from the latter.”

7. We note that the Respondent has been ordered to avail the Claimant’s statements of accounts in this Tribunal’s Ruling on 4th June 2021, and this has not been complied with. It is our presumption, therefore, that the statement of accounts carries evidence that is injurious to the Respondent’s case, for which reason the Respondent has elected to hide the said evidence. We are thus convinced that the Application meets the thresholds of Interlocutory Injunctions enunciated in stated in Giella -vs- Cassman Brown & Co Ltd, (1973) EA 358. We are also convinced that the Claimant has demonstrated a clear legal right which is under a threat of being infringed by the Respondent.

We therefore find in favour of the Claimant, that it is in the interest of justice for the Respondent to be restrained from pursuing the guarantors of the Claimant, as the Claimant is available and willing to pay his debt subject to full disclosure by the Respondent by way of a statement of the Claimant’s accounts.

ORDERS

We therefore Order as follows:

a. The Claimant’s Application dated 2nd June 2021 is allowed with costs to the Claimant;

b. Pending the hearing and determination of the Claim, a prohibitory injunction be and is hereby issued restraining the Respondent by himself, or through his agents, servants or assigns from attaching the shares of the Claimant’s Guarantors.

c. Pending the hearing and determination of the Claim, a mandatory injunction be and is hereby issued compelling the Respondent to produce before this Honourable Tribunal the Claimant’s Statements of Accounts within 14 days hereof;

d. Mention for Directions on 17. 2.2022. Notice to issue

Ruling signed, dated and delivered virtually at Nairobi this 19thday of November,2021.

Hon. B. Kimemia Chairperson Signed 19. 11. 2021

Hon. J. Mwatsama Deputy Chairperson Signed 19. 11. 2021

Mr. Gitonga Kamiti Member Signed 19. 11. 2021

Mr. B. Akusala Member Signed 19. 11. 2021

Mr. P. Gichuki Member Signed 19. 11. 2021

Tribunal Clerk R. Leweri

Eroba for the Respondent

No appearance by Claimant

Hon. J. Mwatsama Deputy Chairperson Signed 19. 11. 2021