[2023] KEHC 25735 (KLR)

Midland Construction Co. Ltd v I & M Bank Ltd & another (Civil Appeal E044 of 2023) [2023] KEHC 25735 (KLR) (20 November 2023) (Judgment)

Neutral citation: [2023] KEHC 25735 (KLR)

Republic of Kenya

In the High Court at Kisumu

Civil Appeal E044 of 2023

RE Aburili, J

November 20, 2023

Between

Midland Construction Co. Ltd

Appellant

and

I & M Bank Ltd

1st Respondent

Bachulal Popatlal (K) Ltd

2nd Respondent

(An appeal arising out of the Ruling & Order of the Honourable D.O. Onyango in the Chief Magistrate’s Court at Kisumu delivered on the 16th March 2023 in Kisumu CMCC No. E033 of 2023)

Judgment

Introduction 1. The appellant herein in the lower court vide a notice of motion dated 8. 2.2023 sought injunctive relief against the respondent, to stop the 1st respondent from paying to the 2nd respondent monies owed by the appellant to the 2nd respondent through funds secured by a bank guarantee taken from the 1st respondent.

2. In his ruling, the trial court found that the appellant failed to satisfy the condition precedent for grant of interlocutory injunctions and proceeded to dismiss the notice of motion dated 8. 2.2023.

3. Aggrieved by the trial court’s ruling, the appellant filed the instant appeal vide a Memorandum of appeal dated 17th March 2023 and filed on the even date. The appellant raised the following grounds of appeal;a.That the trial magistrate erred in law and fact in dismissing the appellant application on the ground that the appellant owned the 2nd respondent prior to issuance of the bank guarantee.b.That the trial magistrate erred in law and in fact by dismissing the plaintiff’s/appellant’s application by not finding that the bank guarantee works in the future contracts and not retrospectively.c.That the trial magistrate erred in law and in fact by dismissing the plaintiff/appellant application by not finding the bank guarantee is based on contract and or with time whose time has not expired in this case.d.That the trial magistrate erred in law and fact by not setting down the suit for hearing to find out why the bank guarantee was issued.e.That the trial magistrate erred in law and in fact in that the bank guarantee is always for a certain contract (which the 2nd respondent refused to sign) which contract did not cover the old debts.

4. The appellant also sought for stay of the orders issued by the lower court dismissing the application for injunction and vide this court’s ruling made on 24th march, 2023, I granted a stay pending the hearing and determination of this appeal.

5. The parties’ counsel filed submissions to canvass the appeal herein.

The Appellants’ Submissions 6. On behalf of the appellant, it was submitted that the trial magistrate erred and acted as though it had already heard the whole case whereas the appellant merely sought interlocutory orders. It was submitted that the appellant demonstrated a prima facie case as it provided cogent evidence and arguable propositions demonstrating how it was to be affected by the 2nd respondent’s move to demand for payment of monies from the 1st respondent as a beneficiary of the bank guarantee issued on the 13th July 2023.

7. The appellant submitted that it would most likely suffer irreparable harm due to injury of its good business name as a result of the 2nd respondent’s action to decline to execute the new contract for supply of fuel while demanding for payment under a bank guarantee secured with the intent to secure supply of oil which was not done.

8. The appellant submitted that by denying the appellant an injunction prohibiting the 2nd respondent from redeeming the bank guarantee, the learned magistrate erred since the issue of the bank guarantee was a key aspect of the suit and in essence the trial court destroyed the subject matter of the litigation prior to full hearing contrary to the law.

9. It was the appellant’s submission that the trial court ought to have been guided to hold that the ability to compensate the appellant with damages did not qualify the sanctioning of an illegality as was held in the case of Said Almed v Mannasseh Benga & Another [2019] eKLR.

10. The appellant’s counsel submitted that the balance of convenience tilted in the appellant’s favour for the reason that the illegal attempt by the 2nd respondent to redeem the bank guarantee would prejudice the appellant’s relationship with their bankers and further as they would be forced to repay the debt to the bank as a credit advanced to them without any benefits accruing to them since the 2nd respondent declined to execute the new contract that was the basis of securing the bank guarantee in the first place.

11. The first respondent did not participate in this appeal.

The 2nd Respondent’s Submissions 12. The 2nd respondent through its counsel submitted that the appellant did not demonstrate that it had a prima facie case with a probability of success as the bank guarantee issued by the 1st respondent in favour of the 2nd respondent was to secure the monies owed by the appellant to the 2nd respondent. It was submitted that the appellant was not privy to the bank guarantee and thus had no legal rights to stop the actual parties to the contract from enforcing their obligations under the said bank guarantee.

13. It was submitted that the appellant had not paid the 2nd respondent and therefore its liability under the bank guarantee was valid and enforceable as the appellant had not denied owing the 2nd respondent or adduced any material showing that it was not indebted to the 2nd respondent.

14. The 2nd respondent’s counsel submitted that an injunction was an equitable remedy and required any party seeking it to come to court with clean hands as was held in the case of Kenya Breweries Ltd v Okeyo [2002] 1EA 109, Kyangavo v Kenya Commercial Bank Ltd & Another (2004) 1KLR 126 and Patrick Waweru Mwangi & Another v Housing Finance Co. of Kenya Ltd (2013) eKLR.

15. It was submitted that the appellant had not shown that it would suffer irreparable harm that could not be compensated through damages as was held in the case of Nguruman Limited v Jan Bonde Nielsen &2 Others [2014] eKLR.

16. The 2nd respondent further submitted that the trial court was right in finding that the balance of convenience tilted in favour of the 2nd respondent who sought money to support its business which monies could always be recovered.

Analysis and Determination 17. I have considered the record of appeal, the submissions by both parties and the authorities cited. As I consider the merits of this appeal, I bear in mind that it is an interlocutory appeal and that the dispute before the lower court has not been heard and determined on merit. Accordingly, I must refrain from expressing any concluded views on any issue that may arise in the pending trial. (See David Kamau Gakuru v National Industrial Credit Bank Ltd, CA No. 84 of 2001). Secondly, what is challenged in the appeal is essentially the exercise of judicial discretion by the trial court in granting an injunction.

18. As an appellate Court, I am reminded that I must be slow to interfere with exercise of judicial discretion by the Court below unless I am satisfied that the learned magistrate misdirected himself in the law, misapprehended the facts, took into account matters he should not have or failed to consider matters he should have, or that on the whole the decision is plainly wrong. (See United India Insurance Co. Ltd v East African Underwriters (Kenya) Ltd [1985] E.A 898).

19. The principles guiding the grant of interlocutory injunction application are now well settled. Those principles were set out in East African Industries vs. Trufoods [1972] EA 420 and Giella vs. Cassman Brown & Co. Ltd [1973] EA 358. In Nguruman Limited vs. Jan Bonde Nielsen & 2 Others [2014] eKLR the Court restated the law as follows:“In an interlocutory injunction application, the applicant has to satisfy the triple requirements to;(a)establish his case only at a prima facie level,(b)demonstrate irreparable injury if a temporary injunction is not granted, and(c)ally any doubts as to (b) by showing that the balance of convenience is in his favour.These are the three pillars on which rests the foundation of any order of injunction, interlocutory or permanent. It is established that all the above three conditions and stages are to be applied as separate, distinct and logical hurdles which the applicant is expected to surmount sequentially. See Kenya Commercial Finance Co. Ltd V. Afraha Education Society [2001] Vol. 1 EA 86. If the applicant establishes a prima facie case that alone is not sufficient basis to grant an interlocutory injunction, the court must further be satisfied that the injury the respondent 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. If prima facie case is not established, then irreparable injury and balance of convenience need no consideration. 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.It is where there is doubt as to the adequacy of the respective remedies in damages available to either party or both that the question of balance of convenience would arise. The inconvenience to the applicant if interlocutory injunction is refused would be balanced and compared with that of the respondent, if it is granted.”

20. Reiterating the above principles, Ringera, J (as he then was) in Airland Tours & Travel Limited v National Industrial Credit Bank Nairobi (Milimani) HCCC No. 1234 of 2002 stated that in an interlocutory application, the Court is not required to make any conclusive or definitive findings of fact or law, most certainly not on the basis of contradictory affidavit evidence or disputed propositions of law and that in an application for injunction although the Court cannot find conclusively who is to be believed or not, the Court is not excluded from expressing a prima facie view of the matter and the Court is entitled to consider what else the deponent to the supporting affidavit has stated on oath which is not true, for example, when he denies being served with the statutory notices and considering the already exposed untruth of the applicant with regard to service of statutory notices one is not inspired to have much confidence in the truth of her deposition that she did not appear before an advocate to execute the charge and have the effects of the pertinent provisions of law explained to her.

21. In Dr. Simon Waiharo Chege v Paramount Bank of Kenya Ltd. Nairobi (Milimani) HCCC No. 360 of 2001 Ringera J held that:“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.”

22. In Esso Kenya Limited v Mark Makwata Okiya Civil Appeal No. 69 of 1991 the Court of Appeal stated as follows:“The principles underlining the granting or refusal of injunction are well settled in several decisions of the court. Where an injunction is granted, it will preserve or maintain the status quo of the subject matter pending the determination of the main issue before the court. The merits or demerits of granting injunction orders deserve greater consideration. The court should avoid granting orders which have not been asked for in the application before it or determine issues in the suit before the actual hearing. In cases where an award of damages could be adequate compensation, an injunction should not be granted. On an application for an injunction in aid of a plaintiff’s alleged right, the court will usually wish to consider whether the case is so clear and free from objection on equitable grounds that it ought to interfere to preserve property without waiting for the right to be finally established. This depends upon a variety of circumstances, and it is impossible to lay down any general rule on the subject by which the court ought in all cases to be regulated, but in no case will the court grant an interlocutory injunction as of course...The court ought to look at the allegations in the affidavits by the plaintiff and the defendant and weigh them whether there is a possibility of the plaintiff succeeding or whether there is a possibility of quantifying damages. Only in cases of doubt court will proceed on the basis of the balance of convenience while being aware that formal evidence will be adduced at the hearing...The principle underlying injunctions is that the status quo should be maintained so that if at the hearing the applicant obtains judgement in his favour the respondent will have been prevented in the meantime from dealing with the property in such a way as to make the judgement nugatory…As it is settled law that where the remedy sought can be compensated by an award of damages then the equitable relief of injunction is not available.”

23. Therefore, although at an interlocutory stage the Court is not required and indeed it is forbidden from purporting to decide with finality the various relevant “facts” urged by the parties, the remedy being an equitable one, the Court will decline to exercise its discretion if the applicant is shown to be guilty of conduct which does not meet the approval of the Court of equity.

24. Injunction being an equitable remedy, the court is enjoined to look at the conduct of the applicant for the injunctive orders, the surrounding circumstances whether the orders sought are likely to affect the interests of non-parties to the suit, the issue whether an undertaking as to damages has been given as well as the conduct of the Respondent whether or not he has acted with impunity.

25. The Court is also, by virtue of section 1A(2) of the Civil Procedure Act, enjoined to give effect to the overriding objective as provided under section 1A(1) of the said Act in exercising the powers conferred upon it under the Civil Procedure Act or in the interpretation of any of its provisions. One of the aims of the said objective as interpreted by the Court of Appeal is the need to ensure equality of arms, the principle of proportionality and the need to treat all the parties approaching the court on equal footing.

26. There is no dispute that to entitle Midland Constructions Co. Ltd to an injunction, they had first and foremost to demonstrate a prima facie case with a probability of success at trial. In Mrao Ltd v First American Bank of Kenya Ltd& 2 Others [2003] eKLR, Bosire, JA defined a prima facie case as follows:“So what is a prima facie case? I would say that in civil cases it is a case in 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.” (Emphasis added).

27. In the same judgment, his Lordship added:“But as I earlier endeavored to show, and I cited ample authority for it, a prima facie case is more than an arguable case. It is not sufficient to raise issues. The evidence must show an infringement of a right, and the probability of success of the applicant?s case upon trial. That is clearly a standard which is higher than an arguable case.” (Emphasis added).

28. Before the Lower Court, the case put forward by the appellant to justify an injunction stopping the calling in of the guarantee was that the 2nd respondent had not made any supply to warrant their demand for payment for goods and services delivered and or rendered during the period of the bank guarantee. To entitle it to an injunction on the basis of a prima facie case with a probability of success, they had to show that under the guarantee, the dispute it was citing was capable of lawfully preventing the 2nd respondent from calling the guarantee. In other words, the appellant herein had to show that by calling in the guarantee, the 2nd respondent was going to infringe on its rights under the terms of the guarantee.

29. The appellant and the 2nd respondent in June 2022 entered into an agreement for supply of oil wherein one of the terms was that the appellant issues the 2nd respondent with a bank guarantee from a reputable bank and the guarantee was issued by the 1st respondent Bank.

30. The guarantee cited in this case provided that the 1st respondent would pay the 2nd respondent Kshs. 10,000,000 upon the first written demand by the 2nd respondent declaring that the appellant was in default.

31. The appellant averred that the 2nd respondent did not make any supply of oil as agreed during the period of the guarantee, this is between 14th July 2022 and 13th July 2023 but that it nonetheless proceeded to make a demand of Kshs. 5,477,600 on the guarantee.

32. The 2nd respondent adduced evidence showing that as at February 2023, the appellant was indebted to it to the tune of Kshs. 5,447,600 an amount that was covered by the aforementioned bank guarantee and which the appellant failed to disclose to court.

33. In Kyangaro v Kenya Commercial Bank Ltd & Another (2004) 1 KLR 126 Njagi J had this to say:“Secondly, the injunction sought is an equitable remedy. He that comes to equity must come with clean hands and must also do equity. The conduct of the plaintiff in this case betrays him. It does not endear him to equitable remedies. He admitted in this Court, quite frankly, that since leaving the employment of the bank over four years ago, he has never paid a cent towards redemption of the loan. He admits that he is in default, and yet he is also in possession. He can’t have it both ways. Either he pays the loan, or allows the bank to realize its security. He who comes to equity must fulfill all or substantially all his outstanding obligations before insisting on his rights. The plaintiff has not done that. Consequently, he has not done equity. In the hands of the plaintiff, a permanent injunction would wreak havoc to the first defendant, and that would be inequitable. While chargees are enjoined by law to follow the laid down procedures for the realization of their security, the Courts must not at the same time be converted into a haven of refuge by defaulters. Even lenders and chargees have their own rights.”

34. To my mind, the appellant in this suit has done little or nothing to alleviate its position since it was made aware of the 2nd respondent’s demand made to the 1st respondent. I agree with the trial magistrate that a contracting party who fails to perform his part of the contract cannot obtain an injunction to restrain a breach of the contract by the other party.

35. Accordingly, the issue of the amount claimed by the 2nd respondent and whether the same falls within the period secured by a guarantee does not, in my considered view, establish a prima facie case for the purposes of an injunction, as there is no denial that the appellant owed money to the 2nd respondent and in the absence of evidence that the 2nd respondent had written off the money owed, I find that the appellant had not established a prima facie case. The record reveals that the debt due to the 2nd respondent as at February 2023 was Kshs. 5,447,600. The period of the bank guarantee was between 14th July 2022 and 13th July 2023. These are undisputed facts that are clear. I thus find that the appellant did not establish a prima facie case.

36. In the Nguruman Case, supra, the Court of Appeal held that the three conditions for granting an injunction are considered sequentially, so that the second and third conditions cannot be considered once the first condition is not established. The Court expressed itself thus:“In an interlocutory injunction application, the applicant has to satisfy the triple requirements to;(a)establish his case only at a prima facie level,(b)demonstrate irreparable injury if a temporary injunction is not granted, and(c)ally any doubts as to (b) by showing that the balance of convenience is in his favour.These are the three pillars on which rests the foundation of any order of injunction, interlocutory or permanent. It is established that all the above three conditions and stages are to be applied as separate, distinct and logical hurdles which the applicant is expected to surmount sequentially. See Kenya Commercial Finance Co. Ltd V. Afraha Education Society [2001] Vol. 1 EA 86. If the applicant establishes a prima facie case that alone is not sufficient basis to grant an interlocutory injunction, the court must further be satisfied that the injury the respondent 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. If prima facie case is not established, then irreparable injury and balance of convenience need no consideration. 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.”

37. The upshot of the above is that having found that the appellant did not prove that it had a prima facie case with probability of success, I shall not consider whether the appellant has satisfied that other conditions precedent for grant of interlocutory injunctions.

38. Accordingly, the instant appeal is found to be devoid of merit and the same is hereby dismissed. The temporary stay and injunction granted by this court in its ruling of 24th march, 2023 is hereby discharged.

39. As the main suit is still pending hearing and determination in the lower court, I order that each party bear their own costs of this appeal. The file be returned to the lower court with a copy of this judgment and upon drawing of a decree.

40. I so order.

DATED, SIGNED AND DELIVERED AT KISUMU THIS 20TH DAY OF NOVEMBER, 2023R.E. ABURILIJUDGE