[2023] KEHC 24651 (KLR)

Paddy Kenya Ltd v Equity Bank Kenya Ltd & 3 others (Civil Suit E079 of 2022) [2023] KEHC 24651 (KLR) (Commercial and Tax) (6 October 2023) (Ruling)

Neutral citation: [2023] KEHC 24651 (KLR)

Republic of Kenya

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

Commercial and Tax

Civil Suit E079 of 2022

EC Mwita, J

October 6, 2023

Between

Paddy Kenya Ltd

Plaintiff

and

Equity Bank Kenya Ltd

1st Defendant

George Mbag T/A Immediate Auctioneers

2nd Defendant

Patrick Nthiga Mvungu

3rd Defendant

Joyce Wangui Wachira

4th Defendant

Ruling

1. The plaintiff took out motion on notice seeking an interlocutory injunction restraining the defendants and or their agent from attaching, or selling motor vehicle registration numbers KCD 800A, ZF 4590, ZF 4621, KBD 595F, ZC 8967, KAR 481P, KAR 254P, KAL 561K, KAQ 067R, KAQ 212U, KAQ 235G, KAQ 289P, KAR 014B, KAR 482P, KAR 483P, KAR 484P, KAS 028M, KAS 141M, KAS 154Q, KAT 045H, KBB 567Z, KBD 593F, KBD 592F, KBE 614M ZC 7901, ZC 8966, ZC 8975, ZC 8976, KCF 091A and KCF 092A, pending the hearing and determination of this suit.

2. The plaintiff sought a further order directing the 1st defendant to forthwith reactivate the plaintiff's bank accounts operated with the 1st defendant

3. The background leading to this application, is that the plaintiff offered Land Reference Number 9042/942, situated along North Airport Road, Embakasi (the charged property) to the 1st defendant as security for a loan. The loan however fell into arrears and the plaintiff approached the 1st defendant with a settlement proposal, to the sale the charged property through a public auction or private treaty to offset the outstanding amount due.

4. Due to the prevailing COVID 19 pandemic, the plaintiff opted for sale by private treaty. The security (charged property) was sold for Kshs. 100,000,000, despite its valuation of Kshs. 250,000,000 at the time it was charged due to pressure from the 1st defendant.

5. The plaintiff that the 1st defendant accepted the Kshs. 100,000,000 as full settlement of the outstanding loan. However, on 8th March 2022, the 2nd defendant, on instruction of the 1st defendant, proclaimed several motor vehicles belonging to the plaintiff’s guarantors over the same debt, with an indication on the proclamation that the outstanding loan balance was Kshs. 378,464,992.

6. The proclamation included motor vehicle registration No. KCD 800A that the 1st defendant had authorized the plaintiff to sell. The 1st defendant also suspended the plaintiff’s bank accounts without notice or explanation significantly impeding the plaintiff’s operations.

7. The plaintiff contends that it stands to lose its hard-earned properties and suffer prejudice if the vehicles are attached and sold and if its bank accounts are not re-activated.

8. The plaintiff relied on Giella v Casman Brown Co. Ltd (1973) E. A. 358 to argue that the application has met the threshold for the grant of the injunctive orders sought. The plaintiff also asserted that the 2nd defendant has no good reason to attach its goods.

9. The plaintiff argued that it has established a prima facie case with a probability of success since it no longer owes the 1st defendant any money, having agreed to sell the charged property for Kshs. 100,000,000 to fully settle the loan.

10. The plaintiff asserted that despite the general trend of land increasing in value over time, the property returned a lower value at the time of sale in 2020/2021 in comparison to its value of Kshs. 250,000,000 wen the loan was granted in 2017.

11. The plaintiff submitted that the 1st defendant also sold some of the proclaimed vehicles which were erroneously proclaimed by the 2nd defendant, since the 1st defendant could not allow it (plaintiff) to sell the vehicles and accept to discharge them before the loan had not been fully repaid.

12. The plaintiff stated that it will suffer irreparable loss which cannot adequately be compensated by an award of damages since its operations will halt resulting in loss of business, breach of contracts with its customers and lead to a multiplicity of suits against it.

13. Finally, the plaintiff contended that the balance of convenience tilts in its favour because if the orders sought are not granted the suit will be rendered nugatory and it will be left without protection.

Response 14. The 1st defendant opposed the application through grounds of opposition. The 1st defendant stated that the plaintiffs failed to establish that they had a prima facie case with a probability of success in terms of Giella v Cassman Brown & Co. Limited [1973] E.A 358.

15. The 1st defendant further argued that there was no agreement with the plaintiff that the proceeds of sale of L. R. No. 9042/942 would fully settle the outstanding loan balance.

16. It is the 1st defendant’s case that the vehicles were offered as part of securities to secure the loan advanced to the 1st defendant. There is no legal basis for preventing realization of the securities.

17. The plaintiff had not demonstrated the irreparable loss it was likely to suffer that cannot be compensated by an award of damages if the 1st defendant was allowed to realise the securities. Any loss that the plaintiff is likely to suffer is calculable.

18. According to the 1st defendant, it is a stable bank and would be able to compensate the plaintiff in the event the suit was successful. The 1st defendant took the view that the balance of convenience also tilts in its favour because the plaintiff is still indebted to it in the sum of Kshs. 378,464,993 which continues to accrue interest at 13% p.a.

19. The sums owed have already exceeded the value of the securities and these sums continue to accrue interest. The outstanding amount after the realisation of the securities will be unsecured and there is no guarantee that it will recover the money.

20. The Securities are movable assets and their value will continue depreciating the longer it is prevented from realising the securities.

21. According to the 1st defendant, in letter dated 16th November 2018, the all the facilities were into a revolving ‘un cleared effects’ facility, a revolving bank guarantees facility and a term loan facility totaling to Kshs. 395,000,000. These facilities were secured by a charge over the property, chattels mortgages over the vehicles and personal guarantee and indemnity by the 3rd and 4th defendants for Kshs. 356,982,863 plus interest, fees, commission, costs, charges and expenses.

22. The plaintiff made a proposal to settle the outstanding amount, to paying Kshs. 2,000,000 immediately and Kshs. 1,500,000 per month. However, on 1st July 2019, the 1st defendant declined the proposal stating that it would accept immediate payment of Kshs. 2,500,000 and Kshs. 1,500,000 per month paid every 5th of the month from 5th July 2019. On 3rd September 2019, the plaintiff proposed to settle the outstanding loan balance through proceeds from sale of the property as it was unable to honour the settlement agreement due to business and cash flow challenges.

23. The 1st deponent denied that it agreed that the amount to be recovered from the proceeds of the sale of the property would be deemed to have fully settled the debt. Rather, the 1st defendant consented to sale the property on condition that the proceeds would be applied to reduce the debt.

24. The 1st defendant asserted that the emails of 31st December 2020, only confirmed that it was agreeable to the sale price of Kshs. 100,000,000 and that it would release the title document for the property once the purchase price was fully settled, or on receipt of a professional undertaking from a reputable bank, but did not agree that the amount would be sufficient to clear the outstanding loan.

25. The 1st defendant denied that there was an understanding that the property charged was valued at Kshs. 250,000,000, maintaining that the property was valued at Kshs. 90,000,000 on 14th December 2020. The 1st defendant further denied that it had suspended the plaintiff’s accounts.

26. The 1st defendant relied on Nguruman Limited v Jan Bonde Nielson and 2 others [2014] eKLR to assert that the plaintiff had not met the conditions for granting injunction. The 1st defendant also relied on Mrao Ltd v First American Bank of Kenya Limited & 2 others [2003] eKLR on the meaning of a prima facie case.

27. The 1st defendant contended that the plaintiff has not established a prima facie case in that there is no evidence to support the allegation that the proceeds from the sale of the property fully settled the debt. The emails of 31st December, 2020 merely confirmed that the 1st defendant was agreeable to the sale price of Kshs. 100,000,000, but not that the amount would fully settle the debt.

28. Regarding the sale of the four vehicles, the 1st defendant contended that the email from Martin Maina contained a table showing that the plaintiff's loan had not been cleared. The 1st defendant again contended that if the plaintiff’s loan was fully settled, it would have discharged all securities and that it would not have been necessary for the plaintiff to seek consent to sell the four vehicles.

29. Relying on the valuation report dated 16th March 2017 produced by the plaintiff (which reflected an open market value of Kshs. 120,000,000), the 1st defendant argued that there was no basis for the plaintiff’s allegation that the property was sold at an under-value. The 1st defendant faulted the plaintiff for not producing a valuation report to support its claim that the property was valued Kshs. 250,000,000 at the time the loan was advanced.

30. The 1st defendant took the view, that the plaintiff will not suffer irreparable loss since the vehicles were charged to secure the loan thus they became commodities for sale in case of default to recover the debt. Reliance was placed on John Kingori Kioni v Sidian Bank & another [2020] eKLR that there is no commodity for sale whose loss cannot be adequately compensated by an appropriate quantum of damages.

31. The 1st defendant also argued that the plaintiff did not present any evidence to support the contention that the sale of the vehicles would cripple its business. The 1st defendant maintained that it is a stable bank and would be able to compensate the plaintiff if successful at trial.

32. The 1st defendant urged the balance of convenience tilts in favour of dismissing the application since the outstanding amount was now Kshs. 378,464,993 which continues to attract interest. The only securities that the 1st defendant can sell to recover the debt are the vehicles which are at high risk of wasting away the longer the debt remains outstanding. The longer the debt remains outstanding the harder it will be to recover the loan amount.

Determination 33. This is an application for injunction to restrain the 1st respondent from attaching and selling the vehicles the subject of this suit, pending hearing and determination of the suit.

34. The undisputed fact in this matter is that the plaintiff obtained financial facilities from the 1st defendant and offered Land Reference Number 9042/942, and the vehicles as security. The loan fell into arrears and the plaintiff approached the 1st defendant with a settlement proposal, to the sell the parcel of land through a public auction, or private treaty to offset the outstanding loan amount.

35. The proposal to sell the property by private treaty was accepted by the 1st defendant on the understanding that the sale proceeds would be paid to the 1st defendant. the property was sold for Kshs. 100,000,000 and the money was paid to the 1st defendant.

36. The parties however disagree on whether the sale proceed was to be treated as full settlement of the loan. The plaintiff argued that indeed that was the understanding, while the 1st defendant took the position that it was not. That is why the 1st defendant moved to attach the vehicles to recover the outstanding loan amount, which necessitated this application.

Injunction 37. The principles on which a court may grant an interlocutory injunction were settled in Giella v Casman Brown Co. Ltd (1973) E. A. 358.

38. An applicant must demonstrate a prima facie case with probability of success; that he will suffer irreparable loss that cannot be adequately compensated by damages, or that the balance of convenience tilts in his favour. In that regard, it is the defendants’ duty to show that the application meets the test laid down in various decisions, leading among them, Giella v Cassman Brown & Company Limited (supra).

39. The plaintiff obtained a financial facility from the 1st defendant which was secured by legal charge over the parcel of land and chattels mortgages over the vehicles. The plaintiff stated that the proceeds from sale of the parcel of land fully settled the loan facility after parties agreed that the property be sold by private treaty following hard economic times.

40. The issue of whether parties agreed that proceeds of sale would sufficiently clear the outstanding loan amount is disputed. This issue cannot be decided on the basis of affidavits.

41. The 1st defendant maintains that the loan is still outstanding and the plaintiff has not disputed this, only stating that the loan was fully repaid once the parcel of land was sold and the amount applied to the loan. This issue calls for evidence on the part of the plaintiff to prove

42. In order to persuade the court to grant an interlocutory injunction in his favour, the law requires the plaintiff to demonstrate that he has a prima facie case with a probability of success. In Mrao Ltd v First American Bank of Kenya Ltd & 2 others [2003] eKLR, the Court of Appeal (Bosire JA), stated that the power of the court in an application for an interlocutory injunction is a judicial discretion which has to be exercised on the basis of the law and evidence.

43. The learned Judge of Appeal then stated:The principles which guide the Court in deciding whether or not to grant an interlocutory injunction are well settled. In Giella v Cassman Brown to refer to a case which shifts the evidential burden of proof, rather than as giving rise to a legal burden of proof in the manner he was considering, which was in relation to the pleadings that had been put forward in that case….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.

44. In Nguruman Limited v Jan Bonde Nielsen & 2 others [2014] eKLR, the Court of Appeal agreed with the definition of a prima facie case in the Mrao case and stated:The party on whom the burden of proving a prima facie case lies must show a clear and unmistakable right to be protected which is directly threatened by an act sought to be restrained, the invasion of the right has to be material and substantive and there must be an urgent necessity to prevent the irreparable damage that may result from the invasion. We reiterate that in considering whether or not a prima facie case has been established, the court does not hold a mini trial and must not examine the merits of the case closely. All that the court is to see is that on the face of it the person applying for an injunction has a right which has been or is threatened with violation. Positions of the parties are not to be proved in such a manner as to give a final decision in discharging a prima facie case. The applicant need not establish title it is enough if he can show that he has a fair and bona fide question to raise as to the existence of the right which he alleges. The standard of proof of that prima facie case is on a balance or, as otherwise put, on a preponderance of probabilities. This means no more than that the Court takes the view that on the face of it the applicant’s case is more likely than not to ultimately succeed.

45. In the present application, the plaintiff was required to show that his right was being violated or was likely to be violated by the 1st defendant which would shift the burden to the defendant to explain or rebut the plaintiff’ s claim. It is not enough for the plaintiff to merely state that he has a prima facie case. That alone will not bring him within the meaning of a prima facie case as required by law.

46. I have considered the material placed before this Court, on the basis of which the plaintiff sought an interlocutory injunction. As it is, this court is not conducting a mini trial of the plaintiff’s case. The task of the Court at this stage is to determine on the material placed before it, whether the plaintiff has put forward a case requiring the court to intervene and restrain the defendant from exercising its statutory power of sale. That is to say, the plaintiff will suffer irreparable injury that cannot otherwise be compensated by way of damages, or that the balance of convenience tilts in their favour.

47. On the basis of the facts disclosed in this application, I am not persuaded that the plaintiff has satisfied the test for granting an interlocutory injunction. The plaintiff has not demonstrated that he has a prima facie case with a probability of success. The plaintiff has not denied that there is default. He blames the defendant for the property being sold at a lower amount when it was valued more.

48. On whether the plaintiff will suffer irreparable harm that cannot be compensated by damages, I am not persuaded that this will be the case. The 1st defendant is a financial institution that would easily compensate the plaintiff were the suit to eventually succeed. The value of the vehicles is also known or can easily be ascertained and, therefore, the plaintiff can recoup the value of those vehicles if the suit succeeded.

49. Regarding the balance of convenience, I am equally of the considered view, that the balance of convenience tilts in favour of the 1st defendant. The loan amount continues to attract interest and, as a result, the amount plus interest could outstrip the value of the vehicles. This means that if the 1st defendant is restrained from exercising it power of sale until the suit is heard and determined, it may not be able to recover the outstanding loan amount plus interest by the time the suit will be determined.

50. This is so because the value of the vehicles cannot be guaranteed to be sufficient to cover the outstanding loan amount and interest then outstanding. In that regard, I find that the balance of convenience tilts in favour of the 1st defendant since it can pay the value of the vehicles if the suit was to be lost.

51. As the Court of Appeal stated in Giro Commercial Bank Limited v Halid Hamad Mutesi [2002] eKLR, a mortgagee cannot be restrained from exercising his power of sale because the amount due is in dispute, or that the mortgagee has commenced a redemption action, or because the mortgagor objects to the manner in which the sale is being arranged.

52. In the end, after considering the application and response, the conclusion I come to is that the application cannot succeed. Consequently, and for the reasons given above, the application is declined and dismissed with costs.

DATED, SIGNED AND DELIVERED AT NAIROBI THIS 6TH DAY OF OCTOBER 2023E C MWITAJUDGE