[2023] KEHC 23770 (KLR)

Rajwani v SBM Bank (Kenya) Limited (Commercial Case E023 of 2023) [2023] KEHC 23770 (KLR) (Commercial and Tax) (19 October 2023) (Ruling)

Neutral citation: [2023] KEHC 23770 (KLR)

Republic of Kenya

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

Commercial and Tax

Commercial Case E023 of 2023

DAS Majanja, J

October 19, 2023

Between

Azim Jiwa Rajwani

Plaintiff

and

SBM Bank (Kenya) Limited

Defendant

Ruling

Introduction and Background 1. At the material time, the Plaintiff, together with Kissi Petroleum Products Limited (“Kissi”) a company in which the Plaintiff was a director and shareholder, were customers of the Defendant, formerly Fidelity Commercial Bank Limited (“the Bank”). The Bank advanced Kissi a loan facility guaranteed by the Plaintiff. The facility fell into arrears of Kshs. 21,445,586. 00 inclusive of interest as at 30. 09. 2006. At the time, the Plaintiff’s account had a credit balance of Kshs. 10,294,161. 37. As Kissi had fallen into arrears, the Bank, exercising what it saw as its right of lien and set-off, applied the sum of Kshs.10,294,161. 37 towards payment of that facility.

2. Aggrieved by this turn of events, the Plaintiff filed a counterclaim in Fidelity Commercial Bank Ltd v Azim Jiwa Rajwani [2019] eKLR (“the Previous Suit”) where in a judgment dated 02. 11. 2018, the court held that the Bank had prematurely exercised its right of lien and set-off over the personal funds of the Plaintiff by stating as follows: Was the Right of Lien and set-off properly and lawfully exercised?24. There is evidence that the Principal Debtor fell into default of the facilities it obtained from the Bank. This is admitted by the Debtor in the letter of 28th February 2003 (P Exhibit page 10). The Bank may therefore have been entitled to call up the Guarantee given by Rajwani. How was this to be done?25. The terms of the Guarantees themselves provide for the trigger. It expressly provides that the Guarantors will be liable to pay the guaranteed amount in full ‘at the expiration of seven (7) days after demand in thereof shall have been served upon the Guarantors’. So there is need for a 7 day Notice. Rajwani had expressly pleaded that there was non-compliance with the term to issue a demand. This is what he avers in paragraph 6 of his Defence:-“In The Alternative And Without Prejudice to the matters pleaded in paragraph 5 a foregoing the Defendant states that the Plaintiff had not, as at the time of the purported invocation of its rights under the alleged guarantee and Supplemental Debenture, complied with the mandatory terms of the aforesaid instruments as to the issuance of a demand and as such its right of recovery had not crystallized”.26. Only upon issuance of such a Demand and persisted default thereafter could the Bank have enforced its Right of set-off. Even then the Right of set-off could only be exercised after the giving of a further 28 day Notice (see clause 13(c) of The General Rules and Regulations governing the Account).27. Even in the face of the Notice having been placed at the centre of the controversy by the Defence pleaded, the Bank was unable to prove that the necessary Demands or Notices were made. Of course all these would have been unnecessary if it had been proved that the meeting of 7th January 2005 happened and Rajwani gave express authority for the set-off. But as this has not been proved then this Court can only conclude that the Bank exercised its Right of set-off prematurely.............

The rendition30. Perhaps for clarity I rehash my findings:-(i)The Bank held a Right of Lien and set-off over Rajwani’s Account in respect to any sums due from him to the Bank.(ii)Rajwani provided a Guarantee and Indemnity in favour of the Bank for the debt of Kissi to the Bank for a principal sum of Kshs.29million plus interest thereon and other charges.(iii)There was default and the Bank was entitled to call up the Guarantee and exercise its power of setoff.(iv)However, the Bank never duly called up the Guarantee and Right of set-off and its exercise of the Right of set-off was premature.…………………34. These are the final orders:-(i)…………………….(ii)…………………..(iii)The Plaintiff shall pay into the Defendant’s Account No. 11303731 or if the Account is closed into an Account to be opened in favour of the Defendant (but over which the Bank has a Right of Lien and set off), the sum of Kshs.10,222,832. 17, plus whatever interest the money would have earned if it had not been unlawfully debited from the time of the debit upto full payment.(iv)……………………

3. On 18. 05. 2022, the Deputy Registrar allowed the Plaintiff to proceed with execution against the Bank following the finding that it had not complied with the aforementioned judgment of the court in the Previous Suit. The High Court allowed the Bank’s appeal against this decision; Fidelity Commercial Bank Limited v Rajwani [2022] KEHC 15968 (KLR). It found that on 27. 01. 2022, the Bank opened an account in favour of the Plaintiff and paid into it the Kshs 10,222,832. 00 together with interest of Kshs 18,709,839. 00. Further, on 04. 02. 2022, the Bank served a 7 days’ notice evincing its intention to exercise the right of lien and set off against the said funds and the those in the account held by Kissi. The court considered the parties’ contentions on whether and to what extent the Bank was entitled to set off Kissi’s account against the Plaintiff’s account. In the court’s view, this issue was not one for the Deputy Registrar to decide and that the only positive order the Bank was required to comply with was to deposit the Kshs 10,222,832. 00 together with accrued interest into the Plaintiff’s account or an account opened for that purpose.

4. The Court further held that this amount remained subject to the Bank’s right of lien and set off and that once the amount was deposited as directed in the judgment, that was the end of the matter. That whether and to what extent the Bank was entitled to set-off and whether in fact, Kissi or the Plaintiff had settled all liabilities was a matter beyond the jurisdiction of the Deputy Registrar and the decision of the court and that the court had disclaimed this issue in the judgment of the Previous Suit as follows:(33)In respect to the counterclaim by Rajwani, he has demonstrated that the bank wrongfully debited his account by exercising its rights hastily. However, for the fact that it had a right of lien over those funds, any orders granted in Rajwani’s favour must not prejudice that right of the bank. A fair order is for the sums (with whatever interest the court shall impose) to be paid back into Rajwani’s account over which the bank has a right of lien and setoff. Whether or not the principal debt will be owing after the reversal of the affairs and whether the bank can then seek to enforce its right of setoff are matters beyond the scope of this decision and which the parties herein will have to figure out for themselves.

5. The court reiterated that whether the Bank rightly or wrongly exercised its right of lien and set-off was beyond the scope of the proceedings in the Previous Suit and that what is relevant is whether the Bank complied with the judgment. On this issue, the court was satisfied that the Bank opened an account in favour of the Plaintiff and paid into it the principal sum and interest of Kshs 28,932,671. 08 and that while it exercised its right of lien and set-off over the funds over that account, it wholly complied with the judgment. The court therefore agreed with the Bank that the Deputy Registrar’s decision allowing the Plaintiff to execute against the Bank was a clear misapprehension of the judgment in the Previous Suit as the Deputy Registrar did not have jurisdiction to adjudicate other issues other than ascertain that the terms of the judgment had been met.

6. The Plaintiff then moved this court by the Plaint dated 25. 01. 2023 claiming that the purported exercise of the right of lien and set-off over his personal funds amounting to Kshs. 28,932,671. 00 plus interest continuously accruing on the same towards the loan account of Kisii by the Bank is illegal/unlawful to the extent of the excess monies claimed over and above the Kshs. 10,222. 832. 17 which excess monies amount to Kshs. 18,709,839. 00 as at 04. 02. 2022.

7. In response to the suit, the Bank has filed the Notice of Motion dated 21. 03. 2023 seeking to strike out this suit on the ground that it is res judicata the Previous Suit. The application is supported by the grounds on its face and the supporting affidavit of the Bank’s Legal Officer, Kevin Kimani sworn on 21. 03. 2023. It is opposed by the Plaintiff through his replying affidavit sworn on 29. 03. 2023. The parties have also supplemented their arguments by filing written submissions.

8. According to the Bank the Previous Suit, as this suit, raises issues of the Bank’s exercise of lien and set off in respect of funds in the Bank’s Account No. 11****31 which have already been heard and determined in the Previous Suit by the judgment and ruling dated 02. 11. 2018 and 30. 11. 2022 respectively. In the circumstances, the Bank urges that this suit should be dismissed as it is an abuse of the court process.

9. The Plaintiff opposes the application. It contends that this suit is not res judicata the Previous Suit since the subject matter and the cause of action between the two suits are not identical. That the present suit emanates from a contention as to whether and to what extent the Bank is entitled to set off and whether in fact Kissi settled all its liabilities with the Bank. That the court, in the judgment and the ruling in the Previous Suit steered clear of making a determination as to whether Kissi would still be indebted to the Bank upon reversal of the affairs as ordered by the court. Thus, the Plaintiff maintains that the question whether or not Kissi’s loan had not been fully settled so as to warrant a set off using the funds and earned interest reversed to the Plaintiff’s personal account remains unadjudicated and hence a contention on his part as to the Bank’s exercise of set off to the extent of Kshs. 18,709,839. 00 forms the substratum of his present suit which substratum is not in any way similar to the cause of action in the Previous Suit which purely lay on the basis of whether the Bank had prematurely exercised its right of lien and set-off and not to what extent was the right of lien and set off exercised in terms of the alleged pending liabilities of Kissi.

10. The Plaintiff concludes by stating that while the court, in its decision in the Previous suit reinforced the Bank’s right to lien and set-off, it did not address whether it was procedurally done and whether the correct formulae in calculating the amount of set-off was applied as these issues had not crystalized. Thus, the Plaintiff contends that the doctrine of res judicata cannot be invoked in this instance.

Analysis and Determination 11. The main issue for the court’s determination is whether this suit is res judicata. The parties are agreed to the meaning, application and scope of the doctrine of res judicata. The Supreme Court, in Dina Management Limited v County Government of Mombasa & 5 others [2023] KESC 30 (KLR) stated that, ‘the doctrine of res judicata is founded on public policy and is aimed at achieving two objectives namely, that there must be finality to litigation and that the individual should not be harassed twice with the same account of litigation. (See Mulla, the Code of Civil Procedure, 16th Ed. Vol.1 – pg 161). The doctrine of res judicata may be pleaded by way of estoppel so that where a judgment has been delivered, subsequent proceedings are estopped. Where res judicata is pleaded by way of estoppel to an entire cause of action, rather than to a single matter in issue, it amounts to an allegation that all the legal rights and obligations of the parties were concluded by the earlier judgment, which may have involved the determination of questions of law as well as findings of fact, this is a form of action estoppel. (See Halsbury’s Laws of England, paragraph 1174).’

12. In order for a plea of res judicata to succeed, the party asserting the plea must meet elements set out in section 7 of the Civil Procedure Act (Chapter 21 of the Laws of Kenya) and which were reiterated by the Supreme Court in John Florence Maritime Services Limited & another v Cabinet Secretary Transport & Infrastructure & 3 others [2021] KESC 39 (KLR) as follows:a.There is a former Judgment or order which was final;b.The Judgment or order was on merit;c.The Judgment or order was rendered by a court having jurisdiction over the subject matter and the parties; andd.There must be between the first and the second action identical parties, subject matter and cause of action.”

13. There is no dispute that the Previous Suit involved the same parties who claimed under the same title, that there was a final judgment and that this court had jurisdiction over the matter and the parties. What the parties differ on is whether the Previous Suit and the present suit deal with the same cause of action or subject matter. The Bank has stated that the issue in this suit is similar to the one in the Previous Suit as it is in respect to the Bank’s exercise of lien and set-off in respect of funds in the Plaintiff’s account. The Plaintiff on the other hand states that the issues in the two suits are not similar as the court in the Previous Suit did not adjudicate on some issues including whether or not Kissi would still be indebted to the Bank after the set-off and to what extent the Bank was entitled to set-off.

14. Having gone through the judgment and the ruling of the Previous Suit, excerpts which I have reproduced above, I agree with the Plaintiff. Indeed, the court was express in its holdings that whereas the Bank was entitled to a set off, the extent of the same and whether in fact Kissi was still indebted to the Bank was not within the jurisdiction of the Previous Suit. These issues thus remained unresolved and the parties were at liberty to pursue them elsewhere, hence the Plaintiff filing the present suit. Since these issues were never heard and determined in the Previous Suit, the doctrine of res judicata cannot apply in this case.

Disposition 15. For these reasons, I find that the Defendant’s application dated 21. 03. 2023 lacks merit. It is dismissed with costs to the Plaintiff.

DATED AND DELIVERED AT NAIROBI THIS 19TH DAY OF OCTOBER 2023. D. S. MAJANJAJUDGE