[2024] KECA 245 (KLR)

Sema Health Products Limited v Housing Finance Corporation & another (Civil Appeal (Application) E492 of 2023) [2024] KECA 245 (KLR) (8 March 2024) (Ruling)

Neutral citation: [2024] KECA 245 (KLR)

Republic of Kenya

In the Court of Appeal at Nairobi

Civil Appeal (Application) E492 of 2023

DK Musinga, K M'Inoti & M Ngugi, JJA

March 8, 2024

Between

Sema Health Products Limited

Appellant

and

Housing Finance Corporation

1st Respondent

Tisco Construction Limited

2nd Respondent

(An application for stay of execution, stay of proceedings, and an injunction in HCCOMM/E654/2021 pending the hearing and determination of an intended appeal- pursuant to the decision of the High Court of Kenya – commercial and Tax Division at Nairobi (Njoki Mwangi, J.) delivered on 6th October 2023 in Commercial and Tax Division HCCOMM. E654 of 2021 Civil Case E654 of 2021 )

Ruling

1. The applicant’s notice of motion dated 25th October 2023 seeks, pending hearing and determination of an intended appeal, grant of the following orders:a.an injunction to restrain the respondents from selling, transferring, alienating, subdividing, disposing of or in any manner whatsoever dealing with the property known as Title Number Nairobi/block 93/1248 (marcia Hotel) South B-nairobi County (the suit property);b.an injunction to restrain the 1st respondent from releasing the monies that have been deposited by the applicant into the joint interest earning account held by the applicant and the 1st respondent at Bank of Africa;c.stay of execution with respect to the orders issued on 6th October 2023 in HCCOMM/E654/2021, Sema Health Products Ltd v HFC Limited and Another (High Court Suit);d.stay of proceedings in respect of the High Court suit.

2. The application was supported by an affidavit sworn by Margaret Wanjiru Nzioka, one of the directors of the applicant, the registered owner of the suit property. The background to the application is that some years ago, the applicant obtained a credit facility of Kshs 65,000,000 from the 1st respondent. The credit facility was secured by a charge over the suit property. Subsequently, the applicant defaulted in servicing the credit facility and the 1st respondent sought to exercise its statutory power of sale.

3. The applicant instituted the High Court suit against the 1st respondent, seeking to restrain it from selling the suit property. On 1st July 2021, the High Court stayed the intended sale on condition that the applicant deposits Kshs 5,000,000 into a joint interest earning account within 30 days. The applicant failed to deposit the money within the stipulated period, and as a result, on 24th August 2021 the 1st respondent proceeded to conduct the sale of the suit property by public auction.

4. The 2nd respondent placed a bid of Kshs 121,000,000, which was accepted as the highest bid at the fall of the hammer. He paid 10% of the purchase price and executed a memorandum of sale in accordance with the terms and conditions of the sale by auction.

5. On 16th November 2021, the applicant filed an application to challenge the sale, and sought to restrain the 1st respondent from evicting her, collecting rent or transferring the suit property to the 2nd respondent. On 9th December 2022 the High Court (Mabeya, J.) granted interim relief orders on condition that the applicant pays to the respondent Kshs 10,000,000 within 14 days of the ruling, and that the parties open a joint interest earning account within 21 days thereafter, and the applicant continues to pay monthly instalments of the loan until further orders or until the suit is determined. In default of payment of the Kshs 10,000,000 within the said period, the orders would stand discharged.

6. The applicant paid the Kshs 10,000,000, but according to the 1st respondent, defaulted in payment of the monthly instalments. In the meantime, the applicant entered into some negotiations with a third party with a view to selling a portion of the suit property to settle the outstanding liabilities.

7. The 2nd respondent filed an application seeking, inter alia, a declaration that the public auction held on 24th August 2021 was lawful and procedural; an order to transfer the suit property to it; an order to restrain the applicant from subdividing or selling the suit property or from collecting rent from the tenants in the suit property; and an order to compel the tenants therein to deposit rent and security deposits into a joint interest earning account to be held by the 1st respondent as a stakeholder pending hearing and determination of the suit.

8. The applicant opposed the application and also filed a preliminary objection thereto, stating, inter alia, that the application was res judicata and was filed in bad faith, it was frivolous, vexatious and an abuse of the court process.

9. The High Court (Njoki Mwangi, J) overruled the preliminary objection. The court held that the issue of legality of the sale by public auction was yet to be determined; that the court had earlier found that the applicant had established a prima facie case against the 1st respondent “in regard to the lawfulness of the sale of the suit property in an auction held on 24th August 2021 hence it cannot proceed to make a declaration that the said auction was conducted in a lawful and procedural manner in accordance with the Auctioneers Rules before giving the parties herein an opportunity to adduce evidence in support of their cases at the hearing of the main suit.”

10. With regard to the orders issued by Mabeya, J on 9th December 2022, Njoki Mwangi, J held that there was no full compliance with the said orders, and that; “in the absence of compliance, the orders of temporary injunction made against the 2nd respondent (the 1st respondent herein) on 9th December 2022 stood discharged as at 22nd December 2022. Consequently, there is nothing stopping the 2nd respondent (the 1st respondent herein) from transferring the suit property to the applicant (now the 2nd respondent) having purchased it at the public auction held on 24th August 2021 and paying the full purchase price.”

11. The court went on to grant the 2nd respondent the order of injunction as sought, as well as the order directing the tenants in the suit property to deposit rent and security deposits in a joint interest earning account held by the 1st respondent till determination of the High Court suit.

12. When this application came up for hearing before this Court, the applicant’s learned counsel, Mr. Okatch, submitted that the intended appeal is arguable. He argued that the learned trial judge erred in law in finding that there was non-compliance with the orders of 9th December 2022, and therefore, the conditional orders stood discharged ipso facto. He stated that there was evidence of payment of Kshs 10,000,000 within the stipulated period of time.

13. On the nugatory aspect, counsel stated in his written submissions “that should the orders sought not be granted, the intended appeal will be rendered nugatory as the impugned ruling:a.Gave the 1st respondent leeway to release to the 2nd respondent all the funds that have been deposited into the joint account by the applicant over the three year period that this matter has been in court;b.Provided leeway to have the property transferred to the 2nd respondent herein on account of the purported non-compliance; andc.Puts the tenants of the subject premises at cross-roads as they do not know who to pay rent to currently.”

14. On behalf of the 1st respondent, learned counsel, Ms. Naomi Mutisya, submitted that the intended appeal is not arguable, on the strength of this Court’s decision in Mbuthia v Jimba Credit Finance Corporation & another [1986-1989] 1 EA 340 (CAK), where it was held that a mortgagor’s right of redemption is extinguished as soon as the mortgagee either sells the mortgaged property by public auction, or enters into a binding contract in respect of it.

15. On nugatory aspect, counsel submitted that if the applicant’s intended appeal were to succeed, its remedy would be in damages; that the 1st respondent is a reputable bank and will be able to pay any damages as may be ordered.

16. Ms. Brenda Kyumu, learned counsel for the 2nd respondent, equally submitted that the intended appeal is not arguable; that apart from the payment of Kshs 10,000,000, there was no evidence of full payment of the monthly instalments as ordered by Mabeya, J

17. On nugatory aspect, Ms. Kyumu submitted that the applicant’s equity of redemption extinguished at the fall of the hammer; and if the appeal were to succeed, it would not be rendered nugatory as it can be compensated by an award of damages.

18. We have considered the application, all the affidavits on record as well as the written and oral submissions by counsel. It is trite law that for an applicant to succeed in an application under rule 5(2)(b) of this Court’s Rules, the applicant has to demonstrate that the appeal or intended appeal is arguable and that unless the order sought is granted, the appeal, if successful, would be rendered nugatory. See Trust Bank Limited &anotherv Investech Bank Limited & 3others [2000] eKLR.

19. We have perused the Draft Memorandum of Appeal. We entertain serious doubts whether the intended appeal is arguable. The gravamen of the intended appeal is that the learned judge erred in law in holding that the applicant had failed to comply with the orders issued by Mabeya, J on 9th December 2022. Whereas the applicant deposited Kshs 10,000,000 within the stipulated period, there was no evidence that the applicant was up to date in payment of the monthly sums as ordered. To the contrary, the 1st respondent exhibited letters dated 7th February and 3rd March 2023 that it had written to the applicant’s advocate regarding the unpaid monthly instalments. All the terms and conditions that were imposed by the court had to be fulfilled, not just one of them.

20. Turning to the second prerequisite, this Court has held in several decisions that: “whether or not an appeal will be rendered nugatory depends on whether or not what is sought to be stayed if allowed to happen is reversible; or if it is not reversible whether damages will reasonably compensate the party aggrieved.” See Julius Wahinya Kang’ethe &anotherv Muhia Muchiri Nga’ng’a [2017] eKLR.

21. The suit property was sold by public auction on 24th August 2021. The 2nd respondent was declared the highest bidder at the fall of the hammer. It is not in dispute that what led to the sale of the suit property was the applicant’s default in repayment of the funds that had been advanced to it, together with the accrued interest.

22. Even if the applicant’s intended appeal were to succeed, the law is clear that a mortgagor’s equity of redemption is extinguished at the fall of the hammer, and the only remedy lies in an action for damages. See section 99(4) of the Land Act, 2012. The 1st respondent has averred that it is a reputable commercial lender, which the applicant has not disputed. It would be in a position to compensate the applicant if its appeal is successful.

23. All in all, we find this application unmeritorious. We hereby dismiss it with costs to the respondents.

DATED AND DELIVERED AT NAIROBI THIS 8TH DAY OF MARCH 2024. D. K. MUSINGA, (P)……………………………JUDGE OF APPEALK. M’INOTI……………………………JUDGE OF APPEALMUMBI NGUGI……………………………JUDGE OF APPEALI certify that this is a true copy of the originalSIGNEDDEPUTY REGISTRAR