[2022] KEHC 10523 (KLR)

Telagen Investments Limited & 2 others v Family Bank Limited & another (Commercial Case E036 of 2022) [2022] KEHC 10523 (KLR) (Commercial and Tax) (14 June 2022) (Ruling)

Neutral citation: [2022] KEHC 10523 (KLR)

Republic of Kenya

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

Commercial and Tax

Commercial Case E036 of 2022

DAS Majanja, J

June 14, 2022

Between

Telagen Investments Limited

1st Plaintiff

Oakdale Gardens Limited

2nd Plaintiff

Aquarium Guest Homes Limited

3rd Plaintiff

and

Family Bank Limited

1st Defendant

Leakey’s Auctioneers

2nd Defendant

Ruling

1. The basic facts giving rise to this suit are not in dispute. The 1st Defendant (‘’the Bank’’) advanced the 1st Plaintiff a credit facility for KES. 16,000,000. 00 by the letter of offer dated 11th April 2016. The facility was secured by personal guarantees issued by the 1st Plaintiff’s directors and by a legal charge over the property known as LR No. Dagoretti/Riruta/5668 and 5671 registered in the name of the 2nd Plaintiff. The Bank further granted the 1st Plaintiff on request by the 3rd Plaintiff a credit facility of KES. 6,350,000. 00 by the letter of offer dated 30th September 2015. This facility was secured by a legal charge over the 1st Plaintiff’s property known as LR No. Nairobi/Block 93/1455 Apartment No. A3.

2. The Plaintiffs state that the Bank extended a further credit facility for KES. 11,037,838. 00 to assist the 1st Plaintiff in its operations being a restructure and amalgamation of the two existing loan accounts held by the 1st Plaintiff and the 3rd Plaintiff. It was understood that the charged properties would remain securities for the amalgamated loan facility.

3. In its plaint dated 8th February 2022, the Plaintiffs accuse the Bank of breaching the loan agreement and fraudulently dealing with the Plaintiffs. They state that the Bank has applied exorbitant interest rates to the facilities which rates are harsh and unconscionable. That it has subjected the facilities to varying rates of penal interest which are harsh, arbitrary, oppressive and illegal. They accuse the Bank of failing to render true, complete and accurate accounts. The Plaintiffs also complain that the Bank has failed to furnish the 1st and 3rd Plaintiffs with the registered charges and that it has unilaterally varied the terms of the loan agreement to suit itself. The Plaintiffs also state that the Bank has violated section 96(2) and 97(1) of the Land Act.

4. The Plaintiffs aver that the Bank failed to act diligently, prudently and in good faith in operating their accounts. The 1st and 3rd Plaintiffs’ contend that they wrote separately to the Bank on 2nd July 2018. The 1st Plaintiff stated that it had received KES. 16,000,000. 00 under its facility but had repaid KES. 17,256,240. 00 while the 3rd Plaintiff had received KES. 17,256,240. 00 under its facility and repaid KES. 13,966. 202. 00. That due to the challenges in the real estate industry, it had pleaded for a restructure of the facility which the Bank accepted but without rendering a complete, true and accurate account of their respective facilities.

5. The Plaintiffs accuse the Bank of failing to consider their reasonable proposals that could see them redeem the secured properties. They further state that the Bank acted in bad faith by issuing the auctioneer’s 45-day redemption notice during their discussions whose effect was to fetter their right of redemption hence the notice is null and void. The Plaintiffs aver that the Bank violated section 97 of the Land Act by failing to carry out a proper, transparent and current forced sale valuation of the secured properties. It adds that the statutory power of sale has not accrued as the Bank has not served the notice of intention to sell under section 96(2) of the Land Act and that the redemption notices dated 23rd August 2019 were issued in breach of the law and that the sale schedule on 9th February 2022 was illegal, null and void.

6. The Plaintiffs therefore seek a raft of orders in the plaint which seek to impugn the process the Bank has undertaken to exercise its statutory power of sale. They seek, inter alia, a declaration that the Bank’s statutory power of sale in respect of the secured properties has not arisen, that the usurious and exorbitant and penalty interest rates levied by the Bank are unlawful and unconscionable, an order directing the Bank to furnish accounts, an order directing the secured properties to be valued by a registered valuer and a permanent injunction restraining the Bank from exercising its statutory power of sale.

7. In response to the Plaint, the Bank filed its Statement of Defence dated 1st March 2022. The Bank admits that it advanced the Plaintiffs various facilities as pleaded but states that those facilities culminated in the loan restructure contained in the letter dated 15th April 2020 where the Plaintiffs’ banking facilities were amalgamated in a facility of KES. 11,037,838. 85 to be paid in monthly instalments over 40 months. It adds that the interest rate charged on the facility is the Central Bank of Kenya rate plus 4% per annum on reducing balance.

8. The Bank avers that due to the Plaintiffs’ default, it issued the relevant statutory notices which caused the Plaintiffs to file a suit; Hc Comm No. E379 of 2019 Telagen Investments Ltd, Oakdale Gardens Limited and Aquarium Guest Homes Limited v Family Bank Limited. The suit was settled by consent of the parties which resulted in a restructure contained in the letter of offer dated 15th April 2020 for a cumulative outstanding amount of KES. 9,817,782. 75 with a chargeable interest of 13% per annum.

9. The Bank denies the allegations of breach of duty of care. It avers that the Plaintiffs continue to be in default and that it is entitled to exercise its statutory power of sale. It states that it has followed the prescribed process by issuing the relevant notices in accordance with the law. The Bank states that these proceedings are an abuse of the court process in light of the previous proceedings instituted against it by the Plaintiffs involving the same subject matter.

10. In addition to the plaint, the Plaintiffs filed the Notice of Motion dated 8th February 2022 made, inter alia, under Order 40 rule 1, 2 and 4 of the Civil Procedure Rules seeking a temporary injunction pending the hearing and determination of the suit restraining the Defendants from selling the secured properties in exercise of the Bank’s statutory power of sale on the grounds outlined in the plaint which I have set out above.

11. The application is supported by the affidavit of the 1st Plaintiff’s director duly authorized by the 2nd and 3rd Plaintiff’s, David Karanja Karau, sworn on 8th February 2022. The Defendants oppose the application through the Notice of Preliminary Objection dated 15th February 2022 and the replying affidavit of the Bank’s Legal Counsel, Sylvia Wambani, sworn on 28th February 2022. The application was canvassed by the parties through written submissions.

12. As the application before the court is one for an interlocutory injunction, I do not think there is any dispute about the applicable principles in resolving the matter. The conditions for the grant of an injunction were settled in Giella v Cassman Brown[1973] EA 385 where the court held that in order to succeed in obtaining an interlocutory injunction, the Plaintiffs must demonstrate that they have a prima facie case with a probability of success, that they will suffer irreparable loss which cannot be compensated by an award of damages if the injunction is not granted and if the court is in doubt regarding the nature of injury, determine the matter on a balance of convenience. In Nguruman Limited v Jane Bonde Nielsen and 2 OthersNRB CA Civil Appeal No. 77 of 2012 [2014] eKLR, the Court of Appeal reiterated those conditions and added that the they are to be considered as separate, distinct and logical hurdles a plaintiff is expected to surmount sequentially.

13. The Court of Appeal in Mrao Ltd v First American Bank of Kenya Limited and 2 Others [2003]eKLR explained that a prima facie case 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 to call for an explanation or rebuttal from the latter.” It also observed in the NgurumanCase (Supra) that that in reaching the decision whether the application has established a prima facie case, the court does not hold a mini trial and must not examine the merits of the case closely. The court must be satisfied that on the face of it the person applying for an injunction has a right, which has been or is threatened with violation as the parties will have an opportunity to prove their respective position at the hearing of the case.

14. Before I deal with the substantive issue whether the Plaintiffs have met the threshold for the grant of injunction in line with Giella v Cassman Brown (Supra), I have to consider whether this suit is res judicata as raised by the Bank. The Bank argues that the present suit is res judicata as all the issues in the current suit were settled by the consent in the previous suit which was between all the same parties.

15. It is not in dispute that the Plaintiffs filed Hc Comm. No. E379 of 2019 – Telagen Invetsments Limited, Oakdale Gardens Limited & Aquarium Guest Homes Limited Vs Family Bank Limitedwhich was settled by a consent dated 27th August 2020 between the parties. Prior to that consent, the parties recorded a consent on 31st October 2019 on the following terms:Thatthe Auction slated for today, 31st October 2018 is put off on the following conditions.(1)That the Plaintiff pay 50% of the arrears being Kshs. 1,424,280. 29 within 14 days from the date hereof on or before 14th November 2019. (2)Thatthe Plaintiff shall pay the balance of the arrears being Kshs. 1,424,280. 29 within 30 days from the date hereof being on or before 30th November 2019. (3)That that the Plaintiff shall continue to pay monthly instalments as per the letter of offer.(4)Thatthe Plaintiff shall pay auctioneers charges within 7 days from the date hereof.(5)Thatthe Defendant shall file and serve its defence within 14 days.(6)Thatmention on 4th December 2019 before the Deputy Registrar for pre-trial directions/further orders.

16. The final consent was recorded on 26th June 2022 on the following terms:(1)Thatthe facility advanced to Telagen Investments Limitedshall be restructured subject to the terms of the Letter of Offer that shall be executed by the parties pursuant to the restructure and to reflect below:a.Current Outstanding balance; 9,817,782. 75b.Monthly Instalment: 223,604. 70c.Facility: 60 months(2)That Telagen Investments Limitedshall cater for the cost of the suit.(3)Thatin default of the foregoing terms, execution do issue.(4)Thatthe matter be hereby marked as settled.

17. The doctrine of res judicata is to be found in section 7 of the Civil Procedure Act which states:No Court shall try any suit or issue in which the matter directly and substantially in issue has been directly and substantially in issue in a former suit between the same parties, or between parties under whom they or any of them claim, litigating under the same title, in a Court competent to try such subsequent suit or the suit in which such issue has been subsequently raised, and has been heard and finally decided by such Court.

18. Although the Plaintiffs admit that parties and the subject matter in the previous suit is similar, they deny argue that the present suit is a new cause of action thus the resolution of this issue turns on whether this suit presents a new cause of action that could not have been brought in the previous suit. On this, I hold that the Plaintiffs are right because settlement of the previous suit resulted in a restructured facility. The Plaintiffs are entitled to challenge any action by the Bank under the restructured facility without facing the plea of res judicata from the Bank since the issue of the restructure was not and could not have been litigated in the previous suit.

19. This is what took place in Kanorero River Farm Ltd. & 3 Others v National Bank of Kenya Limited [2002] 2 KLR 207 where the plaintiffs challenged the Bank’s exercise of its statutory power of sale on the ground that the statutory notices were invalid. The parties recorded a consent by which they agreed to settle the application for injunction with the condition that the defendant would be at liberty to issue fresh statutory notices. The bank issued fresh statutory notices causing the plaintiffs to file suit challenging the validity of those notices. The Bank opposed the application on the grounds, inter alia, that the issue was res judicata. Ringera J., (as he then was) held as follows:The question is whether in those circumstances the plaintiffs could institute a fresh application for interlocutory relief. In the Court’s judgement provided the fresh application is grounded on new facts, which could not have been relied on in the earlier application, it would not be precluded by the doctrine of res judicata. That is precisely the case here. The consent order allowed the defendant to serve fresh statutory notices… A new factual situation was created. It could not have been the intention of the parties when they recorded the consent and the law itself could not possibly contemplate that those fresh notices and other consequential steps taken pursuant to them could not be challenged on proper legal grounds. If the opposite were the case, the defendant would have in effect been given carte blanche to realise its security without necessarily complying with all the necessary and pertinent legal requirements provided it had issued fresh notices. It would have been permissible for it, for example, to issue defective notices or flout with impunity the provisions of the Auctioneers Rules, 1997. No court of equity would countenance that. A fundamental assumption of the consent order was that competent statutory notices would be served and the defendant would comply with the law. In the circumstances of this case, the doctrine of res judicata does not preclude the application now before the court.

20. I agree with the aforesaid dicta to the extent that the consent did not foreclose the right of a party to sue on any fresh grounds as is the case here. The plea of res judicata is therefore dismissed.

21. But that is not the end of the matter regarding the previous suit. Under Order 4 rule 1(1)(f) of the Civil Procedure Rules, the Plaintiff is required to disclose that there has been a previous suit relating to the same subject matter between the same parties. It states that the Plaint must contain, “(f) an averment that there is no other suit pending, and that there have been no previous proceedings, in any court between the plaintiff and the defendant over the same subject matter and that the cause of action relates to the plaintiff named in the plaint.” It is clear that the Plaintiffs have failed to comply with mandatory provisions of the law by failing to disclose that there was a previous suit. However, this is not fatal to the suit. It amounts to non-disclosure of material facts which may lead the court to refuse an injunction (see Equity Bank Limited v Neptune Credit Management Limited NRB CA Civil Appeal No.62 of 2012[2016] eKLR).

22. I now turn to the substance of the application and whether the Plaintiffs are entitled to an injunction. In their submissions, the Plaintiffs raise several issues along the lines set out in the Plaint. The Plaintiffs complain that the Bank unilaterally altered the loan terms and refused to restructure and accept the Plaintiffs’ proposals. The Bank admits, and it is not in dispute, that the terms of the original facilities were altered but this was upon request of the Plaintiffs and is evidenced by the fact that the parties recorded a consent order in Hc Comm. No. E379 OF 2019 which resulted in another a restructured facility. Following resolution of the previous suit, the 1st Plaintiff executed a Letter of Offer dated 15th April 2020 for KES. 9,817,782. 75 showing that they agreed to the terms of the restructure. This contradicts the Plaintiffs’ position that the terms of the facilities were altered unilaterally. This ground lacks merit as the Bank does not have any obligation to accept the Plaintiff’s proposals as parties are bound by their agreement. Further, the Plaintiffs have not demonstrated how the Bank varied their contractual obligation as alleged.

23. The Plaintiffs also complain that the Bank was charging exorbitant interest rates and that their accounts have been mismanaged. I agree with the Bank’s response that this is a general and vague allegation that has not been proved. The Bank has provided statements of account which the Plaintiffs have not challenged by demonstrating the specific instances where the account has been mismanaged. This allegation is negated by the fact that the Plaintiffs accepted the restructure agreement without any questions about the account. I reject this ground as a basis for the grant of an injunction.

24. Under the consent recorded in HC Comm No. E379 of 2019, the parties agreed that the Bank was at liberty to proceed with the sale of the secured properties in the event the Plaintiffs defaulted in their obligations. The Plaintiffs deny that the Bank issued the requisite statutory notices to enable it exercise its statutory power of sale. The Bank bears the burden of showing that it served the statutory notices on the 1st and 3rd Plaintiffs and that it complied with the prescribed procedures (see Nyagilo Ochieng and Another v Phaniel B. Ochieng and 2 Others [1996]eKLR).

25. In order to support its position, the Bank produced the statutory notices as part of its deposition. It served the initial 90 days’ notice dated 25th March 2019 under section 90 of the Land Act by registered post. When the Plaintiffs continued to default it served a 40-day notice to sell the secured properties dated 26th June 2019 and when the Plaintiffs failed to remedy the default by failing to make payments, it instructed the auctioneer to issue the 45 days’ redemption notice and notification of sale. Although the initial sale was stopped as result of the previous suit, after the consent and subsequent default the Bank proceeded to advertise the secured properties for sale. It was not under any obligation to advertise the suit properties afresh. The Plaintiffs have not contested the notices. On my part I am satisfied that the notices were in accordance with the law and were sent to the 1st and 3rd Plaintiffs by registered post. There is therefore no basis for the allegation that the Bank failed to serve the requisite statutory notices.

26. The Plaintiffs also complain that when the facilities were restructured and amalgamated, the Bank was required to prepare a new charge document which it has never availed to them. The Bank’s position on this is that it has supplied the charge documents and that the same have been annexed to its depositions in the previous case and in this case. I have looked at the Letter of Offer dated 15th April 2020 in respect of the restructure and it states that the facility shall be secured by the existing securities hence there is no need for the Bank to issue fresh charge documents when the initial facility is restricted or there are further advances. In any case, the charges documents clearly provide that they are continuing securities for facilities and may be used to secure further facilities from time to time.

27. The Plaintiffs cast doubt on the process of sale on the ground that the valuation undertaken by the Bank is suspicious. The Plaintiffs, in the plaint and application, do not point to any allegation against the Bank in respect of the valuation. The Bank commissioned Transcountry Valuers Limited to value the charged property. It prepared a report dated 9th February 2022 in respect of Dagoretti/Riruta/5668 and 5671 in which it gave KES. 57,000,000. 00 as the market value and KES. 42,750,000. 00 as the forced sale value. In a report dated 17th February 2022 in respect of Nairobi/Block 93/1455, it assessed the market value at KES. 10,800,000. 00 and the forced sale value at KES. 8,100,000. 00. The Plaintiffs have not provided any contrary valuations and in the absence of any specific allegation of wrongdoing, I do not find any grounds to stop the Bank from exercising its statutory power of sale on the basis of the valuation.

28. Based on the grounds that have been raised by the Plaintiffs, I find and hold that they have not made out a prima facie case with a probability of success. What emerges from the totality of the evidence is that Plaintiffs are indebted to the Bank and the Bank has taken steps to realise its securities as a result of their default. No valid grounds have been advanced to stop the Bank in its tracks.

29. The application dated 8th February 2022 is now dismissed. The Plaintiffs shall pay the costs of the application to the Defendants assessed at KES. 50,000. 00.

DATED AND DELIVERED AT NAIROBI THIS 14TH DAY OF JUNE 2022. D. S. MAJANJAJUDGECourt of Assistant: Mr M. OnyangoMr Musyoka Instructed by Musyoka, Shikumo and Associates Advocates LLP for the PlaintiffMs Onsare instructed by Maina and Onsare Advocates LLP for the Defendants.