[2018] KECA 269 (KLR)

IN THE COURT OF APPEAL

AT NAIROBI

(CORAM: OUKO, (P), KOOME & MAKHANDIA JJ.A)

CIVIL APPLICATION NO. NAI 187 OF 2018

BETWEEN

TRAPOS LIMITED..........................................................................................1STAPPLICANT

EUSTACE KABURU MWARANIA...............................................................2NDAPPLICANT

KELLEN MUMU KABURU...........................................................................3RDAPPLICANT

AND

I & M BANK LIMITED..............................................................................1STRESPONDENT

J. M. GIKONYO T/A GARAMINVESTMENTS AUCTIONEERS.....2NDRESPONDENT

(An Application for an injunction pending hearing and determination of an intended

appealfrom the Ruling of the High Court of Kenya at Nairobi (F. Tuiyott, J.)

dated the 19thday of June 2018 inHCCC No. 235 of 2018)

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RULING OF THE COURT

Brought pursuant to Rule 5(2)(b)of the Court of Appeal Rules, the application to which this ruling relates seeks an order of injunction to restrain the respondents, their servants, or agents from selling or in any other way adversely dealing with the suit property, namely L.R No. 1160/689 (I.R No. 84262) at KwararaRoad in Karen, pending the hearing and determination of the intended appeal.

This, in brief is how the dispute arose. The 1st applicant company is a signatory to an Advisory and Arranging Mandate Agreement dated 8th January 2014, between itself and CFC Stanbic Bank Ltd (CFC). Under the said agreement, CFC was to offer the 1st applicant a loan facility of USD. 250,000 to cover the cost of an initial bank feasibility study for a proposed aerial cable car passenger line that would span the Likoni Inlet in Mombasa under the operation of the 1st applicant, by concession of the Kenya Ferry Service. It was a condition under the agreement that the loan was to be secured by either an acceptable Bank Guarantee or a Standby Letter of Credit (SBLC). The applicant complied with the latter from the 1st respondent, which it has been renewing and/or extending from time to time.

To secure the loan, the suit property, registered in the 2nd applicant’s name was charged. The suit property is the matrimonial home for the 2nd and 3rd applicants who also acted as the guarantors to the facility.

The SBLC was to be used as a supportive instrument and a secondary mode of payment to guarantee that the 1st applicant would perform all its obligations under the agreement. The funds held thereunder were to be paid to CFC in the event that the 1st applicant was to fail to honour its obligations.

It was the 1st applicant’s case that while still honouring its obligations, in September 2017, CFC without any cause called for the draw down of the SBLC; thatat the time this happened the applicant was not indebted to the 1st respondent; and that through negligence and in bad faith the 1st respondent proceeded to pay out the sum of Kshs.25 million to CFC without satisfying itself that the applicants were in default.

In exercise of its statutory power of sale, the 1st respondent advertised the suit property to be sold by public auction on 19th June, 2018. The applicants moved the High Court by a motion to stop the said auction.

In determining the dispute, the learned Judge gave the intended auction a clean bill of health explaining that the 1st respondent had issued two statutory notices as required by the Land Act; that thereafter, the 2nd respondent had issued a notification of sale as required by the Auctioneers Rules. Applying the principles enunciated in the case of Giella V. Cassman Brown & Co. Ltd (1973) E.A. 358, for the grant of an interlocutory injunction, the Judge observed that, although no notification was made by the 1st respondent as required by Article 16 of the Uniform Rules for Demand Guarantees (URDG), the omission was not fatal as the 1st applicant ought to reasonably have anticipated that a call up of the guarantee would be made by CFC since the latter had sought to terminate the agreement through an earlier notice dated 3rd October, 2017; and that, as a result thereof the 1st applicant had attempted to refer the disagreements to arbitration. In view of these factors, the Judge came to the ultimate conclusion that the applicants had not established a prima facie case; that the loss the applicants would suffer was not irreparable as there was no evidence that the 1st respondent would not be able to pay any damages that may be awarded to the applicant in the event of the suit succeeding; that the applicants were well aware of the consequences of their action when they charged their matrimonial property; and that the applicants were not vigilant as they had approached the court 7 months after the statutory notice was issued.

Aggrieved by this determination, the applicants have evinced their intention to appeal against the said ruling by a Notice of Appeal and a draft memorandum of appeal based on 13 grounds. In the meantime, the applicants have brought this application for injunction, as explained earlier, in which their main complaint is that 1st respondent in manifest negligence of its professional undertaking and bad faith wrongfully and unlawfully honoured an unscrupulous demand by CFC under SLBC when there was no actual default on the 1st applicant’s part; and that the action of the 1st respondent was in disregard of the International Chamber of Commerce’s URDGs.

We were informed that an auction conducted on 10th July, 2018 did not realize the desired price, prompting the 1st respondent to instruct the 2nd respondent to re-advertise the sale of the suit property by public auction on 10th July, 2018.

To satisfy the first requirement for the grant of an order of injunction under rule 5(2)(b)aforesaid, the applicants through Mr. Atonga, learned counsel contended that since it was not indebted to the 1st respondent and because the statutory notice was issued due to the negligence of the 1st respondent, the intended appeal was arguable.

On the second requirement, the applicants have contended that there would be substantial injustice occasioned to them if the suit property is sold and yet there is no debt; that in the interest of justice, the respondents be restrained from carrying out the intended sale scheduled for 10th July, 2018 or on any other subsequent date in order to preserve the applicants’ constitutional right to property; and that the 1st respondent has maliciously caused the names of the 1st and 2nd applicants to be published in the newspaper and other media as defaulters thereby occasioning damage to the applicants’ respective image as a reputable entity and director. Finally, they stressed that the project, subject matter of the underlying agreement undertaken by the 1st applicant is of utmost public importance as it is aimed at decongesting the Likoni Ferry Crossing Channel; and that any negative publicity may scare away existing and potential investors.

Opposing the application, Mr. Mueke, learned counsel for the 1st respondent submitted that the 1st respondent was neither party nor privy to the Advisory and Arranging Mandate Agreement between the 1st applicant and CFC. That on 19th October, 2017, CFC called up the SLBC stating that the 1st applicant had not fulfilled its obligations towards them as a result of which, the 1st respondent honoured the guarantee/SLBC by releasing the sum of USD 250,000 as directed by CFC. He maintained that the 1st applicant was lawfully indebted to the 1st respondent for the sum of Kshs. 25,364, 110. 94 as at 14th June, 2018. Counsel clarified that the process of realization of the charge was not triggered by the call up of the SBLC; that in fact the 1st respondent’s letter of demand was dated 7th September, 2017 way after the facilities had fallen in arrears. On the nugatory aspect, he submitted that the suit property was liable for sale due to default.

The only two questions before us are whether, from the draft memorandum of appeal, the intended appeal is arguable and whether it will be rendered nugatory if an order of injunction is not granted and the intended appeal were to succeed. See the case of Reliance Bank Ltd (In Liquidation) V Norlake Investments Ltd Civil Application. No. Nai. 93 of 2002 (UR). The appellant has proffered 13 grounds in this appeal. We entertain no doubt from those grounds that the intended appeal is arguable. The first question on appeal will be whether the 1st respondent was negligent in its professional undertakings by honouring the demand by CFC, whether there was default by the applicants and whether they had satisfied the conditions for the grant of an order of temporary injunction. Because the appeal is yet to be filed,

we cannot express ourselves conclusively on these issues save to repeat here that, in our view the issues enumerated above are not idle.

We, however, do not think the applicant has discharged the onus of demonstrating that the intended appeal will be rendered nugatory if this application fails. As has been said time without number;

“…the issue of substantial loss is the cornerstone of both jurisdictions. Substantial loss is what has to be prevented by preserving the status quo because such loss would render the appeal nugatory.”

See Kenya Shell Limited V Kibiru & Another, Civil Application No. NAI. 97 of 1986.

Apart from merely stating that the suit property is their matrimonial home, the applicants have not explained the nature of substantial loss they stand to suffer. It was their matrimonial home even at the point it was offered as security. The argument now advanced about their sentimental attachment to it cannot, without more be a consideration.

In any event, no argument has been advanced that the respondents are incapable of paying any damages that may accrue on the sale of the suit property if ultimately the Court decides against them.

Having failed to satisfy the two principles, the application fails. It is accordingly dismissed. Costs will be in the appeal.

Dated and delivered at Nairobi this 12thday of October, 2018.

W. OUKO, (P)

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JUDGE OF APPEAL

M.K. KOOME

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JUDGE OF APPEAL

ASIKE – MAKHANDIA

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JUDGE OF APPEAL

I certify that this is a true copy of the original.

DEPUTY REGISTRAR