[2022] KEHC 16483 (KLR)

Vehicle and Equipment Leasing Limited v Consolidated Bank of Kenya Limited (Civil Case E786 of 2021) [2022] KEHC 16483 (KLR) (Commercial and Tax) (8 December 2022) (Ruling)

Neutral citation: [2022] KEHC 16483 (KLR)

Republic of Kenya

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

Commercial and Tax

Civil Case E786 of 2021

WA Okwany, J

December 8, 2022

Between

Vehicle and Equipment Leasing Limited

Plaintiff

and

Consolidated Bank Of Kenya Limited

Defendant

Ruling

1. The plaintiff sued the defendant through the plaint dated September 9, 2021 seeking the following orders:-i.A declaration that upon the assignment of all of plaintiff’s rights under the master operating lease agreements to the defendant, the defendant assumed all the rights and obligations of the plaintiff.ii.A declaration that the defendant failure to follow up payment of the rental payments amounted to negligence;iii.A declaration that the defendant is not entitled to any interest or penalty in relation to the loan;iv.A declaration that the defendant is in flagrant breach of the Banking Act, Consumer Protection Act, Competition Act and the Central Bank of Kenya Prudential Guidelines 2013;v.General damages for negligence;vi.Costs of this suit; andvii.Such further orders or other relief as this Honourable court may deem fit.

2. Concurrently with the plaint, the plaintiff/applicant also filed an application seeking the orders that:-b.Spentc.An order of preservation in the form of a temporary injunction restraining the defendant/respondent either by itself, its servants, agents, or employees from selling, alienating, disposing off, or dealing in any manner with Motor Vehicles Registration Numbers KBY 618K, KCC 062A ZEC, KCB 835Z, KCD 124H, KCG 414Z, KCG 415Z, KCG 416Z, KCG 417Z, KCG 418Z, KCG 917R, KCG 916R, KCG 922R, KCE 578H, KCE 566H, KCE 577H, KHMA 642H, KHMA 903H, KCE 950H, KCE 950N, KCE 780T, KHMA 108J, KCF 451Z, KCG 840A, KHMA 143J, KCM 316A, KCM 642A, KCM 078L, and KCM 872T.d.A mandatory injunction compelling the defendant/respondent to transfer and release the logbooks of the fully paid motor vehicle registration numbers KMDH 394A, KCC 062A, KCB 835Z, KCD 124H, KCF 451Z, KCG 840A, KCM 316A, KCM 642A, KCM 078L, and KCM 872T to the plaintiff/applicant;b.A mandatory injunction compelling the defendant/respondent to provide the plaintiff/applicant with bank statements of all its accounts;c.A mandatory injunction compelling the defendant/respondent to account for all the proceeds received from all the rental assignments from the third party leases; andd.Costs of this application.

3. The application is supported by the affidavit sworn by Pauline Wambui and a supplementary affidavit sworn by Wang’ombe Gathondu.

4. The defendant opposed the application through the replying affidavit sworn by Mr. Billy Ubindi who states that the application is an abuse of process and it ought to be dismissed with costs. He states that by a letter of offer dated February 13, 2017 the plaintiff obtained a revolving asset finance facility of Kes 150,000,000 to enable it acquire motor vehicles and motorcycles which were to be leased to third parties for rental income. He adds that the rental income was to be deposited by the third parties to the plaintiff’s bank account with the defendant towards repayment of the loan facility.

5. The defendant’s case is that the plaintiff has defaulted on its obligations under the letters of offer by failing to pay the loan installments as and when they become due and that on account of the default, the plaintiff does not have a prima facie case with any chance of success.

6. The application was canvassed by way of written submissions which I have considered.

7. The main issue for determination is whether the application meets the threshold for the granting of orders of injunction.

8. The application is brought under order 40 rule 10 of the Civil Procedure Rules which provides as follows:-Detention, preservation, inspection of property [Order 40, rule 10. ](1)The court may, on the application of any party to a suit, and on such terms as it thinks fit—a.make an order for the detention, preservation, or inspection of any property which is the subject-matter of such suit, or as to which any question may arise therein;b.for all or any of the purposes aforesaid authorize any person to enter upon or into any land or building in the possession of any other party to such suit; orc.for all or any of the purposes aforesaid authorize any samples to be taken, or any observation to be made, or experiment to be tried, which may seem necessary or expedient for the purpose of obtaining full information or evidence.

9. The above provision empowers the court to make orders for the preservation of the subject matter of the suit pending hearing and determination of the suit so as not to render the suit nugatory.

10. The applicant argued that its application is competent and that this court has jurisdiction to grant the orders sought herein.

11. While it is not in dispute that this court has the jurisdiction to grant the injunctive orders sought in the application, the court still has to be satisfied that the application meets the threshold set for the granting of an injunction as was explained in the oft-cited case of Giella v Cassman Brown and Company Ltd (1973) EA 358 where the principles governing the granting of an injunction were set out as follows:“First, an applicant must show a prima facie case with a probability of success. Secondly, an interlocutory injunction will not normally be granted unless the applicant might otherwise suffer irreparable harm which would not adequately be compensated by an award of damages. Thirdly, if the court is in doubt, it will decide an application on a balance of convenience.”

12. What amounts to a prima facie case was explained in Mrao Ltd v First American Bank of Kenya Ltd & 2others Civil Appeal No. 39 of 2002, as follows:-“In civil case, 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 been infringed by the opposite party as to call for an explanation or rebuttal from the latter”

13. I will now proceed and apply the above stated principles to this case. The applicant argued that it has a prima facie case against the respondent with a probability of success because it had fully complied with the condition precedent to the credit facility that required it to assign all the lease rentals and rights under the master lease agreements to the respondent. According to the applicant, upon the assignments of the rights to the respondent the applicant was left with no right to enforce under the agreement and any default in payment by pre-approved lessees became only enforceable by the respondent and not the applicant.

14. The applicant faulted the respondent for demanding for payment of the sum of Kes 64,962,955. 43 which, it claimed, is an arbitrary amount not supported by any evidence and shrouded in dark accounting. The applicant stated that upon the filing of this suit and demand for accounts, the respondent belatedly claimed that the applicant owes it Kes 18,495,235. 60/= without providing any proof whatsoever for the said amounts thereby infringing the applicant’s right to access information under article 35 of the constitution of Kenya.

15. The applicant further faulted the respondent for obstinate refusal to provide it with all its statements of accounts and for contravening the provisions of the Consumer Protection Act thereby placing the applicants in an absolutely untenable position where the respondent makes demands for arbitrary and fictitious loan amounts.

16. The applicant submitted that the court is duty bound to preserve the subject matter of the suit herein in order to prevent a barren result in litigation. For this argument, the applicant cited the decision in Kenya Breweries Limited &another v Washington O. Okeyo [2002] eKLR wherein it was held that: -“A mandatory injunction can be granted on an interlocutory application as well as at the hearing, but, in the absence of special circumstances, it will not normally be granted. However, if the case is clear and one which the court thinks it ought to be decided at once, or if the act done is a simple and summary one which can be easily remedied, or if the defendant attempted to steal a march on the plaintiff … a mandatory injunction will be granted on an interlocutory application”.

17. In a rejoinder, the defendant submitted that the letter of offer expressly required the plaintiff to ensure that the loan was repaid and that it was not for the defendant to follow up on payment with third parties who did not have a relationship of any kind with the bank. The defendant argued that it was misleading for the plaintiff to claim that the defendant assumed all the plaintiff’s rights under the master lease agreements yet the said agreements were between the plaintiff and the lessees.

18. The defendant maintained that it was not a party to the said agreements as it did not execute them. It added that there was therefore no privity of contract between the defendant and the third parties and that the defendant could not be expected to pursue the lessees for enforcement of the agreements. For this argument the defendant referred to the decision in Agricultural Finance Corporation v Lengetia, 1982-88 I KAR 772 quoted in City Council of Nairobi v Wilfred Kamau Githua t/a Githua Associates & another [2016] eKLR where it was held:“As a general rule, a contract affects only the parties to it, and cannot be enforced by or against a person who is not a party, even if the contract is made for his benefit and purports to give him the right to sue or to make him liable upon it. The fact that a person who is a stranger to the consideration of a contract stands in such near relationship to the party from whom the consideration proceeds that he may be considered a party to the consideration does not entitle him to sue upon the contract.”

19. The defendant explained that clause 8 of the rental schedules merely notified the lessees under the master lease agreements that the payment of the rental income was to be made to the plaintiff’s account with the defendant and that nowhere in the said clause is it indicated that the defendant was obligated to ensure compliance with the terms of the master lease agreement.

20. The defendant further stated that clause 11 of the letter of offer indicated that the deed of assignment was among the securities for the loan. It faulted the applicant for failing to produce the said deed of assignment which is the document executed between the plaintiff and the defendant.

21. The defendant noted that the plaintiff did not deny that the loan is still in arrears but was merely giving excuses for the failure to service the loan. The defendant reiterated that owing to the default, the applicant does not have a prima facie case a prima facie case and that the orders sought in this case cannot issue.

22. My finding is that the parties herein entered into a loan agreement that had clear provisions on their respective obligations. It was not disputed that the loan facility fell in arrears thus precipitating the defendant’s action to recover the suit motor vehicles thereby giving rise to the filing of this suit.

23. My finding is that it is the primary duty of any borrower to ensure that the loan facility is serviced. I therefore find that the applicant’s claim that it assigned all the lease rentals and rights under the master lease agreements to the respondent does not preclude it from ensuring that the loan repayments are up to date. It is my finding that the applicant’s assertions that it was left with no right to enforce under the agreement and that any default in payment by pre-approved lessees became only enforceable by the respondent and not the applicant does not present the true legal position considering that the respondent was not privy to the contract between the applicant and the lessees.

24. I further note that the main contest between the parties revolves around accounting for the rental proceeds so far received by the respondent from the various leases of the suit motor vehicles. I find that the contest on the payments to the plaintiffs accounts held by defendant is a matter that can be easily resolved through the accounting process which is one of the prayers sought by the applicant in this application. The respondent has not tendered its version of the amount that it has so far received in the applicant’s respective accounts so as to demystify the claim by the applicant that the amounts claimed are shrouded in mystery. I find that it will only be just and fair for the applicant to be presented with the full statement of all its accounts before it can be called upon to settle them. To this extent, I find that there is merit in the applicant’s prayers in the application which I hereby allow albeit, in part, in the following terms: -i.An order of preservation in the form of a temporary injunction is hereby issued to restrain the defendant/respondent either by itself, its servants, agents, or employees from selling, alienating, disposing off, or dealing in any manner with motor vehicles registration numbers KBY 618K, KCC 062A ZEC, KCB 835Z, KCD 124H, KCG 414Z, KCG 415Z, KCG 416Z, KCG 417Z, KCG 418Z, KCG 917R, KCG 916R, KCG 922R, KCE 578H, KCE 566H, KCE 577H, KHMA 642H, KHMA 903H, KCE 950H, KCE 950N, KCE 780T, KHMA 108J, KCF 451Z, KCG 840A, KHMA 143J, KCM 316A, KCM 642A, KCM 078L, and KCM 872T pending the supply, by the defendant of the full statement of all accounts.ii.A mandatory injunction compelling the defendant/respondent to provide the plaintiff/applicant with bank statements of all its accounts within 30 days from the date of this ruling.iii.That the applicant shall upon being supplied with the said bank statements endeavor to settle all the outstanding arrears within 60 days failure of which the respondent shall be at liberty to proceed with the repossession and sale of the subject motor vehicles.iv.Mention before the DR on February 16, 2023 for further directions.

Dated, signed and delivered virtually at Nairobi this 8thday of December 2022. W. A. OKWANYJUDGEIn the presence of: -Mr. Muge for plaintiff/applicantNo appearance for the respondent.Court Assistant- Sylvia