[2022] KEHC 11957 (KLR)

Vehicle and Equipment Leasing Limited v Spire Bank Kenya & another (Civil Case E717 of 2021) [2022] KEHC 11957 (KLR) (Commercial and Tax) (21 July 2022) (Ruling)

Neutral citation: [2022] KEHC 11957 (KLR)

Republic of Kenya

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

Commercial and Tax

Civil Case E717 of 2021

WA Okwany, J

July 21, 2022

Between

Vehicle and Equipment Leasing Limited

Plaintiff

and

Spire Bank Kenya

1st Defendant

Phillips International Auctioneers

2nd Defendant

Ruling

1. This ruling determines the application dated July 30, 2021 by the plaintiff which application seeks the following orders:-1)Spent;2)Spent;3)Spent;4)That pending the hearing and final determination of this suit, this honourable court be pleased to issue an order of preservation in form of a temporary injunction restraining the defendants/respondents either by themselves, their servants, agents, or employees from repossessing, selling, alienating, disposing off, or dealing in any manner with motor vehicles registration numbers Kxx xxxE, Kxxx xxxE, Kxxx xxxC and Kxxx xxxC;5)That this honourable court be pleased to issue a mandatory injunction compelling the 1st defendants/respondent to provide the plaintiff/applicant with bank statements of all of its accounts;6)That this honourable court be pleased to issue a mandatory injunction compelling the 1st defendant/respondent to account for all the proceeds received from all the rental assignments from the ARM lease;7)That this honourable court be pleased to issue a mandatory injunction compelling the 1st defendant/respondent to provide the plaintiff/applicant with all documents vide the letter dated June 21, 2021; and8)That the cost of this application be provided for.

2. The application is supported by the affidavit sworn by Pauline Wambui and is premised on the grounds that:-1. The plaintiff/applicant (henceforth “the applicant”) has instituted this suit against the defendants/respondents to recover Kshs 52,020,00. 00 being the sum of funds illegally and fraudulently deducted by the 1st respondent from the applicant’s account held by the 1st respondent being payments made by Athi River Mining (henceforth “ARM”), pursuant to the applicant’s vehicle lease business withARM, for the benefit of the applicant and payments fraudulently demanded by the 1st respondent from the applicant to repay an already discharged loan;2. Vide a proclamation notice dated July 26, 2021, Phillips International Auctioneers on the instructions of the 1st respondent issued a proclamation notice/repossession of movable property for motor vehicles Kxxx xxxE, Kxxx xxxE, Kxxx xxxC and Kxxx xxxC.3. Vide a letter dated April 27, 2015(hereinafter “the facility letter”), respondent herein offered the plaintiff a credit facility in the nature of an asset financing for Kshs 350,000,000. 00. 4.Upon execution of the facility letter by the parties in 2015, the 1st respondent financed the purchase of motor vehicles Kxxx xxxE, Kxxx xxxE, Kxxx xxxC and Kxxx xxxC to a tune ofKshs 24,000,000. 5.It was a condition precedent under clause 13 of the facility letter that the applicant must irrevocably assign all future operating lease rentals receivables and ownership rights over the assets finance. Clause 13 specifically provides as follows:“Irrevocable notice of assignment of all future operating lease rentals receivables and ownership rights over the assets finance”6. Based on the above clause, upon assignment of ownership of the assets by the applicant to the 1st respondent, the obligation to pay back the loan was extinguished as it was never going to be the owner of the assets due to lack of a reversionary clause to the applicant.7. Subsequent to this assignment, the applicant proceeded to lease the 1st respondent’s assets motor vehicles Kxxx xxxE, Kxxx xxxE, Kxxx xxxC and Kxxx xxxC to Athi River Mining Limited (herein after referred to “ARM”) with the consent of the 1st respondent.8. Based on this arrangement and the applicant’s business model which primarily involves leasing vehicles and equipment, the applicant legitimately expected that the rental payments made with regard to the Athi River Mining lease (herein after referred to “the ARM lease”) belonged to the plaintiff absolutely.9. Inexplicably, the 1st respondent begun deducting the monies paid to the applicant’s account on the pretense of loan repayment.10. The deductions made by the 1st respondent ostensibly to repay a purported loan were illegal, fraudulent, baseless and unjustified as the loan stood discharged upon an irrevocable assignment of the ownership of motor vehicles Kxxx xxxE, Kxxx xxxE, Kxxx xxxC and Kxxx xxxC to the 1st respondent.11. The loan issued to the plaintiff for purchase of the assigned motor vehicles was USD 630,205. 00 with the 1st respondent claiming that the applicant owes it Kshs 16,398,644. 88, a claim absolutely denied, with the result that the 1st respondent has obtained Kshs 52,020,000. 00 or thereabouts from the applicant made up of the rental payments made byARM into the applicant’s account and Kshs 14,856,478. 08 fraudulently demanded by the 1st respondent from the applicant to repay an already discharged loan.12. The applicant has consistently vide various letters been requesting for account statements and other financial documentation from the 1strespondent but the 1st respondent has adamantly declined to perform its statutory obligation under clause 3. 2.8 on guidelines on consumer protection-CBK/PG/22 Part III of the Central Bank of Kenya Prudential Guidelines 2013 which states:“a) Where a consumer has a deposit or loan account with an institution, the institution shall provide the consumer with periodic statements of his deposit or loan account showing what transpired since the last statement that affected the account of the consumer, including balance changes, payments, withdrawals, disbursements and costs.13. Article 35 of the Constitution further provides the right to access information which the 1st respondent has trampled upon despite various requests by the applicant and his counsels for access to information and documentation held by the 1st respondent.14. Despite this mandatory requirement of the law, the 1st respondent has abdicated its statutory duty to provide the loan statements to the applicant. This has left the applicant in the dark with no knowledge of the current status of its accounts.15. The plaintiff/applicant has a prima facie case with high cases of success against the defendants/respondents for reasons that:-(a)The 1st respondent provided as a condition precedent to the credit facility that the applicant must irrevocably assign all its ownership rights to the 1st respondent;(b)Upon the irrevocable assignment of the ownership rights to the 1st respondent, the applicant was left with no assets capable of being transferred to him in the future and therefore the loan was discharged by operation of the law;(c)The 1st respondent proceeded to illegally demand that the applicant make payment to the applicant on behalf of Athi River Mining Limited (henceforth “ARM”);(d)The applicant paid a total amount of Kshs 14,856,478. 08 to the 1st respondent on behalf of ARM which payments the applicant now seeks to recover from the 1st respondent.(e)Without prejudice to the above averments, the loan issued to the applicant to purchase the subject motor vehicles was USD 630,205. 00 with the 1st respondent claiming that there is an outstanding balance of Kshs 16,398,644. 88 (which is wholly disputed) with the result that more than 2/3 of the purported loan has been repaid by the applicant and the 1st respondent is prohibited under section 20 of the Consumer Protection Act from repossessing or selling the subject vehicles without leave of court.(f)The 1st respondent has refused to provide the applicant with accounts statements contrary to clause 3. 2.8 on Guidelines on Consumer Protection-CBK/PG/22 part III of the Central Bank of Kenya Prudential Guidelines 2013 thereby infringing the applicant’s right to access information under article 35 of the constitution of Kenya.16. The applicant is apprehensive that the respondents will dispose off motor vehicles Kxx xxxE, Kxxx xxxE, Kxxx xxxC and Kxxx xxxC before the suit is heard and concluded thereby defeating the cause of justice.17. Unless the orders sought herein are granted and the suit property is preserved, the applicant will suffer irreparable loss and damage that cannot be adequately compensated by an award of damages as the applicant has a legitimate interest over the said motor vehicles and the same should be preserved pending the hearing and determination of this application and the suit filed herein.18. It is in the interests of justice that the subject matter of litigation be preserved pending final resolution of the dispute amongst the parties herein.19. The court has a duty to prevent a barren result in litigation before the purpose of the suit will be defeated.20. The provisions of order 40 rule 10 Civil Procedure Rules grant jurisdiction to this court to issue an order of “preservation” of any property which is the subject matter of a suit pendency determination of the suit.21. It is in the interests of justice that the 1st respondent is compelled to provide the applicant with its account statements and the financial documents required by the applicant as of right to manage its finances and in furtherance of this suit and this court has powers to order an account of the dealings between the parties.22. The applicant is concerned with the preservation of the subject matter of the litigation.

3. The respondent opposed the application through a replying affidavit of its legal Mr John Wageche who states that the plaintiff obtained a loan facility of Kshs 230,000,000 from the 1st defendant to enable it purchase vehicles and equipment at 100% financing. He further states that it was a term of the agreement that each facility would be repaid for a period of 48 months. The loan terms were agreed upon by the parties and the applicant executed the necessary securities after which the 1st defendant made various disbursements to the applicant. He contends that the vehicles were purchased and registered in the joint names of the applicant and the respondent bank.

4. He further avers that the applicant thereafter approached the bank and sought to enhance the existing loan facility in the sum of Kshs 350,000,000 which request was accepted by the bank. The respondent states that the bank did not acquire proprietary interest in the financed assets but held the properties as security for the loan facility.

5. He avers that, on diverse occasions the applicant approached the respondent for a restructure of the facilities which requests were accepted by the bank. He adds that the allegation that the loan was discharged in 2015 is false as applicant is indebted to the bank in the sum of Kshs 16,456,278. 48 as at August 5, 2021. He contends that the bank is entitled to commence recovery proceedings through repossession of the security assets and that the notice of proclamation dated July 26, 2021 was lawful and valid.

6. The application was canvassed by written submissions. The main issue for determination is whether the applicant has made out a case for the granting of the injunctive relief sought.

7. Thelocus classicus case that sets out the conditions necessary for the grant of interlocutory injunctions is that of Giella v Cassman Brown & Company Limited [1973] E A 385, at page 360 where Spry J held that:-“The conditions for the grant of an interlocutory injunction are now I think well settled in East Africa. First an applicant must show a prima facie case with probability of success. Secondly an interlocutory injunction will not be normally granted unless the applicant might otherwise suffer irreparable injury which would not adequately be compensated by an award of damages.Thirdly, if the court is in doubt it will decide an application on the balance of convenience.”

8. Aprima faciecase was defined in the case of Mrao Limited v First American Bank of Kenya and 2 others (2003) KLR 125, where the Court of Appeal in determining what amounts to a prima facie case stated:-“A prima facie case in a civil case includes but is not confined to a “genuine or arguable” case. It is a case which on the material presented to the court; a tribunal properly directing itself will conclude there exists a right which has apparently been infringed by the opposite party as to call for an explanation or rebuttal from the latter. A prima facie case is more than an arguable case. It is not sufficient to raise issues but the evidence must show an infringement of a right, and the probability of success of the applicant’s case upon trial. That is clearly a standard, which is higher than an arguable case.”

9. While adopting the same position, the Court of Appeal in Nguruman Limited v Jan Bonde Nielsen &2 others[2014] eKLR added that:-“The party on whom the burden of proving a prima facie case lies must show a clear and unmistakable right to be protected which is directly threatened by an act sought to be restrained, the invasion of the right has to be material and substantive and there must be an urgent necessity to prevent the irreparable damage that may result from the invasion...... The standard of proof of that prima facie case is on a balance or, as otherwise put, on a preponderance of probabilities. This means no more than that the court takes the view that on the face of it the applicant’s case is more likely than not to ultimately succeed.”

10. The applicant herein seeks an order of injunction to restrain the 1st respondent from repossessing, selling or disposing off with motor vehicles registration numbers Kxxx xxxE, Kxx xxxE, Kxxx xxxC and Kxxx xxxC.The applicant contends that the 2nd respondent issued a proclamation notice dated July 26, 2021 seeking to repossess the said motor vehicles. According to the applicant, the 1st respondent had illegally and fraudulently deducted Kshs 52,020,00. 00 from the applicant’s account held by the 1st respondent as a loan stood discharged upon the irrevocable assignment of the ownership of motor vehicles Kxxx xxxE, Kxxx xxxE, Kxxx xxxC and Kxxx xxxC to the 1st respondent.

11. In its reply, the 1st submitted that the allegations that the loan was discharged was false as the 1st respondent was only an assignee pursuant to the conditions of the letter of offer. The 1st respondent further argued that bank did not acquire proprietary interest in the assets financed but held the properties as security for the facility advanced.

12. I have perused the record and the documents produced by the 1st respondent and more specifically the facility letters dated July 1, 2013 and April 27, 2015. It is clear that the issuance of the facility was subject to the 1st respondent/bank receiving an irrevocable notice of assignment of all future operating lease rent receivable and ownership rights of the assets financed. The plaintiffs/applicants claim is anchored on the fact that it stood discharged of its obligations by virtue of the irrevocable assignment. The application calls for the interpretation of the rights and obligations of the parties as stated in the facility documents presented before the court. Interpreting the documents would however have the effect of addressing the issues between the parties with finality. I am mindful of the fact that what is before the court is an interlocutory application and accordingly I am not required to determine issues that would best be canvassed at the trial. The court is at this stage called upon to establish whether the applicant has made a prima facie case.

13. I find that it was not disputed that the parties entered into a contractual relationship wherein the plaintiff was the borrower and the bank was the lender. The dispute is whether the parties met their obligations under the contract. The court is of the view that the plaintiff has established that it has a prima facie case and that there is need to preserve the motor vehicles pending determination of the suit.

14. The applicant also sought a mandatory injunction requiring the respondent to furnish it with bank statements in respect to all its financed assets. I note that the 1st respondent is the custodian of the documents and should have no difficulty in availing the same.

15. In the premises, I find merit in the plaintiff’s/applicants application and I therefore allow it in the following terms:-a.a. A temporary injunction is hereby issued restraining the respondent either by itself, its servants, agents, or employees from selling, alienating, disposing off, or dealing in any manner with motor vehicles registration numbers Kxxx xxxE, Kxxx xxxE, Kxxx xxxC and Kxxx xxxC;b.The 1st respondent is hereby directed to provide the plaintiff/applicant with bank statements of all of its accounts;c.That the cost of the application be in the cause.

DATED, SIGNED AND DELIVERED VIRTUALLY AT NAIROBI THIS 21ST DAY OF JULY 2022. W. A. OKWANYJUDGEIn the presence of:-Muge for Plaintiff/applicant.No appearance for Respondents/Defendants.Court Assistant- Sylvia