Background
1. This is an appeal arising from the decision of the Chief Magistrate’s Court at the Milimani CMCC No. E3858 of 2023, delivered on 20th November 2023, concerning a dispute over the realization of a charged property by the Appellant herein (then, 1st Defendant), in exercise of its statutory power of sale.
2. The background of the matter is that the 1st Respondent herein (then a Plaintiff), filed a suit in the lower court seeking, among other reliefs, a permanent injunction to restrain the Defendants from auctioning his property, Land Reference Number 12596/140, which had been charged to secure loan facilities granted by the Appellant (then a defendant) to Mandeep Enterprises Limited and guaranteed by the 1st Respondent. The 1st Respondent alleged irregularities in the loan facilities, unauthorized debits by the 1st Defendant, and non-compliance with statutory procedures.
3. The Appellant contested the suit, filing an application dated 8th September 2023 to discharge interim injunctive orders granted earlier in favor of the Respondents. It was argued on behalf of the Appellant in the lower court that the court lacked pecuniary jurisdiction as the value of the subject matter exceeded Kshs. 20 million, the court's statutory limit, and claimed that statutory notices had been properly served.
4. The 2nd Respondent (Mandeep Enterprises Limited), sought to be enjoined in the suit through an application dated 5th October 2023, contending that it had dutifully repaid the loan save for an outstanding balance of Kshs. 4,521,604.45 due to economic challenges. The Interested Party also challenged the Defendant’s adherence to procedural requirements for the auction.
5. In its ruling, the trial court found that the main dispute revolved around the loan facilities and amounts in question, rather than the valuation of the property. It dismissed the Defendant’s jurisdictional challenge and allowed the joinder of Mandeep Enterprises as an Interested Party. The court also confirmed the interim orders restraining the Defendants from auctioning the property.
The Appeal
6. Aggrieved by the decision of the trial court, the Appellants vide their memorandum of appeal dated 27th December 2023 appealed to this court, raising five grounds of appeal that; -
i. The learned trial magistrate erred and misdirected herself in law in holding that the Honourable subordinate court was clothed with jurisdiction to determine the dispute subject of the suit when the uncontested factual position pointed to the fact that the loan amount advanced on the security of a legal charge over the suit property, the amount due and owing thereon as well as the value of the security property were all way above the pecuniary jurisdiction of the court.
ii. In the premises, the learned trial magistrate erred and misdirected herself in law in effectively assuming jurisdiction to try and determine a dispute where no such jurisdiction as contemplated in law existed on account of pecuniary limitation.
iii. The learned trial magistrate erred and misdirected herself in law in holding that the 1st Respondent had met all the prerequisites for granting an injunction against the exercise of the 1st Appellant’s Chargee's statutory power of sale over the suit property without ascribing and recording any reasons for such a significant decision on important aspect of the dispute presented by the parties for determination.
iv. The learned trial magistrate erred and misdirected herself in law in holding that the 1st Respondent had met all the prerequisites for granting an injunction against the exercise of the 1st Appellant’s Chargee’s statutory power of sale over the suit property when it was factually admitted and/or reasonably demonstrated on record without any contest whatsoever that there had been default in repayment of the credit facility secured by way of a legal charge over the suit property and that the 1st Appellant as the Chargee had fully complied with the procedural requirements under the law for purposes of the exercise of its Chargee’s statutory power of sale over the suit property.
v. In granting an order of injunction against the exercise of a Chargee’s statutory power of sale over the suit property, the learned magistrate improperly exercised her discretion by failing to consider and properly apply the well settled legal principles for the grant of injunctive relief at an interlocutory stage.
7. The appeal was canvassed by way of written submissions. The Appellant's submissions are dated 30th September 2024, while those of the Respondent are dated 9th October 2024.
Appellant’s submissions
8. The Appellants submitted that the trial court erred in determining that it had jurisdiction to hear the matter despite clear evidence that the value of the subject matter exceeded the pecuniary jurisdiction of Kshs. 20 million under Section 7 of the Magistrates‟ Court Act, 2015. They referred to the valuation report dated 14th June 2023, which pegged the market value of the suit property at Kshs. 85,000,000, as well as the legal charge and statements of account, which showed the secured outstanding debt at Kshs. 23,697,828.07/=. These figures, they contended, exceeded the jurisdictional threshold of the lower court.
9. The Appellants argued that the trial court misapplied the law by disregarding uncontroverted evidence. Citing the case of Cooperative Bank of Kenya Limited & another v Aberdare Steel and Hardware Limited [2022] KEHC 11043 (KLR), the Appellants emphasized that jurisdiction is the authority to decide a matter, and once the court found that the value of the subject matter exceeded its pecuniary jurisdiction, it ought to have struck out the suit instead of proceeding to hear it.
10. The Appellants further submitted that the trial court improperly dismissed their application without adequately considering the clear evidence set out in the replying affidavit, which was not controverted by the 1st Respondent. The Appellants pointed out that the valuation report, legal charge, and statements of account conclusively demonstrated the value of the subject matter. The Appellants contended that even if the figures were disputed, the court ought to have resolved the jurisdictional issue in favor of the party presenting the unchallenged evidence.
11. On the question of the interlocutory injunction, the Appellants submitted that the trial court failed to follow the principles for granting such relief as set out in Gulf African Bank Limited v Mohamud Sheikh Hussein [2018] eKLR. They argued that the 1st Respondent did not establish a prima facie case with a probability of success, failed to demonstrate the presence of irreparable harm that could not be compensated by damages, and did not show that the balance of convenience tilted in their favour.
12. The Appellants noted that the primary complaint by the 1st Respondent that statutory notices were not issued was effectively rebutted by annexures in their replying affidavit, which included proof of service of all statutory notices. They argued that the trial court ignored this evidence and instead relied on unsubstantiated claims by the 1st Respondent.
13. The Appellants faulted the trial court for failing to explain how the prerequisites for granting an injunction were satisfied, contrary to the requirements under Order 21 Rule 4 of the Civil Procedure Rules. They argued that the ruling was vague and casual, lacking specific findings on whether a prima facie case had been established.
14. It was the Appellant’s further submission that even if the 1st Respondent had established a prima facie case, damages would have been an adequate remedy, especially given that the outstanding debt was conclusively demonstrated through bank records.
15. The Appellants concluded that the trial court’s misapprehension of the law and evidence caused a grave miscarriage of justice, warranting intervention by the appellate court. They prayed for the appeal to be allowed, the orders of the trial court to be set aside, and the 1st Respondent’s application for injunction to be dismissed.
16. Relying in the case of Cooperative Bank of Kenya Limited v Aberdare Steel and Hardware Limited [2022] KEHC 11043 (KLR) and Gulf African Bank Limited v Mohamud Sheikh Hussein [2018] eKLR, the Appellants reiterated that the trial court lacked jurisdiction to entertain the matter and had erred in granting the interlocutory injunction without satisfying the applicable principles.
Respondent’s Submissions
17. The Respondents submitted that the trial court correctly held that it had pecuniary jurisdiction to hear and determine the matter. They argued that under Section 7(1)(a) of the Magistrates’ Court Act, the Chief Magistrate’s Court has jurisdiction where the value of the subject matter does not exceed Kshs. 20 million. The Respondents maintained that the dispute before the court concerned the outstanding loan balance and the unauthorized excess debit in the overdraft facility, which were well within the jurisdictional threshold.
18. The Respondents emphasized that the value of the charged property was irrelevant to the determination of jurisdiction. They contended that the subject matter of the dispute, as discernible from the pleadings, was the overdraft facility of Kshs. 15,000,000 and the outstanding demand loan of Kshs. 4,521,604.45 as of 22nd June 2023. Citing Ashok Morjaria v Kenya Batteries (1981) Ltd & 2 others [2002] eKLR, they argued that the subject matter of a suit must be determined based on the pleadings and not collateral issues such as the value of the charged property.
19. The Respondents submitted that the Appellants’ claim regarding the valuation report dated 14th June 2023 and the outstanding secured debt was misleading and irrelevant to the jurisdictional question. They contended that the valuation of Kshs. 85,000,000 related to the property serving as security for the loan and not the subject matter of the dispute. The Respondents argued that the trial court was correct in dismissing the Appellants’ objections on jurisdiction.
20. On the interlocutory injunction, the Respondents submitted that the trial court rightly applied the principles for granting injunctions as laid out in Giella v Cassman Brown [1973] E.A 358. They argued that the 1st Respondent established a prima facie case by demonstrating that the Appellants had unauthorizedly debited an excess amount into the 2nd Respondent’s overdraft facility without consent. The Appellants, they contended, failed to rebut this claim with evidence showing consent or authorization.
21. The Respondents further submitted that the trial court correctly held that the 1st Respondent would suffer irreparable harm if the injunction was not granted. They argued that the charged property, L.R. No. 12596/140, has been the site of the 1st Respondent's business operations for over ten years, and its auction would cause harm that could not be adequately compensated by damages.
22. On the balance of convenience, the Respondents argued that it tilted in favor of the 1st Respondent. They submitted that the Appellants’ actions, including threatening to auction the property without proper notice, were a clear infringement of the Respondents’ rights. They emphasized that the injunction protected the 1st Respondent’s interests while allowing the substantive issues regarding the overdraft and loan balances to be determined at trial.
23. The Respondents refuted the Appellants’ claim that the trial court’s ruling was vague or lacked reasoning. They referred to the trial court’s findings on both jurisdiction and the injunctive relief, highlighting that the court considered all pleadings, evidence, and submissions before arriving at its decision. They noted that the trial court gave clear reasons for dismissing the Appellants’ application and granting the injunction.
24. The Respondents concluded that the Appellants’ arguments on jurisdiction and the granting of the interlocutory injunction were unmerited and failed to demonstrate any error on the part of the trial court. They prayed for the appeal to be dismissed with costs to the Respondents.
Analysis and determination
25. This being a first appeal, the duty of this court is to reevaluate and reassess the evidence tendered at the trial court with a view of reaching its own conclusion. In Selle & Another vs. Associated Motor Boat Co. Ltd & Others [1968] EA the Court emphasized that:
“An appeal to this court from a trial court is by way of retrial and the principles upon which this court acts in such an appeal are well settled. Briefly put, they are that this court must reconsider the evidence, evaluate it itself and draw its own conclusions though it should always bear in mind that it has neither seen nor heard the witnesses and should make due allowance in this respect…”
26. First it is critical to note that in dealing with the applications before it and granting and/or denying the orders set out above, the trial court was simply exercising its discretion. This court is required to tread with care before interfering with the trial court's exercise of discretion. In the case Nguruman Limited vs. Jan Bond Nielsen & Others (2014) eKLR, the court stated the following as to the circumstances under which an appellate court can interfere with the exercise of discretion by a lower court: -
“Before adverting to the origin of the dispute it is appropriate to reiterate that before this Court can interfere with the exercise of a discretion of a judge, it must be shown that the judge has either erred in principle in his approach or has left out of account factors he ought to have considered or has taken into account some factors that he should not have considered or that his decision was wholly wrong, or that the decision was so aberrant that no reasonable judge, aware of his duty to act judicially could have reached it.
These are the words of Sir Charles Newbold, P. expressed in this often cited Mbogo & Another V. Shah [1968] EA 98 decision as follows: -
‘’… a Court of Appeal should not interfere with the exercise of the discretion of a judge unless it is satisfied that the judge in exercising his discretion has misdirected himself in some matter and as a result has arrived at a wrong decision, or unless it is manifest from the case as a whole that the judge has been clearly wrong in the exercise of his discretion and that as a result there has been injustice.’’
27. I have carefully reviewed the Appellant’s memorandum of appeal, the pleadings and proceedings from the lower court, and the submissions by the parties in support of their respective positions. The Appellants challenge both the trial court’s jurisdiction and its decision to grant interlocutory injunctive orders. The Respondents, on the other hand, defend the trial court’s findings and orders.
28. I will first deal with the issue of whether the trial court had pecuniary jurisdiction to hear and determine the matter, and thereafter proceed to consider whether the trial magistrate properly exercised judicial discretion in granting the interlocutory injunction. Finally, I will address the question of whether the trial magistrate gave sufficient reasons for her decision.
Whether the trial court had pecuniary jurisdiction to hear and determine the matter
29. The Appellants contend that the trial court lacked jurisdiction as the value of the subject matter exceeded the statutory pecuniary jurisdiction limit of Kshs. 20 million as provided under Section 7(1) of the Magistrates Court Act, 2015. They rely on the valuation report dated 14th June 2023, which placed the market value of the charged property at Kshs. 85 million, and the outstanding secured debt of Kshs. 23,697,828.07. In their view, this incontrovertible evidence demonstrated that the lower court ought not to have assumed jurisdiction.
30. Conversely, the Respondents argue that the subject matter of the dispute is not the value of the property but the loan facility agreement and the unauthorized excess debits in the overdraft facility. They submit that the value in dispute being the agreed overdraft facility of Kshs. 15,000,000 and the outstanding demand loan of Kshs. 4,521,604.45 falls within the jurisdiction of the Chief Magistrate‟s Court. They rely on the decision in Ashok Morjaria v Kenya Batteries (1981) Ltd & 2 Others [2002] eKLR, where it was held that the subject matter of a suit is discernible from the pleadings and not from the value of any collateral or security provided.
31. This Court agrees with the Respondents‟ position. It is trite law that jurisdiction is determined by the pleadings, as held in Cooperative Bank of Kenya Limited & Another v Aberdare Steel and Hardware Limited [2022] KEHC 11043 (KLR). A careful examination of the pleadings in the lower court reveals that the dispute centered on the outstanding amount on the demand loan (Kshs. 4,521,604.45), the agreed overdraft facility limit of Kshs. 15,000,000 and the unauthorized debits. It is therefore evident that the subject matter of the dispute is the loan facility agreement and not the value of the charged property, as the Appellants allege. The value of the security of Kshs. 85 million is not relevant to the determination of the court’s jurisdiction in this instance.
32. This reasoning finds support in the case of New Attitude Limited v Equity Bank Limited & Another [2024] KEHC 6283 (KLR), where the court held that in disputes concerning loan agreements, jurisdiction is determined by the value of the loan or the obligations under the agreement, not the value of the collateral securing the loan.
33. Further, Section 11 of the Civil Procedure Act requires that suits be instituted in the court of the lowest grade competent to try them. It Provided that—
'‟if a suit is instituted in a court other than a court of the lowest grade competent to try it, the magistrate holding such court shall return the plaint for presentation in the court of the lowest grade competent to try it if in his opinion there is no point of law involved or no other good and sufficient reason for instituting the suit in his court; ‟ The lower court, in this case, had jurisdiction to hear and determine the matter as the amounts in dispute fell within the statutory limit of Kshs. 20 million.
34. Accordingly, I find that the trial court properly assumed jurisdiction, and the Appellants’ challenge on this issue is unmerited.
Whether the trial magistrate properly exercised judicial discretion in granting the interlocutory injunction
35. The granting of the interlocutory order of injunction is an exercise of judicial discretion and sitting as an appellate court, this court cannot readily interfere with the exercise of such discretion, unless it is satisfied that the discretion has not been exercised judicially. For instance, in the case of United India Insurance Co. Ltd V. East African Underwriters (Kenya) Ltd (1985) EA 898, at p. 908 Madan JA (as he then was) stressed the point as follows:
“The Court of Appeal will not interfere with a discretionary decision…….unless one or more of the following matters are established: first, that the Judge misdirected himself in law; secondly that he misapprehended the facts; thirdly that he took account of considerations of which he should not have taken account; fourthly, that he failed to take account of considerations of which he should have taken account, or fifthly, that his decision albeit a discretionary one, is plainly wrong.”
36. It has to be remembered that judicial discretion must always be exercised in accordance with the law. In matters of injunction the guiding principles are those set out in Giella v Cassman Brown [1973] EA 358, the locus classicus, which has stood the test of time. It settled the law on the grant of injunction thus:
“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 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…”
37. The Appellants argued that the trial magistrate erred in finding that the 1st Respondent satisfied the conditions for granting an injunction, particularly on the issue of irreparable harm. They relied on Peter Kairu Gitu v KCB Bank Kenya Limited & Another [2021] eKLR, where it was held that:
“… Any property, whether matrimonial or otherwise, offered as security for a loan becomes a commodity for sale in the event of default.”
38. Similarly, in Maithya v Housing Finance Co. of Kenya & Another [2003] 1 EA 133 at 139 where Honourable Nyamu, J (as he then was). stated as follows: -
“Charged properties are intended to acquire or are supposed to have a commercial value otherwise lenders would not accept them as securities. The sentiment of ownership which has been greatly treasured in this country over the years has in many situations given way to commercial considerations. Before lending, many lenders banks and mortgage houses are increasingly insisting on valuations being done so as to establish forced sale values and market values of the properties to constitute the securities for the borrowings or credit facilities…loss of the properties by sale is clearly contemplated by the parties even before the security is formalized.”
39. In response, the Respondents submitted that the excess overdraft debits were unauthorized, and the statutory notices were not properly served. They argued that the injunction was necessary to prevent irreparable harm, as the property was the site of a long-standing business.
40. While the Respondents may have established a prima facie case regarding the unauthorized overdraft debits, they failed to demonstrate that the harm occasioned by the sale would be irreparable. The loss of a charged property, as consistently held by the courts, is a risk inherently accepted when property is offered as security for a loan. Financial loss can always be adequately remedied through monetary damages, especially when the value of the property is quantifiable.
41. The trial court's conclusion that irreparable harm would result from the auction is therefore unsustainable in law. The court failed to properly apply the Giella v Cassman Brown test, particularly the sequential evaluation required.
42. As was held in Gulf African Bank Limited v Mohamud Sheikh Hussein [2018] eKLR, failure to satisfy any of the three conditions is fatal to an application for an interlocutory injunction. The court held that: -
‟… if the applicant establishes a prima facie case, he must in addition satisfy the court that the injury he will suffer, if an injunction is not granted, will be irreparable. So that where it is shown that damages would be adequate compensation and the other side is capable of paying it, no order of temporary injunction should normally be granted, however strong the applicant‟s claim may appear at that stage…‟
43. Consequently, I find that the trial magistrate erred in granting the interlocutory injunction without satisfying the legal threshold. The injunction must therefore be set aside.
Whether the trial magistrate gave sufficient reasons for her decision
44. The Appellants further argued that the trial court’s ruling lacked sufficient reasoning, contrary to the requirements of Order 21 Rule 4 of the Civil Procedure Rules. This provision mandates that: -
“Judgments in defended suits shall contain a concise statement of the case, the points for determination, the decision thereon, and the reasons for such decision.”
45. From the record, the trial magistrate addressed the issue of jurisdiction, the interlocutory injunction, and the joinder of the Interested Party. While the ruling touched on the prerequisites for granting an injunction, it lacked clarity and depth on how the conditions under Giella v Cassman Brown were satisfied.
46. The Court of Appeal in Nguruman Limited v Jan Bond Nielsen [2014] eKLR emphasized the need for courts to articulate their reasoning clearly when exercising judicial discretion:
“A judge is required to evaluate the evidence, apply the law, and give reasons for the decision reached. Failure to do so may lead to appellate interference.”
47. While the trial magistrate gave brief conclusions, the absence of detailed reasoning on irreparable harm and the balance of convenience constitutes a misdirection warranting appellate intervention.
48. Having carefully considered the grounds of appeal, the submissions by both parties, and the applicable law, I make the following findings:
i. The trial court had pecuniary jurisdiction to hear and determine the matter.
ii. The trial magistrate erred in granting the interlocutory injunction, as the Respondents failed to demonstrate irreparable harm or satisfy the Giella v Cassman Brown test.
iii. The trial magistrate failed to provide sufficient reasoning to support her decision, particularly on the issue of irreparable harm.
49. Consequently, I hereby set aside the trial court’s order granting an interlocutory injunction and substitute it with an order dismissing the Respondents’ application dated 24th August 2023.
50. The appeal having partially succeeded, I direct that each party is to bear their own costs of the appeal.
51. It is so ordered.
SIGNED DATED and DELIVERED IN VIRTUAL COURT
THIS 19TH DAY OF DECEMBER 2024
ADO MOSES
JUDGE
In the presence of:
Moses – Court Assistant
Mutua ………………for the Appellant
Kerio…………………for the Respondent