REPUBLIC OF KENYA
IN THE HIGH COURT OF KENYA
COMMERCIAL AND TAX DIVISION
CIVIL CASE NO. E350 OF 2019
HARDROCK HOLDINGS AND
INVESTMENT COMPANY LIMITED…………........................PLAINTIFF/APPLICANT
VERSUS
FAULU MICROFINANCE BANK LIMITED ……….1ST DEFENDANT/RESPONDENT
GEORGE MBAGU KINUTHIA T/A
IMMEDIATE AUCTIONEERS…………………….... 2ND DEFENDANT/RESPONDENT
RULING
Brief facts
1. Before the court are two (2) applications both filed by the plaintiff. The first application dated 13th October 2021 seeks an injunction restraining the sale of the applicant’s charged properties, an order of mandamus compelling the 1st respondent to delist the applicant from the Credit Reference Bureau (CRB) and finally a prayer for the court to supervise the consent order of 23rd September 2020. The application is supported by the grounds on the face of it and by the affidavit sworn by Simon Munenge dated 13th October 2021. An interim injunction pending the hearing and determination of this application was granted on 1st December 2021, after the applicant had deposited Kshs. 1,000,000/=.
2. The second application is dated 29th March 2023 and brought under Certificate of Urgency. It seeks to stay the sale of the charged properties by a public auction scheduled for 20th April 2023 as advertised by a publication in the Daily Nation newspaper of 27th March 2023. The application also seeks a mandatory injunction compelling the 1st respondent to issue professional undertakings as requested by the plaintiff/applicant’s advocate vide a letter dated 21st November 2022 seeking to redeem the charge by way of sale by private treaty of land parcel numbers L.R 13136/268, L.R 13136/231 and L.R 13136/250 for a total purchase price of Kshs. 34,000,000/= in adherence to the provisions of Section 89 of the Land Act. The application is supported by the grounds on the face of it and by an affidavit dated 29th March 2023 sworn by Simon Munenge.
3. Both applications are brought under Article 22, 23(3)(b)(f) of the Constitution of Kenya 2010, Section 63(e) of the Civil Procedure Act and Order 40(1) and 51 of the Civil Procedure Rules. Both applications are also opposed. The first vide the grounds of opposition and replying affidavit of Maurine.W. Kahiro dated 3rd December 2021 and the second application vide the replying affidavit of Maurine.W. Kahiro dated 11th April, 2023.
4. I have read and considered the pleadings, submissions and case law filed by each party in support of their cases. From these, it is not disputed that the applicant herein is indebted to the 1st respondent. It is also not contested that the dispute was settled by way of a consent entered into by the parties, dated 23rd September, 2020 which was adopted as an order of the Court on the 23rd November 2020. The consent fixed the total amount payable by the applicant to the 1st respondent at Kshs. 59,452,097.85/=. The consent also fixed the terms of payment to four (4) instalments. Kshs. 13,500,000/= would be paid within 30 days of the consent and the balance of 45,952,097.85 in three (3) equal instalments of Kshs. 15,317,366/= to be paid every four (4) months after the payment of the first instalment.
5. It was a further term of the consent that the applicant would provide additional collateral being property L.R. NO. 13136/186 (I.R 163667) to be valued and charged in favor of the 1st respondent. The consent further provided that in the event the applicant defaulted on any of the above terms, the 1st respondent would be at liberty to proceed to exercise its statutory power of sale. The other terms of the consent related to the delisting of the applicant from the CRB and finally the determination of costs payable to the 1st respondent either by consent or taxed costs.
6. It is not disputed that at the time of this ruling the applicant had paid off an amount of Kshs. 25,000,000/= leaving a balance of Kshs. 34,452,097.85 unpaid. The applicant had also deposited a further Kshs 1,000,000/= in court as security.
7. From the two (2) applications, the broad issues for determination are:
a) Whether an injunction should issue restraining the sale of the applicant’s charged properties and in particular whether the court should stay a public auction scheduled for 20th April 2023;
b) Whether an order of mandamus should issue, compelling the 1st respondent to delist the applicant from the Credit Reference Bureau (CRB);
c) Whether the court should supervise the consent order of 23rd September 2020;
d) Whether the 1st respondent is entitled to exercise its statutory power of sale and how this should be exercised.
Analysis and determination
i. The import of the consent order of 23rd November 2020 and whether the court should supervise the consent order
8. Prima facie, an order made with the consent of parties is binding on the all the parties to the proceedings or action and on those claiming under them. This is the import of section 67(2) of the Civil Procedure Act which states that no appeal can lie from a decree passed with the consent of the parties. It follows therefore that where the initial terms of a suit or claim are compromised by the parties and a consent is recorded between them, the consent recorded supersedes the original cause of action. The court is therefore not justified to imply any terms or to vary the consent let alone extend the time agreed by parties for the performance of an action.
9. In the current circumstances, parties agreed that the amount due and payable under the consent was Kshs. 59,452,097.85/= with costs to be determined. Technically speaking the payment ought to have been completed thirteen (13) months from 23rd November 2020. The consent therefore stands breached as the amount of Kshs. 34,452,097.85 is still outstanding as has been confirmed by both parties. The fact that the financial position of the applicant seems to have changed does not give the court a ground to interfere with the consent which parties being well aware of their circumstances negotiated and reached an agreement that suits them.
ii. Whether an injunction should issue restraining the sale of the applicant’s charged properties and in particular whether the court should stay a public auction scheduled for 20th April 2023
10. The celebrated case of Giella v Cassman Brown (1973) EA 358 laid down the threshold for the granting of an injunction. From the reasons stated above, parties agreed on terms of repayment of the outstanding amount. There has been no contest to this. The liability of the applicant is not contested and as such there are no issues for litigation. The plaintiff has had since December 2020 to complete the payments due and owing but this has not been done. The case presented by the applicant does not make out a prima facie case for rebuttal.
11. As regards the issue of whether the plaintiffs will suffer irreparable harm by the intended auction, it is noted that the properties had been offered as security for the facility given by the 1st defendant. It was very clear even in the consent that in the event of default the said properties would be sold. The applicant’s claim that they are likely to be gravely disadvantaged by the actions of the defendant can be taken care of by way of damages. This position was upheld by the Court of Appeal in Riscillah Krobought Grant V Kenya Commercial Bank where it held as follows:
“Where a chargee had exercised its statutory power of sale and caused the property to be sold by public auction, the remedy of the chargor was a claim for damages if she would prove that there was improper or irregular exercise of the statutory power of sale.”
12. Indeed, the above position is the import of section 99(4) of the Land Act 2012 which provides that any person who is aggrieved by unauthorized or irregular power of sale can be compensated by way of damages from the person exercising that power. The balance of convenience therefore tilts against granting the injunction and in favour of allowing the 1st respondent to recover the monies rightfully due to it. The long and short of this is that the defendants ought to be allowed to proceed with the auction scheduled for 20th April 2023.
iii. Private treaty or public auction?
13. The applicant averred that he had sourced and received offers for the purchase of the charged properties for sale by way of private treaty. To support this, the applicant attached various letters of offer to show that the proposed sales would generate a total of Kshs. 34,000,000/=. He further submits that the 1st respondent had rejected the attempts for sale by way of private treaty and instead advertised for sale of the said properties. This fact is not denied by the 1st respondent.
14. I have taken note of the submissions by the applicant proposing that the sale of the secured properties be by way of private treaty instead of a public auction. The 1st defendant is without a doubt not agreeable to this proposal. Indeed, the arrangement for a sale by private treaty might sound attractive but then the discretion lies with the chargee to decide whether to allow the chargor to dispose the properties by private treaty or public auction. This position has been cemented by the courts including in the case of Premier Flour Mills Ltd & 2 others v Standard Chartered Bank Kenya Ltd [2019] eKLR. Likewise, in Stephen Kipkatam Kenduiywa t/a Kapchebet Farm v Sidian Bank Ltd & another (2017) eKLR where the court stated that
the chargee has discretion to allow the chargor to privately dispose of the property or it can proceed to sell it through its statutory power of sale as there would be no prejudice caused to the chargor who is at liberty to persuade a selected buyer to participate in the auction.
15. For these same reasons, the prayer for a mandatory injunction compelling the 1st respondent to issue professional undertakings as per the letter of the applicant’s advocate dated 21st November 2023 would be misplaced. I am in agreement with the respondents’ submission that the applicant can exercise the right of redemption by paying the decretal sum as held in Kamulu Academy Limited & another v British American Insurance (K) Limited & 2 others [2018] eKLR. I am also of the view that the equity of redemption is the right to extinguish the mortgage and retain ownership of the property by paying the debt. Thus, at this point, whatever the financial predicament that the applicant finds himself, the recourse open for the 1st respondent is to exercise its statutory power of sale. The terms of the consent were explicitly clear and there was no indication that the parties intended for such term as demanded by the applicant in terms of the professional undertaking neither was it intended to invite the court to supervise the implementation of the consent order.
iv. The Notice to Redeem Property issued by the 2nd respondent dated 24th March 2023
16. The applicant has attached a Notice to Redeem Property issued by the 2nd respondent dated 24th March 2023. The notice contains an overstatement of the amount that the applicant is required to pay so as to redeem the property. It requires the payment of Kshs. 83,164,060.26/= as at 24th March 2023, which was beyond what was mutually agreed as per the consent dated 23rd September 2020. The said notice is issued under Rule 15 (d) of the Auctioneers Rules which provides that:
Upon receipt of a court warrant or letter of instruction the auctioneer shall in the case of immovable property:
give in writing to the owner of the property a notice of not less than forty five days within which the owner may redeem the property by payment of the amount set forth in the court warrant or letter of instruction;
17. The purport of an erroneous notice under rule 15(d) is similar to that stated in David Gitome Kuhiguka vs Equity Bank Limited [2013] eKLR. The court found that a notice that failed to comply with the provisions of Section 90 (2) of the Land Act for stating the amount that must be paid to rectify the default, was defective and null and void ab initio. Any subsequent notices issued pursuant to the notice in furtherance of the exercise of the party’s Statutory Power of Sale were also held to be invalid and could not confer any right to proceed as such. On this ground only, the purported sale of the subject property had no legal basis.
18. It was also stated that the requirement for the amount to be correctly stated is not mere technicality that can be wished away. Regard must be had to the contractual agreement between the parties. Against this background, the certainty of the amount stated in the Notice to Redeem issued under the Auctioneers Rules is paramount. I note that this submission by the applicant has not been controverted or in any way canvassed by the respondents. I would thus understand the apprehension by the applicant particularly within the context of the consent agreement. Even as I note the frustration of a lender in the face of such a situation, I would agree that it is imperative that the notification be rectified and reissued for the avoidance of doubt.
v. Whether an order of mandamus should issue, compelling the 1st respondent to delist the applicant from the Credit Reference Bureau (CRB)
19. The applicant seeks an order of mandamus against the 1st respondent. The applicant states that the failure by the respondents to delist him from the CRB has made it impossible for him to access a facility that would have enabled him to pay off the decretal amount. The respondents have challenged this position stating that the consent order was chronological. It is alleged that the parties had intended that the applicant would be delisted from the CRB only after he had paid the decretal amount.
20. The respondents have pointed the court to various authorities on the scope and nature of the order of mandamus. The point of convergence with all the decisions is the fact that the order is directed to a person, corporation or tribunal to compel the performance of a public duty which they are bound to do in law. The public duty in question must be mandatory and not discretional or optional. The applicant has not demonstrated how the delisting of a party from the CRB is a public duty or why the order should apply to the 1st respondent. I am therefore inclined to agree with the respondents that neither of the respondents is a public body and neither is the duty that they are purportedly being compelled to perform, a public duty.
21. Again looking at the consent that the parties signed, and the terms set out therein, it conclusively shows that the parties intention was not for the applicant to pay off the decretal amount by way of another facility but by the sale of the properties if the money was not paid off. It would therefore beat logic for the applicant to ask for delisting knowing that he had not yet completed his part of the bargain.
vi. Conclusion and disposition
22. The upshot of this is that the application dated 13th October 2021 is hereby dismissed with costs to the respondents. The application dated 29th March 2023 partially succeeds. The following specific orders shall abide:
i. The auction scheduled for 20th April 2023 is hereby stopped with immediate effect so as to allow for a fresh Notice of Redemption under Rule 15(d) of the Auctioneers Rules.
ii. For the avoidance of doubt the auction shall proceed upon due compliance with the requirements of such notice by law.
iii. The respondents will meet the cost of stopping the scheduled auction of 20th April 2023.
iv. Costs be in the cause
SIGNED, DATED AND DELIVERED AT NAIROBI (VIRTUALLY)
THIS 19th DAY OF April 2023
F. MUGAMBI
JUDGE