1. This Ruling relates to an Application by the Plaintiff INFAMA INSURANCE ANGENCY LTD dated 6th March 2022. The same has been brought under Order 40 Rules 1 and 2 and Order 51 of the Civil Procedure Rules 2010, sections 1A, 1B, 3A and 63 (e) of the Civil Procedure Act (Cap 21 Laws of Kenya), section 97(2) of the Land Act, 2012, and Article 40 of the Constitution of Kenya, 2010.
2. The same is supported by the Supporting Affidavit of STEVE WANJAU. The Application and the suit itself arise from loan facilities that the Plaintiff took from I & M BANK (the Defendant) between the years 2015 and 2017 on the security of a first charge and further charge that it created over its House No. 3 on L.R. No. 7336/45, The Estate, Karen.
3. The Plaintiff having defaulted on repaying the said loan and fell into arrears, the Defendant bank in the exercise of its statutory power of sale advertised the said the Plaintiff’s said charged property for sale by public auction. It is that intended sale that the Plaintiff by this Application sought an interlocutory injunction to restrain the bank and the Auctioneer from selling the property. The Plaintiff has in its case disputed the bank’s valuation of the property, and its main contention is that the bank intends to sell the property at an under-value.
4. The Application was canvassed by way of the written submissions of the parties. Both filed their respective submissions. The Plaintiff’s submissions are dated 17th March 2023, while the Defendant’s submissions are dated 11th May 2022. Each party accompanied its submissions with a list and bundle of the legal authorities it has relied on to support its case.
The Application
5. The Application is seeking the following orders:
(1) (Spent).
(2) That a temporary injunction be issued, restraining the Defendant, its auctioneers, agents, servants, employees and/or any other person or body whatsoever acting under its instructions, from selling by public auction, offering for sale, advertising, threatening to sell or in any other way disposing of or dealing adversely with the property known as House No. 3 on L.R. No. 7336/45, The Estate, Karen, Nairobi, on the 8th March 2022 or any other day thereafter pending the hearing and determination of this Application.
(3) That a temporary injunction be issued, restraining the Defendant, its auctioneers, agents, servants, employees and/or any other person or body whatsoever acting under its instructions, them from selling by public auction, offering for sale, advertising, threatening to sell or in any other way disposing of or dealing adversely with the property known as House No. 3 on L.R. No. 7336/45, The Estate, Karen on the 8th March 2022 or any other day thereafter pending the hearing and determination of this suit.
(4) That in the alternative, an order do issue that the valuation report dated 4th March 2022 prepared by Dreamscape Valuers Limited shall be the proper valuation report to be relied upon for purposes of determining the forced sale value of the property known as House No. 3 on L.R. No. 7336/45, the Estate, Karen, during any sale of the property by way of public auction or private treaty.
(5) That the Court be pleased to issue any other or further order which it may deem just and expedient in the interests of justice.
(6) Further that the costs of this Application be borne by the Defendant.
The Applicant’s Grounds and Submissions on the Application
6. The Application has stated that the Defendant through Antique Auctioneers intends to in the purported exercise of the statutory power of sale hold a sham auction to sell the said property at a forced value of Ksh 90,000,000=. Which price according to the Defendant is below the actual value of the property, whose forced sale value it argues is Ksh 112, 500, 000= as per a Valuation Report it has later obtained from its own valuer Dreamscape Valuers Limited which it argues has also estimated the market value at Ksh 150, 000,000=.
7. That this is unlike the bank’s Sterling Valuers that have through their valuation valued the property at a market value of Ksh 120,000,000= and a forced sale value of Ksh 90,000,000=. The Plaintiff while supporting its valuation done in the year 2022, it has condemned the bank’s as being grossly inaccurate and unreliable.
8. Further that the same significantly undervalued the suit property and incredulously insinuates that over a period of 5 years (since the first valuation in 2016), the suit property has not appreciated at all in value. The Defendant further faults the bank’s Report for putting the value at that under-value, yet acknowledging that the property is in an affluent neighbourhood where demand for such a property is high.
9. It has also averred and deponed that although the Report claims that the substantial and significant improvements on the house were taken into account in the valuation, it admits that the house was in immaculate condition at the time of valuation. It has further faulted the Report for failing to disclose particulars of similar properties considered by the valuation. Arguing that this was necessary for purposes of establishing the current market value of the suit property, as well as the market values of the said properties. And that it is therefore doubtful whether the bank’s said valuation considered the value those similar properties.
10. Further that in as much as the Defendant has a right to exercise its statutory power of sale as chargee, the said right ought not to be exercised capriciously or maliciously to the unjustified detriment of the Plaintiff, who is equally entitled to protection of the law by ensuring that the suit property is sold at the best possible price after a proper valuation of the suit property is undertaken pursuant to section 97 of the Land Act.
11. The Plaintiff has also contended that if this Court does not stop the intended sale, the it (the Plaintiff) shall be at a grave risk of incurring an unjustified, unfair, and easily avoidable loss of not less than Ksh 22,500,000=, as the Defendant will carry on with the irregular, illegal, draconian, cosmetic and already predetermined scheduled auction process where the suit will be sold at a mere Ksh 90,000,000= instead of the forced sale value of Ksh 112,500,000= or higher price. And that such a sale would constitute an infringement of the Plaintiff’s right to property under Article 40 of the Constitution of Kenya 2010,
12. It has added that justice demands that the Defendant be restrained from carrying on with the intended public auction, so as to safeguard the due process of law and the Plaintiff’s proprietary rights over the suit property.
The Defendant’s Opposition and Opposant Submissions
13. The Defendant has opposed the Application through the Replying Affidavit of VINCENT BARCHOK an Assistant Manager of its Debt Recovery Unit. The same was sworn on 6th April 2022. In it he has given a chronological account of the events of the facilities, from the initial facility and charge of the year 2015, to the subsequent facility and further charge of the year 2017. It has also detailed the letters of offer, the purposes of the loan, the terms of the facility, the amount, the default and the Plaintiff’s subsequent admission of default, the statutory notices issued as well as correspondence between the parties.
14. The Replying Affidavit has also rebutted the Plaintiff’s claims herein with the arguments that the Application has not met the legal threshold for grant of interlocutory injunction; that the Plaintiff has not demonstrated anywhere in its pleadings that the intended sale is tainted with illegalities or impropriety. Further that the Plaintiff’s remedy lies in damages should there subsequently be a finding of fault in the sale ex post facto. Regarding the intended auction, the bank has also in the Affidavit clarified that it intends to sell the property at forced market value; that the property is intended to be sold at forced value; that market value depends of market forces of demand and supply, and not the valuation.
15. Further that it is not the valuation per se that sells the property; and that what determines the price at which a property is sold include- (a) the location of the property, (b) the prevailing Kenyan market price, (c) the value of the property itself, (d) the competitiveness of the market; and (e) the utilities and improvements made on the property.
Analysis and Determination
16. From the material before this Court, there are two composite issues it has to determine in this Application. The first is whether an interlocutory injunction should issue to restrain the Defendant bank from by the exercise of its statutory power of sale selling the charged property (i.e House No. 3 on L.R. No. 7336/45, the Estate, Karen) as scheduled by the Auctioneer’s Notice. The second one is whether this Court should impose on the intended auction, as against the bank’s Valuation, the Valuation the proffered by the Plaintiff loanee. The same has been understandably and debatably touted by the latter as being the most accurate, the most realistic, the most reasonable, and the most sensible one.
17. To make a determination on these two issues, this Court has read the rival pleadings of the two parties, as well as the Application and the Defendant’s response to it. It has also considered the rival written submissions and bundle of legal authorities filed by them; together with the relevant law and applicable legal principles including doctrines of equity.
18. Delineating the remit of a court on an application for injunctive relief at this interlocutory stage of the suit, this Court in Nairobi High Court Civil Case No. E120 of 2022 Tengeri N. Osoro v. Standard Chartered Bank (K) Ltd & Anor, rendered itself in the following words:
“Except for whether there exists a prima facie case or not, this being an interlocutory stage, this court has with abundant caution refrained from delving into a substantive final determination of the suit itself, and has preserved that for the hearing of the suit.
“At this interlocutory stage, the main issue for determination is whether the application has met the legal threshold for the grant of the interlocutory injunctive and stay orders the Applicant has sought in this Application. This is because, at this preliminary or interlocutory stage, the court risks making a ‘wrong decision’ in case it is not careful, or decides recklessly. There is therefore a higher duty or call on the court to decide carefully and diligently. Moreover, diligence is law’s rule of the thumb.
“Therefore, this being an interlocutory stage, this court has warned itself that it has not yet heard the case, witnesses have not yet testified, the evidence has not yet been tested by cross-examination, the merits of the case have not yet been fully considered, the case has not yet been adjudged, and the trial has not even begun yet. In at this stage deciding whether or not to grant or decline the injunction, it is treading with utmost care, diligence, caution, and even outright hesitation.”
Conditions for Granting Interlocutory Injunctions
19. An interlocutory injunction whether the restraining one (the prohibitory injunction) or the compelling one (the mandatory injunction), is meant to balance the scales of justice and put the parties at arms-length. As well as preserve the subject matter of the dispute. It was never meant to be used to prejudice or cause any hardship or difficult to any party or anyone. This comports well with Article 159 (2) (a) of the Kenya Constitution. Which states that all are equal before the law. Odeny J in Kenya Electricity Transmission Company Limited v Kibotu Limited [2019] eKLR stated that interlocutory injunctions are meant to merely preserve the substratum of the suit pending hearing and determination of the suit itself; and that they are not meant to prejudice or cause difficulty on any party.
20. For an application of this nature to succeed, it must meet the known legal threshold for grant of interlocutory injunctions. For Kenyan courts, the legal threshold is the one that was affirmed by the defunct East Africa Court of Appeal in Giella v. Casman Brown [1973] EA 358, where the Court stated as follows:
“First, an applicant must show a prima facie case with probability of success. Secondly, an interlocutory injunction will not normally be granted unless the applicant might otherwise suffer irreparable injury, which will not adequately be compensated by an award of damages. Thirdly, if the court is doubt, it will decide an application on the balance of convenience.”
Applying the Giella Test to this Application
21. The Plaintiff’s grievance rightly falls in the category of justiciable claims, and he has commendably put up a spirited fight for his charged property that is now staring at acquiring a new owner. This Application albeit raising triable issues, has been extensively dismembered by the Defendant’s near graphic account of the dealings between the parties and the status of the said loans.
22. To the extent that the Application has failed to establish a prima facie case with a probability of success (the first pillar of the Giella test). This pillar goes beyond triability and arguability. In that on the basis of the material before court, the Applicant’s case ought to have a high likelihood of success. Frankly, that cannot be said of the Plaintiff’s case as presented through his grounds and Supporting Affidavit; and as controverted and overturned by the Defendant’s response.
23. It has also not demonstrated that he is likely to suffer damage not compensable by an award of damages (the second pillar of the Giella test). As I said in Tengeri N. Osoro v. Standard Chartered Bank (K) Ltd & Anor hereinbefore quoted, the fact of there being a valuation report, means the value or approximate value of the charged property is known or knowable. Hence in the event the intended sale turns out to be irregular, improper or even illegal, the Chargor can sue and be compensated by way of damages.
24. Those three conditions of Giella apply sequentially and consecutively; and the last pillar (“the balance of convenience”) is applied only where the Court is in doubt as to the first two pillars. This Court is in no doubt as to whether the Application has satisfied the first pillar and the second pillar. It has not; hence it is needless for it to proceed to the third pillar.
Whether there is a Prima facie Case, with Probability of Success
25. A property after being charged as security for a loan becomes a commodity for sale; which if the chargor fails to fully repay the loan or honour his or her obligations under the charge, is then actualized as sale commodity. On this point there are many decisions, including Elijah Kipng’eno Bii v. Kenya Commercial Bank Limited [2001] eKLR as per Ringera J. In any case one of the prime rights of the chargee is the exercise of the statutory power of sale. It is also one of the terms that the chargor will have signed for, not only in the charge, but also in the loan agreement.
26. The chargor’s prime right is indeed that of redeeming his property on fully repaying the loan, as well as the equity of redemption that he retains even when in arrears as in this case. The latter, is usually foreclosed at the sale, at the fall of the hammer. Luckily enough for the Plaintiff, the charged property has not yet been sold, hence despite being in default and arrears it still has the equity of redemption over it and can pay the loan balance and redeem it, or still regularize with the bank through any mutually agreed arrangements and continue repaying the loan.
27. It can also approach the bank and negotiate a rescheduling of the loan. With a diligent loanee, commercial banks are usually lenient and accommodating, as they still need the customer.
28. Notably, even as the chargor pleads his equity of redemption, it needs to bear in mind that it has a duty under the charge and loan instrument to be paying the periodic installments as and when they fall due. As at March 2022 when this Application was filed, the Plaintiff was in default and arrears for which the charged suit property was scheduled for sale. It is now one year after, yet it has subsequently not provided any evidence that it has since then paid any monies to repay the loan, or to even just improve its indebtedness.
Will the Applicant Suffer injury not Compensable by Damages?
29. The sale of a charged property if it later turns out to be irregular or illegal, is compensable by way of payment of damages. Afterall as demonstrated by the rival pleadings of the parties the value of the property is ascertained or ascertainable. In these cases of charges and mortgages, there is usually a valuation or rival valuations by accredited and qualified valuers to ascertain the property’s market value as well as its forced value. The fact of ascertainment of the value of a property for purposes of creating a charge over it, commoditizes the property and puts it at the market place as a commodity. Whose value is ascertained, or ascertainable.
On Injuncting the Chargee’s Statutory Power of Sale
30. As I said in Tengeri N. Osoro v. Standard Chartered Bank (K) Ltd & Anor, seeking an injunction to stop the statutory power of sale, while making no effort to pay the loan arrears (even if only partly), is unconscionable; and any chargor coming to court for an injunction while submerged in arrears or default, does so with unclean hands.
31. The fact of the loanee having charged its property as security neither discharges nor absolved it from repaying the loan. It still had a corollary duty to continue the repaying the loan even as the property remains charged. The reason being that, unlike a sale, a charge is merely a security for the loan, to be realized in the unlikely event of the chargor defaulting. I say this because a commercial bank is unlikely to give a loan to a prospective borrower that from the outset displays symptoms of default or who has a history of default (a poor credit rating). This is why banks resort to credit reference, before approving an applicant for a loan.
32. As regards prayer (4) which has implored the Court to prefer and impose the loanee’s sponsored valuation to the bank’s another without any commercial or legal justification, has to be rejected. It is not for the Court to determine the value of a charged property.
33. Courts are not research institutions, hence never sojourns on investigative or fact-finding missions. They are also not property Valuers, hence neither undertake valuation of charged property nor attempt to superimpose their estimation of the actual value, market value or presumptive value of the charged property away from Valuation Reports supplied to it by the litigants. In line with commercial usage, the property value is left to market forces and dynamics especially of demand and supply.
34. Furthermore, at this stage of this suit it is premature for the Court to start analyzing and interrogating the rival valuation reports at this preliminary stage before the suit goes on trial. That will be done at the hearing of the suit itself stage.
35. It is to be hoped that at the hearing of the suit itself, the respective valuers will testify and present their rival Valuation Reports in support of their valuable clients, and be cross examined on them. It being a cardinal principle of law that he who alleges must prove, the Plaintiff is yet to prove its hitherto unproved allegations of under-valuation in line with the legal burden created by sections 107, 108 and 109 of the Evidence Act Cap 80 Laws of Kenya. The burden of proof is on it. Until when that has been proved at the hearing, this Court has no material on which to fault the bank’s valuation or even the Plaintiff’s.
36. It is only at the trial that the Plaintiff and his valuer will prove that assertion of under-valuation. For now, they have not. Therefore, the alleged under-valuation being a contested fact (fact in issue) in this suit, this Court cannot make a determination on it until after hearing the evidence at the trial. For now it is premature to make any finding on that aspect of this suit.
37. In the end therefore, the Application having failed to meet the legal threshold for the grant of interlocutory injunctive relief, it is hereby dismissed with costs to the Defendant.
DATED and DELIVERED at NAIROBI this 29th day of May 2023.