1. The application before the Court is the Notice of Motion dated 18th December 2023. Vide the said application, the 1st to 4th Plaintiffs/Applicant seek the following orders:-
(1) Spent;
(2) Spent;
(3) Spent;
(4) There be a temporary injunction pending the hearing and determination of the suit restraining the Defendant, its agents, servants, or employees from advertising for sale, selling, leasing, disposing, alienating, or in any way interfering with the 2nd Plaintiff’s rights over LR No 209/136/250;
(5) There be a temporary injunction pending the hearing and determination of the suit restraining the Defendant, its agents, servants, or employees from taking any enforcement action against the 1st, 2nd, 3rd, and 4th Plaintiffs on the strength of the letter of offer dated 18th July 2017, deed of variation of loan Agreement dated 25th November 2022, charge dated 3rd August 2017 and guarantee and indemnity dated 1st August 2017; and
(6) The costs of the application be awarded to the Plaintiff.
2. The application was supported by the affidavit of Mr Benson Musili, the Head of Legal and Board Services of the 1st Plaintiff/Applicant and is grounded on the alleged fact that Defendant lacked the capacity to enter into a contract with the Plaintiffs, as it is not a legal entity capable of entering into contracts in its own name and that the charge documents were not executed in the manner required by sections 44 and 48(1) of the Land Registration Act, Act No 3 of 2012. The Plaintiffs/Applicants stated that the Defendant intended to sell the LR NO 209/139/250 belonging to the 2nd Plaintiff without first issuing statutory notices required under sections 90 and 96 of the Land Act, 2012 and that the said failure rendered the said exercise illegal and unlawful. Further, the interest charged was non-contractual. The Plaintiffs averred that the 2nd, 3rd and 4th Plaintiffs/Applicants were no longer bound as guarantees as the Defendant entered into a deed of variation of the loan agreement, dated 25th November 2022, without their knowledge, whose effect was to fundamentally and materially vary the terms of the primary contract. In addition, the 2nd, 3rd and 4th Plaintiffs/Applicants accused the Defendant of acquiescing in the default on the part of the 1st Plaintiff/Applicant by not ensuring that the latter paid its loans on the due dates and that the said acquiescence prejudiced them in their capacities as guarantors. They averred that the effect of the foregoing was to discharge them from their obligations as guarantors. Thirdly, the Plaintiffs/Applicants averred that the remedies available to the Defendant, assuming the contract was valid and that they had not been discharged, could not all be exercised simultaneously and that Defendant should, therefore, have elected which remedy to pursue. It was thus urged that pursuing various remedies at once was in breach of the doctrine of election and prejudicial to the Plaintiffs/Applicants.
3. The Plaintiff/Applicants thus urged that I allow the application as they stand to suffer irreparable injury, as they would lose valuable property on the strength of an illegal and unenforceable contract, that the 2nd Plaintiff/Applicant “valuable property” would be sold in violation of the law, that they would be forced to defend multiplicity of lawsuits and lastly that there was a risk that the 2nd, 3rd and 4th Plaintiffs/Applicants would be forced to pay colossal sums of money yet their contracts of guarantee had been discharged as a result of unilateral variation by the Defendant. It was thus urged that the reliefs sought be granted in the interim and ultimately.
4. The application was opposed. The Defendant filed a Replying Affidavit sworn on 16th February 2024 by Mr Yunus Sheikh Ibrahim, a trustee of Defendant/Respondent, vide which it was averred that the 1st Plaintiff/Applicant sought a loan of Kes.1,201,075,790.00 from Defendant/Respondent on 6th February 2017 to enable them to develop 4,200 hectares of cane. Upon assessment, the 1st Plaintiff/Applicant was granted a loan facility of Kes.500,000,000.00 for cane development on 1,748 hectares of land which they accepted. The agreement was signed by the 4th Plaintiff/Applicant, the director of the 1st Plaintiff/Applicant. The loan was repayable in 5 equal annual instalments of Kes.115,487,399.10, commencing on 10th August 2018. To secure the facility, a charge against parcel number LR NO 209/136/250 was registered in favour of the Defendant/Respondent as collateral. The 2nd, 3rd, and 4th Plaintiffs/Applicants provided personal guarantees as further securities for the facility.
5. It was further deposed that the 1st Plaintiff/Applicant did not meet its loan obligation. During the 1st year, the 1st Plaintiff paid Kes.35,097,578.00 against the expected amount of Kes.92,399,912.00. it was averred that part payments made intermittently by the 1st Plaintiff/Applicant had since stopped once the injunctive relief was issued, as evidenced by cheque numbers 001264 and 001255 drawn by the 1st Plaintiff/Applicant, which were dishonoured upon presentation. It was urged that the Plaintiffs/Applicants hadn’t approached the Court with clean hands as they were in breach of contract. Regarding the issue of the capacity of the Defendant/Respondent to enter into a contract, it was urged that the objection made by the Plaintiffs/Applicants was ex post facto and that the plaintiffs/applicants were estopped by the doctrine of laches having benefited from the Defendant’s facility for five years.
6. The Defendant/Respondent averred that the Plaintiffs/Applicants were served with requisite notices. In support of this, they provided copies of demand letters, foreclosure notices and what was said to be proof of service. It was urged that the Defendant/Respondent had demanded payment. Regarding the deed of variation, it was averred that its only effect was to restructure the loan repayment and enhance collateral and ought to be read alongside the letter of offer as originally executed, save for the varied causes. The Defendant/Respondent averred that the 2nd, 3rd and 4th Plaintiffs/Affidavits could only be discharged on a quid pro quo basis once the 1st, 3rd and 4th Plaintiffs/Applicants provided alternative securities/acceptable bank guarantee commensurate to the loan amount borrowed and subject to the accrued interest as agreed.
7. It was also urged that the Defendant/Respondent had acted reasonably. The Plaintiffs/Applicants knowingly and willfully entered into a loan contract, knew the repercussions thereof in the event of default and shouldn’t use the Court process to aid the breach of contract. It was, therefore, urged that the application be dismissed with costs.
8. The application was canvassed by way of written submissions. The Plaintiff, through its counsel on record, Muriu Mungai & Co Advocates LLP, filed a Written Submission dated 19th March 2024 vide which 4 arguments in support of issuance of injunctive relief were made, firstly that the contractual documents were all invalid as the Commodities Fund is not a body capable of entering into contracts. Secondly that the Plaintiffs/Applicants were not served with statutory notices as required by sections 90 and 96 of the Land Act 2012. Thirdly, the deed of variation entered into by the Defendant and the 1st Plaintiff/Applicant had the effect of discharging the 2nd, 3rd and 4th Plaintiffs/Applicants as it was made without their notice and/or consent. Finally, it was urged that the Commodities Fund couldn’t exercise all its remedies simultaneously and should have elected which remedy to pursue. Based on the four grounds, it was urged that there is a prima facie case that is likely to succeed at trial and that an injunction should, therefore, be issued pending the hearing of the main suit.
9. Counsel for the Plaintiffs/Applicants averred that the test for issuance of an injunction as set out in the locus classicus case of Giella versus Cassman Brown & Co Ltd (1973) EA 358 was:-
1. Whether the Plaintiffs have established a prima facie case;
2. Whether there would be irreparable injury if an injunction weren’t issued; and
3. The balance of convenience.
10. On the first issue, it was submitted that as an unincorporated body, the Defendant/Respondent could only act through its Board of Trustees. How the loan documents were executed was also challenged. The securities were executed by the Managing Trustee of the Defendant/Respondent. No power of attorney authorizing her to act for the Board of Trustees of the Defendant/Respondent was provided. The Plaintiffs/Applicants averred that the said failure was fatal as the provision of the power of attorney was a mandatory requirement under the Land Act.
11. Counsels urged that the Defendant/Respondent was under obligation to issue 2 statutory notices under sections 90 (1) and 90(2) of the Land Act, 2012. It was urged that no notice was sent to the chargor and that no notice giving three months redemption notice under sections 90(1) and (2) of the Land Act was given. It was urged that a notice not sent to the chargor and that did not give a requisite notice period was invalid Reliance was placed on the case of Trust Bank Ltd vs Eros Chemist Ltd & another [2020]eKLR.
12. The Plaintiff/Applicant's counsel urged that the variation made regarding the loan repayment was made without the prior consent of the 2nd, 3rd, and 4th Plaintiffs/Applicants.
13. It was also averred that the Defendant/Respondent couldn’t pursue the remedies available to it cumulatively but should have elected which one to pursue. Reliance was placed on the case of National Insurance Company vs Mastan & Another 2006 (2) SCC 641.
14. On whether the Plaintiffs/Applicants would suffer irreparable injury if the injunction was denied, it was urged that in circumstances where there is a demonstrated breach of the law, an injunction ought to be issued.
15. The Defendant/Respondent submitted through its counsel, Janet Langat, vide written submissions dated 1st March 2024 that the application dated 18th December, 2023 be dismissed with costs.
16. The Defendant/Respondent identified two issues as coming up for determination to wit:-
1. Whether the Defendant’s power to exercise legal recovery of the outstanding amounts had crystalized; and
2. Whether the honourable Court should entertain the Plaintiffs/Applicants' claims and issue the orders sought.
17. It was submitted that the Plaintiffs/Applicants and the Defendant/Respondent entered into the agreement freely and free of undue influence and/or duress. The 1st Plaintiff/Applicant reneged on its duties to repay the outstanding arrears. In the Defendant/Respondent’s view, the real issue was whether there was a loan facility in existence advanced as agreed to the 1st Plaintiff by the Defendant, rather than the nature and status of the Defendant’s corporate body.
18. It was urged that the Defendant/Respondent’s right to recover the outstanding arrears had accrued. The Defendant/Respondent issued the requisite notices under sections 90 and 96 of the Land Act and that the requisite notices were, in fact, issued. Reliance was placed on the decision of Prof JB Ojwang, J (as he then was) in Suleiman vs Amboseli Resort Ltd [2004 ]2 KLR 589 wherein the learned judge said as follows:-
“… Even as those must remain the basic test it is worth adopting a further albeit and more intrinsic test which is now in the nature of a general principle of the Court; in responding to prayers for interlocutory injunctive relief, should always opt for the lower rather, the higher risk of injustice.”
19. The Defendant/Respondent’s counsel submitted that the Plaintiffs/Applicants had approached the Court with unclean hands and would potentially be unjustly enriched if they were successful. The Court was referred to the case of Samuel Kamau Macharia vs Kenya Commercial Bank Ltd, Kenya Commercial Finance Co. Ltd [2003]eKLR. It was further submitted that the Plaintiff were guilty of laches.
20. Lastly it was submitted that the Plaintiffs hadn’t shown that they have a prima facie case with probability of success and that whatever injury they might suffer was not capable of compensation by an award of damages. In support of the latter point, reliance was placed on the decision of Ringera J in Bil vs KCB Ltd [2001]KLK 458 and Nancy Wacici vs Kenya Women Micro Finance Bank Ltd [2017]eKLR. In the latter case, the Court stated that:-
“once a power of sale has arisen, a mortgagee has a right to exercise it. The Court has no power to prevent the exercise of that power if it is being properly exercised. It is a power Parliament has granted to the mortgagee, and Courts cannot and ought not to interfere if it is being exercised.”
21. Thus, I was urged to dismiss the application for injunction with costs.
22. Both parties agree that the 1st Plaintiff/Applicant sought a loan of US Dollars 10,000,000.00, out of which Kes.500,000,000.00 was approved by the Defendant/Respondent. It is further agreed that the 1st Plaintiff/Applicant’s loan, as revised, was secured by a charge on the land owned by the 2nd Plaintiff/Applicant and personal guarantees of the 2nd, 3rd and 4th Plaintiffs/Applicants. The Plaintiffs/Applicants concede that there has been default on the part of the 1st Plaintiff/Applicant.
23. The foregoing notwithstanding the Plaintiffs/Applicants aver that the Defendant/Respondent has no right to realize the security and rely on four grounds to wit that, firstly, the contractual documents are invalid and cannot, therefore, found the basis for any recovery action. Secondly, the 2nd Plaintiff/Applicant wasn’t served with statutory notices under sections 90 & 96 of the Land Act, 2012. Thirdly, the variation of the letter of offer entered into by the 1st Plaintiff/Applicant and the Defendant/Respondent, having been made without the notice and or consent of the 2nd, 3rd and 4th Plaintiffs/Applicants, discharged them from their respective contracts or guarantee and that recovery action breached the doctrine of election and was thus invalid.
24. To enable me to decide, I must consider the principles applicable when considering whether or not an injunction should be issued. the Court of Appeal for Eastern Africa in Giella vs Cassiman Brown & co Ltd [1973]EA 358 stated 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 injury, which would not be adequately compensated by an award of damages. Thirdly if the Court is in doubt, it will decide an application on the balance of convenience.”
25. The said principles were restated by the Court of Appeal in the case of In Nguruman Limited vs. Jan Bonde Nielsen & 2 Others [2014] eKLR. The said Court stated as follows:-
“In an interlocutory injunction application, the applicant has to satisfy the triple requirements to;
(a) establish his case only at a prima facie level,
(b) demonstrate irreparable injury if a temporary injunction is not granted, and
(c) ally any doubts as to (b) by showing that the balance of convenience is in his favour.
These are the three pillars on which rests the foundation of any order of injunction, interlocutory or permanent. It is established that all the above three conditions and stages are to be applied as separate, distinct and logical hurdles which the applicant is expected to surmount sequentially. See Kenya Commercial Finance Co. Ltd V. Afraha Education Society [2001] Vol. 1 EA 86. If the applicant establishes a prima facie case that alone is not sufficient basis to grant an interlocutory injunction, the court must further be satisfied that the injury the respondent will suffer, in the event the injunction is not granted, will be irreparable. In other words, if damages recoverable in law is an adequate remedy and the respondent is capable of paying, no interlocutory order of injunction should normally be granted, however strong the applicant’s claim may appear at that stage. If prima facie case is not established, then irreparable injury and balance of convenience need no consideration. The existence of a prima facie case does not permit “leap-frogging” by the applicant to injunction directly without crossing the other hurdles in between. It is where there is doubt as to the adequacy of the respective remedies in damages available to either party or both that the question of balance of convenience would arise. The inconvenience to the applicant if interlocutory injunction is refused would be balanced and compared with that of the respondent, if it is granted.”
26. What amounts to a “prima facie case” was defined in the case of Mrao Ltd vs First American Bank of Kenya Ltd & 2 others [2003]KLR 125 as being:-
“ “The principles which guide the Court in deciding whether or not to grant an interlocutory injunction are, first, an applicant must show 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...A mere scintilla of evidence can never be enough: nor can any amount of worthless discredited evidence. It is true that the Court is not required at that stage to decide finally whether the evidence is worthy of credit, or whether if believed it is weighty enough to prove the case conclusively: that final determination can only properly be made when the case for the defence has been heard. It may not be easy to define what is meant by “prima facie case”, but at least it must mean one on which a reasonable tribunal, properly directing its mind to the law and the evidence could convict if no explanation is offered by the defence...The terms “prima facie” case, and “genuine and arguable” case do not necessarily mean the same thing, for in using another term, namely a sustainable cause of action, the words “prima facie” are frequently used to refer to a case which shifts the evidential burden of proof, rather than as giving rise to a legal burden of proof in the manner of considering, which was in relation to the pleadings that had been put forward in the case. It would be in the appellant’s interest to adopt a genuine and arguable case standard rather than one of a prima facie case, the former being the lesser standard of the two...In civil cases a prima facie case 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 apparently been infringed by the opposite party 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.”
27. Have the Plaintiffs/Applicants shown that they have a prima facie case? I will look at each of the four grounds of attack in turn.
28. On whether the contractual documents are invalid for want of capacity on the part of the Defendant/Respondent, the Court notes that it has not been argued by the Defendant/Respondent that it is a corporate body. In my view, the question as to whether it could enter into the contracts in the manner it did is not an idle question. In my view, it is one that ought to be canvassed on merit. Further, this Court agrees with the Plaintiffs/Applicants that the issue as to whether section 44 of the Land Registration Act was adhered to is an arguable and triable issue.
29. Regarding service of the statutory notices, I have looked at exhibits “YS-22” to “YS-25”. None of the said notices were served on the 2nd Plaintiff/Applicant. The land sought to be realized is registered in the name of the 2nd Plaintiff/Applicant. Whether the Defendant/Respondent, assuming that it had the capacity to contract with the 1st Plaintiff/Applicant and that the securities created were valid, can exercise its statutory power of sale without issuing notices to the chargor is an issue that, in my view makes this suit one which could be, said to be a prima facie case that ought to be determined on merit upon trial.
30. The Court of Appeal a Trust Bank Ltd vs Erus Chemists Ltd & another [2020]eKLR stated that:-
“…in our judgment, the notice is to guard the rights of the mortgagee because if the statutory right of sale is exercised, the mortgagor’s equity of redemption would be extinguished…”
31. The variation of the letter of the offer and its effect on the liabilities of the 2nd, 3rd, and 4th Plaintiff/Applicants are also triable issues. I agree with what the Court stated in Margaret Njeri Muiruri vs Bank of Baroda (Kenya) Ltd [2014]eKLR that:-
“it is well acceptable that any material variation of the terms of contract between the debtor and creditor which is prejudicial to the guarantor and which is made without the guarantor's consent will discharge the guarantor. An increase in the rate of interest and an extension of the time of payment are both material changes to the loan agreement sufficient to discharge a surety.”
32. In my view, whether the variation was done without the consent of the other Plaintiffs and would be to their detriment are issues that demand further investigation during the trial.
33. The upshot of the foregoing is that it is my opinion that there is a prima facie case. Consequently, the first test has been met.
34. Will the Plaintiffs/Applicants suffer irreparable loss that cannot adequately be compensated by an award of damages? Although I agree with the decision of Ringera J (as he then was) Bii vs Kenya Commercial Bank Ltd [2001]KLR 458 that:-
“Once property is offered as security, it becomes, by that very fact, a commodity for sale. There is no commodity for sale whose loss cannot be compensated in damages… once a property is given to the bank as security, the same becomes a commodity that can be sold.”
35. The foregoing notwithstanding, in this case, it does appear that the Defendant/Respondent may not have given the requisite statutory notices and that there is a real possibility that it lacked the capacity to contract with the Plaintiffs/Applicants. In the circumstances, I agree with the holding by Madam JA I Thomson Smith Aikman & others vs Muchoki & others [1982]eKLR that:-
“those who flout the law by infringing the rightful title of others; and brazenly admit, ought to be restrained by injunction. If I am adding a new dimension for the grant of an interlocutory injunction be it so. Equity will not assist law breakers.”
36. In the circumstances, I find and hold that the Plaintiffs/Applicants will suffer irreparable injury unless an injunction is issued. Thus the second test has been met.
37. The 2nd Plaintiff/Applicant is at risk of losing its title in circumstances that are questionable. It may not have been issued with statutory notices. In the circumstances, had I been in any doubt at all, it is my view that the balance of convenience tilts in favour of protecting the rights of the chargor whose land may be sold by a chargee who may not have adhered to the law. I, therefore, find and hold that the balance of convenience tilts in favour of grant of an injunction.
38. In the circumstances, I find and hold that the application has merit. I therefore order as follows:-
1. A temporary injunction is hereby issued restraining the Defendant, its agents, servants, or employees from advertising for sale, selling, leasing, disposing, alienating, or in any way interfering with the 2nd Plaintiff’s right over LR NO 209/136/250 pending the hearing and determination of the suit; and
2. A temporary injunction is hereby issued restraining the Defendant, its agents, servants, or employees from taking any enforcement action against the 1st, 2nd, 3rd, and 4th Plaintiffs on the strength of the letter of offer dated 17th July 2017, deed of variation of a loan agreement dated 25th November 2022, charge dated 3rd August 2017 and guaranteed and indemnity dated 1st August 2017 pending the hearing and determination of the suit herein.
39. I order that the costs of the application be in the cause.
40. Orders accordingly.
DATED and SIGNED at Mombasa this 12th day of August 2024. Delivered virtually through Microsoft TEAMS.
(1) Spent;
(2) Spent;
(3) Spent;
(4) There be a temporary injunction pending the hearing and determination of the suit restraining the Defendant, its agents, servants, or employees from advertising for sale, selling, leasing, disposing, alienating, or in any way interfering with the 2nd Plaintiff’s rights over LR No 209/136/250;
(5) There be a temporary injunction pending the hearing and determination of the suit restraining the Defendant, its agents, servants, or employees from taking any enforcement action against the 1st, 2nd, 3rd, and 4th Plaintiffs on the strength of the letter of offer dated 18th July 2017, deed of variation of loan Agreement dated 25th November 2022, charge dated 3rd August 2017 and guarantee and indemnity dated 1st August 2017; and
(6) The costs of the application be awarded to the Plaintiff.
2. The application was supported by the affidavit of Mr Benson Musili, the Head of Legal and Board Services of the 1st Plaintiff/Applicant and is grounded on the alleged fact that Defendant lacked the capacity to enter into a contract with the Plaintiffs, as it is not a legal entity capable of entering into contracts in its own name and that the charge documents were not executed in the manner required by sections 44 and 48(1) of the Land Registration Act, Act No 3 of 2012. The Plaintiffs/Applicants stated that the Defendant intended to sell the LR NO 209/139/250 belonging to the 2nd Plaintiff without first issuing statutory notices required under sections 90 and 96 of the Land Act, 2012 and that the said failure rendered the said exercise illegal and unlawful. Further, the interest charged was non-contractual. The Plaintiffs averred that the 2nd, 3rd and 4th Plaintiffs/Applicants were no longer bound as guarantees as the Defendant entered into a deed of variation of the loan agreement, dated 25th November 2022, without their knowledge, whose effect was to fundamentally and materially vary the terms of the primary contract. In addition, the 2nd, 3rd and 4th Plaintiffs/Applicants accused the Defendant of acquiescing in the default on the part of the 1st Plaintiff/Applicant by not ensuring that the latter paid its loans on the due dates and that the said acquiescence prejudiced them in their capacities as guarantors. They averred that the effect of the foregoing was to discharge them from their obligations as guarantors. Thirdly, the Plaintiffs/Applicants averred that the remedies available to the Defendant, assuming the contract was valid and that they had not been discharged, could not all be exercised simultaneously and that Defendant should, therefore, have elected which remedy to pursue. It was thus urged that pursuing various remedies at once was in breach of the doctrine of election and prejudicial to the Plaintiffs/Applicants.
3. The Plaintiff/Applicants thus urged that I allow the application as they stand to suffer irreparable injury, as they would lose valuable property on the strength of an illegal and unenforceable contract, that the 2nd Plaintiff/Applicant “valuable property” would be sold in violation of the law, that they would be forced to defend multiplicity of lawsuits and lastly that there was a risk that the 2nd, 3rd and 4th Plaintiffs/Applicants would be forced to pay colossal sums of money yet their contracts of guarantee had been discharged as a result of unilateral variation by the Defendant. It was thus urged that the reliefs sought be granted in the interim and ultimately.
4. The application was opposed. The Defendant filed a Replying Affidavit sworn on 16th February 2024 by Mr Yunus Sheikh Ibrahim, a trustee of Defendant/Respondent, vide which it was averred that the 1st Plaintiff/Applicant sought a loan of Kes.1,201,075,790.00 from Defendant/Respondent on 6th February 2017 to enable them to develop 4,200 hectares of cane. Upon assessment, the 1st Plaintiff/Applicant was granted a loan facility of Kes.500,000,000.00 for cane development on 1,748 hectares of land which they accepted. The agreement was signed by the 4th Plaintiff/Applicant, the director of the 1st Plaintiff/Applicant. The loan was repayable in 5 equal annual instalments of Kes.115,487,399.10, commencing on 10th August 2018. To secure the facility, a charge against parcel number LR NO 209/136/250 was registered in favour of the Defendant/Respondent as collateral. The 2nd, 3rd, and 4th Plaintiffs/Applicants provided personal guarantees as further securities for the facility.
5. It was further deposed that the 1st Plaintiff/Applicant did not meet its loan obligation. During the 1st year, the 1st Plaintiff paid Kes.35,097,578.00 against the expected amount of Kes.92,399,912.00. it was averred that part payments made intermittently by the 1st Plaintiff/Applicant had since stopped once the injunctive relief was issued, as evidenced by cheque numbers 001264 and 001255 drawn by the 1st Plaintiff/Applicant, which were dishonoured upon presentation. It was urged that the Plaintiffs/Applicants hadn’t approached the Court with clean hands as they were in breach of contract. Regarding the issue of the capacity of the Defendant/Respondent to enter into a contract, it was urged that the objection made by the Plaintiffs/Applicants was ex post facto and that the plaintiffs/applicants were estopped by the doctrine of laches having benefited from the Defendant’s facility for five years.
6. The Defendant/Respondent averred that the Plaintiffs/Applicants were served with requisite notices. In support of this, they provided copies of demand letters, foreclosure notices and what was said to be proof of service. It was urged that the Defendant/Respondent had demanded payment. Regarding the deed of variation, it was averred that its only effect was to restructure the loan repayment and enhance collateral and ought to be read alongside the letter of offer as originally executed, save for the varied causes. The Defendant/Respondent averred that the 2nd, 3rd and 4th Plaintiffs/Affidavits could only be discharged on a quid pro quo basis once the 1st, 3rd and 4th Plaintiffs/Applicants provided alternative securities/acceptable bank guarantee commensurate to the loan amount borrowed and subject to the accrued interest as agreed.
7. It was also urged that the Defendant/Respondent had acted reasonably. The Plaintiffs/Applicants knowingly and willfully entered into a loan contract, knew the repercussions thereof in the event of default and shouldn’t use the Court process to aid the breach of contract. It was, therefore, urged that the application be dismissed with costs.
8. The application was canvassed by way of written submissions. The Plaintiff, through its counsel on record, Muriu Mungai & Co Advocates LLP, filed a Written Submission dated 19th March 2024 vide which 4 arguments in support of issuance of injunctive relief were made, firstly that the contractual documents were all invalid as the Commodities Fund is not a body capable of entering into contracts. Secondly that the Plaintiffs/Applicants were not served with statutory notices as required by sections 90 and 96 of the Land Act 2012. Thirdly, the deed of variation entered into by the Defendant and the 1st Plaintiff/Applicant had the effect of discharging the 2nd, 3rd and 4th Plaintiffs/Applicants as it was made without their notice and/or consent. Finally, it was urged that the Commodities Fund couldn’t exercise all its remedies simultaneously and should have elected which remedy to pursue. Based on the four grounds, it was urged that there is a prima facie case that is likely to succeed at trial and that an injunction should, therefore, be issued pending the hearing of the main suit.
9. Counsel for the Plaintiffs/Applicants averred that the test for issuance of an injunction as set out in the locus classicus case of Giella versus Cassman Brown & Co Ltd (1973) EA 358 was:-
1. Whether the Plaintiffs have established a prima facie case;
2. Whether there would be irreparable injury if an injunction weren’t issued; and
3. The balance of convenience.
10. On the first issue, it was submitted that as an unincorporated body, the Defendant/Respondent could only act through its Board of Trustees. How the loan documents were executed was also challenged. The securities were executed by the Managing Trustee of the Defendant/Respondent. No power of attorney authorizing her to act for the Board of Trustees of the Defendant/Respondent was provided. The Plaintiffs/Applicants averred that the said failure was fatal as the provision of the power of attorney was a mandatory requirement under the Land Act.
11. Counsels urged that the Defendant/Respondent was under obligation to issue 2 statutory notices under sections 90 (1) and 90(2) of the Land Act, 2012. It was urged that no notice was sent to the chargor and that no notice giving three months redemption notice under sections 90(1) and (2) of the Land Act was given. It was urged that a notice not sent to the chargor and that did not give a requisite notice period was invalid Reliance was placed on the case of Trust Bank Ltd vs Eros Chemist Ltd & another [2020]eKLR.
12. The Plaintiff/Applicant's counsel urged that the variation made regarding the loan repayment was made without the prior consent of the 2nd, 3rd, and 4th Plaintiffs/Applicants.
13. It was also averred that the Defendant/Respondent couldn’t pursue the remedies available to it cumulatively but should have elected which one to pursue. Reliance was placed on the case of National Insurance Company vs Mastan & Another 2006 (2) SCC 641.
14. On whether the Plaintiffs/Applicants would suffer irreparable injury if the injunction was denied, it was urged that in circumstances where there is a demonstrated breach of the law, an injunction ought to be issued.
15. The Defendant/Respondent submitted through its counsel, Janet Langat, vide written submissions dated 1st March 2024 that the application dated 18th December, 2023 be dismissed with costs.
16. The Defendant/Respondent identified two issues as coming up for determination to wit:-
1. Whether the Defendant’s power to exercise legal recovery of the outstanding amounts had crystalized; and
2. Whether the honourable Court should entertain the Plaintiffs/Applicants' claims and issue the orders sought.
17. It was submitted that the Plaintiffs/Applicants and the Defendant/Respondent entered into the agreement freely and free of undue influence and/or duress. The 1st Plaintiff/Applicant reneged on its duties to repay the outstanding arrears. In the Defendant/Respondent’s view, the real issue was whether there was a loan facility in existence advanced as agreed to the 1st Plaintiff by the Defendant, rather than the nature and status of the Defendant’s corporate body.
18. It was urged that the Defendant/Respondent’s right to recover the outstanding arrears had accrued. The Defendant/Respondent issued the requisite notices under sections 90 and 96 of the Land Act and that the requisite notices were, in fact, issued. Reliance was placed on the decision of Prof JB Ojwang, J (as he then was) in Suleiman vs Amboseli Resort Ltd [2004 ]2 KLR 589 wherein the learned judge said as follows:-
“… Even as those must remain the basic test it is worth adopting a further albeit and more intrinsic test which is now in the nature of a general principle of the Court; in responding to prayers for interlocutory injunctive relief, should always opt for the lower rather, the higher risk of injustice.”
19. The Defendant/Respondent’s counsel submitted that the Plaintiffs/Applicants had approached the Court with unclean hands and would potentially be unjustly enriched if they were successful. The Court was referred to the case of Samuel Kamau Macharia vs Kenya Commercial Bank Ltd, Kenya Commercial Finance Co. Ltd [2003]eKLR. It was further submitted that the Plaintiff were guilty of laches.
20. Lastly it was submitted that the Plaintiffs hadn’t shown that they have a prima facie case with probability of success and that whatever injury they might suffer was not capable of compensation by an award of damages. In support of the latter point, reliance was placed on the decision of Ringera J in Bil vs KCB Ltd [2001]KLK 458 and Nancy Wacici vs Kenya Women Micro Finance Bank Ltd [2017]eKLR. In the latter case, the Court stated that:-
“once a power of sale has arisen, a mortgagee has a right to exercise it. The Court has no power to prevent the exercise of that power if it is being properly exercised. It is a power Parliament has granted to the mortgagee, and Courts cannot and ought not to interfere if it is being exercised.”
21. Thus, I was urged to dismiss the application for injunction with costs.
22. Both parties agree that the 1st Plaintiff/Applicant sought a loan of US Dollars 10,000,000.00, out of which Kes.500,000,000.00 was approved by the Defendant/Respondent. It is further agreed that the 1st Plaintiff/Applicant’s loan, as revised, was secured by a charge on the land owned by the 2nd Plaintiff/Applicant and personal guarantees of the 2nd, 3rd and 4th Plaintiffs/Applicants. The Plaintiffs/Applicants concede that there has been default on the part of the 1st Plaintiff/Applicant.
23. The foregoing notwithstanding the Plaintiffs/Applicants aver that the Defendant/Respondent has no right to realize the security and rely on four grounds to wit that, firstly, the contractual documents are invalid and cannot, therefore, found the basis for any recovery action. Secondly, the 2nd Plaintiff/Applicant wasn’t served with statutory notices under sections 90 & 96 of the Land Act, 2012. Thirdly, the variation of the letter of offer entered into by the 1st Plaintiff/Applicant and the Defendant/Respondent, having been made without the notice and or consent of the 2nd, 3rd and 4th Plaintiffs/Applicants, discharged them from their respective contracts or guarantee and that recovery action breached the doctrine of election and was thus invalid.
24. To enable me to decide, I must consider the principles applicable when considering whether or not an injunction should be issued. the Court of Appeal for Eastern Africa in Giella vs Cassiman Brown & co Ltd [1973]EA 358 stated 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 injury, which would not be adequately compensated by an award of damages. Thirdly if the Court is in doubt, it will decide an application on the balance of convenience.”
25. The said principles were restated by the Court of Appeal in the case of In Nguruman Limited vs. Jan Bonde Nielsen & 2 Others [2014] eKLR. The said Court stated as follows:-
“In an interlocutory injunction application, the applicant has to satisfy the triple requirements to;
(a) establish his case only at a prima facie level,
(b) demonstrate irreparable injury if a temporary injunction is not granted, and
(c) ally any doubts as to (b) by showing that the balance of convenience is in his favour.
These are the three pillars on which rests the foundation of any order of injunction, interlocutory or permanent. It is established that all the above three conditions and stages are to be applied as separate, distinct and logical hurdles which the applicant is expected to surmount sequentially. See Kenya Commercial Finance Co. Ltd V. Afraha Education Society [2001] Vol. 1 EA 86. If the applicant establishes a prima facie case that alone is not sufficient basis to grant an interlocutory injunction, the court must further be satisfied that the injury the respondent will suffer, in the event the injunction is not granted, will be irreparable. In other words, if damages recoverable in law is an adequate remedy and the respondent is capable of paying, no interlocutory order of injunction should normally be granted, however strong the applicant’s claim may appear at that stage. If prima facie case is not established, then irreparable injury and balance of convenience need no consideration. The existence of a prima facie case does not permit “leap-frogging” by the applicant to injunction directly without crossing the other hurdles in between. It is where there is doubt as to the adequacy of the respective remedies in damages available to either party or both that the question of balance of convenience would arise. The inconvenience to the applicant if interlocutory injunction is refused would be balanced and compared with that of the respondent, if it is granted.”
26. What amounts to a “prima facie case” was defined in the case of Mrao Ltd vs First American Bank of Kenya Ltd & 2 others [2003]KLR 125 as being:-
“ “The principles which guide the Court in deciding whether or not to grant an interlocutory injunction are, first, an applicant must show 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...A mere scintilla of evidence can never be enough: nor can any amount of worthless discredited evidence. It is true that the Court is not required at that stage to decide finally whether the evidence is worthy of credit, or whether if believed it is weighty enough to prove the case conclusively: that final determination can only properly be made when the case for the defence has been heard. It may not be easy to define what is meant by “prima facie case”, but at least it must mean one on which a reasonable tribunal, properly directing its mind to the law and the evidence could convict if no explanation is offered by the defence...The terms “prima facie” case, and “genuine and arguable” case do not necessarily mean the same thing, for in using another term, namely a sustainable cause of action, the words “prima facie” are frequently used to refer to a case which shifts the evidential burden of proof, rather than as giving rise to a legal burden of proof in the manner of considering, which was in relation to the pleadings that had been put forward in the case. It would be in the appellant’s interest to adopt a genuine and arguable case standard rather than one of a prima facie case, the former being the lesser standard of the two...In civil cases a prima facie case 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 apparently been infringed by the opposite party 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.”
27. Have the Plaintiffs/Applicants shown that they have a prima facie case? I will look at each of the four grounds of attack in turn.
28. On whether the contractual documents are invalid for want of capacity on the part of the Defendant/Respondent, the Court notes that it has not been argued by the Defendant/Respondent that it is a corporate body. In my view, the question as to whether it could enter into the contracts in the manner it did is not an idle question. In my view, it is one that ought to be canvassed on merit. Further, this Court agrees with the Plaintiffs/Applicants that the issue as to whether section 44 of the Land Registration Act was adhered to is an arguable and triable issue.
29. Regarding service of the statutory notices, I have looked at exhibits “YS-22” to “YS-25”. None of the said notices were served on the 2nd Plaintiff/Applicant. The land sought to be realized is registered in the name of the 2nd Plaintiff/Applicant. Whether the Defendant/Respondent, assuming that it had the capacity to contract with the 1st Plaintiff/Applicant and that the securities created were valid, can exercise its statutory power of sale without issuing notices to the chargor is an issue that, in my view makes this suit one which could be, said to be a prima facie case that ought to be determined on merit upon trial.
30. The Court of Appeal a Trust Bank Ltd vs Erus Chemists Ltd & another [2020]eKLR stated that:-
“…in our judgment, the notice is to guard the rights of the mortgagee because if the statutory right of sale is exercised, the mortgagor’s equity of redemption would be extinguished…”
31. The variation of the letter of the offer and its effect on the liabilities of the 2nd, 3rd, and 4th Plaintiff/Applicants are also triable issues. I agree with what the Court stated in Margaret Njeri Muiruri vs Bank of Baroda (Kenya) Ltd [2014]eKLR that:-
“it is well acceptable that any material variation of the terms of contract between the debtor and creditor which is prejudicial to the guarantor and which is made without the guarantor's consent will discharge the guarantor. An increase in the rate of interest and an extension of the time of payment are both material changes to the loan agreement sufficient to discharge a surety.”
32. In my view, whether the variation was done without the consent of the other Plaintiffs and would be to their detriment are issues that demand further investigation during the trial.
33. The upshot of the foregoing is that it is my opinion that there is a prima facie case. Consequently, the first test has been met.
34. Will the Plaintiffs/Applicants suffer irreparable loss that cannot adequately be compensated by an award of damages? Although I agree with the decision of Ringera J (as he then was) Bii vs Kenya Commercial Bank Ltd [2001]KLR 458 that:-
“Once property is offered as security, it becomes, by that very fact, a commodity for sale. There is no commodity for sale whose loss cannot be compensated in damages… once a property is given to the bank as security, the same becomes a commodity that can be sold.”
35. The foregoing notwithstanding, in this case, it does appear that the Defendant/Respondent may not have given the requisite statutory notices and that there is a real possibility that it lacked the capacity to contract with the Plaintiffs/Applicants. In the circumstances, I agree with the holding by Madam JA I Thomson Smith Aikman & others vs Muchoki & others [1982]eKLR that:-
“those who flout the law by infringing the rightful title of others; and brazenly admit, ought to be restrained by injunction. If I am adding a new dimension for the grant of an interlocutory injunction be it so. Equity will not assist law breakers.”
36. In the circumstances, I find and hold that the Plaintiffs/Applicants will suffer irreparable injury unless an injunction is issued. Thus the second test has been met.
37. The 2nd Plaintiff/Applicant is at risk of losing its title in circumstances that are questionable. It may not have been issued with statutory notices. In the circumstances, had I been in any doubt at all, it is my view that the balance of convenience tilts in favour of protecting the rights of the chargor whose land may be sold by a chargee who may not have adhered to the law. I, therefore, find and hold that the balance of convenience tilts in favour of grant of an injunction.
38. In the circumstances, I find and hold that the application has merit. I therefore order as follows:-
1. A temporary injunction is hereby issued restraining the Defendant, its agents, servants, or employees from advertising for sale, selling, leasing, disposing, alienating, or in any way interfering with the 2nd Plaintiff’s right over LR NO 209/136/250 pending the hearing and determination of the suit; and
2. A temporary injunction is hereby issued restraining the Defendant, its agents, servants, or employees from taking any enforcement action against the 1st, 2nd, 3rd, and 4th Plaintiffs on the strength of the letter of offer dated 17th July 2017, deed of variation of a loan agreement dated 25th November 2022, charge dated 3rd August 2017 and guaranteed and indemnity dated 1st August 2017 pending the hearing and determination of the suit herein.
39. I order that the costs of the application be in the cause.
40. Orders accordingly.
DATED and SIGNED at Mombasa this 12th day of August 2024. Delivered virtually through Microsoft TEAMS.