A. THE PLEADINGS
1. The Plaintiff herein, by a plaint dated 20th January, 2023, instituted the present suit against the Defendant seeking, inter alia, an order of inhibition over Title No. Kisumu Municipality/Block 13/76 (hereinafter “the suit property”), a declaration that an informal charge exists over the said property in its favour, leave to exercise its statutory power of sale thereover, an order for vacant possession to facilitate realization of the security, costs of the suit and such further relief as the court may deem fit.
2. The Plaintiff pleaded that it is a banking institution duly incorporated and licensed to carry on banking business in Kenya, while the Defendant is a limited liability company and the registered lessee of the suit property.
3. The Plaintiff's claim is founded on financial facilities advanced to third-party borrowers and allegedly secured, among other securities, by the suit property. It was pleaded that in the year 2010, the Defendant approached the Plaintiff for financial accommodation on behalf of Midcom Limited, following which the Plaintiff issued a letter of offer dated 15th September, 2010 for a loan facility of USD 1,000,000.
4. The Plaintiff averred that a legal charge was duly created and registered over the suit property to secure the facility and that the said loan was subsequently repaid in full.
5. The Plaintiff further pleaded that Midland Hauliers Limited, which is presently under administration, was thereafter granted various credit facilities pursuant to letters of offer dated 9th December, 2014, 23rd January, 2016 and 18th May, 2017.
6. According to the Plaintiff, the facilities were extended on the strength of several securities, including the suit property, and both the borrower and the Defendant approved the arrangement through duly executed board resolutions and a corporate guarantee.
7. The Plaintiff averred that although a formal charge instrument over the suit property was prepared and forwarded to the Defendant and the borrower for execution, the Defendant failed, refused and/or neglected to execute and return the same for registration despite the facilities having been disbursed and despite repeated requests and reminders from the Plaintiff.
8. It was the Plaintiff’s contention that the Defendant’s refusal to execute the charge instrument was unjustified, given that its directors had already passed resolutions authorizing the borrowing and the provision of the suit property as security. The Plaintiff further asserted that one Jayesh Kotecha, a common director of both the Defendant and Midland Hauliers Limited, had executed the relevant letters of offer and board resolutions acknowledging the suit property as security, thereby rendering the subsequent refusal to execute the charge documents inconsistent with the parties’ prior agreements.
9. The Plaintiff further pleaded that, pending perfection of the intended legal charge, the Defendant deposited with it the original Certificate of Lease relating to the suit property. It was on this basis that the Plaintiff contended that an informal charge had been created over the property and that the same was capable of judicial recognition and enforcement.
10. The Plaintiff averred that, in order to safeguard its interests, it lodged a caution against the title and thereafter sought a declaration from the court affirming the existence of the alleged informal charge.
11. The Plaintiff further pleaded that both the Defendant and Midland Hauliers Limited defaulted in servicing the facilities advanced. It was averred that the borrower’s accounts became non-performing, leading to the appointment of an administrator in the year 2019, and that the Plaintiff consequently remained exposed to substantial financial risk arising from the outstanding indebtedness.
12. The Plaintiff also pleaded that the Defendant had executed a corporate guarantee securing facilities amounting to Ksh.2,000,000 and USD 6,097,500 and was therefore liable, upon default, either to satisfy the indebtedness or permit realization of the securities held by the Plaintiff.
13. According to the Plaintiff, the outstanding indebtedness had risen to USD 6,677,609.89 and Ksh.6,826,253.74, exclusive of continuing contractual interest. The Plaintiff contended that unless permitted to realize the suit property, the debt would continue to accrue and potentially exceed the value of the available securities, thereby occasioning it substantial prejudice.
14. The Plaintiff further averred that despite demand and notice of intention to institute legal proceedings having been issued, the Defendant failed to settle the outstanding indebtedness.
15. On the foregoing basis, the Plaintiff prayed for, among other reliefs, a declaration that an informal charge exists over the suit property, leave to issue statutory notices and exercise its statutory power of sale, an order for vacant possession to facilitate realization of the security and costs of the suit.
16. The Defendant filed a statement of defence and counterclaim dated 15th February, 2023 in which it denied the Plaintiff’s claim save for matters expressly admitted. In particular, the Defendant admitted the descriptions of the parties and the existence of the suit property but denied any liability to the Plaintiff and challenged the legal basis of the suit.
17. The Defendant pleaded that there existed a previously instituted suit, namely Kisumu High Court Commercial Case No. E004 of 2022 (O.S), between the same parties concerning Title No. Kisumu Municipality/Block 13/76 and contended that the issues raised therein were substantially similar to those raised in the present proceedings. It therefore maintained that the suit was sub judice and constituted an abuse of the court process.
18. The Defendant denied the Plaintiff’s assertion that an informal charge existed over the suit property and averred that it was neither aware of nor a party to any such arrangement securing a debt of Ksh.300,000,000 or any other sum. It further contended that any purported informal charge would, in any event, be unlawful, null and void for want of compliance with Section 3(3) of the Law of Contract Act.
19. The Defendant denied having approached the Plaintiff for the advancement of financial facilities to Midcom Limited as alleged and put the Plaintiff to strict proof thereof. It however acknowledged that a loan facility of USD 1,000,000 had been advanced to Midcom Limited and averred that, to its knowledge, the said facility had been fully repaid.
20. The Defendant further denied any knowledge of, or involvement in, the financial facilities allegedly advanced by the Plaintiff to Midland Hauliers Limited and maintained that no banker-customer relationship ever existed between itself and Midland Hauliers Limited. It consequently denied any liability arising from the facilities allegedly extended to that company.
21. The Defendant also disputed the authenticity and validity of the board resolutions relied upon by the Plaintiff, contending that the same were not resolutions of the Defendant company. It maintained that no lawful or valid charge could have arisen over the suit property in the absence of compliance with the statutory requirements governing contracts relating to interests in land.
22. The Defendant denied having received any disbursement of Ksh.300,000,000 from the Plaintiff and further contended that the Plaintiff’s claim was an attempt to circumvent the provisions of Section 3(3) of the Law of Contract Act through the litigation process and thereby defeat public policy.
23. The Defendant denied that it was under any obligation to repay the sums allegedly advanced to Midland Hauliers Limited, namely USD 6,677,609.89 and Ksh.6,826,257.74 and maintained that no financial accommodation had ever been extended to it by the Plaintiff.
24. By way of counterclaim, the Defendant pleaded that it had only agreed to provide the title to the suit property as collateral security for financial facilities advanced to Midcom Limited and that, upon full repayment of those facilities, the Plaintiff failed and/or refused to release the title documents back to the Defendant.
25. The Defendant alleged that the Plaintiff subsequently fabricated the claim that the title was being held as security for a separate indebtedness allegedly owed by Midland Hauliers Limited.
26. The Defendant further contended that the Plaintiff’s claim of an informal charge over the suit property was unenforceable, invalid and contrary to the express provisions of Section 3(3) of the Law of Contract Act. It therefore sought a declaration to that effect.
27. On the basis of the foregoing, the Defendant prayed for the striking out or dismissal of the Plaintiff’s suit, a declaration that the Plaintiff was unlawfully holding the title to Title No. Kisumu Municipality/Block 13/76 and an order compelling the Plaintiff to surrender the same to the Defendant forthwith. The Defendant also sought the costs of the suit and the counterclaim.
28. The Plaintiff filed a reply to defence and defence to counterclaim dated 2nd March, 2023 in which it joined issue with the Defendant’s statement of defence and denied the allegations contained therein save for those expressly admitted.
29. In response to the Defendant’s plea that the suit was sub judice by reason of the existence of Kisumu High Court Commercial Case No. E004 of 2022 (O.S), the Plaintiff admitted the existence of the said proceedings and averred that the present suit arose after unsuccessful attempts to convert the originating summons proceedings into a plaint as had been directed by the court on 19th October, 2022. The Plaintiff further indicated its intention to seek directions for the consolidation of the two suits.
30. The Plaintiff reiterated the averments contained in its plaint and maintained that the Defendant had agreed to provide the suit property as security for facilities advanced by the Plaintiff. It denied the Defendant’s assertions that no valid security arrangement existed and put the Defendant to strict proof of all allegations to the contrary.
31. In answer to the counterclaim, the Plaintiff denied the Defendant’s allegation that it was unlawfully withholding the title documents relating to Title No. Kisumu Municipality/Block 13/76. The Plaintiff maintained that its possession of the title was lawful and connected to the security arrangements between the parties.
32. The Plaintiff further averred that although the suit property had initially been charged to secure borrowing by Midcom Limited, it was subsequently agreed between the Plaintiff, the Defendant and Midland Hauliers Limited that a further charge securing facilities amounting to Ksh.300,000,000 would be created and registered over the property.
33. Consequently, the Plaintiff denied the Defendant’s counterclaim in its entirety and prayed for its dismissal with costs.
B. THE PLAINTIFF’S CASE.
34. The Plaintiff called George Wachira Mathui (PW1) as its witness. The witness adopted the contents of his statement dated 20th January, 2023 in which he stated that he was the Plaintiff Bank’s Senior Manager, Legal, and was conversant with the matters in dispute by virtue of his position and his perusal of the Bank’s records. He testified that the Plaintiff’s claim against the Defendant related to the recovery of Ksh.300,000,000 together with interest, commission and recovery costs, which sum was secured by an informal charge over Title No. Kisumu Municipality/Block 13/76 registered in the Defendant’s name.
35. PW1 stated that the dispute arose from various credit facilities extended by the Plaintiff to Midland Hauliers Limited (under Administration), the principal borrower. According to him, the facilities were secured by, among other securities, an informal charge over the suit property belonging to the Defendant.
36. The witness explained that the borrower had applied for the review, renewal, revision and enhancement of its facilities, following which the Plaintiff issued letters of offer dated 9th December, 2014 and 23rd January, 2016. He testified that the borrower accepted the said offers and that the Defendant also participated in the transaction by passing the requisite board resolutions in support of the perfection of the securities contemplated therein.
37. The witness further testified that in the year 2017, at the borrower’s request, the Plaintiff reviewed and restructured the existing credit facilities and issued a further letter of offer dated 18th May, 2017. He stated that one of the securities stipulated therein was a legal charge for Ksh.300,000,000 over Title No. Kisumu Municipality/Block 13/76 registered in the Defendant’s name. He added that the Defendant executed the said letter of offer and passed a board resolution approving the provision of the security.
38. PW1 testified that the Plaintiff duly fulfilled its obligations under the various letters of offer by disbursing, reviewing, renewing and restructuring the facilities advanced to the borrower. He stated that the Plaintiff thereafter prepared and forwarded the charge instrument together with the accompanying documentation for execution by both the borrower and the Defendant. However, although the borrower executed the charge document and returned it to the Plaintiff, the Defendant did not execute the same.
39. The witness further stated that in an effort to perfect the intended security, the Plaintiff re-forwarded the legal charge and the accompanying documents to the borrower on 13th December, 2017 for execution by both the borrower and the Defendant. He testified that the documents were never returned to the Plaintiff and that the Defendant did not provide any explanation for its failure or refusal to execute and return the charge documents.
40. PW1 stated that, in order to safeguard its interests in the property, the Plaintiff lodged a caution against the title to the suit property. He maintained that the Plaintiff’s claim against the Defendant was founded on the informal charge securing the sum of Ksh.300,000,000 together with interest, commission and recovery costs. He further testified that the Plaintiff sought leave of the Court to realize the security by selling the suit property so as to recover part of the monies advanced to the borrower.
41. The witness testified that the Plaintiff served the borrower and all guarantors, including the Defendant, with a recall notice dated 9th April, 2019 demanding payment of the outstanding debt. He stated that the recall notice was not complied with and that the borrower neglected and/or failed to repay the facilities. According to him, the recall notice was issued before the borrower was placed under administration.
42. PW1 further testified that the borrower’s accounts remained non-performing and that an administrator was subsequently appointed in the year 2019 to manage the affairs of the borrower company. He stated that the borrower remained under administration and that the outstanding indebtedness continued to increase due to non-payment by either the borrower or the Defendant.
43. The witness stated that the Plaintiff was desirous of disposing of the suit property, either by public auction or private treaty, to recover part of the outstanding debt. He testified that the suit property could only be sold with the leave of the Court and that, upon obtaining such leave, the Plaintiff would issue the requisite statutory notices before proceeding with the realization of the security.
44. In conclusion, PW1 stated that the Plaintiff sought orders for inhibition against dealings with Title No. Kisumu Municipality/Block 13/76, a declaration that an informal charge securing Ksh.300,000,000 existed over the property, leave to sell the property in recovery of the debt, vacant possession of the property, costs of the suit, interest and such further relief as the Court might deem fit and just to grant.
45. The witness produced the following documents in support of the Plaintiff’s case:
- Copy of certificate of lease for the suit property.
- Copy of legal charge dated 7th January, 2011 by Midland Emporium Limited to Prime Bank Limited.
- Copy of certificate of registration of a mortgage by the Registrar of Companies dated 21st January, 2011.
- Copy of post charge certificate of official search over the suit property dated 14th March, 2013.
- Copy of letter of offer dated 9th December, 2014 to Midland Hauliers Limited.
- Copy of board resolution by Midland Hauliers Limited – meeting held on 6th February, 2015.
- Copy of letter of offer dated 23rd January, 2016 to Midland Hauliers Limited.
- Copy of board resolution by Midland Emporium Limited – meeting held on 25th January, 2016.
- Copy of letter of offer dated 18th May, 2017 to Midland Hauliers Limited.
- Copy of board resolution by Midland Hauliers Limited – meeting held on 9th June, 2017.
- Copy of board resolution by Midland Emporium Limited – meeting held on 9th June, 2017.
- Copy of undated and unregistered legal charge by Midland Emporium to Prime Bank Limited for the borrowing of Midland Hauliers Limited.
- Copy of letter dated 21st September, 2017 by Prime Bank Limited forwarding legal charge to Midland Hauliers Limited.
- Copy of acknowledgment note by Midland Hauliers Limited.
- Copy of inter office memo dated 13th December, 2017.
- Copy of caution by Prime Bank Limited registered on 20th April, 2018.
- Copy of statements of account numbers 300****313 and 300****224 in the name of Midland Hauliers Limited in respect of the Kenya Shillings denominated facilities.
- Copies of statements of account numbers 700******462, 700******471, 300****935 and 300****605 for Midland Hauliers Limited in respect of the United States Dollars denominated accounts.
- Copy of demand notice dated 9th April, 2019 to Midland Hauliers Limited and copied to Midland Investments (Ksm) Limited and Midland Emporium Limited.
- Copy of guarantee and indemnity by Midland Emporium Limited dated 9th June, 2017.
- Copy of public notice on Midland Hauliers Limited (under Administration) in The Standard Newspaper of 30th April, 2019.
- Copy of authority to testify dated 19th January, 2023.
46. On cross-examination, PW1 testified that the Plaintiff had advanced the facility in question but conceded that there was no statement of account demonstrating that the sum of Ksh.300,000,000 had been deposited into the Defendant’s account. He maintained, however, that the Defendant had passed a board resolution authorizing the charging of the suit property as security.
47. The witness was referred to a board resolution dated 5th February, 2015 and acknowledged that the document had been made by Midland Hauliers Limited and not by the Defendant, Midland Emporium Limited. He further conceded that he was not aware of any other board resolution relating to the transaction. He stated that although the resolution referred to the suit property, the property did not belong to Midland Hauliers Limited but belonged to the Defendant company. He also acknowledged that the resolution did not indicate the names of the directors who attended the meeting, contained only one signature, and did not specify the members who had attended the meeting.
48. PW1 was referred to a charge dated 7th January, 2011 and confirmed that the chargor therein was the Defendant while the borrower was Midcom Limited and the chargee was the Plaintiff Bank. He stated that the charge secured a facility of USD 1,000,000 and that the facility was subsequently repaid. He further conceded that although the title had been charged to the Plaintiff in respect of that earlier transaction, the charge had not been discharged.
49. The witness admitted that the Defendant never executed the charge document that had been forwarded to it by the Plaintiff. He testified that only the borrower executed the charge instrument. He nevertheless maintained that the Plaintiff had already released the facilities and that the intended charge was to serve as security for monies advanced to the borrower under the common credit arrangement.
50. PW1 further confirmed that the letter of offer dated 9th December, 2014 was addressed to Midland Hauliers Limited as the borrower and that the Defendant did not execute the document as a guarantor. He acknowledged that the document was signed by two bank officials but that the dates of execution were not indicated. He further conceded that the advocate’s certificate appearing in the document had not been signed and that the company seal did not appear on the relevant execution pages.
51. The witness also confirmed that an official search dated 14th March, 2013 showed that the suit property was charged to the Plaintiff in relation to the earlier facility advanced to Midcom Limited. He stated that although the earlier loan had been repaid, the title had not been discharged. He further conceded that there was no executed charge document demonstrating that the sum of Ksh.300,000,000 had been secured by the suit property and that the Plaintiff principally relied on the various letters of offer.
52. The witness was referred to the letter of offer dated 23rd January, 2016 and acknowledged that one of the conditions therein provided that disbursement of the facility was subject to the completion of all formalities and execution of the requisite security documents. He nevertheless stated that the clause formed part of the Plaintiff’s standard terms and conditions.
53. On re-examination, PW1 clarified that under the letters of offer dated 9th December, 2014 and 23rd January, 2016, Midland Hauliers Limited was the borrower while the Defendant was listed among the guarantors. He maintained that the Defendant had participated in the transactions as a guarantor and that its involvement was reflected in the relevant contractual documents.
54. The witness further testified that the minutes and board resolutions produced as exhibits demonstrated that the Defendant had approved the terms and conditions contained in the letters of offer. In particular, he referred to resolutions and extracts of minutes dated 25th January, 2016 and 9th June, 2017, which, according to him, evidenced the Defendant’s approval of the facilities and the proposed security arrangements.
55. PW1 reiterated that the letters of offer had been duly executed and that the charge document had subsequently been forwarded for execution. He testified that the borrower executed the charge instrument but that the Defendant declined to execute it and returned the incomplete documents to the Plaintiff.
56. The witness further maintained that the statements of account produced in evidence demonstrated the indebtedness of the borrower and that the contractual relationship between the Plaintiff, the borrower and the Defendant was evidenced by the various letters of offer and supporting corporate resolutions. He concluded by reiterating that it was the Defendant, as chargor, that declined to execute the formal charge document.
57. The Defendant called Jayesh Kotecha (DW1) who testified and adopted the contents of his statement recorded on 19th December, 2024. He introduced himself as the Managing Director of the Defendant company, Midland Emporium Limited.
58. DW1 testified that the Defendant had previously offered its property known as Title No. Kisumu Municipality/Block 13/76 as collateral security for financial facilities amounting to USD 1,000,000 that had been advanced by the Plaintiff to Midcom Limited. He stated that the arrangement related solely to the facility granted to Midcom Limited and not to any other borrower.
59. The witness further testified that the facility advanced to Midcom Limited was fully repaid and that the repayment was acknowledged by Midcom Limited through a letter dated 8th October, 2018 addressed to the Plaintiff confirming closure of the account. According to him, despite the full settlement of the indebtedness, the Plaintiff failed to discharge the security or release the original title document to the Defendant.
60. DW1 stated that the Defendant was surprised when the Plaintiff subsequently asserted that an informal charge had been created over the suit property in relation to the facilities advanced to Midland Hauliers Limited. He maintained that the Defendant had never entered into any agreement with the Plaintiff, whether formal or informal, creating such a charge over the property.
61. The witness denied the existence of any contractual arrangement capable of creating an informal charge in favour of the Plaintiff over the suit property and contended that the Plaintiff's claim was therefore unfounded. He maintained that the Defendant never agreed to secure the liabilities forming the subject of the present suit.
62. In conclusion, DW1 urged the Court to dismiss the Plaintiff's suit with costs. He further prayed for an order compelling the Plaintiff to return the original title deed for Title No. Kisumu Municipality/Block 13/76 to the Defendant, contending that the security previously created in respect of the Midcom Limited facility had been fully redeemed.
63. The witness produced the following documents in support of the Defendant’s case:
- Copy of certificate of lease.
- Copy of charge document dated 7th January, 2011.
- Copy of certificate of registration of mortgage.
- Copy of letter dated 8th October, 2018.
64. On cross-examination, DW1 confirmed that the title to the suit property had never been discharged or released to the Defendant despite the repayment of the facility for which it had initially been provided as security. He maintained that it was the Plaintiff’s responsibility to discharge the title and return the same to the Defendant upon full settlement of the debt.
65. The witness acknowledged that he was familiar with Midland Hauliers Limited and stated that he was a director of that company. He further confirmed that he was aware that Midland Hauliers Limited had approached the Plaintiff seeking a review and restructuring of its credit facilities and that such restructuring was embodied in a Letter of Offer dated 18th May, 2017.
66. DW1 conceded that the Defendant had not produced any evidence to demonstrate fraud, illegality or impropriety in relation to the Letter of Offer dated 18th May, 2017. He further acknowledged that the Defendant had issued a board resolution in support of the borrowing by Midland Hauliers Limited.
67. The witness was referred to paragraphs 8, 9 and 10 of the defence and counterclaim and acknowledged that the Defendant had denied liability in respect of the facilities advanced to Midland Hauliers Limited. He nevertheless maintained that, as a director, he was under a duty to be aware of the affairs of the companies involved in the transaction.
68. DW1 further confirmed that the Plaintiff had issued a default notice to Midland Hauliers Limited following the borrower’s failure to service the facilities. He also acknowledged that the Defendant had guaranteed the facilities advanced to Midland Hauliers Limited, although he maintained that the guarantee did not extend to the entire amount claimed by the Plaintiff.
69. The witness stated that he was aware that the Plaintiff sought orders declaring that it held an informal charge over the suit property and permitting realization of the security. He, however, maintained the Defendant’s position that no enforceable informal charge had been created over the property.
70. On re-examination, DW1 clarified that the denials contained in the defence and counterclaim related to the allegation that Ksh.300,000,000 had been disbursed to either Midland Emporium Limited or Midland Hauliers Limited in the manner alleged by the Plaintiff. He reiterated that Midland Emporium Limited had not received any such disbursement.
71. The witness further testified that Midland Emporium Limited had never received a demand requiring it to pay the sum of Ksh.300,000,000 claimed by the Plaintiff. He maintained that the Defendant's position remained that it was not liable for the debt sought to be recovered through the realization of the suit property.
C. THE PLAINTIFF’S SUBMISSIONS.
72. In its submissions, the Plaintiff contended that it advanced various credit facilities to Midland Hauliers Limited (under Administration) pursuant to letters of offer dated 9th December, 2014, 23rd January, 2016 and 18th May, 2017.
73. It submitted that the facilities were secured by, among other securities, the suit property owned by the Defendant and that the Defendant executed board resolutions and corporate guarantees in support of .the facilities.
74. According to the Plaintiff, despite disbursing the facilities, the intended legal charge over the suit property was never perfected because the Defendant failed to execute the charge instrument.
75. The Plaintiff submitted that the Defendant’s defence was founded on the contention that no informal charge existed and that any such arrangement would be unenforceable under Section 3(3) of the Law of Contract Act. The Plaintiff further noted that the Defendant maintained that its only relationship with the Plaintiff concerned a previous facility of USD 1,000,000 advanced to Midcom Limited, which had allegedly been fully repaid, and that the Defendant had consequently counterclaimed for the release of the title document.
76. Referring to the evidence adduced at trial, the Plaintiff submitted that PW1 demonstrated that the suit property formed part of the common securities supporting the facilities advanced to Midland Hauliers Limited and that the Defendant had participated in the transaction through the execution of corporate resolutions and guarantees.
77. The Plaintiff emphasized that the Defendant’s director, Jayesh Kotecha, was a common director in both the borrower company and the Defendan
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1. The Plaintiff herein, by a plaint dated 20th January, 2023, instituted the present suit against the Defendant seeking, inter alia, an order of inhibition over Title No. Kisumu Municipality/Block 13/76 (hereinafter “the suit property”), a declaration that an informal charge exists over the said property in its favour, leave to exercise its statutory power of sale thereover, an order for vacant possession to facilitate realization of the security, costs of the suit and such further relief as the court may deem fit.
2. The Plaintiff pleaded that it is a banking institution duly incorporated and licensed to carry on banking business in Kenya, while the Defendant is a limited liability company and the registered lessee of the suit property.
3. The Plaintiff's claim is founded on financial facilities advanced to third-party borrowers and allegedly secured, among other securities, by the suit property. It was pleaded that in the year 2010, the Defendant approached the Plaintiff for financial accommodation on behalf of Midcom Limited, following which the Plaintiff issued a letter of offer dated 15th September, 2010 for a loan facility of USD 1,000,000.
4. The Plaintiff averred that a legal charge was duly created and registered over the suit property to secure the facility and that the said loan was subsequently repaid in full.
5. The Plaintiff further pleaded that Midland Hauliers Limited, which is presently under administration, was thereafter granted various credit facilities pursuant to letters of offer dated 9th December, 2014, 23rd January, 2016 and 18th May, 2017.
6. According to the Plaintiff, the facilities were extended on the strength of several securities, including the suit property, and both the borrower and the Defendant approved the arrangement through duly executed board resolutions and a corporate guarantee.
7. The Plaintiff averred that although a formal charge instrument over the suit property was prepared and forwarded to the Defendant and the borrower for execution, the Defendant failed, refused and/or neglected to execute and return the same for registration despite the facilities having been disbursed and despite repeated requests and reminders from the Plaintiff.
8. It was the Plaintiff’s contention that the Defendant’s refusal to execute the charge instrument was unjustified, given that its directors had already passed resolutions authorizing the borrowing and the provision of the suit property as security. The Plaintiff further asserted that one Jayesh Kotecha, a common director of both the Defendant and Midland Hauliers Limited, had executed the relevant letters of offer and board resolutions acknowledging the suit property as security, thereby rendering the subsequent refusal to execute the charge documents inconsistent with the parties’ prior agreements.
9. The Plaintiff further pleaded that, pending perfection of the intended legal charge, the Defendant deposited with it the original Certificate of Lease relating to the suit property. It was on this basis that the Plaintiff contended that an informal charge had been created over the property and that the same was capable of judicial recognition and enforcement.
10. The Plaintiff averred that, in order to safeguard its interests, it lodged a caution against the title and thereafter sought a declaration from the court affirming the existence of the alleged informal charge.
11. The Plaintiff further pleaded that both the Defendant and Midland Hauliers Limited defaulted in servicing the facilities advanced. It was averred that the borrower’s accounts became non-performing, leading to the appointment of an administrator in the year 2019, and that the Plaintiff consequently remained exposed to substantial financial risk arising from the outstanding indebtedness.
12. The Plaintiff also pleaded that the Defendant had executed a corporate guarantee securing facilities amounting to Ksh.2,000,000 and USD 6,097,500 and was therefore liable, upon default, either to satisfy the indebtedness or permit realization of the securities held by the Plaintiff.
13. According to the Plaintiff, the outstanding indebtedness had risen to USD 6,677,609.89 and Ksh.6,826,253.74, exclusive of continuing contractual interest. The Plaintiff contended that unless permitted to realize the suit property, the debt would continue to accrue and potentially exceed the value of the available securities, thereby occasioning it substantial prejudice.
14. The Plaintiff further averred that despite demand and notice of intention to institute legal proceedings having been issued, the Defendant failed to settle the outstanding indebtedness.
15. On the foregoing basis, the Plaintiff prayed for, among other reliefs, a declaration that an informal charge exists over the suit property, leave to issue statutory notices and exercise its statutory power of sale, an order for vacant possession to facilitate realization of the security and costs of the suit.
16. The Defendant filed a statement of defence and counterclaim dated 15th February, 2023 in which it denied the Plaintiff’s claim save for matters expressly admitted. In particular, the Defendant admitted the descriptions of the parties and the existence of the suit property but denied any liability to the Plaintiff and challenged the legal basis of the suit.
17. The Defendant pleaded that there existed a previously instituted suit, namely Kisumu High Court Commercial Case No. E004 of 2022 (O.S), between the same parties concerning Title No. Kisumu Municipality/Block 13/76 and contended that the issues raised therein were substantially similar to those raised in the present proceedings. It therefore maintained that the suit was sub judice and constituted an abuse of the court process.
18. The Defendant denied the Plaintiff’s assertion that an informal charge existed over the suit property and averred that it was neither aware of nor a party to any such arrangement securing a debt of Ksh.300,000,000 or any other sum. It further contended that any purported informal charge would, in any event, be unlawful, null and void for want of compliance with Section 3(3) of the Law of Contract Act.
19. The Defendant denied having approached the Plaintiff for the advancement of financial facilities to Midcom Limited as alleged and put the Plaintiff to strict proof thereof. It however acknowledged that a loan facility of USD 1,000,000 had been advanced to Midcom Limited and averred that, to its knowledge, the said facility had been fully repaid.
20. The Defendant further denied any knowledge of, or involvement in, the financial facilities allegedly advanced by the Plaintiff to Midland Hauliers Limited and maintained that no banker-customer relationship ever existed between itself and Midland Hauliers Limited. It consequently denied any liability arising from the facilities allegedly extended to that company.
21. The Defendant also disputed the authenticity and validity of the board resolutions relied upon by the Plaintiff, contending that the same were not resolutions of the Defendant company. It maintained that no lawful or valid charge could have arisen over the suit property in the absence of compliance with the statutory requirements governing contracts relating to interests in land.
22. The Defendant denied having received any disbursement of Ksh.300,000,000 from the Plaintiff and further contended that the Plaintiff’s claim was an attempt to circumvent the provisions of Section 3(3) of the Law of Contract Act through the litigation process and thereby defeat public policy.
23. The Defendant denied that it was under any obligation to repay the sums allegedly advanced to Midland Hauliers Limited, namely USD 6,677,609.89 and Ksh.6,826,257.74 and maintained that no financial accommodation had ever been extended to it by the Plaintiff.
24. By way of counterclaim, the Defendant pleaded that it had only agreed to provide the title to the suit property as collateral security for financial facilities advanced to Midcom Limited and that, upon full repayment of those facilities, the Plaintiff failed and/or refused to release the title documents back to the Defendant.
25. The Defendant alleged that the Plaintiff subsequently fabricated the claim that the title was being held as security for a separate indebtedness allegedly owed by Midland Hauliers Limited.
26. The Defendant further contended that the Plaintiff’s claim of an informal charge over the suit property was unenforceable, invalid and contrary to the express provisions of Section 3(3) of the Law of Contract Act. It therefore sought a declaration to that effect.
27. On the basis of the foregoing, the Defendant prayed for the striking out or dismissal of the Plaintiff’s suit, a declaration that the Plaintiff was unlawfully holding the title to Title No. Kisumu Municipality/Block 13/76 and an order compelling the Plaintiff to surrender the same to the Defendant forthwith. The Defendant also sought the costs of the suit and the counterclaim.
28. The Plaintiff filed a reply to defence and defence to counterclaim dated 2nd March, 2023 in which it joined issue with the Defendant’s statement of defence and denied the allegations contained therein save for those expressly admitted.
29. In response to the Defendant’s plea that the suit was sub judice by reason of the existence of Kisumu High Court Commercial Case No. E004 of 2022 (O.S), the Plaintiff admitted the existence of the said proceedings and averred that the present suit arose after unsuccessful attempts to convert the originating summons proceedings into a plaint as had been directed by the court on 19th October, 2022. The Plaintiff further indicated its intention to seek directions for the consolidation of the two suits.
30. The Plaintiff reiterated the averments contained in its plaint and maintained that the Defendant had agreed to provide the suit property as security for facilities advanced by the Plaintiff. It denied the Defendant’s assertions that no valid security arrangement existed and put the Defendant to strict proof of all allegations to the contrary.
31. In answer to the counterclaim, the Plaintiff denied the Defendant’s allegation that it was unlawfully withholding the title documents relating to Title No. Kisumu Municipality/Block 13/76. The Plaintiff maintained that its possession of the title was lawful and connected to the security arrangements between the parties.
32. The Plaintiff further averred that although the suit property had initially been charged to secure borrowing by Midcom Limited, it was subsequently agreed between the Plaintiff, the Defendant and Midland Hauliers Limited that a further charge securing facilities amounting to Ksh.300,000,000 would be created and registered over the property.
33. Consequently, the Plaintiff denied the Defendant’s counterclaim in its entirety and prayed for its dismissal with costs.
B. THE PLAINTIFF’S CASE.
34. The Plaintiff called George Wachira Mathui (PW1) as its witness. The witness adopted the contents of his statement dated 20th January, 2023 in which he stated that he was the Plaintiff Bank’s Senior Manager, Legal, and was conversant with the matters in dispute by virtue of his position and his perusal of the Bank’s records. He testified that the Plaintiff’s claim against the Defendant related to the recovery of Ksh.300,000,000 together with interest, commission and recovery costs, which sum was secured by an informal charge over Title No. Kisumu Municipality/Block 13/76 registered in the Defendant’s name.
35. PW1 stated that the dispute arose from various credit facilities extended by the Plaintiff to Midland Hauliers Limited (under Administration), the principal borrower. According to him, the facilities were secured by, among other securities, an informal charge over the suit property belonging to the Defendant.
36. The witness explained that the borrower had applied for the review, renewal, revision and enhancement of its facilities, following which the Plaintiff issued letters of offer dated 9th December, 2014 and 23rd January, 2016. He testified that the borrower accepted the said offers and that the Defendant also participated in the transaction by passing the requisite board resolutions in support of the perfection of the securities contemplated therein.
37. The witness further testified that in the year 2017, at the borrower’s request, the Plaintiff reviewed and restructured the existing credit facilities and issued a further letter of offer dated 18th May, 2017. He stated that one of the securities stipulated therein was a legal charge for Ksh.300,000,000 over Title No. Kisumu Municipality/Block 13/76 registered in the Defendant’s name. He added that the Defendant executed the said letter of offer and passed a board resolution approving the provision of the security.
38. PW1 testified that the Plaintiff duly fulfilled its obligations under the various letters of offer by disbursing, reviewing, renewing and restructuring the facilities advanced to the borrower. He stated that the Plaintiff thereafter prepared and forwarded the charge instrument together with the accompanying documentation for execution by both the borrower and the Defendant. However, although the borrower executed the charge document and returned it to the Plaintiff, the Defendant did not execute the same.
39. The witness further stated that in an effort to perfect the intended security, the Plaintiff re-forwarded the legal charge and the accompanying documents to the borrower on 13th December, 2017 for execution by both the borrower and the Defendant. He testified that the documents were never returned to the Plaintiff and that the Defendant did not provide any explanation for its failure or refusal to execute and return the charge documents.
40. PW1 stated that, in order to safeguard its interests in the property, the Plaintiff lodged a caution against the title to the suit property. He maintained that the Plaintiff’s claim against the Defendant was founded on the informal charge securing the sum of Ksh.300,000,000 together with interest, commission and recovery costs. He further testified that the Plaintiff sought leave of the Court to realize the security by selling the suit property so as to recover part of the monies advanced to the borrower.
41. The witness testified that the Plaintiff served the borrower and all guarantors, including the Defendant, with a recall notice dated 9th April, 2019 demanding payment of the outstanding debt. He stated that the recall notice was not complied with and that the borrower neglected and/or failed to repay the facilities. According to him, the recall notice was issued before the borrower was placed under administration.
42. PW1 further testified that the borrower’s accounts remained non-performing and that an administrator was subsequently appointed in the year 2019 to manage the affairs of the borrower company. He stated that the borrower remained under administration and that the outstanding indebtedness continued to increase due to non-payment by either the borrower or the Defendant.
43. The witness stated that the Plaintiff was desirous of disposing of the suit property, either by public auction or private treaty, to recover part of the outstanding debt. He testified that the suit property could only be sold with the leave of the Court and that, upon obtaining such leave, the Plaintiff would issue the requisite statutory notices before proceeding with the realization of the security.
44. In conclusion, PW1 stated that the Plaintiff sought orders for inhibition against dealings with Title No. Kisumu Municipality/Block 13/76, a declaration that an informal charge securing Ksh.300,000,000 existed over the property, leave to sell the property in recovery of the debt, vacant possession of the property, costs of the suit, interest and such further relief as the Court might deem fit and just to grant.
45. The witness produced the following documents in support of the Plaintiff’s case:
- Copy of certificate of lease for the suit property.
- Copy of legal charge dated 7th January, 2011 by Midland Emporium Limited to Prime Bank Limited.
- Copy of certificate of registration of a mortgage by the Registrar of Companies dated 21st January, 2011.
- Copy of post charge certificate of official search over the suit property dated 14th March, 2013.
- Copy of letter of offer dated 9th December, 2014 to Midland Hauliers Limited.
- Copy of board resolution by Midland Hauliers Limited – meeting held on 6th February, 2015.
- Copy of letter of offer dated 23rd January, 2016 to Midland Hauliers Limited.
- Copy of board resolution by Midland Emporium Limited – meeting held on 25th January, 2016.
- Copy of letter of offer dated 18th May, 2017 to Midland Hauliers Limited.
- Copy of board resolution by Midland Hauliers Limited – meeting held on 9th June, 2017.
- Copy of board resolution by Midland Emporium Limited – meeting held on 9th June, 2017.
- Copy of undated and unregistered legal charge by Midland Emporium to Prime Bank Limited for the borrowing of Midland Hauliers Limited.
- Copy of letter dated 21st September, 2017 by Prime Bank Limited forwarding legal charge to Midland Hauliers Limited.
- Copy of acknowledgment note by Midland Hauliers Limited.
- Copy of inter office memo dated 13th December, 2017.
- Copy of caution by Prime Bank Limited registered on 20th April, 2018.
- Copy of statements of account numbers 300****313 and 300****224 in the name of Midland Hauliers Limited in respect of the Kenya Shillings denominated facilities.
- Copies of statements of account numbers 700******462, 700******471, 300****935 and 300****605 for Midland Hauliers Limited in respect of the United States Dollars denominated accounts.
- Copy of demand notice dated 9th April, 2019 to Midland Hauliers Limited and copied to Midland Investments (Ksm) Limited and Midland Emporium Limited.
- Copy of guarantee and indemnity by Midland Emporium Limited dated 9th June, 2017.
- Copy of public notice on Midland Hauliers Limited (under Administration) in The Standard Newspaper of 30th April, 2019.
- Copy of authority to testify dated 19th January, 2023.
46. On cross-examination, PW1 testified that the Plaintiff had advanced the facility in question but conceded that there was no statement of account demonstrating that the sum of Ksh.300,000,000 had been deposited into the Defendant’s account. He maintained, however, that the Defendant had passed a board resolution authorizing the charging of the suit property as security.
47. The witness was referred to a board resolution dated 5th February, 2015 and acknowledged that the document had been made by Midland Hauliers Limited and not by the Defendant, Midland Emporium Limited. He further conceded that he was not aware of any other board resolution relating to the transaction. He stated that although the resolution referred to the suit property, the property did not belong to Midland Hauliers Limited but belonged to the Defendant company. He also acknowledged that the resolution did not indicate the names of the directors who attended the meeting, contained only one signature, and did not specify the members who had attended the meeting.
48. PW1 was referred to a charge dated 7th January, 2011 and confirmed that the chargor therein was the Defendant while the borrower was Midcom Limited and the chargee was the Plaintiff Bank. He stated that the charge secured a facility of USD 1,000,000 and that the facility was subsequently repaid. He further conceded that although the title had been charged to the Plaintiff in respect of that earlier transaction, the charge had not been discharged.
49. The witness admitted that the Defendant never executed the charge document that had been forwarded to it by the Plaintiff. He testified that only the borrower executed the charge instrument. He nevertheless maintained that the Plaintiff had already released the facilities and that the intended charge was to serve as security for monies advanced to the borrower under the common credit arrangement.
50. PW1 further confirmed that the letter of offer dated 9th December, 2014 was addressed to Midland Hauliers Limited as the borrower and that the Defendant did not execute the document as a guarantor. He acknowledged that the document was signed by two bank officials but that the dates of execution were not indicated. He further conceded that the advocate’s certificate appearing in the document had not been signed and that the company seal did not appear on the relevant execution pages.
51. The witness also confirmed that an official search dated 14th March, 2013 showed that the suit property was charged to the Plaintiff in relation to the earlier facility advanced to Midcom Limited. He stated that although the earlier loan had been repaid, the title had not been discharged. He further conceded that there was no executed charge document demonstrating that the sum of Ksh.300,000,000 had been secured by the suit property and that the Plaintiff principally relied on the various letters of offer.
52. The witness was referred to the letter of offer dated 23rd January, 2016 and acknowledged that one of the conditions therein provided that disbursement of the facility was subject to the completion of all formalities and execution of the requisite security documents. He nevertheless stated that the clause formed part of the Plaintiff’s standard terms and conditions.
53. On re-examination, PW1 clarified that under the letters of offer dated 9th December, 2014 and 23rd January, 2016, Midland Hauliers Limited was the borrower while the Defendant was listed among the guarantors. He maintained that the Defendant had participated in the transactions as a guarantor and that its involvement was reflected in the relevant contractual documents.
54. The witness further testified that the minutes and board resolutions produced as exhibits demonstrated that the Defendant had approved the terms and conditions contained in the letters of offer. In particular, he referred to resolutions and extracts of minutes dated 25th January, 2016 and 9th June, 2017, which, according to him, evidenced the Defendant’s approval of the facilities and the proposed security arrangements.
55. PW1 reiterated that the letters of offer had been duly executed and that the charge document had subsequently been forwarded for execution. He testified that the borrower executed the charge instrument but that the Defendant declined to execute it and returned the incomplete documents to the Plaintiff.
56. The witness further maintained that the statements of account produced in evidence demonstrated the indebtedness of the borrower and that the contractual relationship between the Plaintiff, the borrower and the Defendant was evidenced by the various letters of offer and supporting corporate resolutions. He concluded by reiterating that it was the Defendant, as chargor, that declined to execute the formal charge document.
57. The Defendant called Jayesh Kotecha (DW1) who testified and adopted the contents of his statement recorded on 19th December, 2024. He introduced himself as the Managing Director of the Defendant company, Midland Emporium Limited.
58. DW1 testified that the Defendant had previously offered its property known as Title No. Kisumu Municipality/Block 13/76 as collateral security for financial facilities amounting to USD 1,000,000 that had been advanced by the Plaintiff to Midcom Limited. He stated that the arrangement related solely to the facility granted to Midcom Limited and not to any other borrower.
59. The witness further testified that the facility advanced to Midcom Limited was fully repaid and that the repayment was acknowledged by Midcom Limited through a letter dated 8th October, 2018 addressed to the Plaintiff confirming closure of the account. According to him, despite the full settlement of the indebtedness, the Plaintiff failed to discharge the security or release the original title document to the Defendant.
60. DW1 stated that the Defendant was surprised when the Plaintiff subsequently asserted that an informal charge had been created over the suit property in relation to the facilities advanced to Midland Hauliers Limited. He maintained that the Defendant had never entered into any agreement with the Plaintiff, whether formal or informal, creating such a charge over the property.
61. The witness denied the existence of any contractual arrangement capable of creating an informal charge in favour of the Plaintiff over the suit property and contended that the Plaintiff's claim was therefore unfounded. He maintained that the Defendant never agreed to secure the liabilities forming the subject of the present suit.
62. In conclusion, DW1 urged the Court to dismiss the Plaintiff's suit with costs. He further prayed for an order compelling the Plaintiff to return the original title deed for Title No. Kisumu Municipality/Block 13/76 to the Defendant, contending that the security previously created in respect of the Midcom Limited facility had been fully redeemed.
63. The witness produced the following documents in support of the Defendant’s case:
- Copy of certificate of lease.
- Copy of charge document dated 7th January, 2011.
- Copy of certificate of registration of mortgage.
- Copy of letter dated 8th October, 2018.
64. On cross-examination, DW1 confirmed that the title to the suit property had never been discharged or released to the Defendant despite the repayment of the facility for which it had initially been provided as security. He maintained that it was the Plaintiff’s responsibility to discharge the title and return the same to the Defendant upon full settlement of the debt.
65. The witness acknowledged that he was familiar with Midland Hauliers Limited and stated that he was a director of that company. He further confirmed that he was aware that Midland Hauliers Limited had approached the Plaintiff seeking a review and restructuring of its credit facilities and that such restructuring was embodied in a Letter of Offer dated 18th May, 2017.
66. DW1 conceded that the Defendant had not produced any evidence to demonstrate fraud, illegality or impropriety in relation to the Letter of Offer dated 18th May, 2017. He further acknowledged that the Defendant had issued a board resolution in support of the borrowing by Midland Hauliers Limited.
67. The witness was referred to paragraphs 8, 9 and 10 of the defence and counterclaim and acknowledged that the Defendant had denied liability in respect of the facilities advanced to Midland Hauliers Limited. He nevertheless maintained that, as a director, he was under a duty to be aware of the affairs of the companies involved in the transaction.
68. DW1 further confirmed that the Plaintiff had issued a default notice to Midland Hauliers Limited following the borrower’s failure to service the facilities. He also acknowledged that the Defendant had guaranteed the facilities advanced to Midland Hauliers Limited, although he maintained that the guarantee did not extend to the entire amount claimed by the Plaintiff.
69. The witness stated that he was aware that the Plaintiff sought orders declaring that it held an informal charge over the suit property and permitting realization of the security. He, however, maintained the Defendant’s position that no enforceable informal charge had been created over the property.
70. On re-examination, DW1 clarified that the denials contained in the defence and counterclaim related to the allegation that Ksh.300,000,000 had been disbursed to either Midland Emporium Limited or Midland Hauliers Limited in the manner alleged by the Plaintiff. He reiterated that Midland Emporium Limited had not received any such disbursement.
71. The witness further testified that Midland Emporium Limited had never received a demand requiring it to pay the sum of Ksh.300,000,000 claimed by the Plaintiff. He maintained that the Defendant's position remained that it was not liable for the debt sought to be recovered through the realization of the suit property.
C. THE PLAINTIFF’S SUBMISSIONS.
72. In its submissions, the Plaintiff contended that it advanced various credit facilities to Midland Hauliers Limited (under Administration) pursuant to letters of offer dated 9th December, 2014, 23rd January, 2016 and 18th May, 2017.
73. It submitted that the facilities were secured by, among other securities, the suit property owned by the Defendant and that the Defendant executed board resolutions and corporate guarantees in support of .the facilities.
74. According to the Plaintiff, despite disbursing the facilities, the intended legal charge over the suit property was never perfected because the Defendant failed to execute the charge instrument.
75. The Plaintiff submitted that the Defendant’s defence was founded on the contention that no informal charge existed and that any such arrangement would be unenforceable under Section 3(3) of the Law of Contract Act. The Plaintiff further noted that the Defendant maintained that its only relationship with the Plaintiff concerned a previous facility of USD 1,000,000 advanced to Midcom Limited, which had allegedly been fully repaid, and that the Defendant had consequently counterclaimed for the release of the title document.
76. Referring to the evidence adduced at trial, the Plaintiff submitted that PW1 demonstrated that the suit property formed part of the common securities supporting the facilities advanced to Midland Hauliers Limited and that the Defendant had participated in the transaction through the execution of corporate resolutions and guarantees.
77. The Plaintiff emphasized that the Defendant’s director, Jayesh Kotecha, was a common director in both the borrower company and the Defendan
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