MORTGAGES CASE
MORTGAGES
1.
Exercise of statutory power of sale under Section 69
of T.P.A.
ü Whether a mortgagee who has purported to give a
statutory notice under Section 69 A (a) is precluded from reliance on
paragraphs (b) and/or (c) the section.
ü Whether auctioneers rules 1997 are relevant to a
public auction sale under the T.P.A.
2.
Injunctions
ü Applicable principles.
IN THE REPUBLIC OF KENYA
HIGH COURT OF
KENYA
MILIMANI
COMMERCIAL COURTS NAIROBI
CIVIL SUIT NO.302
OF 2002
JAGJIT S. THATHY…………………………………………………………..……………PLAINTIFF
VERSUS
MIDDLE EAST BANK KENYA LTD………..}
EASTERN KENYA AUCTIONEERS……….}…………………………………………..DEFENDANTS
RULING
The plaintiff seeks an
interlocutory injunction to restrain Middle East Bank Kenya Ltd, the 1st
defendant herein, from advertising for sale, selling, alienating, auctioning or
in any other way interfering with the plaintiff’s ownership or possession of
the property known as L.R. No.7785/87 Runda Drive, Nairobi until the suit he
has filed is heard and determined. The
application was filed simultaneously with the plaint originating the action on
11.3.2002. The property in question is
sought to be sold by the bank in the exercise of its statutory power of sale
under the provisions of Section 69 of
the T.P.A.
The plaintiff’s case is that the
intended sale of his property is in breach of the law on three grounds. First, he has not been served with the
statutory three months notice contrary to Section 69 A(1) of the T.P.A;
secondly, the property is sought to be sold without there being a valuation
thereof contrary to the auctioneers rules, and thirdly, he has not been served
with any or any valid notification of sale contrary to the auctioneers
rules. The plaintiff also protests that
he has not been furnished with a statement of his account with the Bank. In support of the application, there are
affidavits sworn by Vandana Thathy, who describes himself as the duly appointed
Attorney of the plaintiff, sworn on 11th and 26th days of
March, 2002.
The Bank has entered appearance
and filed a defence. In so far as they
may be material to the grounds on which
the injunction is sought, the Bank has
pleaded that the plaintiff has been furnished with statements of his account
and is fully aware of his liability to the Bank, it is denied that a statutory
notice has not been served and, in the alternative, that the plaintiff has
failed to pay interest which is in arrears for a period exceeding two months
and is also in breach of his other obligations under the charge over the suit
premises. It is also pleaded that a
valuation of the suit premises though not required has been done and that
notifications of sale have been duly given to the plaintiff. In opposition to the application for
injunction, there are affidavits sworn by Saya Dinamani, the Bank’s Managing
Director, and by Borkatte Pai, the
Bank’s General-Manager. Both are
sworn on 18th March, 2002.
There is also an affidavit by Josphat Mutua, the auctioneer, sworn on
2.4.2002.
On the statutory notices, the
plaintiff’s advocate argues that the two notices annexed to the affidavit of
Saya Dinamani of 18.3.02 as part of annexture “A” and dated 5.10.98 and 18.1.99
respectively are invalid in that they do not give the mortgagor a period of
three months within which to pay the mortgage debt as required by Section 69
(A) (a) of T.P.A. He also argues that
although both of them indicate they were sent by registered post, there is no
certificate of posting or other evidence to prove that they were indeed sent by
registered post. He also criticizes the
notice dated 6.9.2001 annexed to the affidavit of Borkatte Pai for failure to
comply with section 69 (A) (a) of T.P.A. in that it does not give a period of 3
months within which to pay the mortgage or in default the mortgaged property
would be sold. Reliance is placed on the case of TRUST BANK LTD V PROS
CHEMISTS LIMITED & ANOTHER [Civil Appeal
No.133 of 1999] {unreported}. Service of
this notice which Mr. Pai depones to have personally served on the plaintiff in
his (Mr. Pai’s office) is also denied by the plaintiff.
On
valuation, the plaintiff’s case is that rule 11(1) (b) (x) of the Auctioneers
rules 1997 require that the property to be auctioned should have been valued
within the last 12 months preceding the auction sale. In the instant case, he points out that
according to the letter dated 20.2.2002 addressed to the Bank by Teja S.
Kundhi, a registered valuer, the last valuation was done in May 1995 and that
such valuation is not even annexed.
On notifications of sale, the
plaintiff faults the one dated 28.5.01
on the grounds that it was issued prior to the last statutory notice of 6.9.01
and on the basis that it was served on a house girl whose relationship to the
plaintiff is not disclosed. It is also said
to be defective for the additional reasons that it does not indicate the value
of the property or the reserve price thereof contrary to rule 15(b) of the
Auctioneers rules, 1997. Reliance is
placed on the case of LALCHAND SHAH & ANOTHER V THE CENTRAL BANK
OF KENYA APPOINTED MANAGER OF RELIANCE BANK LIMITED
[HCCC No.769 of 1999] {unreported} in which Mbaluto, J. held that a
notification of sale which failed to comply with the auctioneer’s rules in that
it omitted to state the value of the
property to be auctioned or to give the owner of the property adequate
notice prior to the conduct of the sale was an invalid notice and could not
constitute the basis of the legal sale of the mortgaged property. The plaintiff’s advocate also faulted the
notification of sale dated 11.12.01 on several grounds. He argued that it did not contain the value
of the property or the reserved price thereof.
He further argued that the same was not served on the plaintiff but on
an Asian lady whose name or relationship to the plaintiff is not
disclosed. He also contended that if it
was also served by being affixed to the property as deponed in paragraph 5 of
Mr. Mutua’s affidavit, it was affixed on the wrong property as Mr. Mutua has
described the plaintiff’s property as L.R. No.7785 of 1987 whereas the
plaintiff’s property is L.R. No.7785/87.
Counsel further pointed out that the auctioneer has not filed any
certificate of service as required by rule 15(c) of the Auctioneer’s rules in
cases where the person served fails to acknowledge service. He also pointed out that the signature on the
notification against the alleged refusal by the Asian lady to acknowledge
service is not that of Mr. Mutua.
On accounts, counsel for the
plaintiff argued that from the annextures to the affidavit of Mr. Dinamani sworn on 18.3.2002, it was evident that the
applicant had paid almost the entire principal amount and the problem was with
high interest rates which had been imposed without the plaintiff’s consent or
knowledge. He relied on the case of HARILAL
& CO. & ANOTHER V THE STANDARD BANK LTD
[1967] E.A. 512 where it was held that a
bank could not in reliance of a trade
usage vary the charges it imposed on its customer without the prior consent of
the customer to the variation and that any such usage would have no effect in
the law because it was contrary to the law of contract, unreasonable,
oppressive and unjust.
For
all those reasons, the plaintiff’s advocate submitted that the plaintiff had
shown a prima facie case capable of succeeding at the trial and accordingly the
interlocutory injunction should be granted.
The defendant’s response was
that it had given a statutory notice even though it was not obliged to give the
said notice as it placed reliance on the facts that interest on the mortgage
was in arrears for a period exceeding two months ( a fact which was not denied
by the plaintiff) and the plaintiff had failed to insure the property in
contravention of his covenant under the mortgage. Those two facts brought the matter within the
ambit of Section 69(A) (b) and (c) of the
T.P.A. and it was not necessary to serve the plaintiff with any statutory
notice. Reliance was placed on the case
of JAMES OMBERE OKOTCH V EAST AFRICAN BUILDING
SOCIETY [Civil Appeal No.202 of 1996] {unreported}.
The defendant’s advocate further
argued that under Section 69 (1) of the T.P.A. the defendant was at liberty to
exercise its power of sale by either private treaty or public auction and need
not do so through a licensed auctioneer unlike under the Registered Land Act,
Cap.300, where charged property can only be realized through a licensed
auctioneer. He submitted that the
auctioneers rules were irrelevant in the context of a sale under the
T.P.A. He also submitted that non
compliance with the Auctioneers rules was not fatal and it could not derogate
from a statutory power. Reliance was
placed on the cases of DAVID NGUGI MBUTHIA V KENYA COMMERCIAL BANK LTD
& ANOTHER [HCCC No.304 of 2001] and KANORERO
RIVER FARM LTD & 3 OTHER V NATIONAL BANK OF KENYA [HCCC No.699
of 2001]
The defendant’s advocate also
submitted that the affidavits in support of the application were sworn by the
plaintiff’s attorney who had no personal knowledge of the matters. Last, but not least, it was pointed out on
behalf of the defendant that from the affidavit of Saya Dinamani in opposition
to the application, it was evident that numerous demands for payment and
promises by the plaintiff to pay had been made.
In reply
to the submissions made on behalf of the defendant, the plaintiff’s advocate
argued that there was a power of Attorney to Mr. Vandana Thathy and he could
sue and swear affidavits on behalf of the plaintiff. It was also argued that once the defendant
chose to realize its security by way of service of a statutory notice under
Section 69 (A) (a) of T.P.A; he is bound to comply with all the rules pertinent
to such a notice. In similar vein, it
was submitted if he opts to sell the property by way of a public auction
through an auctioneer, he must follow the auctioneers rules. The cases of DAVID NGUGI MBUTHIA
and KANORERO RIVER FARM were
distinguished on the basis that the securities in contention had been sold by
the time interlocutory injunctions were sought.
I
have now to weigh the above submissions in the light of the settled principles
for the grant of interlocutory injunctive relief. Those principles are as follows. First, the applicant must show a prima facie
case with a probability of success at the trial. If the court is in doubt about the existence
or otherwise of a prima facie case it should decide the application on a
balance of convenience. Secondly, a
court will not normally grant an interlocutory injunction unless it can be
shown that the applicant is likely to suffer an injury which cannot adequately
be compensated in damages: see GIELLA
V CASSMAN BROWN & CO. LTD [1973] E.A.
358. Those two are, if I may so say, the
necessary but not the sufficient conditions for grant of interlocutory
injunctive relief. Of equal importance is this: an injunction is an equitable
remedy and the court may decline to grant the same if it is shown that the
applicant’s conduct pertinent to the subject matter of the suit does not meet
the approval of a court of equity. And
of course it has to be remembered that at the interlocutory stage the court is
not called upon to make (indeed it is forbidden from making) definite findings
of fact (particularly on contradictory affidavit evidence) or conclusions of
law.
Approaching this matter that way, I first ask whether
the plaintiff has shown a prima facie case with a probability
of success. In that regard it is evident
from the plaint that the case the plaintiff
has to make out at the trial is that the intended sale of the mortgaged
property is unlawful for want of service on himself of a valid statutory notice
under the T.P.A. and a valid notification of sale under the Auctioneers rules
and also for the defendant’s failure to furnish him with statements of
account. From the submissions made
before me, the trial court will be called upon to pronounce on whether in the
circumstances of this case the defendant
could realize the security without strict compliance with the
requirements as to service of a valid statutory notice and auctioneers
notification of sale. In that regard I
agree with the submissions on behalf of the defendant that a mortgagee
exercising his power of sale pursuant to the provisions of Section 69 (1) of
the T.P.A. may do so by private treaty or public auction. The choice is his. I also agree that if the
power of sale is intended to be exercised on the basis that some interest under
the mortgages is in arrear and unpaid for two months and/or that the mortgagor
is in breach of his obligations under the mortgage or under the T.P.A. other than the payment of mortgage money or
interest thereon it is not necessary to give any notice as none is required by
the provisions of Section 69 A (b) and (c) of the said Act. However, and here I agree with the
submissions on behalf of the plaintiff, if the mortgagee despite the existence
of the conditions specified in paragraph (b) and (c) chooses to proceed to
exercise its statutory power of sale by invoking the machinery of a notice under paragraph (a) of the same
section, he is obliged to comply strictly with the requirements of that
paragraph. And in similar vein, if the
mortgagee opts to sell the mortgaged property by public auction through a
licensed auctioneer, the auctioneers rules, 1997 become relevant and
applicable. So the key issue here is
whether or not the Bank opted to exercise its power of sale by the route of a
notice under paragraph (a) and by way of a public auction through a licensed
auctioneer. In that regard when I
consider the notices exhibited to the affidavits of Mr. Dinamani and Mr. Pai
which counsel for the plaintiff referred to, the following facts emerge. The notice of 5.10.98 is headed statutory
notice. The tenor and content thereof
suggest that the Bank is exercising its statutory power of sale because a sum
of Kshs.5,048,054.71 inclusive of interest on arrears which has been
outstanding for more than 3 months is outstanding and due from the
mortgagor. The content of the notice as a whole appears to
me to show that the Bank is treating this as the statutory notice required
under paragraph (a) of section 69 A. The
same may fairly be said of the
notification dated 18.1.99. And the
third notice which is dated 6.9.01 is clearly a notice intended to pass as the
statutory notice under the provision of law, save for the Bank’s purported
reservation of its right to exercise the power of sale without even giving the
said notice. All the above facts incline
me to the view that the Bank has opted to exercise its statutory power of sale
on the basis of a notice issued under paragraph (a) of Section 69 A and not on
the basis of there being interest in arrears for two months or the mortgagor’s
breach of any covenant in the charge even though both conditions have
existed. That being so I am persuaded
that the Bank should not have its cake and eat it as it seeks to do by
purporting to rely on what it must have considered as valid statutory notices
and in the same breath resiling from reliance thereon on the basis that other
conditions which made it unnecessary to give the notice also exist. Its case on this aspect of the matter must,
as things stand, be judged on whether or not it served the plaintiff with the
required notice under Section 69 A
(a). In that regard I agree with the
submissions on behalf of the plaintiff
that the notices of 5.10.98 and 18.1.99 cannot pass muster. They do not specify that the security would be realized if the
mortgagor does not make payment of the charge debt demanded within 3 months
after his receipt thereof. That leaves only the notice dated 6.9.01. Although the plaintiff’s advocate
characterized this notice as defective, I am unable to see any defect in
it. It perfectly accords with the
requirements of Section 69 A (a). The
only issue about it is whether it was served on the plaintiff. In that connection, Mr. Pai, the Bank’s
General Manager has deponed in his affidavit
of 18.3.02 that he personally served the said notice together with statements
of account on the plaintiff himself on 6.9.01 when the plaintiff called on him
pursuant to an appointment made the previous day. That alleged service is denied in the further
affidavit of Vandana Thathy, the plaintiff’s lawful Attorney sworn on 26.3.02.
In view of the affirmation and denial of service of the notice, I cannot make a
definitive finding on the issue at this stage without being accused of deciding
the matter on contradictory affidavit evidence.
So the position must be that it cannot be said the statutory notice was
not served. Nor can it be said to have
been served.
As regard the service of the notification of sale, I
have already expressed the view that once the mortgagee opts to exercise the
power of sale through a licensed auctioneer in a public auction, the
auctioneers rules become relevant and applicable. Accordingly a valid notification of sale
should be served on the mortgagor. In
that connection, I think the notification which should tax the court’s mind is
the one allegedly served after the last statutory notice. That would be the
notice issued on 11.12.01 annexed to the affidavit of Josphat Mutua, the
Auctioneer. From Mr.Mutua’s own
affidavit the notification was served in two ways. It was affixed on the main door of the
mortgaged property and it was also left with an Asian lady in a house near
Pangani Police Station where the plaintiff lived according to the auctioneer’s
information. The plaintiff’s advocate
scoffed at the first mode of service by pointing out that because the notice
was affixed on the house on LR No.7785 of 87 and not LR No.7785/87 (which is
the correct description of the plaintiff’s property) it must have been affixed
on the wrong house. That to me is not a
serious argument. The advocate is making
a mountain out of a molehill. There is
no doubt that the auctioneer was only guilty of a minor misdescription but
otherwise he is adverting to one and the same mortgaged property. The second mode of service is attacked on more
substantial ground, namely that the relationship of the Asian lady allegedly
served with the notice with the plaintiff is not disclosed. Rule 15 (c) requires the notice to be served
either on the registered owner of the property or an adult member of his family
residing or working with him. In the
instant matter, it is not clear whether or not the lady served was a member of
the plaintiff’s family. She may or she
may not be. Two conclusions may in my
view be properly drawn from the above facts.
One, the first mode of service is not recognised by the auctioneers
rules, 1997. Two, on the auctioneer’s
own affidavit, there is doubt whether or not the notification of sale was
served on the plaintiff as required by rule 15 (c). Counsel for the bank argued that non
compliance with the auctioneers rules cannot derogate from an otherwise lawful
exercise of a statutory power. The
plaintiff’s advocate for his part drew a distinction between situations where a
security has been realized in contravention of the auctioneers rules and
situations where it is sought to restrain the exercise of the power of sale
which is manifestly in violation of the Auctioneers rules. I accept that distinction myself. It appears to stand to reason and to be in
conformity with both the provisions of Section 26 of the Auctioneers Act and
Section 69 B 1 (2) of the T.P.A. to hold that anybody who suffers injury or
loss as a result of the wrongful or improper exercise of the powers of an auctioneer
or the power of sale generally has his remedy in damages only. However, it is a non sequitor to suggest that
one who is about to be damnified by such an improper or irregular exercise of
either the powers of an auctioneer or the general power of sale isn’t entitled
to stop the intended injury on its tracks particularly where the intended
breach is a serious one.
As regards the complaint that the intended sale is
unlawful because the property has not been valued as required by the
Auctioneers rules, all I would say is that rule 11 (1) (b) X requires the
letter of instructions to indicate the reserve price of the land based on a
professional valuation carried out not more than 12 months prior to the
proposed sale. There is no requirement
that the reserve price be indicated on the notification of sale as contended by
the plaintiff’s advocate.
As regards the furnishing of a statement of account to
the plaintiff, I don’t think much would turn on it at this stage. In view of the fact that the plaintiff’s
substantial indebtedness to the bank is not disputed, a statement of account
would at most only raise issues about the exact amount owed. Since it is settled law that a dispute as to
the amount owed would not of itself be a ground for injuncting the mortgagee
from exercising his statutory power of sale, whether the accounts were supplied
(as sworn by the bank) or not supplied (as sworn by the plaintiff’s attorney)
would not have a decisive bearing on whether or not to grant an injunction as
prayed.
To summarise the foregoing, this is a case where the
service of a statutory notice under the T.P.A. and the notification of sale
under the auctioneers rules is prima facie neither proved nor disproved. I cannot in those circumstances say the
plaintiff has or has not made out a prima facie case with a probability of
success at the trial. I think the
application falls to be decided on a balance of convenience. I intend to weigh that balance after
considering the other conditions and factors that bear on whether or not to
grant the injunction prayed for.
I now turn to a consideration of the other conditions
for the grant of an interlocutory injunction.
Is the plaintiff likely to suffer an irreparable harm which cannot
adequately be compensated in damages if the injunction sought is not
granted? In paragraph 21 of his
affidavit in support of the application, the plaintiff’s Attorney depones that
unless the defendant is restrained as prayed the plaintiff will suffer irreparable
harm. On the other hand, in ground 5 of
the grounds of opposition filed by the defendant the defendant’s advocates contends that the
plaintiff can be compensated in damages.
The compessability or otherwise in damages as a condition for the grant
of an interlocutory injunction is an old one which is firmly rooted in the
history of an injunction as an equitable remedy. In the matter at hand, the property sought to
be sold is a residential house which the plaintiff leases out for economic
gain. It value is easily
ascertainable. It has been mortgaged to
the bank with full knowledge that if the mortgage debt is not paid as
covenanted in the contract, the same would be sold. In those circumstances, it does not lie in
the mouth of the mortgagor to say that if he is in default, as he undoubtedly
is, the sale of the security would result in irreparable harm to him. In my opinion, his loss is perfectly capable
of being compensated in damages and it has not even been suggested by his
advocate that the defendant Bank is incapable of so compensating him. The plaintiff does not therefore surmount
this hurdle.
How about the plaintiff’s conduct? It is apparent from the affidavit of Saya
Dinamani of 18.3.02 and the annextures thereto that the history of the parties
is characterized by several demands for payment of mortgage debt, and several
unfulfilled promises by the plaintiff to pay the said debt. The defendant has extended a lot of
indulgence to the plaintiff but the plaintiff has not made good his promises. And from the statement of loan account
annexed to the said affidavit it appears that the repayments have been
irregular and far between. The last
substantial payment was for Kshs.702,000 on 17.8.00. Nothing except a paltry sum of Kshs.4,139.84
has been paid since then. The amounting
standing unpaid as at 12.03.02 is Kshs.8,208,096.31. In that connection it is significant that
although the plaintiff’s Attorney filed a further affidavit on 26.3.02 to
respond to Mr. Dinamana’s affidavit of 18.3.02, there is a no denial in the
said affidavit of the plaintiff’s previous promises or of the contents of the
aforesaid statement of loan account. And the plaintiff is absolutely silent
about repayment. In my judgement, when
all the above factors are considered the conclusion is inescapable that the
plaintiff’s conduct disentitles him to the favour of equity. He cannot get an injunction to restrain the
Bank from realizing its security when he is heavily indebted, his promises of
repayment have come to nought and he does not evince any intention to repay
soon or at all.
As regards the balance of convenience, I think the
same tilts infavour of refusing the injunction.
The plaintiff is not repaying his mortgage debt. From the statement of account a lot of what
is outstanding is interest. That interest
continues to accumulate. At the present
tempo the charge debt will be more than the value of the security quite
soon. In those circumstances, neither
the debtor nor the borrower stands to gain anything by maintenance of the
status quo. The Bank would loose because
its security will in effect be no security at all if on sale it cannot realize
the debt. And the plaintiff will loose
because if the property is ultimately sold, he will not benefit from his
investment. A sale of the security now
appears to me to be in the best interest of both parties.
The upshot is that the plaintiff’s application for an
interlocutory injunction is dismissed with costs to the first defendant
Bank.
DATED
at this Nairobi this 30th day of April 2002.
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