Edermann Property Limited (the applicant) filed an Appeal against the decision of Chepkwony, J. in which the learned Judge held that the applicant’s application failed to meet the threshold for grant of temporary injunction as sought and dismissed it.
The Applicant then moved to the Court of Appeal and filed and an appeal against the said decision.
The Appeal sought:
a) That there be an order of temporary injunction restraining the respondent, its agents, employees, servants or any other person or entity claiming through it from alienating, selling by public auction or in any way disposing of or evicting the innocent purchasers for value or in any way interfering with the quiet possession of all that property consisting of 100 apartments units pending the hearing and determination of the intended appeal
b) That there be an order of temporary injunction restraining the respondent, its agents, employees, servants or any other person or entity claiming through it from alienating, selling by public auction or in any way disposing of or in any way interfering with the quiet possession of all that property known as Title No. I.R. 202852, L.R. 209/22016 (Original Number 209/20567/2) registered in the name of the applicant and charged to the respondent but partially disposed of, to innocent third party purchasers for value off plan through unregistered lease agreements with the applicant pending the hearing and the determination of the intended appeal; and
The facts:
The background of the application was that the applicant was engaged in the business of construction of houses in line with the Government’s plan under the affordable housing scheme. The applicant commenced the construction of the Great Wall Gardens 1 Project on LR. No. 27317/2 in Athi River consisting of 2190 units (suit property) in October 2015. Through a letter dated 28th August 2017, it applied to the Kenya Commercial Bank (the respondent) for a loan facility of Kshs. 1.3 billion for the construction of the houses on the suit property.
The applicant contended that the respondent agreed to offer the loan facility of Kshs. 1.3 billion, and it offered as security Legal Charge over the River Estate Project in Ngara (TRE) erected over Title No. I.R. 202852 L.R. 209/22016 (original number 209/20567/2) which is partially developed and whose estimated open market price is Kshs. 5 billion (Ngara Property) and a Deed of Assignment of projects receivables over 100 apartment units erected on the suit property.
The applicant deposed that it was meeting its loan repayment obligations until 12th March 2020 at the onset of the COVID -19 pandemic in Kenya. The respondent amalgamated all the existing loans which culminated in creation of a charge over 100 unsold units on the suit property of Kshs. 425,750,000/=. Sometime in the year 2019, the applicant advertised for sale some units on the suit property under which the 100 units are charged with the respondent, but the applicant realised that its sales department erroneously sold the charged units alongside 500 others it had placed on offer. It contended that it informed the respondent through a letter dated 14th June 2021.
The applicant then offered an alternative security to the respondent, being retention of the suit property valued at Kshs. 3.5 billion or in the alternative, substitution of the 100 apartment units on the suit property with L.R. MN/1/1515 in Shanzu Mombasa whose market value was more than Kshs. 500 million.
Being unable to meet its loan obligations, the respondent issued the applicant with a letter dated 15th December 2021 demanding an outstanding balance of Kshs. 1,912,680,236.56 which resulted to an impending auction which is to take place on 23rd April 2024, for the sale of the 100 units already disposed of to third parties, to settle part of the outstanding debt owed to it.
The application was opposed by way of a replying affidavit deposed by the respondent bank. It was conceded that the respondent offered a loan facility of Kshs. 1.3 billion out of which, Kshs. 700 million was to finance the working capital for the construction of the suit property, while Kshs. 600 million was to facilitate the take-over of facilities from the Credit Bank Limited.
The respondent stated that the terms and conditions of granting the facility was that the applicant was to submit the residue title deed after the excision of the portion of the Ngara property, to channel all the proceeds of sale and pre-sale of the Great Wall Gardens Phase II and the Commercial Centre properties through an escrow account held with the respondent, to notify the respondent in writing prior to engaging any additional borrowing from any other financial institution and to submit monthly sales reports for the project.
The respondent contends that in breach of the terms of the charge dated 16th September 2019, the applicant sold the 100 units without authorisation from it. The respondent believes that the sale was deliberate and intended to defeat its interest; that no interest in land can be registered as a consequence of the said illegality and unlawfulness; and that the said purchasers do not qualify as innocent purchasers for value without notice of defect in title as per the provisions of sections 87 and 88 (1) (g) of the Land Act. 14.
Further, it was stated that the applicant breached the terms of the Deed of Assignment by diverting all the money received in respect of the charged suit property to another bank account against the express terms of the contract; and that is why the respondent issued the requisite Statutory Notices for the outstanding sum of Kshs. 2,001,845,844/= for the sale of the 100 charged units upon default by the applicant. According to the respondent, the applicant has failed to show that its rights are likely to be infringed by the sale of the suit properties and more so, to establish that it has an arguable appeal. In addition, the intended appeal will not be rendered nugatory as the applicant can be compensated adequately by way of damages as pleaded in its suit.
The Court stated that for such an application to succeed, two principles must be satisfied.
- The appeal or intended appeal must be an arguable one.
- The Court must satisfy itself that if an injunction is not granted, the appeal or intended appeal will be rendered nugatory. Both principles must be considered conjunctively for an application to succeed. It suffices to state that these principles apply where an applicant is seeking an order of injunction as in the instant application.
An arguable appeal is not one which must necessarily succeed but it must not have an element of frivolity. Even a single bona fide ground of appeal is enough to meet the threshold of an arguable appeal. This principle was aptly enunciated by this Court in the case of Stanley Kangethe Kinyanjui vs. Tony Ketter & Others (2013) eKLR as follows:
“That in dealing with rule 5(2)(b), the Court exercises original and discretionary jurisdiction and that exercise does not constitute an appeal from the judge’s discretion to this Court. The first issue for our consideration is whether the intended appeal is arguable. This Court has often stated that an arguable ground of appeal is not one which must succeed but it should be one which is not frivolous; a single arguable ground of appeal would suffice to meet the threshold that an intended appeal is arguable.” 29. Further, in Trust Bank Limited & Another vs. Investech Bank Limited & 3 Others (2000) eKLR, it was held: “The jurisdiction of the Court under Rule 5(2)(b) is original and discretionary and it is trite law that to succeed an applicant has to show firstly that his appeal or intended appeal is arguable, to put it another way, it is not frivolous and secondly that unless he is granted a stay the appeal or intended appeal, if successful will be rendered nugatory. These are the guiding principles but these principles must be considered against facts and circumstances of each case…”
The gravamen of the intended appeal is that the learned Judge erred in failing to find that the purchasers of the 100 units of the suit property and the 281 units of the Ngara property sold off plan were innocent purchasers for value and that the intended sale by the respondent was illegal and unprocedural.
There is a Deed of Assignment of rental income dated 23rd September 2019. Although not legible enough, we have been able to discern that it was signed between the parties and this is not disputed. The terms were to the effect that the applicant would enter into various tenancy agreements with the tenants of the subject 100 units. The amount secured by the Deed of Assignment was Kshs. 425, 750,000/= exclusive of interest. This shows that the 100 units were not to be put up for sale at any point. The purpose of the 100 units was to generate rental income to offset a loan facility of Kshs. 425, 750,000/= exclusive of interest. We note that most of the sales happened in the year 2020. This was after the 100 units had been given as security to the respondent. The case made out by the respondent is that, in proceeding to sell the 100 units without the knowledge of the respondent, the applicant was in fundamental breach of trust and the intention of the applicant was to defeat the security it had issued to the respondent to secure the loan facility.
Arguably, the onus to inform its agent that the 100 units were securities to a loan facility, lay with the applicant so that they were not subject of sale. Even so, the respondent urged, the applicant knowing very well that it had an obligation to fulfil in repayment of the loan facility, it ought to have deposited the money proceeds from the sale in an escrow account with the respondent but it did not. The respondent contends that the actions of the applicant smirks of dishonesty and it cannot be said that this was an honest mistake that would vitiate the contract.
Conversely argued, these issues, according to the applicant turn on arguability of the intended appeal. Considering, as already indicated, that an arguable appeal is not one that will necessarily succeed, we are prepared to accept, based on the grounds of appeal set out in the memorandum of appeal, that the intended appeal is not frivolous.
Turning to the second limb, this Court held in Julius Wahinya Kang’ethe & Another vs. Muhia Muchiri Nga’ng’a (2017) eKLR that: “whether or not an appeal will be rendered nugatory depends on whether or not what is sought to be stayed if allowed to happen is reversible; or if it is not reversible whether damages will reasonably compensate the party aggrieved.”
The applicant argued that if the applicant is to proceed with the sale of the 100 units, the intended appeal will be rendered nugatory as the third parties would suffer as they are innocent purchasers. We note, as the learned Judge of the High Court did, that the said third parties are not parties to this dispute. What is not in contention is that the suit property is charged to the Respondent. It has not been suggested that its right to exercise its statutory power of sale over the suit property has not arisen or that it is not exercisable. In the circumstances, and having regard to the provisions of Section 99 (4) of the Land Act and considering also that there is no suggestion that the respondent would not be able to compensate the applicant, we are not persuaded that the appeal will be rendered nugatory.
Ultimately, the Court found the application is unmeritorious and dismissed it with costs to the Respondent.
