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Court of AppealDismissedCivil Application 108 of 2005 (UR.58/2005)· [2005] KECA 222 (KLR)

Francis J. K. Ichatha v Housing Finance Company of Kenya Ltd [2005] KECA 222 (KLR)

Court of Appeal
3 June 2005
Philip Kiptoo TunoiP. K. TunoiEOE. O. O'KubasuEGE. M. Githinji
1,154 words in judgment
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The bottom line

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Disputing interest charges alone won't stop a bank selling your home in Kenya — you must also show it couldn't repay you if you win.

What this practically means

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Executive summary

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This is a ruling of the Court of Appeal at Nairobi (Tunoi, O'Kubasu and Githinji, JJ.A.) delivered on 3 June 2005 in Francis J. K. Ichatha's application under Rule 5(2)(b) of the Court of Appeal Rules for an injunction pending an intended appeal, to restrain Housing Finance Company of Kenya Ltd from selling LR No. 13689 Langata by public auction or private treaty. In August 1991 the respondent advanced the applicant Shs 1,200,000 repayable over fifteen years, secured by a legal charge over the property, and in 1992 a further Shs 300,000 secured by a further charge. The applicant fell into prolonged default, and by statutory notice dated 31 December 2003 the respondent demanded the full balance and arrears of Shs 13,779,841.75, threatening to exercise its statutory power of sale. The applicant sued in HCCC No. 414 of 2004, alleging that unilateral increases in interest rates and 'penalty interest/interest on arrears' had inflated his debt, and sought a permanent injunction and an accounting; Emukule J dismissed his interlocutory injunction application on 3 March 2005, finding default from the first instalment and no probability of success. Applying the twin test drawn from Githunguri v Jimba Credit Corporation Ltd (No 2), the court accepted that the intended appeal raised arguable questions of law on the legality of the penalty interest and the variation of interest rates. But the applicant admitted default, arrears and the debt; the quarrel was over quantum and illegal charges - a dispute of a 'mathematical nature' - which, following Shah v Devji, is not a valid ground for restraining a statutory power of sale. Nor, the house having been built with the loan funds, had he shown the respondent could not compensate him if the appeal succeeded. The application was dismissed with costs to the respondent.

Key legal issues

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01

Whether the intended appeal is arguable.

Holding

Yes. The draft memorandum of appeal and supporting affidavit raised arguable questions of law, particularly on the legality of the penalty interest/interest on arrears imposed and on the variation of interest rates; however, arguability alone could not secure the injunction.

Reasoning

The court recited the settled principle that an appellate court does not normally interfere with a trial judge's exercise of discretion unless it was not exercised judicially. Examining the grounds in the draft memorandum of appeal and the supporting affidavit, it was satisfied that the intended appeal raised arguable questions of law, particularly the legality of the 'penalty interest/interest on arrears' levied and the variation of interest rates said to reach 26% per annum. Arguability was therefore satisfied, although the court emphasised that the twin Rule 5(2)(b) test also required the nugatory limb.

p. 2
02

Whether, if successful, the appeal would be rendered nugatory unless the injunction is granted.

Holding

No. The applicant failed the second limb because the residential house on the charged property was built with the loan funds and he did not show that the respondent lacked the financial means to compensate him if the appeal ultimately succeeded.

Reasoning

Although the court accepted the charged property would probably be sold before the appeal was heard, it held the applicant failed the nugatory limb. It was admitted that the residential house on the property was built with the respondent's loan funds, and the applicant - who had admitted inability to service the loan and the arrears - adduced no evidence that the respondent lacked the financial means to compensate him if the appeal ultimately succeeded. Where compensation is available, refusing an interlocutory injunction does not render a successful appeal nugatory.

p. 3
03

Whether a dispute on the accounts over the quantum of the debt and the legality of the charges justifies restraining the statutory power of sale.

Holding

No. Where default, arrears and indebtedness are admitted and the quarrel is essentially mathematical - over the quantum of the arrears and allegedly illegal charges - that alone is not a valid ground for restraining sale of the charged property.

Reasoning

Counsel for the applicant conceded there was default and that the arrears and the debt were admitted; the dispute concerned the legality of penalty interest and rates of up to 26% per annum, which allegedly inflated the indebtedness and frustrated redemption. The applicant himself described the dispute in the plaint as of a 'mathematical nature'. Following Shah v Devji, the court held that the existence of such a dispute on the accounts is not a valid ground for restraining a chargee's statutory power of sale.

p. 2
04

The standard for appellate interference with a trial judge's exercise of discretion.

Holding

Obiter restatement of the orthodox principle that an appellate court does not normally interfere with the exercise of discretion by the trial judge unless such discretion is not exercised judicially.

Reasoning

In assessing arguability the court recited the orthodox principle that an appellate court does not normally interfere with the exercise of discretion by the trial judge unless such discretion was not exercised judicially. The statement frames the standard of review rather than determining the outcome, which turned on the twin Rule 5(2)(b) tests of arguability and nugatory effect. It is recorded as an obiter restatement of principle rather than the ratio of the ruling.

p. 2

Legal principles established

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  • An applicant for an injunction pending appeal under Rule 5(2)(b) of the Court of Appeal Rules must satisfy two cumulative tests: an arguable appeal, and that the appeal, if successful, will be rendered nugatory unless the injunction is granted.
  • A mere dispute on the accounts - the quantum of the arrears or of the loan - is not a valid ground for restraining a chargee from exercising its statutory power of sale.
  • The nugatory limb is not satisfied merely because the charged property will probably be sold before the appeal is heard, where the applicant does not demonstrate that the chargee lacks the financial means to compensate him if the appeal succeeds.
  • An appellate court does not normally interfere with the exercise of discretion by the trial judge unless such discretion is not exercised judicially.

Court orders

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  1. 1.The application for an injunction pending appeal was dismissed.
  2. 2.Costs of the application were awarded to the respondent.

Authorities

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Legislation

  • Court of Appeal RulesRule 5(2)(b)

Cases cited (2)

  • Githunguri v. Jimba Credit Corporation Ltd (No. 2)
    [1988] KLR 838
  • Shah v. Devji
    [1965] EA 91
On appeal from
High Court of Kenya at Milimani Commercial Court, Nairobi
H.C.C.C. No. 414 of 2004
Jurisdiction invoked
Rule 5(2)(b) of the Court of Appeal Rules (application for injunction pending an intended appeal)

Key timeline

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Practical implications

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Frequently asked questions

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Later judgments citing this (25)

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Judgments in the corpus that rely on this one. Where the Court said how it treated the authority, that is shown.

Cite this brief

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Cite this brief

Caselaw, "Francis J. K. Ichatha v Housing Finance Company of Kenya Ltd [2005] KECA 222 (KLR)", Case Analysis (2005). Civil Application 108 of 2005 (UR.58/2005). Source: https://new.kenyalaw.org/akn/ke/judgment/keca/2005/222/eng@2005-06-03

Suggested citation format for research notes or client memos. Always verify the original judgment before relying on any point.