One of the ironies in the development of law is that it was applied in England over the centuries since the days of William the conqueror, it became increasingly unjust. Indeed, law as it grew became so unjust that the sovereign had to make law to cure the injustice in law. Sounds confusing!
The law that was applied by all kings since the Norman conquest came to be known as the common law. The common law was a system of laws that was based on uniform decisions on cases of a similar nature. It therefore became certain what the legal position in every particular instance was.
This system began to become rigid and within a few centuries it became so rigid that it began to become unjust. A person seeking justice from the courts was pigeonholed into a cause of action and the outcome would be more or less the same regardless of the peculiar circumstances.
The salvation from this rigidity was particularly incidental. When people went to the courts and were met with injustice of the rigidity of the common law, they petitioned to the king for intervention. The king would deal with those petitions personally. His decision would not be based on the law but on his conscience and sense of justice.
This system of petitions grew and in time, the king could not handle the volume and he began referring these petitions to the Lord Chancellor, the highest ranking legal and judicial officer in the king’s council. This eventually developed into a system of law now known as “equity” which is applied by all courts in England and Kenya alike.
The system of equity has now developed into a definite system, with definite causes of action., definite types of remedies and its own rules. One of these remedies is known as an injunction, which the banks have come to hate. This is usually an order of the court which prohibits one person from carrying out an action which would injure another. Alternatively, it can be an order compelling a person to carry out action that he is under a legal obligation to do.
Injunctions can be permanent or temporary. It is temporary injunctions that have been causing banks in Kenya so much distress. Temporary injunctions are issued in a case where there is a likelihood that the person suing may suffer damage and eventually be found in the right. For instance, as in many cases before the courts today, a bank advertises a mortgaged property for sale. The borrower sues on the ground that the bank has been overcharging the borrowing. The court, looking at the documents filed by the borrower is telling the truth. It shall issue an injunction against the bank to prevent it from auctioning the property till the dispute is settled.
The rationale is that if the bank proceeds with the auction, and then loses the suit, the borrower will have suffered injustice. So the court asks itself three questions which must be answered in favour of the person suing.
Firstly, does the person suing have a prima facie case. This means does he have a likely case. To establish this, the court looks at the documents filed by both parties and sees whose case, on the face of it, is likely to succeed. I f for instance the borrower is complaining of being overcharged, and cannot explain why he says so, he will be found not to have a prima facie case. But if the loan agreement stipulates that he must be informed f al increases on interest, and the bank cannot show having issued such notices, he will have a prima facie case.
Secondly, the damage that the borrower may suffer must be such that it cannot be adequately repaired by money. Like the sale of one’s matrimonial home. Well, generally, land is always deemed by law not to be reparable by money. So is the infringement of a person’s legal rights, the breach of trust, the infringement of trademarks and copyrights etc.
If the court is not able to adequately determine the first two questions in favour or against the person suing, then it asks itself a third questions in favour of or against the person suing, then it asks itself a third question; to whom does the balance of convenience lie. Is it more convenient to allow the bank to sell the property or to ask it to wait till the dispute is solved? Is it more convenient to allow a person to continue infringing a trademark which is registered in the name of another or to wait for him to establish an alleged right to use the same trademark. On these questions, the court usually answers I favour of the person who seems likely to suffer most.
Banks in Kenya always lose to temporary injunction applications on the first question, the prima facie case. They are unable to counter adequately the claims of the applicant. This, one can suppose, is because of two mistakes.
Firstly, banks like many other people, do not foresee good relations going sour. They fail to cover themselves adequately legally. They for instance, may alter interest rates at will without informing the borrower, a matter which the borrower who has ever complained takes issue with at trial. And the court has to determine whether there is no injustice if a bank enhances its interest rate without notice. That is likely to sound like a prima facie case.
A second mistake is the presumption that a charge document is the almighty power, unchallengeable. But take the example of the bank which registered a charge with a typographical omission of the words “doth herby charge”. Although the whole document was obviously a charge, registered and all, the court had to rule that without those words, the borrower never charged his property to the bank and the bank could not sell it.
There are numerous grounds for the challenge of a charge document, of challenge of the power of sale and even of challenge of the sale itself. And banks must begin to acquaint themselves with all these legal possibilities and to be aware of them at all times. They must think like lawyers, who usually follow Murphy’s Law that everything that can go wrong, will. At the moment, they are caught on the wrong footing many a time, like the public bodies in Kenya who hear of the rules of natural justice for the first time in a litigation against them.
But even Kenyan universities had to learn law the hard way. They were sued so many times successfully that the issue of giving a fair hearing before expelling students is now ingrained on every vice-chancellor’s mind.
If you want to see a legally cautious transaction, look at the next loan facility issued by National Bank.