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Court of AppealPartially AllowedCivil Appeal 155 of 2006· [2009] KECA 242 (KLR)

ELIJAH KIPNGENO ARAP BII v SAMWEL MWEHIA GITAU & another [2009] KECA 242 (KLR)

Court of Appeal of Kenya
10 July 2009
EGE. M. GithinjiJOJ. W. Onyango OtienoJNJ. G. Nyamu
3,771 words in judgment
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The bottom line

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Kenya's Court of Appeal ruled that fraud allegations against a bank's property sale are too complex to be decided in a summary judgment and must go to a full trial.

What this practically means

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Executive summary

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The appellant, formerly registered proprietor of leasehold land LR No. 209/9854 under the Registration of Titles Act, charged it to Kenya Commercial Bank to secure loans and defaulted. The bank advertised a public auction for 17 January 2003, which did not take place, and instead sold the property to the 1st respondent by private treaty for Shs.3,800,000/=, transferring it in June 2003. The 1st respondent sued for vacant possession, damages and special damages of Shs.2,890,000/=. The appellant defended and counter-claimed, alleging the sale was a fraudulent arrangement to defeat a higher auction bid of Shs.4,515,884.60 and seeking a declaration that the sale was null and void. The 1st respondent applied for summary judgment under Order XXXV; Mugo J allowed it in full, holding that fraud allegations fall within section 69B(2)(c) of the Transfer of Property Act and that title conferred on a purchaser under a statutory power of sale is not impeachable on those grounds. The Court of Appeal allowed the appeal. Surveying the mortgagee's equitable duties and RTA sections 2, 23(1) and 75 - which preserve the court's jurisdiction over actual fraud - it held that whether the sale could be set aside for fraud was a complex legal issue requiring evidence and full argument, unfit for summary determination; the trial judge had, in effect, prematurely held an immediate trial. The Court expressly declined to decide the fraud question itself. It also faulted the award of unproved special damages and the failure to dispose of the counter-claim. The appeal was allowed, the ruling and the summary judgment order set aside with costs to the appellant, and the suit ordered to be tried on a priority basis by another Judge.

Key legal issues

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01

Whether fraud is a ground for setting aside a sale in exercise of a mortgagee's statutory power of sale

Holding

The Court did not decide the issue; it held it is a complex legal issue fit for trial, informed by the mortgagee's duties, the RTA and TPA provisions, case law, and evidence.

Reasoning

The Court surveyed the duties of a mortgagee (Mbuthia v Jimba), the English in pari materia provisions (Corbett v Hatifax; Lord Waring; Tse Kwong Lam) and RTA sections 2, 23(1) and 75 as considered in Russel Co. Ltd v Commercial Bank of Africa. Section 75 preserves the court's jurisdiction over actual fraud, so the trial judge's flat ruling that fraud falls within section 69B(2)(c) and can never be entertained was questionable. The issue required evidence and full argument and could not be resolved on a summary judgment application.

p. 6
02

Whether summary judgment was properly granted on this point of law

Holding

No. The learned judge construed section 69B(2) in abstraction, without full arguments, authorities or evidence, and prematurely held an immediate trial.

Reasoning

Relying on Home and Overseas Insurance v Mentor Insurance, summary judgment on a point of law is appropriate only where the point is plainly misconceived or can be shown plainly unsustainable by short argument. Here the fraud issue was complex and arguable; the judge's determination amounted to an immediate trial of the action, which Order 14 is not designed for. The ruling was therefore set aside and the summary judgment application dismissed.

p. 6
03

Whether the trial judge properly awarded damages and disposed of the whole suit

Holding

No. The judge granted all prayers including damages for trespass and special damages of Shs.2,890,000/= without proof, and made no order disposing of the counter-claim.

Reasoning

Summary judgment was entered as prayed in the amended plaint, including special damages of Shs.2,890,000/= which requires proof; the appeal against that award was conceded. Further, the judge made no order on the appellant's counter-claim seeking a declaration that the sale was null and void, leaving the suit incomplete. These were additional errors supporting setting aside the ruling.

p. 7

Legal principles established

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  • A complex legal issue such as whether fraud vitiates a mortgagee's statutory power of sale cannot be determined on a summary judgment application; doing so converts Order 14 into an immediate trial.
  • Where the defendant's only defence is a point of law, summary judgment is proper only if the point is plainly misconceived or plainly unsustainable, not where it requires lengthy argument, many authorities and evidence.
  • Section 69B(2) of the Transfer of Property Act protects the purchaser from impeachment of title on the specified grounds, but section 75 of the Registration of Titles Act preserves the court's jurisdiction on the ground of actual fraud, and whether the sale can be set aside for fraud must be determined at trial with evidence.
  • A mortgagee exercising a statutory power of sale owes equitable duties to act in good faith and ensure the sale is not tainted by impropriety, and the discharge of those duties depends on the facts of each case.

Court orders

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  1. 1.Appeal allowed
  2. 2.Ruling and order of the superior court dated 22nd September 2004 set aside with costs to the appellant
  3. 3.Notice of motion for summary judgment dated 11th February 2004 dismissed with costs to the appellant
  4. 4.Suit to be tried on priority basis by another Judge

Authorities

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Legislation

  • Registration of Titles Act (Cap 281 Laws of Kenya)Section 2
  • Registration of Titles Act (Cap 281 Laws of Kenya)Section 23(1)
  • Registration of Titles Act (Cap 281 Laws of Kenya)Section 24
  • Registration of Titles Act (Cap 281 Laws of Kenya)Section 75
  • Transfer of Property Act (TPA)Section 69(1)
  • Transfer of Property Act (TPA)Section 69B(1)
  • Transfer of Property Act (TPA)Section 69B(2) and (3)
  • Transfer of Property Act (TPA)Section 60 as amended by Act No. 20 of 1985
  • Civil Procedure RulesOrder XXXV Rule 1(b) and 2
  • Law of Property Act, 1925 (England)Section 104(2)

Cases cited (8)

  • Home and Overseas Insurance Co. Ltd. vs. Mentor Insurance Co. (U.K.) Ltd.
    [1990] 1 WLR 153
  • Mbuthia vs. Jimba Credit Finance Corporation
    [1988] KLR 1
  • Corbett vs. Hatifax PLC
    [2003] 4 All ER 180
  • Lord Waring vs. London and Manchester Co. Ltd.
    [1935] ch 310
  • Property and Bloodstock Ltd. vs. Emerton
    [1967] 3 All ER 321
  • Tse Kwong Lam vs. Wong Chitsen
    [1983] 1 WLR 1349
  • Russel Co. Ltd. vs. Commercial Bank of Africa Ltd. & Another
    [1986] KLR 633
  • Jandu vs. Kirpal
    [1975] EA 225
On appeal from
High Court of Kenya at Nairobi
H.C.C.C. No. 882 of 2003
Jurisdiction invoked
First appeal to the Court of Appeal against a ruling of the High Court (Constitution of Kenya, Court of Appeal's appellate jurisdiction)

Key timeline

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Practical implications

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Frequently asked questions

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Cite this brief

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Cite this brief

Caselaw, "ELIJAH KIPNGENO ARAP BII v SAMWEL MWEHIA GITAU & another [2009] KECA 242 (KLR)", Case Analysis (2009). Civil Appeal 155 of 2006. Source: https://new.kenyalaw.org/akn/ke/judgment/keca/2009/242/eng@2009-07-10

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