Coast Professional Freighters Limited v Welsa Bange Oganda, Industrial & Commercial Development Corporation & Nadhia Limited (Civil Appeal 18 of 2016) [2017] KECA 686 (KLR)
The bottom line
#Kenya's Court of Appeal confirmed a bank auction and land title obtained through fraud are void, and the fraudster buyer cannot claim innocent purchaser protection.
What this practically means
#Executive summary
#Key legal issues
#Jurisdiction of the High Court (Commercial Division) over a suit commenced before the establishment of the Environment and Land Court
The High Court had jurisdiction; under the Sixth Schedule, Part 5, Section 22 of the Constitution pending judicial proceedings continue before the same or a corresponding court, and the Chief Justice's practice directions kept part-heard land cases in the High Court. The dispute was also a commercial one concerning charges, not exclusively a land matter.
The suit was filed and part-heard before the Constitution 2010 and the ELC Act. Section 22 of the Sixth Schedule allowed the suit to continue before the same court. The Chief Justice's Gazette Notice No. 16268 of 9th November 2012 provided that part-heard land cases pending before the High Court continue there, a direction upheld in Edward Mwaniki Gaturu. Further, a dispute concerning charges and mortgages where land is used as security is a commercial transaction triable by either court of equal status. No party objected to Kasango, J. presiding.
Whether the chargee's statutory power of sale was properly exercised
It was not. The 2nd respondent charged interest on amounts not disbursed, illegally varied interest rates without contractual right or notice, disbursed loans piecemeal, and failed to credit some repayments, such that the 1st respondent had fully repaid and overpaid the loan by 31st August 1997.
PW2, an accountant, testified that although the loans were agreed at Kshs. 300,000 and Kshs. 294,000, only Kshs. 263,966.25 and Kshs. 245,810 respectively were disbursed, yet interest accrued on the full amounts. Interest was varied from 10% to 15%, 16% and 18% without power in the charge instruments and without notice, and disbursements were made in batches. By 31st August 1997 the 1st respondent had overpaid by Kshs. 1,117,882.80. No valid statutory power of sale could therefore arise.
Whether the appellant participated in and was the successful bidder at the auction of 17th September 1997
No. Daber Enterprises Ltd, through Bernard Mwangi Mbai, was the successful bidder with a bid of Kshs. 3.2 million and was issued a certificate of sale. The appellant did not attend the auction; its certificate of sale was issued later with its date altered to regularize the fraud.
The record shows Mbai bid for Daber, paid the 25% deposit and was issued a certificate of sale dated 23rd September 1997. The 2nd respondent cancelled that sale and, without any further advertisement or auction, procured the 3rd respondent to issue a certificate to Patrick Mutune Kiasyo for the appellant, whose date was altered and countersigned. An undated letter from the 3rd respondent showed it was instructed by telephone to accept the appellant's bid after the auction. The 3rd respondent never filed a defence and the allegations against it remained uncontroverted.
Reliance on prior decisions (Daber Enterprises cases) in which the appellant was not a party
Proper. The decisions were tendered in evidence with the appellant's consent, were admissible under section 34(1)(d) of the Evidence Act as the questions in issue were substantially the same, and were unappealed decisions of a competent court which could not be ignored.
There was evidence the decisions were produced before the High Court with the appellant's consent and full knowledge of their import; the appellant waived any right to object and cannot now complain of a breach of audi alteram partem. Section 34(1)(d) admits evidence from prior proceedings where the issues are substantially the same. Further, the decision had not been appealed, set aside or varied and the 2nd respondent's defence in the Daber suit did not deny that Daber was the successful bidder.
Rectification of the land register and validity of the appellant's title
The High Court rightly ordered rectification under section 143 of the Registered Land Act (repealed), applied by virtue of section 162(1) of the Land Act 2012, since the register was obtained through fraud; the appellant could not claim to be an innocent purchaser for value without notice.
Section 162(1) of the Land Act 2012 preserves the law applicable to rights accrued before its commencement, so section 143 of the RLA governed. That section empowered the High Court to rectify a register obtained through fraud, which was established here. The appellant's version left gaps: it could not explain why a certificate of sale was first issued to Daber or why the 2nd respondent initially accepted Daber's deposit.
Whether the award of Kshs. 8 million for loss of use of the suit premises was sustainable
Yes. No submissions were made against the award by the appellant or the 2nd and 3rd respondents, and the principles for interfering with discretionary awards of damages were not met.
The appellant raised the ground but made no oral or written submissions on it; the decretal sum had already been paid. An appellate court may interfere with damages only where an irrelevant factor was considered, a relevant factor omitted, the facts misapprehended, or the award is so inordinately high or low as to be a wholly erroneous estimate, per Kemfro Africa Ltd. None was demonstrated.
Legal principles established
#- Allegations of fraud must be strictly proved to a standard above a mere balance of probabilities
- An appellate court may only interfere with an award of damages where the trial court took into account an irrelevant factor, left out a relevant factor, misapprehended the facts, or made a wholly erroneous estimate of the damages
- Evidence given in a judicial proceeding is admissible in a subsequent proceeding under section 34 of the Evidence Act where the questions in issue are substantially the same
- On a first appeal the Court of Appeal is enjoined to revisit, analyze and re-evaluate the evidence afresh and arrive at its own independent conclusions
- A title obtained through fraud does not confer lawful title and a purchaser party to the fraud cannot claim protection as an innocent purchaser for value without notice
Court orders
#- 1.The appeal is dismissed with costs to the 1st respondent
- On appeal from
- High Court of Kenya (Commercial Division, Mombasa)
- HCCC No. 133 of 1999 (Amended Plaint dated 7th July 2005)
- Jurisdiction invoked
- First appeal to the Court of Appeal under the Court of Appeal Rules (rule 29 invoked by the Court); appeal against a judgment of the High Court
Key timeline
#Practical implications
#Frequently asked questions
#Cite this brief
#Cite this brief
Caselaw, "Coast Professional Freighters Limited v Welsa Bange Oganda, Industrial & Commercial Development Corporation & Nadhia Limited (Civil Appeal 18 of 2016) [2017] KECA 686 (KLR)", Case Analysis (2017). Court of Appeal Civil Appeal (not expressly numbered in judgment; arising from HCCC No. 133 of 1999). Source: https://new.kenyalaw.org/akn/ke/judgment/keca/2017/686/eng@2017-02-17
Suggested citation format for research notes or client memos. Always verify the original judgment before relying on any point.