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Court of AppealDismissedCivil Appeal 276 & 318 of 2018 (Consolidated)· [2022] KECA 785 (KLR)

Bii & another v Kenya Commercial Bank & 2 others

Court of Appeal
22 July 2022
ASAsike-MakhandiaPNPauline NyamweyaJLJ. Lesiit
10,860 words in judgment
View original judgmentRead on Kenya Law Watch case
AI-assisted case brief
·~43 min to read original · ~4 min brief

The bottom line

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Kenya's Court of Appeal confirmed a bank's sale of charged property stands even if sold cheaply — the owner gets damages, not the land back.

What this practically means

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Executive summary

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This consolidated judgment disposes of cross-appeals by Elijah Kipng'eno Arap Bii and Kenya Commercial Bank against the High Court (Odunga J.) judgment of 12th May 2017 in HCCC No. 882 of 2003, a trespass suit brought by Samuel Mwehia Gitau, who had purchased the suit premises from the Bank by private treaty in exercise of its statutory power of sale. The Court of Appeal, as a first appellate court, framed three issues: the legality of the sale, whether the premises were sold at an undervalue, and the available remedies. On legality, the Court held the statutory notice dated 20th November 2001 valid, that the Bank proved posting by registered post to the chargor's admitted address, shifting the burden of proving non-receipt to the chargor; that the 45-day auctioneer's notice applied only to public auctions; and that section 69A of the Indian Transfer of Property Act 1882, the applicable substantive law, permitted sale by private contract. Allegations of fraud failed, fraud having to be specifically pleaded and distinctly proved above a balance of probabilities. On valuation, the Court affirmed that the premises were undervalued: the Bank, having relied on the 1997 valuation of Kshs 7.6 million, was estopped from discrediting it, and its reliance on the flawed Keriasek report breached its equitable duty of reasonable care to obtain the best possible price. On remedies, however, absent fraud the purchaser's title under section 69B(2) ITPA was unimpeachable and the chargor's remedy lay in damages only. The Court found no basis to disturb the trial judge's discretionary awards and affirmed the High Court decision, dismissing both appeals with costs to the Respondent.

Key legal issues

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01

Validity and service of the statutory notice under section 69A ITPA

Holding

The statutory notice dated 20th November 2001 was valid and the sale took place over 90 days later; the Bank proved posting by registered post to the chargor's address in the charge, shifting the burden to the 1st Appellant, who admitted the address and failed to prove non-receipt.

Reasoning

Section 69A ITPA did not prescribe a manner of service, but the charge provided that posting in a stamped envelope to the chargor's last known address sufficed and proof of posting was proof of service. The Bank produced evidence of postage; the 1st Appellant admitted the address was his and that he had not checked his mail, and did not demonstrate the address was improper. The 1st Appellant's counsel also abandoned this ground at the hearing.

02

Whether sale by private treaty rather than public auction was lawful

Holding

Section 69A of the ITPA expressly permits sale by private contract; the 45-day auctioneer's notice requirement under the Auctioneers Rules applied only to public auctions, and the sale was by private treaty.

Reasoning

Unlike the repealed Registered Land Act, the ITPA did not require sale by public auction; the chargee could sell by public auction or private contract. The private-treaty character of the sale was not controverted by the 1st Appellant, and differing figures in the sale agreement and transfer were explained by the distinct legal nature of the instruments and section 69C's application of proceeds.

p. 10
03

Whether the sale was fraudulent

Holding

No fraud was proved against either the Respondent or the Bank; allegations of manipulated purchase prices and collusive versions of the sale were not specifically proved to the required standard.

Reasoning

Fraud must be specifically pleaded and distinctly proved above a balance of probabilities. The correspondence between the Respondent and his advocates on deposit payments could not amount to manipulation absent the Bank's participation, and an enhanced bid could not be fraudulent. No collusion between the Bank and the Respondent was evidenced beyond the undervalue.

04

Whether the premises were sold at an undervalue

Holding

The premises were undervalued: the Bank failed to exercise reasonable care to obtain the best possible price by relying on the flawed Keriasek valuation of Kshs 4.3 million against a 1997 valuation of Kshs 7.6 million.

Reasoning

The applicable law was the ITPA, not section 77 of the Registered Land Act, but equity required the mortgagee to act in good faith and take reasonable care to obtain the best price. The Bank was estopped from discrediting the 1997 valuation it had itself relied on; Prof Njuguna's expertise was demonstrated notwithstanding the practising-certificate issue; and the Keriasek report lacked reasons for the depreciation and contained factual errors, so the Bank's reliance on it fell short of reasonable care.

05

Remedies for the undervalue irregularity

Holding

The undervalue, absent fraud, entitled the 1st Appellant to damages only, not nullification of the sale; the trial judge's discretionary apportionment of damages (vacant possession plus Kshs 155,000 to the Respondent; Kshs 3,800,000 to the 1st Appellant from the Bank) was not disturbed.

Reasoning

Under section 69B(2) of the ITPA a purchaser's title is not impeachable for irregular exercise of the power of sale; the remedy is damages. Quantum is discretionary and an appellate court interferes only where an irrelevant factor was considered, a relevant one ignored, or the award is wholly erroneous. The trial judge's reasoning avoiding unjust enrichment was sound.

Legal principles established

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  • A first appeal is by way of retrial; the Court reconsiders and evaluates the evidence and draws its own conclusions, but will not depart from trial findings based on the evidence, on correct principles, or on a judicially exercised discretion.
  • Once a chargor alleges non-receipt of a statutory notice, the chargee must prove posting; upon proof of posting, the burden of proving non-receipt shifts to the addressee.
  • Fraud must be specifically pleaded and distinctly proved to a standard above a mere balance of probabilities; it cannot be inferred from the facts.
  • Under section 69A of the ITPA a chargee may sell by private contract as well as by public auction; irregularity in the exercise of the power of sale sounds in damages, not nullification of the purchaser's title.
  • A mortgagee in equity must act in good faith and exercise reasonable care to obtain the best possible price reasonably obtainable for the mortgaged property.

Court orders

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  1. 1.Affirmation of the decision of the High Court for the reasons given in the judgment
  2. 2.Dismissal of the 1st and 2nd Appellants' appeals with costs to the Respondent

Authorities

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Legislation

  • Transfer of Property Act 1882 (India)section 69
  • Transfer of Property Act 1882 (India)section 69A
  • Transfer of Property Act 1882 (India)section 69B
  • Transfer of Property Act 1882 (India)section 69C
  • Registration of Titles Act (repealed)section 75
  • Registered Land Act (repealed)section 74(1)
  • Registered Land Act (repealed)section 77
  • Auctioneers Rulessection 15(c)
  • Interpretation and General Provisions Act, Cap 2section 3(5)
  • Land Act (No. 6 of 2012)
  • Constitution of KenyaArticles 25(c) and 50
  • Court of Appeal Rules 2010Rule 94

Cases cited (29)

  • Selle & another v Associated Motor Boat Co. Ltd & others
    [1968] EA 123

    First appeal is by way of retrial; court reconsiders evidence and draws its own conclusions

  • Jabane v Olenja
    [1986] KLR 661

    Departure from trial findings where the court acted on wrong principles of law

  • Mbogo & another v Shah
    [1968] E.A.

    Appellate interference where discretion was exercised injudiciously

  • Nyangilo Ochieng vs Fanuel B. Ochieng & 2 Others
    Kisumu Civil Appeal No 148 of 1995

    Chargee's burden to prove posting of statutory notice once non-receipt alleged

  • Obel Obuom vs Fanuel B. Ochieng & 2 others

    Burden shifting on proof of statutory notice

  • Nancy Kahoya Amadiva v Expert Credit Limited & another
    [2015] eKLR

    Remedy for improper or irregular sale is damages, not cancellation of title

  • Captain Patrick Kanyagia & another v Damaris Wangechi & 2 others
    [1993] eKLR / [1995] eKLR

    Purchaser for value without notice has good title; mortgagor's remedy is damages under section 69B(2) ITPA

  • Francis Mogaka Maranya v National Bank Kenya Limited
    [1997] eKLR

    Advertisement of public auction does not deprive chargee of power to sell by private treaty

  • Central Bank of Kenya Ltd v Trust Bank Limited & 4 others
    [1996] eKLR

    Standard of proof of fraud is above a mere balance of probabilities

  • Urmilla w/o Mahendra Shah v Barclays Bank International Ltd & another
    [1979] eKLR

    Standard of proof of fraud

  • Bruce Joseph Bockle v Coquero Limited
    [2014] eKLR

    Standard of proof of fraud

  • Mbuthia v Jimba Credit Finance Corporation & another
    [1998] eKLR; Civil Appeal No 111 of 1986

    Purchase price payable outside completion date per agreement; market value ascertainable from auction bids; mortgagee's good-faith duty

  • Charles Karathe Kiare & 2 others v Administrator of the Estate of John Wallace Mathare (Deceased) & 3 others
    [2013] eKLR

    Impeachability of a purchaser's title without notice of fraud

  • Charles Karathe Kiare & 2 others v Administrator of the Estate of John Wallace Mathare (Deceased) & 3 others
    [2015] eKLR

    Impeachability of a purchaser's title without notice of fraud

  • Trust Bank Limited v Eros Chemists Limited
    [2000] eKLR

    Mandatory three-month notice requirement under section 69A ITPA; notice must state sale after three months

  • Euro Bank Limited (In Liquidation) v Twictor Investments Limited & 2 others
    [2020] eKLR

    Nothing sinister in sale by private treaty after failed auctions; remedy for irregularities is damages

  • Vijay Morjaria vs Nansingh Madhusingh Darbar & another
    [2000] eKLR

    Fraud must be specifically pleaded and distinctly proved, not inferred from facts

  • Jandu v Kirpal & another
    [1975] EA 225

    Elements of fraud outlined

  • Lenny Maxwell Kivuti v Independent Electoral and Boundaries Commission (IEBC) & 3 others
    [2019] eKLR

    Submissions should be considered by the trial court; ignoring arguments is fatal to fair hearing

  • Timothy Alvin Kahoho vs The Secretary General of the East African Community
    Civil Appeal No. 2 of 2013

    Ignoring a party's arguments is fatal to exercise of discretion and fair hearing

  • David Musyimi Ndetei t/a Oasis Mineral Water Company & another vs Safepak Ltd
    [2005] eKLR

    Court entitled and bound to reject unsound expert opinion in conflict with other evidence

  • Standard Chartered Bank v Walker
    [1982] 3 All ER 938

    Mortgagee's equitable duty to take reasonable care to obtain the best possible price

  • Criticos v National Bank of Kenya Limited & another
    (Civil Appeal 80 of 2017) [2022] KECA 541 (KLR)

    Expert evidence can only be challenged by another expert; criteria for assessing expert evidence

  • Stephen Kinini Wang'ondu

    Expert evidence can only be challenged by another expert (cited within Criticos quotation)

  • Routestone Ltd. v. Minories Finance Ltd. and Another
    [1997] B.C.C. 180

    Quality of expert's reasoning determines weight of opinion (cited within Criticos quotation)

  • Kenya Hotel Properties Limited vs Willesden Investment Limited
    [2009] eKLR

    Damages for trespass in the form of mesne profits

  • Eastlands Theaters Limited & 2 others v Kenya National Capital Corporation Limited
    [2018] eKLR

    Damages cannot be awarded on a claim not specifically pleaded or counterclaimed

  • David Ngugi Mbuthia v Kenya Commercial Bank & another
    HCCC No 304 of 2001

    Proper remedy for undervalue irregularity is an award of damages

  • Ol Pejeta Ranching Limited v David Wanjau Muhoro
    [2017] eKLR

    Appellate interference with quantum only where irrelevant factor considered or award wholly erroneous

On appeal from
High Court of Kenya at Nairobi
HCCC No. 882 of 2003
Jurisdiction invoked
First appeal to the Court of Appeal under the Constitution and the Court of Appeal Rules 2010 (Rule 94 invoked on the respondent's notice); no specific article cited

Key timeline

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Practical implications

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Frequently asked questions

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Later judgments citing this (23)

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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, "Bii & another v Kenya Commercial Bank & 2 others", Case Analysis (2022). Civil Appeal 276 & 318 of 2018 (Consolidated). Source: https://new.kenyalaw.org/akn/ke/judgment/keca/2022/785/eng@2022-07-22

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