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ELCPartially AllowedNotice of Motion dated 15th September 2016 within a Petition (Malindi)· [2017] KEELC 837 (KLR)

Happy Site Management Limited v Imperial Bank Limited (In Receivership) & 3 others [2017] KEELC 837 (KLR)

Environment and Land Court of Kenya
15 November 2017
JOJ. O. Olola
2,683 words in judgment
View original judgmentRead on Kenya Law Watch case
AI-assisted case brief
·~11 min to read original · ~4 min brief

The bottom line

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A Kenyan court blocked a Chase Bank auction only over sub-leased land, confirming lenders may sell charged property unless prior registered rights say otherwise.

What this practically means

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Executive summary

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Happy Site Management Limited, a management company incorporated in 2015 whose members hold sub-leases of 30 houses at Coral Key Beach Resort on LR No. 9700 (Original No. 1863/2) Malindi, moved the Court for conservatory orders restraining the Receiver Manager of Chase Bank (under the Kenya Deposit Insurance Corporation) and Kinyua & Co. Auctioneers from selling the suit property pursuant to an auction advertisement of 10th September 2016. The Petitioner argued that the exercise of the statutory power of sale without prior and adequate notice to its members offended Articles 40 and 47 of the Constitution. The Receiver Manager countered that the borrowers (the two Interested Parties) were in default of facilities exceeding Euro 315,858.71 and Kshs 83.9 million, that the statutory power of sale had arisen, and that the Petitioner had no right to object. The Bank conceded that its charge, registered on 25th July 2011, was subordinated to the earlier 99-year sub-lease dated 23rd September 2010 over 0.5450 Ha. Olola J held that the Petitioner, not being party to the Sub-Lease and being incorporated after it, could not object to sale of the unleased charged portion, and that members' easement claims lay against the Sub-Lessor. However, because the auction advertisement did not exclude the sub-leased areas, the Court allowed Prayer 3 of the application and granted the conservatory order pending hearing of the Petition, while leaving the Respondents at liberty to sell the rest of the charged security. Each party was to bear its own costs.

Key legal issues

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01

Whether conservatory orders should issue to restrain the advertised auction of the suit property

Holding

Prayer 3 allowed only because the auction advertisement failed to specify that the sale would not apply to areas covered by the prior Sub-Lease dated 23rd September 2010

Reasoning

The court weighed the Petitioner's claim that the sale would affect its members' proprietary rights under Articles 40 and 47 against the public interest in allowing the Receiver Manager to recover depositors' funds. The Bank conceded the charge was subordinated to the 99-year sub-lease over 0.5450 Ha. The advertisement did not carve out the sub-leased areas, warranting interim restraint until the advertisement was clarified.

p. 5
02

Whether the Petitioner, incorporated in 2015 and not party to the Sub-Lease, can object to sale of the unleased charged portion

Holding

No. The Petitioner has no right to object to the sale of the portion of LR No. 9700 Malindi not leased to the 2nd Interested Party

Reasoning

The Petitioner was incorporated in 2015, after the Sub-Lease of 2010, and is not party to it. The unleased portion is charged to the Bank, the borrowers are in default, and the charge over that portion is not subject to prior registered dispositions. The Petitioner's members' claims for rights of way and easements lie against the Sub-Lessor, not the Bank, and cannot impede recovery of depositors' funds.

p. 5

Legal principles established

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  • A chargee whose statutory power of sale has arisen should be allowed to exercise that power over the charged security so long as the debt remains unpaid, unless good grounds to the contrary are advanced
  • A sub-lease created and registered before a charge takes priority over that charge

Court orders

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  1. 1.Prayer No. 3 of the Notice of Motion dated 15th September 2016 allowed - conservatory order restraining the 1st Respondent, its receivers, servants, auctioneers and agents from advertising, offering for sale, selling or alienating the suit property pending hearing of the Petition, granted in light of the advertisement's failure to exclude areas covered under the Sub-Lease dated 23rd September 2010
  2. 2.The Respondents are at liberty to exercise their statutory power of sale in respect of the rest of the security charged to secure the outstanding debts
  3. 3.Each Party to bear their own costs

Authorities

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Legislation

  • Constitution of Kenya, 2010Article 47
  • Constitution of Kenya, 2010Article 40
  • Banking ActSection 34(2)(b)
  • Kenya Deposit Insurance Act, 2012Sections 43 and 53(1)
  • Land Registration Act, 2012Section 30(2)(b)

Cases cited (2)

  • Gatirau Peter Munya –vs- Dickson Mwenda Kithinji & 2 Others
    Supreme Court Application No 5 of 2014 (2014) eKLR
  • Rajnikanthetshi –vs- Habib Bank A-G Zurich
    (2016) eKLR
Jurisdiction invoked
Original constitutional petition jurisdiction (Articles 40 and 47 of the Constitution invoked) with interlocutory application for conservatory orders

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, "Happy Site Management Limited v Imperial Bank Limited (In Receivership) & 3 others [2017] KEELC 837 (KLR)", Case Analysis (2017). Notice of Motion dated 15th September 2016 within a Petition (Malindi). Source: https://new.kenyalaw.org/akn/ke/judgment/keelc/2017/837/eng@2017-11-15

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