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ELCAllowedMisc. Application No 20 of 2017· [2018] KEELC 3716 (KLR)

Ecobank Kenya Limited v First Choice Mega Stores Limited [2018] KEELC 3716 (KLR)

Environment and Land Court
20 April 2018
JMJ. M. Mutungi
3,499 words in judgment
View original judgmentRead on Kenya Law Watch case
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The bottom line

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A Kenyan court allowed Ecobank to buy the borrower's land at auction only because public sales had failed and the bank promised to pay more than anyone else offered.

What this practically means

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Executive summary

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Ecobank Ltd (claimant/chargee) applied by Notice of Motion dated 21st August 2017 under Sections 90, 97, 98, 100, 104 and 150 of the Land Act for leave to purchase land parcel Central Kitutu/Daraja Mbili/3577, charged to it as security for banking facilities of Kshs. 62,000,000/= advanced to First Choice Mega Store Ltd. The claimant asserted the respondent defaulted, that statutory notices under Sections 90 and 96 were issued, and that two public auction attempts failed because no bid reached the forced sale value, so permitting the chargee to purchase was the most advantageous option. The respondent opposed, relying on the ruling of Onguto J in Nairobi HCCC No. 16 of 2016 where an injunction was refused but an unexplained Kshs. 20,000,000/= discrepancy in valuations was noted; it argued the auctions were not in good faith and that purchase by the chargee was not the most advantageous remedy. The court accepted the valuations by Keriasek & Co. Ltd and Tysons Ltd as consistent and credible, found the burden of proving undervaluation rested on the respondent and was not discharged, and held the claimant had complied with its duty of care under Section 97(1) and (2) of the Land Act. Noting the debt of Kshs. 98,287,514/80 as at 30th June 2017 had outstripped the security's value, the court found purchase by the chargee the most advantageous way of selling. The application was allowed in terms of prayer (2): leave to participate in a public auction within 90 days, with the claimant deemed to bid Kshs. 46,500,000/= if no higher bid is received; each party to bear its own costs.

Key legal issues

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01

Compliance with the chargee's duty of care under Section 97 of the Land Act

Holding

The court held the claimant fulfilled the statutory duty of care, having obtained valuations from two reputable registered firms and conducted a forced sale valuation before the auctions

Reasoning

The claimant obtained valuation reports from Keriasek & Co. Ltd (November 2015) and Tysons Ltd (March 2017), whose market value findings of Kshs. 54,000,000/= and Kshs. 55,000,000/= were consistent and most probably represented the true value. The earlier Highlands Valuers report of November 2014 (Kshs. 83,000,000/=) may have been influenced by the chargor's interest in a high valuation. The Tysons valuation was obtained after the Onguto J ruling and therefore credible. The respondent produced no evidence of undervaluation.

p. 4
02

Whether purchase by the chargee is the most advantageous way of selling the charged land under Section 100(2) of the Land Act

Holding

The court found that the purchase by the chargee, at not less than the forced sale value of Kshs. 46,500,000/=, was the most advantageous way of selling the land given two failed auction attempts

Reasoning

Two public auctions (6th April and 8th May 2017) failed: the highest bid was Kshs. 22,000,000/=, well below the forced sale value of Kshs. 46,500,000/=. The respondent offered no viable repayment proposal and the debt, at Kshs. 98,287,514/80 as at 30th June 2017, had outstripped the market value of the security and continued to grow through interest. Leave to purchase would protect the chargor by ensuring a price higher than any bid obtained.

p. 4

Legal principles established

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  • A chargee may only purchase charged property with leave of the court, and leave is granted only where the sale to the chargee is the most advantageous way of selling the land consistent with the chargee's duty under Section 97(1) of the Land Act
  • A chargor alleging undervaluation bears the burden of adducing cogent evidence of breach of the chargee's duty of care under Section 97 of the Land Act

Court orders

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  1. 1.Leave granted to the claimant in terms of prayer (2) of the Notice of Motion dated 21st August 2017 to participate in a public auction to be scheduled within 90 days of the ruling, at which members of the public shall be at liberty to bid
  2. 2.If the highest bid is below the forced sale price of Kshs. 46,500,000/=, the claimant shall be deemed to have placed a bid of Kshs. 46,500,000/= and the property sold to it for that amount
  3. 3.If a member of the public bids more than the forced sale value, that bid shall be taken unless the claimant bids higher
  4. 4.The valuation report by Tysons Limited dated 17th March 2017 to suffice as the valuation under Section 97(2) of the Land Act
  5. 5.Each party to bear their own costs for the application

Authorities

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Legislation

  • Land ActSections 90, 96, 97(1), 97(2), 98, 100(1), 100(2), 100(3), 104, 150
  • Environment and Land Court ActSections 3, 13, 19
  • Civil Procedure ActSections 1A, 1B, 3A

Cases cited (5)

  • Spero Holdings Limited v Co-operative Bank of Kenya Ltd & Another
    [2016] eKLR
  • Palmy Company Ltd v Consolidated Bank of Kenya Ltd
    [2014] eKLR
  • Olkasasi Limited v Equity Bank Limited
    [2015] eKLR
  • David Gitome Kuhiguka v Equity Bank Ltd
    [2013] eKLR
  • First Choice Mega Store Ltd v Ecobank Ltd (Nairobi HCCC No. 16 of 2016)
Jurisdiction invoked
Sections 90, 97, 98, 100, 104, 150 of the Land Act No. 6 of 2012; Sections 3, 13 and 19 of the Environment and Land Court Act No. 19 of 2011; Sections 1A, 1B and 3A of the Civil Procedure Act Cap 21

Key timeline

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Practical implications

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Frequently asked questions

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Later judgments citing this (4)

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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, "Ecobank Kenya Limited v First Choice Mega Stores Limited [2018] KEELC 3716 (KLR)", Case Analysis (2018). Misc. Application No 20 of 2017. Source: https://new.kenyalaw.org/akn/ke/judgment/keelc/2018/3716/eng@2018-04-20

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