Mohamed Shahanaz Butt & another v Kenya Revenue Authority & 2 others [2020] KEELC 612 (KLR)
The bottom line
#A Nairobi court ruled that buyers at an auction who skip a land search cannot escape a tax caveat attached to the property they purchased.
What this practically means
#Executive summary
#Key legal issues
#Whether the KRA was legally justified in placing the caveat on the suit property
Yes. The caveat was placed pursuant to Section 103(2) of the Income Tax Act, which was the applicable law in September 2012, to secure tax arrears owed by the registered owner, Come-Cons Africa Limited.
The court found that Come-Cons Africa Limited was in tax arrears of Kshs.901,535,418 and was the registered owner of the suit property when the caveat was lodged on 14th September 2012. Section 103(2) of the Income Tax Act then in force authorised the Commissioner to direct registration of the charge to secure the tax. The court rejected the argument that the later Tax Procedures Act 2015 governed the caveat, holding the caveat predates that statute. The prohibitory orders in the HCCC 68 of 2003 litigation could not bind KRA since it was not a party to those proceedings.
Whether the plaintiffs conducted due diligence before purchasing the suit property
No. The caveat had been on the register for over ten months before the auction and a search would have revealed the encumbrance; the plaintiffs were the authors of their own misfortune.
The caveat was registered on 14th September 2012 while the auction took place on 2nd July 2013. One of the conditions of sale required buyers to view and verify details of the property themselves. Due diligence included a search at the Land Registry, which would have disclosed the encumbrance of Kshs.901,535,418 in tax arrears. The court adopted the Court of Appeal's holding in Joseph Muriithi Njeru v Mary Wanjiru Njuguna that a purchaser who fails to exercise due diligence cannot qualify as a bonafide or innocent purchaser. The court also faulted the plaintiffs for non-disclosure of the encumbrance when applying for the vesting order.
Whether the plaintiffs were entitled to the orders sought in the originating summons
No. Having failed in due diligence and having taken the property subject to the caveat, the plaintiffs were not entitled to the declarations and removal orders sought.
The tax arrears of Kshs.901,535,418 remained uncontested, the taxpayer Come-Cons Africa Limited was not a party, and the plaintiffs lacked a registered instrument proving ownership. The court held that the property passed to the plaintiffs subject to the subsisting liabilities, and their remedy lay either in paying the debt to lift the caveat or in challenging the tax arrears before the Tax Appeals Tribunal. Accordingly, all the prayers in the originating summons failed.
Legal principles established
#- A purchaser who fails to conduct due diligence, including a registry search, before acquiring registered property cannot be a bonafide or innocent purchaser for value without notice.
- A caveat lawfully registered under Section 103(2) of the Income Tax Act to secure tax arrears subsists against the land until the debt is settled; liability travels with the property.
Court orders
#- 1.The originating summons dated 9th December 2018 is dismissed
- 2.Costs awarded to the defendants/respondents
- Jurisdiction invoked
- Order 37 rule 5 of the Civil Procedure Rules 2010, Section 3A of the Civil Procedure Act and Section 57(5) of the repealed Registration of Titles Act (Cap 281)
Key timeline
#Practical implications
#Frequently asked questions
#Cite this brief
#Cite this brief
Caselaw, "Mohamed Shahanaz Butt & another v Kenya Revenue Authority & 2 others [2020] KEELC 612 (KLR)", Case Analysis (2020). ELC No. 67 of 2018 (OS). Source: https://new.kenyalaw.org/akn/ke/judgment/keelc/2020/612/eng@2020-10-15
Suggested citation format for research notes or client memos. Always verify the original judgment before relying on any point.