Paul Gatete Wangai & 13 others v Capital Realty Ltd & another [2020] KEELC 933 (KLR)
The bottom line
#Kenyan homebuyers who pay a developer without the bank's consent or official search lose their homes if the bank forecloses.
What this practically means
#Executive summary
#Key legal issues
#Prima facie case for interlocutory injunction
The Plaintiffs failed to establish a prima facie case with probability of success because their sale agreements lacked the Chargee's consent and purchase proceeds were not deposited into the Escrow Account as required.
The court found the Charge and Further Charge prohibited the Chargor from selling without the Chargee's prior written consent, per Clause 5(g & h), Clause 9.1, Section 87 of the Land Act and Section 59 of the Land Registration Act. The Escrow Agreement required all sale proceeds to be deposited into the Escrow Account, which was not done. The Plaintiffs' interest was therefore subordinate to the Chargee's, and no consent was exhibited. This mirrors the holding in Innercity Properties Ltd v Housing Finance and the dismissal of Capital Realty's own injunction application in Machakos HCCC No. 6 of 2020.
Validity of the statutory notices under Sections 90 and 96 of the Land Act
The statutory notice dated 24th June 2019 validly specified the amount due (Kshs. 350,361,219.25) and the three-month repayment period, and the 40-day Notification of Sale was validly issued.
Section 90 of the Land Act requires a chargee to issue a notice specifying the nature and extent of default, the amount to be paid and a period not less than three months. The court found the notice issued on 24th June 2019 met these mandatory requirements and was served by registered post, and that the subsequent Notification of Sale dated 7th October 2019 was valid. The chargee was thus entitled to exercise its statutory power of sale after the lapse of the prescribed period, given the chargor's failure to regularise the account.
Irreparable injury and balance of convenience
Having failed to establish a prima facie case, the Plaintiffs' application failed; in any event, their loss was compensable in damages.
Applying Nguruman Ltd v Jan Bonde Nielsen, the three Giella conditions must be satisfied sequentially; if prima facie case is not established, the other limbs need no consideration. The court further applied Elijah Kipng'eno Arap Bii v Kenya Commercial Bank: once property is charged, it is a commodity for sale whose loss is adequately compensable in damages, notwithstanding the Plaintiffs' submission that the loss of their matrimonial/family homes was irreparable.
Legal principles established
#- A chargee's interest in the charged property supersedes a purchaser's beneficial interest where the sale lacked the chargee's consent and purchase monies were not paid as required under the charge and escrow agreement.
- A purchaser of charged land must conduct an official search and insist on the chargee's consent before committing money; an agreement entered into without consent is unenforceable against the chargee.
- Once property is offered as security, it becomes a commodity for sale whose loss is compensable in damages.
Court orders
#- 1.Dismissal of the Plaintiffs' Application dated 14th November, 2019
- 2.Costs of the application to the Defendants (dismissed with costs)
- 3.The Ruling to apply mutatis mutandis to all other pending applications for injunctive orders between third parties and the two Defendants in respect of the Maisonettes on L.R. No. 12715/617 (original number 12715/11742)
- Jurisdiction invoked
- Sections 1A, 1B and 3A of the Civil Procedure Act, Order 40 Rules 1 and 2 and Order 51 Rule 1 of the Civil Procedure Rules and Sections 90(3), 91(c) and 104(2)(a) and (c) of the Land Act
Key timeline
#Practical implications
#Frequently asked questions
#Cite this brief
#Cite this brief
Caselaw, "Paul Gatete Wangai & 13 others v Capital Realty Ltd & another [2020] KEELC 933 (KLR)", Case Analysis (2020). Not stated in the judgment (part of consolidated suits; related suit ELC 136 of 2019 referenced). Source: https://new.kenyalaw.org/akn/ke/judgment/keelc/2020/933/eng@2020-10-23
Suggested citation format for research notes or client memos. Always verify the original judgment before relying on any point.