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ELCPartially AllowedELC No. 169 of 2011· [2022] KEELC 2315 (KLR)

Preps International Limited v Barclays Bank Of Kenya Ltd & 2 others (Environment and Land Case Civil Suit 169 of 2011) [2022] KEELC 2315 (KLR)

Environment and Land Court
27 April 2022
SOS. Okong'o
6,404 words in judgment
View original judgmentRead on Kenya Law Watch case
AI-assisted case brief
·~26 min to read original · ~4 min brief

The bottom line

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Kenya's Environment and Land Court upheld a bank auction but ordered KCB to refund Kshs. 2,794,585 it wrongly took from sale proceeds without a court award.

What this practically means

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Executive summary

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The Plaintiff, a company that charged its land (L.R No.3734/940 (I.R 24438)) to the 1st Defendant bank to secure a business loan, sued after the bank exercised its statutory power of sale and auctioned the property on 12th April 2011 to the 3rd Defendant for Kshs. 48,500,000/-. The Plaintiff alleged want of the 45 days' redemption notice, sale at an undervalue, unlawful withholding of Kshs. 9,032,939.19 of the sale proceeds, and sought an injunction, setting aside of the sale, general damages and a refund. The bank defended the sale as properly conducted; the auctioneer proved personal service of the notification of sale on a person who identified herself as Susan at the Plaintiff's offices, affixation on the property, and service by registered post with a certificate of posting. The court held that service was established and that, since the hammer price exceeded the assessed open market value of Kshs. 45,000,000/-, there was no undervalue; the auction was lawful and the 3rd Defendant acquired valid title. The injunction, declaration of illegality and general damages were refused as overtaken by events or unfounded. On the withheld proceeds, the court accepted the bank's breakdown of deductions (loan, valuation, auctioneer's fees and recovery costs) but found no justification for deducting Kshs. 2,794,585/- being costs of HCCC No. 580 of 2009 and this suit, which had never been awarded. Judgment was entered for the Plaintiff against the 1st Defendant for Kshs. 2,794,585/- with interest from 19th April 2017; the claim against the 2nd and 3rd Defendants was dismissed and each party was ordered to bear its own costs.

Key legal issues

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01

Whether the notification of sale was duly served on the chargor

Holding

Service was proved by personal service on a person who identified herself as Susan at the Plaintiff's offices, affixation on the suit property, and service by registered post supported by a certificate of posting

Reasoning

The auctioneer testified to personal service on a lady called Susan at the Plaintiff's offices and affixation on the property, plus registered post with a certificate of posting. The Plaintiff's director denied being served and claimed to be out of Nairobi but produced no evidence of her whereabouts. The court held that even if personal service failed, the affixation and postal service were not rebutted, and an objection to the photographs taken in submissions came too late.

p. 8
02

Whether the property was sold at an undervalue

Holding

No undervalue: the property sold at Kshs. 48,500,000/-, above the assessed open market value of Kshs. 45,000,000/- and well above the forced sale value of Kshs. 32,000,000/-

Reasoning

The chargee obtained a valuation shortly before the auction fixing open market value at Kshs. 45,000,000/- and forced sale value at Kshs. 32,000,000/-. The hammer price of Kshs. 48,500,000/- exceeded even the open market value. The Plaintiff, having failed to utilise the opportunity of a private treaty sale and having offered no proof that its potential buyers would have attended and bid, did not discharge the burden of showing the price was not the best reasonably obtainable.

p. 9
03

Whether the 3rd Defendant acquired a valid title

Holding

The auction being lawful, the auction purchaser acquired a valid title

Reasoning

Having found the auction conducted in compliance with the Auctioneers Rules 1997, the court held the 3rd Defendant, the highest bidder who paid the full purchase price and obtained registration, took a valid title. The Plaintiff's remedy lay against the bank if the sale were irregular, not against the bona fide purchaser.

p. 9
04

Whether the 1st Defendant lawfully withheld part of the auction proceeds

Holding

Deductions for the loan, valuation fees, auctioneer's fees and debt recovery legal fees were justified, but the deduction of costs of HCCC No. 580 of 2009 and this suit (Kshs. 2,794,585/-) was not, no such costs having been awarded

Reasoning

The court relied on the 1st Defendant's witness's affidavit breakdown of the disbursement of the Kshs. 48,500,000/- purchase price. It found the loan repayment (which had accrued interest) and the recovery and valuation charges reasonable, but costs of two suits cannot be recovered from sale proceeds absent a costs award, costs being a matter of judicial discretion.

p. 11

Legal principles established

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  • The burden of proving service of the statutory notice/notification of sale lies on the chargee, not the chargor
  • Once the chargee carries out a forced sale valuation, the burden shifts to the chargor to prove the property was sold below the best price reasonably obtainable
  • Costs of other suits cannot be deducted from auction sale proceeds unless actually awarded against the chargor

Court orders

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  1. 1.Judgment entered for the Plaintiff against the 1st Defendant in the sum of Kshs. 2,794,585/- together with interest at court rates with effect from 19th April 2017 until payment in full
  2. 2.The Plaintiff's claim against the 2nd and 3rd Defendants dismissed
  3. 3.Each of the parties shall bear its own costs of the suit

Authorities

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Legislation

  • Evidence Act, Chapter 80 Laws of Kenyasection 106B
  • Auctioneers Act 1996section 26
  • Auctioneers Rules 1997Rule 15; Rule 11(1)(b)(x); Rule 49
  • Registered Land Actsection 74(1)
  • Land Actsection 97(2)

Cases cited (15)

  • Maina Wanjigi & Another v Bank of Africa Kenya Ltd & 2 Others
    [2015] eKLR
  • Joseph Kamau Mwangi v Kenya Commercial Bank Limited
    [2004] eKLR
  • Martha Khayanga Simiyu v Housing Finance Co. of Kenya & 2 Others
    HCCC No.937 of 2001 [2001] EA 540
  • Elizabeth Wambui Njuguna v Housing Finance Company of Kenya Limited
    [2006] eKLR
  • Albert Mario Cordeiro & Another v Vishram Shamji
    [2015] eKLR
  • Trust Bank Ltd v Eros Chemicals Ltd
    [2000] 2 EA 550 (CAK)
  • Standard Chartered Bank v Walker
    [1982] 3 All ER 938
  • Kenya Commercial Bank Ltd v James Osebe
    [1982-88] 1 KAR 48
  • John P.O. Mutere & Another v Kenya Commercial Bank Ltd
    HCCC No. 3125 of 1995
  • Kamulu Academy Limited & another v British American Insurance (K) Limited & 2 Others
    [2018] eKLR
  • Mbuthia v Jimba Credit Finance Corporation and another
    [1986-1989] 1 EA 340 (CAK)
  • Nyangilo Ochieng & another v Fanuel B. Ochieng & 2 others
    [1996] eKLR
  • Jane Wairimu Ngure (Suing as administratrix of the Estate of Peter Tharao Ngure (Deceased) v National Bank of Kenya Limited & 2 others
    [2019] eKLR
  • Obel Omuom v Kenya Commercial Bank Ltd
    Civil Appeal No. 148 of 1995 (1996) eKLR
  • Zum Zum Investment Limited v Habib Bank Limited
    [2014] eKLR
Jurisdiction invoked
Original jurisdiction of the Environment and Land Court over land and charges; suit instituted by plaint

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, "Preps International Limited v Barclays Bank Of Kenya Ltd & 2 others (Environment and Land Case Civil Suit 169 of 2011) [2022] KEELC 2315 (KLR)", Case Analysis (2022). ELC No. 169 of 2011. Source: https://new.kenyalaw.org/akn/ke/judgment/keelc/2022/2315/eng@2022-04-27

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