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ELCPartially AllowedOriginating Summons dated 21st July 2023· [2024] KEELC 6786 (KLR)

Equity Bank (Kenya) Limited v Maina (Environment & Land Case E005 of 2023) [2024] KEELC 6786 (KLR)

Environment and Land Court
16 October 2024
SKS. M. Kibunja
4,710 words in judgment
View original judgmentRead on Kenya Law Watch case
AI-assisted case brief
·~19 min to read original · ~4 min brief

The bottom line

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A Mombasa court allowed Equity Bank to sell a defaulter's land below reserve price, but only after getting a fresh valuation done.

What this practically means

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Executive summary

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Equity Bank (Kenya) Limited brought an Originating Summons under Sections 90, 96, 97 and related provisions of the Land Act seeking leave to sell charged property, Mombasa/MN/Block 1/1121, at the best reasonable obtainable price, even below the forced sale value, because three prior public auctions (January, March and September 2022) failed after highest bids of Kshs.12,500,000/= and Kshs.12,000,000/= fell below the forced sale value of about Kshs.18.5 million. The defendant, Peter Mugambi Maina, chargor and guarantor of facilities advanced to Welcap Works Limited, opposed the suit, contending that Section 97(1) of the Land Act obliges the bank to obtain the best price reasonably obtainable, and that selling below market value would be in bad faith and cause irreparable loss. The court found that the bank had complied with the statutory recovery procedure, issued the requisite notices, obtained three valuations and conducted three bona fide auctions. It held, however, following Joan Wangui Karanja v Stanbic Bank Limited, that a valuation more than twelve months old cannot support a sale, and that a fresh valuation was necessary before the power of sale could be exercised. Recognising that the defendant had not serviced the loan since 2017 and that delay prejudices both parties, the court permitted the sale to proceed below the forced sale value once a fresh valuation was obtained. Judgment was entered for the plaintiff: a fresh valuation within 30 days, 60 days for private treaty, failing which a public auction on the highest bid. The plaintiff was awarded costs. The claim was partially allowed because leave to sell on the old valuations was refused.

Key legal issues

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01

Whether the chargee may be granted leave to sell the charged property below the forced sale value after repeated failed auctions

Holding

Yes, but only upon a fresh valuation; the sale must still be conducted so as to obtain the best price reasonably obtainable, and the statutory power of sale may proceed below the forced sale value once the valuation is current

Reasoning

The court found the bank had complied with the statutory procedure, obtained three valuations and held three auctions whose bids fell below the forced sale value. The defendant had not serviced the loan since 2017, and delay prejudices both parties as interest accrues. However, the existing valuations were two years old, so fairness required a fresh valuation before any sale below the reserve price.

p. 8
02

Whether the chargee complied with its statutory duty under Section 97 of the Land Act

Holding

The bank substantially complied, undertaking three valuations and properly issued statutory and redemption notices before exercising the statutory power of sale

Reasoning

The court found the bank had carried out the elaborate statutory procedure under the Land Act: demand notices under Section 90, a Section 96 redemption notice, and forced sale valuations by Accurate Valuers and Gimco Limited before each auction, evidencing good faith and compliance with its obligations to the chargor.

p. 6
03

Whether the chargor's objections (bad faith, abuse of process, duty to obtain best price) defeated the claim

Holding

The objections failed; the charger's statutory duty does not prevent a sale where the chargor blatantly defaults, though the duty to obtain the best price remains

Reasoning

The court accepted the defendant's reliance on Section 97 but held that the bank's right of sale was manifest and that the defendant, having defaulted since 2017 and not proposing any viable repayment, could not invoke the duty to obtain the best market price to indefinitely block realization of the security.

p. 7

Legal principles established

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  • A chargee owes a statutory duty of care to obtain the best price reasonably obtainable at the time of sale and must ensure a forced sale valuation by a valuer before exercising the right of sale
  • A forced sale valuation relied on for a statutory power of sale must be current, obtained within the year of the intended sale; a two-year-old valuation is insufficient
  • A chargee whose repeated auctions have failed may be permitted to sell below the forced sale value, but only after a fresh valuation, since a defaulting chargor cannot expect the sale to be halted indefinitely

Court orders

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  1. 1.The plaintiff shall within thirty (30) days carry out a fresh valuation of the charged property to determine the forced sale value, and share a copy of the valuation report with the defendant
  2. 2.The defendant shall have sixty (60) days after the valuation to engage the plaintiff to have the suit property sold under private treaty, and in default thereof the plaintiff be at liberty to proceed with the sale by public auction and conclude the sale through the highest bid received
  3. 3.The plaintiff is awarded costs of the suit

Authorities

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Legislation

  • Land ActSections 90(1), (2), (3)(e), 96, 97, 98, 104(1), 150
  • Civil Procedure RulesOrder 37 Rule 4
  • Civil Procedure ActSections 1A, 1B, 3A
  • Auctioneers RulesRule 11(b)(x)

Cases cited (6)

  • First Choice Mega Store Limited versus Ecobank Kenya Limited
    [2017] eKLR
  • NCBA BANK KENYA PPLC Versus ANGRAN LIMITED
    [2021] KLR
  • Joan Wangui Karanja v Stanbic Bank Limited
    [2020] eKLR
  • Cuckmere Brick Co Limited vs. Mutual Finance Ltd
    [1971] 2 All E R 633
  • Yorkshire Bank plc vs. Hall
    [1999] 1 All E R 879
  • Madhupaper International Ltd vs. Paddy Kerr and others
    [1985] LLR 2396 (CAK)
Jurisdiction invoked
Sections 90(1), (2), & (3)(e), 96, 97, 98, 104(1), 150 of the Land Act No. 6 of 2012; Order 37 Rule 4 of the Civil Procedure Rules; Sections 1A, 1B and 3A of the Civil Procedure Act

Key timeline

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Practical implications

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Frequently asked questions

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Later judgments citing this (2)

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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, "Equity Bank (Kenya) Limited v Maina (Environment & Land Case E005 of 2023) [2024] KEELC 6786 (KLR)", Case Analysis (2024). Originating Summons dated 21st July 2023. Source: https://new.kenyalaw.org/akn/ke/judgment/keelc/2024/6786/eng@2024-10-16

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