Kareithi v Barclays Bank of Kenya Limited & 3 others

e. General and exemplary damages; f. Costs of this suit; and g. Any other relief that this Honourable Court deems t to grant. 3. Those prayers arise from the Plainti’s contention that the 1st Defendant had purported to exercise its statutory power by selling the Plainti’s property through its agents – the 2nd Defendant, by way of a public auction on 17th April 2015 for an unknown and non-existent debt. It was further the Plainti’s case that he had not been served with any statutory notices as by law required. 4. The Plainti asserted that the 1st Defendant had sometime in February 1996 advanced him a loan facility which he secured with his property known as L.R. No. Naromoru/Ragati/391. It was the Plainti’s case that the said loan was guaranteed by the 3rd Defendant’s predecessor – Kenya Veterinary Association Privatisation Scheme (KVAPS) and that the loan had been settled in full by the 3rd Defendant. 5. Arising from the foregoing, it was the Plainti’s case that the exercise of the statutory power of sale and the intended transfer of the suit property to a third party by the 1st Defendant was unfair, illegal and fraudulent as the 1st Defendant had no legal interest in the property. He accused the 1st and 3rd Defendants of entering into an illegal agreement on 6th March 1995 which allowed the 3rd Defendant to act as the agent of the 1st Defendant for purposes of recovering sums advanced to the Plainti and other beneciaries. It was his case that the 3rd Defendant had not served him with any notice to reimburse the sums paid to the 1st Defendant by the 3rd Defendant. 6. Barclays Bank of Kenya Limited (the 1st Defendant) and Muga Auctioneers & General Merchants (the 2nd Defendant) are opposed to the suit. In their joint Statement of Defence dated 17th May 2018, they aver that the 1st Defendant had exercised its statutory power of sale pursuant to a contractual obligation and due to the Plainti’s default in redeeming the loan advanced to him. 7. The 1st Defendant avers that it duly served the Plainti with the requisite statutory notices to his last known address and that whereas the 3rd Defendant settled the amount due and owing from the Plainti, the 1st Defendant had contractual obligations to the 3rd Defendant. In addition, the 1st Defendant denies that it had acted fraudulently as pleaded by the Plainti. 8. Kenya Livestock and Finance Trust (the 3rd Defendant) is equally opposed to the suit. In its Statement of Defence dated 11th June 2015, the 3rd Defendant avers that the suit led herein is inept, incompetent and that the same does not raise any triable issue and is led in abuse of the court process. In addition, the 3rd Defendant denies that its predecessor – the Kenya Veterinary Association Privatisation Scheme (KVAPS) had guaranteed the Plainti’s loan. 9. The 3rd Defendant avers that the trustees of its said predecessor had entered into an agreement with the 1st Defendant for the sole purpose of promoting Private Veterinary Services in Kenya. For that reason, a Loan Guarantee Fund was created under the Agreement for purposes of insulating the 1st Defendant before any recoveries were done. The 3rd Defendant denies that it was to take up the Plainti’s or other borrowers’ obligations under the charge executed by the Plainti and the 1st Defendant. 10. By an application dated 30th August 2019, Ross Xavier Withey (the 4th Defendant) sought to be enjoined in the suit asserting that he had purchased the suit property in a public auction conducted by the 1st and 2nd Defendants and that he had hitherto been unaware of the existence of this suit. On https://new.kenyalaw.org/akn/ke/judgment/keelc/2025/18414/eng@2025-12-18 2

page 2 of 9

5th May 2021, the said application was allowed and Ross Xavier Withey was enjoined in this suit as the 4th Defendant. 11. In his Statement of Defence and Counterclaim dated 17th May 2021, the 4th Defendant avers that he is the bonade purchaser of L.R. No. Naromoru Block 1/Ragati/391 having purchased the same from an auction conducted by the 2nd Defendant on 17th April 2015. The 4th Defendant denies having been involved in any fraudulent and/or illegal actions in respect of the purchase of the suit property. 12. By way of the Counterclaim, the 4th Defendant prays for judgment in its favour and for orders as follows:- 13. a. The Plainti’s suit is dismissed with costs to the 4th Defendant; b. It is declared that the 4th Defendant, Ross Xavier Withey is the bonade purchaser of the suit property registered under the title deed Naromoru Block 1/Ragati/391 situate in Nyeri County lawfully purchased on 17th April 2015 at the auction conducted that day by the 2nd Defendant Muga Auctioneers & General Merchants and is entitled to have the property transferred to him and registered in his name; and c. There shall be such other order or direction as the court deems just in the circumstances of this case. In his Reply to the 4th Defendant’s Defence and Counterclaim, the Plainti avers that the 4th Defendant ought to have instituted a separate suit against the Defendants and asserts that the 4th Defendant could not obtain any rights to the Plainti’s land as the person purporting to sell the same did not possess any right to sell the land. Analysis and Determination 14. At the trial herein, the Plainti called one witness who testied in support of his case. The Defendants on the other hand called three (3) witnesses who testied in support of their respective positions. 15. I have carefully perused and considered the pleadings led, the testimonies of the witness as well as the evidence adduced at the trial. I have similarly perused and considered the submissions and authorities placed before the court by the Learned Advocates representing the parties herein. 16. By his suit as led herein, the Plainti prays for a declaration that the auction conducted by the 2nd Defendant on 17th April 2015 is null and void and that the purported transfer to the 4th Defendant was equally null and void. He also urges the court to issue an order directing the 1st Defendant Bank to register a discharge of the charge dated 9th February 1996 and to release the original title of the suit property in its custody to himself. The Plainti also prays for general and exemplary damages as well as an order of injunction to issue permanently restraining the Defendants from dealing with the suit property in any manner whatsoever. 17. It is the Plainti’s case that he had come to learn that the 1st Defendant had purported to exercise its statutory power of sale by selling the Plainti’s property at a public auction conducted by the 2nd Defendant on 17th April 2015. The Plainti told the court that the said auction was conducted for an unknown and non-existent debt and that he was not served with any statutory notices as required by law. 18. The 1st Defendant Bank does not deny that it conducted the auction as stated. On the contrary, the 1st Defendant avers that it did carry out the auction through the 2nd Defendant Auctioneers in the exercise https://new.kenyalaw.org/akn/ke/judgment/keelc/2025/18414/eng@2025-12-18 3

page 3 of 9

of its statutory power of sale following the Plainti’s default in redeeming a loan that the Bank had advanced to himself. 19. That position was supported by both the 3rd Defendant who had oered some sort of guarantee for the loan and the 4th Defendant who told the court he had purchased the suit property at the auction conducted by the 2nd Defendant. 20. From the material placed before me, there were two (2) major issues that arose for the court’s determination, viz; i. Whether the sale conducted by the 1st and 2nd Defendants was proper and lawful; and ii. Whether the 4th Defendant had acquired valid ownership of the suit property. i. Whether the sale conducted by the 1st and 2nd Defendants was proper and lawful 21. There was no dispute that on or about 8th February 1996, Sammy Kanyi Kareithi (the Plainti) was advanced the sum of Kshs. 600,000/= by the 1st Defendant. That loan was secured by a charge created over the Plainti’s parcel of land being LR. No. Naromoru/Block 1/Ragati/391. While the parties were not unanimous about the amount of the loan outstanding, it was clear to me that the Plainti had defaulted in repaying the loan thereby triggering the circumstances that led to the ling of this suit. 22. It was apparent that the Plainti did not apply for the loan under very ordinary circumstances. His application for the loan was either informed or encouraged by the fact that he was a member of the Kenya Veterinary Association Privatization Scheme (KVAPS) which was the predecessor to the 3rd Defendant herein. Testifying at the trial herein Dr. Harry Stephen Ndungu Kiniiya (DW2) who is the 3rd Defendant’s Chief Executive Ocer told the court that the Plainti had qualied as a member of the said Association to apply for the loan. 23. A year before the Plainti had applied for the loan, the Association had on 6th March 1995 entered into an Agreement with the 1st Defendant Bank to promote private veterinary practioners in Kenya. DW2 told the court that sometime around the year 1990-91, the Government of Kenya stopped absorbing veterinarians and the Kenya Veterinary Association then approached the European Union (EU) for help. Upon receipt of a grant of Kshs. 25,000,000/= from the EU, the 3rd Defendant’s predecessor appointed the 1st Defendant to manage the disbursement to and collection of such credit from eligible veterinarians. 24. In that respect, Clause C (viii) of the Agreement provided as follows: “ (viii) In consultation with the Project Manager, the Bank will be responsible for monitoring loan repayments and for debt collection the cost of which shall be recoverable from the borrower as per normal banking procedures.” 25. As to the conditions attached to the loans, Clause 4 (viii), (ix) and (x) provided as follows: “ (viii) In the event of default in repayment or in meeting other terms of the loan for a period of sixty (60) days the loan will become immediately repayable and the Bank will give fourteen (14) days’ notice to the borrower to pay the arrears thereof or as the case may be to meet the terms in default failing which the Bank will recall the entire loan as well as the security pledged by the borrower provided it shall be a requirement on the Bank to serve copies of its demand letters on the Project Manager; https://new.kenyalaw.org/akn/ke/judgment/keelc/2025/18414/eng@2025-12-18 4

page 4 of 9

(ix) If the borrower fails to meet the fourteen (14) days’ notice stipulated in Clause 4 (viii) the Bank will give the Trustees through the Project Manager on the Loan Guarantee Fund Account for the relevant amount including principal, interest and bank charges. In the event of failure by the Trustees to make payment to the Bank within such period the Bank will be at liberty to draw on the Loan Guarantee Fund without recourse to or consultation with the Trustees. (x) After drawing on the Loan Guarantee Fund in accordance with Clause 4 (ix) the Bank will proceed, as agent for and on behalf of the Trustees, to expeditiously dispose of the security pledged by the borrower either through a public auction or private treaty as the Bank deems t and the sale proceeds net the cost of realization shall be paid back into the Loan Guarantee Fund Account on advice to the Project Manager. The saleability of a borrower’s security will solely be determined by the Bank after taking such factors as the cost eectiveness of a sale or the timing of a sale process into account. In the event that the Bank will decide not to proceed with such sale the Bank will advise the project manager about its decision.” 26. Arising from the foregoing, it was evident to me that while the 3rd Defendant denied in its pleadings that it had guaranteed the loan that was advanced to the Plainti, that was in fact what it had done when its Trustees executed the Agreement dated 6th March 1995. That Agreement described the Loan Guarantee Fund as the principal security for the loans with the borrower’s security being the secondary security. That fact was admitted at the trial by the Bank’s Legal Recoveries Ocer Samuel Njuguna (DW1) as well as the 3rd Defendant’s witness (DW2). 27. The Agreement gave the 1st Defendant under clause (ix) the right to draw from the Loan Guarantee Fund account for the outstanding principal, interest and bank charges in the event of default of repayment by the borrower. While the 3rd Defendant and the Bank were not unanimous on the amount outstanding from the Plainti, it was clear to me that as at the time the Bank initiated the recovery process from the Plainti, it had already recovered the sum of Kshs. 314,000/=, which according to the 3rd Defendant was the amount outstanding, from the Loan Guarantee Fund account and that the Bank was now only acting in pursuance of Clause (x) of the Agreement between the parties. 28. From the material placed before the court, it was apparent that other than the Plainti, a number of the members of the Association defaulted in the loan repayment and the 1st Defendant Bank had resorted to the Loan Guarantee Fund and made drawals therefrom without pursuing the defaulters. Unhappy with that situation, the 3rd Defendant initiated Nakuru CMCC No. 1276 of 2012 against the 1st Defendant herein essentially accusing the 1st Defendant of failing to comply with clause 4(x) of their Agreement. 29. A perusal of the 3rd Defendant’s Plaint dated 14th November 2012, as led in the said suit reveals that they were seeking judgment against the 1st Defendant Bank for a total sum of Kshs. 3,228,203.00 inclusive of the sum of Kshs. 314,162/= deducted from the Fund on 20th April 2000 on account of default by the Plainti. At paragraphs 5 and 7 of the Plaint, the 3rd Defendant pleads as follows: “ 5. It was a further express or otherwise implied term of the contract that if any loanee defaulted on the repayment of the loan, the defendant would recourse to the guarantee but would in turn realise the securities that were deposited https://new.kenyalaw.org/akn/ke/judgment/keelc/2025/18414/eng@2025-12-18 5

page 5 of 9

by the loanee and revert the funds thus realized to the Plainti account (Loan Security Fund); and 7. 30. The Plainti avers that upon the aforementioned applicants’ failure to repay the advanced loan facilities, the defendant realised the amount from the loan guarantee fund (primary security) and abdicated its responsibility of realizing the security obtained from the applicants (secondary security) exposing the Plainti to loss.” While it was apparent to me that it is the institution of that suit in the Magistrate’s Court that jolted the 1st Defendant into initiating the recovery process, I was not persuaded that it was open for the 1st Defendant to purport to exercise its statutory power of sale after it had recovered what was due to it including the costs from the Loan Guarantee Fund. As was stated by the Court of Appeal of England in the case of Ibrahim –vs- Barclays Bank PLC (2012) 2 All ER 1167: “ Payment by a third party to a creditor under legal compulsion on account of a debt owed by a debtor automatically discharges the debtor’s debt even if the legal compulsion arose out of a contractual obligation voluntarily assumed by the third party, irrespective of whether or not the payment by the third party was made as agent for the debtor.” 31. Arising from the foregoing, it was clear to me that the Plainti’s liability to the 1st Defendant had been discharged when the 1st Defendant drew the money from the Loan Guarantee Fund. The Bank could not thereafter purport to exercise its statutory Power of sale under Section 90(1) and (2) of the Land Act, 2012. 32. When the 1st Defendant purported to exercise its statutory power of sale by issuing the rst notice on 21st March 2014, it had ceased to be a chargee for all intents and purposes as the debt pursuant to which the charge was created had been discharged. In my considered view, the 1st Defendant was now merely a debt recovery agent acting for and on behalf of the 3rd Defendant pursuant to Clause 4(x) of the Agreement dated 6th March 1995. 33. I was not persuaded that the statutory power of sale could be conferred by contract as the parties had purported to do under the said Clause 4(x) of the Agreement. The remedy was not available to a debt recovery agent and I nd and hold that the exercise of the statutory power of sale in the circumstances was irregular and unlawful. 34. Even assuming this court was wrong in that conclusion, it was apparent from my perusal of the said Agreement that in the event of default by a borrower, the 1st Defendant was required to rst give fourteen (14) days’ notice to the borrower to pay the arrears with copies of the demand notice being served upon the Project Manager. The Plainti herein has denied receipt of any statutory or other notice from the 1st Defendant prior to the public auction of its property. 35. According to the 1st Defendant, the Plainti was served with a ninety (90) days’ statutory notice dated 21st March 2014 and that another forty (40) days’ notice was served by a letter dated 27th August 2014. A perusal of those notices reveals that they were addressed to the Plainti at an address stated as “Post Oce Box 66 Nakuru”. 36. A perusal of the charge document dated 8th February 1996 reveals that the Plainti’s address was indicated therein as “Post Oce Box 398 Rongai”. Questioned about the discrepancy, DW1 who testied on behalf of the 1st Defendant told the court that he had no knowledge how the Bank came https://new.kenyalaw.org/akn/ke/judgment/keelc/2025/18414/eng@2025-12-18 6

page 6 of 9

about with the new address of Post Oce Box 66 Nakuru. As it turned out, that address belonged to the Bank’s Nakuru Branch and no notice had therefore been sent to the Plainti in regard to his default. 37. As the Court of Appeal did state in Nyagilo Ochieng & Another –vs- Fanuel Ochieng and 2 Others (1996) eKLR: “ …….. Unless the receipt of statutory notice is admitted, posting thereof must be proved and upon production of such proof the burden of proving non-receipt of such notice or notices shifts to the addressee as is contemplated by section 3(5) of the Interpretation and General Provisions Act, Cap 2, Laws of Kenya." 38. In the matter herein, the 1st Defendant while alleging that it served the Plainti with the notices which have the wrong address have not even exhibited any certicate of posting in demonstration of the fact that those notices were posted anywhere. Considering the issue in the case of Nyagilo Ochieng & Another –vs- Fanuel Ochieng and 2 Others (Supra), the Court of Appeal stated thus: “ The appellants stated, in their plaint, that they did not receive any statutory notices. This averment should have put the bank on guard. It is for the chargee to make sure that there is compliance with the requirements…. That burden is not in any manner on the chargor. Once the chargor alleges non-receipt of the statutory notice it is for the chargee to prove that such notice was in fact sent. It must be understood that in face of the denial of receipt of statutory notice or notices it is incumbent upon the chargee to prove the posting. It would have been a very simple exercise for the bank to produce a slip or letters containing statutory notice or notices. The bank did not do so. Instead an ocer from the bank simply produced le copies of the notices to prove that the same were sent. Even on a balance of probability it is not sucient to say that a le copy is proof of posting. Unless the receipt of statutory notice is admitted, posting thereof must be proved and upon production of such proof the burden of proving non-receipt of such notice or notices shifts to the addressee as is contemplated by section 3(5) of the Interpretation and General Provisions Act, Cap 2, Laws of Kenya. It is quite possible that such notices were sent but that fact, in the face of the denial of receipt, must be proved…. In the absence of proof of such posting the Court is constrained to hold that the sale by auction was void.” 39. Arising from the foregoing, it was clear to me that the 1st Defendant did not comply with the legal requirements of issuing a statutory notice and that the Plainti had not been served with any statutory notice as by law required. The resultant sale of the suit property was therefore void in law. ii. Whether the 4th Defendant acquired valid ownership of the suit property. 40. In his pleadings and testimony before the court, the 4th Defendant asserted that he had purchased the suit property at a public auction conducted by the 2nd Defendant on 17th April 2015 and that he was as such a bonade purchaser. 41. In support of his case the 4th Defendant produced an advertisement published in the Daily Nation Newspaper of 14th April 2015 by the 2nd Defendant. In addition, the 4th Defendant produced a Memorandum of Agreement and Auction Terms and Conditions dated 17th April 2015 between himself and the 2nd Defendant. He also produced copies of Bankers Cheques issued on 11th May 2015 towards the purchase of the suit property. 42. While it was apparent to me that the 4th Defendant participated in the public auction in good faith, it was clear to me that he had unfortunately not acquired any valid title to the suit property. That public https://new.kenyalaw.org/akn/ke/judgment/keelc/2025/18414/eng@2025-12-18 7

page 7 of 9

auction was held at the behest of the 1st Defendant which had failed to comply with the law before initiating the exercise. 43. In the case of Nyagilo Ochieng & Another –vs- Fanuel Ochieng & 2 Others (Supra) the Court of Appeal concluded as follows: “ In our view, a sale which is void does not entitle the purchaser at such sale to obtain proprietorship or title to the land so sold. It is therefore clear that the second respondent did not acquire proper titles to the suit properties. Her remedy is against the bank primarily to obtain a refund of the consideration paid.” 44. In the matter herein, this court has found that there was no basis upon which the 1st Defendant had purported to issue the statutory notices and that even if the same were validly issued, they were not served upon the Plainti as required by law as the same were sent to the wrong address. That being the case and despite the compliance by the 4th Defendant of the terms of the sale, the said sale was null and void ab initio. In those circumstances, it was not proper for the 4th Defendant to join this case and le a Counterclaim against the Plainti. His recourse lay in section 99(4) of the Land Act, 2012 which provides thus: “ A person prejudiced by an unauthorized, improper or irregular exercise of the power of sale shall have a remedy in damages against the person exercising that power.” 45. 46. It follows that I did not nd merit in the 4th Defendant’s Defence and Counterclaim dated 17th May 2021. On the contrary, the court was satised that the Plainti had proved his case on a balance of probabilities. Accordingly, I hereby enter judgment for the Plainti and make orders as follows: a. The 4th Defendant’s Counterclaim is hereby dismissed with no order as to costs. b. A declaration is hereby made that the auction conducted by the 2nd Defendant on behalf of the 1st Defendant on 17th April 2015 is null and void. c. A declaration is hereby made that the sale and/or transfer of Land Parcel No. Naromoru/Block 1/Ragati/391 by the 1st Defendant to the 4th Defendant was null and void. d. The 1st Defendant is hereby directed to register a discharge of the charge dated 9th February 1996 and to forthwith release the original title of Land Parcel No. Naromoru/Block 1/ Ragati/391 to the Plainti. e. An order of a permanent injunction is hereby issued restraining the Defendants, their agents and/or servants from trespassing upon, further interfering with or in any way dealing with the Plainti’s property known as LR No. Naromoru/Block 1/Ragati/391. f. The costs of the suit shall be borne by the 1st Defendant. It is so ordered. JUDGMENT DATED, SIGNED AND DELIVERED IN OPEN COURT AND VIRTUALLY AT MOMBASA THIS 18TH DAY OF DECEMBER, 2025 …………………………… J.O. OLOLA JUDGE https://new.kenyalaw.org/akn/ke/judgment/keelc/2025/18414/eng@2025-12-18 8

page 8 of 9

In the presence of: a. Ms. Firdaus Court Assistant. b. Mr. Busiega Advocate for the Plaintis c. Mr. Mutua Advocate for the 1st and 2nd Defendant d. Mr. Muriithi Advocate for the 3rd Defendant e. Mr. Mwenesi Advocate for the 4th Defendant https://new.kenyalaw.org/akn/ke/judgment/keelc/2025/18414/eng@2025-12-18 9

page 9 of 9