https://new.kenyalaw.org/akn/ke/judgment/kehc/2026/12929

**REPUBLIC OF KENYA** **IN THE HIGH COURT AT NAIROBI** **COMMERCIAL AND TAX DIVISION** **HCCOMM NO. E135 OF 2022** **GULF AFRICAN BANK…………………….……….…..……..PLAINTIFF** **VERSUS** **HALGAN MEGABIDS LIMITED…………………….…1ST DEFENDANT** **DEHABA KUSHOW FOTHEY……………………..…..2ND DEFENDANT** **MARYAN HASSAN MAALIM……..……………………3RD DEFENDANT** **MARY WANJIKU KARIUKI………….…………………4TH DEFENDANT** **MARY WAMBUI MACHARIA…………………………..5TH DEFENDANT** **MINISTRY OF LANDS, HOUSING &** **URBAN DEVELOPMENT………………………………..6TH DEFENDANT** **THE CHIEF LAND REGISTRAR………………………7TH DEFENDANT** **THE HONOURABLE ATTORNEY GENERAL………8TH DEFENDANT** **JUDGMENT** 1. The Plaintiff, Gulf African Bank Limited, instituted the suit by a plaint dated 11th April 2022, against Halgan Megabids Limited as the 1st Defendant, its directors/guarantors as the 2nd to 5th Defendants, and the Ministry of Lands, the Chief Land Registrar and the Attorney General as the 6th to 8th Defendants respectively. 2. The Plaintiff seeks judgment against the Defendants as follows: 1. *The 1st to 5th Defendants for Kshs.102,369,273.50, together with default damages at 20% per annum from 19th October 2021 until payment in full.* 2. *Against the 6th to 8th Defendants, an order compelling them to compensate the Bank for the entire outstanding loan.* 3. *Punitive and exemplary damages.* 4. *Costs of the suit and profit at court rates until payment in full.* 3. The Plaintiff’s case is that by Letter of Offer dated 31st July 2019, Plaintiff advanced 1st Defendant a Kshs. 100,000,000/= Tawarruq facility (split: Kshs. 56,795,770.07 and Kshs. 43,204,229.93), repayable in six months, with profit at 13% p.a. (variable) and default damages at 20% p.a. on overdue sums. Security comprised legal charges over Title Nos. Limuru/Rironi/151 registered in the name of the 5th Defendant and Dagoretti/Kinoo/164 registered in the name of the 4th Defendant, an all-assets debenture over 1st Defendant, and joint and several personal guarantees from 2nd - 5th Defendants for principal, profit, costs, and expenses on demand. 4. The Plaintiff avers that the 1st Defendant defaulted in repayment. Consequently, the Plaintiff served 90-day statutory notices on 17th June 2020, followed by 40-day notices in September 2020, and thereafter instructed auctioneers to issue redemption notices with a view to realizing the charged properties. 5. According to the Plaintiff, an auction of Dagoretti/Kinoo/164 on 17th March 2021 drew a highest bid of Kshs. 55 Million (below market value). During realization, Plaintiff discovered alleged title irregularities concerning both properties, prompting DCI investigations. Plaintiff accuses 6th and 7th Defendants of unlawfully procuring titles for 4th and 5th Defendants and registering the charges despite knowing they were not lawful owners characterized as illegal and fraudulent. 6. The Plaintiff further pleads that as at 19th October 2021, outstanding indebtedness stood at Kshs. 102,369,273.50 (principal, profit, default damages, and debit balance), with default damages continuing at 20% p.a. Despite demands, neither borrower nor guarantors have settled the outstanding amount. 7. The 1st to the 5th Defendants failed to file a statement of defence within the stipulated time limits, and judgment in default was entered on 20th February 2023. 8. The 6th to the 8th Defendant filed a joint statement of defence dated 8th August 2022 denying each and every allegation as contained in the Plaint save for the descriptive part. The particulars of fraud were denied and it contends that any registrations in relation to land parcels number LIMURU/LIRONI/151 and title No. DAGORETTI/KINOO/164 were done within the Land Registrar’s statutory mandate. 9. At the hearing, both the Plaintiff and the Defendant called one witness to support their respective positions. **Plaintiff’s case** 1. Pw1 - Lawi Sato adopted his witness statement dated 11th April 2022 together with the list of and bundle of documents. He stated that the Plaintiff is seeking compensation against the 6th, 7th and 8th Defendants for the entire loss amount, that the 7th Defendant made the Plaintiff believe it was holding charges against the other Defendants which were fraudulent. 2. In cross-examination by Ms. Kimani, he told the court the Land Registry caused the Plaintiff to register a charge on a fake title. 3. He testified that a search was conducted on both properties, Dagoretti/Kinoo/164 and Limuru/Rironi/151, and that it was on the strength of the search records that the Plaintiff dispatched the money. The 4th and 5th Defendants accompanied the valuers to the two properties during the inspection. He avers that the Plaintiff did not rely on the historical background as part of conducting due diligence. 4. He states that the valuer relied on the search and the maps. The valuer does not conduct due diligence on the persons, as that is the bank's responsibility. He states that the Ministry owns the green card. He states that the Plaintiff involved the DCI after discovering the fraud, but told the court that they have not received a report from the DCI. 5. He stated that there is a report in the Defendant’s bundle alleging forgery of the signatures on the green card. He stated that the bank received information that the chargor provided incorrect information to the Land Registry. 6. In re- examination by Mr. Kigata he states the bank did its own due diligence. The valuer relied independently on the survey maps and did a search. **Defendant’s case** 1. Dw1 - Charles Mutua, a Land Registrar in Kiambu, adopted his witness statement dated 6th May 2025 and the bundle of documents dated 5th June 2023 and the Notice of Claim dated 8th August 2022. 2. In cross-examination, he stated that the Land Control Board comprises the Department County Commission, with the Chair, the Secretary, and other representatives. He stated that a member of the Land Registry sits on the Board. He stated that on pages 13 and 19 of the Plaintiff’s bundle, there are 2 applications to the Land Control Board for a charge, which are duly stamped by the Land Registry, and that there is a booking form for the registration of a charge. 3. He stated that on page 9 of the supplementary bundle, Land Control Board consent was obtained in respect of Limuru/Rironi/151, and that the LCB consent for Dagoretti/Kinoo/164 is at page 20. He told the court that the LCB consent cannot be issued with a search. 4. He told the court that the certificate of official search in respect of Limuru/Rironi 151 shows that the registered owner is Mary Wambui Macharia, and that page 7 of the supplementary document is a post-registration search. Page 23 is a post-registration search for Dagoretti/Kinoo/164 in favour of Mary Wanjiru. Both parcels had a title deed issued. 5. He told the court that the mandate to issue a title deed rests with the Land Registrar, and the registry also registers charges. He stated that the green card was fraudulently issued. He told the court that he did not know the status of the criminal investigations in respect of the 4th and 5th Defendants. 6. He stated that the bank was negligent in the processing of the facility. 7. In re-examination by learned counsel Ms. Kanini, the witness confirmed that the titles found to be fraudulent were not issued by the Ministry, and the search certificates do not include the search Numbers or payment details. He states the DCI report shows the signatures of the register were forged. **Plaintiff’s submissions** 1. The Plaintiff submits that the **6th and 7th Defendants breached their statutory duties** by issuing and maintaining land records representing the 4th and 5th Defendants as the registered proprietors of **Dagoretti/Kinoo/164 and Limuru/Rironi/151**. Relying on those records, the Plaintiff advanced the 1st Defendant Kshs.100 million and registered charges over the properties. It maintains that it exercised due diligence through valuations, pre- and post-registration searches and Land Control Board consents, all of which confirmed the chargors’ ownership. The subsequent discovery that the titles had allegedly been fraudulently procured rendered the securities incapable of realization. 2. The Plaintiff argues that under the ***Torrens* system and section 26(1) of the Land Registration Act**, it was entitled to rely upon the accuracy of the register and was not required to investigate the historical root of the titles. It relies on **Charles Karathe Kiarie & 2 Others v Administrators of the Estate of John Wallace Mathare (Deceased) & 5 Others [2013] eKLR**. 3. The Plaintiff further relies on **Fanikiwa Limited & 3 Others v Sirikwa Squatters Group & 17 Others [2023] KESC 105 (KLR)** for the distinction between purchasers and financial institutions which advance money against registered titles. It consequently argues that its registered charges cannot be impeached for want of further due diligence and that, having relied upon records generated by the land registration authorities, the **6th to 8th Defendants should compensate it for the outstanding loan of Kshs.102,369,273.50.** 4. On damages, the Plaintiff relies on **Milkah Muthoni Wagoco v County Council of Kirinyaga & 2 Others [2017] KEELC 2064 (KLR)** and submits that the alleged fraudulent registration and inaccurate land records justify punitive and exemplary damages. It proposes **Kshs. 5 Million under that head and, invoking section 27 of the Civil Procedure Act, also seeks the** costs of the suit. 5. The Plaintiff submits that the central issue is not the authenticity of the impugned titles, but whether it is entitled to **indemnity under section 81(1) of the Land Registration Act** for loss suffered by relying on erroneous official land records. It contends that the Defendants’ own witness confirmed that the Lands Registry issued the titles, maintained the relevant records, and provided searches confirming the 4th and 5th Defendants as registered proprietors, upon which the Bank relied before registering its charges. 6. The Plaintiff argues that the Chief Land Registrar, as custodian of land records, owes a statutory duty to maintain accurate and reliable records and cannot shift the consequences of systemic errors to innocent users of the register. Relying on **Mike Maina Kamau v Attorney General [2017] KEELC 3845 (KLR)** it submits that the Torrens system guarantees the accuracy of the register and does not ordinarily require a party relying upon it to investigate the historical root of title. 7. The Plaintiff further contends that **section 81 does not require proof of fraud, collusion or negligence by registry officials. P**roof that it relied to its detriment upon an erroneous official record is sufficient to ground indemnity. It also argues that the Defendants’ allegation that the Bank was negligent was neither pleaded nor proved and was raised only in submissions, thereby amounting to trial by ambush. In that regard, it relies on **Interactive Gaming and Lotteries Ltd v Flint E.A. Ltd & 2 Others [2013] eKLR***.* **6th - 8th Defendant submissions** 1. The 6th to 8th Defendants submit that the Land Registrar neither acted negligently nor participated in the alleged fraud. Their case is that the impugned documents appeared regular on their face, while subsequent DCI investigations established that the green card and signatures relating to Dagoretti/Kinoo/164 were forged. They contend that fraud committed by third parties cannot, without proof of collusion or negligence, be attributed to the Registrar. They rely on **Chief Land Registrar & 5 Others v Koech & 3 Others [2018] KECA 27 (KLR)** on the presumption of regularity of official acts; **Lwanga v Registrar of Titles (1980) HCB 24** on the heightened burden of proving fraud; **Ardhi Highway Developers Ltd v West End Butchery Ltd & Others [2015] KECA 816 (KLR)** on fraud vitiating title; and **Republic v Land Registrar Taita Taveta District & Another ex parte Krystalline Salt Ltd** on the Registrar acting administratively upon documents presented for registration. 2. They further submit that the Government cannot be treated as an insurer against the Plaintiff's commercial lending risks. Since the securities were founded upon allegedly fraudulent titles, they contend that no liability can attach to the Land Registrar merely because charges were subsequently registered against them. Reliance is placed on **Funzi Island Development Ltd & 2 Others v County Council of Kwale & 2 Others [2014] KECA 882 (KLR)** and **Alice Chemutai Too v Nickson Kipkurui Korir & 2 Others [2015] eKLR***,* for the proposition that fraud or illegal acquisition impeaches title notwithstanding registration. 3. The Defendants also fault the Plaintiff for inadequate due diligence, arguing that it relied principally upon official searches without sufficiently verifying the identity of the chargors, their signatures, the history of the titles or the previous proprietors. They rely on **Esther Ndegi Njiru & Another v Leonard Gatei [2014] KEHC 8290 (KLR)** and **Dina Management Ltd v County Government of Mombasa & 5 Others [2023] KESC 30 (KLR)** for the proposition that, where title is questionable, due diligence may require inquiry beyond an official search and examination of the root of title. 4. Finally, the Defendants contend that there is no statutory basis for requiring the Land Registrar to indemnify the Bank for the borrower's default. Relying on **Wambui v Mwangi & 3 Others [2021] KECA 144 (KLR)**, they argue that no enforceable benefit can flow from a transaction founded upon a fraudulent or otherwise void title. They maintain that the loss should be borne by the persons responsible for, or who benefited from, the fraudulent transactions rather than by the State. Accordingly, they urge the Court to dismiss the Plaintiff's claim against the 6th to 8th Defendants with costs. **Analysis and determination** 1. I have considered the pleadings, the evidence tendered by the respective parties and their written submissions. The two issues that fall for determination are: 1. *Whether the 6th to 8th Defendants are liable to compensate the Plaintiff for the outstanding loan amount; and* 2. *Whether the Plaintiff is entitled to punitive and exemplary damages against the 6th to 8th Defendants.* *Whether the Plaintiff is entitled to compensation/indemnity* 1. It is not in dispute that the Plaintiff advanced Kshs. 100 Million to the 1st Defendant, secured *inter alia* by legal charges over Title Nos. Limuru/Rironi/151 and Dagoretti/Kinoo/164. It is also common ground that, prior to disbursement, the Plaintiff conducted official searches at the Lands Registry, obtained Land Control Board consents, and had the charges duly registered. 2. The official searches, issued by the 7th Defendant’s office, unequivocally confirmed that the 4th and 5th Defendants were the registered proprietors of the two parcels. The 6th and 7th Defendants’ own witness, Charles Mutua – Dw1, admitted under cross-examination that the certificates of official search indicated the 4th and 5th Defendants as owners; that the Land Control Board consents were issued; and that the legal charges were registered by the Lands Registry upon payment of the requisite fees. 3. The subsequent discovery that the titles had allegedly been fraudulently procured, and that the green card signatures were forged rendered the securities incapable of realization. The auction of Dagoretti/Kinoo/164 attracted a highest bid of Kshs. 55 million, which was below market value, and the Plaintiff could not complete the realization process owing to the title defects. 4. The Plaintiff’s claim against the State is founded upon the Torrens system of registration, now embodied in the Land Registration Act, No. 3 of 2012. **Section 26(1)** of the Act provides: ***The certificate of title issued by the Registrar upon registration…shall be taken by all courts as prima facie evidence that the person named as proprietor of the land is the absolute and indefeasible owner…and the title of that proprietor shall not be subject to challenge, except:*** * + 1. ***on the ground of fraud or misrepresentation to which the person is proved to be a party; or*** 2. ***where the certificate of title has been acquired illegally, unprocedurally or through a corrupt scheme.*** 1. The Plaintiff was not a party to the fraud. It did not participate in the illegal acquisition of the titles. It acted entirely upon the records maintained and issued by the 6th and 7th Defendants. The Court of Appeal in **Charles Karathe Kiarie & 2 Others v Administrators of the Estate of John Wallace Mathare (Deceased) & 5 Others** **[2013] KECA 127 (KLR)** explained the underlying philosophy of the Torrens system thus: ***“Government, as the keeper of the master record of all land and their owners, guarantees indefeasibility of all rights and interests shown in the land register against the entire world and in case of loss arising from an error in registration the person affected is guaranteed of Government compensation.”*** 1. That principle is given statutory force under **Section 81(1) of the Land Registration Act**, which entitles a person who suffers loss or damage by reason of “any error or omission in the land register” to indemnity from the Registrar. The provision states thus: * + 1. ***Subject to the provisions of this Act and of any written law relating to the limitation of actions, any person suffering damage by reason of*** ***(a) any rectification of the register under this Act; or*** ***(b) any error in a copy of or extract from the register or in a copy of or extract from any document or plan certified under this Act, shall be entitled to indemnity.*** * + - 1. ***No indemnity shall be payable under this Act to any person who has caused or substantially contributed to the damage by fraud or negligence, or who derives title, otherwise than under a registered disposition made bona fide for valuable consideration, from a person who caused or substantially contributed to the damage.*** 1. In the present case, the register contained an error; it recorded the 4th and 5th Defendants as absolute proprietors, whereas those titles were subsequently shown to have been fraudulently acquired. The Plaintiff relied upon that erroneous record to its detriment. It advanced the facility and registered charges, but could not realize the security. That loss is directly attributable to the error in the register. 2. The Defendants argued strenuously that the Plaintiff was negligent in its due diligence. However, I find that the Plaintiff undertook all reasonable steps expected of a financial institution: it conducted official searches, commissioned a valuation (which included physical inspection), obtained Land Control Board consents, and registered the charges. It cannot be faulted for failing to investigate the historical root of title beyond the official register, because to do so would defeat the very purpose of the Torrens system. 3. The Supreme Court in **Fanikiwa Limited & 3 Others v Sirikwa Squatters Group & 17 Others** **[2023] KESC 105 (KLR)** clarified that financial institutions are not purchasers but lenders, and that their charges, once duly registered, are protected where they have acted in good faith upon the registered title. The authorities cited by the Defendants - ***Gulf African Bank Ltd v Atticon Ltd*** ***[2020]*** and ***Beyond Kenya Ltd v Gulf African Bank*** ***[2019]*** are distinguishable, as they concern verification of corporate directorship and authority to transact, not the integrity of the land register itself. 4. I also reject the argument that the Plaintiff must first exhaust recovery from the 1st to 5th Defendants. Default judgment has already been entered against the borrower and guarantors, yet no payment has been made. The security was the primary source of repayment; the State’s error rendered that security worthless. The loss crystallised at the moment the Plaintiff could not realize its charged properties. 5. Accordingly, I find that the 6th to 8th Defendants are liable to indemnify the Plaintiff for the outstanding debt of Kshs. 102,369,273.50 as at 19th October 2021, together with default damages at the contractual rate of 20% per annum from that date until payment in full. To avoid double recovery, however, the State shall be subrogated to the Plaintiff’s rights against the 1st to 5th Defendants to the extent of any payment made under this judgment. ***Whether the Plaintiff is entitled to punitive and exemplary damages*** 1. The Plaintiff additionally seeks punitive and exemplary damages and proposes an award of **Kshs. 5 million**. It contends that the irregularities within the land registration system constitute a grave breach of statutory duty and a betrayal of public trust, thereby meriting condemnation by way of exemplary damages. 2. The legal threshold for awarding exemplary damages against the State is well settled. Damages are awarded in cases where the State’s agents have acted with malice, recklessness, or a deliberate disregard for the rights of the citizen. The burden of proving conduct that rises to that egregious level rests squarely on the claimant. 3. In the present case, the evidence undoubtedly reveals grave and disturbing irregularities surrounding the titles and the land records. The evidence, particularly the testimony of Dw1 and the documentary exhibits, points to a sophisticated and carefully orchestrated fraud perpetrated by third parties. Critically, part of the Defendants' case is that the signatures attributed to registry officials on the green card were themselves forged. 4. There is no evidence before this court that any officer of the Lands Registry knowingly participated in the fraud, deliberately manipulated the register, or acted oppressively or maliciously towards the Plaintiff. To the contrary, the evidence suggests that the Registrar and his officers were themselves misled by the forged documents presented to them. 5. In those circumstances, I am unable to characterize the conduct of the 6th and 7th Defendants, or their servants, as conduct warranting the punitive sanction of exemplary damages. The loss suffered by the Plaintiff, while substantial, is a financial loss flowing from the inability to realize the security. That loss is adequately addressed and compensated by the indemnity. 6. Accordingly, I find that the claim for punitive and exemplary damages against the 6th to 8th Defendants has not been proved to the required standard. The same is hereby dismissed. 7. Costs follow the event. The Plaintiff has substantially succeeded against the 6th to 8th Defendants. Pursuant to Section 27 of the Civil Procedure Act, costs are awarded to the Plaintiff against the 6th to 8th Defendants, to be taxed if not agreed. 8. For the reasons set out above, I enter judgment as follows: * 1. ***Judgment is hereby entered for the Plaintiff against the 6th, 7th and 8th Defendants jointly and severally, for Kshs. 102,369,273.50 (One Hundred Two Million Three Hundred Sixty-Nine Thousand Two Hundred Seventy-Three Shillings and Fifty Cents).*** 2. ***Default damages on the said sum shall accrue at the rate of 20% per annum from 19th October 2021 until payment in full.*** 3. ***Upon payment of the sums in orders (i) and (ii) above, the 6th to 8th Defendants shall be subrogated to the Plaintiff’s rights against the 1st to 5th Defendants up to the amount so paid, to preclude double recovery.*** 4. ***The claim for punitive and exemplary damages against the 6th to 8th Defendants is dismissed.*** 5. ***The Plaintiff is awarded costs of this suit against the 6th to 8th Defendants, to be taxed if not agreed.*** **JUDGMENT** delivered virtually, dated and signed at **NAIROBI** This **13th** day of **August** 2026. **PETER M. MULWA** **JUDGE** **In the presence of:** *Mr. Otieno h/b for Mr. Kigata* for Plaintiff *Ms. Kanini* for 6th – 8th Defendants Court Assistant*: Sharon*