https://new.kenyalaw.org/akn/ke/judgment/kehc/2026/11100

Innercity Properties Ltd v Housing Finance & another (Commercial Case E030 of 2020) [2026] KEHC 11100 (KLR) (Commercial and Tax) (23 July 2026) (Ruling) Neutral citation: [2026] KEHC 11100 (KLR) Republic of Kenya In the High Court at Nairobi (Milimani Commercial Courts) Commercial and Tax Commercial Case E030 of 2020 BW Murunga, J July 23, 2026 Between Innercity Properties Limited Plaintiff and Housing Finance 1st Defendant Garam Investments Limited 2nd Defendant Ruling Introduction and Background 1.This Ruling is an intervention requested of the Court to settle the issues for determination pursuant to Order 15 of the Civil Procedure Rules. During compliance with the case management requirements under Order 11 of the Civil Procedure Rules, the parties filed separate statements of issues for determination: the Plaintiff filed a Statement of Issues dated 6th October 2025 containing fifteen (15) proposed issues, while the Defendants filed a separate Statement of Issues of even date comprising ten (10) proposed issues. 2.The parties were unable to agree on a common set of issues, whereupon one of the parties elected to seek the intervention of the Court which in turn directed them to file written submissions to settle the issues for trial. It is those submissions that have culminated in the present Ruling. 3.Whilst the intention in such Ruling is that brevity is the soul of wit to avoid appearing to shepherd the matter to a direction, it is balanced against the need to give reasons like in any decision thus the parties have to appreciate and be assured from the onset that the court has formed no opinions on the matter. This is more so noting that a prior Ruling on a separate application by a previous Judge elicited a recusal application as one party felt an opinion had been formed. 4.The Plaintiff instituted this suit against the 1st Defendant, its financier, and the 2nd Defendant, the auctioneer, challenging the manner in which the 1st Defendant exercised its statutory power of sale over the Plaintiff's charged property following default under a loan facility. The Plaintiff contends, inter alia, that the loan account was unlawfully administered, that the statutory power of sale was improperly exercised, and that the Defendants acted unlawfully in the realization of the security and the subsequent dealings with the suit property. The Defendants deny the Plaintiff's allegations and maintain that the Plaintiff defaulted in servicing the loan facility, thereby entitling the 1st Defendant to realize the security in accordance with the parties' contractual obligations and the applicable law. The Plaintiff's Submissions 5.The Plaintiff submits that its proposed issues are properly drawn from the pleadings and comprehensively capture all the material questions in controversy between the parties. Relying on Order 15 of the Civil Procedure Rules, it argues that issues arise where a material proposition of fact or law is affirmed by one party and denied by the other, and that the Court should adopt only those issues that reflect genuine disputes emerging from the pleadings. The Plaintiff further submits that the Court should avoid adopting issues that merely concern evidentiary matters or are framed in a manner that presupposes factual findings. 6.According to the Plaintiff, the principal disputes relate to the legality of the interest charged on the loan facility, compliance with the statutory and contractual requirements governing variation of interest, the applicability of the in duplum rule, the lawfulness of the auction process and the representations allegedly made after the auctions, the Defendants' obligation to account for the realization process and sale proceeds, the legality of the conversion of the charged property into sectional titles, the validity of the statutory notices following the cancellation of the auctions, and whether the 1st Defendant retained any legal interest in certain apartments allegedly sold with its consent. It contends that these issues arise directly from the pleadings and are necessary for the complete determination of the suit. 7.The Plaintiff further argues that the Defendants' proposed issues either duplicate the Plaintiff's issues, relate merely to evidentiary matters, or are framed in a manner that lacks neutrality by inviting the Court to adopt the Defendants' factual position. It therefore urges the Court to adopt the Plaintiff's proposed issues as the issues for determination at trial. The Defendants' Submissions 8.The Defendants, on the other hand, urge the Court to adopt their proposed issues, contending that they better reflect the real questions arising from the pleadings. They submit that the central controversy is whether the Plaintiff, having admittedly defaulted under the loan facility, can impeach the 1st Defendant's exercise of its statutory power of sale. They further contend that several of the Plaintiff's proposed issues unnecessarily fragment the dispute by elevating evidentiary matters into standalone issues and by revisiting matters that have either been determined previously or are subsumed within broader legal questions. 9.The Defendants maintain that issues concerning the Plaintiff's indebtedness, the cancelled auctions, the conversion of the charged property into sectional titles, and the reliefs sought should be determined within broader questions relating to the legality of the realization process and the parties' respective rights under the loan and charge instruments. They accordingly invite the Court to settle concise and neutral issues that capture the real controversy without unnecessary duplication. Analysis and Determination 10.The Court has considered the rival statements of issues filed by the parties together with their respective written submissions. As stated hereinbefore, the sole question falling for determination at this stage is not the merits of the parties' respective cases, but whether the proposed issues properly arise from the pleadings and, if so, how they ought to be framed for purposes of trial. 11.It is not a practice I would encourage as it takes up judicial time by cluttering the court with workload when it is not mandatory that there be a convergence of issues. Similarly, it cannot be not that the more the issues, the stronger the case. Courts are ordinarily called upon to identify the issues in dispute and narrow those issues so far as is possible. In arguing one issue for instance, a party may rely on several facts which need not be elevated to distinct issues. 12.In settling issues under Order 15, the Court is guided by four related considerations: first, whether the issue arises from a material proposition of fact or law pleaded by one party and traversed by the other; second, whether it reflects a genuine controversy rather than a matter properly left to evidence; third, whether it has already been subsumed within a broader issue, so as to avoid duplication and unnecessary proliferation; and fourth, whether it is framed with the neutrality required of a court settling issues for trial, rather than adopting either party's characterisation of the facts. These considerations inform the analysis that follows. 13.The settlement of issues is governed by Order 15 Rules 1 and 2 of the Civil Procedure Rules. Order 15 Rule 1 governs the framing of issues and provides that:(1)Issues arise when a material proposition of fact or law is affirmed by the one party and denied by the other.(2)Issues are of two kinds: -(a)issues of fact; and(b)issues of law.(3)Material propositions are those propositions of law or fact which a plaintiff must allege in order to show a right to sue or a defendant must allege in order to constitute a defence.(4)Each material proposition affirmed by one party and denied by the other shall form the subject of a distinct issue. 14.Order 15 Rule 2 governs the materials from which issues may be framed and provides that: -The court may frame the issues from all or any of the following materials: -(a)allegations made on oath by the parties, or by any persons present on their behalf, or made by the advocates of such parties;(b)allegations made in the pleading or in answers to interrogatories delivered in the suit;(c)the contents of documents produced by either party. 15.The purpose of settling issues is therefore to identify the real questions in controversy between the parties so as to facilitate the just, expeditious and proportionate determination of the dispute. The Court is not required to reproduce every allegation contained in the pleadings as a separate issue, nor should it frame issues that merely concern evidentiary matters or assume disputed facts. 16.The foregoing principles have long been recognized by the courts. The rationale for settling issues is intrinsically linked to the purpose of pleadings. In Gandy v Caspair Air Charters Limited [1956] 23 EACA 139, the former Court of Appeal for Eastern Africa observed:“The object of pleadings is, of course, to secure that both parties shall know what are the points in issue between them, so that each may have full information of the case he has to meet and prepare his evidence to support his own case or to meet that of his opponent. As a rule relief not founded on the pleadings will not be given.” 17.Similarly, in Galaxy Paints Co. Ltd v Falcon Guards Ltd [2000] eKLR, the Court of Appeal held that:“It is trite law, and the provisions of O.XIV of the Civil Procedure Rules, are clear that issues for determination in a suit generally flow from the pleadings……” 18.This principle was reaffirmed in Kinyanjui Kamau v George Kamau Njoroge [2015] eKLR, where the Court of Appeal, applying the earlier decision of the predecessor court in Odd Jobs v Mubia [1970] EA 476, held that a court may determine an unpleaded issue only where it appears from the course of the trial that the issue was fully canvassed by the parties and left to the court for decision. The corollary, applicable with equal force to the settlement of issues under Order 15, is that a party is bound by its pleadings and cannot ask the Court to settle, as an issue for trial, a matter that finds no anchor in the pleadings on record. It is against this backdrop that the Court has scrutinized each of the issues proposed by the parties, to satisfy itself that every issue ultimately settled is properly founded on the pleadings filed. 19.The Court has equally borne in mind the overriding objective set out in Sections 1A and 1B of the Civil Procedure Act, as well as the Court's duty under Section 3A of the Act, which require the Court to facilitate the just, expeditious, proportionate and affordable resolution of civil disputes. These objectives would not be served by an unnecessary proliferation of issues where several proposed issues are merely component parts of one broader controversy. 20.Having considered the pleadings and the parties' competing statements of issues, the Court is persuaded that both sets of proposed issues substantially overlap. Whereas the Plaintiff proposes fifteen issues and the Defendants ten, many of those issues are not distinct controversies but constituent questions that will inevitably arise in determining broader legal questions. 21.For instance, the questions relating to the contractual interest rate, alleged unlawful variation of interest, compliance with the Banking Act and the Land Act, the application of the in duplum rule, and the amount lawfully due under the loan account all relate to the broader controversy concerning the administration of the loan facility and whether the Plaintiff was lawfully indebted to the 1st Defendant at the time the statutory power of sale was exercised. Those matters are evidentiary and legal components of one principal issue and need not be framed as separate issues. 22.This approach finds support in the manner in which the in duplum rule has itself been treated by the appellate courts: not as a discrete cause of action or a stand-alone issue, but as a statutory limitation on the interest recoverable, applied once the amount lawfully due is ascertained. In Kenya Hotels Ltd v Oriental Commercial Bank Ltd (formerly The Delphis Bank Limited) [2019] eKLR, the Court of Appeal explained that, by operation of Section 44A of the Banking Act, interest on a non-performing facility ceases to accrue once it equals the outstanding principal, thereby safeguarding the chargor's equity of redemption without displacing the chargee's underlying entitlement to recover the debt. 23.The Court of Appeal reaffirmed this position in Housing Finance Company of Kenya Limited v Scholarstica Nyaguthii Muturi & another [2020] eKLR. Consistently with these authorities, whether the in duplum rule applies, and if so its effect on the sum recoverable, will be determined by the Court as an incident of the broader issue of the lawful administration of the loan facility, and not as a free-standing issue for trial. 24.Similarly, the issues concerning the validity of the statutory notices, the conduct of the auction, the alleged misrepresentations regarding the completion and cancellation of the auction, the alleged failure to account for sale proceeds, the conversion of the mother title into sectional titles, and the alleged retention of interests over certain apartments are all facets of the broader question whether the 1st Defendant lawfully exercised and implemented its statutory power of sale and subsequently dealt with the charged property in accordance with the law and the contractual instruments executed by the parties. 25.The lawfulness of the exercise of a statutory power of sale is governed by Sections 90, 96 and 97 of the Land Act, 2012, which prescribe, respectively, the statutory notice to be served on default, the notification of sale to be issued in the course of realization, and the chargee's duty of care including the duty to obtain a forced sale valuation in exercising the power of sale. Strict compliance with these provisions is a matter on which courts have consistently insisted: in Philip Musili Kyuma v Equity Bank Ltd & another [2019] eKLR, the High Court held that a chargee's failure to adhere to the statutory notice requirements under the Land Act rendered its exercise of the power of sale unlawful. 26.Where, as the Plaintiff pleads, an auction is cancelled and a fresh sale subsequently conducted, the question whether the Defendants were obliged to re-issue statutory notices, re-advertise, or account afresh for the process followed falls to be determined as part of that same broader issue, rather than as a separate controversy in respect of each cancelled or rescheduled auction. 27.Likewise, the conversion of the charged property into sectional titles under the Sectional Properties Act, 2020, and the Sectional Properties Regulations, 2021, required the consent of the 1st Defendant as chargee; whether that consent was properly given, and whether it operated to discharge or to preserve any interest of the 1st Defendant in specific apartments, is a single, composite question going to the lawfulness of the Defendants' dealings with the charged property following realization. 28.The Court also agrees with the Plaintiff that certain issues proposed by the Defendants are framed in a manner that tends to presuppose factual conclusions. Conversely, some of the Plaintiff's proposed issues unnecessarily isolate matters of evidence and subordinate legal questions into independent issues for determination. Neither approach accords with the requirements of Order 15. The issues framed by the Court must remain neutral, comprehensive and capable of disposing of the entire dispute. 29.The Court is therefore satisfied that the real controversy disclosed by the pleadings is substantially narrower than the number of issues proposed by either party. At its core, this dispute arises from a lender-borrower relationship in which the Plaintiff challenges the manner in which the 1st Defendant exercised its statutory remedies following an admitted default under the loan facility. The trial will therefore require the Court to determine whether the statutory power of sale and all consequential actions were exercised lawfully and whether, in light of those findings, the Plaintiff is entitled to the reliefs sought. 30.Accordingly, the Court finds that the interests of justice will be best served by condensing the competing issues into broad, neutral issues that comprehensively encompass every material controversy arising from the pleadings. For the guidance of the parties in preparing for trial, the Court indicates below, in respect of each issue, the matters it is intended to capture and the basis upon which it has been framed. 31.The issues for determination at the trial shall therefore be: Whether the 1st Defendant lawfully administered the loan facility in accordance with the parties' contractual obligations and the applicable law. 32.This issue subsumes the Plaintiff's pleaded complaints regarding the legality of the interest charged, compliance with the requirements governing variation of interest, compliance with the Banking Act and the Land Act, and the applicability of the in duplum rule under Section 44A of the Banking Act, as considered in Kenya Hotels Ltd v Oriental Commercial Bank Ltd [2019] eKLR and Housing Finance Company of Kenya Limited v Scholarstica Nyaguthii Muturi & another [2020] eKLR. These matters will be determined together, as components of a single question, rather than as separate issues for trial. Whether the Plaintiff was in default under the loan facility and, if so, the extent of its indebtedness to the 1st Defendant. 33.Although closely related to the first issue, this issue isolates the threshold factual question of default which the Defendants contend is largely admitted, from the legal question of whether the account was properly administered, and requires the Court to ascertain, on the evidence, the sum lawfully outstanding as at the date the statutory power of sale was exercised. Whether the 1st Defendant lawfully exercised its statutory power of sale over the charged property. 34.This issue captures the Plaintiff's challenge to the validity of the statutory and redemption notices issued under Sections 90 and 96 of the Land Act, 2012, and to the 1st Defendant's compliance with its duty of care under Section 97 of that Act, including the obtaining of a forced sale valuation, consistently with the approach taken in Philip Musili Kyuma v Equity Bank Ltd & another [2019] eKLR. Whether the auction process and the subsequent realization of the charged property were conducted lawfully. 35.This issue encompasses the Plaintiff's complaints regarding the conduct, cancellation and subsequent rescheduling of the auctions, the representations allegedly made to the Plaintiff following cancellation, and the Defendants' obligation to account for the sale proceeds under Section 15(2) of the Auctioneers Act, guided by the principles applied in Anne Wachisi Situma & another v I & M Bank Limited & 2 others [2021] eKLR. Whether the 1st Defendant lawfully converted the charged property into sectional titles and retained any legal interest in the apartments the Plaintiff alleges were sold with the 1st Defendant's consent. 36.This issue requires the Court to examine the conversion of the mother title into sectional titles under the Sectional Properties Act, 2020, the propriety of any consent given by the 1st Defendant as chargee, and whether that consent extinguished or preserved any interest of the 1st Defendant in specific apartments alleged to have been sold with its concurrence. Whether the Plaintiff is entitled to the reliefs sought in the Further Amended Plaint. 37.This issue is consequential upon the Court's findings on issues (1) to (5) above. It is framed broadly, and without pre-judging which, if any, of the specific reliefs pleaded may ultimately be granted, mindful that a party cannot be granted a relief neither pleaded nor prayed for, see Odd Jobs v Mubia [1970] EA 476. Who shall bear the costs of the suit. 38.Costs of the suit will, in the ordinary course and subject to the Court's discretion, follow the event in accordance with Section 27 of the Civil Procedure Act, but are retained as a distinct issue for final determination at the conclusion of the trial. 39.The foregoing issues, in the Court's view, adequately capture the material propositions of fact and law affirmed by one party and denied by the other and will enable the Court to finally and effectually determine all the disputes arising from the pleadings without unnecessary duplication or fragmentation of the issues. The Court nonetheless retains the residual power and discretion to amend, add or strike out issues at any time before the delivery of judgment. Disposition 40.Accordingly, for the reasons set out above, the Court makes the following orders:(a)The issues for determination at the trial are hereby settled as set out above.(b)The suit shall proceed to trial on the issues so settled, and no party shall, save with the leave of the Court, be permitted to introduce or rely upon any issue not encompassed within those settled herein.(c)The costs of this Ruling shall abide the outcome of the suit.(d)The matter shall be fixed for hearing date upon confirmation of compliance with all pre-trial directions.It is so ordered. DATED AND DELIVERED VIRTUALLY AT NAIROBI THIS 23RD DAY OF JULY, 2026.MURUNGA, JDelivered on virtual platform in the presence of:Gachanja instructed by Muema Kitilu for the PlaintiffKimani instructed by Walker Kontos for the DefendantKevin Babu - Court Assistant