[2023] KEHC 25422 (KLR)

Murage & another v Barclays Bank of Kenya Ltd & 3 others (Commercial Case 320 of 2014) [2023] KEHC 25422 (KLR) (Commercial and Tax) (20 November 2023) (Judgment)

Neutral citation: [2023] KEHC 25422 (KLR)

Republic of Kenya

In the High Court at Nairobi (Milimani Commercial Courts Commercial and Tax Division)

Commercial and Tax

Commercial Case 320 of 2014

A Mabeya, J

November 20, 2023

Between

A.G.W Murage

1st Plaintiff

Reuben Kariuki Kairu

2nd Plaintiff

and

Barclays Bank of Kenya Ltd

1st Defendant

Nyandarua General Agencies

2nd Defendant

Peter Mahugu Wairera

3rd Defendant

Land Registrar, Nyeri

4th Defendant

Judgment

1. This is a very old matter. The plaintiffs instituted this suit against the defendants through a plaint dated 10/6/1985 and amended on 10/6/1991. They sought judgment against the defendants for an injunction restraining them from transferring or otherwise disposing of L.R. No. Aguthi/Gaki/1064, that the said L.R. No. Aguthi/Gaki/1064 (“the suit property”) be transferred back to the 1st plaintiff plus general damages and costs.

2. It was the plaintiffs’ case that the 1st plaintiff was the registered owner of the suit property measuring approximately 4 acres. That in January, 1983, the 1st defendant advanced the 2nd defendant a loan of Kshs.50,000/- which was guaranteed by the 1st plaintiff with the suit property being offered as security. That it was a term of the charge and guarantee that the 1st plaintiff would be notified of any default before the security for the loan could be realized.

3. The plaintiffs contended that, on the instructions of the 1st defendant, the 2nd defendant sold the suit property to the 3rd defendant without notice to them. That the 2nd defendant was negligent in selling the suit property because the advertisement for sale was not circulated in good time, the proclamation notice was not affixed on the suit property and for failure to receive 25% of the purchase price upon the fall of the hammer. As a result of the foregoing, the plaintiffs claimed that they had suffered loss and damage.

4. In opposition to the suit, the defendants filed a statement of defence dated 29/4/1998 and an Amended defence dated 19/6/1991. It was contended that the 2nd plaintiff was advanced a loan of Kshs 50,000/- by the 1st defendant but fell into arrears. That the 1st defendant wrote to the 2nd plaintiff through its advocates demanding the outstanding sum of Kshs 36,811. 75 however the 2nd plaintiff failed to make any payment.

5. That vide a letter dated 20/6/1984, the 1st plaintiff admitted liability and stated that he would personally offset the loan in the event the 2nd plaintiff did not clear the said sum. That on the 1st defendant’s instructions, the auctioneer issued the plaintiffs with the 3months statutory notice of sale on 17/10/1984 pursuant to which the suit property was sold through an auction on 10/4/1985.

6. It was contended that the 2nd defendant circulated the sale advertisement in good time and affixed the proclamation notice on the suit property. That the 1st and 2nd defendant visited the property before the sale and the 2nd defendant received 25% of the purchase price at the fall of the hammer.

7. The 3rd defendant filed his defence on 12/4/1988 wherein he stated that he purchased the suit property in a public auction. He contended that he was a bonafide purchaser for value and by virtue of section 77(3) of the Registered Land Act the plaintiffs could not maintain any claim against him.

8. From the record, the suit was heard by Bosire J (as he then was) on 22/6/1992, 23/6/1992, 28/9/1992 and 16/11/1992. The plaintiff’s witnesses closed their case while the 1st defendant’s witness testified in chief and was stood down during cross-examination. He never returned to complete his testimony. The record shows that the matter remained in limbo from 10/2/1993 until 8/3/2010.

9. On 2/11/2011, Mwera J ordered that the proceedings be typed and the matter proceeds before any Judge. In 2014, the matter was transferred to the Environment and Land Court but was re-transferred back to the Commercial Division. After several mentions, on 30/9/2015, the 1st defendant informed the Court that it could not trace its witness and therefore applied to file an alternative witness statement. Ochieng J (as he then was) granted the leave sought. A witness statement of Eunice Mwikali Kiawa was filed on 18/1/2016.

10. On 3/6/2019, the Court was informed that the 2nd defendant had passed on and the suit against him had abated. The 1st defendant then informed the Court that its witness had travelled to Uganda and was unavailable to testify. The matter was then adjourned and on 4/11/2019, the 1st defendant closed its case without calling its witness. Kasango J then directed the parties to file their submissions. Only the 1st defendant who filed the same. Apart from the initial stages, the 3rd defendant seems not to have participated in this suit.

11. On 22/9/2021, I took over the matter and had the task of writing the judgment on the material on record.

12. During the hearing, the plaintiff called three witness. The 1st plaintiff Anthony Gregory Wamahiu testified as (Pw1). He stated that he became aware of the sale when a person who identified himself as the buyer visited the suit property.

13. That he was not notified of the sale and the suit property had been sold at an undervalue. According to him, the suit property had been valued at Kshs. 160,000/- but the bank sold it at Kshs. 55,000/- and no reserve price was fixed at the time of sale. That a recent valuation done showed the value of the property to have been Kshs. 343,000/- as at April, 1985 when the property was sold.

14. That the 3rd defendant was related to him as they belonged to the same clan and he should have therefore notified him of the intended sale. That he wanted to pay back the purchase price but the 3rd defendant demanded for more money. He was still in possession of the suit property.

15. PW2 Reuben Kariuki Kairu stated that there were irregularities in the sale of the suit property. That the clan had contributed money to repay the loan. He admitted having defaulted paying the loan. He stated that only the 3rd defendant who attended the sale. There was no one who mentioned the auction sale.

16. PW3 Josephat Shadrack Mureithi stated that he undertook valuation of the suit property on 29/5/1992 whereby he valued it at Kshs. 433,000/-. That the value of the property in 1985 would have been Kshs. 343,000/-.

17. Since the testimony of Joshua Airo Koyo who testified for the bank was abandoned and replaced with Eunice Mwikali Kiawa, his testimony does not fall for consideration. She stated that joined the bank in 2007. That the property had been offered as security. That on 28/12/1983, the bank’s advocates demanded full repayment from the 2nd plaintiff of Kshs.36,811/75. That the bank demanded from the 1st plaintiff the outstanding amount on 28/5/1984 and the advocates issued him with a statutory notice on 17/10/1984.

18. That the 2nd defendant did issue the 45day notification of sale and duly advertised the property for sale. That at the time of the sale of the property, the outstanding amount was Kshs.42,696/80.

19. I have considered, the pleadings, the oral testimony and the submissions on record. The only issue I find for determination is whether the suit property was validly sold. The complaint by the 1st plaintiff was that he was not notified of the intended sale and the sale itself. That the sale was at an undervalue.

20. On its part, the 1st defendant stated that there was default, it duly demanded for the amounts due, advertised the intended sale of the suit property and had the hand bills of the sale of the property distributed in Nyeri town before the subject sale took place.21. Section 74 of the Registered Land Act (RLA) Cap 300 (now repealed) provided at subsections (1) and (2) as follows: -“74(1)If default is made in payment of the principal sum or of any interest or any other periodical payment or of any part thereof, or in the performance or observance of any agreement expressed or implied in any charge, and continues for one month, the chargee may serve on the chargor notice in writing to pay the money owing or to perform and observe the agreement as the case may be.(2)If the chargor does not comply, within three months of the date of service, with a notice served on him under sub section (1) the chargee may -:(a)…(b)sell the charged property.”

22. There was no dispute that there was default. The contest was in the manner in which the suit property was sold. On one hand they challenged the receipt of the notices and on the other hand it was pleaded that the property was sold at an undervalue.

23. With respect to service of the notices, the Court of appeal held in Stephen Boro Gitiha v Nicholas Ruthiru Gatoto & 2 others [2017] eKLR that: -“The case at hand is on all fours with that decision in (Ochieng and Another vs Ochieng and Others, Civil Appeal No. 148 of 1995 EALR (supra)) and the conclusions the learned Judge arrived at were therefore correct in law. Section 74(1) of the RLA was designed to offer protection to chargors by protecting them from situations where their property would be disposed of without the requisite notice. It was a right conferred by statute and the courts could not lightly treat or minimize any breach of the said right. Auction sales not preceded by the requisite statutory notice were not mere irregularities. They were unlawful, null and void, and incapable of passing effective and proper title to the purchasers, as illegality cannot engender legal title. The learned Judge was right to find and hold that innocence of Gitahi’s purchase was not curative of the fundamental defect in the title due to the absence of the requisite notice.”

24. The same Court had Nyangilo Ochieng & Another – And – Fanuel B. Ochieng Civil Appeal No. 148 OF 1995 held that: -“It is trite that before a chargee can exercise his/her/ its statutory power of sale there must be compliance with section 74 (1) of the Registered Land Act (Cap 300, Laws of Kenya) This section obliges the chargee to serve, by registered post, the relevant statutory notice…..it is for the chargee to make sure that there is compliance with the requirements of section 74 (1) ……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.”

25. The same position was adopted in Simiyu vs. Housing Finance Company of Kenta [2001] 2 E.A. 540 at 548, wherein Ringera J held: -“The above understanding of pertinent provisions of the RLA and the Auctioneers Rules leads me to the conclusion that the service of both an adequate statutory notice and a notification of sale are necessary conditions precedent for the valid exercise of the statutory power of sale under RLA. Without compliance with those statutory commands, there can be no valid exercise of the power of sale and accordingly it cannot be said that the chargor's equity of redemption is extinguished in any sale conducted in breach thereof. Neither can it be properly contended that the chargor's remedy, if any such sale has taken place, is in damages as provided in section 77 (3) of the Act. Without compliance with those conditions precedent, the purported sale would be void and liable to be nullified at the instance of the chargor. Taking that view of the matter, I find that the Plaintiff has shown a prima facie case with a probability of success at the trial, that the sale of her property may be declared illegal, null and void as she craves."

26. In view of the foregoing dictums, once the service of the notices was challenged, the burden of proof was on the 1st and 2nd defendants to demonstrate that, there were statutory notices that were correctly issued and served. My understanding of the law is that, a valid statutory notice must specifically state that if the default continues after 90days of service of such notice, the property shall be sold. A sorter notice won’t do even if default continues for-ever!

27. In the present case, firstly, the 1st and 2nd defendant did not offer any evidence to challenge that of the plaintiffs that no statutory notice had been served. Service of the statutory notice was a pre-condition to the exercise of the statutory power of sale.

28. In the premises, failure of the 1st defendant to exhibit any documentary evidence such as certificate of posting or any documentary evidence to show that the statutory notice and notification of sale was served upon the 1st plaintiff means that the defendants have not discharged the burden of proof.

29. In line with the case Stephen Boro Gitiha v Nicholas Ruthiru Gatoto & 2 others (supra) failure to serve the documents is a violation of section 74 of the RLA(repealed) which in turn meant that the subsequent sale was unlawful null and void.

30. The second challenge was that the auction was irregular. Although it was admitted that there was some advertisement in the Kenya Times Newspaper, there was no evidence that the 45day notice was ever served. The 1st plaintiff also indicated that there was no auction per ce as only the 3rd defendant who attended the sale. That cannot be said to be an auction. That assertion was neither challenged nor denied.

31. The question is, was there a public auction in which the sale took place? Can it be said that the sale went to the highest bidder and therefore extinguished the plaintiffs’ equity of redemption. The Court entertains doubts.

32. Black’s Law Dictionary, 10th Edn, at page 155 defines an auction as follows: -“A public sale of property to the highest bidder; a sale by consecutive bidding, intended to reach the highest price of the article through competition for it ...”

33. From the evidence of the auctioneer, there was only one bidder whose bid was accepted. The said bidder only competed with himself. Can it be said that there was successive bidding with a view to reach the highest price in the circumstances? I entertain doubt.

34. In the premises, the court finds that there was no public auction by which the 3rd defendant could be said to be an innocent purchaser for value. The said was void in view of the violation of statute.

35. There was also the issue of the under value of the property. The forced sale value in 1982 was Kshs. 80,000/= on the basis of which the loan was advanced. Come the sale, the suit property was allegedly sold for a parlty sum of Kshs. 55000/=. That was an undervalue. The 4th defendant did not produce any evidence to show that it valued the property before the sale.

36. I find that the plaintiffs’ suit has been proved to the required standard and I allow the same as follows: -a.The purported sale of the suit property L.R. No. Aguthi/Gaki/1064 is hereby declared null and void.b.The suit property be re-transferred back to the 1st plaintiff.c.The plaintiffs to pay off to the 1st defendant the outstanding amount, which stood at Kshs.40,899/85 together with interest thereon at 14% pa from 29/9/1984 until payment in full, subject however, to the doctrine and principle of the in duplum rule.d.Due to the fact that the plaintiffs were in default and the circumstances of the case, I will make no order as to costs.

It is so decreed.

DATED AND DELIVERED AT NAIROBI THIS 20TH DAY OF NOVEMBER, 2023. A. MABEYA, FCI ArbJUDGE